-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg5FU96exMTmtY7Un++f08fbqqx5s3dyS3kzOqtTN6KXgbfwu82e7iUrQJj2B5n9 b6TJVYMACFEKQsnT7H/oBg== 0000903423-02-000464.txt : 20020719 0000903423-02-000464.hdr.sgml : 20020719 20020719145501 ACCESSION NUMBER: 0000903423-02-000464 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 25 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020719 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COVANTA ENERGY CORP CENTRAL INDEX KEY: 0000073902 STANDARD INDUSTRIAL CLASSIFICATION: COGENERATION SERVICES & SMALL POWER PRODUCERS [4991] IRS NUMBER: 135549268 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-03122 FILM NUMBER: 02706528 BUSINESS ADDRESS: STREET 1: 40 LANE ROAD CITY: FAIRFIELD STATE: NJ ZIP: 07004 BUSINESS PHONE: 2128686100 MAIL ADDRESS: STREET 1: 40 LANE ROAD CITY: FAIRFIELD STATE: NJ ZIP: 07004 FORMER COMPANY: FORMER CONFORMED NAME: OGDEN CORP DATE OF NAME CHANGE: 19920703 10-K 1 covanta10k_7-18.txt FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _____________ TO ____________ COMMISSION FILE NUMBER: 1-3122 COVANTA ENERGY CORPORATION (formerly named Ogden Corporation) (Exact name of registrant as specified in its charter) DELAWARE 13-5549268 -------- ---------- (State or Other Jurisdiction (I.R.S. Employee of Incorporation or Organization) Identification No.) 40 Lane Road, Fairfield, N.J. 07004 ----------------------------- ----- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number including area code - (973) 882-9000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of each class Which Registered ------------------- ------------------------ None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.50 per share $1.875 Cumulative Convertible Preferred Stock (Series A) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendments to this Form 10-K. [X] The aggregate market value of registrant's voting stock and preferred stock held by non-affiliates of the registrant as of June 10, 2002, based on the closing price of such stock on the National Quotation Bureau's Pink Sheets was as follows: Common Stock, par value $.50 per share $ 797,252.52 $1.875 Cumulative Convertible Preferred Stock (Series A) $ 11,567.15 The number of shares of the registrant's Common Stock outstanding as of June 10, 2002 was 49,828,284 shares. The number of shares of the registrant's $1.875 Cumulative Convertible Preferred Stock (Series A) outstanding as of June 10, 2002 was 33,049 shares. PART I ITEM 1. BUSINESS Covanta Energy Corporation (hereinafter, together with its consolidated subsidiaries, referred to as "Covanta" or the "Company") develops, owns and operates energy generating facilities and water and wastewater facilities in the United States and abroad. Covanta Energy Corporation is the new name of Ogden Corporation effective as of March 13, 2001. The Company was incorporated in Delaware as a public utilities holding company on August 4, 1939. In 1948, the Company registered with the Securities and Exchange Commission (the "SEC") as a closed-end investment company. Following several acquisitions, the Company no longer qualified as an investment company and from 1953 until 1999 operated as a diversified holding company operating through subsidiaries. In May 1966, Ogden was listed on the New York Stock Exchange. Prior to September 1999, the Company conducted its business through operating groups within each of three principal business units, Energy, Entertainment and Aviation. In September 1999, the Company adopted a plan to discontinue its Entertainment and Aviation operations, to pursue the sale or other disposition of these businesses, to pay down corporate debt and to concentrate on its businesses previously being conducted through its Ogden Energy Group, Inc. subsidiary. Since September 1999, the Company implemented its plan to sell discontinued businesses. That process was largely completed in 2000 and 2001. As of June 10, 2002, the principal Entertainment and Aviation assets that remain unsold are: (1) the businesses associated with the Arrowhead Pond Arena in Anaheim, California, and with the Corel Centre in Ottawa, Canada and the Ottawa Senators hockey team; (2) the Company's assets in Argentina related to a casino and an exhibition center; the casino assets are under contract for sale; and (3) the remaining unsold portion of the aviation fueling business, which services airports operated by the Port Authority of New York and New Jersey. CHAPTER 11 REORGANIZATION As previously reported, on April 1, 2002, Covanta Energy Corporation and 123 of its domestic subsidiaries, filed voluntary petitions for reorganization under Chapter 11 of the United States Code ("Chapter 11") in the United States Bankruptcy Court for the Southern District of New York. The pending Chapter 11 Cases are being jointly administered for procedural purposes only. International operations and certain other subsidiaries were not included in the filing. Prior to September 1999, the Company had incurred very substantial obligations to financial institutions for letters of credit largely relating to the Corel Center arena in Ottawa, Canada and the Anaheim Pond arena in Anaheim, California. To provide for continued compliance with the covenants related to these obligations and the Company's other financial obligations, the Company, in March 2001, entered into a Master Credit Facility with its banks in which, among other things, it agreed to maintain stated liquidity levels and to discharge or provide for its obligations with its banks by May 31, 2002. In addition, the Company had outstanding approximately $148 million of convertible subordinated debentures which had been issued in connection with non-energy operations and which matured in 2002. At the time the Master Credit Facility was executed, the Company believed that it would be able to meet the liquidity covenants in the Master Credit Facility, timely discharge its obligations on maturity of the Master Credit Facility and repay or refinance its convertible subordinated debentures from cash generated by operations, the proceeds from the sale of its non-core businesses and access to the capital markets. However, a number of factors in 2001 and 2002 affected these plans, including: (1) The sale of non-core assets took longer and yielded substantially less proceeds than anticipated; (2) The power crisis in California substantially reduced the Company's liquidity in 2001 as a result of California utilities' failures to pay for power purchased from the Company; and (3) A general economic downturn during 2001 and a tightening of credit and capital markets, particularly for energy companies which was substantially exacerbated by the bankruptcy of Enron Corporation. (See GENERAL BUSINESS CONDITIONS under MARKETS, COMPETITION AND GENERAL BUSINESS CONDITIONS) As a result of a combination of these factors in 2001 and early 2002, the Company was forced to obtain seven amendments of the Master Credit Facility. Also, because of the California energy crisis, analyses raising doubt about the financial viability of the independent power industry, the Enron crisis, the decline in financial markets as a result of the events of September 11, 2001 and the drop in the demand for securities of independent power companies, the Company was unable to access capital markets. In 2001, the Company began a wide-ranging review of strategic alternatives given the very substantial maturities in 2002, which far exceed the Company's cash resources. In this connection, throughout the last six months of 2001 and the first quarter of 2002, the Company sought potential minority equity investors, conducted a broad-based solicitation for indications of interest in acquiring the Company among potential strategic and financial buyers and investigated a combined private and public placement of equity securities. On December 21, 2001, in connection with a further amendment to the Master Credit Facility, the Company issued a press release stating its need for further covenant waivers and for access to short term liquidity. Following this release, the Company's debt rating by Moody's Investor Services, Inc. ("Moody's") and Standard & Poor's Rating Services ("Standard & Poor's") was reduced below investment grade on December 27, 2001 and January 16, 2002, respectively. These downgrades further adversely impacted the Company's access to capital markets and triggered the Company's commitments to provide $100 million in additional letters of credit in connection with two waste-to-energy projects. Despite the Company's wide-range search for alternatives, ultimately the Company was unable to identify any option which satisfied its obligations outside the Chapter 11 process. On March 1, 2002, the Company availed itself of the 30-day grace period provided under the terms of its 9.25% debentures due March 2022, and did not make the interest payment, due March 1, 2002, at that time. On April 1, 2002 the Company publicly announced that as a result of the review the Company: (1) Determined that reorganization under Chapter 11 represents the only viable venue to reorganize the Company's capital structure, complete the disposition of its remaining non-core entertainment and aviation assets, and protect the value of the energy and water franchise; (2) Entered into a non-binding Letter of Intent with the investment firm of Kohlberg Kravis Roberts & Co. ("KKR") for a $225 million equity investment under which a KKR affiliate would acquire the Company upon emergence from Chapter 11; and (3) Announced a strategic restructuring program to focus on the U.S. energy and water markets, expedite the disposition of non-core assets and, as a result, reduce overhead costs. On April 1, 2002, Covanta Energy Corporation and 123 of its subsidiaries, each a debtor in possession (the "Debtors"), filed for protection under Chapter 11. The Company seeks to maximize recoveries for its creditors. The rights of Covanta's creditors will be determined as part of the Chapter 11 process. Existing common equity and preferred shareholders are not expected to participate in the new capital structure or realize any value. The Company has obtained debtor-in-possession loan financing of approximately $289 million which it believes, when taken together with the Company's own funds, provide it sufficient liquidity to continue to operate its core businesses during the Chapter 11 proceeding. Protections according to the Company under Chapter 11 are expected to assist the Company in maintaining the Company's business intact pending the reorganization; however, the outcome of the Chapter 11 proceedings are not entirely within the Company's control and no assurances can be made with respect to the outcome of these efforts. (See Part II, MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS) On the same day, April 1, 2002, the New York Stock Exchange, Inc. suspended trading of the Company's common stock and $1.875 cumulative convertible preferred stock and began processing an application to the SEC to delist the Company from the New York Stock Exchange. The SEC by Order dated May 16, 2002 granted the application of the New York Stock Exchange, Inc. for removal of the Common Stock and $1.875 Cumulative Convertible Preferred Stock of Covanta Energy Corporation from listing and registration on the Exchange under the Securities Exchange Act of 1934. The removal from listing and registration on the Exchange of the above issues of the Company became effective at the opening of the trading session of May 17, 2002 pursuant to the Order of the Commission. Subject to the foregoing, the following describes the Company's business currently being conducted during the Chapter 11 proceedings. CORE BUSINESS Since the early 1980s, the Company has engaged in developing, and in some cases owning, energy-generating projects fueled by municipal solid waste, and providing long-term services from these projects to communities. The Company owns or operates more large-scale (greater than 500 tons per day of processing capacity) waste-to-energy facilities on a full-service basis (where design, construction and operation services are provided) than any other vendor in the world. In addition, since 1989, the Company has been engaged in developing, owning and/or operating independent power production projects utilizing a variety of fuels. The Company's involvement in the operation of water and wastewater facilities began in 1994. The Company generally owns and operates projects in which its returns are derived from equity distributions and/or operating fees. The Company's projects sell the electrical power services they generate, or the waste or water-related services they provide, under long-term contracts or market concessions to utilities, governmental agencies providing power distribution, creditworthy industrial users, or local governmental units. In selected cases, such services may be provided under short-term arrangements as well. Similarly, for water and wastewater-related services, the Company seeks to operate under long-term contracts with governmental units. The Company presently has interests in power projects with an aggregate generating capacity of approximately 2441 MW (gross) either operating or under construction in the United States, Central and South America, Europe and Asia. The Company has an operating, and in some cases a design and construction role, in water and wastewater projects with an aggregate processing capacity of approximately 90 million gallons per day, all of which projects are in the United States. In addition to its headquarters in Fairfield, New Jersey, the Company's business is facilitated through its Fairfax, Virginia office, with field offices in Manila, The Philippines; Bangkok, Thailand; Shanghai, China; and Chennai, India. (a) APPROACH TO PROJECTS. (i) General Approach to Power Projects. The Company conducts its power operations through wholly-owned subsidiaries. The Company develops, operates and/or invests in non-utility energy generation projects in the United States and abroad which sell their output to utilities, electricity distribution companies or industrial consumers. The Company's operating power projects utilize a variety of energy sources: water (hydroelectric), natural gas, coal, geothermal energy, municipal solid waste, wood waste, landfill gas, heavy fuel oil and diesel fuel. Within the commercial parameters of each power project, the Company attempts to sell electricity under long-term power sales contracts, and to structure the revenue provisions of such power sales contracts in such a way that the revenue components of such contracts correspond to the projects' cost structure (including changes therein due to inflation and currency fluctuations) of building, financing, operating and maintaining the projects. The Company sells all its generated electricity and steam pursuant to contracts and does not sell any material amount of energy on the open or spot markets. On many of its power projects, the Company performs operation and maintenance services on behalf of the project owner. Although all operation and maintenance contracts are different, the Company typically performs these services on a cost-plus-fixed-fee basis, with a bonus and limited penalty payment mechanism related to specified benchmarks of plant performance. Covanta generally financed its projects using equity or capital commitments provided by it and other investors, combined with limited recourse debt for which the lender's source of payment is project revenues and which is collateralized by project assets. Consequently, the ability of the Company's project subsidiaries to declare and pay cash dividends to the Company is subject to certain limitations in the project loan and other documents. In some project situations, Covanta or one of its intermediate holding companies has provided limited support such as operating guarantees, financial guarantees of bridge loans or other interim debt arrangements. (ii) Structural Issues on Waste-to-Energy Projects. In addition to generating electricity or steam, the Company's waste-to-energy power projects provide waste disposal services to municipal clients. Generally, the Company provides these services pursuant to long-term service contracts ("Service Agreements") with local governmental units sponsoring the project ("Client Communities"). One of the Company's waste-to-energy facilities does not have a sponsoring Client Community. Electricity, and in some cases steam, is sold pursuant to long-term power purchase agreements with local utilities or industrial customers. Each Service Agreement is different in order to reflect the specific needs and concerns of the Client Community, applicable regulatory requirements and other factors. The following description sets forth terms that are generally common to these agreements: - The Company designs the facility, helps to arrange for financing and then constructs and equips the facility on a fixed price and schedule basis. - The Company operates the facility and generally guarantees it will meet minimum waste processing capacity and efficiency standards, energy production levels and environmental standards. The Company's failure to meet these guarantees or to otherwise observe the material terms of the Service Agreement (unless caused by the Client Community or by events beyond its control ("Unforeseen Circumstances")) may result in liquidated damages being charged to the Company or, if the breach is substantial, continuing and unremedied, the termination of the Service Agreement. In the case of such Service Agreement termination, the Company may be obligated to discharge project indebtedness. - The Client Community is generally required to deliver minimum quantities of municipal solid waste to the facility and is obligated to pay a service fee for its disposal, regardless of whether or not that quantity of waste is delivered to the facility (the "Service Fee"). The Service Fee escalates to reflect indices of inflation. In many cases the Client Community must also pay for other costs, such as insurance, taxes and transportation and disposal of the residue to the disposal site. If the facility is owned by the Company, the Client Community also pays as part of the Service Fee an amount equal to the debt service due to be paid on the bonds issued to finance the facility. Generally, expenses resulting from the delivery of unacceptable and hazardous waste on the site are also borne by the Client Community. In addition, the contracts generally require that the Client Community pay increased expenses and capital costs resulting from Unforeseen Circumstances, subject to limits which may be specified in the Service Agreement. - The Client Community usually retains a portion of the energy revenues (generally 90%) generated by the facility, with the balance paid to the Company. Financing for the Company's domestic projects is generally accomplished through the issuance of tax-exempt and taxable revenue bonds issued by or on behalf of the Client Community. If the facility is owned by a Company subsidiary, the Client Community loans the bond proceeds to the subsidiary to pay for facility construction and pays to the subsidiary amounts necessary to pay debt service. For such facilities, project-related debt is included as a liability in Covanta's consolidated financial statements. Generally, such debt is secured by the revenues pledged under the respective indentures and is collateralized by the assets of the Company's subsidiary and otherwise provides no recourse to Covanta, subject to construction and operating performance guarantees and commitments. (iii) Other Project Structures. The Company owns one waste-to-energy facility that is not operated pursuant to a Service Agreement with a Client Community, and may consider additional such projects in the future. In such projects, the Company generally assumes the project debt and risks relating to waste availability and pricing, risks relating to the continued performance of the electricity purchaser, as well as risks associated with Unforeseen Circumstances. In these projects, the Company generally retains all of the energy revenues from sales of power to utilities or industrial power users and disposal fees for waste accepted at these facilities. Accordingly, the Company believes that such projects carry both greater risks and greater potential rewards than projects in which there is a Client Community. In addition, the Company has restructured several of its waste-to-energy projects which originally were undertaken on the basis described in (ii) above. These are briefly described below: - Union County, New Jersey. In Union County, New Jersey, a municipally-owned facility has been leased to the Company, and the Client Community has agreed to deliver approximately 50% of the facility's capacity on a put-or-pay basis. A put-or-pay commitment means that the counterparty promises to deliver a stated quantity of waste and pay an agreed amount for its disposal. This payment is due even if the counterparty delivers less than the full amount of waste promised. The balance of facility capacity is marketed by the Company, at its risk. The Company guarantees its subsidiary's contractual obligations to operate and maintain the facility, and on one series of subordinated bonds, its obligation to make lease payments which are the sole source for payment of principal and interest on that series of bonds. The current outstanding principal amount of these bonds, sold to refinance a portion of the original bonds used to finance the facility, is $19,500,000. In connection with this restructuring, the Client Community assigned to the Company the long-term power contract with the local utility. As part of this assignment, the power contract was amended to give the Company the right to sell all or a portion of the plant's output to other purchasers. The Company elected to sell all of the project's power to Sempra Energy Trading Corporation under a three-year arrangement which on April 1, 2002 Sempra sought to terminate as a result of the Chapter 11 filing described above. The matter remains in dispute. Since April 2002, the Company has sold its output directly into the local electricity grid, with no material loss of revenue. The Company may enter into contracts similar to the Sempra contract, if it believes doing so would enhance project revenues. - Tulsa, Oklahoma. In Tulsa, Oklahoma, the Client Community paid a fee to terminate its Service Agreement. At the same time, the parties entered into a new arrangement pursuant to which the Company was required to fund the cost of the facility's Clean Air Act retrofit; the Client Community committed to deliver waste on a put-or-pay basis, for a fee per ton; and the parties agreed to sharing of certain excess revenues from facility operations. In addition, the Company no longer has the right to require an adjustment to fees to cover the costs of Unforeseen Circumstances, but may terminate the contract if the Client Community declines to accept such increases. Under the new contract, the Client Community has accepted the obligation to repay bonds issued to finance the facility, including prepayment as a result of termination of the Service Agreement, regardless of the reasons for the termination. - Warren County, New Jersey. In Warren County, New Jersey, the Company has offered to market the facility's capacity, at its risk, in a restructuring plan that includes State assistance with debt retirement. The Warren County restructuring is subject to several conditions precedent, some of which are beyond the control of the Company, notably the securing of State funds. The bonds issued to finance the facility are secured only by the facility and related assets such as contracts with the utility that buys the power generated by the facility and with the municipal authority that has contracted for the disposal capacity of the facility. The bonds are non-recourse to the Company. Because changes of law have reduced the ability of New Jersey municipalities to direct waste to designated facilities, this facility has not been able to attract waste at prices sufficient to permit the payment in full of its debt service. In connection with the restructuring of the Warren project, Warren County, other New Jersey counties which previously contracted to use the Warren project and the State of New Jersey are discussing a restructuring of the project which would substantially reduce project debt service. On January 8, 2002, legislation on solid waste was enacted in the State of New Jersey that authorizes the New Jersey Economic Development Agency to refinance portions of County solid waste facility debt (L. 2001, Ch. 401). This legislation allows the State of New Jersey to assume the obligation to repay the majority of debt remaining on the Warren project. The Company believes that the counties and the Company will be able to reach accommodation on the balance of the Warren project debt, which will permit the Company to operate the facility on a profitable basis. In any event, the State has indicated that it will prevent a bond default from occurring and, to date, has provided funds to pay principal and interest payments as they became due. If such a restructuring is not achieved, or if the State fails to continue to pay project debt service in the interim and the project defaulted on its debt, bond insurers (on behalf of bondholders) holding a mortgage on the project could foreclose and take title to it. - Lake County, Florida. In Lake County, Florida, the Client Community has indicated its intention to reduce or terminate its continuing payment obligations with respect to the facility, and has expressed its desire to restructure its relationship with the Company subsidiary to substantially reduce its payment obligation or to institute condemnation proceedings to purchase the facility from the Company. In late 2000, discussions regarding a mutually acceptable resolution of these matters ended and the County commenced a court action seeking to have the Service Agreement declared void on various constitutional and public policy grounds. The County also seeks unspecified damages for amounts paid to the Company since 1988. The case is at a very preliminary stage, and is now stayed by the bankruptcy proceeding described in Note 1 to the accompanying consolidated financial statements. - Onondaga County, New York. In Onondaga County, New York, the Client Community and the Company have several commercial disputes between them. Among these is a demand by the Client Community to provide certain credit support following rating downgrades of Covanta's corporate debt. In February 2002 the Client Community issued a notice purporting to terminate its contract with the Company. The Company believes such notice was improper and has commenced a lawsuit in state court with respect to such disputes, as well as the Client Community's right to terminate. This matter has been removed to federal court and is now stayed by the bankruptcy proceeding described in Note 1 to the accompanying consolidated financial statements. (iv) Waste-To-Energy Technology. The Company has the exclusive right to market in the United States the proprietary mass-burn technology of Martin GmbH fur Umwelt und Energietechnik ("Martin"). All of the waste-to-energy projects that the Company has constructed use the Martin technology, although the Company does operate some projects using other technologies. The principal feature of the Martin technology is the reverse-reciprocating stoker grate upon which the waste is burned. The patent for the basic stoker grate technology used in the Martin technology expired in 1989, and there are various other expired and unexpired patents relating to the Martin technology. The Company believes that it is Martin's know-how and worldwide reputation in the waste-to-energy field, and the Company's know-how in designing, constructing and operating waste-to-energy facilities, rather than the use of patented technology, that is important to the Company's competitive position in the waste-to-energy industry in the United States. The Company does not believe that the expiration of the patent covering the basic stoker grate technology or patents on other portions of the Martin technology will have a material adverse effect on the Company's financial condition or competitive position. The Company believes that mass-burn technology is now the predominant technology used for the combustion of solid waste. The Company believes that the Martin technology is a proven and reliable mass-burn technology, and that its association with Martin has created significant name recognition and value for the Company's domestic waste-to-energy business. The Company's efforts internationally have not been technology-specific. The Company's rights to the Martin technology are provided pursuant to an agreement between Martin and a Company affiliate (the "Cooperation Agreement"). The Cooperation Agreement gives the Company exclusive rights to market the Martin technology in the United States, Canada, Mexico, Bermuda, certain Caribbean countries, most of Central and South America and Israel. Martin is obligated to assist the Company in installing, operating and maintaining facilities incorporating the Martin technology. The 15-year term of the Cooperation Agreement renews automatically each year unless notice of termination is given, in which case the Cooperation Agreement would terminate 15 years after such notice. Additionally, the Cooperation Agreement may be terminated by either party if the other fails to remedy its material default within 90 days of notice. The Cooperation Agreement is also terminable by Martin if there is a change of control (as defined in the Cooperation Agreement). Termination would not affect the rights of the Company to design, construct, operate, maintain or repair waste-to-energy facilities for which contracts have been entered into or proposals made prior to the date of termination. (v) General Approach to Water and Wastewater Projects. The Company's water and wastewater operations are conducted through wholly-owned subsidiaries. The Company's mission is to design, construct, maintain, operate and, in some cases, own water and wastewater treatment facilities and distribution and collection networks in the United States. The Company participates in projects in which, under contracts with municipalities, it privatizes water and/or wastewater facilities, agrees to build new or substantially augment existing facilities and agrees to operate and maintain the facilities under long-term contracts. Under contractual arrangements, the Company may be required to warrant certain levels of performance and may be subject to financial penalties or termination if it fails to meet these warranties. The Company may be required to guarantee the performance of its subsidiary. The Company seeks to not take responsibility for conditions that are beyond its control. During 1999, the Company purchased a controlling interest in DSS Environmental, Inc., which owns the patent for the DualSandTM filtration technology. The Company believes that this technology offers superior performance at a competitive cost, and that it will have wide application for both water and wastewater projects. During 2001, Covanta was awarded several small projects in upstate New York for the supply of DualSandTM systems to municipalities and other entities that are improving existing systems. The Company believes that its ability to offer the DualSandTM system, and the system's scalability, will greatly enhance its competitiveness elsewhere in North America where larger water and wastewater systems are required. (b) FACILITIES UNDER CONSTRUCTION. - Trezzo, Italy. During 2000, the Company acquired a 13% equity interest in a 15 MW mass-burn waste-to-energy project near the City of Trezzo sull' Adda in the Lombardy Region of Italy (the "Trezzo Project"). The remainder of the equity in the project is held by TTR Tecno Trattamento Rifiuti s.r.l., a subsidiary of Falck S.p.a. ("Falck"). The Trezzo Project will be operated by Ambiente 2000 s.r.l. ("A2000"), an Italian special purpose limited liability company of which the Company owns 40%. The solid waste supply for the project will come from municipalities under long-term contracts and is guaranteed by Falck. The electrical output from the Trezzo Project will be sold at governmentally established preferential rates under a long-term purchase contract to Italy's state-owned utility company, Ente Nazionale de Elettricita S.p.a. The project closed its limited recourse financing in February 2001, and commercial operation is expected during the third quarter of 2002. - San Vittore, Italy. In January 2001, A2000 also entered into a 15-year Operations and Maintenance Agreement with E.A.L.L Energia Ambiente Litorale Laziale s.r.l., an Italian limited liability company owned by CMI S.p.a. to operate and maintain a 15 MW waste-to-energy facility capable of processing up to 300 metric tons per day of refuse-derived fuel in the Municipality of San Vittore del Lazio (Frosinone), Italy. CMI S.p.a. is a holding company controlled by Falck. Limited recourse project financing is in place. The San Vittore project has a 15-year waste supply agreement with Reclas S.p.a. (mostly owned by regional municipalities), and a long-term power offtake contract with ENEL, the state-owned electricity provider. Construction of the San Vittore project began in July 1999, and is nearly complete. Lurgi, a major German construction company, is constructing the project and will operate it during the first year after completion. Commercial operation is expected during the third quarter of 2002. A2000 will operate and maintain the project beginning in its second year of operation. - Tampa Bay, Florida. During 2001, the Company designed and began construction of a 28 million gallons per day ("mgd") potable water desalinization project to be constructed on behalf of Tampa Bay Water, a public authority serving the Tampa Bay, Florida area. The project will utilize a reverse osmosis process and incorporate DualSandTM technology. The Company will operate and maintain the project on behalf of Tampa Bay Water pursuant to a 30-year contract. (c) OPERATING FACILITIES. - Geothermal. The Company has interests in two geothermal facilities in Southern California, the Heber and SIGC facilities, with a combined gross generating capacity of 100 MW. The Company is the sole lessee of the SIGC project and is the sole owner of the Heber project. The Company operates these facilities. The Company also owns a geothermal resource, which is adjacent to and supplies fluid to both geothermal facilities. The electricity from both projects is sold under long-term contracts with Southern California Edison Company. The Company also owns a 50% partnership interest in Mammoth-Pacific, L.P., which owns three geothermal facilities with a gross capacity of 40 MW, located on the eastern slopes of the Sierra Nevada Mountains at Casa Diablo Hot Springs, California. The facilities have contractual rights to the geothermal brine resource for a term not less than the term of the power contracts. All three facilities sell electricity to Southern California Edison under long-term contracts. - Hydroelectric. The Company owns 50% equity interests in two run-of-river hydroelectric facilities which generate a total of 17 MW: Koma Kulshan and Weeks Falls. Both Koma Kulshan and Weeks Falls are located in Washington State, and both sell electricity to Puget Sound Power & Light Company under long-term contracts. The New Martinsville facility located in West Virginia is a 40 MW run-of-river project operated through a subsidiary. The Company is the lessee. The output is sold to Monongahela Power Company under a long-term contract. The Company operates the Don Pedro project and the Rio Volcan facilities in Costa Rica, pursuant to long-term contracts, through an operating subsidiary. The Company also has a nominal equity investment in each project. The electric output from both of these facilities is sold to Instituto Costarricense de Electricidad, a Costa Rica national electric utility. Through its investment in Empresa Valle Hermoso (see discussion below under "Natural Gas") the Company also has a small (less than 7%) ownership interest in a hydroelectric project in Rio Yura, Bolivia. In June 2001, an expansion and refurbishment of the existing Rio Yura facilities was completed increasing the previously reported 12 MW output to 18 MW. The Rio Yura project continues to sell its output to mining companies, local residents and the national grid. - Municipal Solid Waste. The Company's interests in projects fueled with municipal solid waste are described generally in (a) (ii) and (iii) above. - Waste Wood. The Company owns 100% interests in three waste wood fired electric power plants in California: Burney Mountain Power, Mount Lassen Power and Pacific Oroville Power. A fourth, Pacific Ultrapower Chinese Station, is owned by a partnership in which the Company holds a 50% interest. Generally, fuel supply is procured from local sources through a variety of short-term waste wood supply agreements. The four projects have a capacity of 67.1 MW. All four projects sell electricity to Pacific Gas & Electric Company Corp. under long-term contracts. - Landfill Gas. The Company owns and operates eight landfill gas projects which produce electricity by burning methane gas produced by the anaerobic digestion of the solid waste contained in sanitary landfills. Seven of the projects are located in California, and one is located in Maryland. The eight projects have a capacity of 36.1 MW. Seven facilities sell electricity generated to local utilities, under contracts having varying lengths, the longest expiring in 2011. The project located in Maryland sells the electricity generated to Sempra Energy Trading Corporation under a contract that expires in late 2002. - Coal. A consortium, of which the Company is a 26% member, has a 510 MW (gross) coal-fired electric generating facility in the Republic of The Philippines (the "Quezon Project"). The project first generated electricity in October 1999, and full commercial operation occurred during the fourth quarter of 2000. The other members of the consortium are an affiliate of International Generating Company, an affiliate of General Electric Capital Corporation, and PMR Limited Co., a Philippines partnership. The consortium sells electricity to Manila Electric Company ("Meralco"), the largest electric distribution company in the Philippines, which serves the area surrounding and including metropolitan Manila. Under a long-term agreement, Meralco is obligated to take or pay for stated minimum annual quantities of electricity produced by the facility. The consortium has entered into contracts for the supply of coal at stated prices for a portion of the term of the power purchase agreement. The Company is operating the project under a long-term agreement with the consortium. The Company has majority equity interests in three coal-fired cogeneration facilities in three different provinces in the People's Republic of China. Two of these projects are operated by an affiliate of the minority equity stakeholder in the respective projects. Parties holding minority positions in the projects include a private company, a local government enterprise and, in the other case, affiliates of the local municipal government. The third project is operated by a subsidiary of the Company. The steam produced at each of the three projects is sold under long-term contracts to the industrial hosts but the electric power is sold at "average grid rate" to a subsidiary of the Provincial Power Bureau as well as industrial customers. The Company previously reported ownership of four coal-fired cogeneration facilities in the People's Republic of China. Due to changes in the power market in the People's Republic of China, the Taixing Madian facility located in Jiangsu Province was seriously affected. Given the age of the plant, the low steam load, minimal chance of growth, reduction in tariff and dispatch, and the threat of closure due to new regulations, divestment was proposed. At the same time, the Company considered that it would be commercially sound to increase its equity holding in the Taixing Yanjiang facility, which was not experiencing these problems. In May of 2001, the Company worked out an arrangement with its Chinese partner, the Taixing City Government, to exchange all its equity interests in the Taixing Madian facility (60%) for an increased equity share in the Taixing Yanjiang facility (from 60% to 96.3%). - Natural Gas. In 1998, the Company acquired an equity interest in a barge-mounted 120 MW diesel/natural gas-fired facility located near Haripur, Republic of Bangladesh. This project began commercial operation in June 1999, and is operated by a subsidiary of the Company. The Company owns approximately 45% of the project company equity. An affiliate of El Paso Energy Corporation owns 50% of such equity, and the remaining interest is held by Wartsila North America, Inc. The electrical output of the project is sold to the Bangladesh Power Development Board ("BPDB") pursuant to a long-term agreement. That agreement also obligates the BPDB to supply all of the natural gas requirements of the project. The BPDB's obligations under the agreement are guaranteed by the Government of Bangladesh. In 1999, the project received $87 million in financing and political risk insurance from the Overseas Private Investment Corporation. In 1999, the Company acquired ownership interests in two 122 MW gas-fired combined cycle facilities in Thailand: the Sahacogen facility and the Rojana Power facility. On March 28, 2002 the Company sold all its interests in both facilities as well as its interest in the operating company to its local partners in the respective projects. The Company owns an approximately 12% interest in Empresa Valle Hermoso ("EVH") which was formed by the Bolivian government as part of the capitalization of the government-owned utility ENDE. EVH owns and operates 182 MW of gas-fired generating capacity. The Company also participates in a joint venture that supplies EVH with management services support. The Company owns a 50% equity interest in a 15 MW natural gas-fired cogeneration project in the Province of Murcia, Spain (the "Linasa Project"). The Linasa Project is operated by a subsidiary of the Company. The electrical output of the Linasa Project is being sold under a long-term purchase contract to the Spanish electrical utility, Iberdrola, at governmentally-established preferential rates for cogeneration projects (currently expected to extend until 2007) and at market rates thereafter. The thermal output and a portion of the electrical output from the Linasa Project are being sold to the Company's 50% partner, Industria Jabonera LINA S.A., a soap and detergent manufacturer, under a long-term energy service agreement. - Diesel/Heavy Fuel Oil. The Company owns interests in three diesel fuel facilities in The Philippines. The Bataan Cogeneration project is a 65 MW facility that has a long-term contract to sell its electrical output to the National Power Corporation (with which it also has entered into a fuel management agreement for fuel supply) and the Bataan Export Processing Zone Authority. This project is operated by the Company. The Island Power project is a 7 MW facility that has a long-term power contract with the Occidental Mindoro Electric Cooperative. Magellan Cogeneration, Inc. ("MCI") owns and operates the Magellan cogeneration project, a 65 MW diesel fired electric generating facility located in the province of Cavite, the Philippines. This project sells a portion of its energy and capacity to the National Power Corporation and a portion to the Cavite Export Processing Zone Authority ("PEZA") pursuant to long-term power purchase agreements. On January 3, 2002, PEZA, the main power off-taker for this project, served the project with notice of termination of the Power Purchase Agreement ("PPA") for alleged non-performance by the project. MCI has sought a court injunction against termination of the PPA and to require arbitration of the dispute which involves alleged non-reliable operations and alleged improper substitution of National Power Corp power for Magellan production. On February 6, 2002, The Regional Trial Court, National Capital Judicial Region, Branch 115, Pasay City issued a Temporary Restraining Order barring PEZA from terminating the PPA. On April 5, 2002 after a series of hearings, such Court replaced such Temporary Restraining Order with a Preliminary Injunction. Such Preliminary Injunction restrains PEZA from terminating the PPA until such time as the merits of the case are resolved. In the event that such case were ultimately to be decided in favor of PEZA, MCI would lose not only the PPA but also that portion of the plant site under lease from PEZA as such lease is tied to the PPA. Revenue for this facility for the year ended December 31, 2001 was $22.0 million. In 1999, the Company acquired an equity interest in a 105 MW heavy fuel oil-fired generating facility located near Samalpatti, Tamil Nadu, India. This project achieved commercial operation during the first quarter of 2001. The project is operated by a subsidiary of the Company. The Company owns a 60% interest in the project company. Shapoorji Pallonji Infrastructure Capital Co. Ltd. and its affiliates own 29% of such equity with the remainder of 11% being held by Wartsila India Power Investment, LLC. The electrical output of the project is sold to the Tamil Nadu Electricity Board ("TNEB") pursuant to a long-term agreement. Bharat Petroleum Corporation Ltd. supplies the oil requirements of the project. TNEB's obligations are guaranteed by the Government of the State of Tamil Nadu. In 2000, the Company acquired a controlling interest in its second Indian project, the 106 MW Madurai project located at Samayanallur in the State of Tamil Nadu, India. The project began commercial operation in the fourth quarter of 2001. The Company owns approximately 75% of the project equity, and operates the project through a subsidiary. The balance of the project ownership interests are held by individuals who originally developed the project. The project's electrical output is sold under a long-term contract to TNEB, and TNEB's obligations are supported by the Government of the State of Tamil Nadu. The Indian Oil Corporation Limited supplies fuel to the project. - Water and Wastewater. The Company operates and maintains wastewater treatment facilities for eight small municipalities and industrial customers in New York State. Such facilities together process the equivalent of approximately 67 mgd. The Company also designed, built and now operates and maintains a 24 mgd potable water treatment facility and associated transmission and pumping equipment, which supplies water to residents and businesses in Bessemer, Alabama, a suburb of Birmingham. Under a long-term contract with the Governmental Services Corporation of Bessemer, the Company received a fixed price for design and construction of the facility, and is paid a fixed fee plus pass-through costs for delivering processed water to the City's water distribution system. Construction was completed ahead of schedule during 2000. During 2000 and 2001, the Company was awarded several small contracts in upstate New York for the supply of its patented DualSandTM systems to municipalities that are improving existing systems. The Company's obligations generally include equipment supply and installation, and in some cases construction work related to other plant improvements, in addition to the DualSandTM systems. (d) PROJECT DEVELOPMENT. During 2001 the Company's Three Mountain Power project, a 500 MW gas-fired project to be located adjacent to the Company's Burney facility in Shasta County, California, received all of the principal permits necessary to commence construction. However, due to the changes in the California energy markets as well as in its own financial situation, the Company wrote-off approximately $24.5 million of costs associated with this project and decided to delay project implementation until California market conditions improve. In addition, during 2001 the Company experienced limited access to capital due to a combination of factors relating to delays in selling non-energy and non-water businesses, delays in receipt of cash flow from California, and general economic downturn (See Part II, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION). The conditions have limited the Company's flexibility in financing projects in development and the Company's capacity to fund additional development efforts. (e) PROJECT SUMMARIES. Summary information with respect to the Company's projects that are currently operating or under construction is provided in the following table: PROJECTS(1) DATE OF ACQUISITION/ NATURE OF COMMENCEMENT LOCATION SIZE INTEREST(1) OF OPERATIONS A. HYDROELECTRIC 1. New Martinsville West Virginia 40MW Lessee/Operator 1991 2. Rio Volcan Costa Rica 16MW Part Owner/Operator 1997 3. Don Pedro Costa Rica 16MW Part Owner/Operator 1996 4. Koma Kulshan(2) Washington 12MW Part Owner/Operator 1997 5. Weeks Falls(2) Washington 5MW Part Owner 1997 6. Rio Yura(3) Bolivia 18MW Part Owner 1998 ---- SUBTOTAL 107MW B. GEOTHERMAL 1. Heber California 52MW Owner/Operator 1989 2. SIGC California 48MW Lessee/Operator 1994 3. Mammoth G1(2) California 10MW Part Owner/Operator 1997 4. Mammoth G2(2) California 15MW Part Owner/Operator 1997 5. Mammoth G3(2) California 15MW Part Owner/Operator 1997 ---- SUBTOTAL 140MW C. NATURAL GAS 1. Empresa Valle Bolivia 182MW Part Owner/ 1995 Hermoso(4) Operations Mgmt. 4. Haripur(5) Bangladesh 120MW Part Owner/Operator 1999 5. Linasa(2) Spain 15MW Part Owner/Operator 2000 ---- SUBTOTAL 317MW D. COAL 1. Quezon(6) Philippines 510MW Part Owner/Operator 2000 2. Lin'an(7) China 24MW Part Owner 1997 3. Huantai(7) China 24MW Part Owner 1997 4. Yanjiang(8) China 24MW Part Owner/Operator 1997 ---- SUBTOTAL 582MW E. DIESEL/HEAVY FUEL OIL 1. Island Power Philippines 7MW Part Owner 1996 Corporation(9) 2. Bataan Cogeneration Philippines 65MW Owner/Operator 1996 3. Magellan Cogeneration Philippines 65MW Owner/Operator 1999 4. Samalpatti(7) India 105MW Part Owner/Operator 2001 5. Madurai(10) India 106MW Part Owner/Operator 2001 ----- SUBTOTAL 348MW F. MUNICIPAL SOLID WASTE 1. Tulsa(11) Oklahoma 11MW Lessee/Operator 1986 2. Marion County Oregon 13MW Owner/Operator 1987 3. Hillsborough County Florida 29MW Operator 1987 4. Tulsa(13) Oklahoma N.A. Lessee/Operator 1987 5. Bristol Connecticut 16.3MW Owner/Operator 1988 6. Alexandria/Arlington Virginia 22MW Owner/Operator 1988 7. Indianapolis Indiana N.A. Owner/Operator 1988 8. Hennepin County(11) Minnesota 38.7MW Lessee/Operator 1989 9. Stanislaus County California 22.5MW Owner/Operator 1989 10. Babylon(12) New York 16.8MW Owner/Operator 1989 11. Haverhill Massachusetts 46MW Owner/Operator 1989 12. Warren County(14) New Jersey 13MW Owner/Operator 1988 13. Kent County Michigan 18MW Operator 1990 14. Wallingford(14) Connecticut 11MW Owner/Operator 1989 15. Fairfax County Virginia 79MW Owner/Operator 1990 16. Huntsville Alabama N.A. Operator 1990 17. Lake County Florida 14.5MW Owner/Operator 1991 18. Lancaster County Pennsylvania 35.7MW Operator 1991 19. Pasco County Florida 31.2MW Operator 1991 20. Huntington(15) New York 24.3MW Owner/Operator 1991 21. Hartford(16) Connecticut 68.5MW Operator 1987 22. Detroit(17) Michigan 68MW Lessee/Operator 1991 23. Honolulu(17) Hawaii 57MW Lesse/Operator 1990 24. Union County(18) New Jersey 44MW Lessee/Operator 1994 25. Lee County Florida 39.7MW Operator 1994 26. Onondaga County(15) New York 39.5MW Owner/Operator 1995 27. Montgomery County Maryland 55MW Operator 1995 ---- SUBTOTAL 813.7MW G. WASTE WOOD 1. Burney Mountain California 11.4MW Owner/Operator 1997 2. Pacific Ultrapower California 25.6MW Part Owner 1997 Chinese Station(2) 3. Mount Lassen California 11.4MW Owner/Operator 1997 4. Pacific Oroville California 18.7MW Owner/Operator 1997 ------ SUBTOTAL 67.1MW H. LANDFILL GAS 1. Gude Maryland 3MW Owner/Operator 1997 2. Otay California 3.7MW Owner/Operator 1997 3. Oxnard California 5.6MW Owner/Operator 1997 4. Penrose California 10MW Owner/Operator 1997 5. Salinas California 1.5MW Owner/Operator 1997 6. Santa Clara California 1.5MW Owner/Operator 1997 7. Stockton California 0.8MW Owner/Operator 1997 8. Toyon California 10MW Owner/Operator 1997 ---- SUBTOTAL 36.1MW ------ TOTAL MW IN OPERATION 2410.9MW I. WATER AND WASTEWATER 1. Bessemer Alabama 24 mgd Design/Build/Operate 2000 2. Clinton New York 2.5 mgd Operator 1995 3. Bristol/Myers Squibb New York 50 mgd Operator 2000 4. Chittenango New York 1.0 mgd Operator 1998 5. Canastata New York 2.5 mgd Operator 1998 6. Cortland New York 10 mgd Operator 1995 7. Kendall Corp. New York 0.2 mgd Operator 1995 8. Mohawk New York 0.1 mgd Operator 1995 9. Kirkland New York 0.3 mgd Operator 1995 ------- TOTAL MGD IN OPERATION 90.6 mgd PROJECTS UNDER CONSTRUCTION: 1. Trezzo Italy 15MW Part Owner/Operator 2002 (est.) 2. San Vittore Italy 15MW Operator 2002 (est.) 3. Tampa Bay Florida 28 mgd Design/Build/Operate 2003 (est.) ------ TOTAL PROJECTS UNDER CONSTRUCTION 30MW and 28 mgd TOTAL MW IN OPERATION/ CONSTRUCTION: 2440.9 TOTAL MGD IN OPERATION/ CONSTRUCTION: 118.6
NOTES (1) Covanta's ownership and/or operation interest in each facility listed below extends at least into calendar year 2007 except: New Martinsville for which the initial term of the operation contract terminates in 2003; Bataan Cogeneration for which the initial term of the operation contract terminates in 2004; Magellan Cogeneration for which the initial term of the operation contract terminates in 2005; Gude for which the initial term of the operation contract terminates at the end of 2002; Oxnard for which the initial term of the operation contract terminates in 2004; Penrose for which the initial term of the operation contract terminates in 2006; Toyon for which the initial term of the operation contract terminates in 2006; Bristol/Meyers Squibb for which the initial term of the operation contract terminates in 2003; and Clinton, Kendall Corp, Mohawk and Kirkland for which the operation contracts are renewable annually. (2) The Company has a 50% ownership interest in the project. (3) The Company has an approximate 12% interest in a company that owns 58% of this project. (4) The Company owns an approximate 24% interest in a consortium that purchased 50% of Empresa Valle Hermoso. The remaining 50% is owned by Bolivian pension funds. (5) The Company has an approximate 45% interest in this project. This project is capable of operating through combustion of diesel oil in addition to natural gas. (6) The Company has an approximate 26% ownership interest in this project. (7) The Company has a 60% ownership interest in this project. (8) The Company has a 96% ownership interest in this project. (9) The Company has an approximate 40% ownership interest in this project. (10) The Company has an approximate 75% interest in this project. (11) Facility is owned by an owner/trustee pursuant to a sale/leaseback arrangement. (12) Facility has been designed to allow for the addition of another unit. (13) Phase II of the Tulsa facility, which was financed as a separate project, expanded the capacity of the facility from two to three units. (14) Company subsidiaries were purchased after completion, and use a mass-burn technology that is not the Martin Technology. (15) Owned by a limited partnership in which the limited partners are not affiliated with Covanta. (16) Under contracts with the Connecticut Resource Recovery Authority and Northeast Utilities, the Company operates only the boiler and turbine for this facility. (17) Operating contracts were acquired after completion. Facility uses a refuse-derived fuel technology and does not employ the Martin Technology. (18) The Union County facility is leased to a Company subsidiary. OTHER During 2001, the Company continued to implement its plans to sell the businesses in its Entertainment and Aviation groups. As of June 10, 2002, the principal Entertainment assets that remain unsold are the businesses associated with the Arrowhead Pond Arena in Anaheim, California, and with the Corel Centre in Ottawa, Canada and the Ottawa Senators hockey club, and the Company's assets in Argentina related to a casino and an exhibition center. The casino assets in Argentina are currently under a contract of sale. (SEE PART II, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS, DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE.) In January of 2002 the Company sold the major portion of its aviation fueling business. The sale included all of Covanta's aviation fueling operations at 19 airports in the United States, Canada and Panama, but did not include Covanta's operations at the three major New York City area airports. As of June 10, 2002, the principal Aviation assets that remain unsold are the fueling and fuel facility management businesses at the three major New York City area airports. OTHER INFORMATION Any statements in this communication which may be considered to be "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, are subject to certain risks and uncertainties. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings with the SEC and more generally, general economic conditions, including changes in interest rates and the performance of the financial markets; changes in domestic and foreign laws, regulations, and taxes; changes in competition and pricing environments; and regional or general changes in asset valuations. MARKETS, COMPETITION AND GENERAL BUSINESS CONDITIONS (a) GENERAL BUSINESS CONDITIONS. Covanta's business can be adversely affected by general economic conditions, war, inflation, adverse competitive conditions, governmental restrictions and controls, natural disasters, energy shortages, weather, the adverse financial condition of customers and suppliers, various technological changes and other factors over which Covanta has no control. The Company's power operations face a domestic market that is changing and will continue to change substantially in the years ahead. Due to the instability of the California market in 2000 and the economic downturn in 2001, it has become less certain that complete deregulation of the marketplace will take place. Discussions are taking place at both the Federal and state levels that will shape the domestic power generation markets for the coming decade. The international market for energy services is characterized by a large demand and much competition for projects within a relatively immature market framework. The domestic market for the Company's waste-to-energy services has largely matured and is now heavily regulated. New opportunities for domestic projects are expected to be scarce for the foreseeable future. This reflects a number of factors that have adversely affected communities' willingness to make long-term capital commitments to waste disposal projects, including declining prices at which energy can be sold and low alternative disposal costs. Another factor adversely affecting the demand for new waste-to-energy projects, as well as having an impact on existing projects, was a 1994 United States Supreme Court decision invalidating state and local laws and regulations mandating that waste generated within a given jurisdiction be taken to a designated facility. The invalidation of such laws has created pressure on Client Communities as well as the Company to lower costs or restructure contractual arrangements in order to continue to attract waste supplies and ensure that revenues are sufficient to pay for all project costs. (See Approach to Projects, "Other Project Structures.") The Company's water and wastewater operation faces an immature but developing domestic market for private water and wastewater services. The Company does not expect to engage in material development activity until it emerges from Chapter 11. Competition for new projects is intense in all the domestic and foreign markets in which the Company conducts or intends to conduct its businesses and its businesses are subject to a variety of competitiveness and market influences. The economic climate can adversely affect Covanta's operations. Covanta expends substantial amounts for the development of new businesses. The financial support required to undertake some of these activities comes from the Company. Beyond staffing costs, expenditures can include the costs of contract and site acquisition, feasibility and environmental studies, technical and financial analysis, and in some cases the preparation of extensive proposals in response to public or private requests for proposals. Development of some projects involves substantial risks which are not within the Company's control. Success of a project may depend upon obtaining in a timely manner, acceptable contractual arrangements and financing, appropriate sites, acceptable licenses, environmental permits and governmental approvals. Even after the required contractual arrangements are achieved, implementation of a project often is subject to substantial conditions that may be outside the control of the Company. In some, but not all, circumstances, the Company will make contractual arrangements for the partial recovery of development costs if a project fails to be implemented for reasons beyond the Company's control. Once a project is financed and constructed, Covanta's business can be impacted by a variety of risk factors which can affect profitability over the life of a project. Some of these risks are at least partially within the Company's control, such as successful operation in compliance with law, and the presence or absence of labor difficulties or disturbances. Other risk factors are largely out of the Company's control and, over a long-term operation may have an adverse impact on a project. These risks include changes in law, severe weather and related casualty events, and changes in technologies that offer less expensive means of generating electricity or of providing water or wastewater treatment services. (b) CALIFORNIA CONDITIONS. The Company currently owns, in whole or in part, 17 power projects in California, with a total gross generating capacity of approximately 260 MW. These facilities use renewable fuels such as waste wood, biogas, geothermal, and municipal solid waste, and sell electricity to three California utilities, Southern California Edison Company ("SCE"), SEMPRA Energy and Pacific Gas & Electric Corp. ("PG&E") under long-term power purchase agreements. Significant market disruptions occurred in the California electricity markets in 2001. The deregulation scheme effected by California failed during the last half of 2000, causing both SCE and PG&E to fail to meet most of their respective financial obligations, including their obligations to pay for electricity purchased from the Company's projects. SCE made no payments for electricity delivered from November 2000 through March 2001. PG&E made partial payments for electricity delivered in December 2000 and January 2001 and no payments for February and March 2001. On March 27, 2001, California's Public Utilities Commission ("CPUC") approved a significant retail rate increase for California utilities. At the same time the CPUC changed the index used in the short run avoided cost formula and ordered the utilities to pay currently for electricity purchased from suppliers such as the Company beginning April 1, 2001. On April 6, 2001 PG&E filed for Chapter 11 bankruptcy in the Northern District of California. Pursuant to the March 27 CPUC order, SCE began making payments for power delivered after March 27th. PG&E commenced payments pursuant to the CPUC order on April 6, 2001. Both SCE and PG&E have continued to pay for deliveries of energy and capacity since that time. In June 2001, those projects in the SCE service territory entered into agreements with SCE whereby the projects received a payment of 10% of the outstanding receivable in exchange for the projects' agreement to standstill on any pending litigation against SCE. In addition, upon the occurrence of certain events, the outstanding receivable would be paid in full and the energy payments would no longer be calculated using the utilities short run avoided cost but rather would be fixed for five years at 5.37 cents/kWh. The pricing for the five year fixed price period was approved by the CPUC. These agreements were amended in November 2001 to change the triggering events for the payment of the receivable and to set the start of the fixed price period on May 1, 2002. On March 1, 2002 SCE paid all outstanding receivables owed to the Covanta projects. In July 2001, those Covanta projects located in the PG&E service territory entered into agreements with PG&E to modify the existing PPAs to replace the energy pricing provisions with the five-year fixed price of 5.37 cents/kWh and to have the Bankruptcy Court approve the assumption of the PPAs by PG&E. The Bankruptcy Court in the PG&E bankruptcy approved the agreements on July 13, 2001. The fixed price period for Covanta projects in the PG&E service territory started immediately. In October 2001, the Company sold the pre-petition payables of three wholly-owned facilities at a 10% discount. A portion of the money received from the sale was placed in escrow pending resolution of a pricing issue. The escrow is expected to be released to the facilities in late 2002. In January 2002 all but one of the Covanta projects entered into a Supplemental Agreement with PG&E by which PG&E agreed to commence making payments of the pre-petition payables in twelve equal monthly installments. The Bankruptcy Court approved the Supplemental Agreement on February 28, 2002. The Company has received the first five monthly installment payments. INTERNATIONAL BUSINESS The Company has ownership interests and/or operates (or will operate upon completion of construction) projects on four continents. They are: - North America: 46 energy generating projects totaling 1113 MW (gross); 9 water or wastewater projects totaling 90 mgd capacity. - Asia: 11 energy generating projects totaling 1050 MW (gross). - South and Central America: 4 energy generating projects totaling 232 MW (gross). - Europe: 3 energy generating projects totaling 45 MW (gross). The Company does not expect to engage in any development activity in foreign markets during 2002. The ownership and operation of facilities in foreign countries entails significant political and financial uncertainties and other structuring issues that typically are not involved in such activities in the United States. These risks include unexpected changes in electricity tariffs, conditions in financial markets, currency exchange rates, currency repatriation restrictions, currency convertibility, changes in laws and regulations and political, economic or military instability, civil unrest and expropriation. Such risks have the potential to cause substantial delays or material impairment to the value of the project being developed or business being operated. Many of the countries in which the Company operates are lesser developed countries or developing countries. The political, social and economic conditions in some of these countries are typically less stable than those prevalent in the United States. The financial condition and creditworthiness of the potential purchasers of power and services provided by the Company (which may be a governmental or private utility or industrial consumer) or of the suppliers of fuel for projects in these countries may not be as strong as those of similar entities in developed countries. The obligations of the purchaser under the power purchase agreement, the service recipient under the related service agreement and the supplier under the fuel supply agreement generally are not guaranteed by any host country or other creditworthy governmental agency. Whenever such governmental guarantees are not available, the Company undertakes a credit analysis of the proposed power purchaser or fuel supplier. It also has sought, to the extent appropriate and achievable within the commercial parameters of a project, to require such entities to provide financial instruments such as letters of credit or arrangements regarding the escrowing of the receivables of such parties in the case of power purchasers. The Company's power projects in particular are dependent on the reliable and predictable delivery of fuel meeting the quantity and quality requirements of the project facilities. The Company has typically sought to negotiate long-term contracts for the supply of fuel with creditworthy and reliable suppliers. However, the reliability of fuel deliveries may be compromised by one or more of several factors that may be more acute or may occur more frequently in developing countries than in developed countries, including a lack of sufficient infrastructure to support deliveries under all circumstances; bureaucratic delays in the import, transportation and storage of fuel in the host country; customs and tariff disputes; and local or regional unrest or political instability. In most of the foreign projects in which the Company participates, it has sought, to the extent practicable, to shift the consequences of interruptions in the delivery of fuel, whether due to the fault of the fuel supplier or due to reasons beyond the fuel supplier's control, to the electricity purchaser or service recipient by securing a suspension of its operating responsibilities under the applicable agreements and an extension of its operating concession under such agreements and/or, in some instances, by requiring the energy purchaser or service recipient to continue to make payments in respect of fixed costs. In order to mitigate the effect of short-term interruptions in the supply of fuel, the Company has endeavored to provide on-site storage of fuel in sufficient quantities to address such interruptions. Payment for services that the Company provides will often be made in whole or part in the domestic currencies of the host countries. Conversion of such currencies into U.S. dollars generally is not assured by a governmental or other creditworthy country agency, and may be subject to limitations in the currency markets, as well as restrictions of the host country. In addition, fluctuations in the value of such currencies against the value of the U.S. dollar may cause the Company's participation in such projects to yield less return than expected. Transfer of earnings and profits in any form beyond the borders of the host country may be subject to special taxes or limitations imposed by host country laws. The Company has sought to participate in projects in jurisdictions where limitations on the convertibility and expatriation of currency have been lifted by the host country and where such local currency is freely exchangeable on the international markets. In most cases, components of project costs incurred or funded in the currency of the United States are recovered without risk of currency fluctuation through negotiated contractual adjustments to the price charged for electricity or service provided. This contractual structure may cause the cost in local currency to the project's power purchaser or service recipient to rise from time to time in excess of local inflation, and consequently there is risk in such situations that such power purchaser or service recipient will, at least in the near term, be less able or willing to pay for the project's power or service. Due to the fact that many of the countries in which the Company is active are lesser developed countries or developing countries, the successful development of a project or projects may be adversely impacted by economic changes in such countries or by changes in government support for such projects. Adverse economic changes may, and have, resulted in initiatives (by local governments alone or at the request of world financial institutions) to reduce local commitments to pay long-term obligations in U.S. dollars or U.S. dollar equivalents. There is therefore risk that the Company's development efforts in such countries may from time to time be adversely affected by such changes on a temporary or long-term basis. In addition, the Company has generally participated in projects which provide services that are treated as a matter of national or key economic importance by the laws and politics of the host country. There is therefore risk that the assets constituting the facilities of these projects could be temporarily or permanently expropriated or nationalized by a host country, or made subject to local or national control. The Company has sought to manage and mitigate these risks through all available means that it deems appropriate, including: political and financial analysis of the host countries and the key participants in each project; guarantees of relevant agreements with creditworthy entities; political risk and other forms of insurance; participation by international finance institutions, such as affiliates of the World Bank, in financing of projects in which it participates; and joint ventures with other companies to pursue the development, financing and construction of these projects. Beginning in 2002, the Company intends to divest its interests in some of its foreign projects in an effort to concentrate its business domestically. To this end, on March 28, 2002, the Company sold its interests in two 122 MW gas-fired combined cycle facilities in Thailand: the Sahacogen facility and the Rojana Power facility as well as its interest in the operating company to its local partners in the respective projects. Covanta and its subsidiaries currently employ approximately 4,700 U.S. and foreign employees, of whom approximately 2,200 are employed in the Company's core business. EMPLOYEE LABOR RELATIONS Certain employees of Covanta are employed pursuant to collective bargaining agreements with various unions. During 2000, Covanta successfully renegotiated collective bargaining agreements in certain of its business sectors with no strike-related loss of service. Covanta considers relations with its employees to be good and does not anticipate any significant labor disputes in 2002. ENVIRONMENTAL REGULATORY LAWS (a) DOMESTIC. Covanta's business activities in the United States are pervasively regulated pursuant to Federal, state and local environmental laws. Federal laws, such as the Clean Air Act and Clean Water Act, and their state counterparts, govern discharges of pollutants to air and water. Other Federal, state and local laws comprehensively govern the generation, transportation, storage, treatment and disposal of solid and hazardous waste, and also regulate the storage and handling of petroleum products (such laws and the regulations thereunder, "Environmental Regulatory Laws"). The Environmental Regulatory Laws and other Federal, state and local laws, such as the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA" or "Superfund") (collectively, "Environmental Remediation Laws"), make Covanta potentially liable on a joint and several basis for any onsite or offsite environmental contamination which may be associated with the Company's activities and the activities at sites, including landfills, which the Company's subsidiaries have owned, operated or leased or at which there has been disposal of residue or other waste handled or processed by such subsidiaries or at which there has been disposal of waste generated by the Company's activities. Through its subsidiaries, the Company leases and operates a landfill in Haverhill, Massachusetts, and leases a landfill in Bristol, Connecticut, in connection with its projects at those locations. Some state and local laws also impose liabilities for injury to persons or property caused by site contamination. Some Service Agreements provide for indemnification of the operating subsidiaries from some such liabilities. In addition, other subsidiaries involved in landfill gas projects have access rights to landfills pursuant to certain leases at landfill sites which permit the installation, operation and maintenance of landfill gas collection systems. A portion of these landfill sites is and has been a federally designated "Superfund" site. Each of these leases provide for indemnification of the Company subsidiary from some liabilities associated with these sites. The Environmental Regulatory Laws require that many permits be obtained before the commencement of construction and operation of waste-to-energy, independent power and water and wastewater projects. There can be no assurance that all required permits will be issued, and the process of obtaining such permits can often cause lengthy delays, including delays caused by third-party appeals challenging permit issuance. Failure to meet conditions of these permits or of the Environmental Regulatory Laws and the corresponding regulations can subject an operating subsidiary to regulatory enforcement actions by the appropriate governmental unit, which could include monetary penalties, and orders requiring certain remedial actions or limiting or prohibiting operation. In addition, certain of Covanta's discontinued businesses also are required to comply with various regulatory and permitting requirements and can be subject to regulatory enforcement actions. To date, Covanta has not incurred material penalties, been required to incur material capital costs or additional expenses, nor been subjected to material restrictions on its operations as a result of violations of environmental laws, regulations or permits. The Environmental Regulatory Laws and Federal and state governmental regulations and policies governing their enforcement are subject to revision. New technology may be required or stricter standards may be established for the control of discharges of air or water pollutants for storage and handling of petroleum products or chemicals, or for solid or hazardous waste or ash handling and disposal. Thus, as new technology is developed and proven, it may be required to be incorporated into new facilities or major modifications to existing facilities. This new technology may often be more expensive than that used previously. The Clean Air Act Amendments of 1990 required the U.S. Environmental Protection Agency (the "EPA") to promulgate New Source Performance Standards ("NSPS") and Emission Guidelines ("EG") applicable to new and existing municipal waste combustion units for particulate matter (total and fine), opacity, sulfur dioxide, hydrogen chloride, oxides of nitrogen, carbon monoxide, dioxins and dibenzofurans. The general compliance deadline for the NSPS and EG was December 19, 2000. The Company completed necessary facility retorfits to achieve the applicable new limits under the NSPS and EG by December 19, 2000 and has demonstrated compliance with those standards. The Environmental Remediation Laws prohibit disposal of hazardous waste other than in small, household-generated quantities at the Company's municipal solid waste facilities. The Service Agreements recognize the potential for improper deliveries of hazardous wastes and specify procedures for dealing with hazardous waste that is delivered to a facility. Although certain Service Agreements require the Company's subsidiary to be responsible for some costs related to hazardous waste deliveries, to date, no operating subsidiary has incurred material hazardous waste disposal costs. Domestic drinking water facilities developed in the future by the Company will be subject to regulation of water quality by the EPA under the Federal Safe Drinking Water Act and by similar state laws. Domestic wastewater facilities are subject to regulation under the Federal Clean Water Act and by similar state laws. These laws provide for the establishment of uniform minimum national water quality standards, as well as governmental authority to specify the type of treatment processes to be used for public drinking water. Under the Federal Clean Water Act, the Company may be required to obtain and comply with National Pollutant Discharge Elimination System permits for discharges from its treatment stations. Generally, under its current contracts, the Client Community is responsible for fines and penalties resulting from the delivery to the Company's treatment facilities of water not meeting standards set forth in those contracts. (b) INTERNATIONAL. Among the Company's objectives is providing energy generating and other infrastructure through environmentally protective project designs, regardless of the location of a particular project. This approach is consistent with the increasingly stringent environmental requirements of multilateral financing institutions, such as the World Bank, and also with the Company's experience in domestic waste-to-energy projects, where environmentally protective facility design and performance has been required. The laws of other countries also may require regulation of emissions into the environment, and provide governmental entities with the authority to impose sanctions for violations, although these requirements are generally not as rigorous as those applicable in the United States. Compliance with environmental standards comparable to those of the United States may be conditions to the provision of credit by multilateral banking agencies as well as other lenders or credit providers. As with domestic project development, there can be no assurance that all required permits will be issued, and the process can often cause lengthy delays. ENERGY AND WATER REGULATIONS The Company's domestic businesses are subject to the provisions of Federal, state and local energy laws applicable to their development, ownership and operation of their domestic facilities, and to similar laws applicable to their foreign operations. Federal laws and regulations govern transactions with utilities, the types of fuel used and the power plant ownership. State regulatory regimes govern rate approval and other terms under which utilities purchase electricity from independent power producers, except to the extent such regulation is pre-empted by Federal law. Pursuant to the Federal Public Utility Regulatory Policies Act ("PURPA"), the Federal Energy Regulatory Commission (the "FERC") has promulgated regulations that exempt qualifying facilities (facilities meeting certain size, fuel and ownership requirements, or "QFs") from compliance with certain provisions of the Federal Power Act ("FPA"), the Public Utility Holding Company Act of 1935 ("PUHCA"), and certain state laws regulating the rates charged by, or the financial and organizational activities of, electric utilities. PURPA was enacted in 1978 to encourage the development of cogeneration facilities and other facilities making use of non-fossil fuel power sources, including waste-to-energy facilities. The exemptions afforded by PURPA to QFs from regulation under the FPA and PUHCA and most aspects of state electric utility regulation are of great importance to the Company and its competitors in the waste-to-energy and independent power industries. Except with respect to waste-to-energy facilities with a net power production capacity in excess of thirty megawatts (where rates are set by the FERC), state public utility commissions must approve the rates, and in some instances other contract terms, by which public utilities purchase electric power from QFs. PURPA requires that electric utilities purchase electric energy produced by QFs at negotiated rates or at a price equal to the incremental or "avoided" cost that would have been incurred by the utility if it were to generate the power itself or purchase it from another source. PURPA does not expressly require public utilities to enter into long-term contracts to purchase the output supplied by QFs. Under PUHCA, any entity owning or controlling 10% or more of the voting securities of a "public utility company" or company which is a "holding company" of a public utility company is subject to registration with the SEC and regulation by the SEC unless exempt from registration. Under PURPA, most projects that satisfy the definition of a "qualifying facility" are exempt from regulation under PUHCA. Under the Energy Policy Act of 1992, projects that are not QFs under PURPA but satisfy the definition of an "exempt wholesale generator" ("EWG") are not deemed to be public utility companies under PUHCA. Finally, projects that satisfy the definition of "foreign utility companies" are exempt from regulation under PUHCA. The Company believes that all of its operating projects involved in the generation, transmission and/or distribution of electricity, both domestically and internationally, qualify for an exemption from PUHCA and that it is not and will not be required to register with the SEC. In the past there has been consideration in the U.S. Congress of legislation to repeal PURPA entirely, or at least to repeal the obligation of utilities to purchase power from QFs. There is continuing support for grandfathering existing QF contracts if such legislation is passed. Various bills have also proposed repeal of PUHCA. Repeal of PUHCA would allow both independents and vertically integrated utilities to acquire electric assets throughout the United States that are geographically widespread, eliminating the current requirement that the utility's electric assets be capable of physical integration. Also, registered holding companies would be free to acquire non-utility businesses, which they may not do now, with certain limited exceptions. With the repeal of PURPA or PUHCA, competition for independent power generators from utilities would likely increase. This is likely to have little or no impact on existing Covanta projects, but may mean additional competition from highly capitalized companies seeking to develop projects in the United States. In addition, the FERC, many state public utility commissions and Congress have implemented or are considering a series of proposals to restructure the electric utility industry in the United States to permit utility customers to choose their utility supplier in a competitive electric energy market. The FERC has issued a series of orders requiring utilities to offer wholesale customers and suppliers open access on their transmission lines on a comparable basis to the utilities' own use of the line. All public utilities have already filed "open access" tariffs to implement this requirement. As the trend toward increased competition continues, the utilities contend that they are entitled to recover from departing customers their fixed costs that will be "stranded" by the ability of their wholesale customers (and perhaps eventually, their retail customers) to choose new electric power suppliers. These include the costs utilities are required to pay under many QF contracts which the utilities view as excessive when compared with current market prices. Many utilities are therefore seeking ways to lower these contract prices, or rescind or buy out these contracts altogether, out of concern that their shareholders will be required to bear all or part of such "stranded" costs. Regulatory agencies to date have recognized the continuing validity of approved power purchase agreements, and have rejected attempts by some utilities to abrogate these contracts. At the same time, regulatory agencies have encouraged renegotiations of power contracts where rate payer savings can be achieved as a result. The Company anticipates that the regulatory impetus to restructure "above market" power purchase agreements will continue in many of the jurisdictions where it owns or operates generating facilities. Future U.S. electric rates may be deregulated in a restructured U.S. electric utility industry and increased competition may result in lower rates and less profit for U.S. electricity sellers developing new projects. Falling electricity prices and uncertainty as to the future structure of the industry can be expected to inhibit U.S. utilities from entering into long-term power purchase contracts. On the other hand, deregulation could open up markets for the sale of electricity, including retail markets, previously available only to regulated utilities. While at present, the impact of the recent California situation (see MARKETS, COMPETITION AND GENERAL BUSINESS CONDITIONS, above) cannot be predicted, it has led some states and their public service commissions to re-examine the timing, nature and desirability of electric utility restructuring. The Company presently has ownership and operating interests in electric generating projects outside the United States. Most countries have expansive systems for the regulation of the power business. These generally include provisions relating to ownership, licensing, rate setting and financing of generating and transmission facilities. Covanta's water and wastewater business may be subject to the provisions of state and local utility laws applicable to the development, ownership and operation of water supply and wastewater facilities. Whether such laws apply depends upon the local regulatory scheme as well as the manner in which the Company provides its services. Where such regulations apply, they may relate to rates charged, services provided, accounting procedures, acquisitions and other matters. In the United States, rate regulations have typically been structured to provide a predetermined return on the regulated entities' investments. The regulated entity benefits from efficiencies achieved during the period for which the rate is set. ITEM 2. PROPERTIES During 2000, Covanta moved its executive offices from New York City to Fairfield, New Jersey. The Company's executive offices are now located at 40 Lane Road, Fairfield, New Jersey, in an office building located on a 5.4 acre site owned by Covanta Projects, Inc. It also leases approximately 47,000 square feet of office space in Fairfax, Virginia. The following table summarizes certain information relating to the locations of the properties owned or leased by Covanta Energy Group, Inc. or its subsidiaries: APPROXIMATE SITE SIZE NATURE OF LOCATION (IN ACRES)(1) SITE USE INTEREST(2) 1. Fairfield, New Jersey 5.4 Office space Own 2. Fairfax, Virginia __ Office space Lease 3. New York, New York __ Office space Lease 4. Marion County, Oregon 15.2 Waste-to-energy facility Own 5. Alexandria/Arlington, Virginia 3.3 Waste-to-energy facility Lease 6. Bristol, Connecticut 18.2 Waste-to-energy facility Own 7. Bristol, Connecticut 35 Landfill Lease 8. Indianapolis, Indiana 23.5 Waste-to-energy facility Lease 9. Stanislaus County, California 16.5 Waste-to-energy facility Lease 10. Babylon, New York 9.5 Waste-to-energy facility Lease 11. Haverhill, Massachusetts 12.7 Waste-to-energy facility Lease 12. Haverhill, Massachusetts 16.8 RDF processing facility Lease 13. Haverhill, Massachusetts 20.2 Landfill Lease 14. Lawrence, Massachusetts 11.8 RDF power plant (closed) Own 15. Lake County, Florida 15 Waste-to-energy facility Own 16. Wallingford, Connecticut 10.3 Waste-to-energy facility Lease 17. Fairfax County, Virginia 22.9 Waste-to-energy facility Lease 18. Union County, New Jersey 20 Waste-to-energy facility Lease 19. Huntington, New York 13 Waste-to-energy facility Lease 20. Warren County, New Jersey 19.8 Waste-to-energy facility Lease 21. Hennepin County, Minnesota 14.6 Waste-to-energy facility Lease 22. Tulsa, Oklahoma 22 Waste-to-energy facility Lease 23. Onondaga County, New York 12 Waste-to-energy facility Lease 24. New Martinsville, W. VA N/A Hydroelectric power generating Lease 25. Heber, California 8 Geothermal power plant Own 26. Heber, California 18 Geothermal power plant Own 27. Heber, California 40 Geothermal power plant Lease 28. Bataan, Philippines 3,049 m2 Diesel power plant Lease 29. Zhejiang Province, N/A Coal-fired Land Use Right People's Republic of China cogeneration facility reverts to China Joint Venture Partner upon termination of Joint Venture Agreement 30. Shandong Province, N/A Coal-fired Land Use Right People's Republic of China cogeneration facility reverts to China Joint Venture Partner upon termination of Joint Venture Agreement 31. Jiangsu Province, N/A Coal-fired Land Use Right People's Republic of China cogeneration facility reverts to China Joint Venture Partner upon termination of Joint Venture Agreement 32. Casa Diablo Hot Springs, 1,510 Geothermal projects Land Use Rights from California Geothermal Resource Lease 33. Rockville, Maryland N/A Landfill gas project Lease 34. San Diego, California N/A Landfill gas project Lease 35. Oxnard, California N/A Landfill gas project Lease 36. Sun Valley, California N/A Landfill gas project Lease 37. Salinas, California N/A Landfill gas project Lease 38. Santa Clara, California N/A Landfill gas project Lease 39. Stockton, California N/A Landfill gas project Lease 40. Los Angeles, California N/A Landfill gas project Lease 41. Burney, California 40 Wood waste project Lease 42. Jamestown, California 26 Wood waste project Own (50%) 43. Westwood, California 60 Wood waste project Own 44. Oroville, California 43 Wood waste project Lease 45. Whatcom County, Washington N/A Hydroelectric project Own (50%) 46. Weeks Falls, Washington N/A Hydroelectric project Lease 47. Cavite, Philippines 13,122 m2 Diesel project Lease 48. Manila, The Philippines 535 m2 Office space Lease 49. Bangkok, Thailand 265 m2 Office space Lease 50. Chennai, India 1797 ft2 Office space Lease 51. Samalpatti, India 211 m2 Office space Lease 52. Samayanallur, India 144 m2 Office space Lease 53. Samayanallur, India 19.4 Heavy fuel oil project Lease 54. Samayanallur, India 11.4 Heavy fuel oil project Lease 55. Samalpatti, India 30.3 Heavy fuel oil project Lease 56. Shanghai, China 144.7 m2 Office space Lease 57. Burney, California 3,000 ft2 Office space Lease 58. East Syracuse, New York 6,200 ft2 Office space Lease - ----------------- (1) All sizes are in acres unless otherwise indicated. (2) All ownership or leasehold interests relating to projects are subject to material liens in connection with the financing of the related project, except those listed above under items 12, 29-31, and 33-40. In addition, all leasehold interests extend at least as long as the term of applicable project contracts, and several of the leasehold interests are subject to renewal and/or purchase options.
ITEM 3. LEGAL PROCEEDINGS On April 1, 2002, the Debtors filed for their respective petitions for protection under Chapter 11 of the Bankruptcy Code. The petitions were filed in the U.S. Bankruptcy Court for the Southern District of New York, and are being jointly administered under the lead case, In re Ogden New York Services, Inc., No. 02-40826 (CB). (See Part II, MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS) Generally, all actions against the Company and its subsidiaries that filed Chapter 11 petitions are stayed during the pendency of the Chapter 11 proceedings. The Company has various other legal proceedings involving matters arising in the ordinary course of business. The Company does not believe that there are any pending legal proceedings, other than as described in the preceding paragraph or ordinary routine litigation incidental to its business, to which the Company is a party or to which any of its property is subject, of which the outcome would have a material adverse effect on the Company's consolidated position or results of operation. The Company's operations are subject to various Federal, state and local environmental laws and regulations, including the Clean Air Act, the Clean Water Act, CERCLA and Resource Conservation and Recovery Act ("RCRA"). Although the Company's operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, the Company believes that it is in substantial compliance with existing environmental laws and regulations. The Company may be identified, along with other entities, as being among potentially responsible parties responsible for contribution for costs associated with the correction and remediation of environmental conditions at disposal sites subject to CERCLA and/or analogous state laws. In certain instances the Company may be exposed to joint and several liability for remedial action or damages. The Company's ultimate liability in connection with such environmental claims will depend on many factors, including its volumetric share of waste, the total cost of remediation, the financial viability of other companies that also sent waste to a given site and, in the case of divested operations, its contractual arrangement with the purchaser of such operations. The Company is engaged in ongoing investigation and remediation actions with respect to three airports where it provides aviation fueling services on a cost-plus basis pursuant to contracts with individual airlines, consortia of airlines and operators of airports. The Company currently estimates the costs of those ongoing actions (determined as of March 2002) will be approximately $1,000,000 (over several years), and that airlines, airports and others should reimburse it for substantially all these costs. To date, the Company's right to reimbursement for remedial costs has been challenged successfully in one prior case in which the court found that the cost-plus contract in question did not provide for recovery of costs resulting from the Company's own negligence. That case did not relate to any of the airports described above. Except in that instance, and in the American/United litigation noted below, the Company has not been alleged to have acted with negligence. The Company has also agreed to indemnify various transferees of its divested airport operations with respect to certain known and potential liabilities that may arise out of such operations and in certain instances has agreed to remain liable for certain potential liabilities that were not assumed by the transferee. Accordingly, the Company may in the future incur liability arising out of investigation and remediation actions with respect to airports served by such divested operations to the extent the purchaser of these operations is unable to obtain reimbursement of such costs from airlines, airports or others. To date such indemnification has been sought with respect to one airport. Because the Company did not provide fueling services at that airport, it does not believe it will have significant obligations with respect to this matter. The Company is currently reviewing the potential impact of its filing under Chapter 11 on its exposure for these liabilities. The potential costs related to all of the foregoing matters and the possible impact on future operations are uncertain due in part to the complexity of governmental laws and regulations and their interpretations, the varying costs and effectiveness of cleanup technologies, the uncertain level of insurance or other types of recovery and the questionable level of the Company's responsibility. Although the ultimate outcome and expense of any litigation, including environmental remediation, is uncertain, the Company believes that the following proceedings will not have a material adverse effect on the Company's consolidated financial position or results of operations. (a) Environmental Matters (i) On June 8, 2001, the EPA named Ogden Martin Systems of Haverhill, Inc. as one of 2000 Potentially Responsible Parties ("PRPs") at the Beede Waste Oil Superfund Site (the "Site"), Plaistow, New Hampshire. The EPA alleges that the Haverhill facility disposed approximately 45,000 gallons of waste oil at the Site, a former recycling facility. The total volume of waste allegedly disposed by all PRPs at the Site is estimated by the EPA as approximately 14,519,232 gallons. The EPA alleges that the costs of response actions completed or underway at the Site total approximately $14,900,000, exclusive of interest, and estimates that the total cost of cleanup of this site will be an additional $70,000,000. A PRP group has formed and the Company is participating in PRP group discussions towards settlement of the EPA's claims. As a result of uncertainties regarding the source and scope of contamination, the large number of PRPs and the varying degrees of responsibility among various classes of potentially responsible parties, the Company's share of liability, if any, cannot be determined at this time. (ii) On April 9, 2001, Ogden Ground Services, Inc. and "Ogden Aviation" (collectively "Ogden"), together with approximately 250 other parties, were named by Metropolitan Dade County, Florida (the "County") as PRPs, pursuant to CERCLA, RCRA and state law, with respect to an environmental cleanup at Miami International Airport. The County alleges that, as a result of releases of hazardous substances, petroleum, and other wastes to soil, surface water, and groundwater at the Airport, it has expended over $200,000,000 in response and investigation costs and expects to spend an additional $250,000,000 to complete necessary response actions. An Interim Joint Defense Group has been formed among PRPs and discovery of the County's document archive is underway. A tolling agreement has been executed between PRPs and the County in order to allow for settlement discussions to proceed without the need for litigation. As a result of uncertainties regarding the source and scope of the contamination, the large number of PRPs and the varying degrees of responsibility among various classes of potentially responsible parties, the Company's share of liability, if any, cannot be determined at this time. (iii) On May 25, 2000 the California Regional Water Quality Control Board, Central Valley Region (the "Board"), issued a cleanup and abatement order to Pacific-Ultrapower Chinese Station ("Chinese Station"), a general partnership in which one of the Company's subsidiaries owns 50% and which operates a wood-burning power plant located in Jamestown, California. This order arises from the use as fill material, by Chinese Station's neighboring property owner, of boiler bottom ash generated by Chinese Station. The order was issued jointly to Chinese Station and to the neighboring property owner as co-respondents. Chinese Station completed the cleanup during the summer of 2001 and submitted its Clean Closure Report to the Board on November 2, 2001. The Board, by letter dated June 14, 2001, alleged co-respondents have a potential civil liability, as of that date, of $975,000; however, no penalty demand has been issued. This matter remains under investigation by the Board and other state agencies with respect to alleged civil and criminal violations associated with the management of the material. Chinese Station believes it has valid defenses, and has pending a petition for review of the order. (iv) On January 4, 2000 and January 21, 2000, United Air Lines, Inc. ("United") and American Airlines, Inc. ("American"), respectively, named Ogden New York Services, Inc. ("Ogden New York"), in two separate lawsuits filed in the Supreme Court of the State of New York. The lawsuits seek judgment declaring that Ogden New York is responsible for petroleum contamination at airport terminals formerly or currently leased by United and American at New York's Kennedy International Airport. These cases have been consolidated for joint trial. Both United and American allege that Ogden negligently caused discharges of petroleum at the airport and that Ogden New York is obligated to indemnify the airlines pursuant to the Fuel Services Agreements between Ogden New York and the respective airline. United and American further allege that Ogden New York is liable under New York's Navigation Law, which imposes liability on persons responsible for discharges of petroleum, and under common law theories of indemnity and contribution. The United complaint is asserted against Ogden New York, American, Delta Air Lines, Inc., Northwest Airlines Corporation and American Eagle Airlines, Inc. United is seeking $1,540,000 in technical contractor costs and $432,000 in legal expenses related to the investigation and remediation of contamination at the airport, as well as a declaration that Ogden and the airline defendants are responsible for all or a portion of future costs that United may incur. The American complaint, which is asserted against both Ogden New York and United, sets forth essentially the same legal basis for liability as the United complaint. American is seeking reimbursement of all or a portion of $4,600,000 allegedly expended in cleanup costs and legal fees it expects to incur to complete an investigation and cleanup that it is conducting under an administrative order with the State Department of Environmental Conservation. The estimate of those sums alleged in the complaint is $70,000,000. The Company disputes the allegations and believes that the damages sought are overstated in view of the airlines' responsibility for the alleged contamination and that the Company has other defenses under its respective leases and permits with the Port Authority. On January 29, 2002, the court entered a stipulation and order in these cases, staying most discovery until June 24, 2002 while the parties engage in non-binding mediation, which is anticipated to be completed on or before May 31, 2002. (v) On December 23, 1999 Allied Services, Inc. was named as a third party defendant in an action filed in the Superior Court of the State of New Jersey. The third-party complaint alleges that Allied generated hazardous substances to a reclamation facility known as the Swope Oil and Chemical Company Site, and that contamination migrated from the Swope Oil Site. Third-party plaintiffs seek contribution and indemnification from Allied and over 90 other third-party defendants for costs incurred and to be incurred to cleanup. This action was stayed, pending the outcome of first- and second-party claims. The Company has received no further notices in this matter since the stay was entered. As a result of uncertainties regarding the source and scope of contamination, the large number of potentially responsible parties and the varying degrees of responsibility among various classes of potentially responsible parties, the Company's share of liability, if any, cannot be determined at this time. (vi) On January 12, 1998, the Province of Newfoundland filed an Information Against Airconsol Aviation Services Limited ("Airconsol") alleging that Airconsol violated provincial environmental laws in connection with a fuel spill on or about January 14, 1997 at Airconsol's fuel facility at the Deer Lake, Canada Airport. Airconsol contested the allegations and prevailed. The Court voided the Information. The Crown has appealed the Court's decision and the Company contested Airconsol's alleged liability. On January 21, 2002, the Crown abandoned its appeal. (vii) In 1984, the Company sold all of its interests in several manufacturing subsidiaries, some of which used asbestos in their manufacturing processes and one of which was Avondale shipyards, now operated as a subsidiary of Northrop Grumman Corporation. Some of these sold subsidiaries have been and continue to be parties to litigation arising primarily from workplace asbestos exposure. The Company has been named as a party to one such case filed in 2001 in which there are 45 other defendants. The case which is in its early stages and is stayed against the Company by the Chapter 11 proceding, appears to assert that the Company is liable on theories of successor liability. Before the Company's bankruptcy filing, the Company had filed for its dismissal from the case on the basis that it is not a successor to the subsidiary who allegedly caused the plaintiffs asbestos exposure. The Company does not believe it is liable to persons who may assert claims for asbestos related injuries relating to the operations of its former subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of Covanta during the fourth quarter of 2001. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Covanta Energy Corporation (Debtor in Possession) and Subsidiaries PRICE RANGE OF STOCK AND DIVIDEND DATA 2001 2000 - -------------------------------------------------------------------------------- High Low High Low Common: First Quarter ................ 18.125 15.00 14.0625 10.125 Second Quarter................ 22.85 16.05 12.375 7.25 Third Quarter................. 18.84 9.71 17.50 8.75 Fourth Quarter................ 15.25 3.18 16.00 12.375 --------------------------------------------- Preferred: First Quarter................. -No Activity- 75.00 75.00 Second Quarter................ 130.00 110.00 75.00 75.00 Third Quarter................. 105.00 90.00 80.00 80.00 Fourth Quarter................ 81.00 75.00 83.0625 83.0625 --------------------------------------------- On April 1, 2002, Covanta Energy Corporation and certain of its domestic subsidiaries filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. On the same day, the New York Stock Exchange, Inc. suspended trading of the Company's common stock and $1.875 cumulative convertible preferred stock and began processing an application to the Securities and Exchange Commission to delist the Company from the New York Stock Exchange. The Securities and Exchange Commission (the "Commission") by Order dated May 16, 2002 granted the application of the New York Stock Exchange, Inc. for removal of the Common Stock and $1.875 Cumulative Convertible Preferred Stock of Covanta Energy Corporation from listing and registration on the Exchange under the Securities Exchange Act of 1934. The removal from listing and registration on the Exchange of the above issues of the Company became effective at the opening of the trading session on May 17, 2002 pursuant to the Order of the Commission. Until April 1, 2002, Covanta's common and $1.875 preferred stocks were listed on the New York Stock Exchange. As of June 13, 2002 there were approximately 4,730 common stockholders and 620 preferred stockholders. The Company suspended its common stock dividend in 1999. Quarterly dividends of $.46875 were paid for the four quarters of 2001 and 2000 on the $1.875 preferred stock. For additional information concerning the payment of dividends, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. On March 3, 1999, pursuant to an Agreement and Plan of Merger, a subsidiary of Covanta acquired 100% of the issued and outstanding stock of Flight Services Group, Inc. (FSG) from the two individual shareholders (the Shareholders) of FSG. Pursuant to this transaction Covanta issued an aggregate of 207,190 shares of restricted common stock, par value $.50 per share (the Common Stock) to the Shareholders. The Common Stock issued to the Shareholders was exempt from registration pursuant to Rule 501 and 505 of Regulation D of the Securities Act of 1933, as amended (the 1933 Act) and Rule 144 of the Securities Exchange Act of 1934, as amended. The Shareholders executed an Investment Letter agreeing to abide by all of the requirements of the foregoing Rules and Regulations and each share of Common Stock issued to the Shareholders contains a legend to the effect that the shares were acquired for investment and not with a view to the public distribution thereof and will not be transferred in violation of the 1933 Act. Covanta Energy Corporation (Debtor in Possession) and Subsidiaries ITEM 6. SELECTED FINANCIAL DATA - --------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 2001 2000 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- (In thousands of dollars, except per-share amounts) TOTAL REVENUES FROM CONTINUING OPERATIONS............. $1,082,767 $1,020,002 $1,027,693 $ 925,153 $ 960,458 --------- --------- --------- --------- --------- Income (loss) from continuing operations before cumulative effect of change in accounting principle... (231,027) (85,621) (36,290) 37,248 36,787 Income (loss) from discontinued operations............ (143,664) (41,851) 49,722 38,886 Cumulative effect of change in accounting principle... (3,820) --------- --------- --------- --------- --------- Net income (loss)..................................... (231,027) (229,285) (81,961) 86,970 75,673 --------- --------- --------- --------- --------- BASIC EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations before cumulative effect of change in accounting principle... (4.65) (1.73) (0.74) 0.74 0.73 Income (loss) from discontinued operations............ (2.90) (0.85) 1.00 0.78 Cumulative effect of change in accounting principle... (0.08) --------- --------- --------- --------- --------- Total................................................. (4.65) (4.63) (1.67) 1.74 1.51 --------- --------- --------- --------- --------- DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) from continuing operations before cumulative effect of change in accounting principle... (4.65) (1.73) (0.74) 0.73 0.72 Income (loss) from discontinued operations............ (2.90) (0.85) 0.98 0.76 Cumulative effect of change in accounting principle... (0.08) --------- --------- --------- --------- --------- Total................................................. (4.65) (4.63) (1.67) 1.71 1.48 --------- --------- --------- --------- --------- TOTAL ASSETS.......................................... 3,185,826 3,298,828 3,728,658 3,649,044 3,443,981 --------- --------- --------- --------- --------- LONG-TERM DEBT (LESS CURRENT PORTION)................. 1,600,983 1,749,164 1,884,427 1,864,772 1,911,707 --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY................................. 6,244 231,556 442,001 549,100 566,091 --------- --------- --------- --------- --------- SHAREHOLDERS' EQUITY PER COMMON SHARE................ 0.11 4.65 8.92 11.20 11.24 --------- --------- --------- --------- --------- CASH DIVIDENDS DECLARED PER COMMON SHARE.............. .625 1.25 1.25 --------- --------- --------- --------- ---------
Net loss in 1999 includes net after-tax charges of $97.8 million, or $1.99 per diluted share, reflecting costs associated with existing non-core businesses and impairment of certain assets, comprised of $62.5 million, or $1.27 per diluted share, for continuing operations and $35.3 million, or $.72 per diluted share, for discontinued operations. Net loss in 2000 includes net after-tax charges of $56.0 million, or $1.13 per diluted share, reflecting the write-down of net assets held for sale and $60.4 million, or $1.22 per diluted share, reflecting costs associated with non-core businesses and organizational streamlining costs comprised of $45.5 million, or $.92 per diluted share, for continuing operations and $14.9 million, or $.30 per diluted share, for discontinued operations. Net loss in 2001 includes net after tax charges of $212.7 million, or $4.28 per diluted share, reflecting the write-down of and obligations related to net assets held for sale. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's Financial Statements and Notes thereto. BANKRUPTCY FILING On April 1, 2002 ("Petition Date"), Covanta Energy Corporation and 123 of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The pending Chapter 11 Cases (the "Chapter 11 Cases") are being jointly administered for procedural purposes only. International operations, and certain other subsidiaries and joint venture partnerships were not included in the filing. See Notes 1 and 32 to the Consolidated Financial Statements for a more detailed discussion of these Chapter 11 Cases. The Company's Consolidated Financial Statements have been prepared on a "going concern" basis in accordance with accounting principles generally accepted in the United States of America. The "going concern" basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Because of the Chapter 11 Cases and the circumstances leading to the filing thereof, the Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, confirmation of a plan of reorganization, the Company's ability to comply with, and if necessary renew, the terms of the Debtor in Possession Credit Facility (see Notes 15 and 32 to the Consolidated Financial Statements), and the Company's ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet its obligations. There can be no assurances this can be accomplished and if it were not, the Company's ability to realize the carrying value of its assets and discharge its liabilities would be subject to substantial uncertainty. Therefore, if the "going concern" basis were not used for the Company's Consolidated Financial Statements, then significant adjustments could be necessary to the carrying value of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used. The Company's Consolidated Financial Statements do not reflect adjustments that may occur in accordance with the American Institute of Certified Public Accountant's Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which the Company will adopt for its financial reporting in periods ending after April 1, 2002 assuming that the Company will continue as a "going concern". In the Chapter 11 Cases, all or substantially all of the unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to all required parties for approval pursuant to the relevant provisions of the Bankruptcy Code. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 Cases will be segregated and classified as Liabilities Subject to Compromise in the Consolidated Balance Sheets under SOP 90-7. DISCONTINUED OPERATIONS AND NET ASSETS HELD FOR SALE All non-core businesses, including remaining Entertainment and Aviation businesses are classified as net assets held for sale in the Consolidated Balance Sheet. Those businesses held at December 31, 2001 include: the Company's interest in certain entertainment assets in Argentina, Anaheim, California and Ottawa, Canada; its Metropolitan Entertainment subsidiary, a concert promotion business (Metropolitan); and the Port-Authority related component of its aviation fueling business. The other non-core business included in net assets held for sale at December 31, 2001 was CGS, with a zero net asset value resulting from a $0.4 million write-down in 2001. The Company sold CGS in January 2002, but received no proceeds. In March 2002, the Company closed on the sale of Metropolitan and received $3.1 million. In March 2002, the Company signed a contract for the sale of Casino Iguazu (one of the entertainment assets in Argentina) for $3.5 million in cash. The Company expects to sell the remaining businesses during 2002. The successful completion of the sales processes for remaining non-core assets and the actual amounts received may be impacted by general economic conditions in the markets in which these assets must be sold and necessary regulatory and third party consents. Net assets held for sale at December 31, 2001 and 2000 (expressed in thousands of dollars) were as follows: 2001 2000 ---- ---- Current Assets $15,436 $ 73,237 Property, Plant and Equipment - Net 4,044 19,939 Other Assets 6,348 73,310 Notes Payable and Current Portion of Long-Term Debt (28,651) Other Current Liabilities (18,859) (52,053) Long-Term Debt (670) Other Liabilities (347) (14,498) ------- -------- Net Assets Held for Sale $ 6,622 $ 70,614 ======= ======== With the exception of the operations of Datacom and CGS, the operations of these businesses are included in discontinued operations for the years ended December 31, 2000 and 1999. At December 31, 2000 the Company had substantially completed the remaining unsold Aviation and Entertainment business as net assets held for sale. Also, at December 31, 2000, the Company applied the provisions of SFAS No. 121 to the net assets held for sale. SFAS No. 121 requires assets held for sale to be valued on an asset by asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, Covanta management considered recent appraisals, valuations, offers and bids, and its estimate of future cash flows related to those businesses. As a result, the Company recorded a pre-tax loss of $77.2 million in the year 2000. This amount relates entirely to businesses previously classified in the Entertainment segment. This amount is shown in write-down and obligations related to net assets held for sale in the 2000 Statement of Consolidated Operations and Comprehensive Loss. At December 31, 2000, the valuation provision of $3.7 million provided against them during 2000 was reversed in discontinued operations. In accordance with the provisions of SFAS No. 121, the assets included in net assets held for sale have not been depreciated commencing January 1, 2001, which had the effect of decreasing the loss before income taxes in 2001 by approximately $4.6 million. During 2001, the Company sold several of these assets including its aviation businesses in Spain, Italy and Colombia and the portion of its fueling business that does not serve airports operated by the Port Authority of New York and New Jersey (Non-Port Authority Fueling). Gross cash proceeds from the sales of businesses that were included in net assets held for sale were approximately $38.8 million during 2001. During 2001, the Company had reached a definitive agreement to sell the portion of its fueling business that is related to airports operated by the Port Authority. However, given the impact of the events of September 11, 2001 on the aviation industry and the Port Authority, no closing date was set for that Port Authority component pending Port Authority approval of the sale. The Company is reviewing this contract in light of its Chapter 11 filing. The following is a list of Aviation businesses sold in 2001, the gross proceeds from those sales and the realized gain or (loss) on those sales (in thousands of dollars): Description of Business Gross Proceeds Realized Gain (Loss) - ----------------------- -------------- -------------------- Non-Port Authority Fueling $ 15,200 $ (4,026) Colombia Airport Privatization 9,660 1,404 Rome, Italy Aviation Ground Operations 9,947 1,855 Spain Aviation Ground Operations 1,753 (261) Aviation Fixed Base Operations 2,098 777 Other 197 (2,517) --------- ---------- $ 38,855 $ (2,768) ========= ========== The above realized loss of $2.8 million is included in net gain (loss) on sale of businesses in the 2001 Statement of Consolidated Operations and Comprehensive Loss. During the year ended December 31, 2001, the Company also disposed of Datacom and its Australian Venue Management operations. Those disposals resulted in no cash proceeds. Accordingly, prior to those disposals, the Company recorded write-downs of those two businesses based on negotiated sales prices, resulting in pre-tax charges of $16.8 million and $2.0 million, respectively. Also, various parcels of land and other assets held for sale were written down based on the Company's estimates of sales prices, resulting in an additional charge of $1.0 million. At December 31, 2001, because of the economic turmoil and subsequent devaluation of the peso in Argentina, the Company wrote down to zero its investments in the La Rural exposition center, an entertainment venue in Argentina. The Company also wrote down to a net realizable value of $2.4 million its investment in Casino Iguazu in Argentina based on the status of negotiations evidenced by the subsequent contract to sell the Casino for $3.5 million. The Company estimated $1.1 million of costs to sell the Casino. These write-downs resulted in pre-tax charges of $16.4 million and $4.5 million, respectively. In addition, at December 31, 2001, the Company considered the status of current negotiations on the potential sale of Metropolitan and the negative impact on the concert business of the event of September 11, 2001,and wrote-down Metropolitan to $2.5 million resulting in a pre-tax charge of $5.4 million. The carrying value of the Company's assets relating to the Arrowhead Pond, the Centre and the Team (all as defined below) have been materially adversely affected by events occurring at the end of 2001 and in 2002 to date. On December 21, 2001 the Company announced that its inability to access the capital markets, the continuing delays in payment of remaining California energy receivables and delays in the sale of aviation and entertainment assets had adversely impacted Covanta's ability to meet cash flows covenants under its Master Credit Facility. The Company also stated that the banks had provided a waiver for the covenants only through January of 2002, had not agreed to provide the additional short term liquidity the Company had sought and that the Company was conducting a comprehensive review of its strategic alternatives. On December 27, 2001 and January 11, 2002 the Company's credit rating was reduced by Moody's and Standard & Poor's. These downgrades triggered requirements to post in excess of $100 million in performance and other letters of credit for Energy projects and for which the Company did not have available commitments under its Master Credit Facility. Subsequently, the Company's credit ratings were further reduced. The Company required further waivers from its cash flow covenants under its Master Credit Facility for the period after January 2002. On January 31, 2002 the Company announced that it had obtained waivers through the end of March 2002, subject, however, to its meeting stringent cash balance requirements set by its banks. Among other things, these cash balance requirements prevented the Company from paying interest due on March 1, 2002 on its 9.25% Debentures. In addition, the restrictions prevented contributions to the working capital needs of the Ottawa Senators Hockey Club Corporation (the "Team") of the National Hockey League (the "NHL"), the prime tenant of the Corel Centre near Ottawa, Canada (the "Centre"). These events resulted in draws during March 2002 of the letters of credit for the $19.0 million and $86.2 million guarantees discussed below with respect to the Team and the Centre, respectively. In return for drawing on the letters of credit, the Company obtained an interest in the loans that had been secured by the letters of credit that had been drawn. On April 1, 2002, the Company filed for relief under Chapter 11 of the Bankruptcy Code. The events leading up to the bankruptcy filing and the filing itself have materially adversely affected the Company's ability to manage the timing and terms on which to dispose of its interests and related obligations with respect to the Centre, the Team and the Arrowhead Pond, as described below. With respect to the Centre and the Team, these events led to the termination, in 2002, of a pending sale of limited partnership interests and related recapitalization of the Team that, if completed as contemplated, would have been expected to stabilize the finances of the Team and Centre for a considerable period of time. Given the Company's inability to fund short-term working capital needs of the Team, and given the events described above, the Company is not in a position to determine the timing and terms of disposition of the Team and the Centre in a manner most advantageous to the Company. Currently, a process is underway to dispose of both in connection with the NHL and the senior secured lenders to the Team. Based upon all currently available information, including an initial offer to purchase dated June 20, 2002 and certain assumptions as to the future use, and considering the factors listed above, the Company recorded a pre-tax impairment charge as of December 31, 2001 of $140.0 million related to the Centre and the Team. The $140.0 million charge, which has been included in write-down of and obligations related to net assets held for sale in the 2001 Statement of Consolidated Operations and Comprehensive Loss, represents the Company's estimate of the net cost to sell its interests in the Centre and Team and to be discharged of all related obligations and guarantees. The resulting estimated after tax cost of $118.8 million (net of tax of $21.2 million) has been included in Obligations Related to Net Assets Held for Sale on the December 31, 2001 Consolidated Balance Sheet. However, in view of the proposed sales of these interests, and the need for approval by the Bankruptcy Court, DIP lenders and NHL of such transactions, uncertainty remains as to the actual amount of the impairment. The Company's guarantees at December 31, 2001 comprised a: (1) $19.0 million guarantee of the Team's subordinated loan payable; (2) $86.2 million guarantee of the senior term debt of the Centre; (3) $45.3 million guarantee of the senior subordinated debt of the Centre for which $6.3 million in cash collateral has been posted by the borrower; (4) $3.1 million guarantee of senior secured term debt of the team; (5) guarantee of the interest payments on $37.7 million of senior secured term debt of the Team; (6) guarantee to make working capital advances to the Centre from time to time in amounts necessary to cover any shortfall between certain operating cash flows, operating expenses and debt service of the Centre; and (7) $17.5 million cost for terminated foreign exchange currency swap agreements. The swap agreements had a notional amount of $130.6 million and were entered into by the Centre related to the $86.2 million senior term and $45.3 million senior subordinated debt. These swap agreements had extended originally through December 23, 2002 but were terminated by the counter-parties in May 2002. The Company's guarantees arose during 1994, when a subsidiary of Covanta entered into a 30-year facility management contract at the Centre pursuant to which it agreed to advance funds to the Team, and if necessary, to assist the Centre's refinancing of senior secured debt incurred in connection with the construction of the Centre. In compliance with these guarantees, the Company entered into agreements pursuant to which it was required to purchase the $19.0 million and $86.2 million series of debt referred to above if such debt was not timely refinanced or upon the occurrences of certain defaults. On March 12, 2002 the holders of the secured subordinated debt of the Team required the Company to purchase such debt in the total amount (together with accrued and unpaid dividends) of $19.0 million. On March 14, 2002, the holders drew on a $19.0 million letter of credit for which the Company was the reimbursement party. On March 22, 2002, as the result of defaults occurring in 2002, the holders of the senior secured debt required the Company to purchase such debt in the total amount (together with accrued and unpaid dividends) of $86.2 million. The holders drew on a letter of credit on March 27, 2002 for which the Company was the reimbursement party to fund the purchase. The remaining series of subordinated secured debt of the Centre in the amount of $45.3 million is also subject to a put right pursuant to the terms of the underlying agreements. But such subordinated secured debt has not been put to the Company, although the holder has the right to do so. The obligation to purchase such debt is not secured by a letter of credit. In addition to the $140.0 impairment charge, and following the termination of the pending sale of limited partnership interests discussed above, the Company also recorded a pre-tax charge of $5.5 million at December 31, 2001 to fully reserve against receivables due from the Team. The $5.5 million charge has been included in Other Operating Costs and Expenses in the 2001 Statement of Consolidated Operations and Comprehensive Loss. The events set forth above have also materially adversely affected the Company's ability to manage the timing and terms on which to dispose of its interest and related obligations in the Arrowhead Pond in Anaheim, California (the "Arrowhead Pond"). The Company's limited ability to fund short term working capital needs at the Arrowhead Pond under the DIP credit facility and the need to resolve the bankruptcy case may create the need to dispose of the Arrowhead Pond presently when Mighty Ducks attendance and the concert business, a prime driver of revenues, is in substantial decline and attendance at the building is not at levels consistent with past experience. Based upon all currently available information, including a recently received valuation and certain assumptions as to the future use, and considering the effects of the events set forth above, the Company recorded an impairment charge as of December 31, 2001 of $74.4 million related to the Company's interest in the Arrowhead Pond. The $74.4 million charge, which has been included in write-down of and obligations related to net assets held for sale in the 2001 Consolidated Statement of Consolidated Operations and Comprehensive Loss, represents the write-off of the $16.4 million previous carrying amount at that date and the Company's $58.0 million estimate of the net cost to sell its interests in the long-term management agreement discussed in the following paragraph. The resulting estimated net after tax cost to sell of $37.1 million (net of tax of $20.9) has been included in Obligations Related to Net Assets Held for Sale on the December 31, 2001 Consolidated Balance Sheet. However, in view of the proposed sales of this interest, and the need for approval by the Bankruptcy Court and DIP Lenders of such transactions, uncertainty remains as to the actual amount of the impairment. A subsidiary of the Company is the manager of the Arrowhead Pond under a long-term management agreement. The Company and the City of Anaheim are parties to a reimbursement agreement to the financial institution which issued a letter of credit in the amount of approximately $117.2 million which provides credit support for Certificates of Participation issued to finance the Arrowhead Pond project. As part of its management agreement, the manager is responsible for providing working capital to pay operating expenses and debt service (including swap exposure and reimbursement of the lender for draws under the letter of credit including draws related to an acceleration by the lender of all amounts payable under the reimbursement agreement) if the revenues of Arrowhead Pond are insufficient to cover these costs. The Company has guaranteed the obligations of the manager. The City of Anaheim has given the manager notice of default under the management agreement. In such notice, the City indicated that it did not propose to exercise its remedies at such time. The Company is also the reimbursement party on a $26.0 million letter of credit and a $1.5 million letter of credit relating to a lease transaction for Arrowhead Pond. The $26.0 million letter of credit, which is security for the lease investor, can be drawn upon the occurrence of an event of default. The $1.5 million letter of credit is security for certain indemnification payments under the lease transaction documents. The lease transaction documents require the Company to provide additional letter of credit coverage from time to time. The additional amount required for 2002 is estimated to be approximately $11.5 million, which the Company has not provided. Notices of default have been delivered in 2002 under the lease transaction documents. As a result of the default, parties may exercise remedies, including drawing on letters of credit and recovering fees to which the manager may be entitled for managing Arrowhead Pond. The Company's exposure upon the occurrence of an event of default under the lease transaction is estimated to be approximately $37.5 million, which is secured by the $26.0 million letter of credit among other things. The Company is also obligated to fulfill its indemnification obligations under the lease transaction documents, the amount of which cannot be determined at this time. Such indemnification obligations are secured in part by the $1.5 million letter of credit. The parties to the lease transaction have agreed to delay the exercise of remedies for the existing defaults until October 21, 2002. The Company is exploring alternatives and no additional impairment charge related to the lease transaction for the Arrowhead Pond was considered necessary at December 31, 2001. All of the above pre-tax SFAS No. 121 charges are included in write-down of net assets held for sale in the 2001 Statement of Consolidated Operations and Comprehensive Loss. 2001 VS. 2000 Continuing Operations: Revenues from continuing operations for 2001 were $62.8 million higher than 2000, primarily reflecting an increase in Other segment revenues of $47.1 million, and an increase in Energy segment revenues of $14.1 million. Service revenues in 2001 increased $6.2 million compared to 2000. Energy service revenues decreased $54.0 million compared to 2000 primarily due to a decrease of $72.0 million related to the environmental consulting business, which was sold in November 2000. This decrease was partially offset by an increase of $18.0 million due mainly to contractual annual escalation adjustments at many plants, increases in the supplemental waste business, and a water service operating agreement with the City of Bessemer, Alabama which began in October 2000. The Other segment's service revenues increased $60.1 million mainly due to the inclusion in continuing operations of $65.6 million related to unsold Aviation and Entertainment businesses in 2001 which were included in discontinued operations in 2000, partially offset by a decrease of $5.5 million due to the sale of Applied Data Technology, Inc. ("ADTI") in 2000. Electricity and steam sales revenues increased $66.4 million compared to 2000, attributable mainly to the Samalpatti and Madurai projects in India commencing operation in 2001, and increased production and favorable energy pricing experienced primarily at plants in California as well as increased pricing experienced at certain waste-to-energy plants with merchant energy capacity. Equity in income of investees and joint ventures decreased $6.4 million compared to the year ended December 31, 2000. That decrease is primarily attributable to decreases at joint ventures in California experiencing lower contractual energy rates and a write-down of assets recorded at a joint venture in Bolivia resulting from closing down part of a generating facility due to lower demand in that country, partially offset by an increase in earnings at the Quezon project in the Philippines, which commenced operations in the second quarter of 2000. Construction revenues decreased $6.3 million compared to 2000. The decrease is attributable to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, the decision to wind down activities in the civil construction business, and the completion of construction of a wastewater project in the third quarter of 2000, partially offset by the commencement of the Tampa Bay water desalination project in 2001, and increased activity in Dual Sand(TM) contracts in 2001. Other sales - net decreased $14.0 million compared to 2000 due to decreased activity in the operations of Datacom, which was sold in the fourth quarter of 2001. Other revenues - net increased $18.6 million versus 2000. Other revenues in 2001 included $19.7 million of insurance settlement proceeds and other matters related to the Lawrence, Massachusetts facility, $5.7 million of development fees received and other matters related to the Quezon plant in the Philippines, insurance proceeds of $1.4 million related to a wastewood plant, and insurance proceeds of $2.8 million relating to sold Aviation and Entertainment businesses. 2000 included a $12.2 million insurance settlement related to the Lawrence facility. Net loss on sale of businesses for 2001 included the loss of $4.0 million on the sale of the Non-Port Authority portion of the Aviation fueling business, and a $2.0 million loss on the sale of the Australian venue management businesses. These losses were partially offset by a $1.9 million gain on the sale of the aviation ground handling operations at the Rome, Italy airport, a gain of $.8 million representing an adjustment on the sale of the Aviation fixed base operations, and a gain of $1.4 million on the sale of the Company's interest in the airport privatization business in Colombia, South America. The net loss on sale of businesses in 2000 included a loss of $1.0 million on the sale of ADTI. Total costs and expenses increased by $193.4 million in 2001, compared to 2000, due mainly to the increased write-down of and obligations related to net assets held for sale of $183.6 million. The Energy's segment's plant operating expenses decreased by $19.5 million in 2001 compared to 2000. Plant operating expenses decreased due primarily to a decrease of $61.6 million in the environmental consulting business, which was sold in November 2000 and the net reversal of allowances for doubtful accounts of $2.6 million in 2001 related to receivables from California utilities compared to provisions of $6.2 million in 2000 (see Liquidity/Cash Flow below). That decrease was partially offset by increased fuel costs attributable to higher natural gas and oil prices, higher generation, primarily at waste-wood plants in California, $33.1 million of increased expenses due to the commencement of operations at the Samalpatti and Madurai projects, and the commencement of operations at a wastewater project. Construction costs decreased by $4.1 million in 2001 compared to 2000. The decrease is due to the completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, completion of the construction of a wastewater project in the third quarter of 2000, and a decrease in the civil construction business (which business management anticipates will cease in 2002), partially offset by an increase due to the commencement of construction of the water desalination project, and increased activity in Dual Sand(TM) contracts in 2001. Depreciation and amortization expense decreased by $8.3 million in 2001 compared to 2000. This decrease is primarily related to a $13.8 million decrease in Corporate and Other segment depreciation and amortization, which in 2000 included $11.4 million of accelerated amortization of a new data processing system. Also, Energy's depreciation and amortization expense increased by $5.6 million in 2001 compared to 2000 primarily due to commencement of operation of the Samalpatti and Madurai projects in 2001, partially offset by the effect of accelerated depreciation in 2000 related to certain air pollution control equipment being replaced in connection with the Clean Air Act Amendments of 1990. Debt service charges increased by $2.4 million in 2001 compared to 2000. The increase is primarily due to project debt outstanding related to the Samalpatti and Madurai projects, which were not consolidated in 2000, partially offset by lower debt service expense due to lower project debt related to various facilities caused by redemption and maturity of bonds. The Energy segment had one interest rate swap agreement outstanding that resulted in additional debt service expense of $2.2 million and $1.1 million for 2001 and 2000, respectively. Other operating costs and expenses for 2001 increased $43.1 million due to activity in the Other segment. This increase was due mainly to the inclusion in continuing operations of unsold Aviation and Entertainment businesses in 2001, which were included in discontinued operations in 2000. This increase was partially offset by the effect of the sale of ADTI in 2000 and the sale of Datacom in November 2001. Costs of goods sold for 2001 decreased $4.6 million compared to 2000 due mainly to the sale of Datacom in November 2001. Selling, administrative and general expenses for 2001 increased $9.2 million compared to 2000. This increase is due mainly to the inclusion in continuing operations of the unsold Aviation and Entertainment businesses in 2001. That increase was partially offset by a decrease in corporate overhead expenses that was fundamentally the result of a decrease in most overhead costs due to the wind-down of the Company's New York office. Selling, administrative and general expenses for the Energy segment decreased $6.8 million compared to 2000 principally due to the sale in November 2000 of the environmental consulting business. Project development expenses in 2001 increased by $8.8 million from 2000. The increase is mainly due to the write-off of development costs related to an energy project in California, offset by a decrease in overhead and other costs related to other development, mainly in the Asian market. Other expenses - net decreased $17.4 million compared to 2000. This decrease is due mainly to costs incurred in 2000 of $18.0 million representing creditors' fees and expenses incurred in connection with the waiver by certain creditors of certain covenants and the extension of credit through November 2000, and $4.8 million representing fees and expenses incurred in connection with financing efforts to support the then-proposed recapitalization plan. 2000 also included $16.6 million related to Energy's cost-reduction plan and a $2.8 million impairment write-down of one project in China. In 2001, the effect of these 2000 costs was partially offset by the amortization of $25.5 million of the Company's costs in securing its Revolving Credit and Participation Agreement (the Agreement) in March 2001 and subsequent amendments. Such costs are being amortized through March 2002. Interest expense - net in 2001 decreased $5.1 million compared to 2000. Corporate interest expense-net decreased $2.4 million primarily due to lower average debt outstanding and lower rates on variable-rate debt, partially offset by a decrease in interest income on cash balances. The Energy segment's interest expense-net decreased by $3.9 million in 2001 compared to 2000 due mainly to interest income on cash balances and a decrease in interest expense caused mainly by payments on debt, primarily debt associated with the Quezon project. That debt was fully paid in March 2001. These decreases were partially offset by the Other segment's interest expense-net which increased $1.3 million due to the inclusion in continuing operations of the unsold Aviation and Entertainment businesses in 2001. The effective tax rate for 2001 was 7.1% compared to 29.7% for 2000. The lower effective rate in 2001 was primarily due to increased pre-tax losses in the current year including certain write-downs of and obligations related to net assets held for sale and dispositions for which tax benefits were not recognized through a valuation allowance offset by increased tax expense related to higher foreign income in 2001. See Note 23 to the Consolidated Financial Statements for a more detailed reconciliation of variances from the Federal statutory income tax rate. Discontinued Operations: In 2000, the loss from discontinued operations totaled $143.7 million. The loss before interest and taxes from discontinued operations was $169.5 million, primarily reflecting net losses of $97.0 million on the disposal of Aviation and Entertainment businesses, legal, accounting, consulting and overhead expenses incurred in connection with the discontinuance of those businesses, and accelerated depreciation in connection with shortened estimated useful lives of management information systems. Property, plant and equipment - net increased $111.9 million during 2001 due mainly to the acquisition of majority ownership interests in two energy project companies causing the consolidation of those companies, which were previously accounted for under the equity method. 2000 VS. 1999 Continuing Operations: Revenues from continuing operations for 2000 were $7.7 million lower than 1999, primarily reflecting a decrease in Corporate and Other segment revenues of $33.7 million, partially offset by an increase in Energy segment revenues of $26.0 million. Service revenues in 2000 decreased $13.4 million compared to 1999. Energy service revenues increased $4.4 million compared to 1999 primarily due to increased production and contractual annual escalation adjustments at many plants aggregating $7.6 million, offset by a decrease of $3.2 million in the environmental consulting business that was sold in November 2000. The Other segment's service revenues decreased $17.8 million mainly due to the sale of ADTI in the first quarter of 2000. Electricity and steam sales revenue increased $71.0 million compared to 1999 attributable mainly to increased production and to favorable energy pricing experienced primarily at power plants in California, including incremental revenues from the acquisition of the remaining interest in a California plant during the second quarter of 1999. The commencement of operations during 1999 of projects in Thailand and the Philippines, as well as increased pricing experienced at certain waste-to-energy plants with merchant energy capacity, also contributed to the overall increase in this category. Equity in income of investees and joint ventures increased $11.1 million compared to the year ended December 31, 1999. Approximately $9.4 million of the increase is attributable to the commencement of operations of projects in Asia. The remaining increase is mainly due to increased generation at existing projects. Construction revenues decreased $50.1 million compared to 1999. The decrease is attributable to the near completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990, the decision to wind down activities in the civil construction business and the completion of a wastewater project in 2000. Other sales - net decreased $9.7 million due mainly to reduced activity in the operations of Datacom associated with the Chapter 11 bankruptcy filing in March 2000 of Genicom Corporation (Genicom), its major customer. Other revenues-net decreased $9.9 million from 1999. Other revenues in 2000 included $12.2 million and in 1999 included $7.8 million of insurance settlements relating to the Lawrence, Massachusetts facility. 1999 also included a gain on the sale of an investment of $5.1 million and a $9.2 million gain on the termination and restructuring of the Tulsa, Oklahoma facility's operating contract. Net gain (loss) on sale of businesses in 2000 includes a $1.1 million loss on the sale of ADTI. 1999 includes a $5.7 million gain on the sale of a joint venture interest. Total costs and expenses increased by $65.6 million in 2000 compared to 1999. The increase reflects an increase in the Energy segment of $10.0 million and an aggregate increase in Corporate and the Other segment of $55.6 million. The Energy segment's plant operating expenses increased by $54.1 million in 2000 compared to 1999 due primarily to a full year of consolidated operations in 2000 related to the acquisition of the remaining interest in a California plant and a full year of operations in 2000 of plants in the Philippines and Thailand, both of which commenced commercial operations during the second quarter of 1999. Construction costs decreased by $46.5 million in 2000 compared to 1999. This decrease is due in part to the decline in the civil construction business, which business management anticipates will cease in 2001, the near completion of the retrofit construction activity mandated by the Clean Air Act Amendments of 1990 and the completion of a wastewater project in 2000. Depreciation and amortization expense increased by $8.9 million in 2000 compared to 1999. This increase is primarily related to an increase in Corporate depreciation and amortization of $6.2 million due mainly to the accelerated amortization of a new data processing system. Also, the Energy segment's depreciation and amortization increased $2.6 million compared to 1999 primarily due to a full year of operating results in 2000 (versus a partial year in 1999) at the plant in California and the commencement of operations of the plants in the Philippines and Thailand. Debt service charges decreased $3.7 million in 2000 compared to 1999. This amount includes a $6.9 million decrease due to lower project debt outstanding on various facilities caused by redemption and maturity of bonds, partially offset by an increase of $3.2 million due to a full year of expense related to commencement of operations of the plants in the Philippines and Thailand that began operations during 1999. The Energy segment had one interest rate swap agreement outstanding that resulted in additional debt service expense of $1.1 million and $1.7 million for 2000 and 1999, respectively. The effect of this swap on the weighted-average interest rate of project debt was not significant. Other operating costs and expenses decreased $.9 million from 2000 due to activity in the Other segment. This decrease was mainly associated with lessened activity at ADTI of $1.7 million as a result of its sale and the write-off of goodwill related to ADTI in 1999 of $7.8 million. In addition, operating costs and expenses at Datacom decreased by $4.0 million primarily due to write-downs in 1999 of obsolete inventory, receivables and other assets totaling $15.2 million, partially offset by a write-down of receivables in 2000 of $6.5 million and higher costs related to the bankruptcy of Genicom. These decreases were partially offset by $8.7 million of accruals for workers' compensation insurance related to other sold businesses. Costs of goods sold decreased $23.7 million compared to 1999 due in part to activity in the Other segment. Costs of goods sold at ADTI decreased $12.6 million because of its sale in 2000. Datacom's costs of goods sold decreased $10.7 million due mainly to lessened activity caused by the Genicom bankruptcy filing. Selling, administrative and general expenses decreased $23.2 million compared to 1999 mainly due to unallocated corporate overhead expenses. This decrease is fundamentally the result of a decrease in Corporate severance and an employment contract termination settlement together totaling $33.0 million and a decrease in most other overhead costs due to the wind down of the New York headquarters office. These decreases were partially offset by an increase in professional fees relating to the sale of non-core business and related issues of $5.1 million. Selling, administrative and general expenses for the Energy and Other segments remained relatively constant. Project development expenses increased $1.2 million from 1999. The overall increase is due primarily to increased development activities in domestic and European markets during 2000. Other expenses - net increased $22.2 million compared to 1999, including an increase in the Energy segment of $.7 million and an increase in Corporate of $21.5 million. In 2000, other expenses - net in the Energy segment included a charge of approximately $16.6 million related to the cost reduction plan approved and effected in December 2000, whereby the Company decided to reorganize its operating structure and to redirect its development spending program away from the Asian markets. This has resulted in overhead reductions both domestically and internationally and the announced closure of the Company's Hong Kong headquarters. In addition, in 2000 an impairment write-off was taken of approximately $2.8 million related to one project in China. The 1999 amount includes asset impairment charges of approximately $28.4 million related to the environmental consulting and engineering business that was sold in November 2000 at approximately its revised carrying value. In late 1999, the Company approved a plan for disposition of its subsidiary, Ogden Environmental and Energy Services Company, Inc. (OEES). OEES consisted of a construction business, an environmental consulting and engineering business, and a separate Spanish environmental construction and engineering business. Since no potential buyer could be found for the entire OEES business, the Company decided to dispose of each part of the OEES business separately. As such, the Company performed tests for impairment in accordance with Statement of Financial Accounting Standards (SFAS) No. 121 of each business and, based on the estimated sale prices of those businesses, determined that goodwill related to the U.S. construction business and the U.S. environmental consulting and engineering business should be written down to zero, resulting in a $20.0 million charge. The fixed assets of those businesses were also written down by $1.8 million based on the same rationale. The Company also received an offer from a potential buyer of the Spanish business and, therefore, based on the estimated net realizable value indicated by that offer, wrote down goodwill related to that business and fixed assets of that business by $3.0 million and $1.6 million, respectively. Covanta also estimated $2.0 million for costs to sell all three parts of the business in determining their net realizable value. That was partially offset by income of $9.0 million related to the reversal of allowances for doubtful accounts previously established that were no longer required because the Company purchased the previously unowned interest in the power plant to which these reserves related. As a result of that purchase, the Company was able to control certain leased assets of the power plant, which ultimately made payment by the power plant of those related receivables likely. Other expenses - net at Corporate in 2000 include $18.0 million of creditors' fees and expenses and $4.8 million representing fees and expenses incurred in connection with financing efforts to support the Company's balance sheet recapitalization plan (see Liquidity/Cash Flow below). Write-down of net assets held for sale of $77.2 million represents the write-down to estimated fair value (less costs to sell) of the non-core businesses previously included in the Entertainment segment. The Company applied the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" to all the net assets held for sale. SFAS No. 121 requires assets held for sale be valued on an asset by asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, the Company considered recent appraisals, valuations, offers and bids, and in some cases, its estimate of future cash flows related to those businesses. Interest expense - net increased $4.7 million from 1999. The Energy segment's interest expense - net increased $4.9 million from 1999 due to higher average debt outstanding. Corporate interest expense - net decreased $.7 million compared to 1999. Corporate interest expense in 2000 increased $3.4 million due primarily to increased borrowing on the Company's revolving line of credit, and higher rates on adjustable rate debt. Corporate interest income in 2000 increased $4.1 million due mainly to interest earned on proceeds from sales of assets partially offset by interest earned in 1999 on proceeds from an energy contract repayment. The effective tax rate for 2000 was 29.7% compared with 18.7% for 1999. This increase of 11.0% representing tax benefits was primarily due to the write-off in 1999 of goodwill for which the Company did not have any tax basis, lower foreign taxes and lower non-deductible foreign losses in 2000, partially offset in 2000 by a valuation allowance relating to tax assets resulting from the write-down of assets held for sale. Note 23 to the Consolidated Financial Statements contains a more detailed reconciliation of variances from the Federal statutory income tax rate. Discontinued Operations: Losses from discontinued operations for 2000 were $143.7 million, representing a decrease in earnings of $101.8 million from the comparable period of 1999. Loss before interest and taxes from discontinued operations was $169.5 million in 2000 compared to $37.2 million in 1999. This $132.3 million decrease in income was primarily associated with losses on the sales of businesses in 2000 of $97.0 million compared to the gains on the sales of businesses in 1999 of $16.8 million. Businesses sold include Entertainment's Food and Beverage/Venue Management business, and the Themed Attractions/Parks business, and Aviation's Ground Handling business and Fixed Based Operations business. In addition, Aviation's operations, exclusive of sales of businesses, decreased $22.2 million primarily due to increased overhead costs of $9.2 million representing mainly professional fees relating to the sale of businesses, decreases in the fueling business of $4.9 million representing higher insurance costs and lower activity at certain locations, decreases in the ground services business of $16.7 million caused mainly by lower results in Europe, Asia and domestic operations and an increase in workers' compensation expense of $6.1 million, partially offset by a decrease in severance charges of $13.7 million. Entertainment's operations, exclusive of sales of businesses, decreased $3.6 million compared to 1999. This is primarily due to decreases in the Food and Beverage/Venue Management business of $10.4 million and the Themed Attractions/Parks business of $16.6 million primarily as a result of those businesses being sold. The decrease also includes increased overhead costs of $3.6 million representing mainly professional fees relating to the sale of businesses, an increase in workers' compensation expense of $3.7 million and in 1999 a $7.2 million gain on a series of food and beverage/venue management contract buyouts. These decreases are partially offset by a decrease in severance charges of $12.1 million and in 1999 a charge of $10.5 million relating to a non-refundable deposit and related expenditures for the proposed purchase of Volume Services America ("VSA"). In addition, in 1999, the Company reached agreements to sell its interest in the Grizzly Nature Center and its interest in a casino operation in Aruba, resulting in losses of $4.0 million and $2.5 million, respectively. In 1999, the Company also wrote off unrecoverable contract acquisition costs at two sport facilities, $5.0 million related to the Great Western Forum and $1.5 million related to the U.S. Air Arena, both of which had ceased to be utilized by professional sports teams. The Company also abandoned its casino development activities in South Africa resulting in charges of $7.3 million. In addition to the Energy segment's swap, the Company had three interest rate swap agreements covering notional amounts of $1.6 million (decreasing to zero), $2.7 million and $2.8 million (both amortizing to $2.1 million on their termination dates) during 2000. The first swap agreement expired in November 2000 and was entered into to convert Entertainment's $1.6 million variable rate debt to a fixed rate. The other swap agreements, which were denominated in Hong Kong dollars and were terminated in November 2000, were entered into to convert Aviation's $7.5 million variable rate debt to a fixed rate. During 1999 the Company also had three other interest rate swaps outstanding with a total notional amount of $3.5 million which expired in September and October 1999. These agreements resulted in additional interest expense in 2000 and 1999 of $.4 million and $.5 million, respectively, including $.2 million in 2000 for terminating those swaps. These amounts were included in discontinued operations. The effect of these swap agreements on the weighted average interest rate was not significant. CAPITAL INVESTMENTS AND COMMITMENTS: For the year ended December 31, 2001, capital investments for continuing operations amounted to $61.5 million, substantially all of which was for Energy. At December 31, 2001, capital commitments for continuing operations amounted to $7.0 million for normal replacement and growth in Energy. Other capital commitments for Energy as of December 31, 2001 amounted to approximately $12.9 million. This amount includes a commitment to pay, in 2008, $10.6 million for a service contract extension at an energy facility. In addition, this amount includes $2.3 million for an oil-fired project in India, which commenced operations in September 2001. The Company's contractual obligations, including debt and leases, as of December 31, 2001 are as follows (expressed in thousands of dollars): Payments Due by Period ---------------------- Less than 4 to 5 After Total one year 1 to 3 years years 5 years ----- -------- ------------ ------- ------- Total Long-Term Debt $1,727,184 $126,201 $262,910 $241,997 $1,096,076 Less: Non-Recourse Long-Term Debt (1,415,493) (113,112) (240,581) (241,527) (820,273) Convertible Subordinated Debentures 148,650 148,650 Total Operating Leases 548,468 43,333 74,492 61,562 369,081 Less: Non-Recourse Operating Leases (420,277) (36,298) (62,382) (46,979) (274,618) Obligations Related to Net Assets held 198,000 198,000 for Sale Other Long-Term Obligations 170,785 93,555 10,807 66,423 -------- -------- -------- ------- -------- Total Contractual Obligations $957,317 $366,774 $127,994 $25,860 $436,689 ======== ======== ======== ======= ========
The Company's other commitments as of December 31, 2001 are as follows (expressed in thousands of dollars): Commitments Expiring by Period ------------------------------ Less than More than Total one year one year ----- -------- -------- Standby Letters of Credit $279,216 $279,216 $ Surety Bonds 166,270 83,754 82,516 Guarantees 162,946 113,374 49,572 -------- -------- -------- Total Other Commitments $608,432 $476,344 $132,088 ======== ======== ======== See below, Liquidity/Cash Flow and the Notes to the Consolidated Financial Statements for a description of the Company's contractual and other commitments as of December 31, 2001. In addition, Covanta and certain of its subsidiaries have issued or are party to performance bonds and guarantees and related contractual obligations undertaken mainly pursuant to agreements to construct and operate certain energy, entertainment and other facilities. In the normal course of business, they also are involved in legal proceedings in which damages and other remedies are sought. (See Liquidity/Cash Flow below.) The Company is engaged in ongoing investigation and remediation actions with respect to three airports where it provides aviation fueling services on a cost-plus basis pursuant to contracts with individual airlines, consortia of airlines and operators of airports. The Company currently estimates the costs of those ongoing actions will be approximately $1.0 million (over several years), and that airlines, airports and others should reimburse it for substantially all these costs. To date, the Company's right to reimbursement for remedial costs has been challenged successfully in one prior case in which the court found that the cost-plus contract in question did not provide for recovery of costs resulting from the Company's own negligence. That case did not relate to any of the airports described above. Except in that instance and one other, the Company has not been alleged to have acted with negligence. The Company has also agreed to indemnify various transferees of its divested airport operations with respect to certain known and potential liabilities that may arise out of such operations and in certain instances has agreed to remain liable for certain potential liabilities that were not assumed by the transferee. Accordingly, the Company may in the future incur liability arising out of investigation and remediation actions with respect to airports served by such divested operations to the extent the purchaser of these operations is unable to obtain reimbursement of such costs from airlines, airports or others. To date such indemnification has been sought with respect to one airport. Because the Company did not provide fueling services at that airport, it does not believe it will have significant obligations with respect to this matter. The Company is currently reviewing the potential impact of its filing under Chapter 11 on its exposure for these liabilities. LIQUIDITY/CASH FLOW: Net cash provided by operating activities for 2001 was $87.0 million compared to cash used in operating activities in 2000 of $58.7 million, resulting in an increase of $145.7 million due to changes in working capital and other liabilities. Net cash used in investing activities of continuing operations was $28.8 million lower than 2000 primarily relating to an increase in proceeds from the sales of businesses and other of $15.6 million, and a decrease in investments in and advances to joint ventures of $15.5 million and an increase in distributions from investees and joint ventures of $21.7 million. These decreases in cash used in investing activities were partially offset by a decrease in proceeds from the sales of marketable securities of $6.6 million, a decrease in proceeds from the sale of property, plant and equipment of $8.9 million, and an increase in capital expenditures of $6.5 million. Net cash used in financing activities was $69.8 million in 2001 compared to cash used in financing activities of $268.2 million in 2000. This decrease of $198.4 million in cash used is due primarily to cash released from restricted cash of $194.1 million in 2001. That increase is partially offset by an increase in net debt payments of $166.5 million, and an increase of $23.9 million in funds held in trust. In addition, cash provided from discontinued operations totaled $346.4 million in 2000 representing mainly proceeds from the sales of Aviation and Entertainment businesses partially offset by operating losses of discontinued operations. During the years ended December 31, 2001 and 2000, the Company substantially completed the sales of its Aviation and Entertainment businesses. The following is a list of Aviation and Entertainment businesses sold in 2001 and 2000 and the gross cash proceeds from those sales: Description of Business Gross Proceeds (In millions) ------------- 2001 ---- Non-Port Authority Fueling $ 15 Colombia Airport Privatization 10 Rome, Italy Aviation Ground Operations 10 Spain Aviation Ground Operations 2 Aviation Fixed Base Operations 2 ==== Total 2001 Gross Proceeds $ 39 ==== 2000 ---- Food and Beverage/Venue Management $223 Aviation Ground Handling 96 Parks and Themed Attractions 38 Argentina Airport Privatization 27 Aviation Fixed Base Operations 16 Fairmount Racetrack 15 Dominican Republic Airport Privatization 3 Other Businesses 4 ---- Total 2000 Gross Proceeds $422 ==== In connection with the above sales, the Company also reduced its debt by approximately $120 million. The Company also incurred $11.0 million in costs associated with disposing of certain other assets. The Company also sold certain other businesses. In 2001, the Company sold Datacom and its Australian venue management businesses, but received no proceeds. The following is a list of other businesses sold in 2000 and the gross cash proceeds from those sales: Gross Proceeds (In millions) -------------- Environmental Consulting and Engineering (OEES) $15 Applied Data Technology, Inc. 5 --- Total Gross Proceeds $20 === In connection with several of the above sales, the Company is also entitled to certain deferred payments, subject to certain contingencies. In addition, the Company has contingent obligations under most of the related sale agreements in respect to liabilities arising before and, in some cases, after the consummation of the sale, for environmental, personal injury, contractual claims and similar matters. At December 31, 2001, the Company had approximately $88.9 million in cash and cash equivalents, of which $2.1 million related to net assets held for sale and $22.2 million related to cash held in foreign bank accounts and that could be difficult to transfer to the U.S. As previously reported, the Company entered into a revolving credit and participation agreement (the "Master Credit Facility") on March 14, 2001. The Master Credit Facility is secured by substantially all of the Company's assets and matured on May 31, 2002 without being fully discharged by the DIP Credit Facility discussed below. This, along with non-compliance with certain required financial ratios also discussed below and possible other items, has caused the Company to be in default of its Master Credit Facility. However, on April 1, 2002, the Company and 123 of its subsidiaries each filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code that, among other things, will address these events of default. In connection with that action, the Company and most of its subsidiaries, including some that have not filed for relief under Chapter 11, have entered into a Debtor In Possession Credit Agreement (as amended, the "DIP Credit Facility") with the lenders who provided the revolving credit facility under the Master Credit Facility. On April 5, 2002, the Bankruptcy Court issued its interim order approving the debtor in possession financing which was confirmed in a final order dated May 15, 2002, subject to the objection of holders of limited interests in two joint venture partnerships who are dispute the inclusion of those companies in the DIP Credit Facility. The bankruptcy court has taken these objections under advisement and has not indicated when it will render a decision. The DIP Credit Facility terms are described below. The DIP Credit Facility, which provides for the continuation of approximately $240.0 million of letters of credit previously provided under the Master Credit Facility and a $48.2 million liquidity facility, is secured by all of the Company's domestic assets not subject to liens of others and generally 65% of the stock of certain of its foreign subsidiaries. Obligations under the DIP Credit Facility will have senior status to other prepetition secured claims and the DIP Credit Facility is now the operative debt agreement with the Company's banks. The Master Credit Facility remains in effect to determine the rights of the lenders who are a party to it with respect to obligations not continued under the DIP Credit Facility. As of December 31, 2001, letters of credit had been issued in the ordinary course of business under the Master Credit Facility for the Company's benefit using up most of the available line. The Master Credit Facility also provided for the coordinated administration of certain letters of credit issued in the normal course of business to secure performance under certain energy contracts (totaling $208 million), letters of credit issued to secure obligations relating to the Entertainment businesses (totaling $267 million) largely with respect to the Anaheim and Corel projects described above under "Capital Investments and Commitments," letters of credit issued in connection with the Company's insurance program (totaling $40 million), and letters of credit used for credit support of the Company's equity bonds (totaling $127 million). Of these letters of credit, approximately $361 million secured indebtedness included in the Company's balance sheet and $87 million relate to other obligations that are reflected in the Notes to the financial statements. These letters of credit are generally available for drawing upon if the Company defaults on the obligations secured by the letters of credit or fails to provide replacement letters of credit as the current ones expire. The balance of $194 million relates principally to the Company's obligation under Energy contracts to pay damages. Letters of credit supporting liabilities with respect to the Corel Centre and Ottawa Senators team were drawn for a total amount of approximately $105.2 in March 2002. Beginning in April 2002 and pursuant to the Company's Chapter 11 filing, Trustees for the Company's adjustable rate revenue bonds declared the principal and accrued interest on such bonds due and payable immediately. Accordingly, letters of credit supporting these bonds have been drawn in the amount of $125.1 million and the Company is presently not able to reissue these bonds. The financial covenants of the Master Credit Facility provide limits on (I) the ratio of (a) the sum of Consolidated Operating Income (as shown in the Consolidated Statements of Operations), plus LOC Fees (defined in the Master Credit Facility as letter of credit fees, commitment fees, and amortization of agency and termination fees) to the extent included in Operating Income, and Minority Interest (as shown on the Consolidated Statement of Operations and Comprehensive Loss) to (b) the total interest expense on the Company's indebtedness, plus LOC Fees, less interest income. (II) the ratio of the Company's net indebtedness to adjusted Earnings Before Interest and Taxes ("EBIT") as defined, for the four quarters ended December 31, 2001, and (III) the sum of capital stock, capital surplus and earned surplus as shown on the Company's Consolidated Balance Sheets. The Master Credit Facility provided that for the first quarter of 2001, consolidated net worth must exceed the amount of consolidated net worth shown on the Company's Consolidated Balance Sheet as of December 31, 2000. For each succeeding quarter, the permitted minimum net worth is increased by 75% of the Company's consolidated net income (but not net loss) for such quarter. At the time the Master Credit Facility was executed, the Company had believed that it would be able to meet the liquidity covenants in the Master Credit Facility, timely discharge its obligations on maturity of the Master Credit Facility and repay or refinance its convertible subordinated debentures from cash generated by operations, the proceeds from the sale of its non-core businesses and access to the capital markets. However, a number of factors in 2001 and 2002 affected these plans, including: (1) The sale of non-core assets took longer and yielded substantially less proceeds than anticipated; (2) The power crisis in California substantially reduced the Company's liquidity in 2001 as a result of California utilities' failures to pay timely for power purchased from the company; and (3) A general economic downturn during 2001 and a tightening of credit and capital markets, particularly for energy companies which were substantially exacerbated by the bankruptcy of Enron Corporation. (See ENERGY INDUSTRY CONDITIONS under MARKETS, COMPETITION AND GENERAL BUSINESS CONDITIONS) As a result of a combination of these factors in 2001 and early 2002, the Company was forced to obtain seven amendments to the Master Credit Facility. Also, because of the California energy crisis, analyses raising doubt about the financial viability of the independent power industry, the Enron crisis, the decline in financial markets as a result of the events of September 11, 2001 and the drop in the demand for securities of independent power companies, the Company was unable to access capital markets. In 2001, the Company also began a wide-ranging review of strategic alternatives given the very substantial maturities in 2002, which far exceed the Company's cash resources. In this connection, throughout the last six months of 2001 and the first quarter of 2002, the Company sought potential minority equity investors, conducted a broad-based solicitation for indications of interest in acquiring the Company among potential strategic and financial buyers and investigated a combined private and public placement of equity securities. On December 21, 2001, in connection with a further amendment to the Master Credit Facility, the Company issued a press release stating its need for further covenant waivers and for access to short term liquidity. Following this release, the Company's debt rating by Moody's and Standard & Poor's was reduced below investment grade on December 27, 2001 and January 16, 2002, respectively. These downgrades further adversely impacted the Company's access to capital markets and triggered the Company's commitments to provide $100 million in additional letters of credit in connection with two waste-to-energy projects and the draws during March of 2002 of approximately $105.2 million in letters of credit related to the Corel Centre and Ottawa Senators. Despite the Company's wide-range search for alternatives, ultimately the Company was unable to identify any option which satisfied its obligations outside the Chapter 11 process. On March 1, 2002, the Company availed itself of the 30-day grace period provided under the terms of its 9.25% debentures due March 2022, and did not make the interest payment due March 1, 2002 at that time. On April 1, 2002 the Company publicly announced that as a result of the review the Company: (1) Determined that reorganization under the Bankruptcy Code represents the only viable venue to reorganize the Company's capital structure, complete the disposition of its remaining non-core entertainment and aviation assets, and protect the value of the energy and water franchise; (2) Entered into a non-binding Letter of Intent with the investment firm of Kohlberg Kravis Roberts & Co. ("KKR") for a $225 million equity investment under which a KKR affiliate would acquire the Company upon emergence from Chapter 11; and (3) Announced a strategic restructuring program to focus on the U.S. energy and water market, expedite the disposition of non-core assets and, as a result, reduce overhead costs. On April 1, 2002, Covanta Energy Corporation and 123 of its subsidiaries, each a debtor in possession (the "Debtors"), filed for protection under the Bankruptcy Code and accordingly did not make the interest payment on the 9.25% debentures due at that time. The rights of Covanta's creditors will be determined as part of the Chapter 11 process. Existing common equity and preferred shareholders are not expected to participate in the new capital structure or realize any value. In connection with its bankruptcy filing, the Company entered into DIP Credit Facility, as amended. The DIP Credit Facility comprises two tranches. The Tranche A Facility provides the Company with a credit line of approximately $48.2 million, divided into $34 million commitments for cash borrowings under a revolving credit line and $14.2 million commitments for the issuance of certain letters of credit. The Tranche B Facility consists of approximately $240 million commitments solely for the extension of, or issuance of letters of credit to replace certain existing letters of credit. Amounts available for cash borrowing under the Tranche A Facility are subject to monthly and budget limits. The Company may utilize the amount available for cash borrowings under the Tranche A Facility to reimburse the issuers of letters of credit issued under the Tranche A Facility if and when such letters of credits are drawn, to fund working capital requirements and general corporate purposes of the Company relating to the Company's post-petition operations and other expenditures in accordance with a monthly budget and applicable restrictions typical for a Chapter 11 debtor in possession financing. Under the DIP Credit Facility, the Company will pay a one-time facility fee equal to 2% of the amount of Tranche A commitments. In addition, the Company will pay a commitment fee varying depending on utilization, between .50% and 1% of the unused Tranche A commitments. The Company will also pay a fronting fee for each Tranche A and Tranche B letter of credit equal to the greater of $500 and 0.25% of the daily amount available to be drawn under such letter of credit, as well as letter of credit fees of 3.25% on Tranche A letters of credit, and 2.50% on Tranche B letters of credit fee, calculated over the daily amount available for drawings thereunder. Outstanding loans under the Tranche A Facility and the Tranche B Facility bear interest at the Company's option at either the prime rate plus 2.50% or the Eurodollar rate plus 3.50%. The DIP Credit Facility contains covenants, which restrict (1) the incurrence of additional debt, (2) the creation of liens, (3) investments and acquisitions, (4) contingent obligations and performance guarantees and (5) disposition of assets. In addition, the Company must comply with certain specified levels of budget, financial and reporting covenants. The Company is currently in compliance with these covenants, other than certain reporting requirements. The DIP Credit Facility matures on April 1, 2003, but may, with the consent of DIP Lenders holding more than 66-2/3% of the Tranche A Facility, be extended for two additional periods of six months each. There are no assurances that the DIP lenders will agree to an extension. At maturity, all outstanding loans under the DIP Credit Facility must be repaid, outstanding letters of credit must be discharged or cash-collateralized, and all other obligations must be satisfied or released. The Company believes that the DIP Credit Facility, when taken together with the Company's own funds, provide it sufficient liquidity to continue to operate its core businesses during the Chapter 11 proceeding. Moreover, the legal provisions relating to Chapter 11 proceedings are expected to provide a legal basis for maintaining the Company's business intact while it is being reorganized. However, the outcome of the Chapter 11 proceedings and, if necessary, the renewal of the DIP Credit are not within the Company's control and no assurances can be made with respect to the outcome of these efforts. In the Chapter 11 Cases, the Debtors obtained several orders from the Bankruptcy Court which were intended to enable the Debtors to operate in the normal course of business during the Chapter 11 Cases. These orders (i) permit the Debtors to operate their consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases, (ii) authorize payment of certain pre-petition employee salaries, wages, health and welfare benefits, retirement benefits and other employee obligations, (iii) authorize payment of pre-petition obligations to certain critical vendors to aid the Debtors in maintaining the operation of their businesses, (iv) authorize the use of cash collateral and grant adequate protection in connection with such use, and (v) authorize post-petition financing. The Company executed an agreement for sale of the Aviation fueling business in July 2001. The Company completed the sale of the Non-Port Authority portion of its Aviation fueling business in December 2001. The successful completion of the sales processes for remaining non-core assets and the actual amounts received may be impacted by general economic conditions in the markets in which these assets must be sold and necessary regulatory and third party consents. On March 28, 2002, following approval from the Master Credit Facility lenders, three of the Company's subsidiaries sold their interests in two power plants and an operating and maintenance contractor based in Thailand. The total sale price for all three interests of approximately $35.0 million is less than the net carrying value of the interests of approximately $57.7 million. The Company, therefore, expects to realize a net loss of approximately $23.6 million on this sale, after deducting costs relating to the sale. At December 31, 2001, the Company had no intention of selling these Thai assets or any other Asian Energy assets. Subsequently, a determination was made to sell the Thai assets to generate liquidity. The Company may consider a variety of different strategies as the Bankruptcy process proceeds.If the Company were to adopt a formal plan to sell its remaining Asian portfolio in the current market environment, there would be an impairment charge, currently not determinable, for a significant portion of the $255.1 million net book value at December 31, 2001. The ultimate sale of these assets, if any, would be subject to approval by the DIP Credit Facility lenders and the Bankruptcy Court. Receivables from California Utilities: Events in the California energy markets affected the state's two largest utilities and resulted in delayed payments for energy delivered by the Company's facilities in late 2000 and early 2001. Pacific Gas & Electric Company ("PG&E") and Southern California Edison Company ("SCE") both suspended payments under long term power purchase agreements in the beginning of 2001. On March 26, 2001 the California Public Utilities Commission ("CPUC") approved a substantial rate increase and directed the utilities to make payments to suppliers for current energy deliveries. SCE has made payments for energy delivered since March 26, 2001. On April 6, 2001, PG&E filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Since that time PG&E is also in compliance with the CPUC order and is making payments for current energy deliveries. In mid-June the CPUC issued an order declaring as reasonable and prudent any power purchase amendment at a certain fixed-price for a five-year term. On June 18, 2001 and July 31, 2001 the Company entered into several agreements and amendments to power purchase agreements with SCE which contained the CPUC approved pricing for a term of five years, to commence upon the occurrence of events relating to improvements in SCE's financial condition. In addition, in June 2001, SCE paid 10% of the outstanding receivables and agreed to a timetable by which the remaining 90% would be paid, which outstanding amount will earn interest. The agreements with SCE contemplated the passage of legislation by the California State Legislature or other actions that would trigger payment to the Company. In late October 2001, SCE reached a settlement of a lawsuit brought against the CPUC concerning the CPUC's failure to allow SCE to pass cost increases through to its ratepayers. The settlement achieved the same goals as the proposed legislation, which was to provide a path for SCE to achieve creditworthiness. The SCE agreements are not impacted by the settlement except for the timing of the payment of past due amounts and the start of the fixed price period for energy sales. The settlement was approved by the Federal Court. A consumer group requested a stay pending an appeal, which request was denied. In July 2001, the Company also entered into agreements with similar terms with PG&E. These agreements also contain the CPUC approved price and term, both of which were effective immediately. Unlike SCE, PG&E made no cash payments but did agree that the amount owed to the Company will earn interest at a rate to be determined by the Bankruptcy Court. PG&E agreed to assume the Company's power purchase agreements and elevate the outstanding payables to priority administrative claim status. The Bankruptcy Court approved the agreements, the power purchase agreements and the assumption of the contracts on July 13, 2001. On October 30, 2001, the Company transferred $14.9 million of the outstanding PG&E receivables for $13.4 million to a financial institution. Of this amount, $8.5 million (which related to receivables not subject to pricing disputes with PG&E) was paid immediately cash. The balance, $4.9 million (which related to receivables to which there are pricing disputes) was placed in escrow until the resolution of those disputes, the payment of the receivables by PG&E, or the conclusion of the PG&E bankruptcy. The remaining of $1.5 million represents the 10% discount charged by the financial institution. On December 6, 2001, the Company transferred $30.9 million of outstanding SCE receivables for $28.8 million to a financial institution. Of this amount $21.7 million (which related to receivables not subject to pricing disputes with SCE) was paid in immediate cash. The balance (which related to receivables to which there are pricing disputes) was placed in escrow until the earlier of the resolution of the pricing disputes or the achievement by SCE of credit worthiness. The remaining $2.1 million represents the 6.75% discount charged by the financial institution. On March 1, 2002, after securing certain financing, SCE paid all outstanding receivables due to the Company. The $7.1 million in escrow was also released to the Company on March 1, 2002. All Company litigation pending against SCE in connection with past due receivables has been withdrawn. On January 31, 2002, all but one of the Company's facilities in the PG&E service territory entered into Supplemental Agreements with PG&E whereby PG&E agreed to the amount of the prepetition payable owed to each facility, the rate of interest borne by the payable and a payment schedule. PG&E agreed to make twelve monthly installments commencing on February 28, 2002. The Bankruptcy Court approved the Supplemental Agreements and the first five installments have been received by the Company between February 28, 2002 and June 28, 2002. The escrowed amount of $4.9 million will remain in escrow until the financial institution is paid in full. SCE paid 100% of their past due receivables on March 1, 2002, and PG&E has paid five-twelfths of their past due receivables through June 28, 2002, in accordance with an agreed-upon twelve-month payment schedule. The Company believes it will ultimately receive payment of all these outstanding receivables. Therefore, at December 31, 2001, the Company reversed approximately $15.8 million of the reserves leaving $3.6 million. That remaining reserve applies to the discount incurred by the Company in transferring the receivables since that amount of the receivables will not be collected. Upon receipt of those payments from SCE and PG&E, the Company also reversed $27.9 million of the liabilities recorded upon the transfer of the receivables, leaving a liability balance of $2.3 million on June 30, 2002. As of December 31, 2001, the Company had outstanding gross receivables from these two utilities of approximately $71.6 million (including the Company's 50% interest in several partnerships). The Company believes it will ultimately receive payments in full of the net amount of these receivables. During 2001, the Company received all of the principal permits necessary to commence construction on a 500 MW gas-fired project in California. However, due to the significant changes in the California energy markets as well as in its own financial situation, in late December 2001 the Company decided to delay project implementation until California market conditions improve and wrote-off, as project development expenses in the Statement of Consolidated Operations and Comprehensive Loss, approximately $24.5 million of costs associated with this project. These costs primarily related to turbine purchase deposits and related termination fees, permit, viability, other development costs, and other assets under construction. Other: In 1998, the Company's Board of Directors increased the authorization to purchase shares of the Company's common stock up to a total of $200 million. Through December 31, 2001, 2.2 million shares of common stock were purchased for a total cost of $58.9 million. No shares were purchased during 2001 or 2000. In addition, the Company suspended its common stock dividend in the third quarter of 1999. The Company adopted Statement of Position ("SOP") 98-5 "Reporting on the Costs of Start-Up Activities" on January 1, 1999. This SOP established accounting standards for these costs and requires that they generally be expensed as incurred. The effect of adopting the SOP is shown as a cumulative effect of a change in accounting principle and is reflected as a net charge to income of $3.8 million in 1999. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. All derivatives are required to be recorded in the balance sheet as either an asset or liability measured at fair value, with changes in fair value recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged item in the Statement of Consolidated Operations and Comprehensive Loss, and require that a company must formally document, designate and assess the effectiveness of derivatives that receive hedge accounting. The Company's policy is to enter into derivatives to protect the Company against fluctuations in interest rates and foreign currency exchange rates as they relate to specific assets and liabilities. The Company's policy is to not enter into derivative instruments for speculative purposes. The Company identified all derivatives within the scope of SFAS No. 133. The adoption of SFAS No. 133 did not have a material impact on the results of operations of the Company and increased both assets and liabilities recorded on the balance sheet by approximately $12.3 million. The $12.3 million relates to the Company's interest rate swap agreement that economically fixes the interest rate on certain adjustable rate revenue bonds reported in the Project Debt category "Revenue Bonds Issued by and Prime Responsibility of Municipalities." The asset and liability recorded on January 1, 2001 were increased by $.9 million during the year ended December 31, 2001, to adjust for an increase in the swap's fair value to $13.2 million at December 31, 2001. The swap agreement was entered into in September 1995 and expires in January 2019. Any payments made or received under the swap agreement, including fair value amounts upon termination, are included as an explicit component of the client community's obligation under the related service agreement. Accordingly, all payments under the swap agreement are a pass-through to the client community. Under the swap agreement, the Company will pay an average fixed rate of 9.8% for 2001 through January 2005 and 5.18% thereafter through January 2019, and will receive a floating rate based on current municipal interest rates, similar to the rate on the adjustable-rate revenue bonds, unless certain triggering events occur (primarily credit events), which result in the floating rate converting to either a set percentage of LIBOR or a set percentage of the BMA Municipal Swap Index, at the option of the swap counterparty. In the event the Company terminates the swap prior to its maturity, the floating rate used for determination of settling the fair value of the swap would also be based on a set percentage of one of these two rates at the option of the counterparty. For the years ended December 31, 2001 and 2000, the floating rates on the swap averaged 2.46% and 4.09%, respectively. The notional amount of the swap at December 31, 2001 and 2000 was $80.2 million and is reduced in accordance with the scheduled repayments of the applicable revenue bonds. An energy client community and the Company have several commercial disputes between them. Among these is a January 16, 2002 demand by the client community to provide a credit enhancement to a service agreement in the form of a $50 million letter of credit or a guarantee, following rating downgrades of the Company's unsecured corporate debt. On February 22, 2002, the client community issued a notice purporting to terminate its contract with the Company effective May 30, 2002 if such a credit enhancement was not provided, and also demanded an immediate payment of $2.0 million under the terms of the agreement. The Company believes such notice was improper and has commenced a lawsuit in state court with respect to such disputes, as well as the client community's right to terminate. This matter has been removed to Federal court. The client community has moved to have the case remanded to State Court and the Company has moved to have the action transferred to the Bankruptcy Court. These matters have been taken under advisement by the court. The Company's agreement with another energy client also provides that following these rating downgrades of the Company's unsecured corporate debt, the client may, if it does not receive from the Company a $50.0 million letter of credit by January 31, 2003, either terminate the agreement or receive a $1.0 million reduction of its annual service fee obligation. The bankruptcy proceeding described above stays the client's right to terminate under the agreement. Off Balance Sheet Arrangements: The Company currently is party to several lease arrangements with unrelated parties under which it rents energy generating facilities, including a sale-leaseback. The Company uses operating lease treatment for these arrangements. See Notes 12, 24 and 30 to the Consolidated Financial Statements for additional information regarding these leases. The Company has investments in several equity method investees and joint ventures and does not consolidate the financial information of those companies. See Note 4 to the Consolidated Financial Statements for summarized financial information for those investees and joint ventures. Significant Accounting Policies: The Company prepares its Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America. In preparing those financial statements, the Company must make certain assumptions and estimates that it believes reasonable based on available information. Those assumptions and estimates affect the reported amounts in the Consolidated Financial Statements. The significant accounting policies, which the Company believes are most critical to understanding and evaluating its reported financial results include Net Assets Held for Sale, and Related Obligations, Revenue Recognition, Long-Lived Assets, and Property, Plant and Equipment. The Company evaluates net assets held for sale based on its estimate of their fair value less costs to sell. That fair value is based on estimated sales prices derived from signed sales contracts, the status of current negotiations for the sale of such assets and recent appraisals. The actual ultimate amount of sale proceeds realized might be less than the currently estimated sales prices and could have a material adverse effect on the carrying value of those assets and on the Company's operating results and financial condition. The Company recognizes revenues generally under contractual arrangements. Service revenues primarily include fees for cost-plus contracts and other types of contracts. Subsidiaries engaged in governmental contracting recognize revenues from cost-plus-fixed-fee contracts on the basis of direct costs incurred plus indirect expenses and the allocable portion of the fixed fee. Revenues under time and material contracts are recorded at the contracted rates as the labor hours and other direct costs are incurred. Revenues under fixed-price contracts are recognized on the basis of the estimated percentage of completion of services rendered. Service revenues also include the fees earned under contracts to operate and maintain energy facilities and to service the facilities' debt, with additional fees earned based on excess tonnage processed and energy generation. Service revenues also represent fees for environmental consulting and engineering services rendered under various contracts and the operation and maintenance of water and wastewater facilities. Revenue from the sale of electricity and steam are earned at energy facilities and are recorded based upon output delivered and capacity provided at rates specified under contract terms or prevailing market rates. Long-term unbilled service receivables related to energy operations are discounted in recognizing the present value for services performed currently. Subsidiaries engaged in long-term construction contracting record income on the percentage-of-completion method of accounting and recognize income as the work progresses. Anticipated losses on contracts are recognized as soon as they become known. Sales of product are recognized when goods are shipped to customers and title to such goods passes to customers. A significant change in those revenue recognition policies, or a change in accounting principles generally accepted in the United States could have a material impact on the Company's recorded operating results and financial condition. The Company evaluates long-lived assets based on its projection of undiscounted cash flows whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. The projection of future undiscounted cash flows used to test recoverability of long-lived assets is based on expected cash flows from the use and eventual disposition of those long-lived assets. If the carrying value of such assets is greater than the future undiscounted cash flows of those assets, the Company would measure the impairment amount as the difference between the carrying value of the assets and the discounted present value of the cash flows to be generated by those assets. Long-lived assets to be disposed of are evaluated in relation to the estimated fair value of such assets less costs to sell. A significant reduction in actual cash flows and estimated cash flows could have a material adverse effect on the carrying value of those assets and on the Company's operating results and financial condition. Property, plant and equipment is recorded at cost and is depreciated over its estimated useful life. The estimated useful life of the Company's energy generation facilities is up to 50 years. A significant decrease in the estimated useful life of any individual facility or group of facilities could have a material adverse impact on the Company's operating results in the period in which the estimated useful life is revised and subsequent periods. Changes in Accounting Principles: The Company implemented SFAS No. 133 based on the current rules and guidance in place as of January 1, 2001 and has applied the guidance issued since then by the Derivative Implementation Group of the Financial Accounting Standards Board ("FASB"). In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No.101 provides guidance on the recognition, presentation, and disclosure of revenue, and was implemented by the Company in the quarter ending December 31, 2000. There was no impact from adoption of SAB No.101 on the Company's financial position or results of operations. New Accounting Pronouncements: In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires the purchase method of accounting for business combinations initiated after June 30, 2001 and prohibits use of the pooling-of-interests method. The adoption of SFAS No. 141 had no impact on the Company's financial position and results of operation. In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets," which is effective January 1, 2002. SFAS No. 142 requires upon adoption the discontinuance of goodwill amortization, which the Company estimates would have been $.8 million in the year ending December 31, 2002. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test within six months of the date of adoption and to evaluate for impairment the carrying value of goodwill on an annual basis thereafter. The Company is in the process of performing that test and has not yet determined the effect of that requirement upon adoption of SFAS No. 142 on its financial position and results of operations. Identifiable intangible assets with finite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No.144, "Accounting for the Impairment or Disposal of Long-Lived Assets," discussed below. Also in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations," which is effective for the Company on January 1, 2003. SFAS No. 143 requires that a liability for asset retirement obligations be recognized in the period in which it is incurred if it can be reasonably estimated. It also requires such costs to be capitalized as part of the related asset and amortized over such asset's remaining useful life. The Company is currently assessing, but has not yet determined, the effect of adoption of SFAS Nos. 143 on its financial position and results of operations. In August 2001, the FASB issued SFAS No. 144. The Company adopted SFAS No. 144 on January 1, 2002. SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and establishes accounting and reporting standards for long-lived assets to be disposed of by sale. SFAS No. 144 applies to all long-lived assets, including discontinued operations. SFAS No. 144 requires that those assets be measured at lower of carrying amount or fair value less cost to sell. It also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity that will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of SFAS No. 144 did not have a material effect on its financial position and results of operations. Any statements in this communication, which may be considered to be "forward-looking statements," as that term is defined in the Private Securities Litigation Reform Act of 1995, are subject to certain risk and uncertainties. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings with the Securities and Exchange Commission and more generally, general economic conditions, including changes in interest rates and the performance of the financial markets; changes in domestic and foreign laws, regulations, and taxes; changes in competition and pricing environments; and regional or general changes in asset valuations. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the Company is party to financial instruments that are subject to market risks arising from changes in interest rates, foreign currency exchange rates, and commodity prices. The Company's use of derivative instruments is very limited and it does not enter into derivative instruments for trading purposes. The following analysis provides quantitative information regarding the Company's exposure to financial instruments with market risks. Covanta uses a model to evaluate the sensitivity of the fair value or cash flows of financial instruments with exposure to market risk that assumes instantaneous, parallel shifts in exchange rates and interest rate yield curves. There are certain limitations inherent in the sensitivity analysis presented, primarily due to the assumption that exchange rates change in a parallel manner and that interest rates change instantaneously. In addition, the fair value estimates presented herein are based on pertinent information available to management as of December 31, 2001. Since December 31, 2001, the Company's credit rating has deteriorated. However, the sensitivity analyses presented do not reflect any changes due to the deterioration in that credit rating, and therefore, the interest rate spreads and discount rates used to determine the cash flows and fair values of the Company's debt may differ significantly from those that would be used based on current information. Further information is included in Note 30 "Fair Value of Financial Instruments" to the Consolidated Financial Statements. Interest Rate Risk The Company has long-term debt and project debt outstanding that subject it to the risk of increased interest expense due to rising market interest rates on floating rate debt, or an adverse change in fair value due to declining interest rates on fixed rate debt. Of the Company's total long-term debt, approximately $150 million was floating rate at December 31, 2001. Of the project debt, approximately $330 million was floating rate at December 31, 2001. However, of that floating rate project debt, $130 million related to waste-to-energy projects where, because of their contractual structure, interest rate risk is borne by our Client Communities since debt service is passed through to those clients. Although the Company has from time to time entered into financial instruments to reduce the impact of changes in interest rates, the Company had only one interest rate swap outstanding at December 31, 2001 in the notional amount of $80 million related to floating rate project debt. Gains and losses on this swap are for the account of the client community. For floating rate debt, a hypothetical increase in December 31, 2001 market interest rates of 20 percent would result in a potential loss to twelve month future earnings of $3 million. For fixed rate debt, the potential loss in fair value from a hypothetical decrease in December 31, 2001 market interest rates of 20 percent would be approximately $50 million. The fair value of the Company's fixed rate debt (excluding $750 million in fixed rate debt related to revenue bonds in which debt service is an explicit component of the service fees billed to the client communities) was $700 million at December 31, 2001, and was determined using average market quotations of price and yields provided by investment banks. Foreign Currency Exchange Rate Risk The Company has investments in Energy projects in various foreign countries, including the Philippines, China, India, Thailand, and Bangladesh, and to a much lesser degree, Italy, Spain, Bolivia and Costa Rica. The Company does not enter into currency transactions to hedge its exposure to fluctuations in currency exchange rates. Instead, the Company attempts to mitigate its currency risks by structuring its project contracts so that its revenues and fuel costs are denominated in U.S. dollars, or so that its revenues are indexed to the U.S. dollar. This leads the Company to treat the U.S. dollar as the functional currency at most of its international projects. Therefore, only local operating expenses are exposed to currency risks. Certain exceptions to this exist. At December 31, 2001, the Company has $36 million of project debt denominated in Thai Baht in connection with the Sahacogen project in Thailand. Exchange rate fluctuations related to this debt are recorded as adjustments to the recorded amount of the debt and as foreign currency gains and losses included in net income. At December 31, 2001, the Company also has $91 million of project debt denominated in India Rupee related to two diesel-fired projects in India. Exchange rate fluctuations on $26 million of the debt (related to a project whose functional currency in the US Dollar) are recorded as adjustments to the recorded amount of the debt and as foreign currency gains and losses included in net income. For the remaining $65 million (related to a project whose functional currency is the India Rupee), exchange rate fluctuations are recorded as adjustments to the recorded amount of the debt and as adjustments to the cumulative translation adjustment account within stockholders' equity on the Company's Consolidated Balance Sheet. These are the only significant debt denominated in foreign currencies. The potential loss in fair value for such financial instruments from a 10% adverse change in December 31, 2001 quoted foreign currency exchange rates would be approximately $14 million. At December 31, 2001, the Company also had net investments in foreign subsidiaries and projects. Since the Company viewed these investments as long term at December 31, 2001, the Company would not expect any gain or loss to be realized in the near term. Commodity Price Risk The Company has not entered into futures, forward contracts, swaps or options to hedge purchase and sale commitments, fuel requirements, inventories or other commodities. The Company attempts to mitigate the risk of market fluctuations of energy and fuel by structuring contracts related to its Energy projects as fixed price contracts so that energy sales and fuel costs are "locked in" for the same term. Certain power sales agreements related to domestic projects provide for energy sales prices linked to the "avoided costs" of producing such energy and, therefore, fluctuate with various economic factors. The Company is exposed to commodity price risk at those projects. At other plants, fuel costs are contractually included in our electricity revenues, or fuel is provided by our customers. Also, at most of our waste-to-energy facilities, commodity price risk is mitigated in that either most commodity costs used in the operation of those facilities are borne by our client communities, or our service revenues are adjusted to reflect fluctuations in various price indices which are indicative of, in part, changes in prices of natural gas, electricity, auxiliary fuel, and the cost of certain commodities used in the operation of those facilities. Generally, the Company is protected against fluctuations in the cost of waste disposal (i.e., tip fees) through long term disposal contracts at its waste-to-energy facilities. At three owned waste-to-energy facilities, differing amounts of waste disposal capacity are not subject to long-term contracts and, therefore, the Company is exposed to the risk of fluctuations in tip fees. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Statements of Consolidated Operations and Comprehensive Loss for the Years ended December 31, 2001, 2000, and 1999 Consolidated Balance Sheets - December 31, 2001 and 2000 Statements of Shareholders' Equity for the Years ended December 31, 2001, 2000, and 1999 Statements of Consolidated Cash Flows for the Years ended December 31, 2001, 2000 and 1999 Notes to Consolidated Financial Statements Independent Auditors' Report Report of Management Quarterly Results of Operations Financial Statement Schedules Schedule II - Valuation and Qualifying Accounts for the Years ended December 31, 2001, 2000 and 1999 All other schedules are omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. Covanta Energy Corporation (Debtor in Possession) and Subsidiaries STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE LOSS - ------------------------------------------------------------------------------------------------------------ For the years ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------ (In Thousands of Dollars, Except Per Share Amounts) Service revenues.......................................... $ 583,727 $ 577,564 $ 590,924 Electricity and steam sales............................... 358,871 292,514 221,476 Equity in income from unconsolidated investments.......... 17,665 24,088 13,005 Construction revenues..................................... 63,052 69,341 119,455 Other sales-net........................................... 31,343 45,329 54,997 Other-net................................................. 30,877 12,233 22,171 Net gain (loss) on sale of businesses..................... (2,768) (1,067) 5,665 ---------- ---------- ---------- Total revenues............................................ 1,082,767 1,020,002 1,027,693 ---------- ---------- ---------- Plant operating expenses.................................. 520,021 539,482 485,406 Construction costs........................................ 70,124 74,271 120,757 Depreciation and amortization............................. 102,065 110,325 101,470 Debt service charges-net.................................. 87,120 84,727 88,439 Other operating costs and expenses........................ 72,575 29,446 30,317 Costs of goods sold....................................... 37,173 41,809 65,460 Selling, administrative and general expenses.............. 83,624 74,416 97,658 Project development expenses.............................. 33,326 24,483 23,300 Other-net................................................. 26,086 43,445 21,220 Write-down of and obligations related to net assets held for sale........................................ 260,866 77,240 ---------- ---------- ---------- Total costs and expenses.................................. 1,292,980 1,099,644 1,034,027 ---------- ---------- ---------- Consolidated operating loss............................... (210,213) (79,642) (6,334) Interest expense (net of interest income of $8,164, $9,496, and $4,790, respectively)............ (30,246) (35,347) (30,697) ---------- ---------- ---------- Loss from continuing operations before income taxes, minority interests and the cumulative effect of change in accounting principle....................... (240,459) (114,989) (37,031) Income taxes.............................................. 17,030 34,149 6,917 Minority interests........................................ (7,598) (4,781) (6,176) ---------- ---------- ---------- Loss from continuing operations........................... (231,027) (85,621) (36,290) Loss from discontinued operations (net of income taxes of: 2000, ($29,263); and 1999, $6)............. (143,664) (41,851) Cumulative effect of change in accounting principle (net of income taxes of $1,313)...................... (3,820) ---------- ---------- ---------- Net loss.................................................. (231,027) (229,285) (81,961) ---------- ---------- ---------- Other Comprehensive Income (Loss), Net of Income Tax: Foreign currency translation adjustments (net of income taxes of: ($1,443), $1,858 and zero, respectively)........................................ (3,976) (8,015) (4,631) Less: reclassification adjustment for translation adjustments included in: loss from continuing operations......... 7,048 loss from discontinued operations....... 25,323 Unrealized Gains (Losses) on Securities: Unrealized holding losses arising during period........... (60) Less: reclassification adjustment for losses (gains) included in net loss................................. (150) 275 Minimum pension liability adjustment...................... 409 (102) 409 ---------- ---------- ---------- Other comprehensive income (loss)......................... 3,481 17,056 (4,007) ---------- ---------- ---------- Comprehensive loss........................................ $ (227,546) $ (212,229) $ (85,968) ========== ========== ========== Basic Loss Per Share: Loss from continuing operations........................... $ (4.65) $ (1.73) $ (0.74) Loss from discontinued operations......................... (2.90) (0.85) Cumulative effect of change in accounting principle....... (0.08) ---------- ---------- ---------- Net Loss.................................................. $ (4.65) $ (4.63) $ (1.67) ========== ========== ========== Diluted Loss Per Share:................................... Loss from continuing operations........................... $ (4.65) $ (1.73) $ (0.74) Loss from discontinued operations......................... (2.90) (0.85) Cumulative effect of change in accounting principle....... (0.08) ---------- ---------- ---------- Net Loss.................................................. $ (4.65) $ (4.63) $ (1.67) ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Covanta Energy Corporation (Debtor in Possession) and Subsidiaries CONSOLIDATED BALANCE SHEETS - --------------------------------------------------------------------------------------------------------- ASSETS December 31, 2001 2000 - --------------------------------------------------------------------------------------------------------- (In Thousands of Dollars, Except Share and Per Share Amounts) Current Assets: Cash and cash equivalents................................................ $ 86,773 $ 80,643 Restricted cash.......................................................... 194,118 Restricted funds held in trust........................................... 93,219 96,280 Receivables (less allowances: 2001, $16,444 and 2000, $19,234)........... 306,712 247,914 Deferred income taxes.................................................... 27,500 36,514 Prepaid expenses and other current assets................................ 102,470 77,239 Net assets held for sale................................................. 6,622 70,614 ---------- ---------- Total current assets..................................................... 623,296 803,322 Property, plant and equipment-net........................................ 1,901,311 1,789,430 Restricted funds held in trust........................................... 167,009 157,061 Unbilled service and other receivables................................... 150,825 155,210 Unamortized contract acquisition costs-net............................... 82,325 88,702 Goodwill and other intangible assets-net................................. 18,317 14,944 Investments in and advances to investees and joint ventures.............. 183,231 223,435 Other assets............................................................. 59,512 66,724 ---------- ---------- Total Assets............................................................. $3,185,826 $3,298,828 ========== ========== Liabilities and Shareholders' Equity Liabilities: Current Liabilities: Current portion of long-term debt........................................ $ 13,089 $ 145,289 Current portion of project debt.......................................... 113,112 99,875 Convertible subordinated debentures...................................... 148,650 Accounts payable......................................................... 37,142 41,106 Federal and foreign income taxes payable................................. 5,955 Accrued expenses......................................................... 362,388 308,681 Obligations related to net assets held for sale.......................... 155,880 Deferred income.......................................................... 42,694 38,517 ---------- ---------- Total current liabilities................................................ 878,910 633,468 Long-term debt........................................................... 298,602 310,126 Project debt............................................................. 1,302,381 1,290,388 Deferred income taxes.................................................... 323,669 315,931 Deferred income.......................................................... 161,525 172,050 Other liabilities........................................................ 174,345 162,369 Minority interests....................................................... 40,150 34,290 Convertible subordinated debentures...................................... 148,650 ---------- ---------- Total Liabilities........................................................ 3,179,582 3,067,272 ---------- ---------- Shareholders' Equity: Serial cumulative convertible preferred stock, par value $1.00 per share, authorized, 4,000,000 shares; shares outstanding: 33,480 in 2001 and 35,582 in 2000, net of treasury shares of 29,820 in 2001 and 2000........ 34 36 Common stock, par value $.50 per share; authorized, 80,000,000 shares; outstanding: 49,835,076 in 2001 and 49,645,459 in 2000, net of treasury shares of 4,111,950 and 4,265,115, respectively.......................... 24,918 24,823 Capital surplus.......................................................... 188,371 185,681 Notes receivable from key employees for common stock issuance............ (870) (1,049) Unearned restricted stock compensation................................... (664) Earned surplus (deficit)................................................. (205,262) 25,829 Accumulated other comprehensive loss..................................... (283) (3,764) ---------- ---------- Total Shareholders' Equity............................................... 6,244 231,556 ---------- ---------- Total Liabilities and Shareholders' Equity............................... $3,185,826 $3,298,828 ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Covanta Energy Corporation (Debtor in Possession) and Subsidiaries STATEMENTS OF SHAREHOLDERS' EQUITY - ------------------------------------------------------------------------------------------------------------------------- For the years ended December 31, 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------- (In Thousands of Dollars, Except Share and Per Share Amounts) SHARES AMOUNTS SHARES AMOUNTS SHARES AMOUNTS SERIAL CUMULATIVE CONVERTIBLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE; AUTHORIZED, 4,000,000 SHARES Balance at beginning of year............... 65,402 $ 66 69,066 $ 69 72,038 $ 73 Shares converted into common stock......... (2,102) (2) (3,664) (3) (2,972) (4) ---------- ------- ---------- ------- ---------- ------- Total...................................... 63,300 64 65,402 66 69,066 69 Treasury shares............................ (29,820) (30) (29,820) (30) (29,820) (30) ---------- ------- ---------- ------- ---------- ------- Balance at end of year (aggregate involuntary liquidation value--2001, $675). 33,480 34 35,582 36 39,246 39 ---------- ------- ---------- ------- ---------- ------- COMMON STOCK, PAR VALUE $.50 PER SHARE; AUTHORIZED, 80,000,000 SHARES: Balance at beginning of year............... 53,910,574 26,956 53,873,298 26,937 53,507,952 26,754 Exercise of stock options.................. 23,898 12 155,801 78 Shares issued for acquisition.............. 15,390 8 191,800 96 Conversion of preferred shares............. 12,554 6 21,886 11 17,745 9 ---------- ------- ---------- ------- ---------- ------- Total...................................... 53,947,026 26,974 53,910,574 26,956 53,873,298 26,937 ---------- ------- ---------- ------- ---------- ------- Treasury shares at beginning of year ...... 4,265,115 2,133 4,405,103 2,203 4,561,963 2,281 Purchase of treasury shares................ 102,000 51 Issuance of restricted stock............... (114,199) (57) (139,988) (70) Exercise of stock options.................. (38,966) (20) (258,860) (129) ---------- ------- ---------- ------- ---------- ------- Treasury shares at end of year............. 4,111,950 2,056 4,265,115 2,133 4,405,103 2,203 ---------- ------- ---------- ------- ---------- ------- Balance at end of year..................... 49,835,076 24,918 49,645,459 24,823 49,468,195 24,734 ---------- ------- ---------- ------- ---------- ------- CAPITAL SURPLUS: Balance at beginning of year............... 185,681 183,915 173,413 Exercise of stock options.................. 776 8,061 Issuance of restricted stock............... 1,918 1,602 Shares issued for acquisition.............. 172 4,904 Purchase of treasury shares................ (2,458) Conversion of preferred shares............. (4) (8) (5) ------- -------- -------- Balance at end of year..................... 188,371 185,681 183,915 ------- -------- -------- NOTES RECEIVABLE FROM KEY EMPLOYEES FOR COMMON STOCK ISSUANCE...................... (870) (1,049) (1,049) ------- -------- -------- UNEARNED RESTRICTED STOCK COMPENSATION: Issuance of restricted common stock........ (1,567) Amortization of unearned restricted stock compensation............................... 903 ------- -------- -------- Balance at end of year..................... (664) ------- -------- -------- EARNED SURPLUS (DEFICIT): Balance at beginning of year............... 25,829 255,182 367,984 Net loss................................... (231,027) (229,285) (81,961) ------- -------- -------- Total...................................... (205,198) 25,897 286,023 ------- -------- -------- Preferred dividends-per share 2001 and 2000, $1.875; 1999, $3.35........................ 64 68 137 Common Dividends-per share 2001 and 2000, zero; 1999, $.625.......................... 30,704 ------- -------- -------- Total dividends............................ 64 68 30,841 ------- -------- -------- Balance at end of year..................... (205,262) 25,829 255,182 ------- -------- -------- CUMULATIVE TRANSLATION ADJUSTMENT-NET............................. (283) (3,355) (20,663) ------- -------- -------- MINIMUM PENSION LIABILITY ADJUSTMENT....... (409) (307) ------- -------- -------- NET UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE.............. 150 ------- -------- -------- TOTAL SHAREHOLDERS' EQUITY................. $ 6,244 $231,556 $442,001 ======= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Covanta Energy Corporation (Debtor in Possession) and Subsidiaries STATEMENTS OF CONSOLIDATED CASH FLOWS - ---------------------------------------------------------------------------------------------------------- For the years ended December 31, 2001 2000 1999 - ---------------------------------------------------------------------------------------------------------- (In Thousands of Dollars) Cash Flows From Operating Activities: Net loss.................................................... $(231,027) $(229,285) $ (81,961) Adjustments to Reconcile Net Loss to Net Cash Provided by (Used in) Operating Activities of Continuing Operations: Loss from discontinued operations........................... 143,664 41,851 Depreciation and amortization............................... 102,065 110,325 101,470 Deferred income taxes....................................... (29,544) (37,868) (16,944) Cumulative effect of change in accounting principle......... 3,820 Write-down of assets........................................ 260,866 77,240 36,150 Provision for doubtful accounts............................. 14,212 15,598 5,130 Severance and other employment charges...................... 10,271 32,602 Other....................................................... 12,800 (13,412) (3,395) Management of Operating Assets and Liabilities: Decrease (Increase) in Assets: Receivables................................................. (56,207) (3,947) (30,495) Inventories................................................. (722) 2,208 Other assets................................................ (19,503) (5,309) 18,834 Increase (Decrease) in Liabilities: Accounts payable............................................ (15,749) (27,082) 19,572 Accrued expenses............................................ 46,919 (47,925) 35,921 Deferred income............................................. (15,349) (8,901) (3,698) Other liabilities........................................... 17,495 (41,386) (51,214) --------- --------- --------- Net cash provided by (used in) operating activities of continuing operations............................... 86,978 (58,739) 109,851 --------- --------- --------- Cash Flows From Investing Activities: Entities purchased, net of cash acquired.................... (59,436) Proceeds from sale of marketable securities available for sale............................................... 6,560 66,355 Net proceeds from sale of businesses and other.............. 34,904 19,354 10,560 Proceeds from sale of property, plant, and equipment........ 915 9,814 1,175 Proceeds from sale of investment............................ 5,138 Investments in facilities .................................. (51,951) (30,051) (50,749) Other capital expenditures.................................. (9,502) (24,914) (15,048) Decrease in other receivables............................... 2,011 3,963 820 Investments in marketable securities available for sale..... (1,815) Distributions from investees and joint ventures............. 31,182 9,459 12,459 Increase in investments in and advances to investees and joint ventures..................................... (18,576) (34,032) (43,997) --------- --------- --------- Net cash used in investing activities of continuing operations............................................. (11,017) (39,847) (74,538) --------- --------- --------- Cash Flows From Financing Activities: Borrowings for Energy facilities............................ 92,643 150,894 Other new debt.............................................. 18,174 2,378 90,508 Payment of debt............................................. (271,867) (182,228) (205,089) Dividends paid.............................................. (64) (68) (46,241) Purchase of treasury shares................................. (2,509) (Increase) Decrease in funds held in trust.................. (6,925) 16,991 21,019 Decrease (Increase) in restricted cash...................... 194,118 (194,118) Proceeds from exercise of stock options..................... 808 8,268 Other....................................................... (4,075) (3,800) (4,412) --------- --------- --------- Net cash (used in) provided by financing activities of continuing operations............................... (69,831) (268,202) 12,438 --------- --------- --------- Net cash provided by (used in) discontinued operations...... 346,411 (127,900) --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................................. 6,130 (20,377) (80,149) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 80,643 101,020 181,169 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR.................... $ 86,773 $ 80,643 $ 101,020 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Covanta Energy Corporation (Debtor in Possession) and Subsidiaries Notes to Consolidated Financial Statements 1. Summary of Significant Accounting Policies Principles of Consolidation: The Consolidated Financial Statements include the accounts of Covanta Energy Corporation (Debtor in Possession) and its Subsidiaries ("Covanta" or "the Company"). In March 2001, the Company changed its name from Ogden Corporation to Covanta Energy Corporation. Covanta is engaged in developing, owning and operating international power generation projects and provides related infrastructure services. The Company also offers single source design/build/operate capabilities for water and wastewater treatment infrastructures. Companies in which Covanta has equity investments of 20% to 50% are accounted for using the equity method since Covanta has the ability to exercise significant influence over their operating and financial policies. Those companies in which Covanta owns less than 20% are accounted for using the cost method, except for two companies in which Covanta owns less than 20% but has significant influence over the operations of these companies through significant representation on the Boards of Directors, significant shareholder rights, and significant ownership in the operators of the energy facilities owned. All intercompany transactions and balances have been eliminated. Basis of Accounting: On April 1, 2002 ("Petition Date"), Covanta Energy Corporation and 123 of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). The pending Chapter 11 Cases (the "Chapter 11 Cases") are being jointly administered for procedural purposes only. International operations, and certain other subsidiaries and joint venture partnerships were not included in the filing. See Note 32 to the Consolidated Financial Statements for a more detailed discussion of these Chapter 11 Cases. The Company's Consolidated Financial Statements have been prepared on a "going concern" basis in accordance with accounting principles generally accepted in the United States of America. The "going concern" basis of presentation assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Because of the Chapter 11 Cases and the circumstances leading to the filing thereof, the Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, confirmation of a plan of reorganization, the Company's ability to comply with, and if necessary renew, the terms of the Debtor in Possession Financing Facility (see Notes 15 and 32 to the Company's Consolidated Financial Statements), and the Company's ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet its obligations. There can be no assurances this can be accomplished and if it were not, the Company's ability to realize the carrying value of its assets and discharge its liabilities would be subject to substantial uncertainty. Therefore, if the "going concern" basis were not used for the Company's Consolidated Financial Statements, then significant adjustments could be necessary to the carrying value of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used. The Company's Consolidated Financial Statements do not reflect adjustments that may occur in accordance with the American Institute of Certified Public Accountant's Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which the Company will adopt for its financial reporting in periods ending after April 1, 2002 assuming that the Company will continue as a "going concern". In the Chapter 11 Cases, all or substantially all of the unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to all required parties for approval pursuant to the relevant provisions of the Bankruptcy Code. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 Cases will be segregated and classified as Liabilities Subject to Compromise in the Consolidated Balance Sheets under SOP 90-7. Generally, the filing of the Chapter 11 Cases imposed an automatic stay on all actions to enforce or otherwise effect payment of liabilities arising prior to the Petition Date, including all pending litigation against the Debtors. The ultimate amount of, and settlement terms for, such liabilities are subject to a confirmed plan of reorganization and, accordingly, are not presently determinable. Pursuant to SOP 90-7, professional fees associated with the Chapter 11 Cases will be expensed as incurred and reported as reorganization costs. Also, interest expense will be reported only to the extent that it will be paid during the Chapter 11 Cases or that it is probable that it will be an allowed claim. Under the applicable provisions of the Bankruptcy Code, the Debtors may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts and other unexpired pre-petition executory contracts, subject to Bankruptcy Court approval. The Debtors are continuing to review all unexpired leases and executory contracts to determine, in their business judgement, whether to seek the assumption or rejection of such leases and contracts. Assumption of such leases and contracts would generally require the Debtors to cure existing defaults, and rejection of such leases or contracts could result in additional liabilities subject to compromise. On September 17, 1999, the Company announced that it intended to sell its Aviation and Entertainment businesses and on September 29, 1999, the Board of Directors of the Company formally adopted a plan to sell the operations of its Aviation and Entertainment units which were previously reported as separate business segments. As a result of the adoption of this plan, these operations have been presented as discontinued operations (see Note 2). At December 31, 2000, the Company had substantially completed its sales of the discontinued operations and classified the remaining unsold Aviation and Entertainment businesses as net assets held for sale in the December 31, 2000 Consolidated Financial Statements. These non-core businesses are reported in the Other segment at December 31, 2000 and for the year ended December 31, 2001. In addition at December 31, 2000, the Company classified its other non-core subsidiaries, Datacom, Inc. (Datacom), a contract manufacturing company located in Mexico, and Compania General de Sondeos, S.A. ("CGS"), an environmental and infrastructure company in Spain, in net assets held for sale. Datacom and CGS are reported in the Other segment and the Energy segment, respectively. During 2000, the Company sold other non-core businesses including Applied Data Technology, Inc. ("ADTI") and its environmental consulting subsidiary. During 2001, the Company sold Datacom. In 1999, in transactions accounted for as purchases, Covanta acquired the shares of a Philippine diesel-fired power plant, a 74% interest in a Thailand gas-fired facility, a 90% interest in a Thailand company that operates and maintains several power plant facilities, the unowned 50% partnership interests in the Heber Geothermal Company, which owns a geothermal power plant in California, and Heber Field Company in California for a total cost of $58.5 million. In March 2002, the Company sold its entire interest in those two Thailand Companies (see Note 32). The operations of these companies have been included in the Consolidated Financial Statements from the dates of acquisition. If Covanta had acquired these companies on January 1, 1999, consolidated revenues, net loss and diluted loss per share would have been approximately $1 billion, $85.6 million and $1.74 for 1999. Use of Estimates: The preparation of Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include management's estimate of the carrying values of its discontinued operations and net assets held for sale, estimated useful lives of long-lived assets, allowances for doubtful accounts receivable, and liabilities for workers compensation, severance, restructuring and certain litigation. Cash and Cash Equivalents: Cash and cash equivalents include all cash balances and highly liquid investments having original maturities of three months or less. Restricted Cash: In accordance with the Company's revolving credit agreement in effect at December 31, 2000, certain amounts of cash at December 31, 2000 raised from asset sales were restricted as to their use. These funds were restricted primarily to repay current debt or repay certain other financial obligations. In March 2001, the Company entered into a new Revolving Credit and Participation Agreement (see Note 15). In connection with that Agreement, the Company was required to pay down certain debt totaling approximately $157.0 million (including approximately $26.0 million classified in net assets held for sale on the December 31, 2000 Consolidated Balance Sheet, see Note 3) using this restricted cash. Marketable Securities: Marketable securities are classified as available for sale and recorded at current market value. Net unrealized gains and losses on marketable securities available for sale are credited or charged to Other Comprehensive Loss. Contracts and Revenue Recognition: Service revenues primarily include only the fees for cost-plus contracts and other types of contracts. Subsidiaries engaged in governmental contracting recognize revenues from cost-plus-fixed-fee contracts on the basis of direct costs incurred plus indirect expenses and the allocable portion of the fixed fee. Revenues under time and material contracts are recorded at the contracted rates as the labor hours and other direct costs are incurred. Revenues under fixed-price contracts, including construction contracts, are recognized on the basis of the estimated percentage of completion of services rendered. Service revenues also include the fees earned under contracts to operate and maintain energy facilities and to service the facilities' debt, with additional fees earned based on excess tonnage processed and energy generation. Service revenues also represent fees for environmental consulting and engineering services rendered under various contracts and the operation and maintenance of water and wastewater facilities. Revenue from the sale of electricity and steam are earned at energy facilities and are recorded based upon output delivered and capacity provided at rates specified under contract terms or prevailing market rates. A majority of the Company's power plants rely primarily on one power sales agreement with a single customer for the majority of their electricity sales revenues. Long-term unbilled service receivables related to energy operations are discounted in recognizing the present value for services performed currently. Such unbilled receivables amounted to $149.6 million and $147.9 million at December 31, 2001 and 2000, respectively. Subsidiaries engaged in long-term construction contracting record income on the percentage-of-completion method of accounting and recognize income as the work progresses. Anticipated losses on contracts are recognized as soon as they become known. Other Sales-Net: Other sales-net include the sale of product by subsidiaries, mainly Datacom, in the Other segment. Sales are recognized when goods are shipped to customers and title to such goods passes to those customers. No goods are shipped on consignment. Other Revenues-Net: Other revenues-net include amounts received related to insurance proceeds as a result of the settlement of certain legal matters. Property, Plant and Equipment: Property, plant, and equipment is stated at cost. For financial reporting purposes, depreciation is provided by the straight-line method over the estimated useful lives of the assets, which range generally from three years for computer equipment to 50 years for waste-to-energy facilities. Accelerated depreciation is generally used for Federal income tax purposes. Leasehold improvements are amortized by the straight-line method over the terms of the leases or the estimated useful lives of the improvements as appropriate. Landfills are amortized based on the quantities deposited into each landfill compared to the total estimated capacity of such landfill. Contract Acquisition Costs: Costs associated with the acquisition of specific contracts are amortized using the effective interest rate method over their respective contract terms. Contract acquisition costs are presented net of accumulated amortization of $51.6 million and $44.9 million at December 31, 2001 and 2000, respectively. Bond Issuance Costs: Costs incurred in connection with the issuance of revenue bonds are amortized over the terms of the respective debt issues. Restricted Funds: Restricted funds represent proceeds from the financing and operations of energy facilities. Funds are held in trust and released as expenditures are made or upon satisfaction of conditions provided under the respective trust agreements. Deferred Financing Costs: Costs incurred in connection with obtaining financing are capitalized and amortized using the effective interest rate method over the terms of the related financings. Project Development Costs: The Company capitalizes project development costs once it is determined that it is probable that such costs will be realized through the ultimate construction of a plant. These costs include outside professional services, permits and other third party costs directly related to the development of a specific new project. Upon the start-up of plant operations or the completion of an acquisition, these costs are generally transferred to property, plant and equipment and are amortized over the estimated useful life of the related project or charged to construction costs in the case of a construction contract for a publicly owned facility. Capitalized project development costs are charged to expense when it is determined that the related project is impaired. Goodwill: Goodwill is amortized by the straight-line method over periods ranging from 15 to 25 years. Goodwill of $8.5 million and $9.4 million at December 31, 2001 and 2000, respectively, is net of accumulated amortization of $2.3 million and $2.1 million, respectively. Interest Rate Swap Agreements: Amounts received or paid relating to swap agreements during the year are credited or charged to interest expense or debt service charges, as appropriate. Income Taxes: Covanta files a consolidated Federal income tax return, which includes all eligible United States subsidiary companies. Foreign subsidiaries are taxed according to regulations existing in the countries in which they do business. Provision has not been made for United States income taxes on distributions, which may be received from foreign subsidiaries that are considered to be permanently invested overseas. Long-Lived Assets: Covanta accounts for the impairment of long-lived assets to be held and used by evaluating the carrying value of its long-lived assets in relation to the operating performance and future undiscounted cash flows of the underlying businesses when indications of impairment are present. If the carrying value of such assets is greater than the future undiscounted cash flows of those assets, the Company would measure the impairment amount as the difference between the carrying value of the assets and the discounted present value of the cash flows to be generated by those assets. Long-lived assets to be disposed of are evaluated in relation to the estimated fair values of such assets less costs to sell (see Note 3). Notes Receivable from Employees: Notes receivable from certain officers to pay for the exercise price of stock options are included in shareholders' equity. As settlement of a dispute, such Notes, which totaled $.9 million and $1.0 million at December 31, 2001 and 2000, respectively, were restructured in late 2001 to be equal to the market value of the Company's common shares purchased upon exercise of those stock options. These notes are due upon sale of those shares which were purchased when those options were exercised (see Note 29). Foreign Currency Translation: For foreign operations, assets and liabilities are translated at year-end exchange rates and revenues and expenses are translated at the average exchange rates during the year. Gains and losses resulting from foreign currency translation are included as a component of other comprehensive loss. For subsidiaries whose functional currency is deemed to be other than the U.S. dollar, translation adjustments are included as a separate component of other comprehensive loss and shareholders' equity. Currency transaction gains and losses are recorded in income. Earnings per Share: Basic Earnings (Loss) per Share is represented by net income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share reflects the potential dilution that could occur if securities or stock options were exercised or converted into common stock during the period, if dilutive (see Note 25). Changes in Accounting Principles: The American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities" in April 1998. This SOP established accounting standards for these costs and requires that they generally be expensed as incurred. Covanta adopted SOP 98-5 on January 1, 1999. The effect of adopting the SOP is shown as a cumulative effect of a change in accounting principle and is reflected as a net charge to income of $3.8 million in 1999. On January 1, 2001, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended and interpreted, establishes accounting and reporting standards for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities. All derivatives are required to be recorded in the balance sheet as either an asset or liability measured at fair value, with changes in fair value recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows derivative gains and losses to offset related results on the hedged items in the Statements of Consolidated Operations and Comprehensive Loss, and requires that a company must formally document, designate, and assess the effectiveness of derivatives that receive hedge accounting. The Company's policy is to enter into derivatives to protect the Company against fluctuations in interest rates and foreign currency exchange rates as they relate to specific assets and liabilities. The Company's policy is to not enter into derivative instruments for speculative purposes. The Company identified all derivatives within the scope of SFAS No. 133. The adoption of SFAS No. 133 did not have a material impact on the results of operations of the Company and increased both assets and liabilities recorded on the balance sheet by approximately $12.3 million on January 1, 2001. The $12.3 million relates to the Company's interest rate swap agreement that economically fixes the interest rate on certain adjustable rate revenue bonds reported in the Project Debt category "Revenue Bonds Issued by and Prime Responsibility of Municipalities." The asset and liability recorded on January 1, 2001 were increased by $.9 million during the year ended December 31, 2001 to adjust for an increase in the swap's fair value to $13.2 million at December 31, 2001 (see Notes 9 and 14). The Company implemented SFAS No. 133 based on the current rules and guidance in place as of January 1, 2001 and has applied the guidance issued since then by the Financial Accounting Standards Board (FASB). In December 1999, the staff of the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." SAB No. 101 provides guidance on the recognition, presentation, and disclosure of revenue, and was implemented by the Company in the quarter ending December 31, 2000. There was no impact from the adoption of SAB No. 101 on the Company's financial position or results of operations. New Accounting Pronouncements: In June 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires the use of the purchase method of accounting for business combinations initiated after June 30, 2001 and prohibits the use of the pooling-of-interests method. The adoption of SFAS No. 141 had no impact on the Company's financial position or results of operations. In June 2001, the FASB also issued SFAS No. 142, "Goodwill and Other Intangible Assets." The Company adopted SFAS No. 142 on January 1, 2002. SFAS No. 142 requires upon adoption the discontinuance of goodwill amortization, which the Company estimates would have been $0.8 million in the year ending December 31, 2002. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. SFAS No. 142 also requires the Company to complete a transitional goodwill impairment test within six months of the date of adoption and to evaluate for impairment the carrying value of goodwill on an annual basis thereafter. The Company is in the process of performing that test and has not yet determined the effect of that requirement upon adoption of SFAS No. 142 on its financial position and results of operations. Identifiable intangible assets with finite lives will continue to be amortized over their useful lives and reviewed for impairment in accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," discussed below. Also in June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirements Obligations," which is effective for the Company on January 1, 2003. SFAS No. 143 requires that a liability for asset retirement obligations be recognized in the period in which it is incurred if it can be reasonably estimated. It also requires such costs to be capitalized as part of the related asset and amortized over such asset's remaining useful life. The Company is currently assessing, but has not yet determined, the effect of adoption of SFAS No. 143 on its financial position and results of operations. In August 2001, the FASB issued SFAS No. 144. The Company adopted SFAS No. 144 on January 1, 2002. SFAS No. 144 replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," and establishes accounting and reporting standards for long-lived assets to be disposed of by sale. SFAS No. 144 applies to all long-lived assets, including discontinued operations. SFAS No. 144 requires that those assets be measured at the lower of carrying amount or fair value less costs to sell. It also broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity that will be eliminated from the ongoing operations of the entity in a disposal transaction. The adoption of SFAS No. 144 did not have a material effect on the Company's financial position and results of operations but will require certain balance sheet reclassifications of these assets and liabilities. Reclassification: Certain prior year amounts, including various revenues and expenses, have been reclassified in the Consolidated Financial Statements to conform with the current year presentation. 2. Discontinued Operations As a result of the adoption of the plan to discontinue the operations of the Entertainment and Aviation businesses, operating results of those businesses were reported as discontinued operations until December 31, 2000. Results for the two segments previously reported under the segment headings "Energy" and "Other" were reported as continuing operations and will continue to be reported under those headings. At December 31, 2000, the Company had substantially completed its sales of the discontinued operations and reclassified the remaining Aviation and Entertainment businesses in the December 31, 2000 Consolidated Balance Sheet to show these businesses as net assets held for sale (see Note 3). Revenues and loss from discontinued operations (expressed in thousands of dollars) were as follows: 2000 1999 - ---------------------------------------------------------------------------- Revenues $ 318,252 $ 809,752 --------- --------- Gain (Loss) on disposal of businesses $ (96,969) $ 17,960 Operating loss (72,186) (53,459) Interest expense - net (3,465) (4,670) --------- --------- Loss Before Income Taxes and Minority Interests (172,620) (40,169) Income Tax Provision (Benefit) (29,263) 6 Minority Interests 307 1,676 --------- --------- Loss from Discontinued Operations $(143,664) $ (41,851) ========= ========= Gross cash proceeds from the sales of businesses included in discontinued operations were approximately $422.4 million during 2000 and $29.7 million during 1999. The following is a list of Aviation and Entertainment businesses sold in 2000 and 1999, the gross proceeds from those sales and the realized gain or (loss) on those sales (expressed in thousands of dollars): Description of Business Gross Proceeds Realized Gain (Loss) - ----------------------- -------------- -------------------- 2000 Food and Beverage/Venue Management $ 222,577 $ 116,437 Aviation Ground Handling 95,728 (31,090) Parks and Themed Attractions 38,300 (110,610) Argentina Airport Privatization 27,500 (3,177) Aviation Fixed Base Operations 15,552 (7,331) Fairmont Race Track 15,356 (481) Dominican Republic Airport Privatization 3,175 2,313 Other businesses 4,162 (3,715) ---------- ---------- $ 422,350 $ (37,654) ========== ========== 1999 Anaheim Pond Contract Renegotiation $ 10,050 $ 6,025 Venue management contracts at 2 venues 9,000 7,152 Hong Kong Airport Ground Operations 4,166 4,042 Aruba Airport Ground Operations 2,504 1,360 Spain Airline Catering Operations 1,984 1,984 Grizzly Nature Center 1,700 (4,385) Aruba Casino 207 (1,607) Other businesses 49 (111) ---------- ---------- $ 29,660 $ 14,460 ========== ========== In addition, in 2000 the Company closed all but one of its themed restaurants, disposed of the related assets and negotiated the buyout of the related leases. The Company recorded charges of $39.4 million related to the disposal of those fixed assets, and accrued an additional $11.0 million for rent adjustments, lease buyouts and other costs of disposal. In 2000, the Company also wrote off its investments in the Isla Magica theme park as a result of the equity and debt restructuring of that park resulting in a charge of $9.0 million. All of these charges are included in Loss from Discontinued Operations on the Statement of Consolidated Operations. In 1999, the Company also reversed reserves of $3.5 million relating to contingencies associated with a sale of a business in a prior year resulting in a gain which is classified in gain (loss) on disposal of business. 3. Net Assets Held for Sale and Related Obligations All non-core businesses, including remaining Entertainment and Aviation businesses are classified as net assets held for sale in the Consolidated Balance Sheet. Those businesses held at December 31, 2001 include: the Company's interest in certain entertainment assets in Argentina, Anaheim, California and Ottawa, Canada; its Metropolitan Entertainment subsidiary, a concert promotion business (Metropolitan); and the Port-Authority related component of its aviation fueling business. The other non-core business included in net assets held for sale at December 31, 2001 was CGS, with a zero net asset value resulting from a $0.4 million write-down in 2001. The Company sold CGS in January 2002, but received no proceeds. In March 2002, the Company closed on the sale of Metropolitan and received $3.1 million. In March 2002, the Company signed a contract for the sale of Casino Iguazu (one of the entertainment assets in Argentina) for $3.5 million in cash. The Company expects to sell the remaining businesses during 2002. The successful completion of the sales processes for remaining non-core assets and the actual amounts received may be impacted by general economic conditions in the markets in which these assets must be sold and necessary regulatory and third party consents. Net assets held for sale at December 31, 2001 and 2000 (expressed in thousands of dollars) were as follows: 2001 2000 ---- ---- Current Assets $15,436 $ 73,237 Property, Plant and Equipment - Net 4,044 19,939 Other Assets 6,348 73,310 Notes Payable and Current Portion of Long-Term Debt (28,651) Other Current Liabilities (18,859) (52,053) Long-Term Debt (670) Other Liabilities (347) (14,498) ------- -------- Net Assets Held for Sale $ 6,622 $ 70,614 ======= ======== With the exception of the operations of Datacom and CGS, the operations of these businesses are included in discontinued operations for the years ended December 31, 2000 and 1999. At December 31, 2000, the Company applied the provisions of SFAS No. 121 to the net assets held for sale. SFAS No. 121 requires assets held for sale to be valued on an asset by asset basis at the lower of carrying amount or fair value less costs to sell. In applying those provisions, Covanta management considered recent appraisals, valuations, offers and bids, and its estimate of future cash flows related to those businesses. As a result, the Company recorded a pre-tax loss of $77.2 million in the year 2000. This amount relates entirely to businesses previously classified in the Entertainment segment. This amount is shown in write-down and obligations related to net assets held for sale in the 2000 Statement of Consolidated Operations and Comprehensive Loss. At December 31, 2000, the valuation provision of $3.7 million provided against them during 2000 was reversed in discontinued operations. In accordance with the provisions of SFAS No. 121, the assets included in net assets held for sale have not been depreciated commencing January 1, 2001, which had the effect of decreasing the loss before income taxes in 2001 by approximately $4.6 million. During 2001, the Company sold several of these assets including its aviation businesses in Spain, Italy and Colombia and the portion of its fueling business that does not serve airports operated by the Port Authority of New York and New Jersey (Non-Port Authority Fueling). Gross cash proceeds from the sales of businesses that were included in net assets held for sale were approximately $38.8 million during 2001. During 2001, the Company had reached a definitive agreement to sell the portion of its fueling business that is related to airports operated by the Port Authority. However, given the impact of the events of September 11, 2001 on the aviation industry and the Port Authority, no closing date was set for that Port Authority component pending Port Authority approval of the sale. The Company is reviewing this contract in light of its Chapter 11 filing. The following is a list of Aviation businesses sold in 2001, the gross proceeds from those sales and the realized gain or (loss) on those sales (in thousands of dollars): Description of Business Gross Proceeds Realized Gain (Loss) - ----------------------- -------------- -------------------- Non-Port Authority Fueling $ 15,200 $ (4,026) Colombia Airport Privatization 9,660 1,404 Rome, Italy Aviation Ground Operations 9,947 1,855 Spain Aviation Ground Operations 1,753 (261) Aviation Fixed Base Operations 2,098 777 Other 197 (2,517) --------- ---------- $ 38,855 $ (2,768) ========= ========== The above realized loss of $2.8 million is included in net gain (loss) on sale of businesses in the 2001 Statement of Consolidated Operations and Comprehensive Loss. During the year ended December 31, 2001, the Company also disposed of Datacom and its Australian Venue Management operations. Those disposals resulted in no cash proceeds. Accordingly, prior to those disposals, the Company recorded write-downs of those two businesses based on negotiated sales prices, resulting in pre-tax charges of $16.8 million and $2.0 million, respectively. Also, various parcels of land and other assets held for sale were written down based on the Company's estimates of sales prices, resulting in an additional charge of $1.0 million. At December 31, 2001, because of the economic turmoil and subsequent devaluation of the peso in Argentina, the Company wrote down to zero its investments in the La Rural exposition center, an entertainment venues in Argentina. The Company also wrote down to a net realizable value of $2.4 million its investment in Casino Iguazu in Argentina based on the status of negotiations evidenced by the subsequent contract to sell the Casino for $3.5 million. The Company estimated $1.1 million of costs to sell the Casino. These write-downs resulted in pre-tax charges of $16.4 million and $4.5 million, respectively. In addition, at December 31, 2001, the Company considered the status of current negotiations on the potential sale of Metropolitan and the negative impact on the concert business of the event of September 11, 2001,and wrote-down Metropolitan to $2.5 million resulting in a pre-tax charge of $5.4 million. The carrying value of the Company's interests relating to the Arrowhead Pond, the Center and the Team (all as defined below) have been materially adversely affected by events occurring at the end of 2001 and in 2002 to date. On December 21, 2001 the Company announced that its inability to access the capital markets, the continuing delays in payment of remaining California energy receivables and delays in the sale of aviation and entertainment assets had adversely impacted Covanta's ability to meet cash flows covenants under its Master Credit Facility. The Company also stated that the banks had provided a waiver for the covenants only through January of 2002, had not agreed to provide the additional short term liquidity the Company had sought and that the Company was conducting a comprehensive review of its strategic alternatives. On December 27, 2001 and January 11, 2002 the Company's credit rating was reduced by Moody's and Standard & Poor's. These downgrades triggered requirements to post in excess of $100 million in performance and other letters of credit for Energy projects and for which the Company did not have available commitments under its Master Credit Facility. Subsequently, the Company's credit ratings were further reduced. The Company required further waivers from its cash flow covenants under its Master Credit Facility for the period after January 2002. On January 31, 2002 the Company announced that it had obtained waivers through the end of March 2002, subject, however, to its meeting stringent cash balance requirements set by its banks. Among other things, these cash balance requirements prevented the Company from paying interest due on March 1, 2002 on its 9.25% Debentures. In addition, the restrictions prevented contributions to the working capital needs of the Ottawa Senators Hockey Club Corporation (the "Team") of the National Hockey League (the "NHL"), the prime tenant of the Corel Centre near Ottawa, Canada (the "Centre"). These events resulted in draws during March 2002 of the letters of credit for the $19.0 million and $86.2 million guarantees discussed below with respect to the Team and the Centre, respectively. In return for drawing on the letters of credit, the Company obtained an interest in the loans that had been secured by the letters of credit that had been drawn. On April 1, 2002, the Company filed for relief under Chapter 11 of the Bankruptcy Code. (See Note 1). The events leading up to the bankruptcy filing and the filing itself have materially adversely affected the Company's ability to manage the timing and terms on which to dispose of its interests and related obligations with respect to the Centre, the Team and the Arrowhead Pond, as described below. With respect to the Centre and the Team, these events led to the termination, in 2002, of a pending sale of limited partnership interests and related recapitalization of the Team that, if completed as contemplated, would have been expected to stabilize the finances of the Team and Centre for a considerable period of time. Given the Company's inability to fund short-term working capital needs of the Team, and given the events described above, the Company is not in a position to determine the timing and terms of disposition of the Team and the Centre in a manner most advantageous to the Company. Currently, a process is underway to dispose of both in connection with the NHL and the senior secured lenders to the Team. Based upon all currently available information, including an initial offer to purchase dated June 20, 2002 and certain assumptions as to the future use, and considering the factors listed above, the Company recorded a pre-tax impairment charge as of December 31, 2001 of $140.0 million related to the Centre and the Team. The $140.0 million charge, which has been included in write-down of and obligations related to net assets held for sale in the 2001 Statement of Consolidated Operations and Comprehensive Loss, represents the Company's estimate of the net cost to sell its interests in the Centre and Team and to be discharged of all related obligations and guarantees. The resulting estimated after tax cost of $118.8 million (net of tax of $21.2 million) has been included in Obligations Related to Net Assets Held for Sale on the December 31, 2001 Consolidated Balance Sheet. However, in view of the proposed sales of these interests, and the need for approval by the Bankruptcy Court, DIP lenders (see Note 15) and NHL of such transactions, uncertainty remains as to the actual amount of the impairment. The Company's guarantees at December 31, 2001 comprised a: (1) $19.0 million guarantee of the Team's subordinated loan payable; (2) $86.2 million guarantee of the senior term debt of the Centre; (3) $45.3 million guarantee of the senior subordinated debt of the Centre for which $6.3 million in cash collateral has been posted by the borrower; (4) $3.1 million guarantee of senior secured term debt of the team; (5) guarantee of the interest payments on $37.7 million of senior secured term debt of the Team; (6) guarantee to make working capital advances to the Centre from time to time in amounts necessary to cover any shortfall between certain operating cash flows, operating expenses and debt service of the Centre; and (7) $17.5 million cost for terminated foreign exchange currency swap agreements. The swap agreements had a notional amount of $130.6 million and were entered into by the Centre related to the $86.2 million senior term and $45.3 million senior subordinated debt. These swap agreements had extended originally through December 23, 2002 but were terminated by the counter-parties in May 2002. The Company's guarantees arose during 1994, when a subsidiary of Covanta entered into a 30-year facility management contract at the Centre pursuant to which it agreed to advance funds to the Team, and if necessary, to assist the Centre's refinancing of senior secured debt incurred in connection with the construction of the Centre. In compliance with these guarantees, the Company entered into agreements pursuant to which it was required to purchase the $19.0 million and $86.2 million series of debt referred to above if such debt was not timely refinanced or upon the occurrences of certain defaults. On March 12, 2002 the holders of the secured subordinated debt of the Team required the Company to purchase such debt in the total amount (together with accrued and unpaid dividends) of $19.0 million. On March 14, 2002, the holders drew on a $19.0 million letter of credit for which the Company was the reimbursement party. On March 22, 2002, as the result of defaults occurring in 2002, the holders of the senior secured debt required the Company to purchase such debt in the total amount (together with accrued and unpaid dividends) of $86.2 million. The holders drew on a letter of credit on March 27, 2002 for which the Company was the reimbursement party to fund the purchase. The remaining series of subordinated secured debt of the Centre in the amount of $45.3 million is also subject to a put right pursuant to the terms of the underlying agreements. But such subordinated secured debt has not been put to the Company, although the holder has the right to do so. The obligation to purchase such debt is not secured by a letter of credit. In addition to the $140.0 impairment charge, and following the termination of the pending sale of limited partnership interests discussed above, the Company also recorded a charge of $5.5 million at December 31, 2001 to fully reserve against receivables due from the Team. The $5.5 million charge has been included in Other Operating Costs and Expenses in the 2001 Statement of Consolidated Operations and Comprehensive Loss. The events set forth above have also materially adversely affected the Company's ability to manage the timing and terms on which to dispose of its interest and related obligations in the Arrowhead Pond in Anaheim, California (the "Arrowhead Pond"). The Company's limited ability to fund short term working capital needs at the Arrowhead Pond under the DIP credit facility and the need to resolve the bankruptcy case may create the need to dispose of the Arrowhead Pond presently when Mighty Ducks attendance and the concert business, a prime driver of revenues, is in substantial decline and attendance at the building is not at levels consistent with past experience. Based upon all currently available information, including a recently received valuation and certain assumptions as to the future use, and considering the effects of the events set forth above, the Company recorded an impairment charge as of December 31, 2001 of $74.4 million related to the Company's interest in the Arrowhead Pond. The $74.4 million charge, which has been included in write-down of and obligations related to net assets held for sale in the 2001 Consolidated Statement of Consolidated Operations and Comprehensive Loss, represents the write-off of the $16.4 million previous carrying amount at that date and the Company's $58.0 million estimate of the net cost to sell its interests in the long-term management agreement discussed in the following paragraph. The resulting estimated net after tax cost to sell of $37.1 million (net of tax of $20.9) has been included in Obligations Related to Net Assets Held for Sale on the December 31, 2001 Consolidated Balance Sheet. However, in view of the proposed sales of this interest, and the need for approval by the Bankruptcy Court and DIP Lenders (see Note 15) of such transactions, uncertainty remains as to the actual amount of the impairment. A subsidiary of the Company is the manager of the Arrowhead Pond under a long-term management agreement. The Company and the City of Anaheim are parties to a reimbursement agreement to the financial institution which issued a letter of credit in the amount of approximately $117.2 million which provides credit support for Certificates of Participation issued to finance the Arrowhead Pond project. As part of its management agreement, the manager is responsible for providing working capital to pay operating expenses and debt service (including swap exposure and reimbursement of the lender for draws under the letter of credit including draws related to an acceleration by the lender of all amounts payable under the reimbursement agreement) if the revenues of Arrowhead Pond are insufficient to cover these costs. The Company has guaranteed the obligations of the manager. The City of Anaheim has given the manager notice of default under the management agreement. In such notice, the City indicated that it did not propose to exercise its remedies at such time. The Company is also the reimbursement party on a $26.0 million letter of credit and a $1.5 million letter of credit relating to a lease transaction for Arrowhead Pond. The $26.0 million letter of credit, which is security for the lease investor, can be drawn upon the occurrence of an event of default. The $1.5 million letter of credit is security for certain indemnification payments under the lease transaction documents. The lease transaction documents require the Company to provide additional letter of credit coverage from time to time. The additional amount required for 2002 is estimated to be approximately $11.5 million, which the Company has not provided. Notices of default have been delivered in 2002 under the lease transaction documents. As a result of the default, parties may exercise remedies, including drawing on letters of credit and recovering fees to which the manager may be entitled for managing Arrowhead Pond. The Company's exposure upon the occurrence of an event of default under the lease transaction is estimated to be approximately $37.5 million, which is secured by the $26.0 million letter of credit among other things. The Company is also obligated to fulfill its indemnification obligations under the lease transaction documents, the amount of which cannot be determined at this time. Such indemnification obligations are secured in part by the $1.5 million letter of credit. The parties to the lease transaction have agreed to delay the exercise of remedies for the existing defaults until October 21, 2002. The Company is exploring alternatives and no additional impairment charge related to the lease transaction for the Arrowhead Pond was considered necessary at December 31, 2001. All of the above pre-tax SFAS No. 121 charges are included in write-down of net assets held for sale in the 2001 Statement of Consolidated Operations and Comprehensive Loss. 4. Investments In and Advances to Investees and Joint Ventures The Company is party to joint venture agreements through which the Company has equity investments in several operating projects and certain projects that are expected to become operational during the next two years. The joint venture agreements generally provide for the sharing of operational control as well as voting percentages. The Company records its share of earnings from its equity investees on a pre-tax basis and records the Company's share of the investee's income taxes in income tax expense (benefit). At December 31, 2001, the Company's share of earnings from its equity investees was reduced by a $7.9 million SFAS No. 121 impairment charge, calculated based upon discounted future cash flows and resulting mainly from closing down part of an energy generating facility due to lower demand, related to its Bolivia investment. In 2000, the Company acquired an ownership interest in a 106 MW low sulfur furnace oil based diesel engine power plant located in the State of Tamil Nadu, India. Through a share purchase agreement the Company's ownership interest reached 74.8% in 2001. Also in 2000, the Company acquired a 49% interest in an oil based diesel engine power plant located in India. Upon the plant's achieving commercial operation in February 2001, the Company obtained an additional 11% stake in the plant. As of December 31, 2000, the Company accounted for these investments on the equity method. Because the increased ownership interests gave the Company control, the Company began to consolidate these project companies in the first quarter of 2001. The Company is a party to a joint venture formed to design, construct, own and operate a coal-fired electricity generation facility in the Quezon province of the Philippines ("Quezon Joint Venture"). The Company owns 26.125% of, and has invested 27.5% of the total equity in, the Quezon Joint Venture (See Note 13). This project commenced commercial operations in 2000. In addition, the Company owns interests of up to 50% in 13 other affiliates which principally own and operate, or are developing, energy facilities. The Company's investments in and advances to those affiliates were approximately $183.2 million and $223.4 million at December 31, 2001 and 2000, respectively. The December 31, 2001 aggregate carrying value of the investments in and advances to investees and joint ventures of $183.2 million is less than the Company's equity in the underlying net assets of these investees by approximately $4.2 million. The carrying value of $223.4 at December 31, 2000 was $0.7 million greater than the Company's equity in the underlying net assets. These differences of cost over acquired net assets is mainly related to property, plant, and equipment and power purchase agreements of several investees. At December 31, 2001 and 2000, investments in and advances to investees and joint ventures accounted for under the equity method were comprised as follows (expressed in thousands of dollars): December 31, Ownership Interest at ---------------------------- December 31, 2001 2001 2000 --------------------- ----------- ----------- Mammoth Pacific Plant (U.S.) 50% $ 53,085 $ 57,530 Ultrapower Chinese Station Plant (U.S.) 50% 12,133 12,338 South Fork Plant (U.S.) 50% 958 1,186 Koma Kulshan Plant (U.S.) 50% 3,471 3,268 Linasa Plant (Spain) 50% 2,137 2,000 Haripur Barge Plant (Bangladesh) 45% 17,363 14,636 Quezon Power (Philippines) 28% 73,861 70,747 Rojana Power Plant (Thailand) 25% 12,377 11,613 Madurai Power Plant (India) (A) 75% 14,173 Samalpatti Power Plant (India) (A) 60% 20,343 Empressa Valle Hermoso Project (Bolivia) 13% 1,000 9,282 Trezzo Power Plant (Italy) 13% 3,815 3,238 Other various 3,031 3,081 --------- --------- Total Investments in Power Plants $ 183,231 $ 223,435 ========= =========
(A) Both Madurai and Samalpatti plants were consolidated in 2001. The unaudited combined results of operations and financial position of the Company's equity method affiliates are summarized below (expressed in thousands of dollars). 2001 2000 1999 ----------- ----------- ----------- Condensed Statements of Operations for the years ended December 31: Revenues $ 333,277 $ 267,359 $ 124,798 Gross profit 158,487 62,976 25,380 Net income 56,172 67,832 28,789 Company's share of net income 17,665 24,088 13,005 Condensed Balance Sheets at December 31: Current assets $ 212,074 $ 235,975 $ 101,365 Non-current assets 1,261,953 1,351,668 1,189,071 Total assets 1,474,027 1,587,643 1,290,436 Current liabilities 96,595 139,384 62,910 Non-current liabilities 826,962 826,319 751,606 Total liabilities 923,557 965,703 814,516
5. Investments in Marketable Securities Available for Sale At December 31, 2001 and 2000, marketable equity and debt securities held for current and noncurrent uses, such as nonqualified pension liabilities and a deferred compensation plan, are classified as current assets and long-term assets, respectively. Marketable securities at December 31, 2001 and 2000 (expressed in thousands of dollars), include the following: 2001 2000 - ------------------------------------------------------------------------------------------------------------ Market Value Carrying Value Market Value Carrying Value - ------------------------------------------------------------------------------------------------------------ Classified as Noncurrent Assets: Mutual and bond funds $ 2,940 $ 2,940 $ 3,590 $ 3,590 ======= ======= ======= =======
Proceeds, realized gains and realized losses from the sales of securities classified as available for sale for the years ended December 31, 2001, 2000 and 1999, were $.6 million, zero, and $.1 million; $7.2 million, $.9 million and $.1 million; and $66.5 million, $.8 million and $2.0 million, respectively. For the purpose of determining realized gains and losses, the cost of securities sold was based on specific identification. 6. Unbilled Service and Other Receivables Unbilled service and other receivables (expressed in thousands of dollars) consisted of the following: 2001 2000 - --------------------------------------------------------------------------- Unbilled service receivables $149,624 $147,850 Notes receivable 3,650 Other 1,201 3,710 -------- -------- Total $150,825 $155,210 ======== ======== Long-term unbilled service receivables are for services, which have been performed for municipalities that are due by contract at a later date and are discounted in recognizing the present value of such services. Current unbilled service receivables, which are included in Receivables on the Consolidated Balance Sheet, amounted to $62.8 million and $61.1 million at December 31, 2001 and 2000, respectively. Long-term notes receivable primarily represent notes received relating to the sale of non-core businesses. 7. Restricted Funds Held in Trust Funds held by trustees include debt service reserves for payment of principal and interest on project debt; deposits of revenues received; lease reserves for lease payments under operating leases; and proceeds received from financing the construction of energy facilities. Such funds are invested principally in United States Treasury bills and notes and United States government agencies securities. Fund balances (expressed in thousands of dollars) were as follows: 2001 2000 - ------------------------------------------------------------------------------- Current Non-current Current Non-current ------- ----------- ------- ----------- Debt service funds $48,357 $131,300 $48,519 $122,801 Revenue funds 11,608 13,765 Lease reserve funds 3,116 15,794 3,117 18,247 Construction funds 186 1,203 Other funds 29,952 19,915 29,676 16,013 ------- -------- ------- -------- Total $93,219 $167,009 $96,280 $157,061 ======= ======== ======= ======== 8. Property, Plant and Equipment Property, plant and equipment (expressed in thousands of dollars) consisted of the following: 2001 2000 - ------------------------------------------------------------------------------ Land $ 8,427 $ 8,059 Energy facilities 2,239,082 2,047,315 Buildings and improvements 207,622 135,733 Machinery and equipment 84,930 121,451 Landfills 13,661 13,741 Construction in progress 15,042 48,940 ---------- ---------- Total 2,568,764 2,375,239 Less accumulated depreciation and amortization 667,453 585,809 ---------- ---------- Property, plant, and equipment - net $1,901,311 $1,789,430 ========== ========== Depreciation and amortization related to property, plant and equipment amounted to $87.5 million, $82.8 million and $83.2 million for the years ended December 31, 2001, 2000 and 1999, respectively. During 2001, the Company received all of the principal permits necessary to commence construction on a 500 MW gas-fired project in California. However, due to the significant changes in the California energy markets as well as in its own financial situation, in late December 2001 the Company decided to delay project implementation until California market conditions improve and wrote-off, as project development expenses in the Statement of Consolidated Operations and Comprehensive Loss, approximately $24.5 million of costs associated with this project. These costs primarily related to turbine purchase deposits and related termination fees, permit, viability and other development costs, and other assets under construction. 9. Other Assets Other assets (expressed in thousands of dollars) consisted of the following: 2001 2000 - -------------------------------------------------------------------------------- Unamortized bond issuance costs $33,459 $33,941 Deferred financing costs 8,590 8,329 Non-current securities available for sale 2,940 3,590 Interest rate swap 13,199 Other 1,324 20,864 ------- ------- Total $59,512 $66,724 ======= ======= 10. Convertible Subordinated Debentures Convertible subordinated debentures (expressed in thousands of dollars) consisted of the following: 2001 2000 - -------------------------------------------------------------------------------- 6% debentures due June 1, 2002 $85,000 $85,000 5.75% debentures due October 20, 2002 63,650 63,650 -------- -------- Total $148,650 $148,650 ======== ======== The 6% convertible subordinated debentures are convertible into Covanta common stock at the rate of one share for each $39.077 principal amount of debentures. These debentures are redeemable at Covanta's option at 100% face value. The 5.75% convertible subordinated debentures are convertible into Covanta common stock at the rate of one share for each $41.772 principal amount of debentures. These debentures are redeemable at Covanta's option at 100% of face value. 11. Accrued Expenses Accrued expenses (expressed in thousands of dollars) consisted of the following: 2001 2000 - -------------------------------------------------------------------------------- Operating expenses $ 139,771 $87,532 Severance and employment litigation settlement 13,512 32,862 Insurance 24,960 17,001 Debt service charges and interest 31,234 29,315 Municipalities' share of energy revenues 39,158 29,481 Payroll 22,134 17,222 Payroll and other taxes 9,435 19,439 Lease payments 15,644 18,308 Pension and profit sharing 16,448 8,724 Other 50,092 48,797 -------- -------- Total $362,388 $308,681 ======== ======== 12. Deferred Income Deferred income (expressed in thousands of dollars) consisted of the following: 2001 2000 - ------------------------------------------------------------------------------------------- Current Noncurrent Current Noncurrent - ------------------------------------------------------------------------------------------- Power sales agreement prepayment $ 9,001 $147,306 $ 9,001 $156,307 Sale and leaseback arrangements 1,523 14,219 1,523 15,743 Advance billings to municipalities 11,088 10,419 Other 21,082 17,574 --------- -------- -------- -------- Total $ 42,694 $161,525 $ 38,517 $172,050 ========= ======== ======== ========
In 1998, Covanta received a payment for future energy deliveries required under a power sales agreement. This prepayment is being amortized over the life of the agreement. The gains from sale and leaseback transactions consummated in 1986 and 1987 were deferred and are being amortized as a reduction of rental expense over the respective lease terms. Advance billings to various customers are billed one or two months prior to performance of service and are recognized as income in the period the service is provided. 13. Long-Term Debt Long-term debt (expressed in thousands of dollars) consisted of the following: 2001 2000 - -------------------------------------------------------------------------------- Adjustable-rate revenue bonds due 2014-2024 $124,755 $124,755 9.25% debentures due 2022 100,000 100,000 Other long-term debt 73,847 85,371 -------- -------- Total $298,602 $310,126 ======== ======== The adjustable-rate revenue bonds are adjusted periodically to reflect current market rates for similar issues, generally with an upside cap of 15%. The average rates for this debt were 2.52% and 4.03% in 2001 and 2000, respectively. Beginning in April 2002 and pursuant to the Company's Chapter 11 filing, trustees for these bonds declared the principal and accrued interest on such bonds due and payable immediately. Accordingly, letters of credit supporting these bonds have been drawn in the amount of $125.1 million and the Company is presently not able to reissue these bonds. The Company's 9.25% Debentures are, to the extent required by their terms, equally and ratably secured by the security interests granted under the Company's Revolving Credit and Participation Agreement (see Note 15). On March 1, 2002, the Company availed itself of the 30-day grace period provided under the terms of its 9.25% debentures due March 2022, and did not make the interest payment due March 1, 2002 at that time. Further, on April 1, 2002, Covanta Energy Corporation (along with certain of its subsidiaries) filed voluntary petitions for Chapter 11 reorganization and accordingly did not make the interest payment on the 9.25% debentures at that time. At December 31, 2000 the Company had drawn the entirety of its $50.0 million revolving credit facility under its Master Credit Facility. The interest rate on this facility at December 31, 2000 was 6.975% and was based on the 30 day LIBOR plus 0.225% (see Note 15). The Company also had $63.7 million of bank debt related to the Company's investment in the Quezon Joint Venture. The loans bore interest at the current LIBOR plus .45% (6.98% at December 31, 2000). In connection with the closing of the Revolving Credit and Participation Agreement, this debt and the revolving credit facility were paid in March 2001 and, therefore, are classified in current portion of long-term debt in the December 31, 2000 Consolidated Balance Sheet. Other long-term debt includes an obligation for $28.4 million, related to a sale and leaseback arrangement relating to an energy facility. This arrangement is accounted for as a financing, has an effective interest rate of approximately 5%, and extends through 2017. Other long-term debt also includes $22.5 million resulting from the sale of limited partnership interests in and related tax benefits of an energy facility, which has been accounted for as a financing for accounting purposes. This obligation has an effective interest rate of 10% and extends through 2015. Other long-term debt includes a $1.7 million note associated with the acquisition of energy assets. The note bears interest at 6.0% and matures in 2009. Long-term debt also includes $21.7 million relating to the buyout of an operating lease at a geothermal plant and fluid field. On February 11, 2002 the Company restructured these notes extending their maturity from April 2002 to July 2003, and, therefore, these notes are classified as long-term in the December 31, 2001 Consolidated Balance Sheet. These notes bear interest at the three-month Euro dollar rate plus 2.75% (5.34% at December 31, 2001). These notes are to be paid from substantially all available cash generated by the related plant and the field. This debt is secured by all the Company's assets relating to the geothermal plant and fluid field. The maturities on long-term debt (expressed in thousands of dollars) at December 31, 2001 were as follows: 2002 $ 13,089 2003 22,114 2004 215 2005 228 2006 242 Later years 275,803 --------- Total 311,691 Less current portion 13,089 --------- Total long-term debt $ 298,602 ========= See Note 15 for a description of the credit arrangements of the Company. 14. Project Debt Project debt (expressed in thousands of dollars) consisted of the following: 2001 2000 - -------------------------------------------------------------------------------------------------- Revenue Bonds Issued by and Prime Responsibility of Municipalities: 3.625-6.75% serial revenue bonds due 2003 through 2011 $ 373,045 $ 414,605 5.0-7.0% term revenue bonds due 2003 through 2015 319,734 330,869 Adjustable-rate revenue bonds due 2006 through 2013 133,540 136,475 ---------- ---------- Total 826,319 881,949 ---------- ---------- Revenue Bonds Issued by Municipal Agencies with Sufficient Service Revenues Guaranteed by Third Parties: 5.25-8.9% serial revenue bonds due 2003 through 2008 69,193 78,420 ---------- ---------- Other Revenue Bonds: 4.7-5.5% serial revenue bonds due 2003 through 2015 86,365 92,795 5.5-6.7% term revenue bonds due 2014 through 2019 68,020 68,020 ---------- ---------- Total 154,385 160,815 ---------- ---------- Other project debt 252,484 169,204 ---------- ---------- Total long-term project debt $1,302,381 $1,290,388 ========== ==========
Project debt associated with the financing of waste-to-energy facilities is generally arranged by municipalities through the issuance of tax-exempt and taxable revenue bonds. The category, "Revenue Bonds Issued by and Prime Responsibility of Municipalities," includes bonds issued with respect to which debt service is an explicit component of the client community's obligation under the related service agreement. In the event that a municipality is unable to satisfy its payment obligations, the bondholders' recourse with respect to the Company is limited to the waste-to-energy facilities and restricted funds pledged to secure such obligations. The category, "Revenue Bonds Issued by Municipal Agencies with Sufficient Service Revenues Guaranteed by Third Parties," includes bonds issued to finance two facilities for which contractual obligations of third parties to deliver waste ensure sufficient revenues to pay debt service, although such debt service is not an explicit component of the third parties' service fee obligations. The category "Other Revenue Bonds" includes bonds issued to finance one facility for which current contractual obligations of third parties to deliver waste provide sufficient revenues to pay debt service related to that facility through 2011, although such debt service is not an explicit component of the third parties' service fee obligations. The Company anticipates renewing such contracts prior to 2011. Payment obligations for the project debt associated with waste-to-energy facilities are limited recourse to the operating subsidiary and non-recourse to the Company, subject to construction and operating performance guarantees and commitments. These obligations are secured by the revenues pledged under various indentures and are collateralized principally by a mortgage lien and a security interest in each of the respective waste-to-energy facilities and related assets. At December 31, 2001, such revenue bonds were collateralized by property, plant and equipment with a net carrying value of $1,807.3 million and restricted funds held in trust of approximately $217.4 million The interest rates on adjustable-rate revenue bonds are adjusted periodically based on current municipal-based interest rates. The average adjustable rate for such revenue bonds was 2.47% and 3.86% in 2001 and 2000, respectively. Other project debt includes an obligation of a limited partnership acquired by subsidiaries of Covanta and represents the lease of a geothermal power plant, which has been accounted for as a financing. This obligation, which amounted to $30.0 million at December 31, 2001, has an effective interest rate of 5.3% and extends through 2008 with options to renew for additional periods and has a fair market value purchase option at the conclusion of the initial lease term. Payment obligations under this lease arrangement are limited to assets of the limited partnership and revenues derived from a power sales agreement with a third party, which are expected to provide sufficient revenues to make rental payments. Such payment obligations are secured by all the assets, revenues, and other benefits derived from the geothermal power plant, which had a net carrying value of approximately $64.4 million at December 31, 2001. All revenues from the limited partnership are contractually required by the lessor to be deposited into a series of escrow accounts administered by an independent escrow agent. A letter agreement with the lessor, as amended on December 20, 2000, also required that if Covanta's senior debt rating fell below investment grade, the limited partnership would commence depositing funds into a lease reserve account pursuant to the existing project document until $7,500,000 was in the account. On January 16, 2002, Covanta's senior debt rating fell below investment grade, as defined. On May 13, 2002, the Bankruptcy Court issued a final order (the "Final Order") approving certain changes to the existing lease documents negotiated as a result of the limited partnership's bankruptcy filing on April 1, 2002. Under the Final Order, the limited partnership agreed to make all lease payments due after the Petition Date. The Final Order did not authorize the limited partnership to pay any lease amounts due prior to April 1, 2002, but instead ordered the limited partnership to place that amount in escrow and accrue interest. The pre-petition lease payments being held in escrow would be paid to the lessor with interest if the limited partnership assumes the lease. If the limited partnership rejects the lease the escrowed funds and interest would be returned to the limited partnership. Pursuant to the Final Order, the limited partnership is not required to fund the lease reserve account until the earliest of (1) the effective date of a plan of reorganization, (2) expiration of the debtor in possession facility, but no later than October 1, 2003, and (3) a default arising after the Petition Date. On June 27, 2002 and in compliance with the Final Order, the Bankruptcy Court approved an Order Authorizing Assumption of Certain Intercompany Agreements authorizing the limited partnership to assume executory contracts and agreements with related parties. Other project debt also includes $7.1 million due to a financial institution as part of the refinancing of project debt in the category "Revenue Bonds Issued by and Prime Responsibility of Municipalities." The debt service associated with this loan is included as an explicit component of the client community's obligation under the related service agreement. A portion of the funds was retained in the Company's restricted funds and is loaned to the community each month to cover the community's monthly service fees. The Company's repayment for the other part of the loan is limited to the extent repayment is received from the client community. This obligation has an effective interest rate of 7.06% and extends through 2005. Other project debt includes $15.1 million due to financial institutions which bears interest at an adjustable rate that was the three-month LIBOR rate plus 1.3% (3.40% at December 31, 2001). The debt extends through 2005 and is secured by substantially all the assets of a subsidiary that owns various power plants in the United States, which had a carrying value of approximately $ 112.4 million at December 31, 2001, and a credit enhancement of $10.0 million. Other project debt includes $58.2 million due to banks of which $23.9 million is denominated in U.S. dollars and $34.3 million is denominated in Thai Baht. This debt related to a Thailand gas-fired energy facility. The U.S. dollar debt bears interest at the annual LIBOR, plus 2.75% (5.06% at December 31, 2001) and the Thai Baht debt bears an interest rate of Thai bank MLR plus .5%. The MLR, which is the melded Maximum Lending Rate of the consortium of Thai banks that has lent to the project, was approximately 7.50% at December 31, 2001. The debt extends through 2012, is non-recourse to Covanta and is secured by all project assets, which had a net carrying value of approximately $102.5 million at December 31, 2001. In March 2002, the Company sold its interest in this plant (see Note 32). Other project debt includes $31.0 million due to financial institutions for the purchase of the Magellan Cogeneration Inc. power plant in the Philippines. This debt bears interest at rates equal to the three-month LIBOR (3.52% at December 31, 2001) plus spreads that increase from plus 4.25% until June 2002, to plus 4.5% from June 2002 to June 2005, to plus 4.875% from June 2005 to June 2007. The rate was 7.7% at December 31, 2001. This debt is non-recourse to Covanta and is secured by all assets of the project, which had a net carrying value of $51.9 million at December 31, 2001, and all revenues and contracts of the project and by a pledge of the Company's ownership in the project. Other project debt includes approximately $56.3 million due to financial institution. This debt relates to the purchase of a diesel-fired power plant in India. It is denominated in Indian rupees and bears interest at rates ranging from 14.5% to 16.46%. The debt extends through 2010, is non-recourse to Covanta and is secured by the project assets, which had a net book value at December 31, 2001 of approximately $81.8 million. Other project debt includes $54.7 million due to financial institutions, of which $35.3 million is denominated in U.S. dollars and $19.4 million is denominated in Indian Rupees. This debt relates to the purchase of a diesel-fired power plant in Tamil Nadu, India. The U.S. dollar debt bears interest at the three-month LIBOR, plus 4.5% (7.1% at December 31, 2001). The Indian Rupee debt bears interest at rates ranging from 16% to 16.5% at December 31, 2001. The debt extends through 2011, is non-recourse to Covanta, and is secured by the project assets, which had a net carrying value at December 31, 2001 of approximately $87.3 million. At December 31, 2001, the Company had one interest rate swap agreement that economically fixes the interest rate on certain adjustable-rate revenue bonds. The swap agreement was entered into in September 1995 and expires in January 2019. This swap agreement relates to adjustable rate revenue bonds in the category "Revenue Bonds Issued by and Prime Responsibility of Municipalities." Any payments made or received under the swap agreement, including fair value amounts upon termination, are included as an explicit component of the Client Community's obligation under the related service agreement. Therefore, all payments made, or received under the swap agreement are a passthrough to the Client Community. Under the swap agreement, the Company will pay an average fixed rate of 9.8% for 2002 through January 2005, and 5.18% thereafter through January 2019, and will receive a floating rate equal to the rate on the adjustable rate revenue bonds, unless certain triggering events occur (primarily credit events), which results in the floating rate converting to either a set percentage of LIBOR or a set percentage of the BMA Municipal Swap Index, at the option of the swap counterparty (Note 1). In the event the Company terminates the swap prior to its maturity, the floating rate used for determination of settling the fair value of the swap would also be based on a set percentage of one of these two rates at the option of the counterparty. For the years ended December 31, 2001 and 2000, the floating rate on the swap averaged 2.46% and 4.09%, respectively. The notional amount of the swap at December 31, 2001 was $80.2 million and is reduced in accordance with the scheduled repayments of the applicable revenue bonds. The counterparty to the swap is a major financial institution. The Company believes the credit risk associated with nonperformance by the counterparty is not significant. The swap agreement resulted in increased debt service expense of $2.2 million, $1.1 million and $1.7 million for 2001, 2000 and 1999, respectively. The effect on Covanta's weighted-average borrowing rate of the project debt was an increase of .17%, .07% and .11%, for 2001, 2000 and 1999, respectively. The maturities on long-term project debt (expressed in thousands of dollars) at December 31, 2001 were as follows: 2002 $ 113,112 2003 118,847 2004 121,734 2005 123,023 2006 118,504 Later years 820,273 ---------- Total 1,415,493 Less current portion 113,112 ---------- Total long-term project debt $1,302,381 ========== See Note 15 for a description of the credit arrangements of the Company. 15. Credit Arrangements At December 31, 2000, Covanta had no unused revolving credit lines and under its principal revolving credit facility the Company had borrowed $50.0 million (see Note 13). On March 14, 2001, the Company entered into a Revolving Credit and Participation Agreement (the Master Credit Facility) with its principal credit providers and paid the entire $50.0 million revolving credit line debt. The Credit Agreement replaced the Company's major outstanding credit facilities with one master credit facility that created a credit line of approximately $146 million and included a sub-facility which was permitted to only be used to provide certain letters of credit which were required if the Company's outstanding debt securities are no longer rated investment grade. Under the terms of the Master Credit Facility, which matured on May 31, 2002, without being fully discharged, and is secured by substantially all of the Company's domestic assets other than those subject to prior liens of third parties, the Company's credit facility was available to be used for working capital and other general corporate purposes as well as to fund certain letter of credit requirements. Under the facility, as amended, the Company agreed not to make investments in new energy projects during the term of the Master Credit Facility. The Master Credit Facility also contained several financial covenants relating to the Company's cash position, net worth, and compliance with leverage and interest coverage tests. As a result of the Master Credit Facility maturing without being fully discharged by the DIP Credit Facility discussed below, along with non-compliance with certain required financed ratios also discussed below and possible other items, the Company is in default of its Master Credit Facility. This, among other things, will be addressed in the Company's Chapter 11 bankruptcy proceeding. The financial covenants of the Master Credit Facility provide limits on the (I) the ratio of (a) the sum of Consolidated Operating Income (as shown in the Consolidated Statements of Operations), plus LOC Fees (defined in the Master Credit Facility as letter of credit fees, commitment fees, and amortization of agency and termination fees) to the extent included in Operating Income, and Minority Interest (as shown on the Consolidated Statement of Income) to (b) the total interest expense on the Company's indebtedness, plus LOC Fees, less interest income, (II) the ratio of the Company's net indebtedness to adjusted Earnings Before Interest and Taxes ("EBIT") as defined for the four quarters ended December 31, 2001, and (III) the sum of capital stock, capital surplus and earned surplus as shown on the Company's Consolidated Balance Sheets. The Master Credit Facility provides that for the first quarter of 2001, consolidated net worth must exceed the amount of consolidated net worth shown on the Company's Consolidated Balance Sheet as of December 31, 2000. For each succeeding quarter, the permitted minimum net worth is increased by 75% of the Company's consolidated net income (but not net loss) for such quarter. At the time the Master Credit Facility was executed, the Company believed that it would be able to meet the liquidity covenants in the Master Credit Facility, timely discharge its obligations on maturity of the Master Credit Facility and repay or refinance its convertible subordinated debentures from cash generated by operations, the proceeds from the sale of its non-core businesses and access to the capital markets. However, a number of factors in 2001 and early 2002 affected these plans, including: (1) The sale of non-core assets took longer and yielded substantially less proceeds than anticipated; (2) The power crisis in California substantially reduced the Company's liquidity in 2001 as a result of California utilities' failures to pay for power purchased from the company; and (3) A general economic downturn during 2001 and a tightening of credit and capital markets, particularly for energy companies which were substantially exacerbated by the bankruptcy of Enron Corporation. As a result of a combination of these factors during 2001 and early 2002, the Company was forced to obtain seven amendments to the Master Credit Facility. Also, because of the California energy crisis, analyses raising doubt about the financial viability of the independent power industry, the Enron crisis, the decline in financial markets as a result of the events of September 11, 2001 and the drop in the demand for securities of independent power companies, the Company was unable to access capital markets. In 2001, the Company also began a wide-ranging review of strategic alternatives given the very substantial debt maturities in 2002, which far exceed the Company's cash resources. In this connection, throughout the last six months of 2001 and the first quarter of 2002, the Company sought potential minority equity investors, conducted a broad-based solicitation for indications of interest in acquiring the Company among potential strategic and financial buyers and investigated a combined private and public placement of equity securities. On December 21, 2001, in connection with a further amendment to the Master Credit Facility, the Company issued a press release stating its need for further covenant waivers and for access to short term liquidity. Following this release, the Company's debt rating by Moody's and Standard & Poor's was reduced below investment grade on December 27, 2001 and January 16, 2002, respectively. These downgrades further adversely impacted the Company's access to capital markets and triggered the Company's commitments to provide $100 million in additional letters of credit in connection with two waste-to-energy projects and the draws during March of 2002 of approximately $105.2 million in letters of credit related to the Centre and the Team. Despite the Company's wide-range search for alternatives, ultimately the Company was unable to identify any option which satisfied its obligations outside the Chapter 11 process. On March 1, 2002, the Company availed itself of the 30-day grace period provided under the terms of its 9.25% debentures due March 2022, and did not make the interest payment due March 1, 2002 at that time. On April 1, 2002 the Company publicly announced that as a result of the review the Company: (1) Determined that reorganization under the Bankruptcy Code represents the only viable venue to reorganize the Company's capital structure, complete the disposition of its remaining non-core entertainment and aviation assets, and protect the value of the energy and water franchise; (2) Entered into a non-binding Letter of Intent with the investment firm of Kohlberg Kravis Roberts & Co. ("KKR") for a $225 million equity investment under which a KKR affiliate would acquire the Company upon emergence from Chapter 11; and (3) Announced a strategic restructuring program to focus on the U.S. energy and water market, expedite the disposition of non-core assets and, as a result, reduce overhead costs. On April 1, 2002, Covanta Energy Corporation and 123 of its subsidiaries, each a debtor in possession (the "Debtors") filed for protection under the Bankruptcy Code and accordingly did not make the interest payment on the 9.25% debentures due at that time. The rights of Covanta's creditors will be determined as part of the Plan of Reorganization. Existing common equity and preferred shareholders are not expected to participate in the new capital structure or receive any value. In connection with its bankruptcy filing, the Company and most of its subsidiaries, including some that have not filed for relief under Chapter 11, have entered into a Debtor In Possession Credit Agreement (as amended, the "DIP Credit Facility") with the lenders who provided the revolving credit facility under the Master Credit Facility. On April 5, 2002, the Bankruptcy Court issued its interim order approving the debtor in possession financing which was confirmed in a final order dated May 15, 2002, subject to the objection of holders of limited interests in two joint venture partnerships who dispute the inclusion of those companies in the DIP Credit Facility. The Bankruptcy Court has taken these objections under advisement and has not indicated when it will render a decision. The DIP Credit Facility terms are described below. The DIP Credit Facility, which provides for the continuation of approximately $240.0 million of letters of credit (including $208 million to secure performance under energy contracts) previously provided under the Master Credit Facility and a $48.2 million liquidity facility, is secured by all of the Company's domestic assets not subject to liens of others and generally 65% of the stock of certain of its foreign subsidiaries. Obligations under the DIP Credit Facility will have senior status to other prepetition secured claims and the DIP Credit Facility is now the operative debt agreement with the Company's banks. The Master Credit Facility remains in effect to determine the rights of the lenders who are a party to it with respect to obligations not continued under the DIP Credit Facility. The DIP Credit Facility comprises two tranches. The Tranche A Facility provides the Company with a credit line of approximately $48.2 million, divided into $34 million commitments for cash borrowings under a revolving credit line and $14.2 million commitments for the issuance of certain letters of credit. The Tranche B Facility consists of approximately $240 million commitments solely for the extension of, or issuance of letter of credit to replace certain existing letters of credit. Amounts available for cash borrowing under the Tranche A Facility are subject to monthly and budget limits. The Company may utilize the amount available for cash borrowings under the Tranche A Facility to reimburse the issuers of letters of credit issued under the Tranche A Facility if and when such letters of credits are drawn, to fund working capital requirements and general corporate purposes of the Company relating to the Company's post-petition operations and other expenditures in accordance with a monthly budget and applicable restrictions typical for a Chapter 11 debtor in possession financing. Under the DIP Credit Facility, the Company will pay a one-time facility fee equal to 2% of the amount of Tranche A commitments. In addition, the Company will pay a commitment fee varying depending on utilization, between .50% and 1% of the unused Tranche A commitments. The Company will also pay a fronting fee for each Tranche A and Tranche B letter of credit equal to the greater of $500 and 0.25% of the daily amount available to be drawn under such letter of credit, as well as letter of credit fees of 3.25% on Tranche A letters of credit, and 2.50% on Tranche B letters of credit fee, calculated over the daily amount available for drawings thereunder. Outstanding loans under the Tranche A Facility and the Tranche B Facility bear interest at the Company's option at either the prime rate plus 2.50% or the Eurodollar rate plus 3.50%. The DIP Credit Facility contains covenants, which restrict (1) the incurrence of additional debt, (2) the creation of liens, (3) investments and acquisitions (4) contingent obligations and performance guarantees and (5) disposition of assets. In addition, the Company must comply with certain specified levels of budget financial and reporting covenants. The Company is currently in compliance with these covenants, other than certain reporting requirements. The DIP Credit Facility matures on April 1, 2003, but may, with the consent of DIP Lenders holding more than 66-2/3% of the Tranche A Facility, be extended for two additional periods of six months each. There are no assurances that the DIP lenders will agree to an extension. At maturity, all outstanding loans under the DIP Credit Facility must be repaid, outstanding letters of credit must be discharged or cash-collateralized, and all other obligations must be satisfied or released. The Company believes that the DIP Credit Facility when taken together with the Company's own funds provide it sufficient liquidity to continue to operate its core businesses during the Chapter 11 proceeding. Moreover, the legal provisions relating to Chapter 11 proceedings are expected to provide a legal basis for maintaining the Company's business intact while it is being reorganized. However, the outcome of the Chapter 11 proceedings are not within the Company's control and no assurances can be made with respect to the outcome of these efforts. 16. Preferred Stock The outstanding Series A $1.875 Cumulative Convertible Preferred Stock is convertible at any time at the rate of 5.97626 common shares for each preferred share. Covanta may redeem the outstanding shares of preferred stock at $50 per share, plus all accrued dividends. These preferred shares are entitled to receive cumulative annual dividends at the rate of $1.875 per share, plus an amount equal to 150% of the amount, if any, by which the dividend paid or any cash distribution made on the common stock in the preceding calendar quarter exceeded $.0667 per share. With the filing of voluntary petitions for reorganization under Chapter 11 on April 1, 2002 (see Note 1) dividend payments were suspended. The holders of the preferred shares are not expected to participate in the new capital structure or receive any value following the Chapter 11 process. 17. Common Stock and Stock Options In 1986, Covanta adopted a nonqualified stock option plan (the "1986 Plan"). Under this plan, options and/or stock appreciation rights were granted to key management employees to purchase Covanta common stock at prices not less than the fair market value at the time of grant, which became exercisable during a five-year period from the date of grant. Options were exercisable for a period of ten years after the date of grant. As adopted and as adjusted for stock splits, the 1986 Plan called for up to an aggregate of 2,700,000 shares of Covanta common stock to be available for issuance upon the exercise of options and stock appreciation rights, which were granted over a ten-year period ending March 10, 1996. In October 1990, Covanta adopted a nonqualified stock option plan (the "1990 Plan"). Under this plan, nonqualified options, incentive stock options, and/or stock appreciation rights and stock bonuses may be granted to key management employees and outside directors to purchase Covanta common stock at an exercise price to be determined by the Covanta Compensation Committee, which become exercisable during the five-year period from the date of grant. These options are exercisable for a period of ten years after the date of grant. Pursuant to the 1990 Plan, which was amended in 1994 to increase the number of shares available by 3,200,000 shares, an aggregate of 6,200,000 shares of Covanta common stock were available for grant over a ten-year period which ended October 11, 2000. In 1999, Covanta adopted a nonqualified stock option plan (the "1999 Plan"). Under this plan, nonqualified options, incentive stock options, limited stock appreciation rights ("LSAR's") and performance-based cash awards may be granted to employees and outside directors to purchase Covanta common stock at an exercise price not less than 100% of the fair market value of the common stock on the date of grant which become exercisable over a three-year period from the date of grant. These options are exercisable for a period of ten years after the date of grant. In addition, performance-based cash awards may also be granted to employees and outside directors. As adopted, the 1999 Plan calls for up to an aggregate of 4,000,000 shares of Covanta common stock to be available for issuance upon the exercise of such options and LSAR's, which may be granted over a ten-year period ending May 19, 2009. At December 31, 2001, 2,042,032 shares were available for grant. Effective January 1, 2000, the 1999 Plan was amended and restated, to change the name of the plan to the "1999 Stock Incentive Plan" and to include the award of restricted stock to key employees based on the attainment of pre-established performance goals. The maximum number of shares of common stock that is available for awards of restricted stock is 1,000,000. As of December 31, 2001, no awards of restricted stock have been made under the plan. Under the foregoing plans, Covanta issued 3,952,900 LSARs between 1990 and 2001in conjunction with the stock options granted. These LSARs are exercisable only during the period commencing on the first day following the occurrence of any of the following events and terminate 90 days after such date: the acquisition by any person of 20% or more of the voting power of Covanta's outstanding securities; the approval by Covanta shareholders of an agreement to merge or to sell substantially all of its assets; or the occurrence of certain changes in the membership of the Covanta Board of Directors. The exercise of these limited rights entitles participants to receive an amount in cash with respect to each share subject thereto, equal to the excess of the market value of a share of Covanta common stock on the exercise date or the date these limited rights became exercisable, over the related option price. In February 2000, Covanta adopted (through an amendment to the 1999 Stock Incentive Plan) the Restricted Stock Plan for Key Employees (the "Key Employees Plan") and the Restricted Stock Plan for Non-Employee Directors (the "Directors Plan"). The Plans, as amended, call for up to 500,000 shares and 160,000 shares, respectively, of restricted Covanta common stock to be available for issuance as awards. Awards of restricted stock will be made from treasury shares of Covanta common stock, par value $.50 per share. The Company accounts for restricted shares at their market value on their respective dates of grant. Restricted shares awarded under the Directors Plan vest 100% at the end of three months from the date of award. Shares of restricted stock awarded under the Key Employees Plan are subject to a two-year vesting schedule, 50% one year following the date of award and 50% two years following the date of award. As of December 31, 2001, an aggregate of 169,198 shares of restricted stock had been awarded under the Key Employees Plan and an aggregate of 95,487 shares of restricted stock had been awarded under the Directors Plan. The total compensation cost recorded by the Company in 2001 and 2000 relating to the restricted stock plans was $2.2 million and $.7 million, respectively. In connection with the acquisition of the minority interest of Covanta Energy Group, Inc. ("CEGI"), Covanta assumed the pre-existing CEGI stock option plan then outstanding and converted these options into options to acquire shares of Covanta common stock. All of these options were exercised or cancelled at August 31, 1999. The Company has adopted the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensation." Accordingly, no compensation cost has been recognized for these stock option plans. Had compensation cost for the options granted in 2001, 2000 and 1999 under these plans been determined consistent with the provisions of SFAS No. 123, using the binomial option-pricing model with the following weighted average assumptions - dividend yield of 0.0%, 0.0%, and 0.0%; volatility of 42.47%, 39.61%, and 33.52%; risk-free interest rate of 5.8%, 6.53%, and 5.89%; and a weighted average expected life of 6.5 years, 7.5 years and 7.5 years, net loss and diluted loss per share would have been $(234.8) million and $(4.73) for 2001, $(233.2) million and $(4.71) for 2000, and $(83.3) million and $(1.70) for 1999. The weighted-average fair value of options granted during 2001, 2000 and 1999 was $5.61, $3.50 and $4.53, respectively. Information regarding the Company's stock option plans is summarized as follows: Weighted-Average Option Price Exercise Per Share Outstanding Exercisable Price - -------------------------------------------------------------------------------------------------------------- 1986 Plan: December 31, 1998, balance $18.31-$28.54 620,500 601,400 $19.69 Became exercisable $22.50 19,100 Cancelled $28.54 (50,000) (50,000) $28.54 ------ -------- -------- ------ December 31, 1999, balance $18.31-$22.50 570,500 570,500 $19.01 Cancelled $18.31 (475,000) (475,000) $18.31 ------ -------- -------- ------ December 31, 2000, balance $22.50 95,500 95,500 $22.50 Cancelled $22.50 (85,500) (85,500) $22.50 ------ -------- -------- ------ December 31, 2001, balance $22.50 10,000 10,000 $22.50 ------ -------- -------- ------ 1990 Plan: December 31, 1998, balance $18.31-$31.50 4,060,600 2,293,600 $20.56 Granted $26.78 655,000 $26.78 Became exercisable $20.06-$29.38 589,800 Exercised $18.31-$23.56 (242,600) (242,600) $19.47 Cancelled $20.06-$31.50 (198,500) $23.21 ------------- --------- --------- ------ December 31, 1999, balance $18.31-$29.38 4,274,500 2,640,800 $21.14 Granted $9.97 50,000 $9.97 Became exercisable $20.06-$29.38 450,900 Cancelled $18.31-$26.78 (1,956,000) (1,580,500) $21.29 ------------- ----------- ----------- ------ December 31, 2000, balance $9.97-$29.38 2,368,500 1,511,200 $23.56 Became exercisable $9.97-$29.38 268,600 Cancelled $20.06-$26.78 (559,500) (436,800) $23.51 ------------- -------- --------- ------ December 31, 2001, balance $9.97-$29.38 1,809,000 1,343,000 $23.51 ------------ --------- --------- ------ 1999 Plan: Granted $8.66-$26.59 1,437,400 $13.13 ------------ --------- ------ December 31, 1999, balance $8.66-$26.59 1,437,400 $13.13 Granted $9.97-$14.77 78,000 $12.61 Became exercisable $8.66-$26.59 474,033 Cancelled $11.78-$14.73 (26,500) (2,500) $12.34 ------------- --------- ------- ------ December 31, 2000, balance $8.66-$26.59 1,488,900 471,533 $13.12 Granted $16.18-$20.23 685,100 $17.29 Exercised $11.28-$14.73 (62,863) (62,863) $12.85 Became exercisable $8.66-$26.59 443,509 Cancelled $11.28-$17.59 (153,169) (20,500) $13.52 ------------- --------- ------- ------ December 31, 2001, balance $8.66-$26.59 1,957,968 831,679 $14.68 ------------- --------- ------- ------ Conversion of CEGI Plan: December 31, 1998, balance $14.17 172,061 172,061 $14.17 Exercised $14.17 (172,061) (172,061) $14.17 ------ --------- -------- ------ December 31, 1999, balance - - - - ------ --------- -------- ------ December 31, 2000, balance - - - - ------ --------- -------- ------ December 31, 2001, balance - - - - ------ --------- -------- ------ - Total December 31, 2001 $8.66-$29.38 3,776,968 2,184,679 $19.34 ------------ --------- --------- ------
The following table summarizes information about stock options outstanding at December 31, 2001: Options Outstanding Options Exercisable ---------------------------------------------------- --------------------------------- Range of Number of Weighted-Average Weighted-Average Number of Weighted-Average Exercise Shares Remaining Exercise Shares Exercise Prices Outstanding Contractual Life Price Outstanding Price - ----------------------------------------------------------------------------------------------------------- $ 8.66-$12.98 847,867 7.9 years $11.53 522,009 $11.58 $14.10-$21.15 1,483,101 7.5 years $17.39 623,000 $17.63 $21.19-$29.38 1,446,000 4.8 years $24.91 1,039,670 $24.26 - ------------- --------- ----------- ------ --------- ------ $ 8.66-$29.38 3,776,968 6.6 years $18.95 2,184,679 $19.34 - ------------- --------- ----------- ------ --------- ------
The weighted-average exercise prices for all exercisable options at December 31, 2001, 2000 and 1999 were $19.34, $20.67, and $20.76, respectively. At December 31, 2001, there were 10,050,477 shares of common stock reserved for the exercise of stock options, the issuance of restricted stock and the conversion of preferred shares and debentures. In 1998, Covanta's Board of Directors authorized the purchase of shares of the Company's common stock in an amount up to $200 million. From 1998 through December 31, 2001, 2,223,000 shares of common stock were purchased at a total cost of $58.9 million. No shares were purchased during 2001 and 2000. Existing common stock and stock option holders are not expected to participate in the new capital structure or receive any value following the Chapter 11 process (see Note 1). 18. Shareholders' Rights Agreement In 1990, the Board of Directors declared a dividend of one preferred stock purchase right ("Right") on each outstanding share of common stock pursuant to a Rights Agreement. In 2000, the Board of Directors amended and extended the Rights Agreement. Among other provisions, each Right may be exercised to purchase a one one-hundredth share of a new series of cumulative participating preferred stock at an exercise price of $80, subject to adjustment. The Rights may only be exercised after a party has acquired 15% or more of the Company's common stock or commenced a tender offer to acquire 15% or more of the Company's common stock. The Rights do not have voting rights, expire October 2, 2010, and may be redeemed by the Company at a price of $.01 per Right at any time prior to the acquisition of 15% of the Company's common stock. In the event a party acquires 15% or more of the Company's outstanding common stock in accordance with certain defined terms, each Right will then entitle its holders (other than such party) to purchase, at the Right's then-current exercise price, a number of the Company's common shares having a market value of twice the Right's exercise price. At December 31, 2001, 49,835,076 Rights were outstanding, but are not expected to have any function or value following the Chapter 11 process. 19. Foreign Exchange Foreign exchange translation adjustments net of tax for 2001, 2000 and 1999, amounting to $4.0 million, $8.0 million, and $4.6 million, respectively, have been charged directly to Other Comprehensive Loss. In 2001, $7.0 million relating to the sale or write-down of net assets held for sale was reclassified to gain (loss) on sale of businesses ($6.7 million) and write-down of assets held for sale ($.3 million). In 2000, $25.3 million relating to Aviation and Entertainment businesses sold were reclassified to loss from discontinued operations. Foreign exchange transaction adjustments, amounting to $.7 million, $.4 million, and zero, have been charged directly to net loss for 2001, 2000 and 1999, respectively. 20. Debt Service Charges Debt service charges for Covanta's project debt (expressed in thousands of dollars) consisted of the following: 2001 2000 1999 - --------------------------------------------------------------------------------------------- Interest incurred on taxable and tax-exempt borrowings $94,656 $88,426 $93,612 Interest earned on temporary investment of certain restricted funds (1,551) (1,363) (1,991) ------- ------- ------- Net interest incurred 93,105 87,063 91,621 Interest capitalized during construction in property, plant and equipment (5,985) (2,336) (3,182) ------- ------- ------- Debt service charges--net $87,120 $84,727 $88,439 ======= ======= =======
21. Pensions and Other Postretirement Benefits Covanta has retirement plans that cover substantially all of its employees. A substantial portion of hourly employees participate in defined contribution plans. Other employees participate in defined benefit or defined contribution plans. The defined benefit plans provide benefits based on years of service and either employee compensation or a fixed benefit amount. Covanta's funding policy for those plans is to contribute annually an amount no less than the minimum funding required by ERISA. Contributions are intended to provide not only benefits attributed to service to date but also for those expected to be earned in the future. In 1992, the Company discontinued its policy of providing postretirement health care and life insurance benefits for all salaried employees, except those employees who were retired or eligible for retirement at December 31, 1992. In 1999, the Company discontinued a defined benefit retirement plan for certain Covanta salaried employees and paid benefits due to employees at December 31, 1999. Amounts for 1999 exclude details related to the defined benefit plans and other postretirement benefits for the Aviation and Entertainment businesses, since these businesses were previously classified as discontinued operations. The following table sets forth the details of Covanta's defined benefit plans' and other postretirement benefit plans' funded status and related amounts recognized in Covanta's Consolidated Balance Sheets (expressed in thousands of dollars): Pension Benefits Other Benefits ---------------- -------------- 2001 2000 2001 2000 - -------------------------------------------------------------------------------------------------------------- Change in Benefit Obligation: Benefit obligation at beginning of year $29,664 $25,108 $9,325 $ 8,905 Service cost 2,275 2,105 64 57 Interest cost 2,270 2,012 713 675 Effect of settlement (86) Actuarial loss 3,031 1,231 1,012 7 Benefits paid (640) (792) (245) (233) ------- ------- -------- -------- Benefit obligation at end of year 36,600 29,664 10,869 9,325 ------- ------- -------- -------- Change in Plan Assets: Plan assets at fair value at beginning of year 24,994 23,430 Actual return on plan assets 679 2,056 Company contributions 1,178 300 245 233 Benefits paid (640) (792) (245) (233) ------- ------- -------- -------- Plan assets at fair value at year end 26,211 24,994 ------- ------- -------- -------- Reconciliation of Accrued Benefit Liability and Net Amount Recognized: Funded status of the plan (10,389) (4,670) (10,869) (9,325) Unrecognized: Net transition asset (54) Prior service cost 600 638 Net loss (gain) 1,954 (2,528) (808) (1,937) ------- ------- -------- -------- Net Amount Recognized $(7,835) $(6,614) $(11,677) $(11,262) ======= ======= ======== ======== Amounts Recognized in the Consolidated Balance Sheets Consist of: Accrued benefit liability $(7,835) $(6,614) $(11,677) $(11,262) ------- ------- -------- -------- Net Amount Recognized $(7,835) $(6,614) $(11,677) $(11,262) ======= ======= ======== ======== Weighted Average Assumptions as of December 31: Discount Rate 7.25% 7.75% 7.25% 7.75% Expected return on plan assets 8.00% 8.00% Rate of compensation increase 4.50% 4.50% 4.50% 4.50%
For management purposes, an annual rate of increase of 12.0% in the per capita cost of health care benefits was assumed for 2001 for covered employees. The rate was assumed to decrease gradually to 5.5% in 2005 and remain at that level. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $4.5 million, $2.4 million, and zero, respectively as of December 31, 2001 and $10.3 million, $8.0 million and $5.3 million, respectively as of December 31, 2000. Contributions and costs for defined contribution plans are determined by benefit formulas based on percentage of compensation as well as discretionary contributions and totaled $1.5 million, $5.6 million, and $9.0 million, in 2001, 2000, and 1999, respectively. Plan assets at December 31, 2001, 2000 and 1999, primarily consisted of common stocks, United States government securities, and guaranteed insurance contracts. With respect to union employees, the Company is required under contracts with various unions to pay, generally based on hours worked, retirement, health and welfare benefits. These multi-employer defined contribution plans are not controlled or administered by the Company. The amount charged to expense for such plans during 2001, 2000 and 1999 was $3.0 million, $3.6 million and $4.9 million, respectively. Pension costs for Covanta's defined benefit plans and other post-retirement benefit plans included the following components (expressed in thousands of dollars): Pension Benefits Other Benefits - --------------------------------------------------------------------------------------------------------------- 2001 2000 1999 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------- Components of Net Periodic Benefit Cost: Service Cost $ 2,275 $ 2,105 $ 2,866 $ 64 $ 57 $ 39 Interest Cost 2,270 2,012 1,871 713 675 593 Expected return on plan assets (2,027) (1,859) (1,441) Amortization of unrecognized: Net transition (asset) obligation (53) (54) 27 Prior service cost 37 207 233 Net gain (102) (100) (33) (117) (197) (124) ------- ------- ------- ----- ----- ----- Net periodic benefit cost $ 2,400 $ 2,311 $ 3,523 $ 660 $ 535 $ 508 ======= ======= ======= ===== ===== ===== Curtailment Gain $(2,493) Settlement Gain (51) $(117)
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point change in the assumed health care trend rate would have the following effects (expressed in thousands of dollars): One-Percentage One-Percentage Point Increase Point Decrease -------------- -------------- Effect on total service and interest cost components $ 24 $ (22) Effect on postretirement benefit obligation $ 289 $(269)
22. Special Charges In December 2000, the Company approved a plan to reorganize its development office in Hong Kong and its New Jersey headquarters. As a result, the Company implemented a reduction in its workforce of approximately 80 employees, both domestically and internationally, in connection with the refocusing of the Company's energy development activities and streamlining its organizational structure. This plan included closure of the Company's Hong Kong office, the closure of its Brazilian development office, and consolidation of certain domestic regional organizational structure. As of December 31, 2001, the plan was completed except for the closure of the office in Brazil, and certain remaining severance payments had yet to be made. During 2002, the Company anticipates closing the Brazilian office and the severance payments to Energy employees are scheduled to cease. The amounts recorded included $10.3 million for severance costs, $4.0 million related to the buyout of certain leases, the write-down of certain fixed assets of $.3 million, and $2.0 million in legal and consulting services fees related to that plan. Also, in 2000, Energy determined that a majority-owned project in China exceeded its net realizable value, and in accordance with SFAS No. 121, the Company recorded a $2.8 million write-down of that project. In 2001, the Company exchanged ownership in this project, for an increase in its ownership in another project in China. The value used as a basis for the write-down was obtained as a result of the negotiations for that transaction. Upon consummation of that transaction no additional gain or loss was recognized. In September 1999, the Company's Board of Directors approved a plan to dispose of its Aviation and Entertainment businesses and close its New York headquarters, and in December 1999 approved a plan to exit other non-core businesses so that Covanta could focus its resources on its Energy business. At December 31, 2001, that plan was substantially completed. However, several non-core businesses have not yet been sold (see Note 3). Of the New York employees, 24 employees were terminated during 1999; 139 were terminated during 2000; and 29 employees were terminated in 2001. As of December 31, 2001, 24 employees remained and the Company intends to terminate them at various dates throughout 2002, as the other remaining aviation and entertainment businesses are sold. Severance payments for several of those employees to be terminated in 2002 are anticipated to continue into 2003. As a result of these decisions, the Company has incurred various expenses, which have been recognized in its continuing and discontinued operations. These expenses in 2001 include bank fees and expenses incurred in connection with the Company entering into the Master Credit Facility in March 2001 and related subsequent amendments of $25.5 million. Also in 2001, the Company re-characterized $2.1 million of lease buy-out costs as severance cost. This reflects the fact that in 2001 the Company negotiated certain lease buy-outs at terms that were more favorable than anticipated; however, the terms with some severed employees were worse than anticipated. The net effect of these negotiations was favorable and resulted in a reduction of total special charges of $0.4 million. In 2000, these expenses include $22.8 million of creditors' fees and expenses incurred in connection with extensions of credit agreements and covenant waivers ($18.0 million), and fees and expenses paid to financial advisors and consultants for their performance of due diligence procedures in connection with financing efforts to support the Company's balance sheet recapitalization plan ($4.8 million); legal, accounting and consulting expenses related to the capitalization plan and to the sales of businesses of $14.7 million; workers' compensation insurance charges of $17.5 million related to discontinued operations and other sold businesses; and severance charges of $.2 million. The Company also assigned its lease of the Company aircraft resulting in the write-off of certain lease prepayments of $1.1 million. The expenses also include the accelerated amortization of a new data processing system of $11.4 million, based upon a revised useful life of 15 months starting October 1, 1999. In 1999, these expenses include severance costs mainly for its New York City employees of $41.5 million; contract termination costs of its former Chairman and Chief Executive Officer of $17.5 million; the write-down to estimated net realizable value of other non-core businesses of $36.2 million based upon the estimated proceeds from the sale of such businesses; and the accelerated amortization of a new data processing system of $2.3 million based upon a revised useful life of 15 months starting October 1, 1999. Such expenses also include the costs to abandon expansion plans of its Entertainment business totaling $17.8 million, which includes the forfeiture of the nonrefundable deposit and related costs totaling $10.5 million in connection with the termination of the proposed acquisition of Volume Services America ("VSA"). In addition, charges totaling $13.2 million were recorded to recognize losses prior to the decision to discontinue the Entertainment business relating to the sale of assets and to the write-down of unamortized contract acquisition costs at two venues. In addition, Datacom recorded write-downs of its accounts receivable from Genicom in 2000 of $6.5 million and in 1999, write-downs of inventories and accounts receivable from Genicom of $10.5 million, primarily as a result of Genicom's poor financial position in 1999 evidenced by Genicom's announcement of its violation of its credit facilities in the third quarter and its subsequent filing for protection from creditors under the provisions of Chapter 11 of the U.S. Bankruptcy Code on March 10, 2000. The Company sold Datacom in November 2001. The following is a summary of the principal special charges (both cash and noncash charges) recognized in the years ended, December 31, 2001, 2000 and 1999 (expressed in thousands of dollars): Balance at Charges for Total Amounts Balance at January Continuing Special Paid In December 1, 2001 Operations Charges 2001 31, 2001 ------------------------------------------------------------------------------- 2001 Severance for 216 employees $27,500 $10,000 $17,500 Contract termination settlement 400 400 Bank fees 2,100 $25,500 $25,500 16,600 11,000 Severance for approximately 80 Energy employees 10,300 1,700 1,700 8,200 3,800 Office closure costs 4,000 (2,100) (2,100) 1,300 600 Professional services relating to Energy reorganization 1,500 1,500 ------- ------- ------- ------- ------- Total $45,800 $25,100 $25,100 $37,600 $33,300 ======= ======= ======= ======= ======= Balance at Charges for Charges for Total Amounts Balance at January Continuing Discontinued Special Paid In December 1, 2000 Operations Operations Charges 2000 31, 2000 ------------------------------------------------------------------------------- 2000 Severance for 216 employees $40,400 $ 900 $ (700) $ 200 $13,100 $27,500 Contract termination settlement 15,700 15,300 400 Bank fees 18,000 18,000 15,900 2,100 Recapitalization plan expenses 4,800 4,800 4,800 Professional services relating to recapitalization and sales of 5,100 9,600 14,700 14,700 businesses Severance for approximately 80 Energy employees 10,300 10,300 10,300 Office closure costs 4,000 4,000 4,000 Professional services relating to Energy reorganization 2,000 2,000 500 1,500 ------- ------- ------ ------- ------- ------- Subtotal 56,100 45,100 8,900 54,000 $64,300 $45,800 ======= ======= Workers' compensation charges 8,700 8,800 17,500 Write-down of Datacom receivables 6,500 6,500 Write-off of aircraft lease 1,100 1,100 prepayments Accelerated amortization of new data processing system 5,600 5,800 11,400 Write-down of impaired Energy assets 3,100 3,100 ------- ------- ------ ------- Total $56,100 $70,100 $23,500 $ 93,600 ======= ======= ======= ======== Charges for Charges for Total Amount Balance at Continuing Discontinued Special Paid In December Operations Operations Charges 1999 31, 1999 -------------------------------------------------------------------- 1999 Severance for 216 employees (mainly New York) $ 16,400 $ 25,100 $ 41,500 $1,100 $ 40,400 Contract termination settlement 17,500 17,500 1,800 15,700 Termination of VSA acquisition 10,500 10,500 10,500 -------- -------- -------- ------- -------- Subtotal 33,900 35,600 69,500 $13,400 $ 56,100 ======= ======== Write-down of non-core businesses: OEES goodwill ($23,000) and property and other assets ($5,400); ADTI goodwill ($7,800) 36,200 36,200 Datacom inventory ($7,200) and receivables ($3,300) 10,500 10,500 Entertainment asset sales and abandonment: Sale of Grizzly Nature Center ($4,200) and a casino in Aruba ($2,500); unrecoverable contract acquisition costs ($6,500) 13,200 13,200 Abandonment of Entertainment expansion: Casino facilities in South Africa 7,300 7,300 Accelerated amortization of new data processing system 500 1,800 2,300 -------- -------- -------- Total $81,100 $ 57,900 $139,000 ======== ======== ========
In 2001, bank fees of $25.5 million are included in Other expense-net and the net reversal of severance of the $.4 million discussed above is included in plant operating expenses. In 2000, for continuing operations, bank fees of $18.0 million, recapitalization plan expenses of $4.8 million, professional services fees relating to the recapitalization plan and sales of businesses of $5.1 million, and Energy's severance costs of $10.3 million, office closure costs of $4.0 million, professional services expenses of $2.0 million and write-down of impaired assets of $3.1 million are included in Other expense-net; workers' compensation expenses of $8.7 million and provisions relating to Datacom receivables of $6.5 million are included in Other operating costs and expenses; the write-off of the aircraft lease prepayments of $1.1 million and severance charges of $.9 million are included in selling, administrative and general expenses; and accelerated amortization of the new data processing system of $5.6 million is included in depreciation and amortization in the 2000 Statement of Consolidated Operations and Comprehensive Loss. In 1999, for continuing operations, severance accruals of $16.4 million, the provision for contract termination settlement of $17.5 million, and the write-down of non-core businesses of $36.2 million, are included in selling, administrative and general expenses; the provisions relating to Datacom receivables of $3.3 million are included in Other operating costs and expenses; a provision relating to Datacom's inventory of $7.2 million is included in costs of goods sold; and accelerated amortization of the new data processing system of $.5 million is included in depreciation and amortization in the 1999 Statement of Consolidated Operations and Comprehensive Loss. The amount accrued for severance is based upon the Company's written severance policy and the positions eliminated. The accrued severance does not include any portion of the employees' salaries through their severance dates. The amount accrued for the contract termination costs of the Company's former Chairman and Chief Executive Officer is based upon a settlement agreement reached in December 1999. Pursuant to the settlement agreement, in 1999 the Company forgave demand notes dated August 1999 in the face amount of approximately $1.8 million, and with the exception of certain insurance benefits, paid the remaining amounts in 2000. 23. Income Taxes The components of the benefit for income taxes (expressed in thousands of dollars) were as follows: 2001 2000 1999 - ----------------------------------------------------------------------------- Current: Federal $ (470) $ 4,552 State $ 6,002 2,558 4,108 Foreign 6,512 1,631 1,367 --------- -------- -------- Total current 12,514 3,719 10,027 --------- -------- -------- Deferred: Federal (23,917) (36,844) (13,809) State (4,629) (1,024) (3,543) Foreign (998) 408 --------- -------- -------- Total deferred (29,544) (37,868) (16,944) --------- -------- -------- Total benefit for income taxes $ (17,030) $(34,149) $ (6,917) ========= ======== ======== The benefit for income taxes (expressed in thousands of dollars) varied from the Federal statutory income tax rate due to the following: 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------- Amount Percent of Loss Amount Percent of Loss Amount Percent of Loss of Tax Before Taxes of Tax Before Taxes of Tax Before Taxes Taxes at statutory rate $(84,161) 35.0% $(40,246) 35.0% $(12,961) 35.0% State income taxes, net of federal tax benefit 892 (0.4) 997 (.9) 367 (1.0) Taxes on foreign earnings 879 (0.4) (2,101) 1.8 (3,469) 9.3 Subpart F income and foreign dividends 3,755 (1.6) Amortization of goodwill 56 651 (1.7) Write-down of goodwill 767 (0.3) (1,729) 1.5 10,795 (29.1) Energy credits (2,338) 6.3 Valuation allowance 59,210 (24.6) 7,000 (6.1) Other--net 1,572 (0.6) 1,930 (1.6) 38 (.1) --------- ---- -------- ---- -------- ---- Benefit for income taxes $ (17,030) 7.1% $(34,149) 29.7% $ (6,917) 18.7% ========= ==== ======== ==== ======== ====
The components of the net deferred income tax liability (expressed in thousands of dollars) as of December 31, 2001 and 2000, were as follows: 2001 2000 - ------------------------------------------------------------------------------------------ Deferred Tax Assets: Deferred income $ 877 Accrued expenses $106,767 82,399 Other liabilities 18,515 48,986 Net assets held for sale and related obligations 41,001 26,734 Net operating losses 42,121 13,683 Valuation allowance (89,923) (7,000) Investment tax credits 26,073 21,133 Alternative minimum tax credits 28,514 28,212 -------- -------- Total deferred tax assets 173,068 215,024 -------- -------- Deferred Tax Liabilities: Unbilled accounts receivable 80,087 40,723 Property, plant, and equipment 352,492 416,213 Other 36,658 37,505 -------- -------- Total deferred tax liabilities 469,237 494,441 -------- -------- Net deferred tax liability $296,169 $279,417 ======== ======== Deferred tax assets and liabilities (expressed in thousands of dollars) are presented as follows in the balance sheets: 2001 2000 - ---------------------------------------------------------------------------- ------------ Net deferred tax liability--noncurrent $323,669 $315,931 Less net deferred tax asset--current (27,500) (36,514) -------- -------- Net deferred tax liability $296,169 $279,417 ======== ========
A valuation allowance of $75.6 million has been recorded because the Company does not believe it is more likely than not that certain of the losses resulting from the sales and writedown of and obligations related to discontinued operations and net assets held for sale will be realized for tax purposes. At December 31, 2001, for Federal income tax purposes, the Company had net operating loss carryforwards of approximately $107.1 million, which will expire in 2021, investment and tax energy credit carryforwards of approximately $26.1 million, which will expire in 2004 through 2009, and alternative minimum tax credit carryforwards of approximately $28.5 million, which have no expiration date. A valuation allowance of $14.3 million was recorded against the investment and energy tax credit carryforwards because the Company does not believe it is more likely than not that those credits will be realized for tax purposes. 24. Leases Total rental expense amounted to $40.2 million, $63.1 million, and $54.3 million (net of sublease income of $1.9 million, $4.2 million, and $5.2 million) for 2001, 2000 and 1999, respectively. Principal leases are for leaseholds, sale and leaseback arrangements on waste-to-energy facilities, trucks and automobiles, and machinery and equipment. Some of these operating leases have renewal options. The following is a schedule (expressed in thousands of dollars), by year, of future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2001: 2002 $ 43,333 2003 42,686 2004 31,806 2005 32,900 2006 28,662 Later years 369,081 -------- Total $548,468 ======== These future minimum rental payment obligations include $398.8 million of future non-recourse rental payments that relate to energy facilities of which $250.1 million are supported by third-party commitments to provide sufficient service revenues to meet such obligations. The remaining $148.7 million related to a waste-to-energy facility at which the Company serves as operator and directly markets one half of the facility's disposal capacity. This facility currently generates sufficient revenues from short- and medium-term contracts to meet rental payments. The Company anticipates renewing the short- and medium-term contracts or entering into new contracts to generate sufficient revenues to meet those remaining future rental payments. Also included are $21.4 million of non-recourse rental payments relating to an energy facility operated by a subsidiary, which are supported by contractual power purchase obligations of a third party and which are expected to provide sufficient revenues to make the rent payments. These non-recourse rental payments (in thousands of dollars) are due as follows: 2002 $ 36,298 2003 36,474 2004 25,908 2005 26,027 2006 20,952 Later years 274,618 -------- Total $420,277 ======== 25. Loss Per Share Basic loss per share was computed by dividing net loss reduced by preferred stock dividend requirements, by the weighted average of the number of shares of common stock outstanding during each year. Diluted loss per share was computed on the assumption that all convertible debentures, convertible preferred stock, restricted stock, and stock options converted or exercised during each year or outstanding at the end of each year were converted at the beginning of each year or at the date of issuance or grant, if dilutive. This computation provided for the elimination of related convertible debenture interest and preferred dividends. The reconciliation of the loss and common shares included in the computation of basic loss per common share and diluted earnings per common share for the years ended December 31, 2001, 2000 and 1999, is as follows (in thousands, except per share amounts): 2001 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Loss Shares Per-Share Loss Shares Per-Share Loss Shares Per-Share (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount (Numerator) (Denominator) Amount ----------- ------------- ------ ----------- ------------- ------ ----------- ------------- ------ Loss from continuing operations $(231,027) $(85,621) $(36,290) Less: Preferred stock Dividend 64 68 137 --------- -------- -------- Basic Loss Per Share (231,091) 49,674 $(4.65) (85,689) 49,534 $(1.73) (36,427) 49,235 $(0.74) ====== ====== ====== Effect of Dilutive Securities: Stock options (A) (A) (A) Restricted stock (A) (A) Convertible Preferred Stock (A) (A) (A) 6% Convertible Debentures (A) (A) (A) 5.75% Convertible Debentures (A) (A) (A) --------- ------ --------- ------ --------- ------ Diluted Loss Per Share $(231,091) 49,674 $(4.65) $ (85,689) 49,534 $(1.73) $ (36,427) 49,235 $(0.74) ========= ====== ====== ========= ====== ====== ========= ====== ====== (A) Antidilutive
Outstanding stock options to purchase common stock with an exercise price greater than the average market price of common stock were not included in the computation of diluted earnings per share. The balance of such options was 2,466,000 in 2001, 3,249,000 in 2000, and 2,954,000 in 1999. Shares of common stock to be issued, assuming conversion of convertible preferred shares, the 6% convertible debentures, the 5.75% convertible debentures, and unvested restricted stock issued to employees were not included in computations of diluted earnings per share if to do so would have been antidilutive. The common shares excluded from the calculation were 2,175,000 in 2001, 2000 and 1999 for the 6% convertible debentures; 1,524,000 in 2001, 2000 and 1999 for the 5.75% convertible debentures; 172,000, 49,000, and 308,000 in 2001, 2000 and 1999, respectively for stock options; 209,000, 220,000 and 245,000 in 2001, 2000 and 1999, respectively for convertible preferred stock and 110,000 and 76,000 in 2001 and 2000 for unvested restricted stock issued to employees. 26. Commitments and Contingent Liabilities Covanta and certain of its subsidiaries have issued or are party to performance bonds and guarantees and related contractual obligations undertaken mainly pursuant to agreements to construct and operate certain energy, entertainment and other facilities. In the normal course of business, they are involved in legal proceedings in which damages and other remedies are sought. An energy client community and the Company have several commercial disputes between them. Among these is a January 16, 2002 demand by the client community to provide a credit enhancement to a service agreement in the form of a $50 million letter of credit or a guarantee, following rating downgrades of the Company's unsecured corporate debt. On February 22, 2002, the client community issued a notice purporting to terminate its contract with the Company effective May 30, 2002 if such a credit enhancement was not provided, and also demanded an immediate payment of $2.0 million under the terms of the agreement. The Company believes such notice was improper and has commenced a lawsuit in state court with respect to such disputes, as well as the client community's right to terminate. This matter has been removed to Federal court. The client community has moved to have the case remanded to State Court and the Company has moved to have the action transferred to the Bankruptcy Court. These matters have been taken under advisement by the court. The Company's agreement with another energy client also provides that following these rating downgrades of the Company's unsecured corporate debt, the client may, if it does not receive from the Company a $50.0 million letter of credit by January 31, 2003, either terminate the agreement or receive a $1.0 million reduction of its annual service fee obligation. The bankruptcy proceeding described above stays the client's right to terminate under the agreement. The Company is engaged in ongoing investigation and remediation actions with respect to three airports where it provides aviation fueling services on a cost-plus basis pursuant to contracts with individual airlines, consortia of airlines and operators of airports. The Company currently estimates the costs of those ongoing actions will be approximately $1.0 million (over several years), and that airlines, airports and others should reimburse it for substantially all these costs. To date, the Company's right to reimbursement for remedial costs has been challenged successfully in one prior case in which the court found that the cost-plus contract in question did not provide for recovery of costs resulting from the Company's own negligence. That case did not relate to any of the airports described above. Except in that instance and one other, the Company has not been alleged to have acted with negligence. The Company has also agreed to indemnify various transferees of its divested airport operations with respect to certain known and potential liabilities that may arise out of such operations and in certain instances has agreed to remain liable for certain potential liabilities that were not assumed by the transferee. Accordingly, the Company may in the future incur liability arising out of investigation and remediation actions with respect to airports served by such divested operations to the extent the purchaser of these operations is unable to obtain reimbursement of such costs from airlines, airports or others. To date such indemnification has been sought with respect to one airport. Because the Company did not provide fueling services at that airport, it does not believe it will have significant obligations with respect to this matter. The Company is currently reviewing the potential impact of its filing under Chapter 11 on its exposure for these liabilities. At December 31, 2001, capital commitments for continuing operations amounted to $7.0 million for normal replacement and growth in Energy. Other capital commitments for Energy as of December 31, 2001 amounted to approximately $12.9 million. This amount includes a commitment to pay, in 2008, $10.6 million for a service contract extension at an energy facility. In addition, this amount includes $2.3 million for an oil-fired project in India, which commenced operations in September 2001. See Note 3 for the 2001 impairment charges related to the Company's Ottawa and Anaheim interests. 27. Information Concerning Business Segments As of September 29, 1999, the Company adopted a plan to discontinue the operations of its Aviation and Entertainment segments. As a result of that decision, the operations of those businesses were discontinued operations through December 31, 2000 (see Note 2). At December 31, 2001, the remaining assets and liabilities of those businesses are now reflected in the Other segment. The Company now has two reportable segments, Energy and Other. Covanta's Energy segment develops, owns and operates energy generating facilities that utilize a variety of fuels, as well as water and wastewater facilities that will similarly serve communities on a long-term basis. The Energy segment also included environmental consulting and engineering, which have been sold, and construction and infrastructure activities which have been discontinued. The Other segment is primarily comprised of non-core businesses of the Company and at December 31, 2001 includes those Aviation and Entertainment businesses yet to be sold. Covanta has substantially completed the disposition of its non-core businesses through 1998, principally through the sale of the remaining Facility Services operations (New York Region) which provided facility management, maintenance, janitorial and manufacturing support services; and the sale of the Charlotte, North Carolina, Binghamton, New York and Cork, Ireland operations of Datacom; and in 2001 and 2000, principally through the sales of ADTI, located in San Diego, California, a supplier of air combat maneuvering instrumentation systems and after-action reporting and display systems; its Food and Beverage/Venue Management operations; its Themed Parks and Attractions business; its Aviation Ground Services, it's non-Port Authority Aviation Fueling and Fixed Based Operations businesses; and its airport privatization businesses in Argentina, Columbia and the Dominican Republic. Revenues and loss from continuing operations, Energy and Other segments and Corporate, (expressed in thousands of dollars) for the years ended December 31, 2001, 2000 and 1999 were as follows: 2001 2000 1999 - ------------------------------------------------------------------------------------------------ Revenues: Energy $ 984,370 $ 970,258 $ 944,304 Other 96,827 49,744 78,251 Corporate 1,570 5,138 ---------- ---------- ---------- Total Revenues $1,082,767 $1,020,002 $1,027,693 ---------- ---------- ---------- Income (Loss) from Operations: Energy $ 130,998 $ 83,584 $ 67,607 Other (including write-down of net assets held for sale in 2001 and 2000) (297,382) (103,458) (22,731) ---------- ---------- ---------- Total income (loss) from operations (166,384) (19,874) 44,876 Corporate unallocated income and expenses - net (43,829) (59,768) (51,210) Interest expense - net (30,246) (35,347) (30,697) ---------- ---------- ---------- Loss from Continuing Operations Before Income Taxes, Minority Interests and the Cumulative Effect of Change in Accounting Principle $ (240,459) $ (114,989) $ (37,031) ========== ========== ==========
Covanta's revenues include $.9 million, $46.9 million, and $59.9 million from United States government contracts for the years ended December 31, 2001, 2000 and 1999, respectively. Total revenues by segment reflect sales to unaffiliated customers. In computing loss from operations, none of the following have been added or deducted: unallocated corporate expenses, non-operating interest expense, interest income and income taxes. A summary (expressed in thousands of dollars) of identifiable assets, depreciation and amortization, and capital additions of continuing operations for the years ended December 31, 2001, 2000 and 1999 is as follows: Identifiable Depreciation and Capital Assets Amortization Additions - -------------------------------------------------------------------------------- 2001 Energy $3,066,322 $ 101,485 $ 61,272 Other 16,376 335 Corporate 103,128 245 181 ---------- --------- -------- Consolidated $3,185,826 $ 102,065 $ 61,453 ========== ========= ======== 2000 Energy $2,926,701 $95,898 $ 54,225 Other 84,584 1,482 693 Corporate 287,543 12,945 47 ---------- --------- -------- Consolidated $3,298,828 $ 110,325 $ 54,965 ========== ========= ======== 1999 Energy $3,013,282 $93,300 $ 64,655 Other 51,440 2,007 735 Corporate 95,790 6,163 407 ---------- --------- -------- Consolidated $3,160,512 $ 101,470 $ 65,797 ========== ========= ======== Covanta's areas of operations are principally in the United States. Operations outside of the United States are primarily in Asia, Latin America and Europe. No single foreign country or geographic area is significant to the consolidated operations. A summary of revenues and identifiable assets by geographic area for the years ended December 31, 2001, 2000 and 1999 (expressed in thousands of dollars) is as follows: 2001 2000 1999 - -------------------------------------------------------------------------------- Revenues: United States $ 876,794 $ 890,045 $ 926,040 Asia 170,681 112,109 82,240 Latin America 21,851 12,037 11,891 Europe 9,679 5,811 7,522 Other 3,762 ---------- ---------- ---------- Total $1,082,767 $1,020,002 $1,027,693 ========== ========== ========== Identifiable Assets: United States $2,857,945 $3,091,283 $2,751,398 Asia 329,031 176,150 399,136 Latin America (2,871) 9,419 2,784 Europe 1,571 10,910 7,194 Other 150 11,066 ---------- ---------- ---------- Total $3,185,826 $3,298,828 $3,160,512 ========== ========== ========== 28. Supplemental Disclosure of Cash Flow Information (Expressed in thousands of dollars) 2001 2000 1999 - ------------------------------------------------------------------------------------------- Cash Paid for Interest and Income Taxes: Interest (net of amounts capitalized) $123,052 $131,647 $147,597 Income taxes paid (refunded) (4,929) (13,842) 22,278 Noncash Investing and Financing Activities: Conversion of preferred shares for common shares 2 3 4 Acquisition of property, plant and equipment for debt 21,660 Notes received in connection with issuance of common stock 1,049 Reduction of notes receivable from key employees 179 Detail of Entities Acquired: Fair value of assets acquired 165,829 Liabilities assumed (106,393) Net cash paid for acquisitions 59,436
29. Related Party Transactions In 1999, four officers of the Company were extended loans for the purpose of paying the exercise price and withholding taxes in connection with their exercise of certain stock options. In 1999, following the termination of his employment the notes of the former Chairman of the Company was forgiven as part of the settlement of litigation brought by him to enforce payment of his severance (see Note 22). On November 26, 2001 the remaining notes receivable and accrued interest from other officers were restructured as a settlement of a dispute surrounding the circumstances under which the loans were originally granted. That settlement changed the notes from a fixed principal amount which accrued interest to a variable amount, equal to the market value on November 26, 2001 of the Covanta common shares purchased by the officers when exercising the above-mentioned stock options. At that time, the notes receivable and accrued interest recorded by the Company were adjusted to the market value of the Company's common shares underlying those notes. The effect of amending the loan agreements on November 26, 2001 was to adjust the balance in the separate component of equity by $0.2 million. Also, the subsequent indexing to the Company's stock price of the balance due under the notes is marked to fair value each reporting period, with the change in fair value recorded in earnings and as an asset or liability. As of December 31, 2001, $0.6 million is recorded as a liability as a result of the change in fair value of the Company's stock since the amendment date. In addition, one member of the Company's Board of Directors is a partner in a major law firm, and another member is an employee of another major law firm. From time to time, the Company seeks legal services and advice from those two law firms. During 2001, 2000 and 1999, the Company paid those two law firms approximately $1.0 million, $1.3 million and $.7 million, and $2.7 million, $1.2 million and $.2 million, respectively, for services rendered. 30. Fair Value of Financial Instruments The following disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of SFAS No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair-value amounts have been determined using available market information and appropriate valuation methodologies. However, considerable judgment is necessarily required in interpreting market data to develop estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts that Covanta would realize in a current market exchange. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. For cash and cash equivalents, restricted cash, and marketable securities, the carrying value of these amounts is a reasonable estimate of their fair value. The fair value of long-term unbilled receivables is estimated by using a discount rate that approximates the current rate for comparable notes. The fair value of non-current receivables is estimated by discounting the future cash flows using the current rates at which similar loans would be made to such borrowers based on the remaining maturities, consideration of credit risks, and other business issues pertaining to such receivables. The fair value of restricted funds held in trust is based on quoted market prices of the investments held by the trustee. Other assets, consisting primarily of insurance and escrow deposits, and other miscellaneous financial instruments used in the ordinary course of business are valued based on quoted market prices or other appropriate valuation techniques. Fair values for debt were determined based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities for debt issues that are not traded on quoted market prices. With respect to convertible subordinated debentures, fair values are based on quoted market prices. The fair value of project debt is estimated based on quoted market prices for the same or similar issues. Other liabilities are valued by discounting the future stream of payments using the incremental borrowing rate of the Company. The fair value of the Company's interest rate swap agreements is the estimated amount the Company would receive or pay to terminate the agreement based on the net present value of the future cash flows as defined in the agreement. The fair value of Covanta financial guarantees provided on behalf of certain customers (see Note 26) are valued by discounting the future stream of payments using the incremental borrowing rate of the Company. The fair-value estimates presented herein are based on pertinent information available to management as of December 31, 2001 and 2000. Since December 31, 2001, the Company's credit rating has deteriorated. However, such amounts have not been comprehensively revalued for purposes of these financial statements since that date and current estimates of fair value may differ significantly from the amounts presented herein. The estimated fair value (expressed in thousands of dollars) of financial instruments at December 31, 2001 and 2000, is summarized as follows: 2001 2000 - ------------------------------------------------------------------------------------------------ Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - ------------------------------------------------------------------------------------------------ Assets: Cash and cash equivalents $ 86,773 $ 86,773 $ 80,643 $ 80,643 Restricted cash 194,118 194,118 Marketable securities 2,940 2,940 3,590 3,590 Receivables 457,537 472,090 403,124 408,096 Restricted funds 260,228 261,018 253,341 236,163 Other assets 332 332 317 317 Interest rate swap receivable 13,199 13,199 Liabilities: Debt 311,691 346,713 455,415 486,753 Convertible subordinated debentures 148,650 101,460 148,650 130,045 Project debt 1,415,493 1,442,552 1,390,263 1,362,017 Interest rate swap 13,199 13,199 Other liabilities 2,000 1,955 3,000 2,817 Off Balance-Sheet Financial Instruments: Interest rate swap 12,280 Guarantees 2,950 5,213
Effective with the adoption of SFAS No. 133 on January 1, 2001, the interest rate swap is recorded in other noncurrent assets and other noncurrent liabilities in the December 31, 2001 Consolidated Balance Sheet. The estimated fair value of guarantees at December 31, 2001 and 2000 exclude performance bonds and guarantees and related contractual obligations undertaken mainly pursuant to agreements to construct and operate certain energy, entertainment and other facilities issued by the Company (see Note 26) and $162.9 million primarily related to credit enhancements at energy facilities. 31. Receivables from California Utilities During 2000, events affecting the energy market in California impacted the creditworthiness of two California utilities to which the Company sells power. These events resulted in these utilities delaying payment for power they had purchased from the Company. As of December 31, 2000, the Company had outstanding receivables from these two utilities, Southern California Edison ("SCE") and Pacific Gas & Electric ("PG&E"), of approximately $41.5 million (including the Company's 50% interest in several partnerships) against which the Company had recorded a reserve of approximately $7.0 million. As of March 7, 2001, the Company had received payments from one of these utilities of approximately $8.0 million. In the first quarter of 2001, the Company recorded an additional reserve of $12.4 million. These reserves were calculated as the total of receivables being protested by SCE and PG&E. On March 26, 2001 the California Public Utilities Commission ("CPUC") approved a substantial rate increase and directed the utilities to make payments to suppliers for current energy deliveries. SCE has made payments for energy delivered since March 26, 2001. On April 6, 2001, PG&E filed for protection under Chapter 11of the U.S. Bankruptcy Code. Since that time PG&E is also in compliance with the CPUC order and is making payments for current energy deliveries. In mid-June the CPUC issued an order declaring as reasonable and prudent any power purchase amendment at a certain fixed-price for a five-year term. On June 18, 2001 and July 31, 2001 the Company entered into several agreements and amendments to power purchase agreements with SCE which contained the CPUC approved pricing for a term of five years, to commence upon the occurrence of events relating to improvements in SCE's financial condition. In addition, in June 2001, SCE paid 10% of the outstanding receivables and agreed to a timetable by which the remaining 90% would be paid, which outstanding amount will earn interest. The agreements with SCE contemplated the passage of legislation by the California State Legislature or other actions that would trigger payment to the Company. In late October 2001, SCE reached a settlement of a lawsuit brought against the CPUC concerning the CPUC's failure to allow SCE to pass cost increases through to its ratepayers. The settlement achieved the same goals as the proposed legislation, which was to provide a path for SCE to achieve creditworthiness. The SCE agreements are not impacted by the settlement except for the timing of the payment of past due amounts and the start of the fixed price period for energy sales. The settlement was approved by the Federal Court. A consumer group requested a stay pending an appeal, which request was denied. In July 2001, the Company also entered into agreements with similar terms with PG&E. These agreements also contain the CPUC approved price and term, both of which were effective immediately. Unlike SCE, PG&E made no cash payments but did agree that the amount owed to the Company will earn interest at a rate to be determined by the Bankruptcy Court. PG&E agreed to assume the Company's power purchase agreements and elevate the outstanding payables to priority administrative claim status. The Bankruptcy Court approved the agreements, the power purchase agreements and the assumption of the contracts on July 13, 2001. On October 30, 2001, the Company transferred $14.9 million of the outstanding PG&E receivables for $13.4 million to a financial institution. Of this amount, $8.5 million (which related to receivables not subject to pricing disputes with PG&E) was paid immediately in cash. The balance, $4.9 million (which related to receivables to which there are pricing disputes) was placed in escrow until the resolution of those disputes, the payment of the receivables by PG&E, or the conclusion of the PG&E bankruptcy. The remaining of $1.5 million represents the 10% discount charged by the financial institution. The Company has accounted for this transaction as a secured borrowing. On December 6, 2001, the Company transferred $30.9 million of outstanding SCE receivables for $28.8 million to a financial institution. Of this amount $21.7 million (which related to receivables not subject to pricing disputes with SCE) was paid in immediate cash. The balance (which related to receivables to which there are pricing disputes) was placed in escrow until the earlier of the resolution of the pricing disputes or the achievement by SCE of credit worthiness. The remaining $2.1 million represents the 6.75% discount charged by the financial institution. On March 1, 2002, after securing certain financing, SCE paid all outstanding receivables due to the Company. The $7.1 million in escrow was also released to the Company on March 1, 2002. All Company litigation pending against SCE in connection with past due receivables has been withdrawn. On January 31, 2002, all but one of the Company's facilities in the PG&E service territory entered into Supplemental Agreements with PG&E whereby PG&E agreed to the amount of the prepetition payable owed to each facility, the rate of interest borne by the payable and a payment schedule. PG&E agreed to make twelve monthly installments commencing on February 28, 2002. The Bankruptcy Court approved the Supplemental Agreements and the first five installments have been received by the Company between February 28, 2002 and June 28, 2002. The escrowed amount of $4.9 million will remain in escrow until the financial institution is paid in full. SCE paid 100% of their past due receivables on March 1, 2002, and PG&E has paid five-twelfths of their past due receivables through June 28, 2002, in accordance with an agreed-upon twelve-month payment schedule. The Company believes it will ultimately receive payment of all these outstanding receivables. Therefore, at December 31, 2001, the Company reversed approximately $15.8 million of the reserves leaving $3.6 million. That remaining reserve applies to the discount incurred by the Company in transferring the receivables since that amount of the receivables will not be collected. Upon receipt of those payments from SCE and PG&E, the Company also reversed $27.9 million of the liabilities recorded upon the transfer of the receivables, leaving a liability balance of $2.3 million on June 30, 2002. As of December 31, 2001, the Company had outstanding gross receivables from these two utilities of approximately $71.6 million (including the Company's 50% interest in several partnerships). The Company believes it will ultimately receive payments in full of the net amount of these receivables. 32. Subsequent Events As stated in Note 1, the Company and certain of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on April 1, 2002. In the Chapter 11 Cases, the Debtors obtained several orders from the Bankruptcy Court which were intended to enable the Debtors to operate in the normal course of business during the Chapter 11 Cases. These orders (i) permit the Debtors to operate their consolidated cash management system during the Chapter 11 Cases in substantially the same manner as it was operated prior to the commencement of the Chapter 11 Cases, (ii) authorize payment of certain prepetition employee salaries, wages, health and welfare benefits, retirement benefits and other employee obligations and (iii) authorize payment of prepetition obligations to certain critical vendors to aid the Debtors in maintaining the operation of their businesses (iv) authorize the use of cash collateral and grant adequate protection in connection with such use, and (v) authorize post-petition financing. Specifically with respect to post-petition financing, on April 5, 2002, the Bankruptcy Court also entered an interim order and on May 15, 2002 a final order authorizing the Debtors to enter into a debtor in possession financing facility (the DIP Credit Facility) with certain lenders, and to grant first priority mortgages, security interests, liens and superiority claims on substantially all of the domestic assets of the Debtors, other than assets related to its power production and waste-to-energy facilities, which are subject to the liens of others in connection with such facilities financing (Project Financing) to secure the DIP Credit Facility, subject to the objection of holders of minority interests in two joint venture partnerships who dispute the inclusion of those companies in the DIP Credit Facility. The Bankruptcy Court has taken these objections under advisement and has not indicated when he will render a decision. See Note 15 for a further discussion regarding the DIP Credit Facility. The Debtors are currently operating their businesses as debtors in possession pursuant to the Bankruptcy Code. Pursuant to the Bankruptcy Code, prepetition obligation of the Debtors, including obligations under debt instruments, generally may not be enforced against the Debtors, and any actions to collect prepetition indebtedness are automatically stayed, unless the stay is lifted by the Bankruptcy Court. The rights of, and the ultimate payments by, the Company under prepetition obligations may be substantially altered. This could result in claims being liquidated in Chapter 11 Cases at less than their face value. However, the Company has continued to pay debt service as it matures on the Company's Project Debt. In addition, as debtors in possession, the Debtors have the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. In this context, "assume" means that the Debtors agree to perform their obligations and cure all existing defaults under the contract or lease, and "reject" means that the Debtors are relieved from their obligations to perform further under the contract or lease, but are subject to a claim for damages for any breach thereof. Any damages resulting from rejection of executory contracts and unexpired leases will be treated as general unsecured claims in the Chapter 11 Cases unless such claims had been secured on a prepetition basis prior to the Petition Date. The Debtors are in the process of reviewing their executory contracts and unexpired leases to determine which, if any, they will reject. The Debtors cannot presently determine or reasonably estimate the ultimate liability that may result from rejecting contracts or leases or from the filing of claims for any rejected contracts or leases, and no provision have yet been made for these items. The amount of the claims to be filed by the creditors could be significantly different than the amount of the liabilities recorded by the Debtors. The United States Trustee for the Southern District of New York has appointed an Official Committee of Unsecured Creditors in accordance with the applicable provisions of the Bankruptcy Code. The Bankruptcy Code provides that the Debtors have an exclusive period during which they may file a plan of reorganization. The Debtors however, may request that the Bankruptcy Court extend such exclusivity period. If the Debtors fail to file a plan of reorganization during the exclusive period or, after such plan has been filed, if the Debtors fail to obtain acceptance of such plan from the requisite number and amount of impaired classes of creditors and equity holders before the expiration of the applicable period, any party in interest, including a creditor, an equity holder, a committee of creditors or equity holders, or an indenture trustee, may file a plan of reorganization. After a plan of reorganization has been filed with the Bankruptcy Court, the plan, along with a disclosure statement approved by the Bankruptcy Court, will be sent to all creditors and equity holders belonging to impaired classes who are entitled to vote. Following the solicitation period, the Bankruptcy Court will hold a hearing to consider whether to confirm the plan in accordance with the applicable provisions of the Bankruptcy Code. In order to confirm a plan of reorganization, the Bankruptcy Court, among other things, is required to find that (i) with respect to each impaired class of creditors and equity holders, each holder in such class has accepted the plan or will, pursuant to the plan, receive at least as much as such holder would receive in a liquidation, (ii) each impaired class of creditors and equity holders has accepted the plan by the requisite vote (except as otherwise provided under the Bankruptcy Code), and (iii) confirmation of the plan is not likely to be followed by a liquidation or a need for further financial reorganization of the Debtors or any successors to the Debtors unless the plan proposes such liquidation or reorganization. If any impaired class of creditors or equity holders does not accept the plan and, assuming that all of the other requirements of the Bankruptcy Code are met, the proponent of the plan may invoke the "cram down" provisions of the Bankruptcy Code. Under those provisions, the Bankruptcy Court may confirm a plan notwithstanding the non-acceptance of the plan by an impaired class of creditors or equity holders if certain requirements of the Bankruptcy Code are met. As a result of the amount of prepetition indebtedness and the availability of the "cram down" provisions, the holders of the Company's capital stock might receive no distributions on account of their equity interests under the plan of reorganization. Because of such possibility, the value of the Company's outstanding capital stock and unsecured instruments are highly speculative. Since the Petition Date, the Debtors have been conducting businesses in the ordinary course. Management is in the process of stabilizing the businesses of the Debtors and evaluating their operations as part of the development of a plan of reorganization. The Company is currently beginning the initial stages of developing that plan of reorganization. In connection with a plan of reorganization, the Debtors are considering, among other things, (i) a strategic restructuring program to focus on the U.S. energy and water market, (ii) expediting the dispositions of non-core assets and as a result, reduce overhead costs and (iii) a non-binding letter of intent with the investment firm of Kohlberg Kravis Roberts & Co. ("KKR") for a $225.0 million equity investment under which a KKR affiliate would acquire the Company upon emergence from Chapter 11 reorganization. During the pendency of the Chapter 11 Cases, the Debtors may, subject to any necessary Bankruptcy Court and lender approvals, sell assets and settle liabilities for amounts other than those reflected in the financial statements. The Debtors are in the process of reviewing their operations and identifying those assets for disposition. The administrative and reorganization expenses resulting from Chapter 11 Cases will unfavorably affect the Debtors' results of operations. Future results of operations may also be adversely affected by other factors related to the Chapter 11 Cases. On March 28, 2002, following approval from the Master Credit Facility lenders, three of the Company's subsidiaries sold their interests in two power plants and an operating and maintenance contractor based in Thailand. The total sale price for all three interests of approximately $35.0 million is less than the net carrying value of the interests of approximately $57.7 million. The Company, therefore, expects to realize a net loss of approximately $23.6 million on this sale, after deducting costs relating to the sale. At December 31, 2001, the Company had no intention of selling these Thai assets or any other Asian Energy assets. Subsequently, a determination was made to sell the Thai assets to generate liquidity. The Company may consider a variety of different strategies as the Bankruptcy process proceeds. If the Company were to adopt a formal plan to sell its remaining Asian portfolio in the current market environment, there would be an impairment charge, currently not determinable, for a significant portion of the $255.1 million net book value at December 31, 2001. The ultimate sale of these assets, if any, would be subject to approval by the DIP Credit Facility lenders and the Bankruptcy Court. INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Covanta Energy Corporation (Debtor In Possession): We have audited the Consolidated Balance Sheets of Covanta Energy Corporation (Debtor in Possession) and subsidiaries (the "Company") as of December 31, 2001 and 2000, and the related Statements of Consolidated Operations and Comprehensive Loss, Shareholders' Equity and of Consolidated Cash Flows for each of the three years in the period ended December 31, 2001. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such Consolidated Financial Statements present fairly, in all material respects, the financial position of the Company at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic Consolidated Financial Statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 1and 32, on April 1, 2002 Covanta Energy Corporation and 123 of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The accompanying financial statements do not purport to reflect or provide for the consequences of the bankruptcy proceedings. In particular, such financial statements do not purport to show (a) as to assets, their realizable value on a liquidation basis or their availability to satisfy liabilities; (b) as to prepetition liabilities, the amounts that may be allowed for claims or contingencies, or the status and priority thereof; (c) as to stockholder accounts, the effect of any changes that may be made in the capitalization of the Company; or (d) as to operations, the effect of any changes that may be made in its business. In addition, as discussed in Note 3, based upon various events related to the bankruptcy, the Company recorded write-downs and obligations related to certain assets held for sale. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 32, the Company's dependence upon, among other things, confirmation of a plan of reorganization, the Company's ability to comply with the terms of its debtor in possession financing facility, and the Company's ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet its obligations, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also discussed in Notes 1 and 32. The financial statements do not include adjustments that might result from the outcome of this uncertainty. As discussed in Note 1, on January 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, under which the Company records the fair value of derivatives held as assets and liabilities and on January 1, 1999, the Company adopted Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities", under which the Company changed its method of accounting for the costs of start-up activities. /s/ Deloitte & Touche LLP Parsippany, New Jersey July 10, 2002 Covanta Energy Corporation (Debtor in Possession) and Subsidiaries REPORT OF MANAGEMENT Covanta's management is responsible for the information and representations contained in this annual report. Management believes that the financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America appropriate in the circumstances to reflect in all material respects the substance of events and transactions that should be included and that the other information in the annual report is consistent with those statements. In preparing the financial statements, management makes informed judgments and estimates of the expected effects of events and transactions currently being accounted for. However, on April 1, 2002, Covanta Energy Corporation and 123 of its domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. The Company's Consolidated Financial Statements have been prepared on a "going concern" basis in accordance with accounting principles generally accepted in the United States of America. The "going concern" basis of presentation assumes that Covanta will continue in operation for the foreseeable future and will be able to realize its assets and discharge its liabilities in the normal course of business. Because of the Chapter 11 Cases and the circumstances leading to the filing thereof, the Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, confirmation of a plan of reorganization, the Company's ability to comply with, and if necessary renew, the terms of the Debtor in Possession Financing Facility (see Notes 15 and 32 to the Company's Consolidated Financial Statements), and the Company's ability to generate sufficient cash flows from operations, asset sales and financing arrangements to meet its obligations. There can be no assurances this can be accomplished and if it were not, the Company's ability to realize the carrying value of its assets and discharge its liabilities would be subject to substantial uncertainty. Therefore, if the "going concern" basis were not used for the Company's Consolidated Financial Statements, significant adjustments could be necessary to the carrying value of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used. The Company's Consolidated Financial Statements do not reflect adjustments that may occur in accordance with the American Institute of Certified Public Accountants' Statement of Position No. 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which the Company will adopt for its financial reporting in periods ending after April 1, 2002 assuming that the Company will continue as a "going concern". Substantially all unsecured liabilities as of the Petition Date are subject to compromise or other treatment under a plan of reorganization which must be confirmed by the Bankruptcy Court after submission to any required vote by affected parties. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 Cases will be segregated and classified as Liabilities Subject to Compromise in the Consolidated Balance Sheet under SOP 90-7. In meeting its responsibility for the reliability of the financial statements, management depends on the Corporation's internal control structure. This structure is designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with management's authorization and recorded properly to permit the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America. In designing control procedures, management recognizes that errors or irregularities may nevertheless occur. Also, estimates and judgments are required to assess and balance the relative cost and expected benefits of such controls. Management believes that the Company's internal control structure provides reasonable assurance that errors or irregularities that could be material to the financial statements are prevented and would be detected within a timely period by employees in the normal course of performing their assigned functions. The Board of Directors pursues its oversight role for these financial statements through the Audit Committee, which is composed solely of nonaffiliated directors. The Audit Committee, in this oversight role, meets periodically with management to monitor their responsibilities. The Audit Committee also meets periodically with the independent auditors and the internal auditors, both of whom have free access to the Audit Committee without management present. The independent auditors elected by the shareholders express an opinion on our financial statements. Their opinion is based on procedures they consider to be sufficient to enable them to reach a conclusion as to the fairness of the presentation of the financial statements. Scott G. Mackin William J. Keneally President and Chief Executive Officer Senior Vice President and Chief Accounting Officer Covanta Energy Corporation (Debtor in Possession) and Subsidiaries QUARTERLY RESULTS OF OPERATIONS (In thousands of dollars, except per-share amounts) 2001 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 - -------------------------------------------------------------------------------------------------------- Total revenues from continuing operations... $ 250,777 $ 300,235 $ 272,386 $ 259,369 --------- --------- --------- --------- Gross profit................................ $ 63,210 $ 88,521 $ 65,943 $ 63,135 --------- --------- --------- --------- Net income (loss)........................... $ 9,415 $ 14,458 $ (6,162) $(248,738) --------- --------- --------- --------- Basic earnings (loss) per common share...... $ 0.19 $ 0.29 $ (0.12) $ (5.01) --------- --------- --------- --------- Diluted earnings (loss) per common share.... $ 0.19 $ 0.29 $ (0.12) $ (5.01) --------- --------- --------- --------- 2000 Quarter Ended March 31 June 30 Sept. 30 Dec. 31 - -------------------------------------------------------------------------------------------------------- Total revenues from continuing operations... $ 239,016 $ 264,982 $ 254,737 $ 261,267 --------- --------- --------- --------- Gross profit................................ $ 43,074 $ 65,875 $ 61,010 $ 54,710 --------- --------- --------- --------- Income (loss) from continuing operations ... $ (4,174) $ (10,414) $ 2,701 $ (73,734) Loss from discontinued operations........... (25,310) (66,489) (37,072) (14,793) --------- --------- --------- --------- Net loss.................................... $ (29,484) $ (76,903) $ (34,371) $ (88,527) ========= ========= ========= ========= Basic earnings (loss) per common share: Income (loss) from continuing operations.... $ (0.08) $ (0.21) $ 0.05 $ (1.49) Loss from discontinued operations........... (0.51) (1.34) (0.75) (0.30) --------- --------- --------- --------- Total....................................... $ (0.59) $ (1.55) $ (0.70) $ (1.79) ========= ========= ========= ========= Diluted earnings (loss) per common share: Income (loss) from continuing operations ... $ (0.08) $ (0.21) $ 0.05 $ (1.49) Loss from discontinued operations........... (0.51) (1.34) (0.75) (0.30) --------- --------- --------- --------- Total....................................... $ (0.59) $ (1.55) $ (0.70) $ (1.79) ========= ========= ========= =========
See Note 2, 3, 4, 8, 22 and 31 to the Consolidated Financial Statements for information regarding write-offs during the years ended December 31, 2001 and 2000. SCHEDULE II ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Amounts in thousands of dollars) FOR THE YEAR ENDED DECEMBER 31, 2001 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS --------------------------------- BALANCE AT CHARGED TO BEGINNING CHARGED TO COSTS OTHER BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- ALLOWANCES DEDUCTED IN THE BALANCE SHEET FROM THE ASSETS TO WHICH THEY APPLY: DOUBTFUL RECEIVABLES - CURRENT $19,234 $14,212 $1,215(B) $ 6,026(A) $16,444 12,191(C) ------------------------------------------------------------------------ TOTAL $19,234 $14,212 $1,215 $ 18,217 $16,444 ======================================================================== ALLOWANCES NOT DEDUCTED: RESERVES RELATING TO TAX INDEMNIFICATION AND OTHER CONTINGENCIES IN CONNECTION WITH THE SALE OF LIMITED PARTNERSHIP INTERESTS IN AND RELATED TAX BENEFITS OF A WASTE-TO-ENERGY FACILITY $ 300 $ 300 ------------------------------------------------------------------------ TOTAL $ 300 $ 300 ======================================================================== NOTES: (A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE (B) TRANSFER FROM OTHER ACCOUNTS (C) RECLASSIFICATION TO NET ASSETS HELD FOR SALE
SCHEDULE II ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Amounts in thousands of dollars) FOR THE YEAR ENDED DECEMBER 31, 2000 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS --------------------------------- BALANCE AT CHARGED TO BEGINNING CHARGED TO COSTS OTHER BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- ALLOWANCES DEDUCTED IN THE BALANCE SHEET FROM THE ASSETS TO WHICH THEY APPLY: DOUBTFUL RECEIVABLES - CURRENT $17,942 $15,598 $1,272(B) $15,578(A) $19,234 ------------------------------------------------------------------------ TOTAL $17,942 $15,598 $1,272 $15,578 $19,234 ======================================================================== ALLOWANCES NOT DEDUCTED: RESERVES RELATING TO TAX INDEMNIFICATION AND OTHER CONTINGENCIES IN CONNECTION WITH THE SALE OF LIMITED PARTNERSHIP INTERESTS IN AND RELATED TAX BENEFITS OF A WASTE-TO-ENERGY FACILITY $ 300 $ 300 ------------------------------------------------------------------------ TOTAL $ 300 $ 300 ======================================================================== NOTES: (A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE (B) TRANSFER FROM OTHER ACCOUNTS
SCHEDULE II ITEM 14.(a)2). FINANCIAL STATEMENT SCHEDULES COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Amounts in thousands of dollars) FOR THE YEAR ENDED DECEMBER 31, 1999 COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS --------------------------------- BALANCE AT CHARGED TO BEGINNING CHARGED TO COSTS OTHER BALANCE AT DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD - ----------------------------------------------------------------------------------------------------------------------------------- ALLOWANCES DEDUCTED IN THE BALANCE SHEET FROM THE ASSETS TO WHICH THEY APPLY: DOUBTFUL RECEIVABLES - CURRENT $18,135 $ 5,130 $3,468(E) $ 2,094(A) $17,942 6,697(C) DEFERRED CHARGES ON PROJECTS 13,070 13,070(D) ------------------------------------------------------------------------ TOTAL $31,205 $ 5,130 $3,468 $21,861 $17,942 ======================================================================== ALLOWANCES NOT DEDUCTED: PROVISION FOR RESTRUCTURING $ 274 $ 274(C) RESERVES RELATING TO TAX INDEMNIFICATION AND OTHER CONTINGENCIES IN CONNECTION WITH THE SALE OF LIMITED PARTNERSHIP INTERESTS IN AND RELATED TAX BENEFITS OF A WASTE-TO-ENERGY FACILITY 300 300 OTHER 1,850 1,850(B) ------------------------------------------------------------------------ TOTAL $ 2,424 $ 2,124 $ 300 ======================================================================== (A) WRITE-OFFS OF RECEIVABLES CONSIDERED UNCOLLECTIBLE. (B) PAYMENTS CHARGED TO ALLOWANCES. (C) REVERSAL OF PROVISIONS NO LONGER REQUIRED. (D) WRITE-OFF OF DEFERRED CHARGES. (E) TRANSFER FROM OTHER ACCOUNTS.
PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF COVANTA DIRECTORS FIRST BECAME NAME, AGE(1), AND OTHER INFORMATION PRINCIPAL OCCUPATION A DIRECTOR ----------------------------------- -------------------- ------------ George L. Farr: Age 61 Principal, Muirhead Holdings, 1999 Chairman of Covanta's Board of Directors; LLC; former Vice Chairman, The Director of Swiss Reinsurance Company, Zurich, American Express Company Switzerland; Director of MISYS PLC, London, England Jeffrey F. Friedman: Age 57 Investment Manager, Dreyfus 1998 Chairman of Covanta's Audit Committee and member Corporation of Covanta's Compensation Committee Helmut F.O. Volcker: Age 68 Member of Covanta's Professor of Energy Technology, 1994 Governance and Finance Committees; Chairman of University of Essen, Germany the Technical Advisory Board, Alstom Power Boiler GmbH, Stuttgart, Germany; Vice Chairman, ELYO AG, Potsdam, Germany Veronica M. Hagen: Age 56 Vice President, Alcoa, Inc.; 2001 Member of Covanta's Audit and Compensation President, Alcoa Engineered Committees (2) Products Anthony J. Bolland: Age 48 Managing Director, Boston 1998 Chairman of Covanta's Finance Committee and Ventures Management, Inc. member of Covanta's Audit Committee; Director of Production Resource Group, Inc. and Northern Light Technology Corporation Scott G. Mackin: Age 45 President and Chief Executive 1999 Officer, Covanta and Covanta Energy Group, Inc., a Covanta subsidiary Craig G. Matthews: Age 59 Retired Vice Chairman and Chief 2000 Member of Covanta's Audit and Governance Operating Officer, KeySpan Committees; Director of the Houston Exploration Corporation Company Robert E. Smith: Age 66 Counsel, Katten Muchin Zavis 1990 Member of Covanta's Finance and Governance Rosenman, a law firm Committees Norman G. Einspruch: Age 69 Professor and Senior Fellow, 1981 Chairman of Covanta's Compensation Committee and College of Engineering, member of Covanta's Finance Committee University of Miami Homer A. Neal: Age 60 Samuel A. Goudsmit Distinguished 1988 Chairman of Covanta's Governance Committee and University Professor of Physics member of Covanta's Compensation Committee; and Director of Project Atlas, Director of Ford Motor Company University of Michigan Joseph A. Tato: Age 48 Partner, LeBoeuf, Lamb, Greene & 2000 Member of Covanta's Governance and Finance MacRae, LLP, a law firm Committees Robert R. Womack: age 64 Retired Chairman and Chief 2000 Member of Covanta's Audit and Compensation Executive Officer, Zurn Committees; Chairman of the Board of Precision Industries, Inc. Partners, Inc.; Director of Commercial Metals Company and U.S. Industries, Inc.
(1) All ages are as of June 17, 2002. (2) Ms. Hagen, a graduate of the University of Southern California, is currently President of Alcoa Engineered Products and in July 2001 was named Vice President of Alcoa, Inc. She has held several other executive-level positions with Alcoa, Inc., the most recent being President of Alcoa Distribution & Industrial Products. She served as Executive Vice President of Alumax Distribution & Industrial Products, formerly Cressona Aluminum Company, which was a business unit of Alumax Semi-Fabricated Products Group, from 1996 until 1998 (when Alcoa, Inc. acquired Alumax, Inc.). From 1981 to 1996, Ms. Hagen was President and owner of Metal Sales Associates. EXECUTIVE OFFICERS OF COVANTA Set forth below are the names, ages, positions and offices held and years appointed of Covanta's current "executive officers" (as defined by Rule 3b-7 of the Securities Exchange Act of 1934). CONTINUALLY POSITION AND AGE AS OF AN EXECUTIVE NAME OFFICE HELD 6/17/2002 OFFICER SINCE - --------------------- ---------------------------- --------- ------------- Scott G. Mackin President and Chief 45 1992 Executive Officer Bruce W. Stone Executive Vice President 54 1997 Chief Administrative Officer Jeffrey R. Horowitz Senior Vice President 52 2001 General Counsel and Secretary Lynde H. Coit Senior Vice President 47 1991 William E. Whitman Senior Vice President 46 2001 Strategic Planning and Business Development Paul B. Clements Senior Vice President 46 2001 Independent Power Projects Anthony J. Orlando Senior Vice President 42 2001 Waste-to-Energy J. Joseph Burgess Executive Vice President 43 2001 of Covanta's subsidiaries Covanta Water Systems, Inc. and Covanta Projects, Inc. B. Kent Burton Senior Vice President 50 1997 Policy and International Government Relations Stephen M. Gansler Vice President 47 2001 Human Resources Louis M. Walters Vice President 49 2001 and Treasurer William J. Keneally Senior Vice President 39 2002 and Chief Accounting Officer
There is no family relationship by blood, marriage or adoption (not more remote than first cousins) between any of the above individuals and any Covanta director. The term of office of all officers shall be until the next election of directors and until their respective successors are chosen and qualified. There are no arrangements or understandings between any of the above officers and any other person pursuant to which any of the above was selected as an officer. The following briefly describes the business experience, principal occupation and employment of the foregoing Executive Officers during the past five years: Scott G. Mackin has served as President and Chief Executive Officer of Covanta since September 1999. Prior thereto he served as Executive Vice President of Covanta from January 1997 to September 1999 and as President and Chief Operating Officer of Covanta Energy Group, Inc., a Covanta subsidiary, since January 1991. Bruce W. Stone has served as Executive Vice President and Chief Administrative Officer of Covanta since January of 2001. Previously, Mr. Stone served as Executive Vice President and Managing Director of Covanta Energy Group, Inc., a Covanta subsidiary, a position he held starting in January 1991. Jeffrey R. Horowitz was named Senior Vice President, General Counsel and Secretary in 2002. Prior to that time Mr. Horowitz served as Senior Vice President for Legal Affairs and Secretary and prior to that as Executive Vice President, General Counsel and Secretary of Covanta Energy Group, Inc, a Covanta subsidiary. Mr. Horowitz joined the Company in 1991. Lynde H. Coit serves as Senior Vice President of Covanta. Prior to 2002, Mr. Coit served as Senior Vice President and General Counsel of Covanta for more than five years. William E. Whitman was named Covanta's Senior Vice President for Strategic Planning and Business Development in 2001. Previously Mr. Whitman served as Executive Vice President and Chief Financial Officer of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Whitman joined the Company in 1986. Paul B. Clements was named Covanta's Senior Vice President of Independent Power Operations in 2001. Mr. Clements previously served as Executive Vice President of Covanta Energy Group, Inc., and President of Covanta Energy West, Inc., both of which are Covanta subsidiaries. Mr. Clements joined the Company in 1988. Anthony J. Orlando was named Covanta's Senior Vice President of Waste to Energy Operations in 2001. Previously he served as Executive Vice President of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Orlando joined the Company in 1987. J. Joseph Burgess was designated an Executive Officer of Covanta in 2001. Mr. Burgess currently serves as Executive Vice President of Covanta Projects, Inc., and of Covanta Water Systems, Inc., both of which are Covanta subsidiaries. Mr. Burgess joined the Company in 1988. B. Kent Burton has served as Senior Vice President - Policy and International Government Relations of Covanta since May 1999, from May 1997 to May 1999 he served as Vice President - Policy and Communications of Covanta and prior thereto he served as Senior Vice President of the Covanta Energy Group, Inc., a Covanta subsidiary, in political affairs and lobbying activities. Stephen M. Gansler was named Vice President of Human Resources in March, 2001. Before joining the Company, Mr. Gansler was Worldwide Vice President, Human Resources, at a Johnson & Johnson affiliate, where he held various positions in Human Resources for more than 20 years. Louis M. Walters was named Treasurer of Covanta in 2001. Prior to that time, Mr. Walters served as Treasurer of Covanta Energy Group, Inc., since January 2000. Before joining Covanta, Mr. Walters was Treasurer at Conectiv, and before that held various positions at Atlantic Energy, Inc. William J. Keneally was named Senior Vice President and Chief Accounting Officer of Covanta on April 8, 2002. Prior to joining Covanta, Mr. Keneally was Vice President - Controller and Treasurer for Metion, Inc. a Partner with BDO Seidman, LLP and Senior Vice President - Financial Controller of Inter-Continental Hotels and Resorts. ITEM 11. EXECUTIVE COMPENSATION The following Summary Compensation Table sets forth the aggregate cash and non-cash compensation for each of the last three fiscal years awarded to, earned by or paid to the CEO of Covanta and each of Covanta's four other most highly compensated executive officers whose salary and bonus exceeded $100,000: SUMMARY COMPENSATION TABLE(1) ANNUAL COMPENSATION LONG TERM COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER ANNUAL RESTRICTED SECURITIES ALL OTHER COMPENSTION --------------------------- ---- ------ ----- ------------ ---------- ---------- --------------------- (5) COMPENSATION STOCK UNDERLYING/ --- ------------ ------ ----------- (2) (4) OPTIONS DISPUTE --- --- ------- ------- LIMITED SAR RESOLUTION(6) OTHER (3) ----------- ------------- --------- Scott G. Mackin 2001 $625,000 $650,000 $ 0 $ 0 0 $466,358 $62,860 President and Chief 2000 600,000 650,000 0 89,700 60,000 0 55,075 Executive Officer 1999 542,275 449,600 0 150,400 490,000 0 115,826 Bruce W. Stone 2001 $325,000 $240,000 $ 0 $ 0 0 $397,283 $28,610 Executive Vice President 2000 302,702 240,000 0 60,000 40,000 0 24,570 and Chief Administrative 1999 291,059 172,425 0 57,575 55,000 0 54,168 Officer Jeffrey R. Horowitz 2001 $260,000 $250,000 $ 0 $ 0 0 $ 0 $24,360 Senior Vice President 2000 209,796 220,000 0 50,000 40,000 0 16,772 General Counsel and Secretary 1999 200,000 112,500 0 37,500 50,000 0 36,590 Anthony J. Orlando 2001 $245,000 $260,000 $ 0 $ 0 0 $ 0 $23,110 Senior Vice President 2000 221,375 210,000 0 40,000 40,000 0 19,075 Waste to Energy 1999 201,250 200,000 0 41,300 50,000 0 41,945 Lynde H. Coit 2001 $300,150 $250,000 $ 0 $ 0 0 $ 98,000 $ 6,000 Senior Vice President 2000 290,000 250,000 0 40,000 0 0 6,535 1999 290,000 250,000 11,500 0 0 0 6,400
(1) Includes annual compensation awarded to, earned by or paid to the individual during the last three fiscal years, or any portion thereof that the named individual served as an executive officer of Covanta. (2) Amounts in this column represent cost of life insurance, car allowance, medical reimbursement and other personal benefits which in the aggregate exceeded the lesser of either $50,000 or 10% of the executive's combined salary and bonus. (3) Includes, for the fiscal year ending December 31, 2001: (i) contributions in the amount of $8,500 credited to the account balances of each of Messrs. Mackin, Stone, Horowitz and Orlando under the Company's Profit Sharing Plan; (ii) a special discretionary cash payment made to Messrs. Mackin, Stone, Horowitz and Orlando in the amount of $46,474, $15,969, $8,171 and $10,449, respectively; and (iii) matching contributions totaling $6,000 were credited to the account balance of Mr. Coit under the Ogden Corporation 401(k) Plan. (4) Awards of restricted stock are based on the price of Covanta Common Stock on the date of award and vest at the rate of 50% each year over a period of two years from the date of award; The number (and value) of the aggregate restricted stock holdings at December 31, 2001 for each of Messrs. Mackin, Stone, Coit, Horowitz and Orlando are 11,400 ($51,528), 5,850 ($26,442), 2,300 ($10,396), 4,400 ($19,888), and 4,450 ($20,114), respectively. (5) The amounts shown represent the full amount of the bonuses attributable to 2001, 50% of which were paid in January 2002. The remaining 50% is scheduled to be paid in May 2002, subject to Bankruptcy Court approval. (6) Includes for fiscal year ending December 31, 2001, loan forgiveness (and tax gross-up payment) in settlement of dispute as further detailed in Item 13 of this document for Messrs. Mackin, Stone and Coit of $212,212 ($254,146), $184,657 ($212,626) and $43,816 ($55,004), respectively. On August 6, 1999, Covanta made loans to Messrs. Mackin, Stone and Coit for the purpose of paying the exercise price and withholding taxes in connection with their exercise of Covanta stock options which were expiring on August 9, 1999. All loans were evidenced by demand notes with interest accruing thereon at the short-term applicable federal rate compounded annually. In 2001, as settlement of a dispute surrounding the circumstances under which the loans were originally granted, the Company forgave a portion of the loan and reduced the amount of the loan to the then fair market value of the stock. From the date of the settlement, the balance of each note will fluctuate with the fair market value of the stock. No interest will be payable. Upon any sale of the stock, the executive must pay the net proceeds to the Company. Aggregated Option/SAR exercises in Last Fiscal Year And FY-End Options Values Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options at FY-End at FY-End Shares Acquired On Exercisable/ Exercisable/ Name Exercise Value Realized Unexercisable Unexercisable ---- -------- -------------- ------------- ------------- Scott G. Mackin 0 $0 556,000/244,000 $0/$0 Bruce W. Stone 0 $0 36,666/58,334 $0/$0 Jeffrey R. Horowitz 0 $0 75,334/64,666 $0/$0 Anthony J. Orlando 0 $0 61,334/68,666 $0/$0 Lynde H. Coit 0 $0 100,000/0 $0/$0
COVANTA ENERGY GROUP PENSION PLAN Scott G. Mackin, Jeffrey R. Horowitz, Bruce W. Stone and Anthony J. Orlando participate in the Company's Energy Group Pension Plan, a tax-qualified defined benefit plan subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended. Under the Energy Group Pension Plan each participant who meets the plan's vesting requirements will be provided with an annual benefit at or after age 65 equal to 1.5% of the participant's average compensation during the five consecutive calendar years of employment out of the ten consecutive calendar years immediately preceding his retirement date or termination date during which such average is the highest, multiplied by his total years of service. Compensation includes salary and other compensation received during the year and deferred income earned, but does not include imputed income, severance pay, special discretionary cash payments or other non-cash compensation. The relationship of the covered compensation to the annual compensation shown in the Summary Compensation Table would be the Salary and Bonus columns and any car allowance. A plan participant who is at least age 55 and who retires after completion of at least five years of employment receives a benefit equal to the amount he would have received if he had retired at age 65, reduced by an amount equal to 0.5% of the benefit multiplied by the number of months between the date the participant commences receiving benefits and the date he would have commenced to receive benefits if he had not retired prior to age 65. Messrs. Mackin, Horowitz, Stone and Orlando also participate in the Company's Energy Group Supplementary Benefit Plan, a deferred compensation plan that is not qualified for federal income tax purposes. The Energy Group Supplementary Benefit Plan provides that, in the event that the annual retirement benefit of any participant in the Energy Group Pension Plan, determined pursuant to such plan's benefit formula, cannot be paid because of certain limits on annual benefits and contributions imposed by the Code, the amount by which such benefit must be reduced represent an unfunded liability and will be paid to the participant from the general assets of the Company. The following table shows the estimated annual retirement benefits payable in the form of a life annuity at age 65 under the Energy Group Pension Plan and the Energy Group Supplemental Benefit Plan. Mr. Mackin has 15.5 years, Mr. Stone has 25.8 years and Mr. Horowitz has 10.5 years and Mr. Orlando has 14.7 years of credited service under the Energy Group Pension Plan as of December 31, 2001 and had annual average earnings for the last five years of $1,063,244, $514,917, $365,856 and $357,613 respectively. AVERAGE ANNUAL EARNINGS IN 5 CONSECUTIVE HIGHEST PAID YEARS OUT OF LAST 10 YEARS PRECEDING RETIREMENT ESTIMATED ANNUAL RETIREMENT BENEFITS BASED ON YEARS OF SERVICE 5 10 15 20 25 30 360,000 27,000 54,000 81,000 108,000 135,000 162,000 375,000 28,125 56,250 84,375 112,500 140,625 168,750 400,000 30,000 60,000 90,000 120,000 150,000 180,000 425,000 31,875 63,750 95,625 127,500 159,375 191,250 450,000 33,750 67,500 101,250 135,000 168,750 202,500 500,000 37,500 75,000 112,500 150,000 187,500 225,000 550,000 41,250 82,500 123,750 165,000 205,250 247,500 600,000 45,000 90,000 135,000 180,000 225,000 270,000 625,000 46,875 93,750 140,625 187,500 234,375 281,250 900,000 67,500 135,000 202,500 270,000 337,500 405,000 950,000 71,250 142,500 213,750 285,000 356,250 427,500 1,000,000 75,000 150,000 225,000 300,000 375,000 450,000 1,050,000 78,750 157,500 236,250 315,000 393,750 472,500 1,110,000 82,000 165,000 247,500 333,000 412,000 495,000
DIRECTOR COMPENSATION (a) Director's Fees In 2001 through March 31, 2002 each director who was not an employee of Covanta or a Covanta subsidiary received an annual director's retainer fee of $35,000 plus a meeting fee of $1,500 for each Board of Directors meeting attended. Each non-employee director also received a meeting fee of $1,500 for each committee meeting attended. All directors are reimbursed for expenses incurred in attending Board of Directors and committee meetings. Directors who are employees of Covanta or a Covanta subsidiary receive no additional compensation for serving on the Board of Directors or any committee. On January 21, 2002, the Board of Directors voted to pay all non-employee director compensation in the form of cash rather than 50% cash and 50% restricted stock as had been the practice. Effective April 1, 2002 the annual retainer fee was decreased by ten percent by resolution of the Board of Directors. (b) Stock Options Pursuant to the Covanta Amended and Restated 1999 Stock Incentive Plan (the "1999 Plan"), the Board of Directors may award annual grants of Directors Stock Options and limited stock appreciation rights of up to 2,500 shares of Covanta Common Stock to each non-employee director, at an exercise price equal to the Fair Market Value on the date of grant. There were no options granted to non-employee directors in 2002. (c) Restricted Stock On February 17, 2000, the Board of Directors adopted the Covanta Restricted Stock Plan for Non-Employee Directors (the "Director's Restricted Stock Plan") which is administered by the Board of Directors and provides that only non-employee directors are eligible to receive awards. Each award of restricted stock will vest upon the earliest of the third month following the date of grant; the non-employee director's attainment of normal retirement age; the non-employee director's disability; or the non-employee director's death. Shares are freely transferable after they become vested subject to meeting certain SEC requirements. All unvested shares of restricted stock are forfeited upon the director's termination of directorship for any reason, other than death or disability. Shares become fully vested upon a change-in-control of the Company. Shares of Common Stock to be issued under the Director's Restricted Stock Plan will be made from shares held in Covanta's treasury, the maximum aggregate number of shares authorized to be issued is 100,000 shares and the purchase price for each share issued is zero. In recognition of the special role that Mr. Farr was performing as Covanta's Chairman of the Board, the Board of Directors authorized a special compensation package for Mr. Farr that will apply only during the period of time in which he was serving in this special role. The compensation package provided for a monthly retainer of $35,000, payable 50% in cash and 50% in restricted stock at the end of each quarter, commencing during the first quarter of 2000 and subject to review by the Compensation Committee on a quarterly basis. During this period of time, Mr. Farr was not paid any director's or committee retainer or meeting fees. In May 2001, the Compensation Committee reviewed the compensation payable to the Chairman of the Board and determined that it was appropriate to adjust the monthly retainer to $20,000 for such time as the Chairman remained in the special role. In accordance with the January 21, 2002 resolution of the Board of Directors, such monthly retainer shall be paid in cash. Effective April 1, 2002, Mr. Farr's monthly retainer was further reduced by ten percent by resolution of the Board of Directors. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS EMPLOYMENT CONTRACTS The Company is reviewing its employment contracts with employees in view of the Chapter 11 proceedings. (A) Mr. Mackin is employed by Covanta as its President and Chief Executive Officer, pursuant to an employment agreement dated as of October 1, 1998 and amended November 26, 2001 for a five year term commencing October 1, 1998 and continuing through September 30, 2003 and year to year thereafter, subject to the right of either party to terminate the agreement on any September 30 upon at least sixty (60) days prior written notice. The agreement provides for an annual salary in the amount of $625,000 or such higher rate as may be determined from time to time by the Board of Directors, and an annual incentive bonus in such amount as may be determined by the Board of Directors. The agreement also provides that if Mr. Mackin terminates his employment for good reason, including a change in control (as defined in the agreement), or if his employment is terminated by Covanta for any reason other than for cause (as defined in the agreement) then he is entitled to a lump sum cash payment equal to the product of five times his base salary at the highest annual rate in effect at any time prior to the termination date, and the highest amount of annual bonus payable at any time prior to the termination date and, if applicable, an additional payment equal to the amount of any excise tax imposed on any payments under the agreement (including the additional payment) under the excess parachute payments of the Code. (B) Mr. Stone is employed by Covanta as its Executive Vice President and Chief Administrative Officer pursuant to an employment agreement which continues through May 1, 2004, and from year to year thereafter. The annual salary under the agreement is $291,059 or such higher rate as may be determined from time to time by the Board of Directors with an annual incentive bonus in such amount as determined by the Board of Directors. The agreement also provides that if Mr. Stone's employment is terminated by Covanta Energy for any reason other than for cause (as defined in the agreement) or if Mr. Stone terminates employment for good reason, including a change in control (as defined in the agreement), then Mr. Stone is entitled to a lump sum cash payment equal to the product of five times his annualized base salary at the highest annual rate in effect at any time prior to the termination date and the highest amount of annual bonus payable at any time prior to the termination date. (C) Mr. Coit is employed by Covanta as its Senior Vice President and General Counsel pursuant to an employment agreement dated as of March 1, 1999 and amended November 26, 2001 which continues in effect until terminated by Mr. Coit, by Covanta or by Mr. Coit's death or total disability. The annual salary under the agreement is $290,000 or such higher rate as may be determined from time to time by the Board of Directors with an annual incentive bonus in such amount as determined by the Board of Directors. The agreement also provides that if Mr. Coit's employment is terminated by Covanta for any reason other than for cause (as defined in the agreement) or if Mr. Coit terminates employment for good reason, including a change in control (as defined in the Agreement), then Mr. Coit is entitled to a lump sum cash payment equal to the product of five times his base salary at the highest annual rate in effect at any time prior to the termination date and the highest amount of annual bonus payable at any time prior to the termination date. (D) Mr. Horowitz is employed by Covanta as its Senior Vice President, Legal Affairs and Secretary, pursuant to an employment agreement effective May 1, 1999 and continuing until May 1, 2004 and thereafter from year to year. The annual salary under the agreement is $201,721 or such higher rate as may be determined from time to time by the Board of Directors with an annual incentive bonus in such amount as determined by the Board of Directors. The Agreement also provides that if Mr. Horowitz' employment is terminated for any reason other than for cause (as defined in the agreement) or if Mr. Horowitz terminates employment for good reason, including a change in control (as defined in the agreement), then Mr. Horowitz would be entitled to a lump sum cash payment equal to the product of five times his annualized base salary at the highest annual rate in effect at any time prior to the termination date and the highest amount of annual bonus payable at any time prior to the termination date. (E) Mr. Orlando is employed by Covanta as its Senior Vice President, Waste to Energy, pursuant to an employment agreement effective May 1, 1999 and continuing until May 1, 2004 and thereafter from year to year. The annual salary under the agreement is $201,250 or such higher rate as may be determined from time to time by the Board of Directors with an annual incentive bonus in such amount as determined by the Board of Directors. The Agreement also provides that if Mr. Orlando's employment is terminated for any reason other than for cause (as defined in the agreement) or if Mr. Orlando terminates employment for good reason, including a change in control (as defined in the agreement), then Mr. Orlando would be entitled to a lump sum cash payment equal to the product of five times his annualized base salary at the highest annual rate in effect at any time prior to the termination date and the highest amount of annual bonus payable at any time prior to the termination date. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The members of Covanta's Compensation Committee are Norman G. Einspruch, Chairman; Jeffrey F. Friedman; Veronica M. Hagen; Homer A. Neal; and Robert R. Womack. All of the foregoing members are "non-employee directors" within the meaning of revised Rule 16b-3 promulgated under Section 16(b) of the Securities Exchange Act of 1934, as amended, and "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended, who are not employees or members of management of Covanta or any of its subsidiaries. COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION THE EXECUTIVE COMPENSATION PROGRAM The following section describes the Executive Compensation Program used in determining the compensation paid to the Company's executives for the year ending December 31, 2001. Due to the events described in Part I, CHAPTER 11 REORGANIZATION, this Program will be reviewed and may be changed or amended to reflect the Company's current financial situation. PHILOSOPHY The Company's Compensation Committee (the "Committee") of the Board of Directors is responsible for developing the Company's executive compensation philosophy. In addition, the Committee administers the compensation program with respect to the Company's Chief Executive Officer ("CEO") and other senior executive officers. The primary goal of the Company's compensation philosophy is to establish incentives that encourage and reward the creation of shareholder value. This "pay-for-performance" principle permeates all elements of the Company's compensation program, which is designed to align executives' financial interests with those of the Company's shareholders. The mix of direct compensation is being shifted toward a greater emphasis on long-term performance. The Company seeks to reward exceptional performers--those individuals whose job performance clearly exceeds expectations and is consistent with the Company's financial goals and corporate values. The Committee retains outside compensation consultants to assist in implementing the Company's compensation philosophy and in periodically comparing the Company's compensation levels with other similarly sized companies in the markets in which it operates. These companies are included in the Standard & Poor's indices shown in the performance graphs. To attract and retain high-caliber executives, the Company targets its executives' total compensation opportunity for superior performance at approximately the 75th percentile of the competitive market. Actual compensation levels may vary, depending upon individual performance, achievement of business unit goals, the Company's results of operations and actual shareholder returns realized. The primary elements of the Company's current compensation arrangements are discussed below. BASE SALARY The Company targets base salary levels to attract, motivate and retain talented executives who demonstrate the personal and professional qualities required to succeed in the Company's entrepreneurial culture and who meet or exceed our goals and standards for exceptional performance. As the Company continues to increase its emphasis on long-term incentive compensation, it is expected that while base salary will remain competitive, it will comprise a smaller proportion of the total compensation received by our executive officers. ANNUAL INCENTIVE The Company's annual incentive bonus payments are designed to be highly variable based on the achievement of relevant quantitative and qualitative criteria established by the Committee, which may vary from year to year. Historically, annual incentive awards have been based upon any or all of the following elements: earnings-per-share, cash flow, business unit operating income and attainment of team and individual goals. For 2001, based on the changes in the nature of the Company's business, the Committee gave particular consideration to the growth in the Company's energy earnings before interest and taxes resulting from continuing operations (excluding the results of Ogden Environmental and Energy Services, corporate overhead and interest on corporate level debt) ("Energy EBIT") and extraordinary individual efforts in connection with the sale of non-core businesses and the financial restructuring of the Company. The Committee believes that annual incentive bonuses reinforce the Company's pay-for-performance philosophy and it intends to continue rewarding individuals whose performance contributes to the Company's achievement of its strategic and financial objectives. LONG-TERM INCENTIVES The Committee believes that creation of shareholder value is best facilitated through clear and uncomplicated long-term incentives. Accordingly, the Company grants stock options on an annual basis to encourage equity ownership and better align executives' and shareholders' interests. These grants currently vest over a three-year period and are concentrated among those executives who the Company believes have the greatest potential to substantially increase shareholder value. The size of these annual grants reflects a variety of factors, including corporate performance during the most recent fiscal year, overall compensation levels for comparable positions in the competitive market, consideration of a given individual's importance in implementing the Company's long-term strategic plan and an evaluation of individual performance and previous option grants. CHIEF EXECUTIVE OFFICER (CEO) COMPENSATION In assessing competitors' compensation levels and practices, the Committee reviews data covering the industries within which the Company competes as well as general industry data. Consistent with the Company's pay-for-performance compensation philosophy and the desire to align Mr. Mackin's incentives with those of the Company's shareholders, Mr. Mackin's base salary for 2001 was set at $625,000 per annum and his target annual incentive bonus was set at 100% of his base salary. Mr. Mackin received an option grant of 60,000 shares in 2001. The Executive Performance Incentive Plan ("EIP") adopted by the Committee and the Board and approved by shareholders in 2001 sets forth a target bonus payment that can be earned by Mr. Mackin based upon achievement of one or more business criteria as designated by the Committee. For 2001, the Committee designated that the maximum funding for the CEO award be equal to 2% of positive Energy EBIT. The bonus actually earned by Mr. Mackin under the EIP was $650,000 in cash. It is anticipated that only Covanta's Chief Executive Officer will be eligible to receive awards under the EIP for the 2002 fiscal year. For 2002, the maximum bonus award that may be paid to Mr. Mackin upon Covanta's achievement of the performance goals established by the Committee shall once again be equal to 2% of Energy EBIT. The bonus actually earned by Mr. Mackin will be based upon the achievement of other business objectives at the sole discretion of the Committee. POLICY REGARDING DEDUCTIBILITY OF EXECUTIVE COMPENSATION The Company's policy regarding deductibility of executive pay in excess of $1 million is to preserve the tax deductibility of such amounts by having annual incentive bonuses and stock options for executives qualified as performance-based compensation under the IRS rules. The EIP and the Company's 1999 Stock Incentive Plan, both of which were adopted by the Committee and the Board, and approved by shareholders, constitute the largest elements of the Company's senior executives' compensation packages. The Committee acknowledges that there may be certain non-cash "imputed income" items and certain non-incentive designed plans which may cause pay to exceed $1 million in any year. This policy does not contemplate restricting the Committee from using discretionary business judgment as it determines appropriate. COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS Norman G. Einspruch--Chairman, Compensation Committee Jeffrey F. Friedman Veronica M. Hagen Homer A. Neal Robert R. Womack The graph below compares the cumulative total shareholder return on Covanta's Common Stock for the last five fiscal years with the cumulative total shareholder return on the S&P 500 Index and the S&P MidCap 400 Index over the same period, assuming the investment of $100 in Covanta Common Stock and the reinvestment of all dividends. COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN Covanta Energy Corporation, S&P 500 and S&P MidCap 400 Index [Chart here] The above graph presenting cumulative total return for the five-year period ending December 31, 2001 is included in compliance with Item 402 of Regulation S-K. It does not reflect the impact on total return of events incurring after December 31, 2001 including the Company's filing for relief under Chapter 11 of the United States Bankruptcy Code of April 1, 2002. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Covanta has been advised by Greenway Partners, L.P., FMR Corp. and Dimensional Fund Advisors, Inc. that they, along with certain members of their group or respective investment managers, are each the beneficial owner of more than 5% of Covanta's Common Stock, which shares were acquired for investment purposes for certain of their advisory clients. The following table sets forth certain information concerning the foregoing: TITLE OF NAME AND ADDRESS AMOUNT AND NATURE PERCENT CLASS OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP OF CLASS Common Greenway Partners, L.P. 5,782,900 shares (1) 11.6 277 Park Avenue, 27th Floor New York, New York 10017 Common Dimensional Fund Advisors, Inc. 2,607,201 shares (2) 5.2 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 - -------------------------------- (1) A Schedule 13D/A Report dated April 18, 2002 shows that 380,000 shares are held with sole voting power, 5,402,900 shares are held with shared voting power, 380,000 shares are held with sole dispositive power and 5,402,900 shares are held with shared dispositive power. (2) A Schedule 13G Report dated January 30, 2002 shows that 2,607,201 shares are held with sole power to vote or to direct the vote and sole power to dispose or direct the disposition thereof. SECURITY OWNERSHIP BY MANAGEMENT Information about the Common Stock beneficially owned as of March 31, 2002 by each nominee, each director, each executive officer named in the summary compensation table and all directors and executive officer of Covanta as a group is set forth as follows: NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP (1)(2) - --------------------------------------------------------------------------- Anthony J. Bolland..................................... 46,292(3) Lynde H. Coit.......................................... 109,815(4) Norman G. Einspruch.................................... 23,015(3) George L. Farr......................................... 235,886(3) Jeffrey F. Friedman.................................... 33,406(3) Veronica M. Hagen...................................... 833 Jeffrey R. Horowitz.................................... 101,868(4) Scott G. Mackin........................................ 671,000(4) Craig G. Matthews...................................... 3,975(3) Judith D. Moyers....................................... 15,486(3) Homer A. Neal.......................................... 9,607(3) Anthony J. Orlando..................................... 91,568(4) Robert E. Smith........................................ 10,280(3) Bruce W. Stone......................................... 92,517(4) Joseph A. Tato......................................... 9,525(3) Helmut F.O. Volcker.................................... 36,895(3) Robert R. Womack....................................... 14,796(3) All executive officers and directors as a group (32 persons) including those named above............. 2,221,912(5) ---------------------------------------- (1) Except as otherwise noted, each individual owns all shares directly and has sole investment and voting power with respect to all shares. No officer or director owns shares of Covanta Series A Preferred Stock. (2) The beneficial ownership of each individual is less than 1.0% of the class. (3) Includes: 19,668 shares for Mr. Bolland, 4,168 shares for Dr. Einspruch, 93,169 shares for Mr. Farr, 24,168 shares for Mr. Friedman, 1,667 shares for Mr. Matthews, 4,168 shares for Mrs. Moyers, 4,168 shares for Dr. Neal, 4,168 shares for Mr. Smith and 24,168 shares for Dr. Volcker, 6,668 shares for Mr. Womack and 6,668 shares for Mr. Tato, subject to stock options which are exercisable and restricted stock which will vest within 60 days of March 31, 2002. Also includes: 2,735 shares held in a Keogh Plan and 16,112 shares held in a revocable trust by Dr. Einspruch, 100,000 shares held by a partnership in which Mr. Farr is a partner, 12,000 shares held by Mr. Friedman in an IRA, and 100 shares held by Dr. Neal jointly with his wife over which Dr. Neal has shared voting and investment authority with his wife. (4) Includes: 100,000 shares for Mr. Coit; 95,868 shares for Mr. Horowitz; 594,000 shares for Mr. Mackin; 84,968 shares for Mr. Orlando and 54,900 shares for Mr. Stone, subject to stock options which are exercisable within 60 days of March 31, 2002. (5) This amount reflects shares subject to stock options which are exercisable and restricted stock which becomes vested within 60 days of March 31, 2002. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A loan was made by Covanta in 1989 to Lynde H. Coit, Senior Vice President of Covanta, to assist Mr. Coit in the purchase of a home in connection with his relocation. The loan is evidenced by a demand note, bearing interest at the rate of 8% per annum and is secured by a second mortgage on the premises. The maximum amount outstanding under the loan during 2001 was $156,000. As of December 31, 2001, there was an outstanding balance of $156,000. A loan was made by Covanta on December 16, 1998 to David L. Hahn, Senior Vice President, Aviation to assist Mr. Hahn in making improvements and additions to his existing home. The loan is evidenced by a promissory note bearing interest at the rate of 7% per annum. The maximum amount outstanding during 2001 under the promissory note was $369,806. As of December 31, 2001, there was an outstanding balance of $300,000 plus $69,806 of accrued interest, under the promissory note. In 1990, a loan was made by Covanta Energy to Bruce W. Stone, an Executive Officer of Covanta, for the purpose of assisting him in the purchase of his home in the amount of $99,593. The loan is evidenced by a demand note bearing interest at the rate 8% per annum. As of December 31, 2001, there was an outstanding balance of $88,888, including accrued interest. The maximum amount outstanding during 2001 is the amount outstanding on December 31, 2001. On August 6, 1999, Covanta made loans to Messrs. Mackin, Stone and Coit for the purpose of paying the exercise price and withholding taxes in connection with their exercise of Covanta stock options which were expiring on August 9, 1999. All loans were evidenced by demand notes with interest accruing thereon at the short-term applicable federal rate compounded annually. In 2001, as settlement of a dispute surrounding the circumstances under which the loans were originally granted, the Company forgave a portion of the loan and reduced the amount of the loan to the then fair market value of the stock. No interest will be payable. Upon any sale of the stock, the executive must pay the net proceeds to the Company. The Company also made a tax gross-up payment to the executives. These amounts are reflected in the Summary Compensation Table. The largest amount of indebtedness outstanding since January 1, 2001 for Messrs. Mackin, Stone and Coit was $586,608, $505,644 and $123,928, respectively, including accrued interest. As of December 31, 2001, the outstanding balances for Messrs. Mackin, Stone and Coit were $132,888, $113,904 and $28,467, respectively. Robert E. Smith, a Covanta director, is counsel to the law firm of Katten Muchin Zavis Rosenman which during 2001 rendered legal services to Covanta principally in the area of litigation management. Joseph A. Tato, a Covanta director, is a partner of the law firm of LeBoeuf, Lamb, Greene & MacRae, LLP which rendered services during 2001 to Covanta Energy Group, Inc., a Covanta subsidiary. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934 requires Covanta's directors, officers and persons who beneficially own more than 10% of any class of Covanta's equity securities to file certain reports concerning their beneficial ownership and changes in their beneficial ownership of Covanta's equity securities. Covanta believes that during fiscal 2001 all persons who are required to file reports did so. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Listed below are the documents filed as a part of this report: (1) All financial statements: see Index to financial statements, see Part II, Item 8. (2) Financial statement schedules: see Index to financial statements, see Part II, Item 8. (b) During the fourth quarter of 2001 a Form 8-K Report was filed on November 13, 2001 and on December 21, 2001, each under Item 5, Other Events, and Item 7, Financial Statements, Pro Forma Financial Information, and Exhibits, and are each incorporated herein by reference. In addition, during the first six months of 2002, a Form 8-K Report was filed on January 3, 2002, January 22, 2002, January 31, 2002, February 8, 2002, March 1, 2002, March 12, 2002, March 14, 2002, March 19, 2002 and April 2, 2002, each under Item 5, Other Events, and are each incorporated herein by reference. (c) Those exhibits required to be filed by Item 601 of Regulation S-K: EXHIBITS 3.0 Articles of Incorporation and By-laws. 3.1 (a) The Company's Restated Certificate of Incorporation as amended.* (b) Certificate of Ownership and Merger, Merging Ogden-Covanta, Inc. into Ogden Corporation, dated March 7, 2001. * 3.2 The Company's By-Laws, as amended through April 8, 1998.* 4.0 Instruments Defining Rights of Security Holders. 4.1 Fiscal Agency Agreement between Covanta and Bankers Trust Company, dated as of June 1, 1987, and Offering Memorandum dated June 12, 1987, relating to U.S. $85 million Ogden 6% Convertible Subordinated Debentures, Due 2002.* 4.2 Fiscal Agency Agreement between the Company and Bankers Trust Company, dated as of October 15, 1987, and Offering Memorandum, dated October 15, 1987, relating to U.S. $75 million Ogden 5-3/4% Convertible Subordinated Debentures, Due 2002.* 4.3 Indenture dated as of March 1, 1992 from the Company Corporation to Wells Fargo Bank Minnesota, National Association, as Trustee (as successor in such capacity to The Bank of New York, Trustee), relating to the Company's $100 million debt offering.* 10.0 Material Contracts 10.1 (a) U.S. $95 million Term Loan and Letter of Credit and Reimbursement Agreement among the Company, the Deutsche Bank AG, New York Branch and the signatory Banks thereto, dated March 26, 1997.* (b) Revolving Credit and Participation Agreement, dated as of March 14, 2001, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner.* (c) First Amendment to Revolving Credit and Participation Agreement, dated as of July 30, 2001, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner.* (d) Second Amendment to Revolving Credit and Participation Agreement, dated as of August 31, 2001, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner.* (e) Third Amendment to Revolving Credit and Participation Agreement, dated as of December 20, 2001, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(e). (f) Fourth Amendment to Revolving Credit and Participation Agreement, dated as of January 31, 2002, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(f). (g) Fifth Amendment to Revolving Credit and Participation Agreement, dated as of February 21, 2002, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(g). (h) Sixth Amendment to Revolving Credit and Participation Agreement, dated as of March 12, 2002, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(h). (i) Seventh Amendment to Revolving Credit and Participation Agreement, dated as of March 22, 2002, among the Company, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(i). (j) Debtor In Possession Credit and Participation Agreement, dated as of April 1, 2002, among the Company, the Company's U.S. Subsidiaries listed therein, the Lenders listed therein, Bank of America, NA, as Administrative Agent, Co-Arranger and Co-Book Runner and Deutsche Bank AG, New York Branch, as Documentation Agent, Co-Arranger and Co-Book Runner, transmitted herewith as Exhibit 10.1(j). (k) Security Agreement, dated as of April 1, 2002, by and among the Company, each of the other Borrowers listed on the signature pages thereof, each of the Subsidiary Guarantors listed on the signature pages thereof and each Additional Subsidiary Guarantor and Borrower that may become a party thereto after the date thereof, and Bank of America, N.A., in its capacity as administrative agent for and representative of Lenders from time to time party to the Credit Agreement, transmitted herewith as Exhibit 10.1(k). (l) First Amendment to Debtor In Possession Credit Agreement and Security Agreement, dated as of April 3, 2002, by and among the Company, the Subsidiaries of the Company listed on the signature pages thereof as Borrowers, the Subsidiaries of the Company listed on the signature pages thereof as Subsidiary Guarantors, the Lenders party thereto, Bank of America, N.A., as Administrative Agent for the Lenders, and Deutsche Bank AG, New York Branch, as Documentation Agent for the Lenders, transmitted herewith as Exhibit 10.1(l). (m) First Amendment to Intercreditor Agreement, dated as of April 1, 2002, by and among the Company, the Subsidiaries of the Company listed on the signature pages thereof as Borrowers, the Subsidiaries of the Company listed on the signature pages thereof as Subsidiary Guarantors, the financial institutions party thereto, Bank of America, N.A., as Administrative Agent for the Lenders, and Deutsche Bank AG, New York Branch, as Documentation Agent for the Lenders, transmitted herewith as Exhibit 10.1(m). (n) Subsidiary Guaranty, entered into as of April 1, 2002, by the Guarantors signatories thereto in favor of and for the benefit of Bank of America, N.A., as Administrative Agent for and representative of the Lenders from time to time party to the Credit Agreement referred to therein, transmitted herewith as Exhibit 10.1(n). 10.2 Amended and Restated Rights Agreement between the Company and the Bank of New York, dated as of September 28, 2000.* 10.3 Executive Compensation Plans and Agreements. (a) Ogden Corporation 1990 Stock Option Plan as Amended and Restated as of January 19, 1994.* (i) Amendment adopted and effective as of September 18, 1997.* (b) Ogden Corporation 1999 Stock Incentive Plan Amended and Restated as of January 1, 2000.* (c) Ogden Energy Select Plan, dated January 1, 2000 (c).* (d) (i) Ogden Corporation Restricted Stock Plan and Restricted Stock Agreement.* (ii) Ogden Corporation Restricted Stock Plan for Non-Employee Directors and Restricted Stock Agreement.* (iii) Covanta Energy Corporation Restricted Stock Unit Plan for Non-Employee Directors, as Amended and Restated on May 23, 2001, transmitted herewith as Exhibit 10.3(d)(iii). (e) Ogden Corporation Profit Sharing Plan as Amended and Restated effective as of January 1, 1995.* (f) Ogden Corporation Core Executive Benefit Program.* (g) Ogden Projects Pension Plan.* (i) Covanta Energy Pension Plan, as amended and restated and effective January 1, 2001, transmitted herewith as Exhibit 10.3(g)(i). (h) Ogden Projects Profit Sharing Plan.* (i) Covanta Energy Profit Sharing Plan, as amended and restated December 18, 2001 and effective January 1, 1998, transmitted herewith as Exhibit 10.3(h)(i). (i) Ogden Projects Supplemental Pension and Profit Sharing Plans.* (j) Ogden Projects Core Executive Benefit Program.* (k) (i) Form of Amended Ogden Projects, Inc. Profit Sharing Plan, effective as of January 1, 1994.* (ii) Form of Amended Ogden Projects, Inc. Pension Plan, effective as of January 1, 1994.* (l) Ogden Executive Performance Incentive Plan.* (m) Ogden Key Management Incentive Plan.* 10.4 Employment Agreements (a) Employment Agreement between the Company and Lynde H. Coit dated March 1, 1999.* (i) Amendment to Employment Agreement between Covanta Energy Corporation and Lynde H. Coit dated November 26, 2001, transmitted herewith as Exhibit 10.4(a)(i). (ii) Supplemental Agreement to Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Lynde H. Coit dated November 26, 2001, transmitted herewith as Exhibit 10.4(a)(ii). (iii) Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Lynde H. Coit dated November 26, 2001, transmitted herewith as Exhibit 10.4(a)(iii). (b) Employment Agreement between Scott G. Mackin, Executive Vice President and the Company dated as of October 1, 1998.* (i) Amendment to Employment Agreement between Covanta Energy Corporation and Scott G. Mackin dated November 26, 2001, transmitted herewith as Exhibit 10.4(b)(i). (ii) Supplemental Agreement to Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Scott G. Mackin dated November 26, 2001, transmitted herewith as Exhibit 10.4(b)(ii). (iii) Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Scott G. Mackin dated November 26, 2001, transmitted herewith as Exhibit 10.4(b)(iii). (c) Employment Agreement between Jeffrey R. Horowitz and Covanta Energy Group, Inc., dated May 1, 1999.* (d) Employment Agreement between Paul B. Clements and Covanta Energy Group, Inc., dated May 1, 1999.* (e) Employment Agreement between Covanta Energy Group, Inc. and Bruce W. Stone dated May 1, 1999.* (i) Supplemental Agreement to Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Bruce W. Stone dated November 26, 2001, transmitted herewith as Exhibit 10.4(e)(i). (ii) Consolidated Amended and Restated Demand Note between Covanta Energy Corporation and Bruce W. Stone dated November 26, 2001, transmitted herewith as Exhibit 10.4(e)(ii). (f) Employment Agreement between the Company and Raymond E. Dombrowski, Jr., Senior Vice President and Chief Financial Officer, dated as of September 21, 1998.* (g) Employment Agreement between Anthony J. Orlando and Covanta Energy Group, Inc., dated May 1, 1999 transmitted herewith as Exhibit 10.4(g). 11 Not Applicable. 12 Not Applicable. 13 Not Applicable. 16 Not Applicable. 18 Not Applicable. 21 Subsidiaries of Covanta, transmitted herewith as Exhibit 21. 22 Not Applicable. 23 Independent Auditors Consent, transmitted herewith as Exhibit 23. 24 Not Applicable. * INCORPORATED BY REFERENCE AS SET FORTH IN THE EXHIBIT INDEX OF THIS ANNUAL REPORT ON FORM 10-K. SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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. COVANTA ENERGY CORPORATION DATE: July 17, 2002 By /s/ Scott G. Mackin ------------------------ Scott G. Mackin President and Chief Executive Officer KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints jointly and severally, Scott G. Mackin and William J. Keneally, or either of them as his or her true and lawful attorneys-in-fact and agents, will full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Report to Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, each of the undersigned has executed this Power of Attorney as of the date indicated. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated. SIGNATURE TITLE DATE /s/ Scott G. Mackin - ------------------------------- SCOTT G. MACKIN President, Chief Executive July 17, 2002 Officer and Director /s/ William J. Keneally - ------------------------------- WILLIAM J. KENEALLY Senior Vice President, July 17, 2002 Chief Accounting Officer /s/ Anthony J. Bolland - ------------------------------- ANTHONY J. BOLLAND Director July 17, 2002 /s/ Norman G. Einspruch - ------------------------------- NORMAN G. EINSPRUCH Director July 17, 2002 /s/ George L. Farr - ------------------------------- GEORGE L. FARR Director July 17, 2002 /s/ Jeffrey F. Friedman - ------------------------------- JEFFREY F. FRIEDMAN Director July 17, 2002 /s/ Veronica M. Hagen - ------------------------------- VERONICA M. HAGEN Director July 17, 2002 /s/ Craig G. Matthews - ------------------------------- CRAIG G. MATTHEWS Director July 17, 2002 /s/ Homer A. Neal - ------------------------------- HOMER A. NEAL Director July 17, 2002 /s/ Robert E. Smith - ------------------------------- ROBERT E. SMITH Director July 17, 2002 /s/ Joseph A. Tato - ------------------------------- JOSEPH A. TATO Director July 17, 2002 /s/ Helmut F.O. Volcker - ------------------------------- HELMUT F.O. VOLCKER Director July 17, 2002 /s/ Robert R. Womack - ------------------------------- ROBERT R. WOMACK Director July 17, 2002 EX-10.1E 3 covex10-1e_718.txt EXHIBIT 10.1(e) --------------- THIRD AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT This THIRD AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT (this "Third Amendment") is dated as of December 20, 2001 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), the Loan Parties listed on the signature pages hereof, the financial institutions parties hereto (each a "Lender" and collectively, the "Lenders"), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Revolving Credit and Participation Agreement dated as of March 14, 2001 (as amended, restated, supplemented or otherwise modified as of the date hereof, the "Credit Agreement"), by and among Borrowers, the Lenders listed therein as Lenders, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to (i) change the "Cumulative Allowable Cash Usage" set forth in the Monthly Budget for December 2001 and January 2002; (ii) require Borrowers to deliver to the Lenders a weekly budget through January 31, 2002; (iii) change the maximum Consolidated Leverage Ratio through January 2002; and (iv) make certain other amendments as set forth below; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Provisions Relating to Defined Terms. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "Budget Period" means December 15, 2001 through January 31, 2002. "Operational Expenditure Variance Allowance" means $1,000,000. "Third Amendment" means that certain Third Amendment to Revolving Credit and Participation Agreement dated as of December 20, 2001 by and among Borrowers, the Subsidiary Guarantors and the Lenders and Agents party thereto. "Third Amendment Effective Date" has the meaning assigned to that term in Section 4.8 of the Third Amendment. "Weekly Budget" means the consolidated cash forecast annexed hereto as Schedule 6.19 with respect to each week commencing during the Budget Period, with items corresponding to those in the 13-Week Rolling Forecast and setting forth a "minimum cash balance" for each such week. 1.2 Provision Relating to Revolving Loans. Subsection 2.2A of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of clause (i) of the last sentence thereof, (ii) deleting the "." at the end of clause (ii) of the last sentence thereof and substituting therefor "; and", and (iii) adding the following new clause (iii) at the end of the last sentence thereof: "(iii) In no event shall any Revolving Lender be obligated to make a Revolving Loan on any Funding Date (other than Revolving Loans made pursuant to subsection 3.3B) unless Revolving Lenders having or holding 80% or more of the aggregate Revolving Loan Exposure shall have consented, in connection with the delivery by Borrowers of the relevant Notice of Borrowing, to the borrowing of Revolving Loans proposed to be made by Borrowers on such Funding Date." 1.3 Provisions Relating to Fees. Section 2 of the Credit Agreement is hereby further amended by renumbering subsection 2.5H thereof as subsection 2.5I and adding immediately after subsection 2.5G thereof the following new subsection 2.5H: "H. Third Amendment Fees. Borrowers agree to pay to Administrative Agent, for distribution to each Lender that has executed and delivered a counterpart of the Third Amendment prior to 3:00 p.m. (New York City time) on December 21, 2001, an amendment fee equal to 0.125% of the sum of such Lender's Pooled Facility Exposure, Revolving Loan Exposure and Opt-Out Facility Exposure, in each case calculated as of the Third Amendment Effective Date. Such fee shall be earned by each such Lender on the Third Amendment Effective Date and shall be payable on the Maturity Date.". 1.4 Provisions Relating to Additional Collateral. Section 6 of the Credit Agreement is hereby amended by adding the following new subsections 6.17 and 6.18 at the end thereof: "6.17 Additional Collateral. Borrowers shall (a) cooperate and use reasonable best efforts with Agents in identifying unencumbered assets and (b) make all filings and take all other actions necessary or desirable, or that Administrative Agent may reasonably request, to create a valid and perfected First Priority Lien on such assets. 6.18 Repatriation of Foreign Cash. Borrowers shall (i) use reasonable best efforts to repatriate to the Cash Collateral Account all cash maintained in foreign jurisdictions (except to the extent that such repatriation would constitute a material violation of (a) a valid and enforceable Contractual Obligation in favor of or for the benefit of a Person other than Company or any of its Subsidiaries and their respective Affiliates for which the required consents have not been obtained or (b) applicable law affecting the relevant Subsidiary of Company) no later than January 25, 2002, and (ii) as soon as practicable and in any event no later than January 15, 2002, provide Lenders with an analysis with respect to the tax consequences of such repatriation in form and substance satisfactory to the Agents, their counsel and Ernst & Young Corporate Finance LLC.". 1.5 Provision Relating to Indebtedness. Subsection 7.1 of the Credit Agreement is hereby amended by adding the following paragraph at the end thereof: "Notwithstanding anything to the contrary contained herein, Borrowers shall not incur any Indebtedness for borrowed money (other than intercompany Indebtedness among Borrowers and their Subsidiaries otherwise permitted under subsection 7.1) during the period from the Third Amendment Effective Date to and including January 31, 2002.". 1.6 Provision Relating to Leverage Ratio Covenant. Subsection 7.6B of the Credit Agreement is hereby amended by (i) deleting from the table contained therein the reference to "Fiscal Quarter ending December 31, 2001" and substituting therefor "October 1, 2001 to December 15, 2001", (ii) deleting from the table contained therein the reference to "Fiscal Quarter ending March 31, 2002" and substituting therefor "February 1, 2002 through March 31, 2002", and (iii) inserting in such table, immediately prior to the row amended pursuant to the preceding clause (ii), the following new row: "December 15, 2001 through January 31, 2002 3.33:1.00". 1.7 Provision Relating to Monthly Budget Covenant. Subsection 7.8C of the Credit Agreement is hereby amended by inserting the following phrase immediately prior to the ";" at the beginning of the proviso contained therein: ", it being understood that compliance with this subsection 7.8C, with respect to whether cash expenditures made or to be made on any day during a month covered by the Monthly Budget cause net cash usage to exceed the relevant "Cumulative Allowable Cash Usage" amount for such month, shall be calculated and determined on and as of each day during such month". 1.8 Provision Relating to the Weekly Budget. Section 7 of the Credit Agreement is hereby amended by adding the following new subsection 7.16 at the end thereof: "7.16 Compliance with Weekly Budget. A. Borrowers and their Subsidiaries shall not: (a) make cash expenditures in any week (and shall not withdraw amounts from the Cash Collateral Account to make cash expenditures) of the type which would be classified (consistent with Company's prior reporting to the Lenders) under any of the line items "Principal Paydowns of Recourse Debt", "Ottawa" "Taxes" or "IPP Identified" in the Weekly Budget if such expenditures made after December 14, 2001 would cause cumulative expenditures for the Budget Period through such week which would be classified (consistent with Company's prior reporting to the Lenders) under any such line item to exceed the corresponding cumulative amounts set forth for such week in the Weekly Budget; (b) make cash expenditures in any week (and shall not withdraw amounts from the Cash Collateral Account to make cash expenditures) of the type which would be classified (consistent with Company's prior reporting to the Lenders) under the line items "Professional Fees and Other" or "Existing Facilities (maint. and environ.)" or under any of the disbursement-related line items under the heading "Energy Operations", if such expenditures made after December 14, 2001 would cause cumulative expenditures for the Budget Period through such week which would be classified (consistent with Company's prior reporting to the Lenders) under such line items to exceed the sum of (x) the corresponding cumulative total amount with respect to all such line items set forth for such week in the Weekly Budget and (y) the Operational Expenditure Variance Allowance; (c) make cash expenditures in any week (and shall not withdraw amounts from the Cash Collateral Account to make cash expenditures) if such expenditures made after December 14, 2001 would cause cumulative expenditures for the Budget Period through such week (not including (x) expenditures which would be classified (consistent with Company's prior reporting to the Lenders) under the line items subject to the restrictions of clause (a) or (b) of this subsection and (y) expenditures which would be classified (consistent with Company's prior reporting to the Lenders) under the line item "Net Anaheim" in the Weekly Budget) to exceed the corresponding cumulative amount of all such expenditures set forth for such week in the Weekly Budget; (d) on or after December 14, 2001, make cash expenditures with respect to any item of a type which would not be classified (consistent with Company's prior reporting to the Lenders) under any of the line items reflected in the Weekly Budget, notwithstanding any other more permissive provision of this Agreement; or (e) permit the actual cash balance in the Cash Collateral Account as of any day during a week covered by the Weekly Budget to be less than the "minimum cash balance" amount set forth for such week in the Weekly Budget. B. Borrowers shall deliver to Agents, on December 26, 2001 and December 31, 2001 (in each case prior to withdrawals, if any, from the Cash Collateral Account on each such date), an Officer's Certificate, in form reasonably satisfactory to Agents, containing a certification by the relevant officer and Borrowers that they believe that the projected receipts and expenditures in the Weekly Budget (and the estimates and assumptions which formed the basis for such projections) for the period from the date of delivery of such certificate to the end of the Budget Period are reasonable as of such date. C. Notwithstanding anything contained in subsection 6.1(ii) to the contrary, Borrowers shall not be required to prepare and deliver the items described in such subsection to the extent such items would otherwise be required to be delivered during the period from the Third Amendment Effective Date through January 31, 2002.". 1.9 Provision Relating to Amendments. Section 10 of the Credit Agreement is hereby amended by adding at the end thereof the following new subsection 10.26: "10.26 Amendments to Subsection 2.2A. No amendment, modification, termination or waiver of any provision of this Agreement which would have the effect of (i) obligating a Revolving Lender to make Revolving Loans (other than pursuant to subsection 3.3B) on a Funding Date with the concurrence of Revolving Lenders having or holding less than 80% of the aggregate Revolving Loan Exposure or (ii) changing in any manner this subsection 10.26, shall in any event be effective without the written concurrence of Revolving Lenders having or holding 80% or more of the aggregate Revolving Loan Exposure.". 1.10 Provisions Relating to Schedules. A. Schedule 1.1(e). Schedule 1.1(e) of the Credit Agreement is hereby amended by deleting the references to "$230,000,000" and "$201,000,000" under "Cumulative Allowable Cash Usage" set forth in the Monthly Budget for December 2001 and January 2002, respectively, and substituting therefor "$241,965,000" and "$241,965,000", respectively. B. Schedule 6.19. The Credit Agreement is hereby amended by adding thereto a new Schedule 6.19, in the form attached hereto as Annex A. SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Third Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 2.1 Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Third Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Third Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this Third Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower. 2.3 No Conflict. The execution and delivery by each Loan Party of this Third Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Certificate or Articles of Incorporation or Certificate of Formation or Bylaws or Operating Agreement of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, credit agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent or Collateral Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Third Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 2.5 Binding Obligation. This Third Amendment has been duly executed and delivered by each Loan Party, and each of this Third Amendment and the Amended Agreement is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 2.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Third Amendment Effective Date (as hereinafter defined) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 2.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Default or Event of Default under the Credit Agreement. SECTION 3. ACKNOWLEDGEMENT AND CONSENT 3.1 Loan Party Acknowledgements. Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Third Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Third Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. 3.2 Borrower Acknowledgements. Borrowers hereby acknowledge that they have determined, in their business judgment, to explore various possible alternatives for raising and maintaining liquidity, including but not limited to sales of certain Projects or businesses of Borrowers, sales of equity in Company or certain of its Subsidiaries, and other restructuring options. Borrowers hereby further acknowledge (i) that their determination to explore such possible alternatives is a material inducement for each Agent's and each Lender's decision to enter into this Third Amendment, and that the cash permitted to be withdrawn by Borrowers from the Cash Collateral Account or applied from the Cash Management System as a result of this Third Amendment will permit Borrowers to continue to meet their interim cash needs and will accommodate Borrowers' efforts to explore such alternatives, and (ii) that they intend to continue to diligently explore such alternatives. SECTION 4. MISCELLANEOUS 4.1 Covenants. Company hereby covenants and agrees that it shall continue to regularly inform Agents and Lenders (and provide reasonable access to its officers and such of its advisors and consultants as Agents may reasonably request so as to keep the Agents and Lenders informed) on its progress with respect to each of its alternatives for raising and maintaining liquidity and shall continue to promptly provide such financial information, financial projections and other documents and information as Agents may reasonably request from time to time with respect to such alternatives and Company's progress with respect thereto. 4.2 Mutual Acknowledgement. Borrowers and Lenders hereby acknowledge that the amounts reserved in the Cash Collateral Account for the Balaji and Haripur Projects as of the Closing Date minus the amounts applied to make Investments in such Projects pursuant to subsection 7.3(vi) of the Credit Agreement equals zero. 4.3 Release. Each Borrower and Subsidiary Guarantor, on behalf of itself, and each of its Subsidiaries (collectively, the "Releasors") hereby releases, remises, acquits and forever discharges Agents, each Lender (in its capacity as a Lender hereunder and as a lender, collateral agent, depository or letter of credit issuer and in any other capacity under or in connection with any Pooled Facility or Opt-Out Facility), each Existing Opt-Out Facility Agent and each Existing Pooled Facility Agent and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Third Amendment or the Amended Agreement (all of the foregoing hereinafter called the "Released Matters"). Each Releasor acknowledges that the agreements in this Section are intended to be in full satisfaction of all or any alleged injuries or damages suffered or incurred by such Releasor arising in connection with the Released Matters and constitute a complete waiver of any right of setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the date hereof to payment or performance of the Obligations and/or Opt-Out Obligations. Each Releasor represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the date hereof would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Each Releasor represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters. Releasors have granted this release freely, and voluntarily and without duress. 4.4 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Third Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. B. Except as specifically amended by this Third Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Third Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. D. Company agrees that any failure to comply with the covenants in this Third Amendment shall be an Event of Default under the Credit Agreement. 4.5 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Third Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 4.6 Headings. Section and subsection headings in this Third Amendment are included herein for convenience of reference only and shall not constitute a part of this Third Amendment for any other purpose or be given any substantive effect. 4.7 Applicable Law. THIS THIRD AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 4.8 Counterparts; Effectiveness. This Third Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Third Amendment shall become effective upon (i) the execution of a counterpart hereof by each Borrower, each Subsidiary Guarantor and Lenders constituting Requisite Lenders, (ii) receipt by each Borrower, Administrative Agent and Documentation Agent of written or telephonic notification of such execution and authorization of delivery thereof, and (iii) payment in full by Borrowers of all outstanding statements of O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC and all outstanding statements for reasonable fees, expenses and disbursements of counsel to each of the Lenders that are, in each case, received by Company prior to the date hereof (the date of satisfaction of such conditions being referred to herein as the "Third Amendment Effective Date"). [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Scott G. Mackin ------------------------------------------- Name: Title: Each of the entities named on Schedule A annexed hereto, as Borrowers By: /s/ Scott G. Mackin ------------------------------------------- Name: Title: Each of the entities named on Schedule B annexed hereto, as Subsidiary Guarantors By: /s/ Scott G. Mackin ------------------------------------------- Name: Title: Each of the entities named on Schedule C annexed hereto, as Subsidiary Guarantors By: /s/ Scott G. Mackin ------------------------------------------- Name: Title: AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Michael R. Heredia -------------------------------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH As Documentation Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Keith C. Braun -------------------------------------------- Name: Title: By: /s/ Clark G. Peterson -------------------------------------------- Name: Title: ABN AMRO BANK N.V., as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: BANK OF MONTREAL, as a Lender By: /s/ Heather Turf --------------------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI (CANADA), as a Lender By: --------------------------------------------- Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ John W. Sweeney --------------------------------------------- Name: Title: By: /s/ Michael Novellino --------------------------------------------- Name: Title: BNP PARIBAS, as a Lender By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: BRYDEN MANAGEMENT CORPORATION IV, as a Lender By: --------------------------------------------- Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender By: /s/ Rocco Calarco --------------------------------------------- Name: Title: By: /s/ D. C. Smith --------------------------------------------- Name: Title: CLARICA LIFE INSURANCE COMPANY, as a Lender By: /s/ Sara M. Alvarado --------------------------------------------- Name: Title: COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES as a Lender By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: CREDIT LYONNAIS CANADA, as a Lender By: --------------------------------------------- Name: Title: By: --------------------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: /s/ James B. Hallock ------------------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Jan Kofol --------------------------------------------- Name: Title: By: /s/ Sharon M. Meadows -------------------------------------------- Name: Title: DRESDNER BANK AG, GRAND CAYMAN BRANCH as a Lender By: /s/ Thomas R. Brady --------------------------------------------- Name: Title: By: /s/ Brian Smith --------------------------------------------- Name: Title: DRESDNER BANK CANADA, as a Lender By: /s/ David Brandt --------------------------------------------- Name: Title: By: /s/ Jane Elliot-Boyd --------------------------------------------- Name: Title: FIRST UNION NATIONAL BANK, as a Lender By: /s/ John Kipping --------------------------------------------- Name: Title: FLEET NATIONAL BANK, as a Lender By: /s/ Michael F. O'Neill --------------------------------------------- Name: Title: HSBC BANK CANADA, as a Lender By: /s/ B. W. Pettit --------------------------------------------- Name: Title: By: /s/ --------------------------------------------- Name: Title: HSBC BANK USA, as a Lender By: /s/ Carol A. Kraus --------------------------------------------- Name: Title: IIB BANK [IFSC BRANCH], as a Lender By: /s/ Siobhan Lynch -------------------------------------------- Name: Title: By: /s/ Paul Naessens -------------------------------------------- Name: Title: KBC BANK N.V., as a Lender By: /s/ Robert Snauffer ------------------------------------------- Name: Title: By: /s/ S. Kurtz Barkley ------------------------------------------- Name: Title: LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ------------------------------------------- Name: Title: By: ------------------------------------------- Name: Title: NATIONAL WESTMINSTER BANK PLC, New York and/or Nassau Branch as a Lender By: /s/ Graeme Hunter ------------------------------------------- Name: Title: ROYAL BANK OF SCOTLAND PLC, as a Lender By: /s/ Graeme Hunter ------------------------------------------- Name: Title: S.C. STORMONT CORPORATION as a Lender By: --------------------------------------------- Name: Title: SANPAOLO IMI S.p.A., as a Lender By: /s/ Carlo Persico -------------------------------------------- Name: Title: By: /s/ Robert Wurster -------------------------------------------- Name: Title: SOCIETE GENERALE, as a Lender By: /s/ Gordon R. Eadon -------------------------------------------- Name: Title: SUNTRUST BANK, as a Lender By: -------------------------------------------- Name: Title: THE BANK OF NEW YORK, as a Lender By: -------------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Joseph J. Farricielli, Jr. --------------------------------------------- Name: Title: JPMORGAN CHASE BANK (formerly The Chase Manhattan Bank), as a Lender By: /s/ Michael Lancia -------------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED, Los Angeles Agency as a Lender By: -------------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED NEW YORK BRANCH, as a Lender By: -------------------------------------------- Name: Title: THE FUJI BANK, LIMITED, as a Lender By: -------------------------------------------- Name: Title: THE HUNTINGTON NATIONAL BANK, as a Lender By: /s/ Thomas P. Krumel --------------------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: -------------------------------------------- Name: Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH as a Lender By: -------------------------------------------- Name: Title: SUMITOMO MITSUI BANKING CORPORATION OF CANADA, as a Lender By: -------------------------------------------- Name: Title: THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By: -------------------------------------------- Name: Title: THE TOKAI BANK, LIMITED - NEW YORK BRANCH, as a Lender By: -------------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Lender By: /s/ Mark A. Baird -------------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Lender By: -------------------------------------------- Name: Title: UBS AG, as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: /s/ Alan R. Milster --------------------------------------------- Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, as a Lender By: /s/ Salvatore Battinetti -------------------------------------------- Name: Title: By: /s/ Walter T. Duffy III -------------------------------------------- Name: Title: Schedule A OTHER BORROWERS 1. Covanta Acquisition, Inc. 2. Covanta Bessemer, Inc. 3. Covanta Cunningham Environmental Support, Inc. 4. Covanta Geothermal Operations Holdings, Inc. 5. Covanta Imperial Power Services, Inc. 6. Covanta Oahu Waste Energy Recovery, Inc. 7. Covanta Energy Americas, Inc. 8. Covanta Energy Construction, Inc. 9. Covanta Energy Group, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy West, Inc. 13. Covanta Energy International, Inc. 14. Covanta Energy Services, Inc. 15. Covanta Equity of Stanislaus, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations, Inc. 18. Covanta Haverhill Properties, Inc. 19. Covanta Hydro Energy, Inc. 20. Covanta Hydro Operations West, Inc. 21. Covanta Haverhill, Inc. 22. Covanta Huntington Resource Recovery One Corp. 23. Covanta Huntington Resource Recovery Seven Corp. 24. Covanta Long Island, Inc. 25. Covanta Oil & Gas, Inc. 26. Covanta Omega Lease, Inc. 27. Covanta Onondaga Five Corp. 28. Covanta Onondaga Four Corp. 29. Covanta Onondaga Three Corp. 30. Covanta Onondaga Two Corp. 31. Covanta Onondaga, Inc. 32. Covanta Onondaga Operations, Inc. 33. Covanta OPWH, Inc. 34. Covanta Power Development, Inc. 35. Covanta Power Development of Bolivia, Inc. 36. Covanta Power Equity Corporation 37. Covanta Power International Holdings, Inc. 38. Covanta Projects, Inc. 39. Covanta RRS Holdings Inc. 40. Covanta SIGC Geothermal Operations, Inc. 41. Covanta Stanislaus, Inc. 42. Covanta Systems, Inc. 43. Covanta Waste Solutions, Inc. 44. Covanta Waste to Energy of Italy, Inc. 45. Covanta Waste to Energy, Inc. 46. Covanta Secure Services USA, Inc. 47. Covanta Secure Services, Inc. 48. Covanta Water Holdings, Inc. 49. Covanta Water Systems, Inc. 50. Covanta Water Treatment Services, Inc. 51. DSS Environmental, Inc. 52. Haverhill Power, Inc. 53. Honolulu Resource Recovery Venture 54. LMI, Inc. 55. Michigan Waste Energy, Inc. 56. New Martinsville Hydro-Operations Corporation 57. OFS Equity of Alexandria/Arlington, Inc. 58. OFS Equity of Babylon, Inc. 59. OFS Equity of Delaware, Inc. 60. OFS Equity of Huntington, Inc. 61. OFS Equity of Indianapolis, Inc. 62. OFS Equity of Stanislaus, Inc. 63. Ogden Engineering Services, Inc. 64. Ogden Environmental & Energy Services Co., Inc. 65. Ogden Hydro Operations, Inc. 66. Ogden Management Services, Inc. 67. Ogden Marion Land Corp. 68. Ogden Martin Operations of Union LLC 69. Ogden Martin Systems of Alexandria/Arlington, Inc. 70. Ogden Martin Systems of Bristol, Inc. 71. Ogden Martin Systems of Fairfax, Inc. 72. Ogden Martin Systems of Hillsborough, Inc. 73. Ogden Martin Systems of Huntsville, Inc. 74. Ogden Martin Systems of Kent, Inc. 75. Ogden Martin Systems of Lancaster, Inc. 76. Ogden Martin Systems of Lee, Inc. 77. Ogden Martin Systems of Marion, Inc. 78. Ogden Martin Systems of Montgomery, Inc. 79. Ogden Martin Systems of Northwest Puerto Rico, Inc. 80. Ogden Martin Systems of Pasco, Inc. 81. Ogden Plant Services of New Jersey, Inc. 82. Ogden Projects of Hawaii, Inc. 83. Ogden Services Corp. 84. Ogden Wallingford Associates, Inc. 85. Ogden Water Systems of Key Largo, Inc. 86. Ogden Water Systems of Tampa Bay, Inc. 87. OMS Equity of Alexandria/Arlington, Inc. 88. OPI Quezon Inc. 89. OPW Associates, Inc. 90. Resource Recovery Systems of Connecticut, Inc. 91. Three Mountain Operations, Inc. Schedule B Kansas City International Fueling Facilities Corporation LaGuardia Fuel Facilities Corporation Lambert Field Fueling Facilities Corporation Lenzar Electro-Optics, Inc. Love Field Fueling Facilities Corporation Newark Automotive Fuel Facilities Corporation Ogden Allied Maintenance Corporation Ogden Allied Maintenance Securities, Inc. Ogden Allied Payroll Services, Inc. Ogden Attractions, Inc. Ogden Aviation Distributing Corporation Ogden Aviation Fueling Company of Houston, Inc. Ogden Aviation Fueling Company of St. Louis, Inc. Ogden Aviation Fueling Company of Texas, Inc. Ogden Aviation Fueling Company of Virginia, Inc. Ogden Aviation Fueling Company, Inc. Ogden Aviation Service Company of Colorado, Inc. Ogden Aviation Service Company of Kansas City, Inc. Ogden Aviation Service Company of New Jersey, Inc. Ogden Aviation Service Company of New York, Inc. Ogden Aviation Service Company of Pennsylvania, Inc. Ogden Aviation Service International Corporation Ogden Aviation Services of Puerto Rico, Inc. Ogden Aviation Services, Inc. Ogden Aviation, Inc. Ogden Cargo Spain, Inc. (Delaware Corporation) Ogden Central and South America, Inc. Ogden Facility Holdings Incorporated Ogden Film and Theatre, Inc. Ogden Firehole Entertainment Corp. Ogden International Europe, Inc. Ogden New York Services, Inc. Philadelphia Fuel Facilities Corporation Ogden Film and Theater, Inc. Schedule C J.R. Jack's Construction Corporation Ogden Constructors, Inc. Covanta Huntington, Inc. ANNEX A EX-10.1F 4 covex10-1f_718.txt EXHIBIT 10.1(f) --------------- FOURTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT This FOURTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT (this "Fourth Amendment") is dated as of January 31, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), the Loan Parties listed on the signature pages hereof, the financial institutions parties hereto (each a "Lender" and collectively, the "Lenders"), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Revolving Credit and Participation Agreement dated as of March 14, 2001 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), by and among Borrowers, the Lenders listed therein as Lenders, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to (i) change the "Cumulative Allowable Cash Usage" set forth in the Monthly Budget for certain months; (ii) permit certain changes with respect to the Contractual Obligations relating to the Tampa Bay Water Systems Project and the GECC Credit Facilities; (iii) require Borrowers to deliver to the Lenders a weekly budget through March 31, 2002; (iv) change the maximum Consolidated Leverage Ratio for certain periods; and (v) make certain other amendments as set forth below; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Provisions Relating to Defined Terms. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the definitions of "Budget Period", "Operational Expenditure Variance Allowance" and "Weekly Budget" contained therein and inserting the following new definitions in the appropriate alphabetical order: "Budget Period" means (i) with respect to any calculation determining compliance with subsection 7.16 on or prior to January 31, 2002, the period from December 15, 2001 through January 31, 2002, and (ii) with respect to any calculation determining compliance with subsection 7.16 after January 31, 2002, the period from February 1, 2002 through March 31, 2002. "Collateral Accounts" means (i) the Cash Collateral Account, (ii) the concentration account maintained with BofA in the Cash Management System and (iii) the primary operating accounts maintained with BofA for Covanta Energy Group, Covanta Power, Covanta Holdings and Covanta Water Systems, Inc.; provided, that Collateral Accounts shall in no event include (x) any foreign accounts or (y) any debt service reserve accounts or cash collateral accounts established to make payments of Limited Recourse Debt. "Covanta Tampa Bay" means Covanta Tampa Bay, Inc., a Florida corporation, and any successor thereto. "Fourth Amendment" means that certain Fourth Amendment to Revolving Credit and Participation Agreement dated as of January 31, 2002 by and among Borrowers, the Subsidiary Guarantors and the Lenders and Agents party thereto. "Fourth Amendment Effective Date" has the meaning assigned to that term in Section 4.8 of the Fourth Amendment. "New Covanta TB Sub" means a wholly owned, indirect Subsidiary of Company to be formed after the Fourth Amendment Effective Date to assume the rights and obligations of Covanta Tampa Bay under the Tampa Bay EPC Contract and the "Subcontracts" (as defined in the Tampa Bay Water Project Amendment). "Operational Expenditure Variance Allowance" means (i) with respect to any calculation determining compliance with subsection 7.16 on or prior to January 31, 2002, $1,000,000, and (ii) with respect to any calculation determining compliance with subsection 7.16 after January 31, 2002, $0. "Tampa Bay Developer" means Tampa Bay Desal, LLC, a Delaware limited liability company. "Tampa Bay EPC Contract" means that certain Turnkey Engineering, Procurement and Construction Contract dated as of December 17, 2000 by and between Tampa Bay Developer and Covanta Tampa Bay, as in effect on the Fourth Amendment Effective Date and as it may thereafter be amended, supplemented or otherwise modified from time to time. "Tampa Bay O&M Contract" means the Operation, Maintenance, Repair and Replacement Agreement dated as of January 23, 2001, entered into by Covanta Tampa Bay relating to the seawater desalination plant for Tampa Bay Water, a regional water supply authority, as such agreement may be amended, supplemented or otherwise modified as permitted hereunder. "Tampa Bay Water Project Amendment" means that certain Third Amendment to Turnkey Engineering, Procurement and Construction Contract dated as of January 17, 2002 by and between Tampa Bay Developer and Covanta Tampa Bay, in the form delivered to the Agents on or prior to January 25, 2002 (except that such amendment shall be modified (i) so as not to require any amendment to the Organizational Documents of Covanta Tampa Bay, (ii) to permit Covanta Tampa Bay to remain a Borrower under this Agreement, a grantor under the relevant Collateral Documents and a guarantor under the Opt-Out Facility Guaranties and (iii) to permit New Covanta TB Sub to assume the Tampa Bay EPC Contract from Covanta Tampa Bay) and as it may be amended, supplemented or otherwise modified with the approval of Agents. "Weekly Budget" means (i) with respect to any calculation determining compliance with subsection 7.16 on or prior to January 31, 2002, the consolidated cash forecast annexed hereto as Schedule 6.19 with respect to each week commencing during the relevant Budget Period, (ii) with respect to any calculation determining compliance with subsection 7.16 after January 31, 2002, the consolidated cash forecast annexed hereto as Schedule 6.20 with respect to each week commencing during the relevant Budget Period. The Weekly Budget shall contain, in each case, items corresponding to those in the 13-Week Rolling Forecast and shall set forth a "minimum cash balance" for each such week. 1.2 Provision Relating to Representations and Warranties. Section 5 of the Credit Agreement is hereby amended by adding at the end thereof the following new subsection 5.22: "5.22 Tampa Bay Water Systems Project. On and after the Fourth Amendment Effective Date and after giving effect to the Tampa Bay Water Project Amendment, Administrative Agent shall have a valid and perfected First Priority Lien on all right, title and interest of Company and its Subsidiaries in and to the Tampa Bay O&M Contract. None of Company, Covanta Tampa Bay nor any of their respective Subsidiaries expects to receive or is entitled to receive aggregate net revenue (considering expenditures and revenue) pursuant to the Tampa Bay EPC Contract at any time after the Fourth Amendment Effective Date. The unaudited balance sheet of Covanta Tampa Bay and its Subsidiaries as at January 31, 2002 delivered to the Agents prior to the Fourth Amendment Effective Date (which shall be in form reasonably acceptable to Agents) fairly presents the financial position of Covanta Tampa Bay and its Subsidiaries as of such date." 1.3 Provision Relating to Indebtedness. Subsection 7.1 of the Credit Agreement is hereby amended by deleting the reference to "January 31, 2002" contained in the last paragraph of such subsection and substituting therefor "March 31, 2002". 1.4 Provision Relating to Leverage Ratio Covenant. A. Subsection 7.6B of the Credit Agreement is hereby amended by (i) deleting from the table contained therein the reference to "February 1, 2001 through March 31, 2002" and substituting therefor "March 1, 2002 through March 31, 2002" and (ii) inserting in such table, immediately prior to the row amended pursuant to the preceding clause (i), the following new row: "February 1, 2002 through February 28, 2002 3.30:1.00". B. The parties hereto hereby agree that on February 28, 2002, so long as (i) no Event of Default or Potential Event of Default shall have occurred and be continuing and (ii) the actual cash balance in the Collateral Accounts as of such date equals or exceeds $30,000,000, subsection 7.6B of the Credit Agreement shall be hereby further amended by deleting the reference to "2.00:1.00" in the row containing the reference to "March 1, 2002 through March 31, 2002" and substituting therefor "3.30:1.00". 1.5 Provision Relating to Investments. Subsection 7.3 of the Credit Agreement is hereby amended by (i) deleting the word "and" after clause (xv) thereof, (ii) deleting the "." at the end of clause (xvi) and substituting therefor "; and", and (iii) adding the following new clause (xvii) at the end thereof: "(xvii) After the Fourth Amendment Effective Date, Company and its Subsidiaries may (i) form New Covanta TB Sub, so long as (a) the equity interests of New Covanta TB Sub shall be pledged as Collateral under the Collateral Documents and (b) at all times after Covanta Tampa Bay shall have consummated the assignment described in subsection 7.7(xiv)(a), New Covanta TB Sub shall be an Excluded Subsidiary meeting the criteria set forth in the clauses (i) and (ii) of the penultimate sentence of the definition of "Excluded Subsidiary", and (ii) make and own Investments consisting of amounts advanced by New Covanta TB Sub to Tampa Bay Developer, solely to the extent such amounts are advanced after the assignment described in subsection 7.7(xiv)(a) as additional "retainage" on the terms set forth in the Tampa Bay Water Project Amendment and are not in excess of the aggregate amounts therefor set forth for the relevant period in the Weekly Budget." 1.6 Provision Relating to Asset Sales. Subsection 7.7 of the Credit Agreement is hereby amended by (i) deleting the word "and" after clause (xii) thereof, (ii) deleting the "." at the end of clause (xiii) and substituting therefor "; and", and (iii) adding the following new clause (xiv) at the end thereof: "(xiv) After the Fourth Amendment Effective Date, (a) Covanta Tampa Bay may transfer and assign all of its rights and obligations under the Tampa Bay EPC Contract and the "Subcontracts" (as defined in the Tampa Bay Water Project Amendment) (but not, in any event, the Tampa Bay O&M Contract) to New Covanta TB Sub pursuant to documentation in form and substance reasonably satisfactory to Agents, and (b) immediately after such assignment, New Covanta TB Sub may assign such Subcontracts to Tampa Bay Developer free and clear of Liens under the Collateral Documents and increase Tampa Bay Developer's "retainage" from the amounts paid to Covanta Tampa Bay and New Covanta TB Sub by Tampa Bay Developer, in each case in accordance with the terms of the Tampa Bay Water Project Amendment, so long as Tampa Bay Developer agrees to limit the liability of Company and its Subsidiaries under the Tampa Bay EPC Contract to $14,000,000 on the terms set forth in the Tampa Bay Water Project Amendment." 1.7 Provisions Relating to the Weekly Budget. A. Subsection 7.16A of the Credit Agreement is hereby amended by (i) adding the word "relevant" immediately prior to each reference to "Budget Period", "Weekly Budget" and "Operational Expenditure Variance Allowance" contained in clauses (a), (d) and (e) of such subsection; (ii) deleting each of the phrases "Budget Period" and "set forth for such week in the Weekly Budget" contained in clauses (b) and (c) of such subsection and substituting therefor "Budget Periods" and "set forth for the Budget Periods through such week in the Weekly Budgets", respectively; and (iii) deleting the references to "Cash Collateral Account" and "minimum cash balance" contained in clause (e) of such subsection and substituting therefor "Collateral Accounts" and "Ending Cash Balance", respectively. B. Subsection 7.16C of the Credit Agreement is hereby amended by deleting the reference to "January 31, 2002" contained therein and substituting therefor the following: "February 28, 2002 (or March 31, 2002, if on February 28, 2002 (x) no Event of Default or Potential Event of Default shall have occurred and be continuing and (y) the actual cash balance in the Collateral Accounts as of such date equals or exceeds $30,000,000)". 1.8 Provision Relating to Restructuring of GECC Credit Facilities. Section 7 of the Credit Agreement is hereby amended by adding at the end thereof the following new subsection 7.17: "7.17 Restructuring of GECC Credit Facilities. Notwithstanding anything in subsection 7.1, 7.2, 7.3, 7.5, 7.13 or 2.5H to the contrary, after the Fourth Amendment Effective Date Company, Heber Geothermal Company and Heber Field Company may restructure the GECC Credit Facilities and implement the terms of such restructuring, so long as (i) no Lien created as a result of such restructuring shall extend to any assets other than assets of Heber Geothermal Company and Heber Field Company, (ii) no revenues other than revenues of Heber Geothermal Company and Heber Field Company shall serve as a source of repayment of the GECC Credit Facilities as a result of such restructuring, (iii) no Liens granted under the Collateral Documents in any Collateral shall be released as a result of such restructuring, and (iv) the terms of such restructuring and the definitive documentation therefor shall not be in conflict with the preceding clauses (i), (ii) and (iii) and shall otherwise be in form and substance satisfactory to Agents and their counsel." 1.9 Provisions Relating to Schedules. A. Schedule 1.1(e). Schedule 1.1(e) of the Credit Agreement is hereby amended by deleting the reference to "(206,000)" in the "Cumulative Allowable Cash Usage" line item set forth in the Monthly Budget for the month of February 2002, and substituting therefor "(241,965)". The parties hereto hereby further agree that on February 28, 2002, so long as (i) no Event of Default or Potential Event of Default shall have occurred and be continuing and (ii) the actual cash balance in the Collateral Accounts as of such date equals or exceeds $30,000,000, Schedule 1.1(e) of the Credit Agreement shall hereby be further amended by deleting the reference to "(226,000)" in the "Cumulative Allowable Cash Usage" line item set forth in the Monthly Budget for the month of March 2002, and substituting therefor "(241,965)". The parties hereto acknowledge that the Third Amendment changed each of the references to "(230,000)" and "(201,000)" in the "Cumulative Allowable Cash Usage" line item set forth in the Monthly Budget for the months of December 2001 and January 2002, respectively, to "(241,965)". B. Schedule 6.20. The Credit Agreement is hereby amended by adding thereto new Schedule 6.20, in the form attached hereto as Annex A. SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Fourth Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 2.1 Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Fourth Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Fourth Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this Fourth Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower. 2.3 No Conflict. The execution and delivery by each Loan Party of this Fourth Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Certificate or Articles of Incorporation or Certificate of Formation or Bylaws or Operating Agreement of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, credit agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent or Collateral Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Fourth Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 2.5 Binding Obligation. This Fourth Amendment has been duly executed and delivered by each Loan Party, and each of this Fourth Amendment and the Amended Agreement is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 2.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 (including subsection 5.22) of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Fourth Amendment Effective Date (as hereinafter defined) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 2.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement. SECTION 3. ACKNOWLEDGEMENT AND CONSENT 3.1 Loan Party Acknowledgements. Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Fourth Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Fourth Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. 3.2 Borrower Acknowledgements. Borrowers hereby acknowledge that they have determined, in their business judgment, to explore various possible alternatives for raising and maintaining liquidity, including but not limited to sales of certain Projects or businesses of Borrowers, sales of equity in Company or certain of its Subsidiaries, and other restructuring options. Borrowers hereby further acknowledge (i) that their determination to explore such possible alternatives is a material inducement for each Agent's and each Lender's decision to enter into this Fourth Amendment, and that the cash permitted to be withdrawn by Borrowers from the Cash Collateral Account or applied from the Cash Management System as a result of this Fourth Amendment will permit Borrowers to continue to meet their interim cash needs and will accommodate Borrowers' efforts to explore such alternatives, and (ii) that they intend to continue to diligently explore such alternatives. SECTION 4. MISCELLANEOUS 4.1 Covenants. Company hereby covenants and agrees that it shall continue to regularly inform Agents and Lenders (and provide reasonable access to its officers and such of its advisors and consultants as Agents may reasonably request so as to keep Agents and Lenders informed) on its progress with respect to each of its alternatives for raising and maintaining liquidity and shall continue to promptly provide such financial information, financial projections and other documents and information as Agents may reasonably request from time to time with respect to such alternatives and Company's progress with respect thereto. 4.2 Release. Each Borrower and Subsidiary Guarantor, on behalf of itself, and each of its Subsidiaries (collectively, the "Releasors") hereby releases, remises, acquits and forever discharges Agents, each Lender (in its capacity as a Lender hereunder and as a lender, collateral agent, depository or letter of credit issuer and in any other capacity under or in connection with any Pooled Facility or Opt-Out Facility), each Existing Opt-Out Facility Agent and each Existing Pooled Facility Agent and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Fourth Amendment or the Amended Agreement (all of the foregoing hereinafter called the "Released Matters"). Each Releasor acknowledges that the agreements in this Section are intended to be in full satisfaction of all or any alleged injuries or damages suffered or incurred by such Releasor arising in connection with the Released Matters and constitute a complete waiver of any right of setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the date hereof to payment or performance of the Obligations and/or Opt-Out Obligations. Each Releasor represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the date hereof would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Each Releasor represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters. Releasors have granted this release freely, and voluntarily and without duress. 4.3 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Fourth Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. B. Except as specifically amended by this Fourth Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Fourth Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. D. Company agrees that any failure to comply with the covenants in this Fourth Amendment shall be an Event of Default under the Credit Agreement. 4.4 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Fourth Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 4.5 Headings. Section and subsection headings in this Fourth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fourth Amendment for any other purpose or be given any substantive effect. 4.6 Applicable Law. THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 4.7 Counterparts; Effectiveness. This Fourth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Fourth Amendment shall become effective upon (i) the execution of a counterpart hereof by each Borrower, each Subsidiary Guarantor and Lenders constituting Requisite Lenders, (ii) receipt by each Borrower, Administrative Agent and Documentation Agent of written or telephonic notification of such execution and authorization of delivery thereof, (iii) the payment by Borrowers to Administrative Agent, for distribution to each Lender that has executed and delivered a counterpart of this Fourth Amendment prior to 3:00 p.m. (New York City time) on February 6, 2002, an amendment fee equal to 0.125% of the sum of such Lender's Pooled Facility Exposure, Revolving Loan Exposure and Opt-Out Facility Exposure, in each case calculated as of the Fourth Amendment Effective Date, (iv) delivery to Agents of an unaudited balance sheet of Covanta Tampa Bay and its Subsidiaries as at January 31, 2002 in form reasonably acceptable to Agents, and (v) payment in full by Borrowers of all outstanding statements of O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC and all outstanding statements for reasonable fees, expenses and disbursements of counsel to each of the Lenders that are, in each case, received by Company prior to the date hereof (the date of satisfaction of such conditions being referred to herein as the "Fourth Amendment Effective Date"). [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Fourth Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz -------------------------------------------- Name: Title: Each of the entities named on Schedule A annexed hereto, as Borrowers By: /s/ Jeffrey R. Horowitz -------------------------------------------- Name: Title: Each of the entities named on Schedule B annexed hereto, as Subsidiary Guarantors By: /s/ William J. Metzger -------------------------------------------- Name: Title: AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Michael Heredia -------------------------------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH As Documentation Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Keith C. Braun -------------------------------------------- Name: Title: By: /s/ Clark G. Peterson -------------------------------------------- Name: Title: ABN AMRO BANK N.V., as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: BANK OF MONTREAL, as a Lender By: /s/ Heather L. Turf -------------------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI (CANADA), as a Lender By: /s/ T. Vanderlaan -------------------------------------------- Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ Salvatore Esposito -------------------------------------------- Name: Title: By: /s/ John W. Sweeney -------------------------------------------- Name: Title: BNP PARIBAS, as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: BRYDEN MANAGEMENT CORPORATION IV, as a Lender By: -------------------------------------------- Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender By: /s/ Rocco Calarco -------------------------------------------- Name: Title: By: /s/ David C. Smith -------------------------------------------- Name: Title: CLARICA LIFE INSURANCE COMPANY, as a Lender By: /s/ Sara M. Alvarado -------------------------------------------- Name: Title: COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES as a Lender By: /s/ Robert Donohue -------------------------------------------- Name: Title: By: /s/ Peter Doyle -------------------------------------------- Name: Title: CREDIT LYONNAIS CANADA, as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: /s/ James B. Hallock -------------------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Jan Kofol -------------------------------------------- Name: Title: By: /s/ Michael Criscito -------------------------------------------- Name: Title: DRESDNER BANK AG, GRAND CAYMAN BRANCH as a Lender By: /s/ Thomas R. Brady -------------------------------------------- Name: Title: By: /s/ Brian M. Smith -------------------------------------------- Name: Title: DRESDNER BANK CANADA, as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: FIRST UNION NATIONAL BANK, as a Lender By: /s/ Frances Straus -------------------------------------------- Name: Title: FLEET NATIONAL BANK, as a Lender By: /s/ Michael F. O'Neill -------------------------------------------- Name: Title: HSBC BANK CANADA, as a Lender By: /s/ J. S. Brydon -------------------------------------------- Name: Title: By: /s/ B. W. Pettit -------------------------------------------- Name: Title: HSBC BANK USA, as a Lender By: /s/ Carol A. Kraus -------------------------------------------- Name: Title: IIB BANK [IFSC BRANCH], as a Lender By: /s/ Siobhan Lynch -------------------------------------------- Name: Title: By: /s/ John Reyagoon -------------------------------------------- Name: Title: KBC BANK N.V., as a Lender By: /s/ Michael V. Curran -------------------------------------------- Name: Title: By: /s/ Patrick A. Janssens -------------------------------------------- Name: Title: LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: /s/ David A. Leech -------------------------------------------- Name: Title: By: /s/ Erica A. Egan -------------------------------------------- Name: Title: NATIONAL WESTMINSTER BANK PLC, New York and/or Nassau Branch as a Lender By: -------------------------------------------- Name: Title: ROYAL BANK OF SCOTLAND PLC, as a Lender By: -------------------------------------------- Name: Title: S.C. STORMONT CORPORATION as a Lender By: -------------------------------------------- Name: Title: SANPAOLO IMI S.p.A., as a Lender By: /s/ Carlo Persico -------------------------------------------- Name: Title: By: /s/ Robert Wurster -------------------------------------------- Name: Title: SOCIETE GENERALE, as a Lender By: /s/ Gordon R. Eadon -------------------------------------------- Name: Title: SUNTRUST BANK, as a Lender By: -------------------------------------------- Name: Title: THE BANK OF NEW YORK, as a Lender By: /s/ Peter W. Helt -------------------------------------------- Name: Title: THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Joseph J. Farricielli, Jr. -------------------------------------------- Name: Title: JPMORGAN CHASE BANK (formerly The Chase Manhattan Bank), as a Lender By: /s/ Michael Lancia -------------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED, Los Angeles Agency as a Lender By: -------------------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED NEW YORK BRANCH, as a Lender By: /s/ David E. Lim -------------------------------------------- Name: Title: THE FUJI BANK, LIMITED, as a Lender By: -------------------------------------------- Name: Title: THE HUNTINGTON NATIONAL BANK, as a Lender By: -------------------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: -------------------------------------------- Name: Title: THE SANWA BANK, LIMITED, NEW YORK BRANCH as a Lender By: -------------------------------------------- Name: Title: SUMITOMO MITSUI BANKING CORPORATION OF CANADA, as a Lender By: -------------------------------------------- Name: Title: THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By: -------------------------------------------- Name: Title: THE TOKAI BANK, LIMITED - NEW YORK BRANCH, as a Lender By: -------------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Lender By: /s/ L. Godina -------------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Lender By: /s/ Mark A. Baird -------------------------------------------- Name: Title: UBS AG, as a Lender By: -------------------------------------------- Name: Title: By: -------------------------------------------- Name: Title: U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: /s/ Alan R. Milster -------------------------------------------- Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, as a Lender By: /s/ Walter T. Duffy III -------------------------------------------- Name: Title: By: /s/ Andreas Schroeter -------------------------------------------- Name: Title: Schedule A OTHER BORROWERS 1. Covanta Acquisition, Inc. 2. Covanta Bessemer, Inc. 3. Covanta Cunningham Environmental Support, Inc. 4. Covanta Geothermal Operations Holdings, Inc. 5. Covanta Imperial Power Services, Inc. 6. Covanta Oahu Waste Energy Recovery, Inc. 7. Covanta Energy Americas, Inc. 8. Covanta Energy Construction, Inc. 9. Covanta Energy Group, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy West, Inc. 13. Covanta Energy International, Inc. 14. Covanta Energy Services, Inc. 15. Covanta Equity of Stanislaus, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations, Inc. 18. Covanta Haverhill Properties, Inc. 19. Covanta Hydro Energy, Inc. 20. Covanta Hydro Operations West, Inc. 21. Covanta Haverhill, Inc. 22. Covanta Huntington Resource Recovery One Corp. 23. Covanta Huntington Resource Recovery Seven Corp. 24. Covanta Long Island, Inc. 25. Covanta Oil & Gas, Inc. 26. Covanta Omega Lease, Inc. 27. Covanta Onondaga Five Corp. 28. Covanta Onondaga Four Corp. 29. Covanta Onondaga Three Corp. 30. Covanta Onondaga Two Corp. 31. Covanta Onondaga, Inc. 32. Covanta Onondaga Operations, Inc. 33. Covanta OPWH, Inc. 34. Covanta Power Development, Inc. 35. Covanta Power Development of Bolivia, Inc. 36. Covanta Power Equity Corporation 37. Covanta Power International Holdings, Inc. 38. Covanta Projects, Inc. 39. Covanta RRS Holdings Inc. 40. Covanta SIGC Geothermal Operations, Inc. 41. Covanta Stanislaus, Inc. 42. Covanta Systems, Inc. 43. Covanta Waste Solutions, Inc. 44. Covanta Waste to Energy of Italy, Inc. 45. Covanta Waste to Energy, Inc. 46. Covanta Secure Services USA, Inc. 47. Covanta Secure Services, Inc. 48. Covanta Water Holdings, Inc. 49. Covanta Water Systems, Inc. 50. Covanta Water Treatment Services, Inc. 51. DSS Environmental, Inc. 52. Haverhill Power, Inc. 53. Covanta Honolulu Resource Recovery Venture 54. LMI, Inc. 55. Michigan Waste Energy, Inc. 56. Covanta New Martinsville Hydro-Operations Corporation 57. OFS Equity of Alexandria/Arlington, Inc. 58. OFS Equity of Babylon, Inc. 59. OFS Equity of Delaware, Inc. 60. OFS Equity of Huntington, Inc. 61. OFS Equity of Indianapolis, Inc. 62. OFS Equity of Stanislaus, Inc. 63. Covanta Engineering Services, Inc. 64. Ogden Environmental & Energy Services Co., Inc. 65. Covanta Hydro Operations, Inc. 66. Ogden Management Services, Inc. 67. Covanta Marion Land Corp. 68. Covanta Operations of Union LLC 69. Covanta Alexandria/Arlington, Inc. 70. Covanta Bristol, Inc. 71. Covanta Fairfax, Inc. 72. Covanta Hillsborough, Inc. 73. Covanta Huntsville, Inc. 74. Covanta Kent, Inc. 75. Covanta Lancaster, Inc. 76. Covanta Lee, Inc. 77. Covanta Marion, Inc. 78. Covanta Montgomery, Inc. 79. Covanta Northwest Puerto Rico, Inc. 80. Covanta Pasco, Inc. 81. Covanta Plant Services of New Jersey, Inc. 82. Covanta Projects of Hawaii, Inc. 83. Ogden Services Corporation 84. Covanta Wallingford Associates, Inc. 85. Covanta Key Largo, Inc. 86. Covanta Tampa Bay, Inc. 87. Covanta Equity of Alexandria/Arlington, Inc. 88. OPI Quezon Inc. 89. Covanta OPW Associates, Inc. 90. Covanta Mid-Conn., Inc. 91. Three Mountain Operations, Inc. 92. The Metropolitan Entertainment Co., Inc. 93. J.R. Jacks Construction Corporation 94. Ogden Constructors, Inc. 95. Covanta Huntington, Inc. Schedule B 1. LaGuardia Fuel Facilities Corporation 2. Lenzar Electro-Optics, Inc. 3. Newark Automotive Fuel Facilities Corporation 4. Ogden Allied Maintenance Corporation 5. Ogden Allied Payroll Services, Inc. 6. Ogden Attractions, Inc. 7. Ogden Aviation Distributing Corporation 8. Ogden Aviation Fueling Company of Virginia, Inc. 9. Ogden Aviation Service Company of Colorado, Inc. 10. Ogden Aviation Service Company of New Jersey, Inc. 11. Ogden Aviation Service Company of New York, Inc. 12. Ogden Aviation Service Company of Pennsylvania, Inc. 13. Ogden Aviation Service International Corporation 14. Ogden Aviation, Inc. 15. Ogden Cargo Spain, Inc. 16. Ogden Central and South America, Inc. 17. Ogden Facility Holdings, Inc. 18. Ogden Film and Theatre, Inc. 19. Ogden Firehole Entertainment Corp. 20. Ogden International Europe, Inc. 21. Ogden New York Services, Inc. 22. Philadelphia Fuel Facilities Corporation 23. PA Aviation Fuel Holdings, Inc. EX-10.1G 5 covex10-1g_718.txt EXHIBIT 10.1(g) --------------- FIFTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT This FIFTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT (this "Fifth Amendment") is dated as of February 21, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), the Loan Parties listed on the signature pages hereof, the financial institutions parties hereto (each a "Lender" and collectively, the "Lenders"), BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Revolving Credit and Participation Agreement dated as of March 14, 2001 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), by and among Borrowers, the Lenders listed therein as Lenders, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Borrowers and Lenders desire to amend the Credit Agreement to (i) to permit Borrower to sell substantially all of the assets of The Metropolitan Entertainment Co., Inc. to Metropolitan Entertainment LLC for consideration consisting of cash, assumption of certain liabilities and a 10% equity interest in the buyer; (ii) amend certain items in the Weekly Budget; and (iii) make certain other amendments as set forth below, and Lenders desire to consent to amending a certain draw condition in the Pooled Letter of Credit issued by Fleet National Bank relating to the Senators Hockey Club, and to amending the put agreement related thereto, in each case subject to the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT AND LIMITED CONSENT 1.1 Provisions Relating to Defined Terms. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "Metropolitan Buyer" means Metropolitan Entertainment LLC, a Delaware limited liability company. "Metropolitan Entertainment" means The Metropolitan Entertainment Co., Inc., a New Jersey corporation, and any successor thereto. "Metropolitan Sale" means the sale of substantially all assets of Metropolitan Entertainment to Metropolitan Buyer in accordance with the Metropolitan Sale Agreement. "Metropolitan Sale Agreement" means that certain Asset Purchase Agreement dated as of February 7, 2002, by and among Company, Metropolitan Entertainment and Metropolitan Buyer, in the form delivered to Agents on or prior to February 8, 2002, as it may thereafter be amended, supplemented or otherwise modified from time to time; provided that no material amendment, supplement or modification to the Metropolitan Sale Agreement that is adverse to Company and its Subsidiaries or to the Lenders shall be permitted without the approval of Agents. 1.2 Provision Relating to Investments. Subsection 7.3 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (xvi) thereof, (ii) deleting the "." at the end of clause (xvii) thereof and substituting therefor "; and" and (iii) adding the following new clause (xviii) immediately prior to the last paragraph of such subsection: "(xviii) Company and its Subsidiaries may acquire and hold 10% of the equity of Metropolitan Buyer to the extent acquired in connection with the Metropolitan Sale; provided that Company and its Subsidiaries shall not have or incur any Contractual Obligation to make any further Investment in Metropolitan Buyer." 1.3 Provision Relating to Asset Sales. Subsection 7.7(vii) of the Credit Agreement is hereby amended by adding at the end thereof, the following new proviso: "provided further, however, that a portion of the consideration for the Metropolitan Sale may be 10% of the nonvoting equity of Metropolitan Buyer, so long as Metropolitan Entertainment receives cash consideration (after payments to minority shareholders of Metropolitan Entertainment (including under settlement agreements) and costs and expenses related to the sale) of not less than $5,000,000 (subject to adjustment for working capital in accordance with the Metropolitan Sale Agreement) in accordance with the terms of the Metropolitan Sale Agreement;" 1.4 Provision Relating to the Weekly Budget. Subsection 7.16A(a) of the Credit Agreement is hereby amended by (i) deleting the word "or" immediately after the word "Taxes" and substituting therefor "," and (ii) adding immediately after the reference to "IPP Identified" the following: "or `Interest on Funded Recourse Debt'". 1.5 Provision Relating to Schedules. Schedule 6.20 of the Credit Agreement is hereby amended by (i) deleting the reference to "(4,865)" in the "Interest on Funded Recourse Debt" line item set forth in the Weekly Budget for the week ending on March 8, 2002, and substituting therefor "(240)"; and (ii) deleting the reference to "(262)" in the "Interest on Funded Recourse Debt" line item set forth in the Weekly Budget for the week ending on March 29, 2002, and substituting therefor "(4,887)". 1.6 Limited Consent. A. Pursuant to subsections 2.11B(i) and 2.11C(i) of the Credit Agreement, the undersigned Agents and Lenders hereby consent to amendments of (i) the Pooled Letter of Credit issued by Fleet National Bank relating to the Senators Hockey Club (the "Class II DPS Support L/C") and (ii) the put agreement for the Opt-Out Facility which the Class II DPS Support L/C supports (the "Class II DPS Put Agreement"), in each case for the purposes of, among other things, (x) removing as a condition for drawing on the Class II DPS Support L/C the requirement that the administrative agent with respect thereto shall have issued a Put Notice (as defined in the Class II DPS Put Agreement) under and in accordance with the Class II DPS Put Agreement and (y) including as a condition for drawing on the Class II DPS Support L/C that the beneficiary/administrative agent with respect thereto shall have undertaken to the issuer thereof to deliver to Collateral Agent as soon as reasonably possible after receipt of the amount drawn either the certificates representing the Class II preference shares (which have been issued by a wholly-owned subsidiary of the Senators Hockey Club), duly endorsed in blank for transfer, or, if such certificates are lost, a lost share certificate indemnity in lieu thereof (together with an instrument of transfer for such shares, duly endorsed in blank). Such amendments (collectively, the "Class II DPS Amendments") shall be in the forms attached hereto as Annex A and Annex B. The undersigned hereby acknowledge and agree that the Class II DPS Support L/C as amended by the Class II DPS Amendments shall constitute a Pooled Letter of Credit, and that the Class II DPS Put Agreement as amended by the Class II DPS Amendments shall constitute an Opt-Out Facility Document. B. The limited consent set forth above shall be limited precisely as written, and nothing herein shall be deemed to (a) constitute a consent with respect to (i) subsection 2.11B(i) or 2.11C(i) of the Credit Agreement in any other instance or (ii) any other term, provision or condition of the Credit Agreement, or (b) prejudice any right or remedy that any Agent or any Lender may now have or may have in the future under or in connection with the Credit Agreement or the Amended Agreement (as defined below). SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Fifth Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 2.1 Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Fifth Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Fifth Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this Fifth Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower. 2.3 No Conflict. The execution and delivery by each Loan Party of this Fifth Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Certificate or Articles of Incorporation or Certificate of Formation or Bylaws or Operating Agreement of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, credit agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent or Collateral Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Fifth Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 2.5 Binding Obligation. This Fifth Amendment has been duly executed and delivered by each Loan Party, and each of this Fifth Amendment and the Amended Agreement is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 2.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Fifth Amendment Effective Date (as hereinafter defined) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 2.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement. 2.8 Class II DPS Amendments. Upon execution and delivery by Company of the Class II DPS Amendments, such execution and delivery (i) shall be within the corporate powers of Company and shall have been duly authorized by all necessary corporate action on the part of Company, (ii) shall not require any approval, consent of, or filing with, any governmental agency or authority, or any other person, association or entity (including, without limitation, the National Hockey League), (iii) shall not violate any provisions of any order, writ, judgment, injunction, decree, determination or award presently in effect in which Company is named, or any provision of the charter documents or by-laws of Company, (iv) shall not result in any breach of or constitute a default under any agreement or instrument to which Company is a party or to which it or any of its properties are bound, including without limitation any indenture, loan or credit agreement, lease, debt instrument or mortgage, and (v) shall not result in or require the creation or imposition of any mortgage, deed of trust, pledge or encumbrance of any nature upon any of the assets or properties of Company. The Class II DPS Support L/C, as amended by the Class II DPS Amendments, shall continue to satisfy the requirements of the Class II DPS Put Agreement. SECTION 3. ACKNOWLEDGEMENT AND CONSENT Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Fifth Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Fifth Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. SECTION 4. MISCELLANEOUS 4.1 Release. Each Borrower and Subsidiary Guarantor, on behalf of itself, and each of its Subsidiaries (collectively, the "Releasors") hereby releases, remises, acquits and forever discharges Agents, each Lender (in its capacity as a Lender hereunder and as a lender, collateral agent, depository or letter of credit issuer and in any other capacity under or in connection with any Pooled Facility or Opt-Out Facility), each Existing Opt-Out Facility Agent and each Existing Pooled Facility Agent and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Fifth Amendment or the Amended Agreement (all of the foregoing hereinafter called the "Released Matters"). Each Releasor acknowledges that the agreements in this Section are intended to be in full satisfaction of all or any alleged injuries or damages suffered or incurred by such Releasor arising in connection with the Released Matters and constitute a complete waiver of any right of setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the date hereof to payment or performance of the Obligations and/or Opt-Out Obligations. Each Releasor represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the date hereof would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Each Releasor represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters. Releasors have granted this release freely, and voluntarily and without duress. 4.2 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Fifth Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. B. Except as specifically amended by this Fifth Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Fifth Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. D. Company agrees that any failure to comply with the covenants in this Fifth Amendment shall be an Event of Default under the Credit Agreement. 4.3 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Fifth Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 4.4 Headings. Section and subsection headings in this Fifth Amendment are included herein for convenience of reference only and shall not constitute a part of this Fifth Amendment for any other purpose or be given any substantive effect. 4.5 Applicable Law. THIS FIFTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 4.6 Counterparts; Effectiveness. This Fifth Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Fifth Amendment shall become effective upon (i) the execution of a counterpart hereof by each Borrower, each Subsidiary Guarantor and Lenders constituting Requisite Lenders, (ii) receipt by each Borrower, Administrative Agent and Documentation Agent of written or telephonic notification of such execution and authorization of delivery thereof, and (iii) payment in full by Borrowers of all outstanding statements of O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC and all outstanding statements for reasonable fees, expenses and disbursements of counsel to each of the Lenders that are, in each case, received by Company prior to the date hereof (the date of satisfaction of such conditions being referred to herein as the "Fifth Amendment Effective Date"). [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz ----------------------- Name: Title: Each of the entities named on Schedule A annexed hereto, as Borrowers By: /s/ Jeffery R. Horowitz ----------------------- Name: Title: Each of the entities named on Schedule B annexed hereto, as Subsidiary Guarantors By: /s/ Scott G. Mackin ------------------- Name: Title: AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Michael R. Heredia ---------------------- Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH As Documentation Agent, Co-Arranger, Co-Book Runner and as a Lender By: /s/ Mark B. Cohen ----------------- Name: Mark B. Cohen Title: Managing Director By: /s/ Clark G. Peterson --------------------- Name: Clark G. Peterson Title: Vice President ABN AMRO BANK N.V., as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: BANK OF MONTREAL, as a Lender By: ---------------------------------- Name: Title: BANK OF TOKYO-MITSUBISHI (CANADA), as a Lender By: ---------------------------------- Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ John W. Sweeney ------------------- Name: John W. Sweeney Title: Director By: /s/ Salvatore Esposito ---------------------- Name: Salvatore Esposito Title: Director BNP PARIBAS, as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: BRYDEN MANAGEMENT CORPORATION IV, as a Lender By: ---------------------------------- Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: CLARICA LIFE INSURANCE COMPANY, as a Lender By: /s/ Sara M. Alvarado -------------------- Name: Sara M. Alvarado Title: Director, Structured Finance COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES as a Lender By: /s/ Robert Donohue ------------------ Name: Robert Donohue Title: Senior Vice President By: /s/ Terrence P. Sweeney ----------------------- Name: Terrence P. Sweeney Title: Senior Vice President HSBC BANK CANADA as successor to CREDIT LYONNAIS CANADA, as a Lender By: /s/ J.S. Brydon --------------- Name: J.S. Brydon Title: Senior Manager By: /s/ B.W. Pettit --------------- Name: B.W. Pettit Title: Assistant Vice President CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: ---------------------------------- Name: Title: CREDIT SUISSE FIRST BOSTON, as a Lender By: /s/ Jan Kofol ------------- Name: Jan Kofol Title: Director By: /s/ Sharon M. Meadows --------------------- Name: Sharon M. Meadows Title: Managing Director DRESDNER BANK AG, GRAND CAYMAN BRANCH as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: DRESDNER BANK CANADA, as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: FIRST UNION NATIONAL BANK, as a Lender By: ---------------------------------- Name: Title: FLEET NATIONAL BANK, as a Lender By: /s/ Michael F. O'Neill ---------------------- Name: Michael F. O'Neill Title: Senior Vice President HSBC BANK CANADA, as a Lender By: /s/ J.S. Brydon --------------- Name: J.S. Brydon Title: Senior Manager By: /s/ B.W. Pettit --------------- Name: B.W. Pettit Title: Assistant Vice President HSBC BANK USA, as a Lender By: ---------------------------------- Name: Title: IIB BANK [IFSC BRANCH], as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: KBC BANK N.V., as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: NATIONAL WESTMINSTER BANK PLC, New York and/or Nassau Branch as a Lender By: /s/ Graeme Hunter ----------------- Name: Graeme Hunter Title: Vice President ROYAL BANK OF SCOTLAND PLC, as a Lender By: /s/ Graeme Hunter ----------------- Name: Graeme Hunter Title: Vice President S.C. STORMONT CORPORATION as a Lender By: ---------------------------------- Name: Title: SANPAOLO IMI S.p.A., as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: SOCIETE GENERALE, as a Lender By: ---------------------------------- Name: Title: SUNTRUST BANK, as a Lender By: ---------------------------------- Name: Title: THE BANK OF NEW YORK, as a Lender By: /s/ Peter W. Helt ----------------- Name: Peter W. Helt Title: Vice President THE BANK OF NOVA SCOTIA, as a Lender By: ---------------------------------- Name: Title: JPMORGAN CHASE BANK (formerly The Chase Manhattan Bank), as a Lender By: ---------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED, Los Angeles Agency as a Lender By: ---------------------------------- Name: Title: THE DAI-ICHI KANGYO BANK, LIMITED NEW YORK BRANCH, as a Lender By: ---------------------------------- Name: Title: THE FUJI BANK, LIMITED, as a Lender By: ---------------------------------- Name: Title: THE HUNTINGTON NATIONAL BANK, as a Lender By: ---------------------------------- Name: Title: THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: ---------------------------------- Name: Title: SUMITOMO MITSUI BANKING CORPORATION OF CANADA, as a Lender By: ---------------------------------- Name: Title: THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By: /s/ Elizabeth A. Quirk ---------------------- Name: Elizabeth A. Quirk Title: Vice President THE TORONTO-DOMINION BANK, as a Lender By: /s/ Lily Goldina ---------------- Name: Lily Goldina Title: Vice President THE TORONTO-DOMINION BANK, as a Lender By: /s/ Mark A. Baird ----------------- Name: Mark A. Baird Title: Manager Credit Administration UBS AG, as a Lender By: ---------------------------------- Name: Title: By: ---------------------------------- Name: Title: UFJ BANK LIMITED, NEW YORK BRANCH (formerly The Sanwa Bank, Limited, New York Branch and The Tokai Bank, Limited - New York Branch), as a Lender By: ---------------------------------- Name: Title: U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: ---------------------------------- Name: Title: WESTDEUTSCHE LANDESBANK GIROZENTRALE, as a Lender By: /s/ Alan S. Bookspan -------------------- Name: Alan S. Bookspan Title: Director By: /s/ Walter T. Duffy III ----------------------- Name: Walter T. Duffy III Title: Associate Director Schedule A OTHER BORROWERS 1. Covanta Acquisition, Inc. 2. Covanta Bessemer, Inc. 3. Covanta Cunningham Environmental Support, Inc. 4. Covanta Geothermal Operations Holdings, Inc. 5. Covanta Imperial Power Services, Inc. 6. Covanta Oahu Waste Energy Recovery, Inc. 7. Covanta Energy Americas, Inc. 8. Covanta Energy Construction, Inc. 9. Covanta Energy Group, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy West, Inc. 13. Covanta Energy International, Inc. 14. Covanta Energy Services, Inc. 15. Covanta Equity of Stanislaus, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations, Inc. 18. Covanta Haverhill Properties, Inc. 19. Covanta Hydro Energy, Inc. 20. Covanta Hydro Operations West, Inc. 21. Covanta Haverhill, Inc. 22. Covanta Huntington Resource Recovery One Corp. 23. Covanta Huntington Resource Recovery Seven Corp. 24. Covanta Long Island, Inc. 25. Covanta Oil & Gas, Inc. 26. Covanta Omega Lease, Inc. 27. Covanta Onondaga Five Corp. 28. Covanta Onondaga Four Corp. 29. Covanta Onondaga Three Corp. 30. Covanta Onondaga Two Corp. 31. Covanta Onondaga, Inc. 32. Covanta Onondaga Operations, Inc. 33. Covanta OPWH, Inc. 34. Covanta Power Development, Inc. 35. Covanta Power Development of Bolivia, Inc. 36. Covanta Power Equity Corporation 37. Covanta Power International Holdings, Inc. 38. Covanta Projects, Inc. 39. Covanta RRS Holdings Inc. 40. Covanta SIGC Geothermal Operations, Inc. 41. Covanta Stanislaus, Inc. 42. Covanta Systems, Inc. 43. Covanta Waste Solutions, Inc. 44. Covanta Waste to Energy of Italy, Inc. 45. Covanta Waste to Energy, Inc. 46. Covanta Secure Services USA, Inc. 47. Covanta Secure Services, Inc. 48. Covanta Water Holdings, Inc. 49. Covanta Water Systems, Inc. 50. Covanta Water Treatment Services, Inc. 51. DSS Environmental, Inc. 52. Haverhill Power, Inc. 53. Covanta Honolulu Resource Recovery Venture 54. LMI, Inc. 55. Michigan Waste Energy, Inc. 56. Covanta New Martinsville Hydro-Operations Corporation 57. OFS Equity of Alexandria/Arlington, Inc. 58. OFS Equity of Babylon, Inc. 59. OFS Equity of Delaware, Inc. 60. OFS Equity of Huntington, Inc. 61. OFS Equity of Indianapolis, Inc. 62. OFS Equity of Stanislaus, Inc. 63. Covanta Engineering Services, Inc. 64. Ogden Environmental & Energy Services Co., Inc. 65. Covanta Hydro Operations, Inc. 66. Ogden Management Services, Inc. 67. Covanta Marion Land Corp. 68. Covanta Operations of Union LLC 69. Covanta Alexandria/Arlington, Inc. 70. Covanta Bristol, Inc. 71. Covanta Fairfax, Inc. 72. Covanta Hillsborough, Inc. 73. Covanta Huntsville, Inc. 74. Covanta Kent, Inc. 75. Covanta Lancaster, Inc. 76. Covanta Lee, Inc. 77. Covanta Marion, Inc. 78. Covanta Montgomery, Inc. 79. Covanta Northwest Puerto Rico, Inc. 80. Covanta Pasco, Inc. 81. Covanta Plant Services of New Jersey, Inc. 82. Covanta Projects of Hawaii, Inc. 83. Ogden Services Corporation 84. Covanta Wallingford Associates, Inc. 85. Covanta Key Largo, Inc. 86. Covanta Tampa Bay, Inc. 87. Covanta Equity of Alexandria/Arlington, Inc. 88. OPI Quezon Inc. 89. Covanta OPW Associates, Inc. 90. Covanta Mid-Conn., Inc. 91. Three Mountain Operations, Inc. 92. The Metropolitan Entertainment Co., Inc. 93. J.R. Jacks Construction Corporation 94. Ogden Constructors, Inc. 95. Covanta Huntington, Inc. Schedule B 1. LaGuardia Fuel Facilities Corporation 2. Lenzar Electro-Optics, Inc. 3. Newark Automotive Fuel Facilities Corporation 4. Ogden Allied Maintenance Corporation 5. Ogden Allied Payroll Services, Inc. 6. Ogden Attractions, Inc. 7. Ogden Aviation Distributing Corporation 8. Ogden Aviation Fueling Company of Virginia, Inc. 9. Ogden Aviation Service Company of Colorado, Inc. 10. Ogden Aviation Service Company of New Jersey, Inc. 11. Ogden Aviation Service Company of New York, Inc. 12. Ogden Aviation Service Company of Pennsylvania, Inc. 13. Ogden Aviation Service International Corporation 14. Ogden Aviation, Inc. 15. Ogden Cargo Spain, Inc. 16. Ogden Central and South America, Inc. 17. Ogden Facility Holdings, Inc. 18. Ogden Film and Theatre, Inc. 19. Ogden Firehole Entertainment Corp. 20. Ogden International Europe, Inc. 21. Ogden New York Services, Inc. 22. Philadelphia Fuel Facilities Corporation 23. PA Aviation Fuel Holdings, Inc. Annex A See attached. Annex B See attached. EX-10.1H 6 covex10-1h_718.txt EXHIBIT 10.1(h) --------------- SIXTH AMENDMENT TO CREDIT AGREEMENT Dated as of March 12, 2002 Reference is made to that certain Revolving Credit and Participation Agreement dated as of March 14, 2001 (said Agreement, as amended to the date hereof, being the "Credit Agreement", the terms defined therein being used in this Sixth Amendment (this "Amendment") as therein defined), among Covanta Energy Corporation ("Company"), the Subsidiaries of Company listed on the signature pages thereof (collectively, Company and such Subsidiaries are referred to herein as "Borrowers"), the financial institutions listed on the signature pages thereof, Administrative Agent and Documentation Agent. Borrowers and the undersigned Agents and Lenders hereby agree as follows: Section 10 of the Credit Agreement is hereby amended by adding at the end thereof the following new subsection 10.27: "10.27 Cash Withdrawals During Designated Period. Anything contained in this Agreement to the contrary notwithstanding, solely during the Designated Period (as defined below): (i) the conditions precedent set forth in subsection 4.4C(iv) shall be deemed waived; (ii) the conditions precedent set forth in subsections 4.4C(ii-iii) and any required representation in subsection 5.8A or any Notice of Withdrawal, to the extent such conditions cannot be satisfied or such representation cannot be made solely as a result of the Designated Payment Defaults (as defined below), shall be deemed waived; (iii) subsection 4.4C shall be deemed modified to give effect to the waivers described in the preceding clauses (i) and (ii); (iv) the requirements of subsection 7.16A(e) for the week ending March 15, 2002 shall be deemed waived, provided that the "Ending Cash Balance" as of March 15, 2002 shall be $23,000,000; (v) the "Ending Cash Balance" for purposes of subsection 7.16A(e) for the week ending March 22, 2002 shall be $19,000,000; (vi) Borrowers shall be permitted to deliver a Notice of Withdrawal at any time prior to 4:00 p.m. (New York City time) on any proposed Withdrawal Date for a withdrawal from the Cash Collateral Account on such date; and (vii) no Mandatory Payment shall be required to be made pursuant to the first sentence of subsection 2.6A(iii)(e). As used herein, the "Designated Period" means the period from March 12, 2002 through and including March 22, 2002; provided that such Designated Period shall end at such time as any Potential Event of Default or Event of Default (other than the Potential Events of Default and Events of Default arising solely from Borrowers' (x) failure to reimburse an honored drawing under the Pooled Letter of Credit issued by Fleet National Bank relating to the Senators Hockey Club and the resulting acquisition of preference shares, and (y) failure to pay interest and fees owing during the Designated Period with respect to the Obligations (collectively, the "Designated Payment Defaults")) shall have occurred and be continuing." On and after the Effective Date (as defined below), each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. Each Borrower and Subsidiary Guarantor hereby acknowledges that it has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which it is a party shall not be impaired and each of the Loan Documents to which it is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts; each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Amendment shall become effective upon the execution of counterparts hereof by Loan Parties, Agents and Supermajority Lenders and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof (the date of such effectiveness being the "Effective Date"). THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. IN WITNESS WHEREOF, the each of the undersigned has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz ----------------------- Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule A annexed hereto, as Borrowers By: /s/ Jeffrey R. Horowitz ----------------------- Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule B annexed hereto, as Subsidiary Guarantors By: /s/ Scott G. Mackin ------------------- Name: Scott G. Mackin Title: Authorized Officer IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. BANK OF AMERICA NA By: /s/ Michael R. Heredia ---------------------- Name: Michael R. Heredia Title: Managing Director IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. Deutsche Bank AG, New York Branch By: /s/ Keith C. Braun ------------------- Name: Keith C. Braun Title: Vice President By: /s/ Clark G. Peterson --------------------- Name: Clark G. Peterson Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. ABNAMRO BANK N.V. By: /s/ Neil J. Bivona ------------------ Name: Neil J. Bivona Title: Group Vice President By: /s/ William J. Fitzgerald ------------------------- Name: William J. Fitzgerald Title: Senior Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. Banc of America Securities LLC as Agent for Bank of America, N.A. By: /s/ Peter T. Santry ------------------- Name: Peter T. Santry IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. BANK OF MONTREAL By: /s/ Heather L. Turf ------------------- Name: Heather L. Turf Title: Director IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. BAYERISCHE HYPO-UND VEREINSBANK AG By: /s/ John W. Sweeney ------------------- Name: John W. Sweeney Title: Director By: /s/ Salvatore Esposito ----------------------- Name: Salvatore Esposito Title: Director IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. CANADIAN IMPERIAL BANK OF COMMERCE By: /s/ D.K. Smith -------------- Name: D.K. Smith Title: Managing Director By: /s/ R.M. Callander ------------------ Name: R.M. Callander Title: Director IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. CLARICA LIFE INSURANCE CO. By: /s/ Sara M. Alvarado -------------------- Name: Sara M. Alvarado Title: Director, Structured Finance IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. Commerzbank AG, New York and Grand Cayman Branches By: /s/ Robert Donohue ------------------ Name: Robert Donohue Title: Senior Vice President By: /s/ Peter Doyle --------------- Name: Peter Doyle Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. First Union National Bank By: /s/ Joel Thomas --------------- Name: Joel Thomas Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. FLEET NATIONAL BANK By: /s/ Michael F. O'Neill ---------------------- Name: Michael F. O'Neill Title: Senior Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. HSBC BANK CANADA By: /s/ B.W. Pettit --------------- Name: B.W. Pettit Title: Assistant Vice President By: /s/ R.S. MacKenzie ------------------ Name: R.S. MacKenzie Title: Assistant Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. HSBC BANK CANADA as successor company to Credit Lyonnais Canada By: /s/ B.W. Pettit --------------- Name: B.W. Pettit Title: Assistant Vice President By: /s/ R.S. MacKenzie ------------------ Name: R.S. MacKenzie Title: Assistant Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. HSBC BANK USA By: /s/ Carol A. Kraus ------------------ Name: Carol A. Kraus Title: HSBC Bank USA Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. THE HUNTINGTON NATIONAL BANK By: /s/ Thomas F. Krusnel --------------------- Name: Thomas F. Krusnel Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. JP Morgan Chase Bank By: /s/ Michael Lancia ------------------ Name: Michael Lancia Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. LANDESBANK HESSEN-THURINGEN GIROZENTRALE By: /s/ Michael D. Novack --------------------- Name: Michael D. Novack Title: VP By: /s/ David A. Leech ------------------ Name: David A. Leech Title: Vice President Corporate Finance Division Structured Finance Dept. IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. NATIONAL WESTMINSTER BANK plc By: /s/ Julian Dakin ---------------- Name: Julian Dakin Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. ROYAL BANK OF SCOTLAND plc By: /s/ Julian Dakin ---------------- Name: Julian Dakin Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. SANPAOLO IMI S.p.A. By: /s/ Carlo Persico ----------------- Name: Carlo Persico Title: G.M. By: /s/ Robert Wurster ------------------- Name: Robert Wurster Title: SVP IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. THE BANK OF NEW YORK By: /s/ Julie B. Fellosco --------------------- Name: Julie B. Fellosco Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. The Bank of Nova Scotia By: /s/ Joseph J. Farricielli, Jr. ------------------------------ Name: Joseph J. Farricielli, Jr. Title: Director IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. The Sumitomo Trust & Banking Co., Ltd., NY Branch By: /s/ Elizabeth A. Quirk ---------------------- Name: Elizabeth A. Quirk Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. THE TORONTO DOMINION BANK By: /s/ Mark A. Baird ----------------- Name: Mark A. Baird Title: Mgr. CR Admin. IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. THE TORONTO-DOMINION BANK By: /s/ L. Godina ------------- Name: L. Godina Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. U.S. BANK, N.A. By: /s/ Alan R. Milster ------------------- Name: Alan R. Milster Title: Vice President IN WITNESS WHEREOF, the undersigned Lender has caused this Amendment to be duly executed and delivered by its officer thereunto duly authorized as of the date first written above. Westdeutsche Landesbank Girozentrale, New York Branch By: /s/ Alan S. Bookspan -------------------- Name: Alan S. Bookspan Title: Director By: /s/ Walter T. Duffy III ----------------------- Name: Walter T. Duffy III Title: Associate Director Schedule A OTHER BORROWERS 1. Covanta Acquisition, Inc. 2. Covanta Bessemer, Inc. 3. Covanta Cunningham Environmental Support, Inc. 4. Covanta Geothermal Operations Holdings, Inc. 5. Covanta Imperial Power Services, Inc. 6. Covanta Oahu Waste Energy Recovery, Inc. 7. Covanta Energy Americas, Inc. 8. Covanta Energy Construction, Inc. 9. Covanta Energy Group, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy West, Inc. 13. Covanta Energy International, Inc. 14. Covanta Energy Services, Inc. 15. Covanta Equity of Stanislaus, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations, Inc. 18. Covanta Haverhill Properties, Inc. 19. Covanta Hydro Energy, Inc. 20. Covanta Hydro Operations West, Inc. 21. Covanta Haverhill, Inc. 22. Covanta Huntington Resource Recovery One Corp. 23. Covanta Huntington Resource Recovery Seven Corp. 24. Covanta Long Island, Inc. 25. Covanta Oil & Gas, Inc. 26. Covanta Omega Lease, Inc. 27. Covanta Onondaga Five Corp. 28. Covanta Onondaga Four Corp. 29. Covanta Onondaga Three Corp. 30. Covanta Onondaga Two Corp. 31. Covanta Onondaga, Inc. 32. Covanta Onondaga Operations, Inc. 33. Covanta OPWH, Inc. 34. Covanta Power Development, Inc. 35. Covanta Power Development of Bolivia, Inc. 36. Covanta Power Equity Corporation 37. Covanta Power International Holdings, Inc. 38. Covanta Projects, Inc. 39. Covanta RRS Holdings Inc. 40. Covanta SIGC Geothermal Operations, Inc. 41. Covanta Stanislaus, Inc. 42. Covanta Systems, Inc. 43. Covanta Waste Solutions, Inc. 44. Covanta Waste to Energy of Italy, Inc. 45. Covanta Waste to Energy, Inc. 46. Covanta Secure Services USA, Inc. 47. Covanta Secure Services, Inc. 48. Covanta Water Holdings, Inc. 49. Covanta Water Systems, Inc. 50. Covanta Water Treatment Services, Inc. 51. DSS Environmental, Inc. 52. Haverhill Power, Inc. 53. Covanta Honolulu Resource Recovery Venture 54. LMI, Inc. 55. Michigan Waste Energy, Inc. 56. Covanta New Martinsville Hydro-Operations Corporation 57. OFS Equity of Alexandria/Arlington, Inc. 58. OFS Equity of Babylon, Inc. 59. OFS Equity of Delaware, Inc. 60. OFS Equity of Huntington, Inc. 61. OFS Equity of Indianapolis, Inc. 62. OFS Equity of Stanislaus, Inc. 63. Covanta Engineering Services, Inc. 64. Ogden Environmental & Energy Services Co., Inc. 65. Covanta Hydro Operations, Inc. 66. Ogden Management Services, Inc. 67. Covanta Marion Land Corp. 68. Covanta Operations of Union LLC 69. Covanta Alexandria/Arlington, Inc. 70. Covanta Bristol, Inc. 71. Covanta Fairfax, Inc. 72. Covanta Hillsborough, Inc. 73. Covanta Huntsville, Inc. 74. Covanta Kent, Inc. 75. Covanta Lancaster, Inc. 76. Covanta Lee, Inc. 77. Covanta Marion, Inc. 78. Covanta Montgomery, Inc. 79. Covanta Northwest Puerto Rico, Inc. 80. Covanta Pasco, Inc. 81. Covanta Plant Services of New Jersey, Inc. 82. Covanta Projects of Hawaii, Inc. 83. Ogden Services Corporation 84. Covanta Wallingford Associates, Inc. 85. Covanta Key Largo, Inc. 86. Covanta Tampa Bay, Inc. 87. Covanta Equity of Alexandria/Arlington, Inc. 88. OPI Quezon Inc. 89. Covanta OPW Associates, Inc. 90. Covanta Mid-Conn., Inc. 91. Three Mountain Operations, Inc. 92. The Metropolitan Entertainment Co., Inc. 93. J.R. Jacks Construction Corporation 94. Ogden Constructors, Inc. 95. Covanta Huntington, Inc. Schedule B SUBSIDIARY GUARANTORS 1. LaGuardia Fuel Facilities Corporation 2. Lenzar Electro-Optics, Inc. 3. Newark Automotive Fuel Facilities Corporation 4. Ogden Allied Maintenance Corporation 5. Ogden Allied Payroll Services, Inc. 6. Ogden Attractions, Inc. 7. Ogden Aviation Distributing Corporation 8. Ogden Aviation Fueling Company of Virginia, Inc. 9. Ogden Aviation Service Company of Colorado, Inc. 10. Ogden Aviation Service Company of New Jersey, Inc. 11. Ogden Aviation Service Company of New York, Inc. 12. Ogden Aviation Service Company of Pennsylvania, Inc. 13. Ogden Aviation Service International Corporation 14. Ogden Aviation, Inc. 15. Ogden Cargo Spain, Inc. 16. Ogden Central and South America, Inc. 17. Ogden Facility Holdings, Inc. 18. Ogden Film and Theatre, Inc. 19. Ogden Firehole Entertainment Corp. 20. Ogden International Europe, Inc. 21. Ogden New York Services, Inc. 22. Philadelphia Fuel Facilities Corporation 23. PA Aviation Fuel Holdings, Inc. EX-10.1I 7 covex10-1i_718.txt EXHIBIT 10.1(i) --------------- SEVENTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT This SEVENTH AMENDMENT TO REVOLVING CREDIT AND PARTICIPATION AGREEMENT (this "Amendment") is dated as of March 22, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS SUBSIDIARY GUARANTORS (collectively, the "Subsidiary Guarantors"), THE LENDERS PARTY HERETO, BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Revolving Credit and Participation Agreement dated as of March 14, 2001 (as amended, restated, supplemented or otherwise modified prior to the date hereof, the "Credit Agreement"), by and among Borrowers, the financial institutions parties thereto as Lenders, Administrative Agent and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement (as amended by this Amendment). RECITALS WHEREAS, Borrowers and the undersigned Lenders desire to (i) amend certain provisions of the Credit Agreement to (a) permit the sales of certain interests in Thailand and (b) permit Company to guarantee the indemnification obligations of its Subsidiaries under the relevant sale agreements, and (ii) make certain other amendments to the Credit Agreement as set forth below, in each case subject to the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Provisions Relating to Defined Terms. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "Seventh Amendment" means that certain Seventh Amendment to this Agreement dated as of March 22, 2002. "Seventh Amendment Effective Date" has the meaning assigned to that term in the Seventh Amendment. "Thai Buyers" means, collectively, Rojana Industrial Park Public Company Limited, Sumikin Bussan Corporation, Saha Pathana Inter-Holding Public Company Limited, S&J International Enterprises Public Company Limited, I.C.C. International Public Company Limited and Saha Pathanapibul Public Company Limited. "Thai Companies" means, collectively, (i) Operational Energy Group Limited, a company incorporated under the laws of Thailand that is in the business of operating and maintaining electric power and thermal energy production facilities, (ii) Rojana Power Co. Ltd., a company incorporated under the laws of Thailand that owns a natural gas fueled cogeneration power plant in Ayudthaya, Thailand, and (iii) Sahacogen (Chonburi) Co., Ltd., a company incorporated under the laws of Thailand that owns a natural gas fueled cogeneration power plant in Sriracha, Thailand. "Thai Sale Agreements" means, collectively, (i) the agreements for the sale of the equity interests of Company and its Subsidiaries in the Thai Companies to the Thai Buyers and (ii) all principal documents executed by Company, any of its Subsidiaries or any of the Thai Buyers in connection with such agreements, in each case in the form delivered to Agents and Lenders prior to the Seventh Amendment Effective Date, with such modifications thereto prior to execution and delivery thereof as may be reasonably satisfactory to Agents (it being understood that such agreements and documents may not be modified in a manner that would reasonably be expected to result in a breach of this Agreement or that is material and would reasonably be expected to be adverse to the interests of Borrowers or the Lenders, without the prior written consent of the Requisite Lenders, except that modifications to defer receipt of a portion of the purchase price shall require only the consent of Agents), and as such agreements and documents may be amended, supplemented or otherwise modified after the execution thereof to the extent permitted under this Agreement. 1.2 Provision Relating to Contingent Obligations. Subsection 7.4 of the Credit Agreement is hereby amended by (1) deleting the word "and" at the end of clause (ix), (ii) deleting the "." at the end of clause (x) and substituting "; and" therefor, and (iii) inserting the following new clause (xi) immediately after clause (x): "(xi) On and after consummation of the Asset Sale permitted under subsection 7.7(xv), Covanta Energy Group, Inc. may become and remain liable with respect to Contingent Obligations consisting of guaranties (under the Thai Sale Agreements) of the indemnification obligations of its Subsidiaries to the Thai Buyers." 1.3 Provision Relating to Fundamental Changes. Subsection 7.7 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (xiii), (ii) deleting the "." at the end of clause (xiv) and substituting "; and" therefor, and (iii) inserting the following new clause (xv) immediately after clause (xiv): "(xv) On or after the Seventh Amendment Effective Date, Subsidiaries of Company may sell their respective equity interests in the Thai Companies pursuant to and in accordance with the terms of the Thai Sale Agreements; provided that the aggregate Net Asset Sale Proceeds from such sales shall not be less than $33,000,000 and shall, within one Business Day after receipt thereof (whether received on the date of consummation of such sale or deferred), be deposited in the Cash Collateral Account (it being understood that prior to receipt of any such proceeds Company shall have provided evidence reasonably satisfactory to Agents that Company and its Subsidiaries have made arrangements to effect such deposit on a timely basis), except that not more than $2,000,000 of such Net Asset Sale Proceeds may be deposited in other Collateral Accounts." SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 2.1 Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "Amended Agreement"). 2.2 Authorization of Agreements. The execution and delivery of this Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower. 2.3 No Conflict. The execution and delivery by each Loan Party of this Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Certificate or Articles of Incorporation or Certificate of Formation or Bylaws or Operating Agreement of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, credit agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent or Collateral Agent on behalf of the Banks), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 2.5 Binding Obligation. This Amendment has been duly executed and delivered by each Loan Party, and each of this Amendment and the Amended Agreement is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 2.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the Seventh Amendment Effective Date (as hereinafter defined) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 2.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement, other than the Designated Payment Defaults (as defined in subsection 10.27 of the Credit Agreement). SECTION 3. CONDITIONS TO EFFECTIVENESS Section 1 of this Amendment shall become effective only upon the date on which Agents shall have received (i) substantially final drafts of the Thai Sale Agreements, which shall not contain any provision or contemplate any transaction prohibited by the Amended Agreement and shall otherwise be in form and substance reasonably satisfactory to Agents, and (ii) such other documents and information regarding the Asset Sales contemplated under the Thai Sale Agreements as Agents or Lenders shall have reasonably requested (such date being referred to herein as the "Seventh Amendment Effective Date"). SECTION 4. ACKNOWLEDGEMENT AND CONSENT Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. SECTION 5. MISCELLANEOUS 5.1 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Seventh Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. B. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. D. Company agrees that any failure to comply with the covenants in this Amendment shall be an Event of Default under the Credit Agreement. 5.2 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 5.3 Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. 5.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 5.5 Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment (other than the provisions of Section 1 hereof, the effectiveness of which is governed by Section 3 hereof) shall become effective upon (i) the execution of a counterpart hereof by each Borrower, each Subsidiary Guarantor and Lenders constituting Requisite Lenders, and (ii) receipt by each Borrower, Administrative Agent and Documentation Agent of written or telephonic notification of such execution and authorization of delivery thereof. Section 1 of this Amendment shall become effective only in the manner set forth in Section 3 of this Amendment. [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By:/s/ Jeffrey R. Horowitz ------------------------------------- Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule A annexed hereto, as Borrowers By:/s/ Jeffrey R. Horowitz ------------------------------------- Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule B annexed hereto, as Subsidiary Guarantors By:/s/ William J. Metzger ------------------------------------- Name: William J. Metzger Title: Authorized Officer AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent, Co-Arranger, Co-Book Runner and as a Lender By:/s/ Michael R. Heredia ------------------------------------- Name: Michael R. Heredia Title: Managing Director DEUTSCHE BANK AG, NEW YORK BRANCH As Documentation Agent, Co-Arranger, Co-Book Runner and as a Lender By:/s/ Keith C. Braun ------------------------------------- Name: Keith C. Braun Title: Vice President By:/s/ Clark G. Peterson ------------------------------------- Name: Clark G. Peterson Title: Vice President BANC OF AMERICA SECURITIES LLC, as agent for BANK OF AMERICA, N.A. as a Lender By:/s/ Gregory Ford ------------------------------------- Name: Gregory Ford Title: Managing Director By:/s/ ------------------------------------- Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By:/s/ Michael Novellino ------------------------------------- Name: Michael Novellino Title: Associate Director By:/s/ John W. Sweeney ------------------------------------- Name: John W. Sweeney Title: Director CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender By:/s/ Brian T. McDonough ------------------------------------- Name: Brian T. McDonough Title: Vice-President By:/s/ ------------------------------------- Name: Title: CLARICA LIFE INSURANCE COMPANY, as a Lender By:/s/ Sara M. Alvarado ------------------------------------- Name: Sara M. Alvarado Title: Director, Structured Finance COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES as a Lender By:/s/ Robert J. Donohue ------------------------------------- Name: Robert J. Donohue Title: Senior Vice President By:/s/ Peter Doyle ------------------------------------- Name: Peter Doyle Title: Vice President HSBC BANK CANADA, as a Lender By:/s/ J. S. Brydon ------------------------------------- Name: J. S. Brydon Title: Senior Manager By:/s/ B. W. Pittit ------------------------------------- Name: B. W. Pittit Title: Assistant Vice President HSBC BANK USA, as a Lender By:/s/ Carol A. Kraus ------------------------------------- Name: Carol A. Kraus Title: Vice President THE BANK OF NEW YORK, as a Lender By:/s/ Peter W. Helt ------------------------------------- Name: Peter W. Helt Title: Vice President THE BANK OF NOVA SCOTIA, as a Lender By:/s/ Joseph J. Farricielli, Jr. ------------------------------------- Name: Joseph J. Farricielli, Jr. Title: Director THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By:/s/ Elizabeth A. Quirk ------------------------------------- Name: Elizabeth A. Quirk Title: Vice President U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By:/s/ Alan R. Milster ------------------------------------- Name: Alan R. Milster Title: Vice President WESTDEUTSCHE LANDESBANK GIROZENTRALE, as a Lender By:/s/ Alan S. Bookspan ------------------------------------- Name: Alan S. Bookspan Title: Director By:/s/ Walter T. Duffy, III ------------------------ Name: Walter T. Duffy, III Title: Associate Director EX-10.1J 8 covex10-1j_718.txt EXHIBIT 10.1(j) --------------- DEBTOR-IN POSSESSION CREDIT AGREEMENT DATED AS OF APRIL 1, 2002 AMONG COVANTA ENERGY CORPORATION AND EACH OF ITS U.S. SUBSIDIARIES PARTY HERETO, each as a debtor-in-possession, THE LENDERS LISTED HEREIN, as Lenders, BANK OF AMERICA, N.A., as Administrative Agent, AND DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent BANK OF AMERICA, N.A. AND DEUTSCHE BANK AG, NEW YORK BRANCH, as Co-Lead Arrangers TABLE OF CONTENTS Page No. Section 1. DEFINITIONS......................................................2 1.1 Certain Defined Terms............................................2 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement........................32 1.3 Other Definitional Provisions and Rules of Construction.........32 Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS......................32 2.1 Commitments; Making of Loans; the Register; Optional Notes......32 2.2 Interest on the Loans...........................................37 2.3 Fees............................................................40 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under Subsidiary Guaranty..............................40 2.5 Use of Proceeds.................................................47 2.6 Special Provisions Governing Eurodollar Rate Loans..............48 2.7 Increased Costs; Taxes; Capital Adequacy........................50 2.8 Statement of Lenders; Obligation of Lenders and Issuing Lenders to Mitigate.................................54 2.9 Replacement of a Lender.........................................54 2.10 Superpriority Nature of Obligations.............................56 2.11 Joint and Several Liability; Payment Indemnifications...........57 2.12 Subordination of Tranche B Obligations; Relative Rights.........57 2.13 Tranche B Lenders' Approval of Plan of Reorganization...........58 Section 3. LETTERS OF CREDIT...............................................59 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein..............................59 3.2 Letter of Credit Fees...........................................63 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit.........................................64 3.4 Obligations Absolute............................................67 3.5 Nature of Issuing Lenders' Duties...............................68 Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT.......................69 4.1 Conditions to Closing Date......................................69 4.2 Conditions to All Loans.........................................74 4.3 Conditions to Tranche A Letters of Credit.......................76 Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES........................76 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries.......................................76 5.2 Authorization of Borrowing, etc.................................77 5.3 Financial Condition.............................................78 5.4 No Material Adverse Change; No Restricted Payments..............79 5.5 Title to Properties; Liens; Real Property; Intellectual Property...........................................79 5.6 Litigation; Adverse Facts.......................................80 5.7 Payment of Taxes................................................80 5.8 Performance of Agreements; Material Contracts...................80 5.9 Governmental Regulation.........................................81 5.10 Securities Activities...........................................81 5.11 Employee Benefit Plans..........................................81 5.12 Certain Fees....................................................82 5.13 Environmental Protection........................................82 5.14 Employee Matters................................................83 5.15 Matters Relating to Collateral..................................83 5.16 Disclosure......................................................85 5.17 Prepetition Indebtedness........................................85 5.18 Cash Management System..........................................86 5.19 Orders..........................................................86 5.20 Matters Relating to Loan Parties................................86 Section 6. COMPANY'S AFFIRMATIVE COVENANTS.................................87 6.1 Financial Statements and Other Reports..........................87 6.2 Existence, etc..................................................93 6.3 Payment of Taxes and Claims; Tax................................94 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/ Condemnation Proceeds.........................94 6.5 Inspection Rights; Lender Meeting...............................96 6.6 Compliance with Laws, etc.......................................96 6.7 Environmental Matters...........................................97 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents After the Closing Date............................................................99 6.9 Matters Relating to Additional Real Property Collateral........101 6.10 Cash Management System.........................................101 6.11 Retention of Advisors..........................................101 6.12 Workers' Compensation Letters of Credit........................102 6.13 Renewal of Existing Performance Bonds..........................102 6.14 Further Assurances.............................................102 Section 7. BORROWERS' NEGATIVE COVENANTS..................................103 7.1 Indebtedness...................................................104 7.2 Liens and Related Matters......................................105 7.3 Investments; Acquisitions......................................106 7.4 Contingent Obligations.........................................108 7.5 Restricted Payments; Limitation on Repayments..................108 7.6 Budget and Financial Covenants.................................109 7.7 Restriction on Fundamental Changes; Asset Sales................110 7.8 Bonus and Retention Arrangements...............................112 7.9 Transactions with Shareholders and Affiliates..................113 7.10 Restriction on Leases..........................................113 7.11 Sales and Lease-Backs..........................................114 7.12 Conduct of Business............................................114 7.13 Chapter11 Claims...............................................114 7.14 Agreements; Orders.............................................114 7.15 Fiscal Year....................................................115 Section 8. EVENTS OF DEFAULT..............................................115 8.1 Failure to Make Payments When Due..............................115 8.2 Default in Other Agreements....................................115 8.3 Breach of Certain Covenants....................................116 8.4 Breach of Warranty.............................................116 8.5 Other Defaults Under Loan Documents............................116 8.6 Bankruptcy Events..............................................116 8.7 Judgments and Attachments......................................118 8.8 Dissolution....................................................118 8.9 Employee Benefit Plans.........................................119 8.10 Material Adverse Effect........................................119 8.11 Change in Control..............................................119 8.12 Invalidity of Subsidiary Guaranty; Failure of Security; Repudiation of Obligations.....................................119 8.13 Canadian Bankruptcy Events.....................................119 8.14 Restructuring Advisor..........................................120 8.15 Termination of Material Contracts..............................120 Section 9. ADMINISTRATIVE AGENT...........................................121 9.1 Appointment....................................................121 9.2 Powers and Duties; General Immunity............................122 9.3 Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness...............124 9.4 Right to Indemnity.............................................124 9.5 Successor Agents...............................................124 9.6 Collateral Documents and Guaranties............................125 9.7 Administrative Agent May File Proofs of Claim..................126 Section 10.MISCELLANEOUS..................................................126 10.1 Successors and Assigns; Assignments and Participations in Loans and Letters of Credit..................126 10.2 Expenses.......................................................130 10.3 Indemnity......................................................132 10.4 Set-Off........................................................133 10.5 Ratable Sharing................................................133 10.6 Amendments and Waivers.........................................134 10.7 Independence of Covenants......................................137 10.8 Notices; Effectiveness of Signatures...........................137 10.9 Survival of Representations, Warranties and Agreements.................................................137 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative............................................138 10.11 Marshalling; Payments Set Aside................................138 10.12 Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver.................................138 10.13 Headings.......................................................139 10.14 Applicable Law.................................................139 10.15 Construction of Agreement......................................139 10.16 Consent to Jurisdiction and Service of Process.................139 10.17 Waiver of Jury Trial...........................................140 10.18 Confidentiality................................................141 10.19 Release of Parties; Waivers....................................141 10.20 No Fiduciary Duty..............................................143 10.21 Counterparts; Effectiveness....................................143 10.22 Parties Including Trustees; Court Proceedings..................143 Signature pages S-1 EXHIBITS I FORM OF NOTICE OF BORROWING II FORM OF NOTICE OF CONVERSION/CONTINUATION III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT IV-A FORM OF TRANCHE A NOTE IV-B FORM OF TRANCHE B NOTE V FORM OF COMPLIANCE CERTIFICATE VI FORM OF ASSIGNMENT AGREEMENT VII FORM OF SUBSIDIARY GUARANTY VIII FORM OF SECURITY AGREEMENT IX FORM OF INTERIM BORROWING ORDER X [INTENTIONALLY OMITTED] XI FORM OF MONTHLY BUDGET XII FORM OF BORROWING SUBSIDIARY AGREEMENT XIII MATTERS TO BE COVERED IN THE OPINIONS OF COUNSEL TO LOAN PARTIES XIV FORM OF MORTGAGE XV FORM OF FIRST AMENDMENT TO INTERCREDITOR AGREEMENT SCHEDULES 1.1A EXISTING L/Cs 1.1B EQUITY BONDS 1.1C PRINCIPAL LEASE, SERVICE AND OPERATING AGREEMENTS 1.1D INTERIM BORROWING ORDER EXISTING L/Cs 1.1E FINAL BORROWING ORDER EXISTING L/Cs 1.1F APPROVED ASSET SALES 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 2.4A(iii)(f) DEBT SERVICE RESERVE ACCOUNTS 3.1A(i) TRANCHE A LETTER OF CREDIT OBLIGATIONS 4.1K CLOSING DATE MORTGAGED PROPERTIES 4.1Q CASH MANAGEMENT SYSTEM 5.1 COMPANY AND SUBSIDIARIES 5.5B REAL PROPERTY 5.5C INTELLECTUAL PROPERTY 5.6 LITIGATION 5.8A CERTAIN ALLEGED DEFAULTS 5.8C MATERIAL CONTRACTS 5.11 MATTERS RELATING TO EMPLOYEE BENEFIT PLANS 5.13 ENVIRONMENTAL MATTERS 7.1 CERTAIN EXISTING INDEBTEDNESS 7.2 CERTAIN EXISTING LIENS 7.3 CERTAIN EXISTING INVESTMENTS 7.3(iv) ADDITIONAL PERMITTED INVESTMENTS 7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.11 CERTAIN PREPETITION LEASING TRANSACTIONS COVANTA ENERGY CORPORATION DEBTOR-IN-POSSESSION CREDIT AGREEMENT This DEBTOR-IN-POSSESSION CREDIT AGREEMENT is dated as of April 1, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), as a debtor and a debtor-in-possession; EACH OF COMPANY'S U.S. SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF, each as a debtor and a debtor-in-possession (each such Subsidiary and Company individually referred to herein as a "Borrower" and, collectively (together with any Additional Subsidiary Borrowers (this and other capitalized terms used in the recitals hereto without definition being used as defined in subsection 1.1)), on a joint and several basis, as "Borrowers"); THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually referred to herein as a "Lender" and collectively as "Lenders"); DEUTSCHE BANK AG, NEW YORK BRANCH ("Deutsche Bank"), as documentation agent for Lenders (in such capacity, "Documentation Agent"); and BANK OF AMERICA, N.A. ("BofA"), as administrative agent for Lenders (in such capacity, "Administrative Agent"). R E C I T A L S WHEREAS, on April 1, 2002 (the "Petition Date"), each Borrower filed a voluntary petition for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (such proceedings being jointly administered under Case Nos. 02-_____ through 02-_____ are hereinafter referred to as the "Chapter 11 Cases"), and each Borrower continues to operate its businesses and manage its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, Borrowers have requested Lenders to provide, subject to the terms and conditions contained herein, debtor-in-possession revolving credit facilities of up to $115,000,000 in the aggregate for the Borrowers, including (i) a credit line for cash borrowings of up to $100,800,000, and (ii) a letter of credit subfacility of up to $14,200,000 to issue letters of credit, as set forth herein, and Lenders are willing to extend such post-Petition Date credit to Borrowers in accordance with and on the terms and conditions set forth herein; WHEREAS, Company, certain of the Borrowers and other Subsidiaries of Company and Prepetition Lenders are parties to the Prepetition Credit Agreement, under which the Existing L/Cs have been issued for the account of Company and certain Borrowers and other Subsidiaries of Company; and WHEREAS, issuing and/or maintaining such Existing L/Cs outstanding under the Prepetition Credit Agreement permitted Borrowers to continue to operate and accommodated Borrowers' efforts to reorganize and commence the Chapter 11 Cases; and WHEREAS, Lenders are willing to provide the debtor-in-possession revolving credit facilities described above only if (i) such Existing L/Cs can be replaced by letters of credit issued or deemed issued under a debtor-in-possession letter of credit facility of up to $367,853,962 in the aggregate for the Borrowers, subject to the terms and conditions contained herein, (ii) all Obligations of Borrowers (including the obligations with respect to the replacement letters of credit referred to in the preceding clause (i)) shall constitute allowed administrative expense claims in the Chapter 11 Cases as set forth herein, and (iii) all Obligations shall be secured by Liens having the priority set forth herein; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Lenders and Agents agree as follows: Section 1. DEFINITIONS 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings: "Additional Subsidiary Borrower" has the meaning assigned to that term in subsection 6.8E. "Adequate Protection Provisions" means those provisions in the Interim Borrowing Order and the Final Borrowing Order providing Prepetition Lenders the adequate protection set forth therein. "Administrative Agent" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Administrative Agent appointed pursuant to subsection 9.5. "Advance Limit" means, with respect to Tranche A Loans (other than Tranche A Loss Sharing Loans and Tranche A Loans made pursuant to subsection 3.3B), (i) as of any date from the Closing Date until the entry of the Final Borrowing Order, $20,000,000, and (ii) thereafter, as of any date of determination during any calendar month set forth below, the aggregate amount set forth below for such calendar month: Calendar Month Advance Limit ----------------- ----------------- April 2002 $25,000,000 May 2002 $60,000,000 June 2002 $55,000,000 July 2002 $40,000,000 August 2002 $40,000,000 September 2002 $40,000,000 October 2002 $40,000,000 November 2002 $50,000,000 December 2002 $40,000,000 January 2003 $40,000,000 February 2003 $40,000,000 March 2003 $40,000,000 April 2003 $40,000,000 ; provided, however, that in the event the Thai Asset Sale is consummated (whether prior to or after the Closing Date), each of the amounts set forth in the table above shall be reduced by $20,000,000 commencing with the amount for the calendar month in which the Thai Asset Sale is consummated or, if later, April 2002. "Affected Lender" has the meaning assigned to that term in subsection 2.6C. "Affected Loans" has the meaning assigned to that term in subsection 2.6C. "Affiliate", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a Project manager or operator), whether through the ownership of voting securities or by contract or otherwise. "Agents" means Administrative Agent and Documentation Agent, and "Agent" means either one of them. "Agreement" means this Debtor-in-Possession Credit Agreement dated as of April 1, 2002, as it may be amended, restated, supplemented or otherwise modified from time to time. "Applicable Conversion Date" means (i) with respect to the Existing L/Cs listed on Schedule 1.1D, the date of entry of the Interim Borrowing Order, and (ii) with respect to the Existing L/Cs listed on Schedule 1.1E, the date of entry of the Final Borrowing Order. "Approved Asset Sales" means, collectively, the sales of the Subsidiaries, divisions or businesses of Company and its Subsidiaries (including the equity interests of certain Subsidiaries and their assets or of Company's or any of its Subsidiaries' interests in Projects) described on Schedule 1.1F annexed hereto. "Approved Fund" means a Fund that is administered or managed by (i) a Lender, (ii) an Affiliate of a Lender or (iii) an entity or an Affiliate of an entity that administers or manages a Lender. "Asset Sale" means the sale by Company or any of its Subsidiaries to any Person of (i) any of the stock of any of Company's Subsidiaries, (ii) substantially all of the assets of any division or line of business of Company or any of its Subsidiaries, or (iii) any other assets (whether tangible or intangible) of Company or any of its Subsidiaries (other than (a) inventory sold in the ordinary course of business and (b) any such other assets to the extent that the aggregate value of such assets sold in any single transaction or related series of transactions is equal to $250,000 or less and the aggregate value of all such other assets since the Closing Date is equal to $1,000,000 or less), and shall include any Approved Asset Sale; provided, however, that Asset Sales shall not include (1) any sale or discount, in each case without recourse, of accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof as permitted under subsection 7.7(iv), (2) any sale or exchange of specific items of equipment, so long as the purpose of each such sale or exchange is to acquire (and results within 90 days of such sale or exchange in the acquisition of) replacement items of equipment which are the functional equivalent of the item of equipment so sold or exchanged, or (3) disposals of obsolete, worn out or surplus property in the ordinary course of business. "Assignment Agreement" means an Assignment Agreement in substantially the form of Exhibit VI annexed hereto. "Bankruptcy Code" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "Bankruptcy Court" has the meaning assigned to that term in the recitals to this Agreement. "Base Rate" means, at any time, the higher of (i) the Prime Rate or (ii) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate. Any change in the Base Rate due to a change in the Prime Rate or the Federal Funds Effective Rate shall be effective on the effective date of such change. "Base Rate Loans" means Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "Base Rate Margin" means a per annum rate equal to 2.50%. "BofA" has the meaning assigned to that term in the introduction to this Agreement. "Borrowers" has the meaning assigned to that term in the introduction to this Agreement. "Borrowing Orders" means the Interim Borrowing Order and the Final Borrowing Order. "Borrowing Subsidiary Agreement" means a Borrowing Subsidiary Agreement, in substantially the form of Exhibit XII annexed hereto. "Budget Period" means, as of any date of determination, the date from the Petition Date through and including the Stated Maturity Date (determined as of such date of determination). "Business Day" means (i) for all purposes other than as covered by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close, and (ii) with respect to all notices, determinations, fundings and payments in connection with the Eurodollar Rate or any Eurodollar Rate Loans, any day that is a Business Day described in clause (i) above and that is also a day for trading by and between banks in Dollar deposits in the London interbank market. "Canadian Subsidiaries" means any or all of the Subsidiaries of Company incorporated or otherwise organized under the laws of Canada or any province of Canada. "Capital Expenditures" means cash expenditures by Company and its Subsidiaries that, in conformity with GAAP, would be included in "additions to property, plant or equipment" or comparable items reflected in the consolidated statement of cash flows of Company and its Subsidiaries for the relevant period. "Capital Lease", as applied to any Person, means any lease of any property (whether real, personal or mixed) by that Person as lessee that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of that Person. "Capital Stock" means the capital stock or other equity interests of a Person. "Carve-Outs" has the meaning assigned to that term in subsection 2.10. "Cash" means money, currency or a credit balance in a Deposit Account. "Cash Balance" means, as at any time of determination, the sum of the dollar amount of all money, currency, Domestic Cash Equivalents and credit balances held or carried in the Concentration Accounts, after giving effect to checks issued and outstanding and any administrative holds assessed by the financial institution maintaining the Concentration Accounts. "Cash Collateral Account" has the meaning assigned to that term in the Prepetition Loan Documents. "Cash Management System" means the cash management system of Borrowers described in Schedule 4.1Q annexed hereto. "CCAA" means the Companies' Creditors Arrangement Act (Canada), as now and hereafter in effect, or any successor statute or statutes. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C.ss.9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Change in Control" means the acquisition of beneficial ownership or control, directly or indirectly, by any Person acting alone or in concert with one or more other Persons, of Securities of Company (or other Securities convertible into such Securities) representing 30% or more of the combined voting power of all Securities of Company entitled to vote in the election of members of the Governing Body of Company, other than Securities having such power only by reason of the happening of a contingency. "Chapter 11 Cases" has the meaning assigned to that term in the recitals to this Agreement. "Class" means, as applied to Lenders, each of the following classes of Lenders: (i) Tranche A Lenders and (ii) Tranche B Lenders. "Closing Date" means the date on which each of the conditions described in subsection 4.1 have been satisfied or waived by Agents and Requisite Lenders. "Collateral" means, collectively, all of the real, personal and mixed property (including Capital Stock) in which Liens are purported to be granted pursuant to the Collateral Documents, the Interim Borrowing Order and the Final Borrowing Order as security for the Obligations. "Collateral Accounts" means (i) the Cash Collateral Account, (ii) the concentration account maintained with BofA in the Cash Management System and (iii) the primary operating accounts maintained with BofA for Covanta Energy Group, Covanta Power, Covanta Holdings and Covanta Water Systems, Inc.; provided, that Collateral Accounts shall in no event include (x) any foreign accounts or (y) any debt service reserve accounts or cash collateral accounts established to make payments of Limited Recourse Debt. "Collateral Documents" means the Security Agreement, the Foreign Pledge Agreements, the Mortgages and all other instruments or documents delivered from time to time by any Loan Party pursuant to this Agreement, any of the other Loan Documents or an applicable order of the Bankruptcy Court in order to grant to Administrative Agent, on behalf of Lenders, a Lien on any real, personal or mixed property of that Loan Party as security for the Obligations. "Commitments" means one or more of the Tranche A Commitments or the Tranche B Commitments or any combination thereof. "Commodities Agreement" means any long-term or forward purchase contract or option contract to buy, sell or exchange commodities or similar agreement or arrangement to which Company or any of its Subsidiaries is a party unless, under the terms of such contract, option contract agreement or arrangement Company expects to make or take delivery of the commodities which are the subject thereof. "Company" has the meaning assigned to that term in the introduction to this Agreement. "Competitor" means any Person (and its Affiliates) primarily engaged in the business of the generation and sale of electricity. "Compliance Certificate" means a certificate substantially in the form of Exhibit V annexed hereto. "Concentration Accounts" means the Concentration Accounts for the Cash Management System as identified in Schedule 4.1Q annexed hereto. "Consolidated Operating Income" means, for any period, the amount for such period of "Consolidated Operating Income", whether such item is so titled or otherwise titled, as reflected in the "Consolidated Statement of Income and Comprehensive Income" (whether so titled or otherwise titled) of Company and its Subsidiaries prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amounts in Company's quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date. "Contingent Obligation", as applied to any Person, means any direct or indirect liability, contingent or otherwise, of that Person (i) with respect to any Indebtedness, lease, dividend or other obligation of another if the primary purpose or intent thereof by the Person incurring the Contingent Obligation is to provide assurance to the obligee of such obligation of another that such obligation of another will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such obligation will be protected (in whole or in part) against loss in respect thereof, (ii) with respect to any letter of credit issued for the account of that Person or as to which that Person is otherwise liable for reimbursement of drawings, (iii) under Hedge Agreements, or (iv) with respect to performance bonds, construction bonds, surety bonds or other similar instruments (or with respect to the procurement or provision thereof) provided or to be provided by another Person. Contingent Obligations shall include (a) the direct or indirect guaranty, endorsement (otherwise than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of another, (b) the obligation to make take-or-pay or similar payments if required regardless of non-performance by any other party or parties to an agreement, and (c) any liability of such Person for the obligation of another through any agreement (contingent or otherwise) (1) to purchase, repurchase or otherwise acquire such obligation or any security therefor, or to provide funds for the payment or discharge of such obligation (whether in the form of loans, advances, stock purchases, capital contributions or otherwise) or (2) to maintain the solvency or any balance sheet item, level of income or financial condition of another if, in the case of any agreement described under subclauses (1) or (2) of this sentence, the primary purpose or intent thereof is as described in the preceding sentence. The amount of any Contingent Obligation shall be equal to the amount (if stated) of the obligation so guaranteed or otherwise supported or, if less, the amount to which such Contingent Obligation is specifically limited, or, if the amount of any Contingent Obligation is not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by Company in good faith based upon reasonable assumptions. No obligations under Performance Guaranties shall constitute Contingent Obligations. "Contractual Obligation", as applied to any Person, means any provision of any Security issued by that Person or of any material indenture, mortgage, deed of trust, contract, undertaking, agreement or other instrument to which that Person is a party or by which it or any of its properties is bound or to which it or any of its properties is subject. "Currency Agreement" means any foreign exchange contract, currency swap agreement, or option contract to buy, sell or exchange currencies or other similar agreement or arrangement to which Company or any of its Subsidiaries is a party. "Defaulted Loan" has the meaning assigned to that term in subsection 2.9. "Defaulted Participation" has the meaning assigned to that term in subsection 2.9. "Default Excess" has the meaning assigned to that term in subsection 2.9. "Defaulting Lender" has the meaning assigned to that term in subsection 2.9. "Default Period" has the meaning assigned to that term in subsection 2.9. "Deposit Account" means a demand, time, savings, passbook or similar account maintained with a Person engaged in the business of banking, including a savings bank, savings and loan association, credit union or trust company. "Deutsche Bank" has the meaning assigned to that term in the introduction to this Agreement. "Documentation Agent" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Documentation Agent appointed pursuant to subsection 9.5. "Dollars" and the sign "$" mean the lawful money of the United States of America. "Domestic Cash Equivalents" means, as at any date of determination, (i) marketable securities (a) issued or directly and unconditionally guaranteed as to interest and principal by the United States Government or (b) issued by any agency of the United States the obligations of which are backed by the full faith and credit of the United States, in each case maturing within 30 days after such date; (ii) marketable direct obligations issued by any state of the United States of America or any political subdivision of any such state or any public instrumentality thereof, in each case maturing within 30 days after such date and having, at the time of the acquisition thereof, the highest rating obtainable from either Standard & Poor's ("S&P") or Moody's Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more than 30 days from the date of creation thereof and having, at the time of the acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv) certificates of deposit or bankers' acceptances maturing within 30 days after such date and issued or accepted by any Lender or by any commercial bank organized under the laws of the United States of America or any state thereof or the District of Columbia that (a) is at least "adequately capitalized" (as defined in the regulations of its primary Federal banking regulator) and (b) has Tier 1 capital (as defined in such regulations) of not less than $100,000,000; (v) shares of any money market mutual fund that (a) has at least 95% of its assets invested continuously in the types of investments referred to in clauses (i) and (ii) above, (b) has net assets of not less than $500,000,000, and (c) has the highest rating obtainable from either S&P or Moody's; and (vi) such other securities as Company and Agents may agree on from time to time. "Domestic Subsidiary" means any Subsidiary of any Borrower that is incorporated or organized under the laws of the United States of America, any state thereof or in the District of Columbia. "Eligible Assignee" means (i) any Person which is a holder of Prepetition Obligations at the time of the relevant assignment and which is (a) a commercial bank organized under the laws of the United States or any state thereof; (b) a savings and loan association or savings bank organized under the laws of the United States or any state thereof; (c) a commercial bank organized under the laws of any other country or a political subdivision thereof; provided that (1) such bank is acting through a branch or agency located in the United States or (2) such bank is organized under the laws of a country that is a member of the Organization for Economic Cooperation and Development or a political subdivision of such country; or (d) any other financial institution that extends credit or buys loans as one of its businesses; (ii) any Lender and any Affiliate of any Lender; or (iii) any other Person designated as an Eligible Assignee pursuant to the prior written consent of Agents in their sole discretion; provided that neither Company nor any Affiliate of Company nor any Competitor shall be an Eligible Assignee; and provided further that, in order to be an Eligible Assignee, a Person must have at the time of determination a long term senior unsecured debt rating of "A2" or better from Moody's and/or "A" or better from S&P. "Employee Benefit Plan" means any "employee benefit plan" as defined in Section 3(3) of ERISA which is maintained or contributed to by Company, any of its Subsidiaries or any of their respective ERISA Affiliates. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Government Authority or any other Person, arising (i) pursuant to or in connection with any actual or alleged violation of any Environmental Law, or (ii) in connection with any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Authorizations, or any other requirements of any Government Authority relating to (i) environmental matters, including those relating to any Hazardous Materials Activity, (ii) the generation, use, storage, transportation or disposal of Hazardous Materials, or (iii) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company or any of its Subsidiaries or any Facility. "Equity Bonds" means, collectively, the Indebtedness of certain Subsidiaries of Company outstanding on the Closing Date with respect to the bond issuances described on Schedule 1.1B annexed hereto, in each case as such bonds may hereafter be amended, supplemented or otherwise modified to the extent permitted under this Agreement. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporation that is a member of a controlled group of corporations within the meaning of Section 414(b) of the Internal Revenue Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) that is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Internal Revenue Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Internal Revenue Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (i) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation); (ii) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (iv) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in liability of Company or any of its Subsidiaries pursuant to Section 4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if it would reasonably be expected that Company or any of its Subsidiaries will incur material liability therefor, or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the assertion of a material claim (other than routine claims for benefits) against any Employee Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Employee Benefit Plan; (ix) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Employee Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or of the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code; or (x) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Eurodollar Rate" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum obtained by dividing (i) the rate per annum (rounded upward to the nearest 1/16 of one percent) that appears on the Dow Jones Markets (Telerate) page 3750 (or such other comparable page as may, in the opinion of Administrative Agent, replace such page for the purpose of displaying such rate) with maturities comparable to such Interest Period as of approximately 10:00 a.m. (London time) on such Interest Rate Determination Date by (ii) a percentage equal to 100% minus the stated maximum rate of all reserve requirements (including any marginal, emergency, supplemental, special or other reserves) applicable on such Interest Rate Determination Date to any member bank of the Federal Reserve System in respect of "Eurocurrency liabilities" as defined in Regulation D (or any successor category of liabilities under Regulation D). "Eurodollar Rate Loans" means Loans bearing interest at rates determined by reference to the Eurodollar Rate as provided in subsection 2.2A. "Eurodollar Rate Margin" means a per annum rate equal to 3.50%. "Event of Default" has the meaning assigned to that term in Section 8. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "Excluded Subsidiary" means each Domestic Subsidiary of Company which (i) has not filed a petition for relief under the Bankruptcy Code and (ii) is a Subsidiary for which becoming a Borrower or a Subsidiary Guarantor would constitute a material violation of (a) a valid and enforceable Contractual Obligation in favor of a Person other than Company or any of its Subsidiaries for which the required consents have not been obtained or (b) applicable law affecting such Subsidiary, provided that any such Subsidiary of Company shall cease to be covered under this clause (ii) at such time as such Subsidiary's becoming a Borrower or a Subsidiary Guarantor would no longer constitute a material violation of such Contractual Obligation or applicable law, whether as a result of obtaining the required consents or otherwise. A Domestic Subsidiary of Company formed after the Closing Date may become an Excluded Subsidiary if Company notifies Administrative Agent that (i) such Subsidiary has no material assets other than contracts, permits, licenses and similar contracts and instruments connected to the development of a Project otherwise permitted under this Agreement and (ii) in connection with such Project it is necessary to enter into a valid and enforceable Contractual Obligation in favor of a Person other than Company or any of its Subsidiaries for which the required consents have not been obtained. Upon such notice Administrative Agent shall promptly take such actions as are necessary to relinquish the security interest in such Subsidiary. "Existing L/C" means each letter of credit outstanding as of the Closing Date that is described on Schedule 1.1A annexed hereto, as each such letter of credit may be amended, restated, supplemented or otherwise modified as permitted under this Agreement, and "Existing L/Cs" means all such letters of credit, collectively. "Existing L/C Issuer" means, with respect to any Existing L/C, the Lender that issued such Existing L/C. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by any Borrower or any of its Subsidiaries or any of their respective predecessors or Affiliates. "Federal Funds Effective Rate" means, for any period, a fluctuating interest rate equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by Administrative Agent from three Federal funds brokers of recognized standing selected by Administrative Agent. "FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C.ss.136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Final Borrowing Order" means an order substantially in the form of the Interim Borrowing Order (with any modifications thereto approved by Agents and Requisite Lenders (or all Lenders if required pursuant to clause (iii) of the following proviso) in their sole discretion) entered by the Bankruptcy Court in the Chapter 11 Cases after a final hearing under Bankruptcy Rule 4001(c)(2), as the same may be amended, supplemented or otherwise modified from time to time; provided, however, that such order shall not be deemed the Final Borrowing Order for purposes of this Agreement unless (i) at least eleven (11) days have elapsed since the entry of such order, (ii) such order has not been reversed or stayed by the Bankruptcy Court or any other court of competent jurisdiction, (iii) such order is in full force and effect substantially in the form of the Interim Borrowing Order without amendment, supplement or other modification other than amendments, supplements or modifications made with the express written consent or joinder of Agents and Requisite Lenders and approved by the Bankruptcy Court (provided, however, that the express written consent of all Lenders shall be required in the event that such amendments, supplements or modifications result in less than 50% of the original Tranche B Loan Exposure of all Lenders having the priority and administrative claim status described in subsection 2.10 as being applicable to the Obligations), and (iv) substantially concurrent with the entry of such order, Borrowers shall have delivered to Agents and Lenders a consolidated cash forecast for Company and its Subsidiaries, in form consistent with the Monthly Budget delivered to Agents pursuant to subsection 4.1F hereof (with line items for projected cash receipts and cash expenditures corresponding to those in such Monthly Budget) and in substance satisfactory to Requisite Lenders in their sole discretion, with monthly projections for the immediately following month and each other month remaining in the Budget Period, together with an explanation of the material assumptions on which such projections are based. Any reference in this Agreement (other than in this definition, in the definitions of "Applicable Conversion Date" and "Termination Date", and in subsections 2.1A(ii), 2.4A(ii) and 8.6) and the Loan Documents to the date of "entry" of the Final Borrowing Order shall be deemed to refer to the date which is 11 days following the entry of such order, so long as such order has not been reversed or stayed by the Bankruptcy Court or any other court of competent jurisdiction. "Final Order" means an order, judgment or other decree of the Bankruptcy Court or any other court or judicial body with proper jurisdiction, as the case may be, which is in full force and effect and which has not been reversed, stayed, modified or amended and as to which (i) any right to appeal or seek certiorari, review or rehearing has been waived or (ii) the time to appeal or seek certiorari, review or rehearing has expired and as to which no appeal or petition for certiorari, review or rehearing is pending. "First Day Orders" means those orders entered by the Bankruptcy Court as a result of motions and applications filed by Borrowers with the Bankruptcy Court on the Petition Date (including the Project Cash Collateral Order), in each case in form and substance as approved by Requisite Lenders pursuant to subsection 4.1D. "Fiscal Quarter" means a fiscal quarter of any Fiscal Year. "Fiscal Year" means the fiscal year of Company and its Subsidiaries ending on December 31st of each calendar year. "Flood Hazard Property" means any real property that is subject to a Mortgage and is located in an area designated by the Federal Emergency Management Agency as having special flood or mud slide hazards. "Foreign Cash Equivalents" means, as at any date of determination, (i) securities issued or directly and fully guaranteed by the government of the country within which an Investment by Company or any of its Subsidiaries has been or is being made and (ii) time deposits and certificates of deposit of commercial banks having offices in such country, in each case with a long term unsecured debt rating of at least equal to (a) the rating of the relevant government, in the event that such government is rated below investment grade by either Moody's or S&P, or when there is no Moody's or S&P rating of such government, (b) investment grade in the event that the relevant government is rated above investment grade by either Moody's or S&P, or (c) "A" or better to the extent that the relevant government is rated better than "A" by either Moody's or S&P, and (iii) such other securities as Company and Administrative Agent may agree on from time to time. "Foreign Pledge Agreement" means each pledge agreement or similar instrument governed by the laws of a country other than the United States, executed on the Closing Date or from time to time thereafter in accordance with subsection 6.8C by any Borrower or any Domestic Subsidiary that owns Capital Stock of one or more Foreign Subsidiaries organized in such country, in form and substance satisfactory to Administrative Agent, as such Foreign Pledge Agreement may be amended, restated, supplemented or otherwise modified from time to time. "Foreign Subsidiary" means any Subsidiary of any Borrower that is not a Domestic Subsidiary. "Fund" means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business. "Funding and Payment Office" means (i) the office of Administrative Agent located at 1 Independence Center, 101 North Tryon Street, Charlotte, N.C. 28255 or (ii) such other office of Administrative Agent as may from time to time hereafter be designated as such in a written notice delivered by Administrative Agent to Company and each Lender. "Funding Borrower" has the meaning assigned to that term in subsection 2.11C. "Funding Date" means the date of the funding of a Loan. "Funding Default" has the meaning assigned to that term in subsection 2.9. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, accounting principles generally accepted in the United States of America set forth in opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as are approved by the American Institute of Certified Public Accountants. "Governing Body" means the board of directors or other body having the power to direct or cause the direction of the management and policies of a Person that is a corporation, partnership, trust or limited liability company. "Government Authority" means any political subdivision or department thereof, any other governmental or regulatory body, commission, central bank, board, bureau, organ or instrumentality or any court, in each case whether federal, state, local or foreign. "Governmental Authorization" means any permit, license, registration, authorization, plan, directive, consent, order or consent decree of or from, or notice to, any Government Authority. "Gross Receipts" means, in respect of any Asset Sale, the total Cash payments (including any Cash received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) received from such Asset Sale minus any repayment of debt related to the assets sold in such Asset Sale which is made in connection therewith and is not prohibited under this Agreement. "Group" has the meaning assigned to that term in the Intercreditor Agreement. "Hazardous Materials" means (i) any chemical, material or substance at any time defined as or included in the definition of (a) "hazardous wastes" or "mixed wastes" as defined in RCRA or in any other Environmental Law; (b) "hazardous substances", "pollutants" or "contaminants" as defined in CERCLA or in any other Environmental Law; (c) "chemical substances" or "mixtures" as defined in TSCA or any other substance which is tested pursuant to TSCA or any other Environmental Law, or the manufacture, processing, distribution, use or disposal of which is regulated or prohibited pursuant to TSCA or any other Environmental Law, including without limitation polychlorinated biphenyls and electrical equipment which contains any oil or dielectric fluid containing regulated concentrations of polychlorinated biphenyls; (d) "insecticides", "fungicides", "pesticides" or "rodenticides" as defined in FIFRA or any other Environmental Law; or (e) "infectious waste" or "biohazardous waste" as defined in any Environmental Law; (ii) asbestos or any asbestos-containing materials; (iii) urea formaldehyde foam insulation; (iv) any oil, petroleum, petroleum fraction or petroleum derived substance; (v) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (vi) any flammable substances or explosives; (vii) any radioactive materials; and (viii) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Government Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "Hazardous Materials Activity" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "Hedge Agreement" means an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively. "Indebtedness", as applied to any Person, means (i) all indebtedness for borrowed money, (ii) that portion of obligations with respect to Capital Leases that is properly classified as a liability on a balance sheet in conformity with GAAP, (iii) notes payable and drafts accepted representing extensions of credit whether or not representing obligations for borrowed money, (iv) any obligation owed for all or any part of the deferred purchase price of property or services received by such Person (excluding any such obligations incurred under ERISA), which purchase price is (a) due more than six months from the date of incurrence of the obligation in respect thereof or (b) evidenced by a promissory note or similar written instrument, but excluding in either case current trade payables incurred in the ordinary course of business and payable in accordance with customary practices, (v) Synthetic Lease Obligations, and (vi) all indebtedness secured by any Lien on any property or asset owned by that Person regardless of whether the indebtedness secured thereby shall have been assumed by that Person or is nonrecourse to the credit of that Person. Any obligations under Interest Rate Agreements and Currency Agreements constitute (1) in the case of Hedge Agreements, Contingent Obligations, and (2) in all other cases, Investments, and in neither case constitute Indebtedness. For purposes of this Agreement, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture in which such Person is a general partner or a joint venturer, unless the Indebtedness of such partnership or joint venture is expressly Limited Recourse Debt of such partnership or joint venture. "Indemnified Liabilities" has the meaning assigned to that term in subsection 10.3. "Indemnitee" has the meaning assigned to that term in subsection 10.3. "Initial CCAA Order" means an order made by a Canadian court of competent jurisdiction under the CCAA declaring that all or any Canadian Subsidiaries are companies to which the CCAA applies, authorizing such Canadian Subsidiaries to file a plan or plans of compromise or arrangement under the CCAA, staying any proceedings taken or that might be taken in respect of such Canadian Subsidiaries except as expressly provided therein, and granting certain other ancillary relief. "Intellectual Property" means all patents, trademarks, tradenames, copyrights, technology, software, know-how and processes used in or necessary for the conduct of the business of Borrowers and their Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Borrowers and their Subsidiaries, taken as a whole. "Intercompany Notes" means promissory notes evidencing Indebtedness of Subsidiaries of Company that (a) to the extent the Indebtedness evidenced thereby is owed to any Borrower or any Subsidiary Guarantor, is pledged pursuant to the Collateral Documents, (b) is senior Indebtedness of such Subsidiary (except to the extent that requiring such Indebtedness to be senior would breach a contractual obligation binding on such Subsidiary), except that any such Indebtedness owed by any Subsidiary Guarantor to any Subsidiary which is not a Borrower shall be subordinated in right of payment to the payment in full of the Obligations pursuant to the terms of the applicable notes, and (c) provide that any payment by any Subsidiary Guarantor under any guaranty of the Obligations shall result in a pro tanto reduction of the aggregate amount of the intercompany Indebtedness owed by such Subsidiary Guarantor to Borrowers or to any of its Subsidiaries for whose benefit such payment is made. "Intercreditor Agreement" has the meaning assigned to that term in the Prepetition Credit Agreement, and includes the amendment thereto to be executed pursuant to subsection 4.1S in substantially the form attached hereto as Exhibit XV. "Interest Payment Date" means (i) with respect to any Base Rate Loan, the last Business Day of each month, commencing on the first such date to occur after the Closing Date, and (ii) with respect to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan. "Interest Period" has the meaning assigned to that term in subsection 2.2B. "Interest Rate Agreement" means any interest rate swap agreement, interest rate cap agreement, interest rate collar agreement or other similar agreement or arrangement to which any Borrower or any of Subsidiary of any Borrower is a party. "Interest Rate Determination Date", with respect to any Interest Period, means the second Business Day prior to the first day of such Interest Period. "Interim Borrowing Order" means an order in substantially the form attached hereto as Exhibit IX (with any modifications thereto approved by Agents in their sole discretion) entered by the Bankruptcy Court in the Chapter 11 Cases after an interim hearing under Bankruptcy Rule 4001(c)(2), as the same may be amended, supplemented or otherwise modified from time to time with the express written consent or joinder of Agents and Requisite Lenders and approved by the Bankruptcy Court. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended to the date hereof and from time to time hereafter, and any successor statute. "Investment" means (i) any direct or indirect purchase or other acquisition by Company or any of its Subsidiaries of, or of a beneficial interest in, any Securities of any other Person (including any Subsidiary of Company), (ii) any direct or indirect redemption, retirement, purchase or other acquisition for value, by any Subsidiary of Company from any Person other than Company or any of its Subsidiaries, of any equity Securities of such Subsidiary, (iii) any direct or indirect loan, advance (other than advances to employees for moving, entertainment and travel expenses, drawing accounts and similar expenditures in the ordinary course of business) or capital contribution by Company or any of its Subsidiaries to any other Person, including all indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales to that other Person in the ordinary course of business, (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements, or (v) Commodities Agreements. The amount of any Investment shall be the original cost of such Investment plus the cost of all additions thereto, without any adjustments for increases or decreases in value, or write-ups, write-downs or write-offs with respect to such Investment. "IP Collateral" means, collectively, the Intellectual Property that constitutes Collateral. "Issuing Lender" means, with respect to any Letter of Credit, the Lender that agrees or is otherwise obligated to issue such Letter of Credit, determined as provided in subsections 3.1B(i) and 3.1B(ii). "Joint Venture" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form. "Leasehold Property" means any leasehold interest of any Loan Party (other than a Foreign Subsidiary) as lessee under any lease of real property. "Lender" and "Lenders" means the Persons identified as "Lenders" and listed on the signature pages of this Agreement, together with their successors and permitted assigns pursuant to subsection 10.1. "Letter of Credit" or "Letters of Credit" means one or more of the Tranche A Letters of Credit or Tranche B Letters of Credit or any combination thereof. "Lien" means any lien, mortgage, pledge, assignment, security interest, charge or encumbrance of any kind (including any conditional sale or other title retention agreement, any lease in the nature thereof, and any agreement to give any security interest) and any option, trust or other preferential arrangement having the practical effect of any of the foregoing. "Limited Recourse Debt" means, with respect to any Subsidiary of Company, Indebtedness of such Subsidiary with respect to which the recourse of the holder or obligee of such Indebtedness is limited to (i) assets associated with the Project (which in any event shall not include assets held by any Borrower other than a Borrower, if any, whose sole business is the ownership and/or operation of such Project and substantially all of whose assets are associated with such Project) in respect of which such Indebtedness was incurred and/or (ii) such Subsidiary or the equity interests in such Subsidiary, but in the case of clause (ii) only if such Subsidiary's sole business is the ownership and/or operation of such Project and substantially all of such Subsidiary's assets are associated with such Project. For purposes of this Agreement, Indebtedness of a Subsidiary of Company shall not fail to be Limited Recourse Debt solely by virtue of the fact that the holders of such Limited Recourse Debt have recourse to Company or another Subsidiary of Company pursuant to a Contingent Obligation supporting such Limited Recourse Debt or a Performance Guaranty, so long as such Contingent Obligation or Performance Guaranty is permitted under subsection 7.4 of this Agreement. "Loan Documents" means this Agreement, the Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Borrowers in favor of an Issuing Lender relating to, the Letters of Credit), the Subsidiary Guaranty and the Collateral Documents. "Loan Exposure" means, with respect to any Lender, as of any date of determination, the sum of (i) that Lender's Tranche A Loan Exposure and (ii) that Lender's Tranche B Loan Exposure. "Loan Party" means each Borrower and any of Company's Subsidiaries from time to time executing the Subsidiary Guaranty, and "Loan Parties" means all such Persons, collectively. "Loan" or "Loans" means one or more of the Tranche A Loans or Tranche B Loans or any combination thereof. "Mandatory Payment" means any amount described in subsections 2.4A(iii)(a)-(g) to be applied as a prepayment of the Loans and/or a permanent reduction of the Commitments, as determined pursuant to subsection 2.4A(iv). "Margin Stock" has the meaning assigned to that term in Regulation U of the Board of Governors of the Federal Reserve System as in effect from time to time. "Material Adverse Effect" means (i) a material adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Borrowers, taken as a whole, or Company and its Subsidiaries, taken as a whole, or (ii) the impairment of the ability of any Loan Party to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "Material Contract" means (i) the principal lease agreement, if any, and the principal service or operating agreement, if any, with respect to each waste-to-energy Project and the principal lease agreement, if any, with respect to each independent power plant Project to which Company or any of its Subsidiaries is a party, each of which is in existence as of the Closing Date and is described on Schedule 1.1C annexed hereto, and (ii) any other contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Loan Documents) for which breach, nonperformance, cancellation or failure to renew would reasonably be expected to have a Material Adverse Effect. "Material Leasehold Property" means a Leasehold Property reasonably determined by Administrative Agent to be of material value as Collateral or of material importance to the operations of Company or any of its Subsidiaries. "Material Subsidiary" means each Subsidiary of Company now existing or hereafter acquired or formed by Company which, on a consolidated basis for such Subsidiary and all of its Subsidiaries, (i) for the most recent Fiscal Year accounted for more than 1% of the consolidated revenues of Company and its Subsidiaries, (ii) as at the end of such Fiscal Year, was the owner of more than 1% of the consolidated assets of Company and its Subsidiaries, or (iii) is capitalized with more than $500,000 of equity. "Minimum Cumulative Consolidated Operating Income Schedule" has the meaning assigned to that term in subsection 6.1(xxi). "Monthly Budget" means, initially, the consolidated cash flow projections delivered by Borrowers to Agents pursuant to subsection 4.1F for each month ending during the Budget Period, setting forth on a line-item basis monthly anticipated cash receipts and disbursements; provided that, upon approval by Agents or Requisite Lenders, as the case may be, of any monthly cash flow projections delivered pursuant to subsection 6.1(xix)(a) or pursuant to clause (iv) of the definition of "Final Borrowing Order", the Monthly Budget shall be deemed supplemented and/or restated with respect to the following month and each month thereafter in the Budget Period by the projections for each such month covered by such approved cash flow projections. "Mortgage" means (i) a security instrument (whether designated as a deed of trust or a mortgage or by any similar title) executed and delivered by any Loan Party, substantially in the form of Exhibit XIV annexed hereto or in such other form as may be approved by Administrative Agent in its sole discretion, in each case with such changes thereto as may be recommended by Administrative Agent's local counsel based on local laws or customary local mortgage or deed of trust practices, or (ii) at Administrative Agent's option, in the case of any real property or Material Leasehold Property that is the subject of subsection 6.9, an amendment to an existing Mortgage, in form satisfactory to Administrative Agent, in either case as such security instrument or amendment may be amended, restated, supplemented or otherwise modified from time to time. "Mortgages" means all such instruments collectively, whether executed as of or subsequent to the Closing Date. "Multiemployer Plan" means any Employee Benefit Plan that is a "multiemployer plan" as defined in Section 3(37) of ERISA. "Net Asset Sale Proceeds" means, with respect to any Asset Sale, Gross Receipts received from such Asset Sale, net of any bona fide direct costs incurred in connection with such Asset Sale, including (i) income taxes reasonably estimated to be actually payable prior to the earlier of (a) the date which is one year from the date of such Asset Sale and (b) the Stated Maturity Date (determined on the date of such Asset Sale) as a result of any gain recognized in connection with such Asset Sale, (ii) additional Taxes actually payable upon the closing of such Asset Sale (including any transfer Taxes or Taxes on gross receipts), (iii) reasonable out-of-pocket fees and expenses (including reasonable legal fees) paid to Persons other than Company and its Subsidiaries and their respective Affiliates and counsel and advisors in connection with such Asset Sale (including fees necessary to obtain any required consents of such Persons to such Asset Sale), and (iv) payment of the outstanding principal amount of, premium or penalty, if any, and interest on any Indebtedness (other than the Loans) that is (x) secured by a valid, enforceable and perfected Lien on the stock or assets in question that is permitted under subsection 7.2 and (y) required to be repaid under the terms of such Indebtedness as a result of such Asset Sale (without duplication of amounts deducted in calculating the Gross Receipts from such Asset Sale) and is permitted to be paid under the Loan Documents. "Net Insurance/Condemnation Proceeds" means any Cash payments or proceeds received by Company or any of its Subsidiaries (i) under any business interruption or casualty insurance policy in respect of a covered loss thereunder or (ii) as a result of the taking of any assets of Company or any of its Subsidiaries by any Person pursuant to the power of eminent domain, condemnation or otherwise, or pursuant to a sale of any such assets to a purchaser with such power under threat of such a taking, in each case net of any actual and reasonable documented costs incurred by Company or any of its Subsidiaries in connection with the adjustment or settlement of any claims of Company or such Subsidiary in respect thereof provided, however, that Net Insurance/Condemnation Proceeds shall be reduced in an amount equal to the amount of proceeds Subsidiaries of Company are legally bound or required, pursuant to agreements in effect on the Closing Date (to the extent such requirements are enforceable during the Chapter 11 Cases), or which were entered into after the Closing Date with respect to the financing or acquisition of a Project, to use for purposes other than a Mandatory Payment. "Net Securities Proceeds" means the cash proceeds (net of underwriting discounts and commissions and other reasonable costs and expenses associated therewith, including reasonable legal fees and expenses approved by the Bankruptcy Court) from the (i) issuance of Capital Stock of or incurrence of Indebtedness by Company or any of its Subsidiaries and (ii) capital contributions made to Company or its Subsidiaries by a holder of Capital Stock of Company. "NHL Priority Loan Letter Agreement" means the letter agreement by and among the National Hockey League, Senators Hockey Club, Fleet National Bank, Canadian Imperial Bank of Commerce and the other "Secured Parties" named therein regarding, inter alia, certain priority loans by the National Hockey League to Senators Hockey Club, in the form delivered to the Prepetition Agents on or prior to March 14, 2001. "Non-US Lender" means a Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof. "Note" or "Notes" means one or more of the Tranche A Notes or Tranche B Notes or any combination thereof. "Notice of Borrowing" means a notice substantially in the form of Exhibit I annexed hereto. "Notice of Conversion/Continuation" means a notice substantially in the form of Exhibit II annexed hereto. "Obligations" means (i) all obligations of every nature of Loan Parties under the Loan Documents, including any liability of such Loan Party on any claim, whether or not the right to payment in respect of such claim is reduced to judgment, liquidated, unliquidated, fixed or contingent, matured, disputed, undisputed, legal, equitable, secured or unsecured, and whether or not such claim is discharged, stayed or otherwise affected by any bankruptcy, insolvency, reorganization or other similar proceeding, and (ii) all obligations of every nature of Loan Parties arising from time to time under the loss sharing arrangements set forth in Section 5.3 of the Intercreditor Agreement, including obligations on account of withholding taxes imposed on such arrangements. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Loan Documents include (a) the obligation to pay principal, interest, charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Borrower and any other Loan Party under any Loan Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that any Agent or any Lender, in its sole discretion, may elect to pay or advance on behalf of such Borrower or other Loan Party. "Officer" means the president, chief executive officer, a vice president, chief financial officer, treasurer, general partner (if an individual), managing member (if an individual) or other individual appointed by the Governing Body or the Organizational Documents of a corporation, partnership, trust or limited liability company to serve in a similar capacity as the foregoing. "Officer's Certificate" means, as applied to any Person that is a corporation, partnership, trust or limited liability company, a certificate executed on behalf of such Person by one or more Officers of such Person or one or more Officers of a general partner or a managing member if such general partner or managing member is a corporation, partnership, trust or limited liability company; provided, that any Officer's Certificate delivered pursuant to subsection 2.4A(iii)(h), 4.2B(x) or 6.1(v) shall be executed by a senior financial officer of Company reasonably acceptable to Administrative Agent. "Operating Lease", as applied to any Person, means any lease (including leases that may be terminated by the lessee at any time) of any property (whether real, personal or mixed) that is not a Capital Lease other than any such lease under which that Person is the lessor. "Organizational Documents" means the documents (including Bylaws, if applicable) pursuant to which a Person that is a corporation, partnership, trust or limited liability company is organized. "Participant" means a purchaser of a participation in the rights and obligations under this Agreement pursuant to subsection 10.1C. "PBGC" means the Pension Benefit Guaranty Corporation or any successor thereto. "Pension Plan" means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code or Section 302 of ERISA. "Performance Guaranty" means any guaranty or similar agreement entered into by Company or any of its Subsidiaries under which Company or any such Subsidiary is obligated to support or make payments of Indebtedness if Company or any of its Subsidiaries breaches any agreement to construct or operate a Project, and such obligation to support or make payments would, if it were Indebtedness, not be Limited Recourse Debt. "Permitted Encumbrances" means the following types of Liens (excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or by ERISA, any such Lien relating to or imposed in connection with any Environmental Claim, and any such Lien expressly prohibited by any applicable terms of any of the Collateral Documents): (i) Liens for taxes, assessments or governmental charges or claims the payment of which is not, at the time, required by subsection 6.3; (ii) statutory Liens of landlords, statutory Liens and rights of set-off of banks, statutory Liens of carriers, warehousemen, mechanics, repairmen, workmen and materialmen, and other Liens imposed by law, in each case incurred in the ordinary course of business (a) for amounts not yet overdue or (b) for amounts that are overdue and that (in the case of any such amounts overdue for a period in excess of 5 days) are being contested in good faith by appropriate proceedings, so long as (1) such reserves or other appropriate provisions, if any, as shall be required by GAAP shall have been made for any such contested amounts, and (2) in the case of a Lien with respect to any portion of the Collateral, such contest proceedings conclusively operate to stay the sale of any portion of the Collateral on account of such Lien; (iii) Liens incurred or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security, or to secure the performance of tenders, statutory obligations, surety and appeal bonds, bids, leases, government contracts, trade contracts, performance and return-of-money bonds and other similar obligations (exclusive of obligations for the payment of borrowed money), so long as no foreclosure, sale or similar proceedings have been commenced with respect to any portion of the Collateral on account thereof; (iv) any attachment or judgment Lien not constituting an Event of Default under subsection 8.7; (v) leases or subleases granted to third parties in accordance with any applicable terms of the Collateral Documents and not interfering in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or resulting in a material diminution in the value of any Collateral as security for the Secured Obligations; (vi) easements, rights-of-way, restrictions, encroachments, and other minor defects or irregularities in title to the real property of Company and its Subsidiaries, in each case which do not and will not interfere in any material respect with the ordinary conduct of the business of Company or any of its Subsidiaries or result in a material diminution in the value of any Collateral as security for the Secured Obligations; (vii) any (a) interest or title of a lessor or sublessor under any lease not prohibited by this Agreement, (b) restriction or encumbrance that the interest or title of such lessor or sublessor may be subject to, or (c) subordination of the interest of the lessee or sublessee under such lease to any restriction or encumbrance referred to in the preceding clause (b), so long as the holder of such restriction or encumbrance agrees to recognize the rights of such lessee or sublessee under such lease; (viii) Liens arising from filing UCC financing statements relating solely to leases not prohibited by this Agreement; (ix) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; (x) any zoning or similar law or right reserved to or vested in any governmental office or agency to control or regulate the use of any real property; (xi) Liens securing obligations (other than obligations representing Indebtedness for borrowed money) under operating, reciprocal easement or similar agreements entered into in the ordinary course of business of Company and its Subsidiaries; and (xii) licenses of Intellectual Property granted by Company or any of its Subsidiaries in the ordinary course of business and not interfering in any material respect with the ordinary conduct of the business of Company or such Subsidiary. Other Liens on assets of Borrowers and their Subsidiaries permitted under this Agreement (which are not Permitted Encumbrances) are described in subsection 7.2A. "Permitted Senators Transaction" has the meaning assigned to that term in subsection 7.7(ix). "Person" means and includes natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts or other organizations, whether or not legal entities, and governments (whether federal, state or local, domestic or foreign, and including political subdivisions thereof) and agencies or other administrative or regulatory bodies thereof. "Petition Date" has the meaning assigned to that term in the recitals to this Agreement. "Pledged Collateral" means, collectively, the "Pledged Collateral" as defined in the Security Agreement and any Foreign Pledge Agreement. "Pooled Facility Exposure" means, with respect to any Person as of any date of determination, the "Pooled Facility Exposure" (as defined in the Prepetition Credit Agreement) of such Person in its capacity as a Prepetition Lender. "Potential Event of Default" means a condition or event that, after notice or lapse of time or both, would constitute an Event of Default. "Prepetition Agent" means the "Administrative Agent" under the Prepetition Credit Agreement, in its capacity as administrative agent for the Prepetition Lenders. "Prepetition Collateral" means all "Collateral" as defined in the Prepetition Credit Agreement. "Prepetition Credit Agreement" means the Revolving Credit and Participation Agreement dated as of March 14, 2001, among Company, certain of its Subsidiaries, the financial institutions listed on the signature pages thereof, Deutsche Bank, as Documentation Agent, and BofA, as Administrative Agent, as amended, supplemented or otherwise modified through the Closing Date and as it may hereafter be amended, supplemented or otherwise modified as permitted under this Agreement. "Prepetition Credit Documents" means all "Loan Documents" as defined in the Prepetition Credit Agreement. "Prepetition Indebtedness" means any Indebtedness or other liability of any Loan Party or claim against any Loan Party (within the meaning of Bankruptcy Code Section 101(5)) outstanding on the Petition Date, including Prepetition Obligations. "Prepetition Lenders" means the Persons identified as "Lenders" under the Prepetition Credit Agreement, in their capacities as lenders under the Prepetition Credit Agreement, together with their successors and permitted assigns. "Prepetition Liens" means valid, perfected and non-voidable Liens and security interests granted for the benefit of the Prepetition Lenders and, as and if required, for the benefit of certain other Persons pursuant to the Prepetition Credit Documents. "Prepetition Loan Party" means any "Loan Party" under the Prepetition Credit Agreement, in their capacities as obligors under the Prepetition Credit Agreement, and "Prepetition Loan Parties" means all such persons, collectively. "Prepetition Obligations" means all "Obligations" as defined in the Prepetition Credit Agreement. "Prime Rate" means the rate that BofA announces from time to time as its prime lending rate in effect for commercial borrowers in the United States, as in effect from time to time. The Prime Rate is a reference rate and does not necessarily represent the lowest or best rate actually charged to any customer. BofA or any other Lender may make commercial loans or other loans at rates of interest at, above or below the Prime Rate. "Proceedings" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration. "Project" means any waste-to-energy facility, hydroelectric power plant, cogeneration plant or other facility for the generation of electricity or engaged in another line of business in which Company and its Subsidiaries are permitted to be engaged hereunder for which a Subsidiary or Subsidiaries of Company was, is or will be (as the case may be) an owner, operator, manager or builder, and shall also mean any two or more of such plants or facilities in which an interest has been acquired in a single transaction, so long as such interest constitutes an Investment permitted under this Agreement; provided that "Project" also means and includes the rights and obligations of Company and its Subsidiaries relating to the business, operations, Indebtedness and Contingent Obligations of the Senators Hockey Club and its Subsidiaries. "Project Cash Collateral Order" means the order regarding the use of Cash collateral of Borrowers entered by the Bankruptcy Court in the Chapter 11 Cases as a result of motions and applications filed by Borrowers with the Bankruptcy Court on the Petition Date, as such order may be amended, supplemented or otherwise modified from time to time with the express written consent or joinder of Agents (and, if such amendment, supplement or other modification is material and adverse to the interests of Borrowers and/or Lenders, Requisite Lenders) and approved by the Bankruptcy Court. "Pro Rata Share" means (i) with respect to all payments, computations and other matters relating to the Tranche A Commitment or the Tranche A Loans of any Lender or any Tranche A Letters of Credit issued or participations therein deemed purchased by any Lender, the percentage obtained by dividing (x) the Tranche A Loan Exposure of that Lender by (y) the aggregate Tranche A Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1; and (ii) with respect to all payments, computations and other matters relating to the Tranche B Commitment or the Tranche B Loans of any Lender or any Tranche B Letters of Credit issued or participations therein deemed purchased by any Lender, the percentage obtained by dividing (a) the Tranche B Loan Exposure of that Lender by (b) the aggregate Tranche B Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro Rata Share of each Lender for purposes of the preceding sentence is set forth opposite the name of that Lender in Schedule 2.1 annexed hereto. "PTO" means the United States Patent and Trademark Office or any successor or substitute office in which filings are necessary or, in the opinion of Administrative Agent, desirable in order to create or perfect Liens on any IP Collateral. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended. "RCRA" means the Resource Conservation and Recovery Act, as amended (42 U.S.C.ss.6901 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Real Property Asset" means, at any time of determination, any interest then owned by any Loan Party (other than any Foreign Subsidiary) in any real property. "Register" has the meaning assigned to that term in subsection 2.1E. "Regulation D" means Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Reimbursement Date" has the meaning assigned to that term in subsection 3.3B. "Release" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing or migrating of Hazardous Materials into the indoor or outdoor environment (including the abandonment, discarding or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "Request for Issuance" means a request substantially in the form of Exhibit III annexed hereto. "Requisite Class Lenders" means (i) with respect to Tranche A Lenders, Tranche A Lenders having or holding more than 50% of the aggregate Tranche A Loan Exposure of all Tranche A Lenders, and (ii) with respect to Tranche B Lenders, Tranche B Lenders having or holding more than 50% of the aggregate Tranche B Loan Exposure of all Tranche B Lenders. "Requisite Lenders" means Lenders having or holding more than 50% of the aggregate Loan Exposure of all Lenders. "Restricted Payment" means (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of stock of Company now or hereafter outstanding, except a dividend payable solely in shares of that class of stock to the holders of that class, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of stock of Company now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of stock of Company now or hereafter outstanding, and (iv) any payment or prepayment of principal of, premium, if any, or interest on, or redemption, purchase, retirement, defeasance (including in-substance or legal defeasance), sinking fund or similar payment with respect to, any Indebtedness of any Borrower other than (a) Indebtedness of a Borrower owed solely to another Borrower, (b) the Loans and the other Obligations, and (c) other amounts required to be paid under this Agreement. "Secured Obligations" means the obligations secured by the Collateral pursuant to the Collateral Documents. "Securities" means any stock, shares, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreement or arrangement, options, warrants, bonds, debentures, notes, or other evidences of indebtedness, secured or unsecured, convertible, subordinated, certificated or uncertificated, or otherwise, or in general any instruments commonly known as "securities" or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing. "Securities Act" means the Securities Act of 1933, as amended from time to time, and any successor statute. "Security Agreement" means the Security Agreement executed and delivered on the Closing Date, substantially in the form of Exhibit VIII annexed hereto, as such Security Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "Senators Hockey Club" means Ottawa Senators Hockey Club Corporation (as successor in interest to the Ottawa Senators Hockey Club Limited Partnership). "Senators Lease" means the License Agreement dated as of April 30, 1994, among Palladium Corporation, Ogden Palladium Services (Canada) Inc. and Senators Hockey Club, as such agreement is in effect on the Closing Date and as it may hereafter be amended, supplemented or otherwise modified from time to time to the extent permitted hereunder. "Senators Senior Subordination Agreement" means the Senior Subordination and Postponement Agreement dated as of January 13, 1999, among, inter alia, Company, Ogden Palladium Services (Canada) Inc., Senators Hockey Club, Canadian Imperial Bank of Commerce and Fleet National Bank (each as agents under certain credit facilities), as such agreement was in effect on March 14, 2001. "Stated Maturity Date" means April 1, 2003; provided, however, that if Supermajority Tranche A Lenders agree in writing prior to such date (and the Termination Date shall not have already occurred) to extend the Stated Maturity Date to October 1, 2003, then the Stated Maturity Date shall thereafter mean October 1, 2003; provided further, however, that if Supermajority Tranche A Lenders agree in writing prior to October 1, 2003 (and the Termination Date shall not have already occurred) to extend the Stated Maturity Date to April 1, 2004, then the Stated Maturity Date shall thereafter mean April 1, 2004. Such consent of Lenders to any such extension may be conditioned, as such Lenders shall mutually agree and direct, on amendments, supplements and other modifications of this Agreement and the Loan Documents, including (i) amendments to the Advance Limits, the Monthly Budget, drawing conditions and covenants, (ii) reductions in the amount of the Commitments, and (iii) requirements that, unless Borrowers shall have previously submitted to Agents and Lenders a plan or plans of reorganization with respect to all Borrowers approved in writing by Requisite Lenders, Borrowers shall have begun, and/or agreed to and implemented procedures satisfactory to Requisite Lenders to arrange for, a sale or other disposition(s) of such assets, divisions or businesses (including all businesses) of Borrowers and their respective Subsidiaries as such Requisite Lenders shall designate. "Subsidiary" means, with respect to any Person, any corporation, partnership, trust, limited liability company, association, joint venture or other business entity of which more than 50% of the total voting power of shares of stock or other ownership interests entitled (without regard to the occurrence of any contingency) to vote in the election of the members of the Governing Body is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof. "Subsidiary Guarantor" means any Subsidiary of any Borrower that executes and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or from time to time thereafter pursuant to subsection 6.8. "Subsidiary Guaranty" means the Subsidiary Guaranty executed and delivered by certain existing Subsidiaries of Borrowers on the Closing Date and to be executed and delivered by certain additional Subsidiaries of Borrowers from time to time thereafter in accordance with subsection 6.8, substantially in the form of Exhibit VII annexed hereto, as such Subsidiary Guaranty may hereafter be amended, restated, supplemented or otherwise modified from time to time. "Supermajority Lenders" means Lenders having or holding more than 66-2/3% of the aggregate Loan Exposure of all Lenders. "Supermajority Tranche A Lenders" means Lenders having or holding more than 66-2/3% of the aggregate Tranche A Loan Exposure of all Lenders. "Supplemental Collateral Agent" has the meaning assigned to that term in subsection 9.1B. "Synthetic Lease Obligation" means the monetary obligation of a Person under (i) a so-called synthetic, off-balance sheet or tax retention lease, or (ii) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment). "Tax" or "Taxes" means any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature and whatever called, by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld or assessed, including interest, penalties, additions to tax and any similar liabilities with respect thereto; except that, in the case of a Lender, there shall be excluded franchise taxes and all taxes that are imposed on the overall income or profits of such Lender by the United States or by any other Government Authority under the laws of which Lender is organized or has its principal office or maintains its applicable lending office. "Termination Date" means the earliest of (i) the Stated Maturity Date (as it may be extended from time to time in accordance with the definition of such term), (ii) the effective date of a confirmed a plan of reorganization in the Chapter 11 Cases, (iii) the date of distributions to any class of creditors, equity holders or other claimants under any plan of reorganization in the Chapter 11 Cases, (iv) the date of termination in whole of the Commitments pursuant to Section 8, (v) the date that is fifteen (15) days after the Petition Date, if neither the Interim Borrowing Order nor the Final Borrowing Order has been entered by the Bankruptcy Court by such date, (vi) the date that is forty-five (45) days after the Petition Date if the Final Borrowing Order has not been entered by the Bankruptcy Court by such date, (vii) the date of any sale, transfer or other disposition of all or substantially all of the assets or Capital Stock of Borrowers, (viii) the date of termination of exclusivity under any of the Chapter 11 Cases without the prior written approval of Requisite Lenders, and (ix) the date of filing of a plan of reorganization for any Borrower without the written approval of Requisite Lenders. "Thai Asset Sale" means the sale or other disposition by Company and its Subsidiaries of all or substantially all of their respective equity interests in (i) Operational Energy Group Limited, a company incorporated under the laws of Thailand that is in the business of operating and maintaining electric power and thermal energy production facilities, (ii) Rojana Power Co. Ltd., a company incorporated under the laws of Thailand that owns a natural gas fueled cogeneration power plant in Ayudthaya, Thailand, and (iii) Sahacogen (Chonburi) Co., Ltd., a company incorporated under the laws of Thailand that owns a natural gas fueled cogeneration power plant in Sriracha, Thailand. "13-Week Cash Forecast" means, initially, the consolidated cash flow projections delivered by Borrowers to Administrative Agent pursuant to subsection 4.1F for the 13-week period commencing with the week during which the Petition Date occurs, setting forth on a line-item basis weekly anticipated cash receipts and disbursements; provided that, upon approval by Agents of any monthly cash flow projections delivered pursuant to subsection 6.1(xix)(a), the 13-Week Cash Forecast, for purposes of the 13-week period commencing with the first week of the immediately following month, shall mean the weekly cash flow projections for such 13-week period delivered pursuant to subsection 6.1(xix)(b). "Total Utilization of Tranche A Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Tranche A Loans plus (ii) the Tranche A Letter of Credit Usage. "Total Utilization of Tranche B Commitments" means, as at any date of determination, the sum of (i) the aggregate principal amount of all outstanding Tranche B Loans plus (ii) the Tranche B Letter of Credit Usage. "Tranche A Aggregate Amounts Due" has the meaning assigned to that term in subsection 10.5A. "Tranche A Commitment" means the commitment of a Lender to make Tranche A Loans to Borrowers pursuant to subsections 2.1A(i) and 3.3B, and "Tranche A Commitments" means such commitments of all Lenders in the aggregate. "Tranche A Commitment Fee Percentage" means, on any date of determination, a per annum rate equal to (i) 1.00% on any date on which the Total Utilization of Tranche A Commitments equals 1/3 or less of the Tranche A Commitments, (ii) 0.75% on any date on which the Total Utilization of Tranche A Commitments is greater than 1/3 of the Tranche A Commitments but less than 2/3 of the Tranche A Commitments, and (iii) 0.50% on any date on which the Total Utilization of Tranche A Commitments equals 2/3 or more of the Tranche A Commitments. "Tranche A Lender" means any Lender having or holding Tranche A Loan Exposure. "Tranche A Letter of Credit" or "Tranche A Letters of Credit" means letters of credit issued or to be issued by Issuing Lenders for the account of any Borrower pursuant to subsection 3.1A(i). "Tranche A Letter of Credit Sublimit" means $14,200,000 or such greater amount as may be approved in writing by Agents and Requisite Class Lenders of the Class of Tranche A Lenders (which approval shall be at the sole discretion of such Agents and Lenders and shall be evidenced by an amendment to this Agreement in form reasonably satisfactory to Agents and such Lenders) from time to time after the Closing Date upon a request from Borrowers to increase such amount; provided, however, that no such increase shall cause the Tranche A Letter of Credit Sublimit to exceed the total amount of the Tranche A Commitments minus the sum of (i) the outstanding amount of Tranche A Loans (excluding Tranche A Loss Sharing Loans and Tranche A Loans made pursuant to subsection 3.3B) and (ii) the Tranche A Loss Sharing Sublimit then in effect. "Tranche A Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Tranche A Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Tranche A Letters of Credit honored by Issuing Lenders and not theretofore reimbursed out of the proceeds of Tranche A Loans pursuant to subsection 3.3B or otherwise reimbursed by Borrowers. "Tranche A Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Tranche A Commitments, that Lender's Tranche A Commitment, and (ii) after the termination of the Tranche A Commitments, the sum of (a) the aggregate outstanding principal amount of the Tranche A Loans of that Lender plus (b) in the event that Lender is an Issuing Lender of Tranche A Letters of Credit, the aggregate Tranche A Letter of Credit Usage in respect of all Tranche A Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Tranche A Letters of Credit or in any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that Lender in any other outstanding Tranche A Letters of Credit or any unreimbursed drawings under any such other Tranche A Letters of Credit. "Tranche A Loans" means the loans made (or deemed made) by Tranche A Lenders to Borrowers pursuant to subsections 2.1A(i), 2.1B and 3.3B. "Tranche A Loss Sharing Loans" has the meaning assigned to that term in subsection 2.5A. "Tranche A Loss Sharing Sublimit" means $41,000,000, as such amount may be reduced from time to time pursuant to subsection 2.4A(iii)(i). "Tranche A Notes" means any promissory notes of Borrowers issued pursuant to subsection 2.1F to evidence the Tranche A Loans of any Lenders, substantially in the form of Exhibit IV-A annexed hereto, as they may be amended, restated, supplemented or otherwise modified from time to time. "Tranche A Obligations" means all Obligations other than the Tranche B Obligations. "Tranche B Aggregate Amounts Due" has the meaning assigned to that term in subsection 10.5B. "Tranche B Commitment" means the commitment of a Lender to make Tranche B Loans to Borrowers pursuant to subsections 2.1A(ii) and 3.3B, and "Tranche B Commitments" means such commitments of all Lenders in the aggregate. "Tranche B Lender" means any Lender having or holding Tranche B Loan Exposure. "Tranche B Letter of Credit" or "Tranche B Letters of Credit" means letters of credit issued (or deemed issued) by Issuing Lenders pursuant to subsection 3.1A(ii). "Tranche B Letter of Credit Usage" means, as at any date of determination, the sum of (i) the maximum aggregate amount which is or at any time thereafter may become available for drawing under all Tranche B Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under Tranche B Letters of Credit honored by Issuing Lenders and not theretofore reimbursed out of the proceeds of Tranche B Loans pursuant to subsection 3.3B or otherwise reimbursed by Borrowers. "Tranche B Loan Exposure" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Tranche B Commitments, that Lender's Tranche B Commitment, and (ii) after the termination of the Tranche B Commitments, the sum of (a) the aggregate outstanding principal amount of the Tranche B Loans of that Lender plus (b) in the event that Lender is an Issuing Lender of Tranche B Letters of Credit, the aggregate Tranche B Letter of Credit Usage in respect of all Tranche B Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Tranche B Letters of Credit or in any unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that Lender in any other outstanding Tranche B Letters of Credit or any unreimbursed drawings under any such other Tranche B Letters of Credit. "Tranche B Loans" means the loans made (or deemed made) by Tranche B Lenders to Borrowers pursuant to subsections 2.1A(ii) and 3.3B. "Tranche B Notes" means any promissory notes of Borrowers issued pursuant to subsection 2.1F to evidence the Tranche B Loans of any Lenders, substantially in the form of Exhibit IV-B annexed hereto, as they may be amended, restated, supplemented or otherwise modified from time to time. "Tranche B Obligations" means any and all Obligations to the extent arising under or with respect to the Tranche B Loans, the Tranche B Commitments or the Tranche B Letters of Credit, including principal and interest on any Tranche B Loans, the fees and other amounts accruing or otherwise owed with respect to the Tranche B Loan Exposure, and any unreimbursed drawings (and interest accrued thereon) under Tranche B Letters of Credit. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C.ss. 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement. Except as otherwise expressly provided in this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with GAAP. Financial statements and other information required to be delivered by Company to Lenders pursuant to clauses (iii) and (iv) of subsection 6.1 shall be prepared in accordance with GAAP as in effect at the time of such preparation (and delivered together with the reconciliation statements provided for in subsection 6.1(vi)). Except as otherwise permitted by this Agreement, calculations in connection with the definitions, covenants and other provisions of this Agreement shall utilize GAAP as in effect on the date of determination, applied in a manner consistent with that used in preparing the financial statements referred to in subsection 5.3. If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and Company, Administrative Agent or Requisite Lenders shall so request, Administrative Agent, Lenders and Company shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of Requisite Lenders), provided that, until so amended, such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and Company shall provide to Administrative Agent and Lenders reconciliation statements provided for in subsection 6.1(vi). 1.3 Other Definitional Provisions and Rules of Construction. A. Any of the terms defined herein may, unless the context otherwise requires, be used in the singular or the plural, depending on the reference. B. References to "Sections" and "subsections" shall be to Sections and subsections, respectively, of this Agreement unless otherwise specifically provided. C. The use in any of the Loan Documents of the word "include" or "including", when following any general statement, term or matter, shall not be construed to limit such statement, term or matter to the specific items or matters set forth immediately following such word or to similar items or matters, whether or not nonlimiting language (such as "without limitation" or "but not limited to" or words of similar import) is used with reference thereto, but rather shall be deemed to refer to all other items or matters that fall within the broadest possible scope of such general statement, term or matter. Section 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS 2.1 Commitments; Making of Loans; the Register; Optional Notes. A. Commitments. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers herein set forth, each Lender hereby severally agrees, subject to the limitations set forth below with respect to the maximum amount of Loans permitted to be outstanding from time to time, to make the Loans described in subsections 2.1A(i) and 2.1A(ii). (i) Tranche A Loans. Each Lender severally agrees to lend to Borrowers, on a joint and several basis, from time to time during the period from the Closing Date to but excluding the Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche A Commitments to be used for the purposes identified in subsection 2.5A. The original amount of each Lender's Tranche A Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Tranche A Commitments is $115,000,000; provided, however, that in the event the Thai Asset Sale shall have been consummated on or prior to the Closing Date, the aggregate original amount of the Tranche A Commitments shall be reduced on the Closing Date to $95,000,000 (and the original Tranche A Commitments of Lenders shall be ratably reduced to reflect such reduction in the aggregate original amount of the Tranche A Commitments) without any reduction to the Tranche A Loss Sharing Sublimit or the Tranche A Letter of Credit Sublimit then in effect; and provided further, that the Tranche A Commitments of Lenders shall be adjusted to give effect to any assignments of the Tranche A Commitments pursuant to subsection 10.1B and shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4. Each Lender's Tranche A Commitment shall expire on the Termination Date and all Tranche A Loans and all other amounts owed hereunder with respect to the Tranche A Loans and the Tranche A Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(i) (other than Tranche A Loss Sharing Loans) may be repaid and reborrowed up to but excluding the Termination Date; amounts borrowed as Tranche A Loss Sharing Loans and subsequently repaid may not be reborrowed. Anything contained in this Agreement to the contrary notwithstanding, (i) in no event shall the Total Utilization of Tranche A Commitments at any time exceed the Tranche A Commitments, (ii) in no event shall the principal amount of Tranche A Loans outstanding at any time (other than Tranche A Loss Sharing Loans and Tranche A Loans made to reimburse a drawing under a Tranche A Letter of Credit under subsection 3.3) exceed the least of (x) the amount permitted to be outstanding hereunder pursuant to the Interim Borrowing Order or the Final Borrowing Order, as applicable, (y) the Advance Limit then in effect, and (z) the Tranche A Commitments then in effect minus the Tranche A Letter of Credit Sublimit then in effect minus the Tranche A Loss Sharing Sublimit, and (iii) in no event shall the principal amount of Tranche A Loss Sharing Loans outstanding at any time exceed the Tranche A Loss Sharing Sublimit or, when added to the principal amount of all other outstanding Tranche A Loans (other than Tranche A Loans made to reimburse a drawing under a Tranche A Letter of Credit), the amount permitted to be outstanding pursuant to the Interim Borrowing Order or Final Borrowing Order, as applicable. (ii) Tranche B Loans. Each Lender severally agrees to lend to Borrowers, on a joint and several basis, from time to time during the period from the date of entry of the Interim Borrowing Order to but excluding the Termination Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Tranche B Commitments as Tranche B Loans, solely pursuant to subsection 3.3B, it being understood that the entry of the Interim Borrowing Order in accordance with the terms of this Agreement is a condition precedent to each Lender's Tranche B Commitment, and all Tranche B Commitments shall immediately terminate should the Interim Borrowing Order not be so entered. The original amount of each Lender's Tranche B Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Tranche B Commitments is $367,853,962.03; provided that the Tranche B Commitments of Lenders shall be adjusted to give effect to any assignments of the Tranche B Commitments pursuant to subsection 10.1B, and shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4A or 6.12, and shall be reduced on the date of entry of the Interim Borrowing Order and on the date of entry of the Final Borrowing Order to an amount (on each date) equal to the maximum amount which is on such date, or at any time thereafter may become, available to be drawn under the Existing L/Cs (and any reduction of the Tranche B Commitments on the date of entry of the Interim Borrowing Order or the Final Borrowing Order shall be applied to each Lender's Tranche B Commitment ratably). Each Lender's Tranche B Commitment shall expire on the Termination Date and all Tranche B Loans and all other amounts owed hereunder with respect to the Tranche B Loans and the Tranche B Commitments shall be paid in full no later than that date. Amounts borrowed under this subsection 2.1A(ii) and subsequently repaid may not be reborrowed. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Tranche B Commitments at any time exceed the Tranche B Commitments then in effect. B. Tranche A Loss Sharing Loans. In the event that the Group of Pooled Facility Lenders (as defined in the Prepetition Credit Agreement) is required to make loss sharing payments pursuant to Section 5.3 of the Intercreditor Agreement, such Group shall notify Borrowers and Administrative Agent of the amount of such loss sharing payments required pursuant to Section 5.3 of the Intercreditor Agreement, and such notice shall be deemed to be a timely Notice of Borrowing to Administrative Agent requesting Tranche A Lenders to make Tranche A Loss Sharing Loans to Borrowers that are Base Rate Loans on the Business Day following the date on which such notice is received by Administrative Agent (which date shall constitute the Funding Date for such Tranche A Loss Sharing Loans), in an amount in Dollars equal to the amount specified in such notice. Borrowers hereby irrevocably authorize the giving of any such notice and the making of any such Tranche A Loss Sharing Loans. Administrative Agent shall make the proceeds of such Tranche A Loss Sharing Loans available on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Tranche A Loss Sharing Loans received by Administrative Agent from Lenders to be applied to the purposes set forth in subsection 2.5A(iii). Anything contained herein to the contrary notwithstanding, each Tranche A Lender's obligation to fund any Tranche A Loss Sharing Loans pursuant to this subsection 2.1B (so long as the necessary Tranche A Commitment of such Lender has not terminated and the Final Borrowing Order shall be entered and in full force and effect and to the extent the principal amount of Tranche A Loss Sharing Loans giving effect to the proposed borrowing of Tranche A Loss Sharing Loans would not exceed the Tranche A Loss Sharing Sublimit), shall be absolute and unconditional and shall not be affected by any circumstance, including (1) any set-off, counterclaim, recoupment, defense or other right which such Tranche A Lender may have against any member of such Group, Company or any other Person for any reason whatsoever; (2) the occurrence or continuation of an Event of Default or a Potential Event of Default; (3) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (4) any breach of this Agreement or any other Loan Document by any party thereto; (5) the failure to satisfy any condition precedent set forth in subsection 4.2 other than the conditions set forth in subsection 4.2B(iv), (v) and (vi); or (6) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. C. Borrowing Mechanics. Loans made on any Funding Date (other than Loans made pursuant to subsections 2.1B and 3.3B) shall be in an aggregate minimum amount of $200,000 and integral multiples of $100,000 in excess of that amount (or, if the amount of the Commitments unfunded and available for borrowing is less than such aggregate minimum amount, an amount equal to the amount of the Commitments unfunded and available for borrowing); provided that Loans made on any Funding Date as Eurodollar Rate Loans with a particular Interest Period shall be in an aggregate minimum amount of $500,000 and integral multiples of $200,000 in excess of that amount. Whenever Borrowers desire that Lenders make Loans (other than pursuant to subsections 2.1B and 3.3B) they shall deliver to Administrative Agent a Notice of Borrowing no later than 10:00 A.M. (New York City time) at least three Business Days in advance of the proposed Funding Date (in the case of a Eurodollar Rate Loan) or at least one Business Day in advance of the proposed Funding Date (in the case of a Base Rate Loan). Loans may be continued as or converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided in subsection 2.2D. In lieu of delivering a Notice of Borrowing, Borrowers may give Administrative Agent telephonic notice by the required time of any proposed borrowing under this subsection 2.1C; provided that such notice shall be promptly confirmed in writing by delivery of a duly executed Notice of Borrowing to Administrative Agent on or before the applicable Funding Date. Neither Administrative Agent nor any Lender shall incur any liability to any Borrower in acting upon any telephonic notice referred to above that Administrative Agent believes in good faith to have been given by an Officer of a Borrower or for otherwise acting in good faith under this subsection 2.1C or under subsection 2.2D, and upon funding of Loans by Lenders, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Loans pursuant to subsection 2.2D, in each case in accordance with this Agreement, pursuant to any such telephonic notice Borrowers shall have effected Loans or a conversion or continuation, as the case may be, of Loans hereunder. Borrowers shall notify Administrative Agent prior to the funding of any Loans in the event that any of the matters to which Borrowers are required to certify in the applicable Notice of Borrowing is no longer true and correct as of the applicable Funding Date, and the acceptance by Borrowers of the proceeds of any Loans shall constitute a re-certification by Borrowers, as of the applicable Funding Date, as to the matters to which Borrowers are required to certify in the applicable Notice of Borrowing. Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a Notice of Borrowing for, or a Notice of Conversion/Continuation for conversion to, or continuation of, a Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable on and after the related Interest Rate Determination Date, and Borrowers shall be bound to make a borrowing or to effect a conversion or continuation in accordance therewith. Notwithstanding the foregoing provisions of this subsection 2.1C, no Eurodollar Rate Loans may be made and no Base Rate Loan may be converted into a Eurodollar Rate Loan until the third Business Day after the Closing Date. D. Disbursement of Funds. All Tranche A Loans and Tranche B Loans under this Agreement shall be made by Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that neither Administrative Agent nor any Lender shall be responsible for any default by any other Lender in that other Lender's obligation to make the particular type of Loan requested hereunder nor shall the Commitment of any Lender to make the particular type of Loan requested be increased or decreased as a result of a default by any other Lender in that other Lender's obligation to make a Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1C (or telephonic notice in lieu thereof) or a notice deemed to be a Notice of Borrowing pursuant to subsection 2.1B, Administrative Agent shall notify each Lender of the proposed borrowing. Each such Lender shall make the amount of its Tranche A Loan available to Administrative Agent not later than 12:00 Noon (New York City time) on the applicable Funding Date, in same day funds in Dollars, at the Funding and Payment Office. Except as provided in subsection 2.1B with respect to Tranche A Loss Sharing Loans and subsection 3.3B with respect to Tranche A Loans used to reimburse any Issuing Lender for the amount of a drawing under a Letter of Credit issued by it, upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Tranche A Loans made on the Closing Date) and 4.2 (in the case of all Tranche A Loans), Administrative Agent shall make the proceeds of such Tranche A Loans available to Borrowers on the applicable Funding Date by causing an amount of same day funds in Dollars equal to the proceeds of all such Tranche A Loans received by Administrative Agent from Lenders to be credited to the account of Borrowers at the Funding and Payment Office. Except with respect to Tranche A Loss Sharing Loans, unless Administrative Agent shall have been notified by any Lender prior to a Funding Date for any Loans that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Loan requested on such Funding Date, Administrative Agent may assume that such Lender has made such amount available to Administrative Agent on such Funding Date and Administrative Agent may, in its sole discretion, but shall not be obligated to, make available to Borrowers a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to Administrative Agent by such Lender, Administrative Agent shall be entitled to recover such corresponding amount on demand from such Lender together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the customary rate set by Administrative Agent for the correction of errors among banks for three Business Days and thereafter at the Base Rate. If such Lender does not pay such corresponding amount forthwith upon Administrative Agent's demand therefor, Administrative Agent shall promptly notify Borrowers and Borrowers shall immediately pay such corresponding amount to Administrative Agent together with interest thereon, for each day from such Funding Date until the date such amount is paid to Administrative Agent, at the rate payable under this Agreement for Base Rate Loans. Nothing in this subsection 2.1D shall be deemed to relieve any Lender from its obligation to fulfill its Commitments hereunder or to prejudice any rights that Borrowers may have against any Lender as a result of any default by such Lender hereunder. E. The Register. Administrative Agent, acting for these purposes solely as an agent of Borrowers (it being acknowledged that Administrative Agent, in such capacity, and its officers, directors, employees, agent and affiliates shall constitute Indemnitees under subsection 10.3), shall maintain (and make available for inspection by Borrowers and Lenders upon reasonable prior notice at reasonable times) at its address referred to in subsection 10.8 a register for the recordation of, and shall record, the names and addresses of Lenders and the Tranche A Commitment, Tranche B Commitment, Tranche A Loans, Tranche A Loss Sharing Loans and Tranche B Loans of each Lender from time to time (the "Register"). Borrowers, Administrative Agent and Lenders shall deem and treat the Persons listed as Lenders in the Register as the holders and owners of the corresponding Commitments and Loans listed therein for all purposes hereof; all amounts owed with respect to any Commitment or Loan shall be owed to the Lender listed in the Register as the owner thereof; and any request, authority or consent of any Person who, at the time of making such request or giving such authority or consent, is listed in the Register as a Lender shall be conclusive and binding on any subsequent holder, assignee or transferee of the corresponding Commitments or Loans. Each Lender shall record on its internal records the amount of its Loans and Commitments and each payment in respect hereof, and any such recordation shall be conclusive and binding on Borrowers, absent manifest error, subject to the entries in the Register, which shall, absent manifest error, govern in the event of any inconsistency with any Lender's records. Failure to make any recordation in the Register or in any Lender's records, or any error in such recordation, shall not affect any Loans or Commitments or any Obligations in respect of any Loans. F. Optional Notes. If so requested by any Lender by written notice to Company (with a copy to Administrative Agent) at least two Business Days prior to the Closing Date or at any time thereafter, Borrowers shall execute and deliver to such Lender (and/or, if applicable and if so specified in such notice, to any Person who is an assignee of such Lender pursuant to subsection 10.1) on the Closing Date (or, if such notice is delivered after the date which is two Business Days prior to the Closing Date, promptly after Company's receipt of such notice) (i) a promissory note or promissory notes to evidence such Lender's Tranche A Loans, substantially in the form of Exhibit IV-A annexed hereto, with appropriate insertions including the principal amount of that Lender's Tranche A Commitment, and (ii) a promissory note or promissory notes to evidence such Lender's Tranche B Loans, substantially in the form of Exhibit IV-B annexed hereto, with appropriate insertions including the principal amount of that Lender's Tranche B Commitment. 2.2 Interest on the Loans. A. Rate of Interest. Subject to the provisions of subsections 2.6 and 2.7, each Loan shall bear interest on the unpaid principal amount thereof from the date made until repayment in full at a rate determined by reference to the Base Rate or the Eurodollar Rate. The applicable basis for determining the rate of interest with respect to any Loan (subject to subsections 2.1B and 3.3B) shall be selected by Borrowers initially at the time a Notice of Borrowing is given with respect to such Loan pursuant to subsection 2.2B (subject to the last sentence of subsection 2.1C), and the basis for determining the interest rate with respect to any Loan may be changed from time to time pursuant to subsection 2.2B (subject to the last sentence of subsection 2.1C). If on any day a Loan is outstanding with respect to which notice has not been delivered to Administrative Agent in accordance with the terms of this Agreement specifying the applicable basis for determining the rate of interest, then for that day that Loan shall bear interest determined by reference to the Base Rate. Subject to the provisions of subsections 2.2E, 2.2G and 2.7, the Loans shall bear interest through maturity as follows: (a) if a Base Rate Loan, then at the sum of the Base Rate plus the Base Rate Margin; or (b) if a Eurodollar Rate Loan, then at the sum of the Eurodollar Rate plus the Eurodollar Rate Margin. B. Interest Periods. In connection with each Eurodollar Rate Loan, Borrowers may, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an interest period (each an "Interest Period") to be applicable to such Loan, which Interest Period shall be a one-month period; provided that: (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Loan, in the case of a Loan initially made as a Eurodollar Rate Loan, or on the date specified in the applicable Notice of Conversion/Continuation, in the case of a Loan converted to a Eurodollar Rate Loan; (ii) in the case of immediately successive Interest Periods applicable to a Eurodollar Rate Loan continued as such pursuant to a Notice of Conversion/Continuation, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (iii) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that, if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the next preceding Business Day; (iv) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (v) of this subsection 2.2B, end on the last Business Day of a calendar month; (v) no Interest Period with respect to any portion of the Loans shall extend beyond the Stated Maturity Date in effect at the commencement of such Interest Period; and (vi) there shall be no more than four Interest Periods outstanding at any time. C. Interest Payments. Subject to the provisions of subsection 2.2E, interest on each Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Loan, upon any prepayment of that Loan (to the extent accrued on the amount being prepaid) and at maturity (including final maturity). D. Conversion or Continuation. Subject to the provisions of subsection 2.6, Borrowers shall have the option (i) to convert at any time all or any part of their outstanding Tranche A Loans or Tranche B Loans equal to $200,000 and integral multiples of $100,000 in excess of that amount from Loans bearing interest at a rate determined by reference to one basis to Loans bearing interest at a rate determined by reference to an alternative basis or (ii) upon the expiration of any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any portion of such Loan equal to $500,000 and integral multiples of $200,000 in excess of that amount as a Eurodollar Rate Loan; provided, however, that a Eurodollar Rate Loan may only be converted into a Base Rate Loan on the expiration date of an Interest Period applicable thereto. Borrowers shall deliver a Notice of Conversion/Continuation to Administrative Agent no later than 10:00 A.M. (New York City time) at least one Business Day in advance of the proposed conversion date (in the case of a conversion to a Base Rate Loan) and at least three Business Days in advance of the proposed conversion/continuation date (in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan). In lieu of delivering a Notice of Conversion/Continuation Borrowers may give Administrative Agent telephonic notice by the required time of any proposed conversion/continuation under this subsection 2.2D; provided that such notice shall be promptly confirmed in writing by delivery of a Notice of Conversion/Continuation to Administrative Agent on or before the proposed conversion/continuation date. Upon receipt of written or telephonic notice of any proposed conversion/continuation under this subsection 2.2D, Administrative Agent shall promptly transmit such notice by telefacsimile or telephone to each Lender of the Loan subject to the Notice of Conversion/Continuation. E. Default Rate. Upon the occurrence and during the continuation of any Event of Default, the outstanding principal amount of all Loans and, to the extent permitted by applicable law, any interest payments thereon not paid when due and any fees and other amounts then due and payable hereunder (including unreimbursed amounts drawn under any Letter of Credit), shall thereafter bear interest payable upon demand at a rate that is 2% per annum in excess of the interest rate otherwise payable under this Agreement with respect to the applicable Loans or in the case of fees and other amounts, at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans; provided that, in the case of Loans that are Eurodollar Rate Loans, upon the expiration of the Interest Period in effect at the time any such increase in interest rate is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans and shall thereafter bear interest payable upon demand at a rate which is 2% per annum in excess of the interest rate otherwise payable under this Agreement for Base Rate Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2E is not a permitted alternative to timely payment and shall not constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. F. Computation of Interest. Interest on the Loans and other amounts bearing interest with reference to the Base Rate shall be computed (i) in the case of Base Rate Loans, on the basis of a 365-day or 366-day year, as the case may be, and (ii) in the case of Eurodollar Rate Loans, on the basis of a 360-day year, in each case for the actual number of days elapsed in the period during which it accrues. In computing interest on any Loan or amount funded in a drawing under a Letter of Credit, the date of the making of such Loan or the date of funding of such drawing or the first day of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan to such Base Rate Loan, as the case may be, shall be included; and the date of payment of such Loan or funded drawing or the expiration date of an Interest Period applicable to such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate Loan, as the case may be, shall be excluded; provided that if a Loan or funded drawing is repaid on the same day on which it is made, one day's interest shall be paid on that Loan or funded drawing. G. Maximum Rate. Notwithstanding the foregoing provisions of this subsection 2.2, in no event shall the rate of interest payable by Borrowers with respect to any Loan or funded drawing under any Letter of Credit exceed the maximum rate of interest permitted to be charged under applicable law. 2.3 Fees. A. Tranche A Facility Fees. Borrowers, jointly and severally, agree to pay to Administrative Agent on the Closing Date, for distribution to each Tranche A Lender in proportion to that Lender's Pro Rata Share of the Tranche A Commitments, facility fees in an aggregate amount equal to 2.0% of the entire amount of the Tranche A Commitments as of the Closing Date. B. Tranche A Commitment Fees. Borrowers, jointly and severally, agree to pay to Administrative Agent, for distribution to each Tranche A Lender in proportion to that Lender's Pro Rata Share of the Tranche A Commitments, commitment fees for the period from and including the Closing Date to and excluding the Termination Date equal to (i) the average of the daily excess of the Tranche A Commitments over the sum of (x) the aggregate principal amount of outstanding Tranche A Loans plus (y) the Tranche A Letter of Credit Usage, multiplied by (ii) the Tranche A Commitment Fee Percentage then in effect. Such commitment fees shall be payable in arrears on and to (but excluding) the last day of each month and on the Termination Date and computed on the basis of a 360-day year, for the actual number of days elapsed. C. Other Fees. Borrowers, jointly and severally, agree to pay to Agents such fees in the amounts and at the times separately agreed upon between Company and Agents. All fees referenced in this subsection 2.3 shall be earned when payable and shall be non-refundable. 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under Subsidiary Guaranty. A. Prepayments and Reductions in Commitments. (i) Voluntary Prepayments. Borrowers may, upon not less than one Business Day's prior written or telephonic notice, in the case of Base Rate Loans, and three Business Days' prior written or telephonic notice, in the case of Eurodollar Rate Loans, in each case given to Administrative Agent by 12:00 Noon (New York City time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender for the Loans to be prepaid), at any time and from time to time prepay any Loans on any Business Day in whole or in part in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount (or, if the amount of the Loans is less than such aggregate minimum amount, an amount equal to the amount of the Loans); provided that voluntary prepayments of Eurodollar Rate Loans made on a date other than an Interest Payment Date applicable to such Loan shall be subject to breakage fees, costs and expenses, if any, in accordance with subsection 2.6D. Notice of prepayment having been given as aforesaid, the principal amount of the Loans specified in such notice shall become due and payable on the prepayment date specified therein. Any such voluntary prepayment shall be applied as specified in subsection 2.4A(iv). (ii) Voluntary Reductions of Commitments. Borrowers may, upon not less than one Business Day's prior written or telephonic notice confirmed in writing to Administrative Agent (which original written or telephonic notice Administrative Agent will promptly transmit by telefacsimile or telephone to each Lender), at any time and from time to time terminate in whole or permanently reduce in part, without premium or penalty, (a) the Tranche A Commitments in an amount up to the amount by which the Tranche A Commitments exceed the Total Utilization of Tranche A Commitments at the time of such proposed termination or reduction or (b) the Tranche B Commitments in an amount up to the amount by which the Tranche B Commitments exceed the Total Utilization of Tranche B Commitments at the time of such proposed termination or reduction; provided that any such partial reduction of either the Tranche A Commitments or the Tranche B Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount; and provided further, however, that no such partial reduction of the Tranche B Commitments shall be permitted prior to entry of the Final Borrowing Order and the deemed issuance of the Tranche B Letters of Credit. Borrowers' notice to Administrative Agent shall designate the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction, and such termination or reduction of any of the Commitments shall be effective on the date specified in Company's notice and shall reduce the particular type of Commitment of each Lender proportionately to its Pro Rata Share. No such voluntary reduction of the Commitments shall be permitted if such reduction would result in (1) the Tranche A Commitments being less than the sum of (x) the Tranche A Letter of Credit Sublimit then in effect plus (y) the Tranche A Loss Sharing Sublimit plus (z) the aggregate principal amount of all outstanding Tranche A Loans (other than Tranche A Loss Sharing Loans and Tranche A Loans made to reimburse a drawing under a Tranche A Letter of Credit under subsection 3.3), or (2) the Tranche B Commitments being less than the sum of (x) the Tranche B Letter of Credit Usage then in effect plus (y) the aggregate principal amount of all outstanding Tranche B Loans. (iii) Mandatory Prepayments and Mandatory Reductions of Commitments. Mandatory Payments shall be made in the amounts and under the circumstances set forth below, all such Mandatory Payments to be applied as set forth below or as more specifically provided in subsection 2.4A(iv): (a) Prepayments and Reductions From Net Asset Sale Proceeds. No later than two days after the date of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale (other than any Approved Asset Sale to the extent the Net Asset Sale Proceeds from such Approved Asset Sale do not exceed $5,000,000), Company shall make a Mandatory Payment in an aggregate amount equal to the amount of such Net Asset Sale Proceeds. (b) Prepayments and Reductions from Net Insurance/Condemnation Proceeds. No later than the fifth Business Day following the date of receipt by Administrative Agent or by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds that are required to be used for a Mandatory Payment pursuant to the provisions of subsection 6.4C, Company shall make such Mandatory Payment in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds. (c) Prepayments and Reductions Due to Issuance of Equity Securities. On the date of receipt of the Net Securities Proceeds from the issuance of any Capital Stock of Company or of any Subsidiary of Company or from any capital contribution to Company or any Subsidiary by any holder of Capital Stock thereof after the Closing Date, Company shall make a Mandatory Payment in an aggregate amount equal to 100% of such Net Securities Proceeds; provided, however, that such Net Securities Proceeds shall not include (1) any equity proceeds or capital contributions to Subsidiaries of Company which are not Borrowers pursuant to capital call requirements (relating to existing Projects) under Contractual Obligations in effect on the Closing Date and (2) equity proceeds or capital contributions to any Subsidiaries which are applied by such Subsidiaries for the purpose of making Investments permitted under subsection 7.3. (d) Prepayments and Reductions Due to Issuance of Indebtedness. On the date of receipt of the Net Securities Proceeds from the issuance of any Indebtedness of Company or any of its Subsidiaries after the Closing Date, other than Indebtedness permitted pursuant to subsection 7.1, Company shall make a Mandatory Payment in an aggregate amount equal to such Net Securities Proceeds. (e) Prepayments and Reductions from Tax Refunds. If after the Closing Date, Company or any of its Subsidiaries receives any single payment of a Cash refund or rebate of any Tax in an aggregate amount in excess of $1,000,000, the Borrowers shall no later than the Business Day following the date of receipt of such refund or rebate make a Mandatory Payment in the amount of such Tax refund or rebate. (f) Repayments from Excess Cash. Any amounts on deposit in the Cash Management System in excess of $10,000,000 (such amount, in any event, not to include amounts, if any, required to be held in Deposit Accounts which are collateral accounts or debt service reserve accounts described on Schedule 2.4A(iii)(f) annexed hereto) at the end of each Business Day shall be applied to make a Mandatory Payment on the next succeeding Business Day. Upon the occurrence and continuation of an Event of Default all amounts in the Cash Management System shall at Administrative Agent's or Requisite Lenders' request be applied to make a Mandatory Payment. (g) Prepayments Due to Reductions or Restrictions of Commitments; Advance Limit Prepayments. Borrowers shall from time to time prepay the Tranche A Loans and Tranche B Loans, as the case may be, to the extent necessary to give effect to the limitations set forth in the last sentence of each of subsections 2.1A(i) and (ii). Without limiting the preceding sentence, if at any time and from time to time after the Closing Date (x) the outstanding principal amount of Tranche A Loans (other than Tranche A Loss Sharing Loans and Tranche A Loans made to reimburse a drawing under a Tranche A Letter of Credit under subsection 3.3) shall exceed the least of (1) the Advance Limit then in effect, (2) the Tranche A Commitments then in effect minus the Tranche A Letter of Credit Sublimit then in effect minus the Tranche A Loss Sharing Sublimit then in effect, and (3) the amount permitted to be outstanding hereunder pursuant to the Interim Borrowing Order or the Final Borrowing Order, as applicable, Borrowers shall promptly prepay Tranche A Loans (other than Tranche A Loss Sharing Loans) in an aggregate amount equal to the amount of any such excess; (y) the Total Utilization of Tranche A Commitments shall exceed the Tranche A Commitments then in effect, Borrowers shall promptly prepay the Tranche A Loans in an aggregate amount equal to the amount of any such excess; or (z) the principal amount of Tranche A Loss Sharing Loans outstanding shall exceed the Tranche A Loss Sharing Sublimit, Borrowers shall promptly prepay such Tranche A Loss Sharing Loans in an aggregate amount equal to the amount of any such excess; and, if any such payment pursuant to preceding clause (x) or (y) does not result in elimination of such excess, Borrowers shall first, promptly repay any unreimbursed drawings under Tranche A Letters of Credit and second, promptly cash collateralize the Tranche A Letters of Credit in the amount of such remaining excess. (h) Calculations of Net Proceeds Amounts; Additional Prepayments and Reductions Based on Subsequent Calculations. Concurrently with the receipt of any amount which would require a Mandatory Payment pursuant to subsections 2.4A(iii)(a) - (f), Company shall deliver to Administrative Agent an Officer's Certificate demonstrating the calculation of the amount of the applicable Net Asset Sale Proceeds, Net Insurance/Condemnation Proceeds, Net Securities Proceeds, excess cash in the Cash Management System, or federal Tax refund or rebate, as the case may be, that gave rise to such Mandatory Payment. In the event that Company shall subsequently determine that the actual amount was greater than the amount set forth in such Officer's Certificate, Company shall promptly make an additional Mandatory Payment in an amount equal to the amount of such excess, and Company shall concurrently therewith deliver to Administrative Agent an Officer's Certificate demonstrating the derivation of the additional amount resulting in such excess. (i) Reductions from Reductions in Tranche A Loss Sharing Sublimit and from Repayments of Tranche A Loss Sharing Loans. On the date of any repayment of outstanding Tranche A Loss Sharing Loans, the Tranche A Loss Sharing Sublimit shall be reduced in an amount equal to the principal amount of Tranche A Loss Sharing Loans so repaid. On the date of any reduction in the Tranche A Letter of Credit Sublimit or the Tranche A Loss Sharing Sublimit, the Tranche A Commitments shall be reduced in the amount of such reduction, and such reduction shall reduce the Tranche A Commitment of each Tranche A Lender proportionately according to its Pro Rata Share. (iv) Application of Prepayments. (a) Application of Prepayments. Except as provided in subsection 2.4C, (1) any voluntary prepayments of the Loans made pursuant to subsection 2.4A and any Mandatory Payments made pursuant to subsection 2.4A(iii)(f) shall be applied first, to prepay the Tranche A Loans to the full extent thereof and second, to the extent of any remaining portion of such amount, to prepay the Tranche B Loans and any other unreimbursed drawings under the Tranche B Letters of Credit to the full extent thereof and to permanently reduce the Tranche B Commitments in the amount of such prepayment; (2) subject to subsection 2.4A(iv)(c), any Mandatory Payments made pursuant to subsections 2.4A(iii)(a) - (e) shall be applied first, to prepay the Tranche A Loans to the full extent thereof and to permanently reduce the Tranche A Commitments to the extent of 100% of the amount of such prepayment (to the extent such prepayment is applied to Tranche A Loans other than Tranche A Loss Sharing Loans), second, to the extent of any remaining portion of such amount, to prepay the Tranche B Loans and any other unreimbursed drawings under the Tranche B Letters of Credit to the full extent thereof and to permanently reduce the Tranche B Commitments in the amount of such prepayment, and third, to the extent of any remaining portion of such amount, to permanently reduce the Tranche A Commitments to the extent of 100% of such remaining amount (provided that no such reduction of the Tranche A Commitments shall reduce the Tranche A Commitments to an amount less than the sum of (x) the Tranche A Loss Sharing Sublimit (after giving effect to any reduction thereto arising from the repayment of outstanding Tranche A Loss Sharing Loans pursuant to clause "first" above) and (y) the Tranche A Letter of Credit Usage); and (3) any voluntary or mandatory prepayments required to be applied to repay Tranche A Loans pursuant to clause (1) or (2) of this sentence shall be applied first, to Tranche A Loans other than Tranche A Loss Sharing Loans, to the full extent thereof, and second, to Tranche A Loss Sharing Loans. Any remaining portion of such Mandatory Payment amounts after the foregoing application shall be held by Administrative Agent first, on behalf of Lenders as substitute collateral to secure the Obligations and second, to the extent of any remaining portion of such amount, as additional adequate protection in respect of Prepetition Obligations, under the terms of the Borrowing Orders and the First Day Orders. (b) Application of Prepayments to Base Rate Loans and Eurodollar Rate Loans. Considering Tranche A Loans and Tranche B Loans being prepaid separately, any prepayment thereof shall be applied first to Base Rate Loans to the full extent thereof before application to Eurodollar Rate Loans, in each case in a manner which minimizes the amount of any payments required to be made by Borrowers pursuant to subsection 2.6D. (c) Application of Prepayments from the Thai Asset Sale. Notwithstanding anything in this subsection 2.4A(iv) to the contrary, in the event that the Thai Asset Sale is consummated after the Closing Date, the Net Asset Sale Proceeds from the Thai Asset Sale shall be applied in the following order of priority: first, to prepay the Tranche A Loans to the full extent thereof and to permanently reduce the Tranche A Commitments by $20,000,000, second, to the extent of any remaining Net Asset Sale Proceeds, to prepay the Tranche B Loans and any other unreimbursed drawings under the Tranche B Letters of Credit to the full extent thereof and to permanently reduce the Tranche B Commitments in the amount of such prepayment, and third, to the extent of any excess Net Asset Sale Proceeds, to be held by Administrative Agent first, on behalf of Lenders as substitute collateral to secure the Obligations and second, to the extent of any remaining portion of such amount, as additional adequate protection in respect of Prepetition Obligations, under the terms of the Borrowing Orders and the First Day Orders. B. General Provisions Regarding Payments. (i) Manner and Time of Payment. All payments by Borrowers of principal, interest, fees and other Obligations shall be made in Dollars in same day funds, without defense, setoff or counterclaim, free of any restriction or condition, and delivered to Administrative Agent not later than 12:00 Noon (New York City time) on the date due at the Funding and Payment Office for the account of Lenders; funds received by Administrative Agent after that time on such due date shall be deemed to have been paid by Borrowers on the next succeeding Business Day. Each Borrower hereby authorizes Administrative Agent to charge its accounts with Administrative Agent in order to cause timely payment to be made to Administrative Agent of all principal, interest, fees and expenses due hereunder (subject to sufficient funds being available in its accounts for that purpose). Anything contained herein to the contrary notwithstanding, Borrowers jointly and severally promise to repay all Loans and honored drawings under the Letters of Credit when due in accordance with the terms hereof and agree that, to the extent any Letters of Credit have not been returned and cancelled, on the Termination Date (a) the unpaid principal amount of, and accrued interest on, any funded amounts under such Letters of Credit and on any Loans, (b) an amount equal to the maximum available amount that may at any time on or after such date be drawn under all such Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by Borrowers, and any amounts so due and payable with respect to Letters of Credit shall be cash collateralized. (ii) Application of Payments to Principal and Interest. All payments in respect of the principal amount of any Loan shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments (and, in any event, any payments in respect of any Loan on a date when interest is due and payable with respect to such Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate principal and interest payments in respect of Loans shall be apportioned among all outstanding Loans to which such payments relate, in each case proportionately to Lenders' respective Pro Rata Shares. Administrative Agent shall promptly distribute to each Lender, at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request, its Pro Rata Share of all such payments received by Administrative Agent and the commitment fees of such Lender, if any, when received by Administrative Agent pursuant to subsection 2.3. Notwithstanding the foregoing provisions of this subsection 2.4B(iii), if, pursuant to the provisions of subsection 2.6C, any Notice of Conversion/Continuation is withdrawn as to any Affected Lender or if any Affected Lender makes Base Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans, Administrative Agent shall give effect thereto in apportioning payments received thereafter. (iv) Payments on Business Days. Whenever any payment to be made hereunder shall be stated to be due on a day that is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of the payment of interest hereunder or of the commitment fees hereunder, as the case may be. (v) Notation of Payment. Each Lender agrees that before disposing of any Note held by it, or any part thereof (other than by granting participations therein), that Lender will make a notation thereon of all Loans evidenced by that Note and all principal payments previously made thereon and of the date to which interest thereon has been paid; provided that the failure to make (or any error in the making of) a notation of any Loan made under such Note shall not limit or otherwise affect the Obligations of Borrowers hereunder or under such Note with respect to any Loan or any payments of principal or interest on such Note. C. Application of Proceeds of Collateral and Payments after Event of Default. Upon the occurrence and during the continuation of an Event of Default, either if requested by Requisite Lenders or upon termination of the Commitments (a) all payments received on account of the Obligations, whether from any Borrower, from any Subsidiary Guarantor or otherwise, shall be applied by Administrative Agent against the Obligations and (b) all proceeds received by Administrative Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Administrative Agent, be held by Administrative Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Administrative Agent against, the applicable Secured Obligations (as defined in the Collateral Documents), in each case in the following order of priority: (i) to the payment of all costs and expenses of such sale, collection or other realization, all other expenses, liabilities and advances made or incurred by Administrative Agent in connection therewith, and all amounts for which Agents are entitled to compensation (including the fees described in subsection 2.3), reimbursement and indemnification under any Loan Document and all advances made by Administrative Agent thereunder for the account of the applicable Loan Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the Loan Documents, all in accordance with subsections 9.4, 10.2 and 10.3 and the other terms of this Agreement and the Loan Documents; (ii) thereafter, to the extent of any excess such proceeds, to the payment of all Tranche A Obligations, for the ratable benefit of the holders thereof (subject to the provisions of subsection 2.4B(ii) hereof); (iii) thereafter, to the extent of any excess such proceeds, to the payment of all Tranche B Obligations, for the ratable benefit of the holders thereof (subject to the provisions of subsection 2.4B(ii) hereof); and (iv) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Loan Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.5 Use of Proceeds. A. Tranche A Loans. The proceeds of any Tranche A Loans shall be applied (i) to reimburse the Issuing Lenders of Tranche A Letters of Credit pursuant to subsection 3.3B, (ii) by Borrowers to fund working capital requirements and general corporate purposes relating to Borrowers' post-petition operations and other expenditures, in each case in accordance with, and limited by, the Monthly Budget and subsection 7.6A, and (iii) to fund the obligations described in subsection 2.1B arising from time to time under the loss sharing arrangements set forth in Section 5.3 of the Intercreditor Agreement, including obligations on account of withholding taxes imposed on such arrangements (any such Tranche A Loans, solely to the extent proceeds thereof are applied to the purpose described in this clause (iii), being "Tranche A Loss Sharing Loans"); provided that no portion of the Tranche A Loans shall be used, directly or indirectly, to (a) finance or make any Restricted Payment or other payment or prepayment prohibited under subsection 7.5, or (b) make any payment or prepayment (including by way of an Investment) to any Person that is otherwise prohibited under this Agreement, including any payment or prepayment in respect of Prepetition Indebtedness to the extent prohibited hereunder; provided, further, that no proceeds or any other portion of the Tranche A Loans shall be used, directly or indirectly, to finance in any way any adversary action, suit, arbitration, proceeding or other litigation of any type relating to or in connection with the Prepetition Credit Agreement or any of the loan documents or instruments entered into in connection therewith, including any challenges to the Prepetition Obligations or the validity, perfection, priority or enforceability of any of the Liens securing such claims or any payment made thereunder; and provided, further, that during the period prior to the date that is 90 days after the appointment of an official committee for the unsecured creditors, proceeds of the Tranche A Loans not to exceed $75,000 may be used to pay reasonable fees and expenses of an official committee of creditors, if any, appointed in the Chapter 11 Cases to analyze the Prepetition Obligations and any Liens securing such claims (subject to the requirements for Bankruptcy Court approval of the payment of such fees and expenses under the Bankruptcy Code and the rights of Lenders to object thereto). Borrowers shall use the entire amount of the proceeds of each Tranche A Loan in accordance with this subsection 2.5A; provided, however, that nothing herein shall in any way prejudice or prevent any Agent or the Tranche A Lenders from objecting, for any reason, to any requests, motions or applications made in the Bankruptcy Court, including any applications for interim or final allowances of compensation for services rendered or reimbursement of expenses incurred under Sections 105(a), 330 or 331 of the Bankruptcy Code, by any party in interest; and provided, further, that Borrowers shall not use the proceeds from any Tranche A Loans for any purpose that is prohibited under the Bankruptcy Code. B. Tranche B Loans. The proceeds of any Tranche B Loans shall be applied solely to reimburse the Issuing Lenders of Tranche B Letters of Credit pursuant to subsection 3.3B. C. Margin Regulations. No portion of the proceeds of any borrowing under this Agreement shall be used by any Borrower or any Subsidiary of any Borrower in any manner that might cause the borrowing or the application of such proceeds to violate Regulation U, Regulation T or Regulation X of the Board of Governors of the Federal Reserve System or any other regulation of such Board or to violate the Exchange Act, in each case as in effect on the date or dates of such borrowing and such use of proceeds. 2.6 Special Provisions Governing Eurodollar Rate Loans. Notwithstanding any other provision of this Agreement to the contrary, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: A. Determination of Applicable Interest Rate. As soon as practicable after 10:00 A.M. (New York City time) on each Interest Rate Determination Date, Administrative Agent shall determine (which determination shall, absent manifest error, be conclusive and binding upon all parties) the interest rate that shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrowers and each Lender. B. Inability to Determine Applicable Interest Rate. In the event that Administrative Agent shall have determined (which determination shall be conclusive and binding upon all parties hereto) on any Interest Rate Determination Date that by reason of circumstances affecting the interbank Eurodollar market adequate and fair means do not exist for ascertaining the interest rate applicable to such Loans on the basis provided for in the definition of Eurodollar Rate, Administrative Agent shall on such date give notice (by telefacsimile or by telephone confirmed in writing) to Borrowers and each Lender of such determination, whereupon (i) no Loans may be made as, or converted to, Eurodollar Rate Loans until such time as Administrative Agent notifies Borrowers and Lenders that the circumstances giving rise to such notice no longer exist and (ii) any Notice of Borrowing or Notice of Conversion/Continuation given by Borrowers with respect to the Loans in respect of which such determination was made shall be deemed to be for a Base Rate Loan. C. Illegality or Impracticability of Eurodollar Rate Loans. In the event that on any date any Lender shall have determined (which determination shall be conclusive and binding upon all parties hereto but shall be made only after consultation with Borrowers and Administrative Agent) that the making, maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful as a result of compliance by such Lender in good faith with any law, treaty, governmental rule, regulation, guideline or order (or would conflict with any such treaty, governmental rule, regulation, guideline or order not having the force of law even though the failure to comply therewith would not be unlawful) or (ii) has become impracticable, or would cause such Lender material hardship, as a result of contingencies occurring after the date of this Agreement which materially and adversely affect the interbank Eurodollar market or the position of such Lender in that market, then, and in any such event, such Lender shall be an "Affected Lender" and it shall on that day give notice (by telefacsimile or by telephone confirmed in writing) to Borrowers and Administrative Agent of such determination (which notice Administrative Agent shall promptly transmit to each other Lender). Thereafter (a) the obligation of the Affected Lender to make Loans as, or to convert Loans to, Eurodollar Rate Loans shall be suspended until such notice shall be withdrawn by the Affected Lender, (b) to the extent such determination by the Affected Lender relates to a Eurodollar Rate Loan then being requested by Borrowers pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the Affected Lender shall make such Loan as (or convert such Loan to, as the case may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its outstanding Eurodollar Rate Loans (the "Affected Loans") shall be terminated at the earlier to occur of the expiration of the Interest Period then in effect with respect to the Affected Loans or when required by law, and (d) the Affected Loans shall automatically convert into Base Rate Loans on the date of such termination. Notwithstanding the foregoing, to the extent a determination by an Affected Lender as described above relates to a Eurodollar Rate Loan then being requested by Borrowers pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, Borrowers shall have the option, subject to the provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or by telephone confirmed in writing) to Administrative Agent of such rescission on the date on which the Affected Lender gives notice of its determination as described above (which notice of rescission Administrative Agent shall promptly transmit to each other Lender). Except as provided in the immediately preceding sentence, nothing in this subsection 2.6C shall affect the obligation of any Lender other than an Affected Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate Loans in accordance with the terms of this Agreement. D. Compensation For Breakage or Non-Commencement of Interest Periods. Borrowers shall, jointly and severally, compensate each Lender, upon written request by that Lender pursuant to subsection 2.6, for all reasonable losses, expenses and liabilities (including any interest paid by that Lender to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by that Lender in connection with the liquidation or re-employment of such funds) which that Lender may sustain: (i) if for any reason (other than a default by that Lender) a borrowing of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Borrowing or a telephonic request therefor, or a conversion to or continuation of any Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of Conversion/Continuation or a telephonic request therefor, (ii) if any prepayment (including any prepayment or conversion occasioned by the circumstances described in subsection 2.6C) or other principal payment or any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the last day of an Interest Period applicable to that Loan, (iii) if any prepayment of any of its Eurodollar Rate Loans is not made on any date specified in a notice of prepayment given by Borrowers, or (iv) as a consequence of any other default by Borrowers in the repayment of Eurodollar Rate Loans when required by the terms of this Agreement. E. Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of any of its branch offices or the office of an Affiliate of that Lender. F. Assumptions Concerning Funding of Eurodollar Rate Loans. Calculation of all amounts payable to a Lender under this subsection 2.6 and under subsection 2.7A shall be made as though that Lender had funded each of its Eurodollar Rate Loans through the purchase of a Eurodollar deposit bearing interest at the rate obtained pursuant to clause (i) of the definition of Eurodollar Rate in an amount equal to the amount of such Eurodollar Rate Loan and having a maturity comparable to the relevant Interest Period, whether or not its Eurodollar Rate Loans had been funded in such manner. G. Eurodollar Rate Loans After Default. After the occurrence of and during the continuation of a Potential Event of Default or an Event of Default, (i) Borrowers may not elect to have a Loan be made or maintained as, or converted to, a Eurodollar Rate Loan after the expiration of any Interest Period then in effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any Notice of Borrowing or Notice of Conversion/Continuation given by Borrowers with respect to a requested borrowing or conversion/continuation that has not yet occurred shall be deemed to be for a Base Rate Loan or, if the conditions to making a Loan set forth in subsection 4.2 cannot then be satisfied, to be rescinded by Borrowers. 2.7 Increased Costs; Taxes; Capital Adequacy. A. Compensation for Increased Costs. Subject to the provisions of subsection 2.7B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender (including any Issuing Lender) shall determine (which determination shall, absent manifest error, be final and conclusive and binding upon all parties hereto) that any law, treaty or governmental rule, regulation or order, or any change therein or in the interpretation, administration or application thereof (including the introduction of any new law, treaty or governmental rule, regulation or order), or any determination of a court or other Government Authority, in each case that becomes effective after the date hereof, or compliance by such Lender with any guideline, request or directive issued or made after the date hereof by any central bank or other Government Authority (whether or not having the force of law): (i) subjects such Lender to any additional Tax with respect to this Agreement or any of its obligations hereunder (including with respect to issuing or maintaining any Letters of Credit or purchasing or maintaining any participations therein or maintaining any Commitment hereunder) or any payments to such Lender of principal, interest, fees or any other amount payable hereunder; (ii) imposes, modifies or holds applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets held by, or deposits or other liabilities in or for the account of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender (other than any such reserve or other requirements with respect to Eurodollar Rate Loans that are reflected in the definition of Eurodollar Rate); or (iii) imposes any other condition (other than with respect to Taxes) on or affecting such Lender or its obligations hereunder or the interbank Eurodollar market; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining its Loans or Commitments or agreeing to issue, issuing or maintaining any Letter of Credit or agreeing to purchase, purchasing or maintaining any participation therein or to reduce any amount received or receivable by such Lender with respect thereto; then, in any such case, Borrowers shall promptly pay, on a joint and several basis, to such Lender, upon receipt of the statement referred to in subsection 2.8A, such additional amount or amounts (in the form of an increased rate of, or a different method of calculating, interest or otherwise as such Lender in its sole discretion shall determine) as may be necessary to compensate such Lender for any such increased cost or reduction in amounts received or receivable hereunder. B. Taxes. (i) Payments to Be Free and Clear. All sums payable by Borrowers under this Agreement and the other Loan Documents shall be paid free and clear of, and without any deduction or withholding on account of, any Tax imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Borrowers or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment. (ii) Grossing-up of Payments. If any Borrower or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by Borrowers to Administrative Agent or any Lender under any of the Loan Documents: (a) Borrowers shall notify Administrative Agent of any such requirement or any change in any such requirement as soon as Borrowers become aware of it; (b) Borrowers shall pay any such Tax when such Tax is due, such payment to be made (if the liability to pay is imposed on any Borrower) for their own account or (if that liability is imposed on Administrative Agent or such Lender, as the case may be) on behalf of and in the name of Administrative Agent or such Lender; (c) the sum payable by Borrowers in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, Administrative Agent or such Lender, as the case may be, receives on the due date a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (d) within 30 days after paying any sum from which any or all of them are required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which any or all of them are required by clause (b) above to pay, Borrowers shall deliver to Administrative Agent evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant taxing or other authority. (iii) Evidence of Exemption from U.S. Withholding Tax. (a) Each Lender that is organized under the laws of any jurisdiction other than the United States or any state or other political subdivision thereof (for purposes of this subsection 2.7B(iii), a "Non-US Lender") shall deliver to Administrative Agent and to Company, on or prior to the Closing Date (in the case of each Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of Company or Administrative Agent (each in the reasonable exercise of its discretion), two original copies of Internal Revenue Service Form W-8BEN or W-8ECI (or any successor forms) properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required under the Internal Revenue Code or the regulations issued thereunder to establish that such Lender is not subject to United States withholding tax with respect to any payments to such Lender of interest payable under any of the Loan Documents. (b) Each Non-US Lender hereby agrees, from time to time after the initial delivery by such Lender of such forms, whenever a lapse in time or change in circumstances renders such forms, certificates or other evidence so delivered obsolete or inaccurate in any material respect, that such Lender shall promptly (1) deliver to Administrative Agent and to Company two original copies of renewals, amendments or additional or successor forms, properly completed and duly executed by such Lender, together with any other certificate or statement of exemption required in order to confirm or establish that such Lender is not subject to United States withholding tax with respect to payments to such Lender under the Loan Documents or (2) notify Administrative Agent and Company of its inability to deliver any such forms, certificates or other evidence. (c) Borrowers shall not be required to pay any additional amount to any Non-US Lender under clause (c) of subsection 2.7B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.7B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.7B(iii)(a) on the date such Lender became a Lender, nothing in this subsection 2.7B(iii)(c) shall relieve Borrowers of their obligation to pay any amounts pursuant to subsection 2.7B(ii)(c) in the event that, as a result of any change in any applicable law, treaty or governmental rule, regulation or order, or any change in the interpretation, administration or application thereof, such Lender is no longer properly entitled to deliver forms, certificates or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in subsection 2.7B(iii)(a). (iv) Indemnity for Withheld Amounts. Borrowers hereby agree to indemnify Lenders and Agents for the full amount of any deduction or withholding on account of any Taxes imposed, levied, collected, withheld or assessed by or within the United States of America or any political subdivision in or of the United States of America or any other jurisdiction from or to which a payment is made by or on behalf of Borrowers or by any federation or organization of which the United States of America or any such jurisdiction is a member at the time of payment (including any such Taxes imposed by any jurisdiction on amounts payable under this subsection 2.7B) paid by Agents or Lenders with respect to sums payable by Borrowers under this Agreement and the other Loan Documents and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be made promptly, and in any event within 10 days after, the relevant Lender or Agent makes demand therefor in writing. C. Capital Adequacy Adjustment. If any Lender shall have determined that the adoption, effectiveness, phase-in or applicability after the date hereof of any law, rule or regulation (or any provision thereof) regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any Government Authority charged with the interpretation or administration thereof, or compliance by any Lender with any guideline, request or directive regarding capital adequacy (whether or not having the force of law) of any such Government Authority, has or would have the effect of reducing the rate of return on the capital of such Lender or any corporation controlling such Lender as a consequence of, or with reference to, such Lender's Loans, Commitments, Letters of Credit, participations therein or other Obligations to a level below that which such Lender or such controlling corporation could have achieved but for such adoption, effectiveness, phase-in, applicability, change or compliance (taking into consideration the policies of such Lender or such controlling corporation with regard to capital adequacy), then from time to time, within five Business Days after receipt by Borrowers from such Lender of the statement referred to in subsection 2.8A, Borrowers shall pay to such Lender such additional amount or amounts as will compensate such Lender or such controlling corporation on an after-tax basis for such reduction. 2.8 Statement of Lenders; Obligation of Lenders and Issuing Lenders to Mitigate. A. Statements. Each Lender claiming compensation or reimbursement pursuant to subsection 2.6D, 2.7 or 2.8B shall deliver to Company (with a copy to Administrative Agent) a written statement, setting forth in reasonable detail the basis of the calculation of such compensation or reimbursement, which statement shall be conclusive and binding upon all parties hereto absent manifest error; provided that a Lender claiming compensation or reimbursement pursuant to subsection 2.7B(ii) due to circumstances in effect as of the Closing Date shall not be required to deliver more than one such statement to Borrowers or Administrative Agent, and such statement shall remain effective with respect to this Agreement until all Obligations have been paid in full. B. Mitigation. Each Lender (including any Issuing Lender) agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Loans or Letters of Credit of such Lender or Issuing Lender, as the case may be, becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender or Issuing Lender to become an Affected Lender or that would entitle such Lender or Issuing Lender to receive payments under subsection 2.7 (other than subsection 2.7B(ii)), it will use reasonable effort to make, issue, fund or maintain the Commitments of such Lender or the Affected Loans or Letters of Credit of such Lender or Issuing Lender through another lending or letter of credit office of such Lender or Issuing Lender, if (i) as a result thereof the circumstances which would cause such Lender to be an Affected Lender would cease to exist or the additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.9 would be materially reduced and (ii) as determined by such Lender or Issuing Lender in its sole discretion, such action would not otherwise be disadvantageous to such Lender or Issuing Lender; provided that such Lender or Issuing Lender will not be obligated to utilize such other lending or letter of credit office pursuant to this subsection 2.8B unless Borrowers agree to pay, on a joint and several basis, all incremental expenses incurred by such Lender or Issuing Lender as a result of utilizing such other lending or letter of credit office as described above. 2.9 Replacement of a Lender. Anything contained herein to the contrary notwithstanding, in the event that any Lender (any such Lender being a "Defaulting Lender") defaults (a "Funding Default") in its obligation to fund its participation in any Letter of Credit (a "Defaulted Participation") or to fund any Loan (a "Defaulted Loan") in accordance with the terms of this Agreement, then (i) during any Default Period (as defined below) with respect to such Defaulting Lender, such Defaulting Lender shall not be deemed a "Lender" for purposes of voting on any matters (including the granting of any consents or waivers) with respect to any of the Loan Documents (provided, however, that nothing in this clause (i) shall be construed as permitting, without the consent of the relevant Defaulting Lender, a reduction in the principal amount of such Defaulting Lender's funded Loans or other outstanding funded Obligations, an increase in the amount of such Lender's Tranche A Commitment or Tranche B Commitment or participation in any Letters of Credit, a reduction or postponement of the due date of any amount funded by such Defaulting Lender and payable in respect of any Letter of Credit, an extension of the expiration date of any Letter of Credit beyond the Stated Maturity Date, or an extension of the Termination Date), (ii) to the extent permitted by applicable law, until such time as the Default Excess (as defined below) with respect to such Defaulting Lender shall have been reduced to zero, any payment of amounts with respect to the Loans and any payment or reimbursement of amounts with respect to a drawing under a Letter of Credit shall be applied first, to amounts funded by Agents, Issuing Lenders or other Lenders (together with unpaid interest accrued thereon) in lieu of such amounts required to be funded by Defaulting Lenders and second, to the Loans or Letter of Credit participations, as the case may be, of other Lenders (other than any other Defaulting Lenders) as if such Defaulting Lender (and any other Defaulting Lenders) had no Loans outstanding and the Loan Exposure of such Defaulting Lender were zero, (iii) such Defaulting Lender's Tranche A Commitment, Tranche A Loans and Pro Rata Shares with respect thereto shall be excluded for purposes of calculating the commitment fee in respect of any day during any Default Period with respect to such Defaulting Lender, such Defaulting Lender's Commitments, Loans and Pro Rata Shares with respect thereto shall be excluded for purposes of calculating the letter of credit fees under subsection 3.2 in respect of any day during any Default Period with respect to such Defaulting Lender, and such Defaulting Lender shall not be entitled to receive any such commitment fee or letter of credit fee with respect to such Defaulting Lender's Commitments in respect of any Default Period with respect to such Defaulting Lender, and (iv) the Total Utilization of Tranche A Commitments and the Total Utilization of Tranche B Commitments as at any date of determination shall be calculated as if such Defaulting Lender had funded all Defaulted Loans of such Defaulting Lender. For purposes of this Agreement, (I) "Default Period" means, with respect to any Defaulting Lender, the period commencing on the date of the applicable Funding Default and ending on the earliest of the following dates: (A) the date on which all Commitments are cancelled or terminated and/or the Obligations are declared or become immediately due and payable, (B) the date on which (1) the Default Excess with respect to such Defaulting Lender shall have been reduced to zero (whether by the funding by such Defaulting Lender of any Defaulted Loans or Defaulted Participations, as the case may be, of such Defaulting Lender or by the non-pro rata application of any payments of amounts with respect to the Loans or any payments or reimbursements of amounts with respect to drawings under Letters of Credit in accordance with the terms hereof or any combination thereof), and (2) such Defaulting Lender shall have delivered to Company and Agents a written reaffirmation of its intention to honor its obligations under this Agreement with respect to its Commitments, and (C) the date on which Company, Administrative Agent and all Issuing Lenders waive all Funding Defaults of such Defaulting Lender in writing, and (II) "Default Excess" means, with respect to any Defaulting Lender, the excess, if any, of (x) such Defaulting Lender's applicable Pro Rata Shares of the aggregate outstanding principal amount of Loans of all Lenders and all funded participations in Letters of Credit of Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans and Defaulted Participations) over (y) the aggregate outstanding principal amount of Loans of such Defaulting Lender and the aggregate funded amount of such Defaulting Lender's participations in Letters of Credit. No Commitment of any Lender shall be increased or otherwise affected, and, except as otherwise expressly provided in this subsection 2.9, performance by any Borrower of its obligations under this Agreement and the other Loan Documents shall not be excused or otherwise modified, as a result of any Funding Default or the operation of this subsection 2.9. The rights and remedies against a Defaulting Lender under this subsection 2.9 are in addition to other rights and remedies that Borrowers may have against such Defaulting Lender with respect to any Funding Default and that Agents, any Issuing Lender or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.10 Superpriority Nature of Obligations. All Obligations of Borrowers under the Loan Documents (including the obligation to pay principal, interest, professional fees, costs, charges, commissions and expenses) shall be paid as provided in the Loan Documents when due, without defense, offset, reduction or counterclaim, and shall constitute allowed claims to the full extent thereof against Borrowers arising under Section 364(c)(1) of the Bankruptcy Code, with priority for such claims over any and all administrative expenses (other than the Carve-Outs to the extent provided herein) of the kind specified or ordered pursuant to any provision of the Bankruptcy Code, including Sections 105, 326, 328, 330, 331, 503(b), 506(c), 507(a), 507(b) and 726, provided that the Liens and security interests securing the Obligations shall exclude any proceeds from avoidance actions under Sections 544-550 of the Bankruptcy Code and shall be subject only to: (i) unpaid professional fees and expenses incurred (x) prior to the date of the delivery of a notice from Administrative Agent or Requisite Lenders to Borrowers of the occurrence of an Event of Default and specifying that the limitation on professional fees and expenses referred to in the following clause (ii) is in effect (such notice being the "Carve-Out Notice") or (y) after the earlier of (1) such time as no Event of Default shall be continuing and (2) such time as such Carve-Out Notice shall be rescinded in writing by Administrative Agent at the direction of Requisite Lenders in their sole discretion, and which are allowed by the Bankruptcy Court in the Chapter 11 Cases (either on an interim or final basis), (ii) from and after the date of the delivery of a Carve-Out Notice, professional fees and expenses allowed by the Bankruptcy Court in the Chapter 11 Cases in an aggregate amount (determined without regard to fees and expenses incurred prior to the date of the delivery of such Carve-Out Notice and which are at any time allowed by the Bankruptcy Court either on an interim or final basis) not to exceed $2,000,000 (for any period commencing at the time a Carve-Out Notice shall have been so delivered and ending at the earlier of (1) such subsequent time as no Event of Default shall be continuing and (2) such time as such Carve-Out Notice shall be rescinded in writing by Administrative Agent at the direction of Requisite Lenders in their sole discretion), and (iii) fees payable to the Clerk of the Bankruptcy Court and to the United States Trustee pursuant to 28 U.S.C. ss.1930(a)(6) (collectively, the "Carve-Outs"); provided further, however, that in no event shall there be paid from proceeds of the Loans any fees and expenses incurred in challenging the liens or claims of the Prepetition Lenders, although, subject to the Carve-Outs, the professionals for an official creditors' committee may be paid (to the extent allowed by the Bankruptcy Court) fees and expenses incurred in analyzing such liens or claims in an amount not to exceed $75,000. Subject to the Carve-Outs, the Obligations shall at all times be senior to the rights of Borrowers, any trustee or examiner and any unsecured claims of any creditor or other entity in this and any subsequent case under the Bankruptcy Code. With the exception of the Carve-Outs, no cost or expense of administration or any claims in this case, including those resulting from or incurred after any conversion of this case pursuant to Section 1112 of the Bankruptcy Code shall rank prior to, or on parity with, the claims of the Lenders arising under this Agreement. 2.11 Joint and Several Liability; Payment Indemnifications. A. Joint and Several Obligations. All Obligations of Borrowers under the Loan Documents shall be the joint and several Obligations of each Borrower. B. No Impairment or Release. The Obligations of and the Liens granted by any Borrower under the Loan Documents shall not be impaired or released by any action or inaction on the part of Administrative Agent or any Lender with respect to any other Loan Party, including any action or inaction which would otherwise release a surety. C. Contribution Rights. In order to provide for just and equitable contribution among Borrowers if any payment is made by a Borrower (a "Funding Borrower") in discharging any of the Obligations, that Funding Borrower shall be entitled to a contribution from the other Borrowers for all payments, damages and expenses incurred by that Funding Borrower in discharging the Obligations, in the manner and to the extent required to allocate liabilities in an equitable manner among Borrowers on the basis of the relative benefits received by Borrowers. If and to the extent that a Funding Borrower makes any payment to any Lender or any other Person in respect of the Obligations, any claim which said Funding Borrower may have against the other Borrowers by reason thereof shall be subject and subordinate to the prior cash payment in full of the Obligations. The parties hereto acknowledge that the right to contribution hereunder shall constitute an asset of the party to which such contribution is owing and shall be subject to the Liens and security interests of the Administrative Agent. Notwithstanding any of the foregoing to the contrary, such contribution arrangements shall not limit in any manner the joint and several nature of the Obligations, limit, release or otherwise impair any rights of Administrative Agent or any Lender under the Loan Documents, or alter, limit or impair the obligation of each Borrower, which is absolute and unconditional, to repay the Obligations. The obligation of any Borrower to make any contribution to another Borrower under this subsection 2.11 shall be deemed an expense of administration of such Borrower arising under Section 503(b) of the Bankruptcy Code and shall be junior in priority to all Obligations of such Borrower under the Loan Documents. D. Hennepin. Notwithstanding anything herein to the contrary, Covanta Hennepin Energy Resource, Co., L.P. ("HERC") shall not be deemed to have borrowed money under this Agreement or be liable for the repayment of money borrowed under this Agreement to the extent such borrowing or liability would violate applicable provisions of the Federal Power Act. Company hereby agrees to exercise best efforts to obtain as soon as practicable after the Closing Date all authorizations and/or approvals necessary under the Federal Power Act for HERC to borrow money as a Borrower under this Agreement, and immediately upon Company's receipt of any such approvals HERC shall without further action be deemed to have borrowed money under this Agreement, and shall be liable for the repayment thereof, as a Borrower for all purposes under this Agreement as if the restriction in the immediately preceding sentence were null and void ab initio and of no further force and effect. 2.12 Subordination of Tranche B Obligations; Relative Rights. Each of the Tranche B Lenders agrees that the Tranche B Obligations shall be junior and subordinate in seniority and in right of payment to the prior payment in full in cash of all Tranche A Obligations and that the Liens and security interests securing the Tranche B Obligations shall be junior to the Liens and security interests securing the Tranche A Obligations, in accordance with the provisions of this subsection 2.12. Loan Parties shall not make, and no Tranche B Lender shall accept, any distribution, payment or prepayment of principal or prepayment of other amounts due, of any kind whatsoever (including by distribution of Collateral, other assets, set off, exchange or any other manner) with respect to the Tranche B Obligations at any time when any of the Tranche A Obligations are due and unpaid. In the event that any Tranche B Lender shall receive any payment or distribution of assets that such Tranche B Lender is not entitled to receive or retain under the provisions of this Agreement, such Tranche B Lender shall hold any amount so received in trust for the holders of the Tranche A Obligations and shall, if it has received notice or has knowledge of any amount due and unpaid with respect to the Tranche A Obligations at the time of receipt of such payment, segregate such assets from other assets held by such Tranche B Lender, and shall forthwith turn over such payment or distribution (without liability for interest thereon) to Administrative Agent for distribution to the Tranche A Lenders in the form received (with any necessary endorsement) to be applied to such Tranche A Obligations. Notwithstanding the foregoing, if, at the time a distribution or other payment is made to a Tranche B Lender, no Tranche A Obligation is due and payable, such distribution or payment may be retained by such Tranche B Lender notwithstanding that a Tranche A Obligation subsequently becomes due and payable. No payment or distribution to any Tranche A Lender pursuant to the provisions of this subsection 2.12 shall entitle the applicable Tranche B Lender or Tranche B Lenders to exercise any right of subrogation in respect thereof until no Tranche A Obligations (including with respect to any Tranche A Letters of Credit) shall be due and payable. With respect to any subrogation claims, each Tranche B Lender hereby (to the extent permitted by applicable law) waives, releases and discharges any and all rights, claims, causes of action, liabilities, claims and demands, in law or equity, which such Tranche B Lender has had, now has, or may in the future have, arising out of or relating directly or indirectly to the taking or not taking of any act or proceeding or not proceeding with any action which the Tranche A Lenders, or any Agent on behalf of the Tranche A Lenders, may take in an effort to collect in respect of the Tranche A Obligations. Nothing contained in this subsection 2.12 shall be construed as affecting the priority of the Obligations as against any other claims in the Bankruptcy Cases. 2.13 Tranche B Lenders' Approval of Plan of Reorganization. Notwithstanding anything to the contrary herein and for purposes of Section 1126 and 1129 of the Bankruptcy Code, Lenders hereby acknowledge and agree that, with respect to the acceptance of any plan of reorganization for any Borrower, and any modification to any previously so accepted plan of reorganization to the extent of any modification to the treatment of the administrative expense claims under the Tranche B Commitments, Tranche B Lenders shall vote as a single class with respect to such acceptance, and the written approval of Tranche B Lenders having or holding more than 60% of the aggregate Tranche B Loan Exposure of all Tranche B Lenders shall be required and shall be binding upon all Tranche B Lenders with respect thereto. Section 3. LETTERS OF CREDIT 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein. A. Letters of Credit. (i) Tranche A Letters of Credit. In addition to Borrowers requesting that Lenders make Loans pursuant to subsection 2.1A, Borrowers may request, in accordance with the provisions of this subsection 3.1, from time to time during the period from the Closing Date to but excluding the 30th day prior to the Termination Date, that Administrative Agent or Documentation Agent issue Tranche A Letters of Credit payable on a sight basis for the account of Borrowers for the purposes of supporting the obligations set forth on Schedule 3.1A(i) annexed hereto. Subject to the terms and conditions of this Agreement and in reliance upon the representations and warranties of Borrowers herein set forth, any one or more Lenders may, but (except as provided in subsection 3.1B(i)) shall not be obligated to, issue such Tranche A Letters of Credit in accordance with the provisions of this subsection 3.1; provided that Borrowers shall not request that any Issuing Lender issue (and no Issuing Lender shall issue) any Tranche A Letter of Credit: (a) if, after giving effect to such issuance, the Total Utilization of Tranche A Commitments would exceed the lesser of (x) the Tranche A Commitments and (y) the amount permitted to be outstanding hereunder pursuant to the Interim Borrowing Order or the Final Borrowing Order, as applicable, in each case as the foregoing limits may be in effect from time to time; (b) if, after giving effect to such issuance, the Tranche A Letter of Credit Usage would exceed the Tranche A Letter of Credit Sublimit; (c) having an expiration date later than the earlier of (a) the day prior to the Stated Maturity Date and (b) the date which is one year from the date of issuance of such Tranche A Letter of Credit; provided that the immediately preceding clause (b) shall not prevent any Issuing Lender from agreeing that a Tranche A Letter of Credit will automatically be extended to a date prior to the Stated Maturity Date unless such Issuing Lender elects not to extend for any such additional period; and provided, further that such Issuing Lender shall elect not to extend such Tranche A Letter of Credit if it has knowledge that an Event of Default has occurred and is continuing (and has not been waived in accordance with subsection 10.6) at the time such Issuing Lender must elect whether or not to allow such extension; or (d) denominated in a currency other than Dollars. (ii) Tranche B Letters of Credit. On the relevant Applicable Conversion Date with respect to any Existing L/C, (a) any existing participation of a Tranche B Lender (in its capacity as a Prepetition Lender) in such Existing L/C shall terminate and be of no further force and effect, (b) any rights or obligations of Tranche B Lenders (in their capacity as Prepetition Lenders) to reimburse or participate in honored drawings under, or to participate in payments made by Company or any of its Subsidiaries with respect to, such Existing L/C under any of the Prepetition Credit Documents shall be superseded by this Agreement, and (c) any and all rights, titles, claims (including "claims" within the meaning of Section 101(5) of the Federal Bankruptcy Reform Act of 1978 (11 U.S.C.ss.101, et seq.)), interests, powers and privileges -- ---- of the issuer of any Existing L/C under the Prepetition Credit Documents shall be deemed to have reverted back to the Issuing Lender of such Existing L/C and such Existing L/C shall be deemed to be converted on such date to a Tranche B Letter of Credit under this Agreement. Subject to the provisions of subsection 3.1B(ii), prior to the expiration date of any Tranche B Letter of Credit, the Issuing Lender with respect to such Tranche B Letter of Credit may, and at the request of Agents shall, issue a Tranche B Letter of Credit to replace such expiring Tranche B Letter of Credit or amend or extend the expiration date of such expiring Tranche B Letter of Credit, and upon such issuance or extension Borrowers shall be deemed to have requested that the Issuing Lender with respect to such outstanding Tranche B Letter of Credit issue a Tranche B Letter of Credit to replace such Tranche B Letter of Credit or so extend the maturity of such Tranche B Letter of Credit, respectively; provided that no Issuing Lender shall issue or extend the expiration date of any outstanding Tranche B Letter of Credit: (a) if the underlying Contractual Obligation to provide any such Tranche B Letter of Credit or a replacement thereto to the beneficiary thereof has terminated, and/or the beneficiary of such Tranche B Letter of Credit has otherwise returned the same for cancellation without the expectation that a Tranche B Letter of Credit will be issued contemporaneously with such cancellation in substitution therefor; (b) unless the terms of such Tranche B Letter of Credit as so replaced or extended are substantially identical to the terms of the corresponding Tranche B Letter of Credit being replaced or extended; (c) unless the stated amount of such Tranche B Letter of Credit as so replaced or extended does not exceed the amount of the corresponding Tranche B Letter of Credit being replaced or extended, as the case may be, and is denominated in the same currency; (d) if such Tranche B Letter of Credit as so replaced or extended has an expiration date later than the earlier of (y) the day prior to the Stated Maturity Date and (z) the date which is one year from the date of issuance of such Tranche B Letter of Credit, unless a later expiration date is necessary in the judgment of Agents to avoid a drawing under the corresponding Tranche B Letter of Credit being replaced or extended, and such later expiration date is no later than the first date on which such corresponding Tranche B Letter of Credit being replaced or extended could expire without giving rise to a right of the beneficiary thereof to make a drawing thereunder solely as a result of or in anticipation of such expiration; or (e) if, after giving effect to such issuance or extension, the Total Utilization of Tranche B Commitments would exceed the Tranche B Commitments. B. Mechanics of Issuance. (i) Request for Issuance of Tranche A Letter of Credit. Whenever Borrowers desire the issuance of a Tranche A Letter of Credit, they shall deliver to Administrative Agent a Request for Issuance no later than 12:00 Noon (New York City time) at least 10 Business Days, or in each case such shorter period as may be agreed to by Administrative Agent in any particular instance, in advance of the proposed date of issuance; provided, that Borrowers shall not request, and no Issuing Lender shall be obligated to issue, a Tranche A Letter of Credit for the purpose of supporting an obligation set forth on Schedule 3.1A(i) annexed hereto that is supported by a performance bond or other similar instrument unless Borrowers have been unable at the time of such request and such proposed issuance, after exercising best efforts in compliance with subsection 6.13, to renew or extend the performance bond or other similar instrument supporting such obligation. Upon receipt by Administrative Agent of a Request for Issuance pursuant to this subsection 3.1B(i) requesting the issuance of a Tranche A Letter of Credit, in the event Administrative Agent elects to issue such Tranche A Letter of Credit, Administrative Agent shall promptly so notify Borrowers, and Administrative Agent shall be the Issuing Lender with respect thereto. In the event that Administrative Agent, in its sole discretion, elects not to issue such Tranche A Letter of Credit, Administrative Agent shall promptly so notify Borrowers, whereupon Borrowers may request Documentation Agent to issue such Tranche A Letter of Credit by delivering to Documentation Agent a copy of the applicable Request for Issuance. Documentation Agent shall promptly notify Borrowers and Administrative Agent whether or not, in its sole discretion, it has elected to issue such Tranche A Letter of Credit, and if Documentation Agent elects to issue such Tranche A Letter of Credit, Documentation Agent shall be the Issuing Lender with respect thereto. In the event that Documentation Agent shall have declined to issue such Tranche A Letter of Credit, notwithstanding the prior election of Administrative Agent not to issue such Tranche A Letter of Credit, Administrative Agent shall be obligated (subject to the proviso to the first sentence of this subsection 3.1B(i)) to issue such Tranche A Letter of Credit and shall be the Issuing Lender with respect thereto, notwithstanding the fact that in connection with a Tranche A Letter of Credit, the Tranche A Letter of Credit Usage with respect to such Tranche A Letter of Credit and with respect to all other Tranche A Letters of Credit issued by Administrative Agent, when aggregated with Administrative Agent's outstanding Tranche A Loans, may exceed Administrative Agent's Tranche A Commitment then in effect. The Issuing Lender of a Tranche A Letter of Credit, in its reasonable discretion, may require changes in the text of a proposed Letter of Credit or any documents described in or attached to the relevant Request for Issuance. No Tranche A Letter of Credit shall require payment against a conforming demand for payment to be made thereunder on the same business day (under the laws of the jurisdiction in which the office of the Issuing Lender to which such demand for payment is required to be presented is located) that such demand for payment is presented if such presentation is made after 10:00 A.M. (in the time zone of such office of the Issuing Lender) on such business day. (ii) Issuance of Tranche B Letters of Credit. As of the Applicable Conversion Date with respect to an Existing L/C, such Existing L/C shall be deemed converted to a Tranche B Letter of Credit that shall be deemed for purposes of this Agreement to be issued on such Applicable Conversion Date. After the deemed issuance of any Tranche B Letter of Credit pursuant to the foregoing sentence, whenever the Issuing Lender with respect to such Tranche B Letter of Credit desires to issue a Tranche B Letter of Credit to replace such outstanding Tranche B Letter of Credit, or Agents request that such Issuing Lender issue a Tranche B Letter of Credit to replace such outstanding Tranche B Letter of Credit, such Issuing Lender shall deliver to Agents a notice of such issuance no later than 12:00 Noon (New York City time) at least 10 Business Days (or in each case such shorter period as may be agreed to by Agents in any particular instance) in advance of the proposed date of issuance, which notice shall describe the relevant Tranche B Letter of Credit and the verbatim text of the Tranche B Letter of Credit proposed to be issued and shall specify such proposed date of issuance. Unless Agents or Requisite Lenders otherwise direct such Issuing Lender prior to the proposed date of issuance, or the Termination Date shall have occurred, on such proposed date of issuance such Issuing Lender shall issue a Tranche B Letter of Credit in the form set forth in such notice (subject to the provisions of subsection 3.1A(ii)) to replace such outstanding Tranche B Letter of Credit. (iii) Recertification. Borrowers shall notify the applicable Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance of any Tranche A Letter of Credit in the event that any of the matters to which Borrowers are required to certify in the applicable Request for Issuance is no longer true and correct as of the proposed date of issuance of such Tranche A Letter of Credit, and upon the issuance of any Tranche A Letter of Credit Borrowers shall be deemed to have re-certified, as of the date of such issuance, as to the matters to which Borrowers are required to certify in the applicable Request for Issuance. (iv) Issuance of Letter of Credit. Solely with respect to Tranche A Letters of Credit, upon satisfaction or waiver (in accordance with subsection 10.6) of the conditions set forth in subsection 4.3, the applicable Issuing Lender shall issue the requested Tranche A Letter of Credit in accordance with such Issuing Lender's standard operating procedures. (v) Notification to Lenders. No later than 10 Business Days prior to the decision to extend or reissue any Letter of Credit, the Issuing Lender thereof shall notify Agents in writing of the date on which such Issuing Lender expects such decision will be made and of the date by which such decision must be made in order to avoid a drawing under such Letter of Credit. Promptly after the issuance, amendment or extension of any Letter of Credit the applicable Issuing Lender shall promptly notify Administrative Agent and each Lender of such issuance, amendment or extension in writing. Upon receipt of such notice (or, if Administrative Agent is the Issuing Lender, together with such notice), Administrative Agent shall notify each Lender in writing of the amount of such Lender's respective participation in such Letter of Credit, determined in accordance with subsection 3.1C and, if so requested by a Lender, Administrative Agent shall provide such Lender with a copy of such Letter of Credit, amendment or extension. C. Lenders' Purchase of Participations in Letters of Credit. Immediately upon the issuance of each Tranche A Letter of Credit, each Tranche A Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Tranche A Letter of Credit and any drawings honored thereunder in an amount equal to such Tranche A Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. Immediately upon the issuance of any Tranche B Letter of Credit (including any deemed issuance of a Tranche B Letter of Credit pursuant to subsection 3.1A(ii)), each Tranche B Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such Tranche B Letter of Credit and any drawings honored thereunder in an amount equal to such Lender's Pro Rata Share of the maximum amount which is or at any time may become available to be drawn thereunder. Each Borrower, with respect to each Existing L/C and Tranche B Letter of Credit, hereby (1) represents, warrants, agrees, covenants and reaffirms that it has no (and it permanently and irrevocably waives and releases Agents and Lenders from any, to the extent arising on or prior to the Applicable Conversion Date with respect to the relevant Existing L/C) defense, set off, claim or counterclaim against Agents or any Lender in regard to its obligations in respect of any such participation in a Tranche B Letter of Credit or any drawings honored thereunder, and (2) affirms its obligation to pay such participations, and any amounts owed (whether or not then due and payable, and including all interest and fees accrued under the Prepetition Loan Documents to the Applicable Conversion Date with respect to the relevant Existing L/C) with respect to each Tranche B Letter of Credit in accordance with the terms and conditions of this Agreement and the other Loan Documents. 3.2 Letter of Credit Fees. Borrowers jointly and severally agree to pay the following amounts with respect to Letters of Credit issued hereunder: (i) with respect to each Tranche A Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to the greater of (X) $500 and (Y) 0.25% per annum of the daily amount available to be drawn under such Tranche A Letter of Credit and (b) a letter of credit fee, payable to Administrative Agent for the account of Tranche A Lenders, equal to the excess of the Eurodollar Rate Margin over 0.25% per annum (expressed as a daily rate) multiplied by the daily amount available to be drawn under such Tranche A Letter of Credit, each such fronting fee and letter of credit fee to be payable in arrears on and to (but excluding) the last day of each month and computed on the basis of a 360-day year, for the actual number of days elapsed; (ii) with respect to each Tranche B Letter of Credit, (a) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to the greater of (X) $500 and (Y) 0.25% per annum of the daily amount available to be drawn under such Tranche B Letter of Credit, and (b) a letter of credit fee, payable to Administrative Agent for the account of Tranche B Lenders, equal to 2.50% per annum (expressed as a daily rate) multiplied by the daily amount available to be drawn under such Tranche B Letter of Credit, each such fronting fee and letter of credit fee to be payable in arrears on and to (but excluding) the last day of each month and computed on the basis of a 360-day year, for the actual number of days elapsed; and with respect to the issuance, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clauses (i) and (ii) above), documentary and processing charges payable directly to the applicable Issuing Lender for its own account in accordance with such Issuing Lender's standard schedule for such charges in effect at the time of such issuance, amendment, transfer or payment, as the case may be. For purposes of calculating any fees payable under clauses (i) and (ii) of this subsection 3.2, the daily amount available to be drawn under any Letter of Credit shall be determined as of the close of business on any date of determination. Promptly upon receipt by Administrative Agent of any amount described in clause (i)(b) or (ii)(b) of this subsection 3.2 with respect to a Tranche A Letter of Credit or a Tranche B Letter of Credit, Administrative Agent shall distribute to each Tranche A Lender or Tranche B Lender, respectively, its applicable Pro Rata Share of such amount. 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit. A. Responsibility of Issuing Lender With Respect to Drawings. In determining whether to honor any drawing under any Letter of Credit by the beneficiary thereof, the Issuing Lender shall be responsible only to examine the documents delivered under such Letter of Credit with reasonable care so as to ascertain whether they appear on their face to be in compliance with the terms and conditions of such Letter of Credit. B. Reimbursement by Borrowers of Amounts Paid Under Letters of Credit. In the event an Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, such Issuing Lender shall immediately notify Borrowers and Borrowers shall reimburse such Issuing Lender on or before the Business Day immediately following the date on which such drawing is honored (the "Reimbursement Date") in an amount in Dollars and in same day funds equal to the amount of such payment, subject to the provisions of this subsection 3.3B. Anything contained in this Agreement to the contrary notwithstanding, (i) if such drawing is under a Tranche A Letter of Credit, unless Borrowers shall have notified Administrative Agent and Issuing Lender prior to 10:00 A.M. (New York City time) on the date such drawing is honored that Borrowers intend to reimburse such Issuing Lender for the amount of such payment with funds other than the proceeds of Tranche A Loans, then Borrowers shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Tranche A Loans that are Base Rate Loans on the Reimbursement Date in an amount in Dollars equal to the amount of such payment, (ii) if such drawing is under a Tranche B Letter of Credit, then Borrowers shall be deemed to have given a timely Notice of Borrowing to Administrative Agent requesting Lenders to make Tranche B Loans that are Base Rate Loans on the Business Day immediately following the date on which such drawing is honored in an amount in Dollars equal to the amount of such payment, and (iii) subject to satisfaction or waiver of the conditions specified in subsection 4.2B, Lenders shall, on the Reimbursement Date, make Tranche A Loans or Tranche B Loans (as applicable) that are Base Rate Loans in the applicable foregoing amount, the proceeds of which shall be applied directly by Administrative Agent to reimburse such Issuing Lender for the amount of such payment; and provided, further that if for any reason proceeds of Tranche A Loans are not received by such Issuing Lender on the Reimbursement Date in an amount equal to the amount of such payment, Borrowers shall reimburse such Issuing Lender, on demand, in an amount in same day funds equal to the excess of the amount of such payment over the aggregate amount of such Tranche A Loans, if any, which are so received. Nothing in this subsection 3.3B shall be deemed to relieve any Lender from its obligation to make Tranche A Loans or Tranche B Loans, as the case may be, on the terms and conditions set forth in this Agreement, and Borrowers shall retain any and all rights they may have against any Lender resulting from the failure of such Lender to make such Tranche A Loans or Tranche B Loans under this subsection 3.3B. C. Payment by Lenders of Unreimbursed Amounts Paid Under Letters of Credit. (i) Payment by Lenders. In the event that Borrowers shall fail for any reason to reimburse any Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any payment by such Issuing Lender under a Letter of Credit issued by it, whether from the proceeds of a Tranche A Loan or Tranche B Loan or otherwise, such Issuing Lender shall promptly notify Administrative Agent of the unreimbursed amount of such drawing and upon receipt of such notice, Administrative Agent shall promptly notify each Lender (other than such Issuing Lender) of such unreimbursed amount and of such Lender's respective participation therein based on such Lender's Pro Rata Share; provided that no Lender's funding of its participation in any such drawing shall exceed its Pro Rata Share of the amount of such drawing, and (a) the aggregate principal amount of all participations funded by a Lender with respect to Tranche A Letters of Credit shall in no event exceed the amount of such Lender's Tranche A Commitment minus the principal amount of such Lender's outstanding Tranche A Loans, and (b) the aggregate principal amount of all participations funded by a Lender with respect to Tranche B Letters of Credit shall in no event exceed the amount of such Lender's Tranche B Commitment minus the principal amount of such Lender's outstanding Tranche B Loans. Each Lender shall make available to such Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of such Issuing Lender specified in such notice, not later than 12:00 Noon (New York City time) on the first Business Day (under the laws of the jurisdiction in which such office of such Issuing Lender is located) after the date notified by Administrative Agent. In the event that any Lender fails to make available to such Issuing Lender on such business day the amount of such Lender's participation in such Letter of Credit as provided in this subsection 3.3C, such Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by such Issuing Lender for the correction of errors among banks for three Business Days and thereafter at the Base Rate. Nothing in this subsection 3.3C shall be deemed to prejudice the right of any Lender to recover from any Issuing Lender any amounts made available by such Lender to such Issuing Lender pursuant to this subsection 3.3C in the event that it is determined by the final judgment of a court of competent jurisdiction that the payment with respect to a Letter of Credit by such Issuing Lender in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of such Issuing Lender. (ii) Distribution to Lenders of Reimbursements Received From Borrowers. In the event any Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of any payment by such Issuing Lender under a Letter of Credit issued by it, such Issuing Lender shall deliver to Administrative Agent for distribution to any other Lender that has paid all amounts payable by it under subsection 3.3C(i) with respect to such payment such other Lender's Pro Rata Share of all payments subsequently received by such Issuing Lender from Borrowers in reimbursement of such payment under the Letter of Credit when such payments are received. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. D. Interest on Amounts Paid Under Letters of Credit. (i) Payment of Interest by Borrowers. Borrowers agree to pay to each Issuing Lender, with respect to payments under any Letters of Credit issued by it, interest on the amount paid by such Issuing Lender in respect of each such payment from the date a drawing is honored to but excluding the date such amount is reimbursed by Borrowers (including any such reimbursement out of the proceeds of Tranche A Loans or Tranche B Loans pursuant to subsection 3.3B) at a rate equal to (a) with respect to Tranche A Letters of Credit, (1) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Tranche A Loans that are Base Rate Loans and (2) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Tranche A Loans that are Base Rate Loans, and (b) with respect to Tranche B Letters of Credit, (1) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the rate then in effect under this Agreement with respect to Tranche B Loans that are Base Rate Loans and (2) thereafter, a rate which is 2% per annum in excess of the rate of interest otherwise payable under this Agreement with respect to Tranche B Loans that are Base Rate Loans. Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 360-day year, for the actual number of days elapsed in the period during which it accrues and shall be payable on demand or, if no demand is made, on the date on which the related drawing under a Letter of Credit is reimbursed in full. All payments by Borrowers in respect of payments made by an Issuing Lender under a Letter of Credit issued by it shall include payment of accrued interest on the principal amount being repaid or prepaid, and all such payments shall be applied to the payment of interest before application to principal. (ii) Distribution of Interest Payments by Issuing Lender. Promptly upon receipt by any Issuing Lender of any payment of interest pursuant to subsection 3.3D(i) with respect to a payment under a Letter of Credit issued by it, (a) such Issuing Lender shall distribute to Administrative Agent for distribution to each other Lender, out of the interest received by such Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which such Issuing Lender is reimbursed for the amount of such payment (including any such reimbursement out of the proceeds of Tranche A Loans pursuant to subsection 3.3B), the amount that such other Lender would have been entitled to receive in respect of the letter of credit fee that would have been payable in respect of such Letter of Credit for such period pursuant to subsection 3.2 if no drawing had been honored under such Letter of Credit, and (b) in the event such Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such payment, such Issuing Lender shall distribute to Administrative Agent for distribution to each other Lender that has paid all amounts payable by it under subsection 3.3C(i) with respect to such payment such other Lender's Pro Rata Share of any interest received by such Issuing Lender in respect of that portion of such payment so reimbursed by other Lenders for the period from the date on which such Issuing Lender was so reimbursed by other Lenders to but excluding the date on which such portion of such payment is reimbursed by Borrowers. Any such distribution shall be made to a Lender at its primary address set forth below its name on the appropriate signature page hereof or at such other address as such Lender may request. 3.4 Obligations Absolute. The obligation of Borrowers to reimburse each Issuing Lender for payments under the Letters of Credit issued by it and to repay any Loans made by Lenders pursuant to subsection 3.3B and the obligations of Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and shall be paid strictly in accordance with the terms of this Agreement under all circumstances including any of the following circumstances: (i) any lack of validity or enforceability of any Letter of Credit; (ii) the existence of any claim, set-off, defense or other right which any Borrower or any Lender may have at any time against a beneficiary or any transferee of any Letter of Credit (or any Persons for whom any such transferee may be acting), any Issuing Lender or other Lender or any other Person or, in the case of a Lender, against any Borrower, whether in connection with this Agreement, the transactions contemplated herein or any unrelated transaction (including any underlying transaction between any Borrower or one of its Subsidiaries and the beneficiary for which any Letter of Credit was procured); (iii) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; (iv) payment by the applicable Issuing Lender under any Letter of Credit against presentation of a draft or other document which does not substantially comply with the terms of such Letter of Credit; (v) any adverse change in the business, operations, properties, assets, condition (financial or otherwise) or prospects of Company or any of its Subsidiaries; (vi) any breach of this Agreement or any other Loan Document by any party thereto; (vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing; or (viii) the fact that an Event of Default or a Potential Event of Default shall have occurred and be continuing; provided, in each case, that payment by the applicable Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of such Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). 3.5 Nature of Issuing Lenders' Duties. A. Indemnification. In addition to amounts payable as provided in subsection 2.7, Borrowers hereby jointly and severally agree to protect, indemnify, pay and save harmless each Issuing Lender from and against any and all claims, demands, liabilities, damages, losses, costs, charges and expenses (including reasonable fees, expenses and disbursements of outside counsel and allocated costs of internal counsel) which such Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by such Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of such Issuing Lender as determined by a final judgment of a court of competent jurisdiction or (b) subject to the following clause (ii), the wrongful dishonor by such Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of such Issuing Lender to honor a drawing under any such Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Government Authority. B. Nature of Issuing Lenders' Duties. As between Borrowers and any Issuing Lender, Borrowers assume all risks of the acts and omissions of, or misuse of the Letters of Credit issued by such Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, such Issuing Lender shall not be responsible for: (i) the form, validity, sufficiency, accuracy, genuineness or legal effect of any document submitted by any party in connection with the application for and issuance of any such Letter of Credit, even if it should in fact prove to be in any or all respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign any such Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason; (iii) failure of the beneficiary of any such Letter of Credit to comply fully with any conditions required in order to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or delays in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher; (v) errors in interpretation of technical terms; (vi) any loss or delay in the transmission or otherwise of any document required in order to make a drawing under any such Letter of Credit or of the proceeds thereof; (vii) the misapplication by the beneficiary of any such Letter of Credit of the proceeds of any drawing under such Letter of Credit; or (viii) any consequences arising from causes beyond the control of such Issuing Lender, including any act or omission by a Government Authority specified in subsection 3.5A, and none of the above shall affect or impair, or prevent the vesting of, any of such Issuing Lender's rights or powers hereunder. In furtherance and extension and not in limitation of the specific provisions set forth in the first paragraph of this subsection 3.5B, any action taken or omitted by any Issuing Lender under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put such Issuing Lender under any resulting liability to any Borrower. Notwithstanding anything to the contrary contained in this subsection 3.5, Borrowers shall retain any and all rights they may have against any Issuing Lender for any liability arising solely out of the gross negligence or willful misconduct of such Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. Section 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT The obligations of Lenders to make Loans and the issuance of Letters of Credit hereunder are subject to the satisfaction of the following conditions. 4.1 Conditions to Closing Date. The obligations of Lenders with respect to their respective Commitments and to make any Loans to be made on the Closing Date are, in addition to the conditions precedent specified in subsection 4.2, subject to prior or concurrent satisfaction of the following conditions: A. Loan Party Documents. On or before the Closing Date, Borrowers shall, and shall cause each other Loan Party to, deliver to Lenders (or to Administrative Agent with sufficient originally executed copies, where appropriate, for each Lender) the following with respect to Borrowers or such Loan Party, as the case may be, each, unless otherwise noted, dated the Closing Date: (i) Copies of the Organizational Documents of such Person, certified by the Secretary of State of its jurisdiction of organization or, if such document is of a type that may not be so certified, certified by the secretary or similar officer of the applicable Loan Party, together with a good standing certificate from the Secretary of State of its jurisdiction of organization and each other state in which such Person is qualified to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each dated a recent date prior to the Closing Date (notwithstanding the foregoing, it is understood and agreed that those certificates evidencing good standing that Borrowers are unable (after exercising reasonable best efforts) to obtain on or prior to the proposed Closing Date shall not be required to be delivered on or prior to the Closing Date for purposes of this subsection 4.1A(i), provided, that such certificates not so delivered shall be delivered to Agents no later than 30 days after the Closing Date); (ii) Resolutions of the Governing Body of such Person approving and authorizing the execution, delivery and performance of the Loan Documents to which it is a party and, in the case of each Borrower, approving and authorizing the commencement of the Chapter 11 Cases, certified as of the Closing Date by the secretary or similar officer of such Person as being in full force and effect without modification or amendment; (iii) Signature and incumbency certificates of the officers of such Person executing the Loan Documents to which it is a party; (iv) Executed originals of the Loan Documents to which such Person is a party; and (v) Such other documents as Administrative Agent may reasonably request. B. Fees. Borrowers shall have paid to Administrative Agent, for distribution (as appropriate) to Agents and Lenders, the fees payable on the Closing Date referred to in subsection 2.3 and all reasonable and documented costs and expenses (including legal fees, due diligence fees, recordation expenses, other out-of-pocket expenses and taxes) of Agents and Lenders incurred in connection with the negotiation, preparation, recordation, execution and completion of the Loan Documents and the transactions contemplated thereby, including such fees and expenses of O'Melveny & Myers LLP, counsel to Agents, and Ernst & Young Corporate Finance LLC. C. Representations and Warranties; Performance of Agreements. Company shall have delivered to Agents an Officer's Certificate, in form and substance satisfactory to Agents, to the effect that the representations and warranties in Section 5 are true, correct and complete in all material respects on and as of the Closing Date to the same extent as though made on and as of that date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were true, correct and complete in all material respects on and as of such earlier date) and that Borrowers shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before the Closing Date. D. Orders; Related Consents. (i) The Interim Borrowing Order shall have been entered by the Bankruptcy Court, shall contain Adequate Protection Provisions, shall be in full force and effect and shall be unstayed by the Bankruptcy Court or any other court of competent jurisdiction, and Agents and the Lenders shall be satisfied that the Interim Borrowing Order shall be binding on all material creditors of Borrowers and shall be effective to provide the stay of actions, priorities, Liens and other protections for Borrowers, Agents and the Lenders purported to be granted thereby. (ii) The Project Cash Collateral Order and all other First Day Orders (which shall have been provided to the Lenders in substantially final form not less than three days prior to the Petition Date) entered by the Bankruptcy Court shall be in form and substance reasonably satisfactory to Agents and Requisite Lenders (provided that such orders shall be deemed satisfactory to Requisite Lenders so long as they are substantially in the form delivered to Agents and Lenders most recently on or prior to the date which is three days prior to the proposed Closing Date, unless Requisite Lenders shall have notified Agents on or prior to such proposed Closing Date of their objection thereto). (iii) Any initial court orders under foreign bankruptcy or other similar foreign law with respect to any Foreign Subsidiaries shall be in form and substance reasonably satisfactory to Agents and Requisite Lenders (provided that such orders shall be deemed satisfactory to Requisite Lenders so long as they are substantially in the form delivered to Agents and Lenders most recently on or prior to the date which is three days prior to the proposed Closing Date, unless Requisite Lenders shall have notified Agents on or prior to such proposed Closing Date of their objection thereto). E. Pleadings. No pleading or application shall have been filed in the Bankruptcy Court by any party in interest which is not withdrawn, dismissed or denied seeking (i) to dismiss or convert any of the Chapter 11 Cases to a Chapter 7 Case, (ii) the appointment of a Chapter 11 trustee in any of the Chapter 11 Cases, (iii) the appointment of an examiner having enlarged powers relating to the operation of the business of Borrowers (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code, (iv) the granting of a super-priority claim or a Lien pari passu or senior to that of Administrative Agent granted pursuant to the Collateral Documents and the Interim Borrowing Order, (v) to stay, reverse, vacate, or otherwise modify the Interim Borrowing Order without the prior written consent of Requisite Lenders, or (vi) relief from the automatic stay (or any other injunction having similar effect) so as to allow a third party to proceed against any material property or assets of Borrowers. F. Monthly Budget. Agents and the Lenders shall have received, (i) the initial 13-Week Cash Forecast, in form and substance satisfactory to Agents, and (ii) the initial Monthly Budget, in form and substance satisfactory to Agents and Requisite Lenders (provided that such Monthly Budget shall be deemed satisfactory to Requisite Lenders so long as it is substantially in the form delivered to Agents and Lenders most recently on or prior to the date which is three days prior to the proposed Closing Date, unless Requisite Lenders shall have notified Agents on or prior to such proposed Closing Date of their objection thereto). G. Opinions of Counsel to Loan Parties. Lenders shall have received originally executed copies of one or more favorable written opinions of Cleary, Gottlieb, Steen & Hamilton and LeBoeuf, Lamb, Greene & McRae, counsel for Loan Parties, in form and substance reasonably satisfactory to Agents and their counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit XIII annexed hereto and as to such other matters as Agents acting on behalf of Lenders may reasonably request (this Agreement constituting a written request by Borrowers to such counsel to deliver such opinions to Agents and Lenders). H. Evidence of Insurance. Administrative Agent shall have received a certificate from Company's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 6.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 6.4. I. Necessary Governmental Authorizations and Consents. Borrowers shall have obtained all Governmental Authorizations and all consents of other Persons, in each case that are necessary or advisable in connection with the transactions contemplated by the Loan Documents and the continued operation of the business conducted by Company and its Subsidiaries in substantially the same manner as conducted prior to the Closing Date. Each such Governmental Authorization or consent shall be in full force and effect, except in a case where the failure to obtain or maintain a Governmental Authorization or consent, either individually or in the aggregate, should not reasonably be expected to have a Material Adverse Effect. Administrative Agent shall have received an Officer's Certificate of Company in form and substance reasonably satisfactory to Administrative Agent certifying as to the foregoing matters and any other evidence reasonably requested by Agents in support thereof. J. Security Interests in Personal and Mixed Property. To the extent not otherwise satisfied pursuant to subsection 4.1K, Administrative Agent shall have received evidence satisfactory to it that Loan Parties shall have taken or caused to be taken all such actions, executed and delivered or caused to be executed and delivered all such agreements, documents and instruments, and made or caused to be made all such filings and recordings (other than the filing or recording of items described in clauses (ii) and (iii) below) that Administrative Agent may reasonably request in order to evidence, in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected security interest in the entire personal and mixed property Collateral, with the priority set forth in the Interim Borrowing Order or the Final Borrowing Order, as applicable. Such actions shall include the following: (i) Stock Certificates and Instruments. Delivery to Administrative Agent of (a) certificates (which certificates shall be accompanied by irrevocable undated stock powers, duly endorsed in blank and otherwise satisfactory in form and substance to Administrative Agent) representing all capital stock included in the Collateral and (b) all promissory notes or other instruments (duly endorsed, where appropriate, in a manner satisfactory to Administrative Agent) evidencing any Collateral; (ii) UCC Financing Statements and Fixture Filings. Delivery to Administrative Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Loan Party with respect to all personal and mixed property Collateral of such Loan Party, for filing in all jurisdictions as Administrative Agent may reasonably request to evidence the security interests in favor of Administrative Agent created in such Collateral; and (iii) PTO Cover Sheets, Etc. Delivery to Administrative Agent of all cover sheets or other documents or instruments Administrative Agent may reasonably request to be filed with the PTO in order to evidence Liens in favor of Administrative Agent in respect of any IP Collateral. K. Closing Date Mortgages. Administrative Agent shall have received from Company and each applicable Subsidiary Guarantor executed and notarized Mortgages in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 4.1K annexed hereto. L. Matters Relating to Existing Indebtedness of Company and its Subsidiaries. Agents shall have received an Officer's Certificate of Company stating that all Indebtedness and Contingent Obligations constituting Prepetition Indebtedness (and all amounts owing in respect thereof) of Borrowers and their Subsidiaries as of the Petition Date are as set forth on Schedule 7.1 annexed hereto. The terms and conditions of all such Indebtedness and Contingent Obligations shall be in form and in substance satisfactory to Agents. M. Collateral Review. On or before the Closing Date, Agents shall have received an updated review and analysis of all Collateral in form and substance satisfactory to Agents. N. Agreement Regarding Certain Obligations. Any agreements relating to the outstanding senior credit facilities of Covanta Power Pacific, Inc. and its Subsidiaries (under which Bayerische Hypo-Und Vereinsbank AG is agent for the lenders party thereto) entered into on or before the Closing Date in anticipation of or with respect to the commencement of the Chapter 11 Cases shall be in form and in substance satisfactory to Agents, and Agents shall have received copies of all such agreements. O. No Material Adverse Change. Agents shall be satisfied that there has been no material adverse change since September 30, 2001 in the business, property, assets, operations or financial condition of Company and its Subsidiaries taken as a whole (other than the commencement of the Chapter 11 Cases and except as disclosed prior to the Closing Date in public filings or in writing to Lenders (including the successive downgrades by Moody's and other rating agencies of Company's long term unsecured debt rating prior to the Closing Date)), and Company shall have delivered to Agents an Officer's Certificate to the foregoing effect. P. Financial Projections. Company shall have delivered to Agents and Lenders financial projections (including monthly cash flow projections) satisfactory to Agents indicating that Company's foreign operations and those Subsidiaries of Company that are not Borrowers shall be self-funding during the term of this Agreement, except as permitted in accordance with the Monthly Budget. Q. Cash Management System. The cash management system of Company and its Subsidiaries shall be as set forth on Schedule 4.1Q annexed hereto. R. Restructuring Advisor. Borrowers shall have retained, on terms reasonably acceptable to Agents, a restructuring advisor reasonably satisfactory to Agents. Such restructuring advisor shall have been retained by Company on terms providing for such restructuring advisor to report directly to the Governing Body of Company and to advise and assist Company in developing, evaluating and implementing exit alternatives from the Chapter 11 Cases. S. Amendment to Intercreditor Agreement. Company, certain of its Subsidiaries, certain Prepetition Lenders and Agents shall have entered into (and Agents shall have received) a duly executed and effective amendment to the Intercreditor Agreement in substantially the form attached hereto as Exhibit XV. T. No Additional Prepetition Revolving Loans. No loans shall have been made or letters of credit issued pursuant to the "Revolving Loan Commitments" under the Prepetition Credit Agreement after February 1, 2002 (other than loans made to reimburse drawings under letters of credit pursuant to subsection 3.3 of the Prepetition Credit Agreement). U. Retention Arrangements. Borrowers shall have disclosed in writing to Agents and Lenders the terms of any proposed bonus, retention, severance and similar arrangements with respect to their respective officers, employees, directors and advisors, which terms shall be satisfactory to Agents. V. Completion of Proceedings. All corporate and other proceedings taken or to be taken in connection with the transactions contemplated hereby and all documents incidental thereto not previously found acceptable by Agents, acting on behalf of Lenders, and their counsel shall be satisfactory in form and substance to Agents and such counsel, and Agents and such counsel shall have received all such counterpart originals or certified copies of such documents as Agents may reasonably request. 4.2 Conditions to All Loans. Except with respect to Tranche A Loss Sharing Loans, the obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received before that Funding Date, (i) in accordance with the provisions of subsection 2.1C, an originally executed Notice of Borrowing, in each case signed by a duly authorized Officer of Borrowers, and (ii) a certificate executed by the chief financial officer of each Borrower certifying to Agent (a) that such officer and Borrowers believe on and as of such Funding Date that (1) the estimates contained in the 13-Week Cash Forecast and the Monthly Budget would be good faith estimates if made on such date and (2) the assumptions on which the 13-Week Cash Forecast and the Monthly Budget are based are reasonable on such date, and (b) that the proceeds of the Loans requested on such Funding Date shall be applied in accordance with, and for the purpose identified in, such 13-Week Cash Forecast and the Monthly Budget. B. As of that Funding Date: (i) The representations and warranties contained herein and in the other Loan Documents shall be true, correct and complete in all material respects on and as of that Funding Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true, correct and complete in all material respects on and as of such earlier date; (ii) No event shall have occurred and be continuing or would result from the consummation of the borrowing contemplated by such Notice of Borrowing that would constitute an Event of Default or a Potential Event of Default; (iii) Each Loan Party shall have performed in all material respects all agreements and satisfied all conditions which this Agreement provides shall be performed or satisfied by it on or before that Funding Date; (iv) No order, judgment or decree of any arbitrator or Government Authority (including the Bankruptcy Court) shall purport to enjoin or restrain any Lender from making the Loans to be made by it on that Funding Date; (v) The Interim Borrowing Order (and, if such Funding Date is more than 45 days after the Closing Date, the Final Borrowing Order) shall be in full force and effect and shall be unstayed by the Bankruptcy Court or any other court of competent jurisdiction; (vi) After giving effect to the proposed borrowing, (a) the Total Utilization of Tranche A Commitments shall not exceed the Tranche A Commitments, and (b) the principal amount of Tranche A Loans (other than Tranche A Loss Sharing Loans and Tranche A Loans made to reimburse a drawing under a Tranche A Letter of Credit under subsection 3.3) shall not exceed the least of (x) the amount permitted to be outstanding hereunder pursuant to the Interim Borrowing Order or the Final Borrowing Order, as applicable, (y) the Advance Limit, and (z) the Tranche A Commitments minus the Tranche A Letter of Credit Sublimit minus the Tranche A Loss Sharing Sublimit; (vii) After giving effect to the proposed borrowing, the Total Utilization of Tranche B Commitments shall not exceed the Tranche B Commitments; (viii) The aggregate amount on deposit in the Cash Management System in the United States shall not exceed $10,000,000 (such amount, in any event, not to include amounts, if any, required to be held in Deposit Accounts which are collateral accounts or debt service reserve accounts described on Schedule 2.4A(iii)(f) annexed hereto); (ix) In the event that the Thai Asset Sale shall have been consummated prior to the date of entry of the Final Borrowing Order, on any Funding Date up to and including the date of entry of the Final Borrowing Order the aggregate amount on deposit in the Collateral Accounts shall not exceed $1,000,000; (x) Except with respect to Tranche B Loans, Company shall have delivered to Agents an Officer's Certificate (together with such supporting calculations as Agents may reasonably request) certifying that, before and after giving effect to the contemplated application of amounts proposed to be borrowed, Company and its Subsidiaries shall be in pro forma compliance with subsection 7.6A; and (xi) No pleading or application shall have been filed in the Bankruptcy Court (or any other court of competent jurisdiction) by any party in interest which is not withdrawn, dismissed or denied within 55 days after filing seeking (a) to dismiss or convert any of the Chapter 11 Cases to a Chapter 7 Case, (b) the appointment of a Chapter 11 trustee in any of the Chapter 11 Cases, (c) the appointment of an examiner having enlarged powers relating to the operation of the business of Borrowers (beyond those set forth under Sections 1106(a)(3) and (4) of the Bankruptcy Code) under Section 1106(b) of the Bankruptcy Code, (d) the granting of a super-priority claim or a Lien pari passu or senior to that of the Administrative Agent granted pursuant to the Collateral Documents, the Interim Borrowing Order and/or the Final Borrowing Order, (e) to stay, reverse, vacate, or otherwise modify the Interim Borrowing Order or the Final Borrowing Order without the prior written consent of Administrative Agent and the Requisite Lenders, or (f) relief from the automatic stay (or any other injunction having similar effect) so as to allow a third party to proceed against any material property or assets of Borrowers. 4.3 Conditions to Tranche A Letters of Credit. The issuance of any Tranche A Letter of Credit hereunder (whether or not the applicable Issuing Lender is obligated to issue such Tranche A Letter of Credit) is subject to the following conditions precedent: A. On or before the date of issuance of such Tranche A Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B(i), an originally executed Request for Issuance (or a facsimile copy thereof) in each case signed by a duly authorized Officer of Borrowers, together with all other information specified in subsection 3.1B(i) and such other documents or information as the applicable Issuing Lender may reasonably require in connection with the issuance of such Tranche A Letter of Credit. B. On the date of issuance of such Tranche A Letter of Credit, all conditions precedent described in subsection 4.2B (other than subdivisions (viii) and (ix) thereof) shall be satisfied to the same extent as if the issuance of such Tranche A Letter of Credit were the making of a Loan and the date of issuance of such Tranche A Letter of Credit were a Funding Date. Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce Lenders to purchase participations therein, Company represents and warrants to each Lender, on the date of this Agreement, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries. A. Organization and Powers. Each Loan Party is a corporation, partnership, trust or limited liability company duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as specified in Schedule 5.1 annexed hereto. Subject to compliance with any applicable provisions of the Bankruptcy Code, each Loan Party has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into the Loan Documents to which it is a party and to carry out the transactions contemplated thereby. Each Loan Party is in compliance with its Organizational Documents and all applicable orders of the Bankruptcy Court. B. Qualification and Good Standing. Each Loan Party is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, except in jurisdictions where the failure to be so qualified or in good standing has not had and could not reasonably be expected to have a Material Adverse Effect. C. Conduct of Business. Company and its Subsidiaries are engaged only in the businesses permitted to be engaged in pursuant to subsection 7.12. D. Subsidiaries. All of the Subsidiaries of Company and their jurisdictions of organization are identified in Schedule 5.1 annexed hereto, as said Schedule 5.1 may be supplemented from time to time pursuant to the provisions of subsection 6.1(xv). The Capital Stock of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so supplemented) is duly authorized, validly issued, fully paid and nonassessable and none of such Capital Stock constitutes Margin Stock. Each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto (as so supplemented) is a corporation, partnership, trust or limited liability company duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization set forth therein, has all requisite power and authority to own and operate its properties and to carry on its business as now conducted and as proposed to be conducted, and is qualified to do business and in good standing in every jurisdiction where its assets are located and wherever necessary to carry out its business and operations, in each case except where failure to be so qualified or in good standing or a lack of such power and authority has not had and could not reasonably be expected to have a Material Adverse Effect. Schedule 5.1 annexed hereto (as so supplemented) correctly sets forth the ownership interest of Company and each of its Subsidiaries in each of the Subsidiaries of Company identified therein. 5.2 Authorization of Borrowing, etc. A. Authorization of Borrowing. The execution, delivery and performance of the Loan Documents (i) have been duly authorized by all necessary action on the part of each Loan Party that is a party thereto and (ii) have been or by the Closing Date will be duly authorized by the Bankruptcy Court. B. No Conflict. The execution, delivery and performance by Loan Parties of the Loan Documents to which they are parties and the consummation of the transactions contemplated by the Loan Documents do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Organizational Documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation (which Contractual Obligation is enforceable on a post-Petition Date basis) of Company or any of its Subsidiaries or an applicable order of the Bankruptcy Court, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries, except for (x) such approvals or consents which will be obtained on or before the Closing Date and disclosed in writing to Lenders and (y) the entry of the Interim Borrowing Order or the Final Borrowing Order. C. Governmental Consents. The execution, delivery and performance by Loan Parties of the Loan Documents to which they are parties and the consummation of the transactions contemplated by the Loan Documents do not and will not require any Governmental Authorization, except for the entry of the Interim Borrowing Order or the Final Borrowing Order and except for filings expressly contemplated by the Loan Documents and those Governmental Authorizations which have been obtained. D. Binding Obligation. Each of the Loan Documents has been duly executed and delivered by each Loan Party that is a party thereto and is the legally valid and binding obligation of such Loan Party, enforceable against such Loan Party in accordance with its respective terms, except, in the case of Subsidiary Guarantors, as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. E. Restrictions on Transfer. There are no restrictions on any Borrower or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from one to another, other than prohibitions or restrictions existing under or by reason of (i) this Agreement and the other Loan Documents, (ii) applicable law (including the Bankruptcy Code and any applicable orders of the Bankruptcy Court, including the Project Cash Collateral Order), (iii) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices, and (iv) any documents or instruments governing the terms of any Indebtedness or other obligations secured by Liens permitted by subsection 7.2A; provided that (x) such prohibitions or restrictions apply only to the assets subject to such Liens, and (y) the prohibitions or restrictions set forth in clauses (iii) or (iv) only apply to the extent enforceable under the Bankruptcy Code and the applicable orders of the Bankruptcy Court. F. Pre-Petition Indebtedness. The Indebtedness and Contingent Obligations constituting Prepetition Indebtedness (and all amounts owing in respect thereof) as of the Petition Date are set forth in Schedule 7.1 annexed hereto. G. Chapter 11 Cases. The Chapter 11 Cases were commenced on the Petition Date in accordance with applicable law and proper notice thereof and of the hearing for the approval of each of the Interim Borrowing Order and Final Borrowing Order has been given as identified in the respective Certificates of Service filed with the Bankruptcy Court and, without limiting the foregoing, has been given to third-party creditors to the extent required by applicable law. Borrowers constitute all debtors and debtors-in-possession subject to the Chapter 11 Cases. 5.3 Financial Condition. Company has heretofore delivered to Lenders, at Lenders' request, (i) the audited consolidated financial statements of Company and its Subsidiaries for the Fiscal Year ended December 31, 2000 and (ii) the unaudited consolidated financial statements of Company and its Subsidiaries for the Fiscal Quarters ended March 31, 2001, June 30, 2001 and September 30, 2001. All such statements were prepared in conformity with GAAP and fairly present, in all material respects, the financial position (on a consolidated and, where applicable, consolidating basis) of the entities described in such financial statements as at the respective dates thereof and the results of operations and cash flows (on a consolidated and, where applicable, consolidating basis) of the entities described therein for each of the periods then ended, subject, in the case of any such unaudited financial statements, to changes resulting from audit and normal year-end adjustments. No Loan Party has, as of the Closing Date, any Contingent Obligation, contingent liability or unusual long-term commitment that is not reflected in the foregoing financial statements or the notes thereto and, as of any Funding Date subsequent to the Closing Date, is not reflected in the most recent financial statements delivered to Lenders pursuant to subsection 6.1 or the notes thereto (other than those liabilities reflected on the Schedules to this Agreement) and that, in any such case, is material in relation to the business, operations, properties, assets or financial condition of Company or any of its Subsidiaries taken as a whole. 5.4 No Material Adverse Change; No Restricted Payments. Since September 30, 2001, no event or change has occurred that has resulted in or evidences, either in any case or in the aggregate, a Material Adverse Effect, other than the commencement of the Chapter 11 Cases and as disclosed prior to the Closing Date in public filings or in writings to Lenders (including the successive downgrades by Moody's and other rating agencies of Company's long term unsecured debt rating prior to the Closing Date). Neither Company nor any of its Subsidiaries has directly or indirectly declared, ordered, paid or made, or set apart any sum or property for, any Restricted Payment or agreed to do so except (i) as permitted by subsection 7.5, and (ii) as was permitted by subsection 7.5 of the Prepetition Credit Agreement. 5.5 Title to Properties; Liens; Real Property; Intellectual Property. A. Title to Properties; Liens. Company and its Subsidiaries have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective material properties and assets reflected in the financial statements referred to in subsection 5.3 or in the most recent financial statements delivered pursuant to subsection 6.1, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under subsection 7.7. Except as permitted by this Agreement, all such properties and assets are free and clear of Liens. B. Real Property. As of the Closing Date, Schedule 5.5B annexed hereto contains a true, accurate and complete list of (i) all fee interests in any Real Property Assets and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property Asset, regardless of whether a Loan Party is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as specified in Schedule 5.5B annexed hereto, each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and no Borrower has knowledge of any material default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of each applicable Loan Party, enforceable against such Loan Party in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. C. Intellectual Property. As of the Closing Date, Schedule 5.5C annexed hereto contains a true, accurate and complete list of all material Intellectual Property. Each of Company and its Subsidiaries owns or has the right to use all material Intellectual Property used in the conduct of its business, and none of such Intellectual Property conflicts with a right of any other Person to the extent such conflict could reasonably be expect to result in a Material Adverse Effect. 5.6 Litigation; Adverse Facts. Except as set forth in Schedule 5.6 annexed hereto, there are no Proceedings (whether or not purportedly on behalf of Company or any of its Subsidiaries) at law or in equity, or before or by any court or other Government Authority (including any Environmental Claims) that are pending or, to the knowledge of any Borrower, threatened against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries and that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in violation of any applicable laws (including Environmental Laws) that, individually or in the aggregate (together with all such Proceedings with respect to substantially similar or related matters), would reasonably be expected to result in a Material Adverse Effect, or (ii) is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any court or other Government Authority that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 5.7 Payment of Taxes. Except to the extent permitted by subsection 6.3, all material tax returns and reports of Company and its Subsidiaries required to be filed by any of them have been timely filed, and all taxes shown on such tax returns to be due and payable and all assessments, fees and other governmental charges upon Company and its Subsidiaries and upon their respective properties, assets, income, businesses and franchises that are due and payable have been paid when due and payable. No Borrower knows of any proposed tax assessment against Company or any of its Subsidiaries that is not being actively contested by Company or such Subsidiary in good faith and by appropriate proceedings; provided that such reserves or other appropriate provisions, if any, as shall be required in conformity with GAAP shall have been made or provided therefor. 5.8 Performance of Agreements; Material Contracts. A. Except as set forth on Schedule 5.8A annexed hereto, neither Company nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any of its Contractual Obligations, and no condition exists that, with the giving of notice or the lapse of time or both, would constitute such a default (except to the extent the commencement of the Chapter 11 Cases constitutes such a default), except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect. B. Neither Company nor any of its Subsidiaries is a party to or is otherwise subject to any agreements or instruments or any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. C. Schedule 5.8C contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date. Except as described on Schedule 5.8C, all such Material Contracts are in full force and effect and no defaults currently exist thereunder (other than defaults which do not give the counterparty to such Material Contract the right to terminate such agreement on a post-Petition Date basis). 5.9 Governmental Regulation. Neither Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act (except that Persons owning facilities which (1) are "qualifying small power production facilities" within the meaning of PURPA, (2) use biomass as their primary energy source and (3) have a net power production capacity in excess of thirty megawatts, are subject to regulation under the Federal Power Act), the Interstate Commerce Act or the Investment Company Act of 1940 or under any other federal or state statute or regulation (other than the Bankruptcy Code) which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 5.10 Securities Activities. A. Neither Company nor any of its Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. B. Following application of the proceeds of each Loan, not more than 25% of the value of the assets (either of Company only or of Company and its Subsidiaries on a consolidated basis) subject to the provisions of subsection 7.2 or 7.7 or subject to any restriction contained in any agreement or instrument, between Company and any Lender or any Affiliate of any Lender, relating to Indebtedness and within the scope of subsection 8.2, will be Margin Stock. 5.11 Employee Benefit Plans. A. Company, each of its Subsidiaries and, with respect to Pension Plans and Multiemployer Plans, each of their respective ERISA Affiliates are in compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each Employee Benefit Plan, and have performed all their obligations under each Employee Benefit Plan. Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred since the date of such determination letter (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such Plan's qualification. B. No ERISA Event has occurred or is reasonably expected to occur. C. Except to the extent required under Section 4980B of the Internal Revenue Code or except as set forth in Schedule 5.11 annexed hereto or in the financial statements delivered to Lenders pursuant to subsection 4.1 or 6.1 hereof, as applicable, no Employee Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company or any of its Subsidiaries. D. As of the most recent valuation date for the Pension Plans, the amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA) but determined on the basis of the actuarial assumptions used for funding purposes with respect to such Pension Plan, individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed $5,000,000. E. As of the most recent valuation date for each Multiemployer Plan for which the actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, the potential withdrawal liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ERISA), when aggregated with the potential liability for a complete withdrawal from all other Multiemployer Plans for which such actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, based on the information contained in such reports, would not reasonably be expected to exceed $5,000,000. F. Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of its Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company or any of its Subsidiaries. 5.12 Certain Fees. No broker's or finder's fee or commission will be payable with respect to this Agreement or any of the transactions contemplated hereby, and each Borrower hereby indemnifies Lenders against, and agrees that it will hold Lenders harmless from, any claim, demand or liability for any such broker's or finder's fees alleged to have been incurred in connection herewith or therewith and any expenses (including reasonable fees, expenses and disbursements of counsel) arising in connection with any such claim, demand or liability. 5.13 Environmental Protection. A. Except as set forth in Schedule 5.13 annexed hereto, neither Company nor any of its Subsidiaries nor any of their respective Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim, or (c) any Hazardous Materials Activity that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; B. Except as set forth in Schedule 5.13 annexed hereto, neither Company nor any of its Subsidiaries has received any letter or request for information under Section 104 of CERCLA or any comparable state law regarding any condition, occurrence or activity that could reasonably be expected to form the basis of an Environmental Claim against Company or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; C. Except as set forth in Schedule 5.13 annexed hereto, there are and, to Company's knowledge, have been no conditions, occurrences, or Hazardous Materials Activities that could reasonably be expected to form the basis of an Environmental Claim against Company or any of its Subsidiaries that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; D. Except as set forth in Schedule 5.13 annexed hereto, (i) neither Company nor any of its Subsidiaries nor, to Company's knowledge, any predecessor of Company or any of its Subsidiaries has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, (ii) none of Company's or any of its Subsidiaries' Facilities constitute facilities for the treatment, storage or disposal of Hazardous Materials under RCRA or any state equivalent, and (iii) none of Company's or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste in violation of RCRA or any state equivalent that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; and E. Compliance with all current requirements pursuant to or under Environmental Laws would not, individually or in the aggregate, be reasonably expected to have a Material Adverse Effect or impose liability on any Lender or Agent. 5.14 Employee Matters. There is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that could reasonably be expected to have a Material Adverse Effect. 5.15 Matters Relating to Collateral. A. Creation, Perfection and Priority of Liens. The provisions of the Collateral Documents, the Interim Borrowing Order and, upon its effectiveness, the Final Borrowing Order are effective to create in favor of Administrative Agent for the benefit of the Lenders a legal, valid, perfected, nonavoidable and enforceable security interest in all right, title and interest of the Loan Parties in the Collateral described therein (having the priority provided for herein and in the Interim Borrowing Order and, upon its effectiveness, the Final Borrowing Order). (i) Pursuant to Section 364(c)(2) of the Bankruptcy Code and the Interim Borrowing Order and, upon its effectiveness, the Final Borrowing Order, the Obligations will be secured by a first priority perfected senior Lien on all Collateral which is not subject to a valid, perfected, non-voidable and enforceable Lien existing as of the Petition Date, subject only to the Carve-Outs. (ii) Pursuant to Section 364(c)(3) of the Bankruptcy Code and the Interim Borrowing Order and, upon its effectiveness, the Final Borrowing Order, the Obligations will be secured by a perfected Lien on the Collateral, subject and junior to (a) any valid, perfected, non-voidable and enforceable Liens (other than Prepetition Liens) existing as of the Petition Date and (b) the Carve-Outs. (iii) Pursuant to Section 364(d) of the Bankruptcy Code and the Interim Borrowing Order and, upon its effectiveness, the Final Borrowing Order, the Obligations at all times will be secured by a first priority perfected senior priming Lien on the Prepetition Collateral, but having priority over only the Prepetition Liens, subject only to the Carve-Outs. The execution and delivery of the Collateral Documents by Subsidiary Guarantors, together with (x) the actions taken on or prior to the date hereof pursuant to subsections 4.1J, 6.8, 6.9 and 6.14 and (y) the delivery to Administrative Agent of any Pledged Collateral of the Subsidiary Guarantors not delivered to Administrative Agent at the time of execution and delivery of the applicable Collateral Document (all of which Pledged Collateral has been so delivered) are effective to create in favor of Administrative Agent, for the benefit of Lenders, a Lien on all of the Collateral of the Subsidiary Guarantors (which Lien has priority over any other Lien on such Collateral, subject to Permitted Encumbrances and Liens permitted under subsection 7.2A), and all filings and other actions necessary or desirable to perfect and maintain the perfection and such priority of such Liens have been duly made or taken and remain in full force and effect, other than the filing of any UCC financing statements delivered to Administrative Agent for filing (but not yet filed) and the periodic filing of UCC continuation statements in respect of UCC financing statements filed by or on behalf of Administrative Agent. Notwithstanding anything in this Section 5.15A to the contrary, in the event that Covanta Power Pacific, Inc. or any of its direct or indirect Subsidiaries file a petition for relief under the Bankruptcy Code, the Liens granted to Administrative Agent for the benefit of the Lenders under the Collateral Documents, the Interim Borrowing Order and the Final Borrowing Order shall be junior to Liens in favor of the lenders under the senior credit facilities of Covanta Power Pacific, Inc. outstanding on the date hereof (entered into with Bayerische Hypo-Vereinsbank AG, as agent, and such lenders), and such Liens granted to Administrative Agent shall be subject to the prior payment in full of such credit facilities. B. Governmental Authorizations. No authorization, approval or other action by, and no notice to or filing with, any Government Authority is required for either (i) the pledge or grant by any Loan Party of the Liens purported to be created in favor of Administrative Agent pursuant to any of the Collateral Documents or (ii) the exercise by Administrative Agent of any rights or remedies in respect of any Collateral (whether specifically granted or created pursuant to any of the Collateral Documents or created or provided for by applicable law), except (a) for filings or recordings contemplated by subsection 5.15A, (b) as may be required, in connection with the disposition of any Pledged Collateral, by laws generally affecting the offering and sale of securities, and (c) authorizations and approvals in respect of the exercise of rights or remedies as to any collateral of any Loan Party which is subject to regulation under the Federal Power Act pursuant to Section 210(e)(2) of PURPA. C. Margin Regulations. The pledge of the Pledged Collateral pursuant to the Collateral Documents does not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System. D. Information Regarding Collateral. All information supplied to Administrative Agent by or on behalf of any Loan Party with respect to any of the Collateral (in each case taken as a whole with respect to any particular Collateral) is accurate and complete in all material respects. 5.16 Disclosure. No representation or warranty of Company or any of its Subsidiaries contained in any Loan Document or in any other document, certificate or written statement furnished to Lenders by or on behalf of Company or any of its Subsidiaries for use in connection with the transactions contemplated by this Agreement, except to the extent such document, certificate or written statement has been superseded or corrected prior to the date hereof, contains any untrue statement of a material fact or omits to state a material fact (known to Borrowers, in the case of any document not furnished by Company or any of its Subsidiaries) necessary in order to make the statements contained herein or therein not misleading in any material respect in light of the circumstances in which the same were made. Any projections and pro forma financial information contained in such materials (including the Monthly Budget and any 13-Week Cash Forecast) are based upon good faith estimates and assumptions believed by each Borrower to be reasonable at the time made, it being recognized by Lenders that such projections as to future events are subject to significant business, economic, regulatory and competitive uncertainties and contingencies, and, accordingly, no assurances are given and no representations or warranties are made by Company or any of its Subsidiaries that any of the estimates and assumptions are correct, that the projections will be achieved or that the forward looking statements expressed in such information will correspond to actual results. There are no facts known (or which should upon the reasonable exercise of diligence be known) to any Borrower (other than matters of a general economic nature) that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and that have not been disclosed herein or in such other documents, certificates and statements furnished to Lenders for use in connection with the transactions contemplated hereby. 5.17 Prepetition Indebtedness. The Indebtedness and Contingent Obligations constituting Prepetition Indebtedness (and all amounts owing in respect thereof) of Borrowers as of the Petition Date are set forth on Schedule 7.1 annexed hereto. The Prepetition Obligations are secured by valid and enforceable first priority liens and security interests granted by the Prepetition Loan Parties to the Prepetition Agent, for the ratable benefit of the Prepetition Lenders, upon all of the Prepetition Collateral, subject only to Permitted Encumbrances. The Prepetition Obligations and the liens and security interests of the Prepetition Agent, for the ratable benefit of the Prepetition Lenders, in the Prepetition Collateral are not subject to avoidance, defense, objection, action, counterclaim, setoff or subordination of any kind whatsoever. The Prepetition Obligations constitute legal, valid and binding obligations of each Loan, enforceable in accordance with the terms of the Prepetition Credit Documents and pursuant to applicable law, except as limited by general equitable principles (regardless whether such enforceability is considered in a proceeding at law or in equity). 5.18 Cash Management System. The summary of Borrowers' Cash Management System attached hereto as Schedule 4.1Q (and contained in the First Day Orders) is accurate and complete in all material respects as of the Closing Date and does not omit to state any material fact necessary to make the statements set forth therein not misleading. No Borrower owns any Deposit Account which is not described in Schedule 4.1Q. There has been no change to the Cash Management System since the Closing Date except such changes as have been disclosed to Lenders in writing and approved by Administrative Agent. 5.19 Orders. On the date of the making of the initial Loans hereunder, the Interim Borrowing Order will have been entered and shall be in full force and effect and unstayed by the Bankruptcy Court or any other court of competent jurisdiction. On the date of the making of any Loan, the Interim Borrowing Order or the Final Borrowing Order, as the case may be, shall be in full force and effect and unstayed by the Bankruptcy Court or any other court of competent jurisdiction. Upon the Termination Date or other maturity (whether by acceleration or otherwise) of any of the Obligations of Borrowers hereunder and under the other Loan Documents, Lenders shall be entitled to immediate payment of such Obligations, and to enforce the remedies provided for hereunder, without further application to or order by the Bankruptcy Court subject to the notice procedures set forth in the penultimate paragraph of Section 8. 5.20 Matters Relating to Loan Parties. A. Loan Parties. Neither Company nor any of its Subsidiaries owns any interest in any Domestic Subsidiary which is neither a Borrower nor a Subsidiary Guarantor (other than Excluded Subsidiaries). B. Shell Subsidiaries. Each Shell Subsidiary has no material assets and is not engaged in any business. C. Domestic Subsidiary Assets. Each Domestic Subsidiary which is a Loan Party has granted a Lien in favor of Administrative Agent on substantially all of its property pursuant to the Collateral Documents, the Interim Borrowing Order or the Final Borrowing Order, except for such Domestic Subsidiaries (other than Borrowers) (i) which have granted a Lien permitted under subsection 7.2A on all or substantially all of such property to secure Indebtedness permitted under subsection 7.1, or (ii) with respect to which the grant of such a Lien would constitute a material violation of (a) a valid and enforceable Contractual Obligation in favor of or for the benefit of a Person other than Company or any of its Subsidiaries and their respective Affiliates for which the required consents have not been obtained or (b) applicable law affecting such Loan Party. D. Domestic Subsidiary Capital Stock. The Capital Stock of each Domestic Subsidiary which is directly owned by any Loan Party has been pledged to Administrative Agent pursuant to the Collateral Documents, the Interim Borrowing Order or the Final Borrowing Order, except for the Capital Stock of those Domestic Subsidiaries (other than Borrowers) (i) which is subject to a Lien permitted under subsection 7.2A securing Indebtedness permitted under subsection 7.1, or (ii) the pledge of which would constitute a material violation of (a) a valid and enforceable Contractual Obligation in favor of or for the benefit of a Person other than Company or any of its Subsidiaries and their respective Affiliates for which the required consents have not been obtained or (b) applicable law affecting such Loan Party or such Domestic Subsidiary. E. Foreign Subsidiary Capital Stock. 65% of the Capital Stock of each Foreign Subsidiary which is a Material Subsidiary and is directly owned by Loan Parties (or such lesser percentage as is owned by Loan Parties) has been pledged to Administrative Agent pursuant to the Collateral Documents except for the Capital Stock of those Foreign Subsidiaries the pledge of which would constitute a material violation of (a) a valid and enforceable Contractual Obligation in favor of or for the benefit of a Person other than Company or any of its Subsidiaries and their respective Affiliates for which the required consents have not been obtained or (b) applicable law affecting such Loan Party or such Foreign Subsidiary. Notwithstanding the foregoing, the failure to grant a Lien after the Closing Date on assets of Company and its Subsidiaries or to pledge Capital Stock of a Subsidiary shall not constitute a breach of the representations and warranties contained in subsections 5.20C, 5.20D and 5.20E above on any date after the Closing Date if, at the time of the making of such representation or warranty on any such date, Borrowers are not otherwise in default of their obligations under subsection 6.8 and have commenced and are diligently pursuing appropriate actions to create such Lien or pledge to the extent such Lien or pledge is required under such subsection; provided, however, that nothing in this sentence shall be construed as waiving any of the conditions contained in subsection 4.1; and provided further, that if on any Funding Date or any date of issuance of a Letter of Credit, Borrowers are relying on this paragraph in certifying that the representations and warranties in this Agreement are true, correct and complete, then Borrowers shall so specify in the applicable Officer's Certificate, Notice of Borrowing, Request for Issuance of Letter of Credit or Notice of Conversion/Continuation delivered pursuant to subsection 4.2A, 4.3A or 2.2D, as the case may be, and shall provide a description in reasonable detail of the circumstances on which such reliance is based. Section 6. COMPANY'S AFFIRMATIVE COVENANTS 6.1 Financial Statements and Other Reports. Borrowers will maintain, and cause each of their respective Subsidiaries to maintain, a system of accounting established and administered in accordance with sound business practices to permit preparation of financial statements in conformity with GAAP. Borrowers will deliver to Administrative Agent (and, promptly after receipt thereof, Administrative Agent will deliver a copy to each Lender): (i) Bi-weekly Operating and Variance Report and Monthly Compliance Report: as soon as available and in any event no later than the 5th and the 20th day of each month commencing with April 20, 2002, for the half-month most recently ended (from the first through the 15th or the 16th through the last day of each month), a report in form satisfactory to Administrative Agent (a) reflecting the actual cash receipts and disbursements of Company and its Subsidiaries for each week ending in the preceding half month period (and cumulatively for the elapsed portion of the Budget Period) with respect to each line item described in the 13-Week Cash Forecast and the percentage and dollar variance of such amounts from the projected amounts therefor set forth in the 13-Week Cash Forecast for each such week, (b) containing, in the case of reports delivered with respect to a month's end, a Project-by-Project update on operational and legal developments which could reasonably be expected to be materially adverse in relation to such Project, (c) demonstrating in reasonable detail compliance during each such week with the restrictions contained in subsection 7.6 (it being understood that whether Company and its Subsidiaries are in compliance with subsection 7.6 at any month's end shall be determined, for any week during which such month's end occurs, on the basis of cash expenditures made through the end of such week), and (d) accompanied by an Officer's Certificate from the chief financial officer of Company certifying (1) that such report accurately presents, in all material respects, cash receipts and cash expenditures of Company and its Subsidiaries for the periods indicated and (2) that the signer has reviewed the terms subsection 7.6 and the transactions and condition of Company and its Subsidiaries during the period covered by such report in reasonable detail and that such review has not disclosed the existence during or at the end of such period, and that the signer does not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event that constituted or constitutes a breach of subsection 7.6; (ii) Events of Default, etc.: promptly upon any Officer of Company obtaining knowledge (a) of any condition or event that constitutes an Event of Default or Potential Event of Default, or becoming aware that any Lender has given any notice (other than to Administrative Agent) or taken any other action with respect to a claimed Event of Default or Potential Event of Default, (b) that any Person has given any notice to Company or any of its Subsidiaries or taken any other action with respect to a claimed default or event or condition of the type referred to in subsection 8.2, (c) of any condition or event that would be required to be disclosed in a current report filed by Company with the Securities and Exchange Commission on Form 8-K if Company were required to file such reports under the Exchange Act, or (d) of the occurrence of any event or change that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect, an Officer's Certificate specifying the nature and period of existence of such condition, event or change, or specifying the notice given or action taken by any such Person and the nature of such claimed Event of Default, Potential Event of Default, default, event or condition, and what action Company has taken, is taking and proposes to take with respect thereto; (iii) Quarterly Financials: as soon as available and in any event within 60 days after the end of each of the first three Fiscal Quarters of each Fiscal Year, the consolidated balance sheet of Company and its Subsidiaries as at the end of such Fiscal Quarter and the related consolidated statement of income of Company and its Subsidiaries for such Fiscal Quarter and the related consolidated statements of stockholders' equity and cash flows of Company and its Subsidiaries for the period from the beginning of the then current Fiscal Year to the end of such Fiscal Quarter, setting forth in each case in comparative form the corresponding figures for the corresponding periods of the previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, subject to changes resulting from audit and normal year-end adjustments; provided, however, that so long as Company files a quarterly report on Form 10Q with the Securities and Exchange Commission for any Fiscal Quarter, Borrowers shall be required to deliver a copy of such quarterly report in lieu of the financial statements described in this subsection 6.1(iii); (iv) Year-End Financials: as soon as available and in any event within 120 days after the end of each Fiscal Year, (a) the consolidated balance sheet of Company and its Subsidiaries as at the end of such Fiscal Year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of Company and its Subsidiaries for such Fiscal Year, setting forth in each case in comparative form the corresponding figures for the previous Fiscal Year, all in reasonable detail and certified by the chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated, and (b) an audit report thereon of Deloitte & Touche LLP or other independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall state that in the opinion of such certified public accountants such consolidated financial statements fairly present, in all material respects, the consolidated financial position of Company and its Subsidiaries as at the dates indicated and the results of their operations and their cash flows for the periods indicated in conformity with GAAP and that the audit by such accountants in connection with such consolidated financial statements has been made in accordance with auditing standards generally accepted in the United States of America; provided, however, that so long as Company files an annual report on Form 10K with the Securities Exchange Commission, Borrowers shall be required to deliver a copy of such annual report in lieu of the financial statements described in clause (a); (v) Compliance Certificates: together with each delivery of financial statements of Company and its Subsidiaries pursuant to subdivisions (iii) and (iv) above, (a) an Officer's Certificate of Company stating that the signers have reviewed the terms of this Agreement and have made, or caused to be made under their supervision, a review in reasonable detail of the transactions and condition of Company and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signers do not have knowledge of the existence as at the date of such Officer's Certificate, of any condition or event that constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Company has taken, is taking and proposes to take with respect thereto; and (b) a Compliance Certificate demonstrating in reasonable detail compliance during and at the end of the applicable accounting periods with the restrictions contained in Section 7, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; (vi) Reconciliation Statements: if, as a result of any change in accounting principles and policies from those used in the preparation of the audited financial statements referred to in subsection 5.3, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (iii) or (iv) of this subsection 6.1 will differ in any material respect from the consolidated financial statements that would have been delivered pursuant to such subdivisions had no such change in accounting principles and policies been made, then (a) together with the first delivery of financial statements pursuant to subdivision (iii) or (iv) of this subsection 6.1 following such change, consolidated financial statements of Company and its Subsidiaries for (y) the current Fiscal Year to the effective date of such change and (z) the two full Fiscal Years immediately preceding the Fiscal Year in which such change is made, in each case prepared on a pro forma basis as if such change had been in effect during such periods, and (b) together with each delivery of financial statements pursuant to subdivision (iii) or (iv) of this subsection 6.1 following such change, if required pursuant to subsection 1.2, a written statement of the chief accounting officer or chief financial officer of Company setting forth the differences (including any differences that would affect any calculations relating to the financial covenants set forth in subsection 7.6) which would have resulted if such financial statements had been prepared without giving effect to such change; (vii) [Intentionally omitted.] (viii) Accountants' Reports: promptly upon request of an Agent (unless restricted by applicable professional standards), copies of all reports submitted to Company by independent certified public accountants in connection with each annual, interim or special audit of the financial statements of Company and its Subsidiaries made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (ix) SEC Filings and Press Releases: promptly upon their becoming available, copies of (a) all financial statements, reports, notices and proxy statements sent or made available generally by Company to its security holders or by any Subsidiary of Company to its security holders other than Company or another Subsidiary of Company, (b) all regular and periodic reports and all registration statements (other than on Form S-8 or a similar form) and prospectuses, if any, filed by Company or any of its Subsidiaries with any securities exchange or with the Securities and Exchange Commission or any governmental or private regulatory authority, and (c) all press releases and other statements made available generally by Company or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; (x) Litigation or Other Proceedings: (a) promptly upon any officer of Company obtaining knowledge of (1) the institution of, or non-frivolous threat of, any Proceeding against or affecting Company or any of its Subsidiaries or any property of Company or any of its Subsidiaries not previously disclosed in writing by Company to Lenders or (2) any material development in any Proceeding that, in the case of both clauses (1) and (2): (1) if adversely determined, has a reasonable possibility after giving effect to the coverage and policy limits of insurance policies issued to Company and its Subsidiaries of giving rise to a Material Adverse Effect; or (2) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, the transactions contemplated hereby; written notice thereof together with such other information as may be reasonably available to Company to enable Lenders and their counsel to evaluate such matters; and (b) within twenty days after the end of each Fiscal Quarter, a schedule of all Proceedings involving an alleged liability of, or claims against or affecting, an Borrower equal to or greater than $1,000,000, and promptly after request by Administrative Agent such other information as may be reasonably requested by Administrative Agent to enable Administrative Agent and its counsel to evaluate any of such Proceedings; (xi) ERISA Events: promptly upon becoming aware of the occurrence of or forthcoming occurrence of any ERISA Event, a written notice specifying the nature thereof, what action Company, any of its Subsidiaries or any of their respective ERISA Affiliates has taken, is taking or proposes to take with respect thereto and, when known, any action taken or threatened in writing by the Internal Revenue Service, the Department of Labor or the PBGC with respect thereto; (xii) ERISA Notices: with reasonable promptness, copies of (a) all notices received by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from a Multiemployer Plan sponsor concerning an ERISA Event; and (b) copies of such other documents or governmental reports or filings relating to any Employee Benefit Plan as Administrative Agent shall reasonably request; (xiii) Insurance: as soon as practicable after any material change in insurance coverage maintained by Company and its Subsidiaries notice thereof to Administrative Agent specifying the changes and reasons therefor; (xiv) Governing Body: with reasonable promptness, written notice of any change in the Governing Body of Company; (xv) New Subsidiaries: promptly upon any Person becoming a Subsidiary of Company, a written notice setting forth with respect to such Person (a) the date on which such Person became a Subsidiary of Company and (b) all of the data required to be set forth in Schedule 5.1 annexed hereto with respect to all Subsidiaries of Company (it being understood that such written notice shall be deemed to supplement Schedule 5.1 annexed hereto for all purposes of this Agreement); (xvi) Material Contracts: promptly, and in any event within 10 Business Days after any Material Contract of Company or any of its Subsidiaries is terminated or amended in a manner that is materially adverse to Company or such Subsidiary, as the case may be, or any new Material Contract is entered into, a written statement describing such event with copies of such material amendments or new contracts, and an explanation of any actions being taken with respect thereto; (xvii) Schedule 7.1: as soon as practicable and in any event no later than 30 days after the Closing Date, a schedule in form reasonably satisfactory to Agents setting forth all Indebtedness and Contingent Obligations constituting Prepetition Indebtedness, which Schedule shall be Schedule 7.1 for all purposes hereunder; (xviii) Bankruptcy Information: promptly after the same is available, Borrowers shall furnish or cause to be furnished to counsel for Administrative Agent all pleadings, motions, applications, judicial information, financial information and other documents filed by or on behalf of Borrowers with the Bankruptcy Court or the United States Trustee in the Chapter 11 Cases or distributed by or on behalf of Borrowers to any official committee appointed in the Chapter 11 Cases and, without limiting the generality of the foregoing, Borrowers shall promptly deliver to, and discuss with, Administrative Agent and its counsel any and all material information and developments in connection with any proposed Asset Sale or Change in Control, including, without limitation, any letters of intent, commitment letters or engagement letters received by any Borrower, and any other event or condition which is reasonably likely to have a material effect on the Borrowers or the Chapter 11 Cases, including, without limitation, the progress of any disclosure statement or any proposed Chapter 11 plan of reorganization; (xix) Monthly Budget and 13-Week Cash Forecast Updates: as soon as practicable and in any event no later than the tenth Business Day of each month commencing with the tenth Business Day of May 2002 (or June 2002, if the date of entry of the Final Borrowing Order is in May 2002), (a) a consolidated cash forecast for Company and its Subsidiaries, in form consistent with the Monthly Budget delivered to Agents pursuant to subsection 4.1F hereof (with line items for projected cash receipts and cash expenditures corresponding to those in such Monthly Budget) and in substance satisfactory to Agents (unless within 3 Business Days after receipt by Lenders of such cash forecast Requisite Lenders shall have notified Agents of their objection thereto, in which event any cash forecast submitted by Borrowers in lieu thereof shall be required to be satisfactory to Requisite Lenders), with monthly projections for the following month and each other month remaining in the Budget Period, together with an explanation of the material assumptions on which such projections are based, and (b) a consolidated cash forecast for Company and its Subsidiaries, in form consistent with the 13-Week Cash Forecast delivered to Agents pursuant to subsection 4.1F hereof (with line items for projected cash receipts and cash expenditures corresponding to those in such 13-Week Cash Forecast) and in substance consistent with the Monthly Budget (as modified pursuant to the preceding clause (a)), with weekly projections for the 13-week period commencing with the week beginning most recently after the delivery of such forecast; (xx) Projected Financial Statements: as soon as practicable and in any event no later than July 31, 2002, projected financial statements for Company and its Subsidiaries for Fiscal Year 2002 and the first Fiscal Quarter of 2003, such projected financial statements to (a) be prepared on a consolidated and consolidating basis in accordance with GAAP, (b) be in form and substance reasonably satisfactory to Agents (unless within 3 Business Days after receipt by Lenders of such projected financial statements Requisite Lenders shall have notified Agents of their objection thereto, in which event any projected financial statements submitted by Borrowers in lieu thereof shall be required to be satisfactory to Requisite Lenders), and (c) contain projections of cash flows for each such period and such other financial information and projections for such periods as Agents may reasonably request; (xxi) Minimum Cumulative Consolidated Operating Income Schedule: as soon as practicable and in any event no later than 45 days after the date of entry by the Bankruptcy Court of the Final Borrowing Order, a schedule (the "Minimum Cumulative Consolidated Operating Income Schedule") setting forth, with respect to each Fiscal Quarter commencing with the Fiscal Quarter ending June 30, 2002 and ending with the Fiscal Quarter ending March 31, 2003, Company's proposed minimum cumulative amount, for purposes of the covenant in subsection 7.6B, of Consolidated Operating Income for the period commencing on March 31, 2002 and ending on the last day of such Fiscal Quarter; provided that no such schedule shall be deemed the Minimum Cumulative Consolidated Operating Income Schedule unless Agents and Requisite Lenders consent in writing thereto; (xxii) Exit Plan: as soon as practicable and in any event no later than the date that is nine months after the Closing Date, a plan of Borrowers for exiting the Chapter 11 Cases, in form and substance satisfactory to Agents and Requisite Lenders; and (xxiii) Other Information: with reasonable promptness, such other information and data with respect to Company or any of its Subsidiaries as from time to time may be reasonably requested by any Agent or Requisite Lenders (or by any Lender so long as such request is made through an Agent (and Agents shall be required to request from Borrowers any such information and data reasonably requested by a Lender)). 6.2 Existence, etc. Except as permitted under subsection 7.7, Company will, and will cause each of its Subsidiaries to, at all times preserve and keep in full force and effect its existence and all rights and franchises material to its business; provided, however that neither Company nor any of its Subsidiaries shall be required to preserve any such right or franchise if the management or Governing Body of Company or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of Company or such Subsidiary, as the case may be, and the loss thereof could not reasonably be expected to have a Material Adverse Effect. 6.3 Payment of Taxes and Claims; Tax. A. Except as prohibited or excused by the Borrowing Orders, this Agreement, the Bankruptcy Code or an applicable order of the Bankruptcy Court, or by reason of the commencement of the Chapter 11 Cases, Company will, and will cause each of its Subsidiaries to, pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its income, businesses or franchises before any material penalty accrues thereon, and all claims (including claims for labor, services, materials and supplies) for material sums that have become due and payable and that by law have or may become a Lien upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such charge or claim need be paid if it is being contested in good faith by appropriate proceedings promptly instituted and diligently conducted, so long as (i) such reserve or other appropriate provision, if any, as shall be required in conformity with GAAP shall have been made therefor and (ii) in the case of a charge or claim which has or may become a Lien against any of the Collateral, such proceedings conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. B. Borrowers will not file or consent to the filing of any consolidated income tax return with any Person (other than Company or any of its Subsidiaries). 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/ Condemnation Proceeds. A. Maintenance of Properties. Company will, and will cause each of its Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, ordinary wear and tear excepted, all material properties used or useful in the business of Company and its Subsidiaries (including all Intellectual Property) and from time to time will make or cause to be made all appropriate repairs, renewals and replacements thereof, except that Company and its Subsidiaries shall not be required to perform the foregoing obligations (i) with respect to Subsidiaries or assets to which Persons other than Company and its Subsidiaries have recourse under Limited Recourse Debt owed to such Persons or (ii) to the extent that failure to perform such obligations would not reasonably be expected to have a Material Adverse Effect. B. Insurance. Company will maintain or cause to be maintained, with financially sound and reputable insurers, such public liability insurance, third party property damage insurance, business interruption insurance and casualty insurance with respect to liabilities, losses or damage in respect of the assets, properties and businesses of Company and its Subsidiaries as may customarily be carried or maintained under similar circumstances by corporations of established reputation engaged in similar businesses, in each case in such amounts (giving effect to self-insurance), with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations similarly situated in the industry. Without limiting the generality of the foregoing, Company will maintain or cause to be maintained (i) flood insurance with respect to each Flood Hazard Property that is located in a community that participates in the National Flood Insurance Program, in each case in compliance with any applicable regulations of the Board of Governors of the Federal Reserve System, and (ii) replacement value casualty insurance on the Collateral under such policies of insurance, with such insurance companies, in such amounts, with such deductibles, and covering such risks as are at all times satisfactory to Administrative Agent in its commercially reasonable judgment. Unless prohibited by contractual or other legal requirement, such policy of insurance shall (a) name Administrative Agent for the benefit of Lenders as an additional insured thereunder as its interests may appear and (b) in the case of each business interruption and casualty insurance policy, contain a loss payable clause or endorsement, satisfactory in form and substance to Administrative Agent, that names Administrative Agent for the benefit of Lenders as the loss payee thereunder for any covered loss in excess of $1,000,000 and provides for at least 30 days prior written notice to Administrative Agent of any modification or cancellation of such policy. As soon as practicable after the Closing Date, Company shall deliver to Administrative Agent a certificate from Borrowers' insurance broker(s) or other evidence satisfactory to it that all insurance required to be maintained pursuant to this subsection 6.4 is in full force and effect and that Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 6.4. C. Application of Net Insurance/Condemnation Proceeds. (i) Business Interruption Insurance. Upon receipt by Company or any of its Subsidiaries of any business interruption insurance proceeds constituting Net Insurance/Condemnation Proceeds, (a) so long as no Event of Default shall have occurred and be continuing, Company or such Subsidiary may retain and apply such Net Insurance/Condemnation Proceeds for working capital purposes or any other purposes not prohibited under this Agreement, and in accordance with the Monthly Budget, and (b) if an Event of Default shall have occurred and be continuing, Company shall apply an amount equal to such Net Insurance/Condemnation Proceeds as provided in subsection 2.4A. (ii) Net Insurance/Condemnation Proceeds Received by Company. Upon receipt by Company or any of its Subsidiaries of any Net Insurance/Condemnation Proceeds other than from business interruption insurance, (a) so long as no Event of Default or Potential Event of Default shall have occurred and be continuing, Company shall, or shall cause one or more of its Subsidiaries to, promptly and diligently apply such Net Insurance/Condemnation Proceeds to pay or reimburse the costs of repairing, restoring or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received or, to the extent not so applied, as provided in subsection 2.4A, and (b) if an Event of Default or Potential Event of Default shall have occurred and be continuing (unless Company is otherwise required to use funds by law or contract), Company shall apply an amount equal to such Net Insurance/Condemnation Proceeds as provided in subsection 2.4A. (iii) Net Insurance/Condemnation Proceeds Received by Administrative Agent. Upon receipt by Administrative Agent of any Net Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent Company would have been required to apply such Net Insurance/Condemnation Proceeds (if it had received them directly) Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 2.4A, and (b) to the extent the foregoing clause (a) does not apply Administrative Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds to the costs of repairing, restoring, or replacing the assets in respect of which such Net Insurance/Condemnation Proceeds were received; provided, however that if at any time Administrative Agent reasonably determines (A) that Company or such Subsidiary is not proceeding diligently with such repair, restoration or replacement or that such repair, restoration or replacement cannot be completed within 180 days after the receipt by Administrative Agent of such Net Insurance/Condemnation Proceeds, Administrative Agent shall, and Company hereby authorizes Administrative Agent to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 2.4A. Notwithstanding the foregoing, no Net Insurance/Condemnation Proceeds shall be required to be applied as provided in subsection 2.4A to the extent such application would constitute a material violation of (1) a valid Contractual Obligation (in effect on the Closing Date) which is enforceable against Borrowers on a post-Petition Date basis in favor of or for the benefit of a Person other than Company or any of its Subsidiaries or their respective Affiliates for which the required consents have not been obtained or (2) applicable law affecting Company and its Subsidiaries. 6.5 Inspection Rights; Lender Meeting. Borrowers shall, and shall cause each of their respective Subsidiaries to, permit any authorized representatives designated by any Lender to visit and inspect any of the properties of such Borrower or of any of its Subsidiaries, to inspect, copy and take extracts from its and their financial and accounting records, and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested; provided that, at any time after the occurrence and during the continuance of an Event of Default, Borrowers shall, and shall cause each of their respective Subsidiaries to, permit such additional audits as Administrative Agent or Requisite Lenders may deem necessary or advisable, upon reasonable notice and at such reasonable times during normal business hours as may be reasonably requested. Without in any way limiting the foregoing, Company will, upon the request of Administrative Agent or Requisite Lenders, participate in meetings of Administrative Agent and Lenders during the pendency of the Chapter 11 Cases at such location and times (and from time to time) as may be agreed to by Company and Administrative Agent. 6.6 Compliance with Laws, etc. Borrowers shall comply, and shall cause each of their Subsidiaries to comply, with the requirements of all applicable laws, rules, regulations and orders of any Government Authority (including all Environmental Laws), noncompliance with which could reasonably be expected to cause, individually or in the aggregate, a Material Adverse Effect. 6.7 Environmental Matters. A. Environmental Disclosure. Company will deliver to Administrative Agent: (i) Environmental Audits and Reports. As soon as practicable following receipt thereof, copies of all environmental audits, investigations, analyses and reports of any kind or character (excluding writings which are protected by attorney-client privilege or the work-product doctrine or confidential self-evaluative writings), whether prepared by personnel of Company or any of its Subsidiaries or by independent consultants, governmental authorities or any other Persons, with respect to significant environmental matters at any Facility that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or impose liability on any Lender or Agent or with respect to any Environmental Claims that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or impose liability on any Lender or Agent; (ii) Notice of Certain Releases, Remedial Actions, Etc. Promptly upon the occurrence thereof, written notice describing in reasonable detail (a) any Release required to be reported to any federal, state or local governmental or regulatory agency under any applicable Environmental Laws that could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent, (b) any remedial action taken by Company or any other Person in response to (1) any Hazardous Materials Activities the existence of which could reasonably be expected to result in one or more Environmental Claims having, individually or in the aggregate, a Material Adverse Effect or imposing liability on any Lender or Agent, or (2) any Environmental Claims that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or impose liability on any Lender or Agent; (iii) Written Communications Regarding Environmental Claims, Releases, Etc. As soon as practicable following the sending or receipt thereof by Company or any of its Subsidiaries, a copy of any and all written communications (excluding writings which are protected by attorney-client privilege or the work-product doctrine or confidential self-evaluative writings), with respect to (a) the commencement or the threat to commence a proceeding regarding any Environmental Claims that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect or impose liability on any Lender or Agent, (b) any Release required to be reported to any federal, state or local governmental or regulatory agency that could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent, and (c) any request for information from any governmental agency that suggests such agency is investigating whether Company or any of its Subsidiaries may be potentially responsible for any Hazardous Materials Activity that could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; and (iv) Notice of Certain Proposed Actions Having Environmental Impact. Prompt written notice describing in reasonable detail (a) any proposed acquisition of stock, assets, or property by Company or any of its Subsidiaries that could reasonably be expected to (1) expose Company or any of its Subsidiaries to, or result in, Environmental Claims that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or impose liability on any Lender or Agent or (2) affect the ability of Company or any of its Subsidiaries to maintain in full force and effect all Governmental Authorizations required under any Environmental Laws for their respective operations except to the extent the failure to maintain such Governmental Authorizations could not reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent and (b) any proposed action to be taken by Company or any of its Subsidiaries to commence manufacturing or other industrial operations or to modify current operations in a manner that could reasonably be expected to subject Company or any of its Subsidiaries to any additional obligations or requirements under any Environmental Laws that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect or impose liability on any Lender or Agent. (v) Certain Communications. With respect to documents which would have been required to be provided to Administrative Agent pursuant to paragraph (i) or (iii) but for the parenthetical in those paragraphs, Company shall promptly upon receiving such documents provide a list identifying generally the documents not disclosed and summarizing the information contained in such documents to the extent consistent with not waiving any privilege with respect thereto. If the privilege prevents Company from summarizing the information contained in such documents Company (a) shall nevertheless advise Administrative Agent that a matter, the nature of which cannot be disclosed without waiving the applicable privilege, exists with respect to a specified Facility or Environmental Claim that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect and (b) shall provide such other information to Administrative Agent, consistent with not waving the privilege, that Administrative Agent may reasonably request. B. Company's Actions Regarding Environmental Claims and Violations of Environmental Laws. Company shall promptly take, and shall cause each of its Subsidiaries promptly to take, any and all actions necessary to (i) cure any violation of applicable Environmental Laws by Company or its Subsidiaries that could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and (ii) make an appropriate response to any Environmental Claim against Company or any of its Subsidiaries and discharge any obligations it may have to any Person thereunder where failure to do so could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect (except if Company and its Subsidiaries do not have standing to contest or respond to such Environmental Claim); provided, however, that Company may, without breaching the requirements of this subsection 6.7B, contest an alleged violation of Environmental Laws or an Environmental Claim in good faith by appropriate proceedings promptly instituted and diligently conducted so long as during such contest the failure to cure such violation or to respond to such Environmental Claim or discharge the obligations thereunder could not reasonably be expected to result in a Material Adverse Effect. 6.8 Execution of Subsidiary Guaranty and Personal Property Collateral Documents After the Closing Date. A. Execution of Subsidiary Guaranty and Personal Property Collateral Documents. In the event that any Domestic Subsidiary of Company existing on the Closing Date ceases to be an Excluded Subsidiary, Company will promptly notify Administrative Agent of that fact and cause such Domestic Subsidiary promptly (and in any event no later than 30 days after it ceases to be an Excluded Subsidiary) to execute and deliver to Administrative Agent a counterpart of the Subsidiary Guaranty and Security Agreement and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1J) as may be necessary or, in the opinion of Administrative Agent, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected first priority security interest in all of the personal and mixed property assets of such Domestic Subsidiary described in the applicable forms of Collateral Documents, subject to any Liens in existence on the date such Domestic Subsidiary ceases to be an Excluded Subsidiary to the extent permitted under subsection 7.2A, provided that at the request of Company in connection with sales of assets permitted under subsection 7.7, Administrative Agent shall (without need for any further consent from any Lender or Lenders) release any Liens on a Domestic Subsidiary's assets and/or release a Domestic Subsidiary from the Subsidiary Guaranty or, in the case of a Person that becomes a Domestic Subsidiary of Company in connection with such financing or investment permitted hereunder, waive the requirement that such Domestic Subsidiary execute and deliver to Administrative Agent a counterpart of the Subsidiary Guaranty and Security Agreement, in each case solely to the extent required by the terms of any such financings, investments or sales permitted under the foregoing subsections of this Agreement; provided, however, that no Domestic Subsidiary which meets the criteria set forth in subsections 5.20C(i) and 5.20C(ii) shall be required to enter into the Security Agreement or to grant Liens on its property pursuant to this subsection. B. Subsidiary Organizational Documents, Legal Opinions, Etc. Company shall deliver to Administrative Agent, together with the relevant Loan Documents, (i) certified copies of Organizational Documents of each Domestic Subsidiary which is becoming a Loan Party pursuant to subsection 6.8A or 6.8E, together with a good standing certificate from the Secretary of State of the jurisdiction of such Subsidiary's organization and each other state in which such Person is qualified to do business and, to the extent generally available, a certificate or other evidence of good standing as to payment of any applicable franchise or similar taxes from the appropriate taxing authority of each of such jurisdictions, each to be dated a recent date prior to their delivery to Administrative Agent, (ii) a certificate executed by the secretary or similar officer of such Subsidiary as to (a) the fact that the attached resolutions of the Governing Body of such Subsidiary approving and authorizing the execution, delivery and performance of such Loan Documents are in full force and effect and have not been modified or amended and (b) the incumbency and signatures of the officers of such Subsidiary executing such Loan Documents, and (iii) a favorable opinion of counsel to such Subsidiary, in form and substance satisfactory to Administrative Agent and its counsel, as to (a) the due organization and good standing of such Subsidiary, (b) the due authorization, execution and delivery by such Subsidiary of such Loan Documents, (c) the enforceability of such Loan Documents against such Subsidiary and (d) such other matters (including matters relating to the creation and perfection of Liens in any Collateral pursuant to such Loan Documents) as Administrative Agent may reasonably request, all of the foregoing to be satisfactory in form and substance to Administrative Agent and its counsel. C. Foreign Pledge Agreements. As soon as practicable (but not more than 90 days, unless rendered impracticable by events or by action or inaction of foreign Governmental Authorities in each case beyond the control of Borrowers (as determined in the reasonable judgment of Administrative Agent)) after the Closing Date (to the extent not completed on or prior to the Closing Date), Borrowers shall cause foreign pledge agreements to be executed and delivered to Administrative Agent with respect to 65% of the Capital Stock of all Foreign Subsidiaries which are Material Subsidiaries and are directly owned by any Borrower or Subsidiary Guarantor (other than to the extent a pledge of such Capital Stock under the Collateral Documents would constitute a material violation of (1) a valid Contractual Obligation in favor of or for the benefit of a Person other than Company or any of its Subsidiaries which is enforceable against the relevant Borrower or Subsidiary Guarantor on a post-Petition Date basis and for which the required consents have not been obtained or (2) applicable law affecting such Borrower, such Subsidiary Guarantor or such Foreign Subsidiary), shall take all such other actions under the laws of such jurisdictions as Administrative Agent may deem necessary or advisable to perfect or otherwise protect the Liens purported to be created in such Capital Stock under the Collateral Documents, and shall deliver to Administrative Agent an opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) under the laws of each jurisdiction in which (i) any Loan Party holding stock of the relevant Foreign Subsidiary is organized with respect to the due authorization, execution and delivery of such foreign pledge agreement by such Loan Party, and (ii) such Foreign Subsidiary is organized with respect to customary matters regarding enforceability, validity and perfection of such pledge. D. Release of Restrictions. Borrowers shall use their good faith, commercially reasonable efforts to obtain all necessary consents from all Persons in whose favor or for whose benefit Contractual Obligations are in effect which would be violated by (i) a pledge of the stock of any Subsidiary of a Loan Party, (ii) entry into the Subsidiary Guaranty by a Domestic Subsidiary which is not already a Loan Party, or (iii) granting a Lien on substantially all of the assets of a Domestic Subsidiary. The foregoing efforts shall be exercised so as to obtain such consents as soon as practicable but no later than 90 days after the Closing Date. E. Additional Subsidiary Borrowers. Borrowers shall (i) cause any Domestic Subsidiary of any Borrower which commences a voluntary case under the Bankruptcy Code to file the relevant petition for relief under the Bankruptcy Code in the same venue as the Chapter 11 Cases, and shall promptly notify Administrative Agent of such filing, (ii) apply to the Bankruptcy Court and otherwise use best efforts to have any such voluntary case jointly administered with the Chapter 11 Cases, and (iii) cause any such Subsidiary promptly (and in any event no later than one Business Day after such filing) to execute and deliver to Administrative Agent a Borrowing Subsidiary Agreement and a counterpart of the Security Agreement (each such Subsidiary being an "Additional Subsidiary Borrower") and to take all such further actions and execute all such further documents and instruments (including actions, documents and instruments comparable to those described in subsection 4.1J) as may be necessary or, in the opinion of Administrative Agent, desirable to create in favor of Administrative Agent, for the benefit of Lenders, a valid and perfected security interest in all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents, with the same priority as set forth in the Interim Borrowing Order or the Final Borrowing Order, as applicable, for the security interests granted by the initial Borrowers hereunder. Upon delivery of such executed Borrowing Subsidiary Agreement by the other Borrowers, notice of which is hereby waived by Borrowers other than Company, and each of the other documents referred to in the immediately preceding sentence, each such Additional Subsidiary Borrower shall be a Borrower and shall be as fully a party hereto as if such Subsidiary were an original signatory hereto as a Borrower. Each Borrower hereby expressly agrees that its Obligations arising hereunder or under the other Loan Documents shall not be affected or diminished by the addition or release of any Additional Subsidiary Borrower hereunder. 6.9 Matters Relating to Additional Real Property Collateral. From and after the Closing Date, in the event that (i) any Subsidiary Guarantor acquires any fee interest in real property or any Material Leasehold Property, or (ii) at the time any Person becomes a Subsidiary Guarantor after the Closing Date, such Person owns or holds any fee interest in real property or any Material Leasehold Property, such Subsidiary Guarantor shall, as soon as practicable after such Person acquires such real property or Material Leasehold Property or becomes a Subsidiary Guarantor, as the case may be, execute, acknowledge, file, record, do and deliver all and any further acts, deeds, conveyances, mortgages, hypothecations, pledges, charges, assignments, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments, opinions, appraisals, title insurance and environmental reports as Administrative Agent may reasonably request to perfect and maintain the Liens created by the Collateral Documents, the Interim Borrowing Order and the Final Borrowing Order, and to assure, convey, assign, transfer and confirm unto Administrative Agent, for the benefit of the Lenders, the property and rights thereby conveyed and assigned or intended to now or hereafter be conveyed or assigned or that any Subsidiary Guarantor may be or may hereafter become bound to convey or to assign to Administrative Agent. 6.10 Cash Management System. Each Borrower shall maintain the cash management system as described in Schedule 4.1Q, and Company and its Subsidiaries shall not open or close Deposit Accounts or make other changes to the cash management system without the written consent of Administrative Agent. Borrowers shall at all times after consummation of the Thai Asset Sale and prior to the date of entry of the Final Borrowing Order maintain not less than $2,000,000 on deposit in the Collateral Accounts. 6.11 Retention of Advisors. On or prior to the date which is 30 days after the Closing Date, Borrowers shall retain, and seek the approval of the Bankruptcy Court for the retention of, on terms reasonably acceptable to Agents, a public relations firm and an investment banker and restructuring financial advisor, in each case reasonably satisfactory to Agents, to advise and assist management of the Borrowers in managing customer relationships and developing, evaluating and implementing exit alternatives from the Chapter 11 Cases. 6.12 Workers' Compensation Letters of Credit. With respect to any Existing L/C issued for the purpose of supporting workers' compensation liabilities of Company or any of its Subsidiaries, as specified in Schedule 1.1A, or with respect to any Tranche B Letter of Credit issued to replace any such Existing L/C, Company shall use reasonable best efforts at all relevant times to cause the proportionate release, return and/or cancellation by the beneficiaries thereof and the reduction, by amendment or reissuance, of the face amount of such Tranche B Letter of Credit or Existing L/C, as the case may be, from time to time as any such workers' compensation liabilities are extinguished by full or partial payment thereof or otherwise, prior to the reduction or release of any other obligations of Company or any of its Subsidiaries supporting those same workers' compensation liabilities. To the extent that a Tranche B Letter of Credit has not yet been issued to replace any Existing L/C pursuant to subsection 3.1, Borrowers may amend or reissue such Existing L/C as necessary and appropriate to give effect to the terms of this subsection 6.12. The Tranche B Commitments shall be reduced by the amount of any such release, return, cancellation or reduction of a Tranche B Letter of Credit provided for under this subsection 6.12 and such reduction of the Tranche B Commitments shall reduce each Tranche B Lender's Tranche B Commitment ratably. 6.13 Renewal of Existing Performance Bonds. Borrowers shall, and shall cause their respective Subsidiaries to, use reasonable best efforts at all relevant times prior to the Termination Date to renew or extend the term of each of the performance bonds and other instruments described on Schedule 3.1A(i) annexed hereto. 6.14 Further Assurances. A. Assurances. Without expense or cost to Agents or Lenders, each Borrower shall from time to time hereafter execute, acknowledge, file, record, do and deliver all and any further acts, deeds, conveyances, mortgages, deeds of trust, deeds to secure debt, security agreements, hypothecations, pledges, charges, assignments, financing statements and continuations thereof, notices of assignment, transfers, certificates, assurances and other instruments as Administrative Agent may from time to time reasonably request and that do not involve a material expansion of Borrowers' obligations or liabilities hereunder in order to carry out more effectively the purposes of this Agreement, the other Loan Documents, the Interim Borrowing Order or the Final Borrowing Order, including to subject any Collateral, intended to now or hereafter be covered, to the Liens created by the Collateral Documents, the Interim Borrowing Order and the Final Borrowing Order, to perfect and maintain such Liens, and to assure, convey, assign, transfer and confirm unto Administrative Agent the property and rights thereby conveyed and assigned or intended to now or hereafter be conveyed or assigned or that any Borrower may be or may hereafter become bound to convey or to assign to Administrative Agent or for carrying out the intention of or facilitating the performance of the terms of this Agreement, any other Loan Documents, the Interim Borrowing Order or the Final Borrowing Order, registering or recording this Agreement or any other Loan Document. Without limiting the generality of the foregoing, Borrowers shall deliver to Administrative Agent, promptly upon receipt thereof, all instruments received by Borrowers after the Closing Date and take all actions and execute all documents necessary or reasonably requested by Administrative Agent to perfect Administrative Agent's Liens in any such instrument or any other Investment acquired by any Borrower. B. Filing and Recording Obligations. Each Borrower shall jointly and severally pay all filing, registration and recording fees and all expenses incident to the execution and acknowledgement of any Mortgage or other Loan Document, including any instrument of further assurance described in subsection 6.14A, and shall pay all mortgage recording taxes, transfer taxes, general intangibles taxes and governmental stamp and other taxes, duties, imposts, assessments and charges arising out of or in connection with the execution, delivery, filing, recording or registration of any Mortgage or other Loan Document, including any instrument of further assurance described in subsection 6.14A, or by reason of its interest in, or measured by amounts payable under, the Notes, the Mortgages or any other Loan Document, including any instrument of further assurance described in subsection 6.14A, (excluding income, franchise and doing business Taxes), and shall pay all stamp Taxes and other Taxes required to be paid on the Notes or any other Loan Document; provided, however, that such Borrower may contest in good faith and through appropriate proceedings, any such Taxes, duties, imposts, assessments and charges; provided further, however, that such Borrower shall pay all such Taxes, duties, imposts and charges when due to the appropriate taxing authority during the pendency of any such proceedings if required to do so to stay enforcement thereof. If any Borrower fails to make any of the payments described in the preceding sentence within 10 days after notice thereof from Administrative Agent (or such shorter period as is necessary to protect the loss of or diminution in value of any Collateral by reason of tax foreclosure or otherwise, as determined by Administrative Agent) accompanied by documentation verifying the nature and amount of such payments, Administrative Agent may (but shall not be obligated to) pay the amount due and Borrowers shall jointly and severally reimburse all amounts in accordance with the terms hereof. C. Costs of Defending and Upholding the Lien. Administrative Agent may, upon at least five days' prior notice to Borrowers, (i) appear in and defend any action or proceeding, in the name and on behalf of any Agent, Lenders or any Borrower, in which any Agent or any Lender is named or which Administrative Agent in its sole discretion determines is reasonably likely to materially adversely affect any Mortgaged Property, any other Collateral, any Mortgage, the Lien thereof or any other Loan Document and (ii) institute any action or proceeding which Administrative Agent reasonably determines should be instituted to protect the interest or rights of Agents and Lenders in any Mortgaged Property or other Collateral or under this Agreement or any other Loan Document. Borrowers, jointly and severally, agree that all reasonable costs and expenses expended or otherwise incurred pursuant to this subsection (including reasonable attorneys' fees and disbursements) by Administrative Agent shall be paid pursuant to subsection 10.2 hereof. Section 7. BORROWERS' NEGATIVE COVENANTS Borrowers covenant and agree that, so long as any of the Commitments hereunder shall remain in effect and until payment in full of all of the Loans and other Obligations and the cancellation or expiration of all Letters of Credit, unless Requisite Lenders shall otherwise give prior written consent, Borrowers shall perform, and shall cause each of their Subsidiaries to perform, all covenants in this Section 7. 7.1 Indebtedness. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, create, incur, assume or guaranty, or otherwise become or remain directly or indirectly liable with respect to, any Indebtedness, except: (i) Borrowers may become and remain liable with respect to the Obligations; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, the Indebtedness corresponding to the Contingent Obligations so extinguished; (iii) Each Borrower may become and remain liable with respect to Indebtedness to any other Borrower; provided that such Indebtedness shall be incurred after the Closing Date solely to the extent such Indebtedness represents amounts borrowed by the relevant Borrowers for purposes of making expenditures permitted under subsection 7.6A; and provided further, that all such intercompany Indebtedness shall be evidenced by one or more promissory notes which shall be pledged pursuant to the Collateral Documents; (iv) Subsidiaries of Company may, after the Closing Date, become and remain liable with respect to Indebtedness to any Borrower or Borrowers evidencing an Investment in such Subsidiaries permitted under subsection 7.3(iv) or 7.3(vi); provided that all such intercompany Indebtedness shall be evidenced by one or more Intercompany Notes which shall be pledged pursuant to the Collateral Documents; (v) Company and its Subsidiaries may remain liable with respect to Indebtedness constituting Prepetition Indebtedness set forth on Schedule 7.1 annexed hereto without giving effect to any extensions, renewals, refinancings, supplemental borrowings or other incurrences thereof; (vi) Subsidiaries of Company which are not Loan Parties may become and remain liable with respect to Indebtedness to Persons other than Company or any of its Subsidiaries or their respective Affiliates (including Indebtedness of a Subsidiary or Indebtedness secured by assets associated with a Project in existence at the time of acquisition of such Subsidiary or such asset, respectively, so long as such Indebtedness was not incurred in contemplation of such acquisition and such acquisition is not otherwise prohibited under this Agreement), to the extent such Indebtedness is Limited Recourse Debt and the proceeds of such Limited Recourse Debt are applied to Investments not prohibited by any other provision of this Agreement; (vii) Any Subsidiary of Company may become and remain liable with respect to Indebtedness incurred to refinance, in whole or in part, Limited Recourse Debt of such Subsidiary permitted to be incurred and/or remain outstanding under this subsection 7.1; provided, that in each case (a) such refinancing and the terms of such Limited Recourse Debt as refinanced would not reasonably be expected to be more disadvantageous to Company and its Subsidiaries, the Lenders or the Subsidiary obligated with respect to such Limited Recourse Debt than the terms of the Limited Recourse Debt being refinanced, (b) such Indebtedness is Limited Recourse Debt of such Subsidiary, (c) no additional recourse to Company or any other Subsidiary or any Affiliate of Company (or any of their equity, property or assets) results from such refinancing, and (d) if such Subsidiary incurring such refinancing Indebtedness is a Borrower, Borrowers shall have obtained Bankruptcy Court approval of such refinancing; and (viii) Borrowers may become and remain liable with respect to Indebtedness incurred in connection with the rejection of leases and executory contracts in the Chapter 11 Cases; provided, that the obligation of any Borrower in respect of such Indebtedness shall be determined by a Final Order of the Bankruptcy Court entered at the time of such rejection, to be a general, unsecured, non-priority claim. 7.2 Liens and Related Matters. A. Prohibition on Liens. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, create, incur, assume or permit to exist any Lien on or with respect to any property or asset of any kind (including any document or instrument in respect of goods or accounts receivable) of Borrowers or any such Subsidiary, whether now owned or hereafter acquired, or any income or profits therefrom, or file or permit the filing of, or permit to remain in effect, any financing statement or other similar notice of any Lien with respect to any such property, asset, income or profits under the UCC or under any similar recording or notice statute, or apply to the Bankruptcy Court for the authority to do any of the foregoing, except: (i) Permitted Encumbrances; (ii) Liens created in favor of Administrative Agent (for the benefit of Lenders) (a) pursuant to the Collateral Documents or (b) authorized by the Interim Borrowing Order or the Final Borrowing Order; (iii) Liens in existence on the Petition Date described on Schedule 7.2 annexed hereto; (iv) Liens on assets of any Subsidiary of Company that is not a Loan Party (and/or on the stock or other equity interests of such Subsidiary) securing Indebtedness of such Subsidiary permitted by subsection 7.1(vi); (v) Liens securing refinancing Indebtedness permitted by subsection 7.1(vii), provided that in each case the Liens securing such refinancing Indebtedness shall attach only to the assets that were subject to Liens securing the Indebtedness so refinanced; and (vi) Liens permitted under the Project Cash Collateral Order. B. No Further Negative Pledges. Neither Company nor any of its Subsidiaries shall enter into any agreement (other than this Agreement and the Loan Documents) on or after the Closing Date prohibiting the creation or assumption of any Lien upon any of its properties or assets, whether now owned or hereafter acquired, except with respect to specific property to be sold pursuant to an executed agreement with respect to an Asset Sale that is permitted hereunder. C. No Restrictions on Subsidiary Distributions to Borrowers or Other Subsidiaries. Company will not, and will not permit any of its Subsidiaries to, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction of any kind on the ability of any such Subsidiary to (i) pay dividends or make any other distributions on any of such Subsidiary's Capital Stock owned by Company or any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed by such Subsidiary to Company or any Subsidiary of Company, (iii) make loans or advances to Company or any other Subsidiary of Company, or (iv) transfer any of its property or assets to Company or any other Subsidiary of Company, except (a) as provided in this Agreement or the other Loan Documents and (b) as may be provided in an executed agreement with respect to an Asset Sale that is permitted hereunder. 7.3 Investments; Acquisitions. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint Venture, or acquire, by purchase or otherwise, all or substantially all the business, property or fixed assets of, or Capital Stock or other ownership interest of any Person, or any division or line of business of any Person except: (i) Company and its Domestic Subsidiaries may make and own Investments in Domestic Cash Equivalents and in such investments as are permitted under the terms of the agreement establishing the Cash Collateral Account, as such agreement is in effect on the Closing Date and as it may be amended or supplemented from time to time thereafter with the consent of Agents; and Company's Foreign Subsidiaries may make and own Investments in Foreign Cash Equivalents; (ii) Company and its Subsidiaries may continue to own the Investments owned by them as of the Closing Date in any Subsidiaries of Company; and Company and its Subsidiaries may make and own additional equity Investments after the Closing Date in other Borrowers solely to the extent such Investments represent amounts advanced or invested for purposes of making expenditures permitted under subsection 7.6A or making other Investments permitted under this subsection 7.3; (iii) Company and its Subsidiaries may continue to own the Investments owned by them on the Petition Date and described in Schedule 7.3 annexed hereto; (iv) Company and its Subsidiaries may make and own Investments consisting of cash amounts advanced or contributed to those Projects set forth in Schedule 7.3(iv) annexed hereto to the extent Company and its Subsidiaries are committed as of the Closing Date to make such advances or contributions; provided that (a) each such Investment (or commitment to make the same) made in connection with such Projects shall be in an amount not exceeding the amount set forth on such Schedule, (b) the equity interests held by Company or any of its Subsidiaries in any new Subsidiary formed in connection with any such Investment shall be pledged as Collateral under the Collateral Documents, except to the extent such pledge is not required under subsection 6.8, and (c) the aggregate cash usage for such Projects in any period shall not exceed the amounts therefor set forth in the Monthly Budget for any such period; (v) Borrowers may make intercompany loans to the extent permitted under subsection 7.1(iii); (vi) Borrowers may, after the Closing Date, make and own Investments consisting of amounts advanced to Subsidiaries of Company that are not Borrowers, so long as the proceeds of such Investments are (a) applied for purposes of making expenditures permitted under subsection 7.6A and (b) not applied to make any Capital Expenditures except with respect to Projects of Company and its Subsidiaries in existence on the Closing Date; provided that (x) nothing in this subsection 7.3(vi) shall be construed to permit Investments and expenditures with respect to the Projects set forth in Schedule 7.3(iv) annexed hereto to exceed the amounts permitted under subsection 7.3(iv), and (y) each Investment in a Subsidiary of Company permitted under this subsection 7.3(vi) shall be evidenced by an intercompany loan from a Borrower or Borrowers to such Subsidiary meeting the requirements of subsection 7.1(iv); (vii) Any Subsidiaries of Company (other than Loan Parties) may make acquisitions of assets or of equity interests in other Persons so long (x) as such acquisitions are financed solely with the proceeds of Limited Recourse Debt of such Subsidiary and/or amounts (other than the proceeds of Indebtedness) received from Persons other than Company or any of its Subsidiaries (which amounts shall in no event include proceeds of Loans), (y) Company provides to Agents all material contracts or other agreements entered into in connection with such any Investment, and (z) Company and its Subsidiaries shall incur no Indebtedness, Contingent Obligation, Performance Guaranty or enter into any Contractual Obligation (contingent or otherwise) to incur Indebtedness, a Contingent Obligation, a Performance Guaranty or other similar obligation (including any obligation to procure or provide a performance bond, construction bond or surety bond) in connection with such Investment that is not otherwise permitted under this Agreement; and (viii) Company and its Subsidiaries may make and own involuntary Investments in waste-to-energy Projects after the Closing Date to the extent such Investments consist solely of cash generated by such Projects which is not released to Company and its Subsidiaries by the counterparties to the principal service agreements or operating agreements associated with such Projects; provided that (a) Borrowers shall, and shall cause their respective Subsidiaries to, use best efforts to cause such counterparties to release such cash on a timely basis and (b) nothing in this subsection 7.3(viii) shall be construed as a waiver of any rights of Agents or Lenders under this Agreement or as a modification of any other provision of this Agreement. 7.4 Contingent Obligations. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, create or become or remain liable with respect to any Contingent Obligation or Performance Guaranty, and shall not create or become or remain liable with respect to any obligation to incur a subsequent Contingent Obligation, except: (i) Subsidiaries of Company may become and remain liable with respect to Contingent Obligations in respect of the Subsidiary Guaranty; (ii) Borrowers may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit and other Obligations; (iii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of customary and appropriate indemnification and purchase price adjustment obligations incurred in connection with Asset Sales or other sales of assets to the extent such Asset Sales and sales are either permitted under this Agreement or were consummated prior to the date of this Agreement; (iv) Company and its Subsidiaries, as applicable, may remain liable with respect to Contingent Obligations (including letters of credit) and Performance Guaranties in existence on the Petition Date and described in Schedule 7.4 annexed hereto, without giving effect to any extensions, renewals, refinancings, increases, replacements or other incurrences thereof; and Company and its Subsidiaries, as applicable, may become and remain liable with respect to surety bonds, construction bonds or performance bonds extending, renewing or replacing Contingent Obligations consisting of surety bonds, construction bonds or performance bonds, respectively, which are described in Schedule 7.4; provided that no such replacement surety bond, construction bond or performance bond shall be greater in amount or otherwise more disadvantageous in any material respect to Company and its Subsidiaries than the surety bond or performance bond, as the case may be, so extended, renewed or replaced; and (v) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations consisting of long-term or forward purchase contracts and option contracts to buy, sell or exchange commodities and similar agreements or arrangements, so long as such contracts, agreements or arrangements do not constitute Commodities Agreements. 7.5 Restricted Payments; Limitation on Repayments. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, (i) directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment, (ii) make any payment or prepayment on or redemption or acquisition for value (including by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) of any Prepetition Indebtedness or other pre-Petition Date obligations of such Person, (iii) pay any interest on any Prepetition Indebtedness of such Person (whether in cash, in kind securities or otherwise), or (iv) make any payment or create or permit any Lien pursuant to any provision of the Bankruptcy Code, or apply to the Bankruptcy Court for the authority to do any of the foregoing; provided that (a) Borrowers and their respective Subsidiaries may make payments permitted under subsection 2.10, (b) Borrowers and their respective Subsidiaries may pay any post-Petition Date expense incurred in the ordinary course of business including usual and customary post-Petition Date employee salaries and benefits (provided that any of the foregoing to the contrary notwithstanding, except as permitted under subsection 7.8, Borrowers shall not, and shall not permit any of their respective Subsidiaries to, implement or make any payments in respect of bonus, retention, severance or similar arrangements with respect to any of their respective officers, employees, directors or advisors, without the prior written consent of Agents and Requisite Lenders), (c) Borrowers and their respective Subsidiaries may apply to the Bankruptcy Court for the Project Cash Collateral Order and the other First Day Orders, and may make payments (including payments with respect to certain Indebtedness and payments to certain critical vendors) and permit the creation of Liens in each case to the extent permitted by the Project Cash Collateral Order and the other First Day Orders, and (d) Borrowers and their respective Subsidiaries may make payments to such other claimants and in such amounts as may be consented to by Requisite Lenders and approved by the Bankruptcy Court. 7.6 Budget and Financial Covenants. A. Budget Expenditures Covenants. Borrowers shall not, and shall not permit their respective Subsidiaries to: (i) make cash expenditures in any month of a type which would be classified under (a) any of the line items labeled "IPP East Disbursements", "IPP West Disbursements - Non-Filing Entities", "WTE Disbursements - Non-Filing Entities", or "Water Disbursements" (in each case under the heading "Core Energy Operations"), or (b) either the line item labeled "IPP Identified" or the line item labeled "IPP Unidentified" (under the heading "Energy Capital Expenditures"), if such expenditures would cause cumulative expenditures for the period from the commencement of the Budget Period through such month which would be classified under any such line item to exceed the sum of the correlative amounts for such line item set forth in the Monthly Budget for such month and each preceding month; or (ii) make cash expenditures in any month of a type which would be classified under the line item labeled "Existing Facilities (Maint. and Environ.)" (under the heading "Energy Capital Expenditures"), if such expenditures would cause cumulative expenditures for the period from the commencement of the Budget Period through such month which would be classified under such line item to exceed the sum of (a) the cumulative total amount for such line item set forth in the Monthly Budget for such month and each preceding month and (b) $2,000,000; or (iii) make cash expenditures in any month of a type which would be classified under the line item labeled "Critical Vendor Payments" (under the heading "Core Energy Operations"), if the aggregate amount of such expenditures made from the commencement of the Budget Period would exceed $7,000,000; or (iv) make cash expenditures in any month of a type which would be classified under any of the line items under the heading "Assets For Disposition" in the Monthly Budget (excluding the line items labeled "Workers' Compensation" and "Non-Energy Insurance") if the aggregate amount of such expenditures made from the commencement of the Budget Period would exceed $3,000,000; or (v) make cash expenditures in any month of a type which would be classified under either the line item labeled "Ottawa" or the line item labeled "OEES Construction" (under the heading "Assets for Disposition") in the Monthly Budget; or (vi) make cash expenditures in any month of a type which would not be classified under any of the line items reflected in the Monthly Budget, notwithstanding any other more permissive provision of this Agreement. For purposes of this Agreement, whether or not a particular expenditure shall or would be classified under a particular line item of the Monthly Budget shall be determined (a) to the extent such line item (whether or not having the same designation) appeared in the "Monthly Budget" delivered pursuant to (and as defined in) the Prepetition Credit Agreement, in a manner consistent with Company's prior classification of such expenditures in its reporting under the Prepetition Credit Agreement, and (b) for all line items not covered by the preceding clause (a), in a manner consistent with Company's classification of expenditures of the same type as such expenditure in preparing the projections forming the basis for the Monthly Budget and the 13-Week Cash Forecast. B. Minimum Cumulative Consolidated Operating Income. As of the end of any Fiscal Quarter ending on or after the entry by the Bankruptcy Court of the Final Borrowing Order, Company shall not permit Consolidated Operating Income for the period commencing March 31, 2002 and ending at the end of such Fiscal Quarter to be less than the correlative amount indicated for such Fiscal Quarter in the Minimum Cumulative Consolidated Operating Income Schedule. 7.7 Restriction on Fundamental Changes; Asset Sales. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, alter the legal form of organization of Company or any of its Subsidiaries, or enter into any transaction of merger or consolidation, or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), or convey, sell, lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of (including by discount or compromise), in one transaction or a series of transactions, all or any part of its business, property or assets (including its notes or receivables and Capital Stock of a Subsidiary, whether newly issued or outstanding) or its interests in or claims against any Project, in each case whether now owned or hereafter acquired, except: (i) any Subsidiary Guarantor may be merged with or into any wholly-owned Subsidiary Guarantor, and any Borrower may be merged with or into another Borrower, or be liquidated, wound up or dissolved, or all or any part of its business, property or assets may be conveyed, sold, leased, transferred or otherwise disposed of, in one transaction or a series of transactions, to such Borrower or such wholly-owned Subsidiary Guarantor, as the case may be; (ii) Company and its Subsidiaries may sell or otherwise dispose of assets in transactions that do not constitute Asset Sales; provided that the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (iii) Company and its Subsidiaries may dispose of obsolete, worn out or surplus property in the ordinary course of business; provided that (a) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (b) the consideration received shall be limited to cash; and (c) the aggregate book value of such property shall not exceed $250,000 and the fair market value of such property shall not exceed $250,000; (iv) in the ordinary course of business in collecting on defaulted trade receivables over 120 days past due, Company and its Subsidiaries may discount or otherwise compromise, for less than the face value thereof, such accounts receivable; (v) Company or a Subsidiary may sell or dispose of shares of Capital Stock of any of its Subsidiaries, in order to qualify members of the Governing Body of the Subsidiary if required by applicable law; (vi) Company and its Subsidiaries may make Approved Asset Sales, provided that (a) the consideration received for such assets shall be in an amount at least equal to the fair market value thereof; (b) the sole consideration received in such Asset Sales shall be cash and the assumption of Indebtedness and Contingent Obligations related to such assets; (c) any Indebtedness secured solely by the assets being transferred in such Approved Asset Sales shall be repaid and the related letters of credit shall be cancelled and returned to the issuers thereof; and (d) to the extent the Net Asset Sale Proceeds from any such Approved Asset Sale exceed $5,000,000, such excess amount shall be applied as a Mandatory Payment in accordance with the applicable provisions of subsection 2.4A (it being understood that prior to any such Approved Asset Sale Company shall have provided evidence reasonably satisfactory to Agents that Company and its Subsidiaries have made arrangements to effect such application on a timely basis); (vii) Any Subsidiary of Company that is not a Loan Party may, if its Governing Body determines that doing so is in the best interests of such Subsidiary, change its legal form of organization to a limited liability company, a corporation or a limited partnership; provided that (a) if all or any portion of the equity interests of such Subsidiary are subject to Liens created under the Collateral Documents prior to such change, the same percentage of the equity interests of such Subsidiary shall continue to be subject to Liens under the Collateral Documents after such change, with such Liens being of equal or higher priority than before such change and, if perfected prior to such change, perfected, and (b) Company and its Subsidiaries shall have complied with the provisions of the Collateral Documents applicable to such change of legal form; (viii) In the event the Thai Asset Sale shall not have been consummated prior to the Closing Date, Subsidiaries of Company may consummate the Thai Asset Sale; provided that (a) the consideration received shall be limited to cash, (b) the aggregate Net Asset Sale Proceeds from the Thai Asset Sale shall not be less than $33,000,000 and shall be applied as a Mandatory Payment in accordance with the applicable provisions of subsection 2.4A (it being understood that prior to receipt of any such proceeds Company shall have provided evidence reasonably satisfactory to Agents that Company and its Subsidiaries have made arrangements to effect such application on a timely basis), and (c) the principal documentation for such sale shall be in form and substance reasonably satisfactory to Agents; and (ix) Company, as a Junior Lender (as such term is defined in the Senators Senior Subordination Agreement) may, without further consent of any Agent or any Lender (other than any consent otherwise required of any Lender in its capacity as an applicable Opt-Out Lenders under the applicable Opt-Out Facility Documents (as such terms are defined in the Prepetition Credit Agreement)), exercise its rights and perform its obligations under Section 9 of the Senators Senior Subordination Agreement with respect to releasing its Liens on the property of the Senators Hockey Club upon a sale or transfer of such property which the "Senior Lenders" (or such other applicable parties) under the Senators Senior Subordination Agreement reasonably believe to be for consideration which is reasonably equivalent to the fair value of such property, so long as the Senators Lease shall not be terminated or otherwise amended or modified in any respect (including any amendment or modification that alters the legal, equitable or contractual rights of Ogden Palladium Services (Canada) Inc. thereunder) in connection with, or as a condition of, any such sale or transfer (any such permitted sale or transfer being referred to herein as a "Permitted Senators Transaction"), except to the extent such amendment, termination or modification is permitted under and in accordance with the last sentence of subsection 7.10; provided that the proceeds of any Permitted Senators Transaction are applied in accordance with the relevant terms of the Senators Senior Subordination Agreement and the NHL Priority Loan Letter Agreement. Notwithstanding anything to the contrary contained herein, Borrowers shall not, and shall not permit their respective Subsidiaries to, agree to or otherwise permit, without the prior written consent of Requisite Lenders, the release, extinguishments or termination of any right of consent or approval which Company or any of its Subsidiaries may have over an amendment of, modification to or termination of the Senators Lease. 7.8 Bonus and Retention Arrangements. Borrowers shall not, and shall not permit their respective Subsidiaries to, make cash expenditures in respect of bonus, retention, severance or similar arrangements with respect to any of their respective officers, employees, directors or advisors without prior written consent of Requisite Lenders, except for cash expenditures made in accordance with the terms (and in amounts not exceeding the amounts) disclosed in writing to Agents and Lenders pursuant to subsection 4.1U. Nothing in this subsection 7.8 shall be deemed to permit Company and its Subsidiaries to make any cash expenditure referred to in the preceding sentence in the event that, after giving effect to such payment, Borrowers would reasonably be expected to be unable to fund the expenditures projected in the Monthly Budget for the remainder of the Budget Period, assuming that borrowings under this Agreement and revenues shall be as projected in the Monthly Budget for the remainder of the Budget Period. No cash expenditures for payment of a bonus referred to in the first sentence of this subsection 7.8 shall be permitted unless Borrowers shall have delivered to Agents on the Business Day prior to such payment an Officer's Certificate certifying that (i) Borrowers do not expect to be unable, after giving effect to such payment, to fund the expenditures projected in the Monthly Budget for the remainder of the Budget Period, and (ii) Borrowers believe in good faith that the assumptions on which the projected expenditures, projected borrowings under this Agreement and projected revenues set forth in the Monthly Budget for the remainder of the Budget Period are based are reasonable on the date of delivery of such Officer's Certificate. 7.9 Transactions with Shareholders and Affiliates. Borrowers shall not, and shall not permit any of their respective Subsidiaries to, directly or indirectly, enter into or permit to exist any transaction (including the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder of 5% or more of any class of equity Securities of Company or with any Affiliate of Company or of any such holder, on terms that are less favorable to Company or that Subsidiary, as the case may be, than those that might be obtained at the time from Persons who are not such a holder or Affiliate; provided that the foregoing restriction shall not apply to (i) any Indebtedness permitted under subsection 7.1(iii) or intercompany Indebtedness between Company and its Subsidiaries or between any of its Subsidiaries existing on the Petition Date, (ii) any transaction between a Borrower and any other Borrower, (iii) reasonable and customary fees paid to members of the Governing Bodies of Company and its Subsidiaries, provided that such fees are no less favorable to Company or that Subsidiary, as the case may be, than those paid prior to the Petition Date, or (iv) the payment of reasonable legal fees and expenses incurred by law firms in which Directors of Company are affiliated for services rendered to Company and its Subsidiaries, to the extent the payment of such fees and expenses is not otherwise prohibited hereunder and, in the case of such fees and expenses paid by Borrowers, is approved by the Bankruptcy Court and not objected to by Agents or Requisite Lenders. 7.10 Restriction on Leases Borrowers shall not, and shall not permit any of their Subsidiaries to, become liable in any way, whether directly by assignment or as a guarantor or other surety, for the obligations of the lessee under any lease, whether an Operating Lease or a Capital Lease (other than intercompany leases between Borrowers), unless, immediately after giving effect to the incurrence of liability with respect to such lease, the aggregate amount of all rents paid or payable by Company and its Subsidiaries on a consolidated basis under all such leases entered into after the Closing Date at the time in effect during the then current Fiscal Year or any future period of 12 consecutive calendar months shall not exceed $3,000,000 (which amount shall not include amounts paid or payable under leases so entered to the extent (a) such leases represent renewals or extensions of existing leases and (b) the amounts paid or payable during such 12-month period under such leases (as renewed or extended) are not in excess of the amounts paid or payable for the immediately preceding 12-month period under the leases so renewed or extended); provided, however, that nothing in this subsection 7.10 shall be construed to permit expenditures in excess of amounts permitted under subsection 7.6A. Without limiting the provisions of subsection 7.7(ix), if Company or any of its Subsidiaries (including Ogden Palladium Services (Canada) Inc.) has the right to consent to or approve any amendment of, modification to or termination of the Senators Lease, Company and its Subsidiaries shall not exercise any such consent or approval right without the prior written consent of either Agents (which consent shall not be unreasonably withheld, conditioned or delayed, but shall in any event not be given unless (x) Lenders shall have received advance notice of such proposed amendment, modification or termination and (y) within 3 Business Days after receipt of such notice, Agents shall not have received an objection by Requisite Lenders to such proposed amendment, modification or termination) or Requisite Lenders. 7.11 Sales and Lease-Backs. Borrowers shall not, and shall not permit any of their Subsidiaries to, directly or indirectly, become or remain liable as lessee or as a guarantor or other surety with respect to any lease, whether an Operating Lease or a Capital Lease, of any property (whether real, personal or mixed), whether now owned or hereafter acquired, (i) that Company or any of its Subsidiaries has sold or transferred or is to sell or transfer to any other Person (other than Company or any of its Subsidiaries) or (ii) that Company or any of its Subsidiaries intends to use for substantially the same purpose as any other property that has been or is to be sold or transferred by Company or any of its Subsidiaries to any Person (other than Company or any of its Subsidiaries) in connection with such lease; provided that Borrowers and their respective Subsidiaries may remain liable under those transactions entered into prior to the Closing Date and described on Schedule 7.11. 7.12 Conduct of Business. From and after the Closing Date, Company shall not, and shall not permit any of its Subsidiaries, to engage in any business other than the businesses engaged in by Company and its Subsidiaries on the Petition Date and the energy business. 7.13 Chapter 11 Claims. Without limiting the provisions of subsection 7.2 hereof, no Borrower shall incur, create, assume, suffer or permit any claim or Lien or encumbrance against it or any of its property or assets in any Chapter 11 Case (other than the claims specifically referred to in subsection 2.10 and the Final Borrowing Order but only to the extent therein described) to be pari passu with or senior to the claims of Agents and Lenders against any Borrower in respect of the Obligations hereunder, or apply to the Bankruptcy Court for authority to do so, except to the extent permitted herein. 7.14 Agreements; Orders. A. Material Contracts and Prepetition Indebtedness. Borrowers shall not assume, reject, cancel, terminate, breach or modify (whether pursuant to Section 365 of the Bankruptcy Code or any other applicable law or otherwise), (i) any Prepetition Indebtedness if such assumption, rejection, cancellation, termination, breach or modification could reasonably be expected to be adverse in any material respect to the interests of the Lenders under the Loan Documents, (ii) any Material Contract or any other agreement, contract, instrument or other document to which it is a party which assumption, rejection, cancellation, termination, breach or modification could reasonably be expected to result in a Material Adverse Effect. B. Amendments to Orders. Company shall not, and shall not permit any of its Subsidiaries to, amend, modify or waive (or make any payment consistent with an amendment, modification or waiver of), or apply to the Bankruptcy Court for authority to make any amendment, modification or waiver of, any provision of the Interim Borrowing Order or the Final Borrowing Order without in each case the prior written consent of Agents and Requisite Lenders. C. Amendments to Organizational Documents. Company shall not, and shall not permit any of its Subsidiaries to, amend, modify or waive (or make any payment consistent with an amendment, modification or waiver of) any material provision of any of the Organizational Documents of Company and its Subsidiaries, if the effect of such amendment, modification or waiver, together with all other amendments, modifications or waivers made, is adverse in any material respect to the interests of the Lenders under the Loan Documents. 7.15 Fiscal Year. Company shall not, and shall not permit any of its Subsidiaries to change the end of the Fiscal Year of Company or any of its Subsidiaries from December 31st. Section 8. EVENTS OF DEFAULT Notwithstanding the provisions of Section 362 of the Bankruptcy Code and without application or motion to, or order from, the Bankruptcy Court, the occurrence of any one or more of the following events, regardless of the reason therefor, shall constitute an "Event of Default" hereunder: 8.1 Failure to Make Payments When Due. Failure by Borrowers to pay any installment of principal of any Loan when due, whether at stated maturity, by acceleration, by notice of voluntary prepayment, by mandatory prepayment or otherwise; failure by Borrowers to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; or failure by Borrowers to pay any interest or any fee or any other amount due under this Agreement within five days after the date due; or 8.2 Default in Other Agreements. (i) Failure of Company or any of its Subsidiaries to pay when due any principal of or interest on or any other amount payable (a) in respect of one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1 or in clause (b)) or Contingent Obligations or Performance Guaranties, in each case in the principal amount of $2,000,000 or more, individually or in the aggregate, or (b) in respect of Limited Recourse Debt of Subsidiaries of Company in the principal amount of $6,000,000 or more, individually or in the aggregate, in each case beyond the end of any grace period provided therefor (provided that Limited Recourse Debt incurred in connection with one or more Projects to which less than $2,000,000 in the aggregate of Consolidated Operating Income is attributable for the 12-month period immediately preceding the failure to pay such interest, principal or other amounts shall not be considered Indebtedness or Limited Recourse Debt solely for purposes of this clause (b)), to the extent the obligations to repay such amounts described in either clause(a) or (b) are enforceable on a post-Petition Date basis; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other material term of (a) one or more items of Indebtedness or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (b) any loan agreement, mortgage, indenture or other agreement relating to such item(s) of Indebtedness or Contingent Obligation(s), if the effect of such breach or default is to cause, or to permit the holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee on behalf of such holder or holders) to cause, that Indebtedness or Contingent Obligation(s) to become or be declared due and payable prior to its stated maturity or the stated maturity of any underlying obligation, as the case may be (upon the giving or receiving of notice, lapse of time, both, or otherwise), and to the extent that the obligations to repay such amounts are enforceable on a post-Petition Date basis; or 8.3 Breach of Certain Covenants. Failure of any Borrower to perform or comply with any term or condition contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or 8.4 Breach of Warranty. Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by Company or any of its Subsidiaries in writing pursuant hereto or thereto or in connection herewith or therewith shall be false in any material respect on the date as of which made; or 8.5 Other Defaults Under Loan Documents. Any Loan Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Loan Documents, other than any such term referred to in any other subsection of this Section 8, and such default shall not have been remedied or waived within 30 days after the earlier of (i) an Officer of Company or such Loan Party becoming aware of such default or (ii) receipt by Company or such Loan Party of notice from Administrative Agent or any Lender of such default; or 8.6 Bankruptcy Events. With respect to the Chapter 11 Cases, (a) the entry of an order or ruling, which has not been withdrawn, dismissed or reversed: (i) authorizing any Borrower in any of the Chapter 11 Cases to obtain additional financing under Section 364(c) or (d) of the Bankruptcy Code, or authorizing any Person to recover from any portions of the Collateral any amounts pursuant to Section 506(c) of the Bankruptcy Code or otherwise, or (except as provided in the Interim Borrowing Order or the Final Borrowing Order) authorizing the use of cash collateral without Requisite Lenders' prior written consent under Section 363(c) of the Bankruptcy Code; or (ii) appointing an interim or permanent trustee in any of the Chapter 11 Cases or the appointment of a responsible officer or an examiner with powers beyond the duty to investigate and report (as set forth in Sections 1106(a)(3) and (4) of the Bankruptcy Code) in any of the Chapter 11 Cases; or (iii) without the prior written consent of Agents and Requisite Lenders, dismissing of any of the Chapter 11 Cases, or converting of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code; or (iv) granting relief from or modifying the automatic stay of Section 362 of the Bankruptcy Code with respect to assets having a value in excess of $1,000,000 in the aggregate (x) to allow any creditor to execute upon or enforce a Lien on any Collateral or on any other property or assets of any Borrower, (y) with respect to any Lien of, or the granting of any Lien on any Collateral or any other property or assets of any Borrower to, any State or local environmental or regulatory agency or authority or (z) to permit termination of or other exercise of remedies under Material Contracts described in clause (i) of the definition of Material Contracts; or (v) without the prior written consent of Agents and Requisite Lenders, amending, supplementing, staying, reversing, vacating or otherwise modifying any of the Interim Borrowing Order, the Final Borrowing Order or this Agreement or any other Loan Document or any of the Agents' or the Lenders' rights, benefits, privileges or remedies under the Interim Borrowing Order, the Final Borrowing Order, this Agreement or any other Loan Document; or (vi) consolidating or combining any Borrower with any other Person (other than another Borrower), except pursuant to a confirmed plan of reorganization with the prior written consent of holders of Lenders having or holding at least 66-2/3% of the Loan Exposure of all Lenders as contemplated in the plan of reorganization; or (vii) approving any other administrative expense claim (other than the Carve-Outs) having any priority over, or being pari passu with, the administrative expense priority of the Obligations in respect of any of the Chapter 11 Cases, or approving any Lien on the Collateral (other than those specifically referred to in subsection 2.10 and the Final Borrowing Order, but only to the extent therein described, and those expressly permitted under this Agreement) having any priority over, or being pari passu with, the Liens securing the Obligations pursuant to the Loan Documents, the Interim Borrowing Order and the Final Borrowing Order; (viii) other than as expressly permitted pursuant to the First Day Orders or subsection 7.5, approving any payment or prepayment on or redemption or acquisition for value (including, without limitation, by way of depositing with the trustee with respect thereto money or securities before due for the purpose of paying when due) of any Prepetition Indebtedness or other pre-Petition Date obligations of any Borrower, or approving any payment of any interest on any Prepetition Indebtedness of any Borrower (whether in cash, in kind securities or otherwise); or (b) the filing by any Loan Party of a motion, application or other petition to effect or consent to any order referred to in the foregoing clause (a); or (c) there shall arise any other administrative expense claim (other than the Carve-Outs) having any priority over, or being pari passu with the administrative expense priority of the Obligations in respect of any of the Chapter 11 Cases, or there shall arise any Lien on the Collateral (other than the Carve-Outs, but only to the extent described in subsection 2.10 and the Final Borrowing Order, and those expressly permitted under this Agreement) having any priority over, or being pari passu with, the Liens securing the Obligations pursuant to the Loan Documents, the Interim Borrowing Order and the Final Borrowing Order; or (d) the Bankruptcy Court shall fail to enter the Interim Borrowing Order (or the Final Borrowing Order, in lieu thereof) on or prior to the date that is fifteen (15) days after the Petition Date, or shall fail to enter the Final Borrowing Order on or prior to the date that is forty-five (45) days after the Petition Date approving, among other things, this Agreement and the other Loan Documents and the transactions contemplated hereunder and thereunder, or shall abstain from hearing any of the Chapter 11 Cases, or any Loan Party shall file a motion, application or other petition requesting such relief; or (e) any Loan Party shall default in the due performance or observance by it of any term, covenant or agreement contained in the Interim Borrowing Order or the Final Borrowing Order and such default shall continue for a period of 3 days after the earlier to occur of (x) an Officer of Company or such Loan Party becoming aware of such default or (y) receipt by Company or such Loan Party of notice from any Agent or any Lender of such default; or 8.7 Judgments and Attachments. (i) Any money judgment, writ or warrant of attachment or similar process as to post-Petition Date liability or debt (a) in any individual case an amount in excess of $1,000,000 or (b) in the aggregate at any time an amount in excess of $1,000,000 (in either case not adequately covered by insurance as to which a solvent and unaffiliated insurance company has acknowledged coverage) shall be entered or filed against Company or any of its Subsidiaries or any of their respective assets and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or in any event later than five days prior to the date of any proposed sale thereunder); or (ii) any non-monetary judgment or order with respect to a post-Petition Date event shall be rendered against any Borrower which could reasonably be expected to result in a Material Adverse Effect and shall remain undischarged, unvacated, unbonded or unstayed for a period of 60 days; or 8.8 Dissolution. Any order, judgment or decree shall be entered against Company or any of its Material Subsidiaries decreeing the dissolution or split up of Company or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 8.9 Employee Benefit Plans. There shall occur one or more ERISA Events that individually or in the aggregate results in or are reasonably be expected to result in liability of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in excess of $1,000,000 during the term of this Agreement; or there shall exist an amount of unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA, but determined on the basis of actuarial assumptions used for funding purposes with respect to such Pension Plans), individually or in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), which exceeds $10,000,000; or 8.10 Material Adverse Effect. Any event or change shall occur after the date of this Agreement that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect; or 8.11 Change in Control. A Change in Control shall have occurred; or 8.12 Invalidity of Subsidiary Guaranty; Failure of Security; Repudiation of Obligations. At any time after the execution and delivery thereof, (i) the Subsidiary Guaranty for any reason, other than the satisfaction in full of all Obligations, shall cease to be in full force and effect (other than in accordance with its terms) or shall be declared to be null and void, (ii) the grants of Collateral made in the Interim Borrowing Order and the Final Borrowing Order shall, at any time, cease to be in full force and effect (other than by reason of a release of Collateral in accordance with the terms thereof or the payment in full of the Obligations, the cancellation or expiration of all Letters of Credit and the termination of the Commitments) or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Loan Party, (iii) any Collateral Document shall cease to be in full force and effect (other than by reason of a release of Collateral thereunder in accordance with the terms hereof or thereof, the payment in full of the Obligations, the cancellation or expiration of all Letters of Credit and the termination of the Commitments or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Administrative Agent shall not have or shall cease to have a valid and perfected Lien (with the priority set forth in subsection 5.15A) in any Collateral purported to be covered thereby, in each case for any reason other than the failure of Administrative Agent or any Lender to take any action within its control, or (iv) any Loan Party shall contest the validity or enforceability of any Loan Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Loan Document to which it is a party; or 8.13 Canadian Bankruptcy Events. The entry of any Initial CCAA Order without the prior written consent of Agents, or the filing by any of the Canadian Subsidiaries of any plan or plans of arrangement or reorganization under applicable Canadian law without, in each instance, the prior written consent of Requisite Lenders; or 8.14 Restructuring Advisor. The restructuring advisor of Company as of the Closing Date, or any successor thereto, (i) shall be terminated without cause by Company or shall have the terms of its retention by Company amended or otherwise modified in any material respect without the prior written consent of Agents and Requisite Lenders, or (ii) shall be terminated by Company for any reason or otherwise cease for any reason to perform its duties as restructuring advisor of Company in accordance with the terms of its retention, without a successor thereto satisfactory to Agents and Requisite Lenders (in their sole discretion) having commenced to perform such duties within 15 days after such cessation; or 8.15 Termination of Material Contracts. Any Material Contract shall be terminated by Company or any of its Subsidiaries or by the counterparty or counterparties thereto, if such termination is enforceable by Company, such Subsidiary, or such counterparty or counterparties on a post-Petition Date basis: THEN (i) upon the occurrence of any Event of Default described in subsection 8.6, each of (a) the unpaid principal amount of and accrued interest on the Loans, (b) an amount equal to the maximum amount that may at any time be drawn under all Letters of Credit then outstanding (whether or not any beneficiary under any such Letter of Credit shall have presented, or shall be entitled at such time to present, the drafts or other documents or certificates required to draw under such Letter of Credit), and (c) all other Obligations shall automatically become immediately due and payable, without presentment, demand, protest or other requirements of any kind, all of which are hereby expressly waived by each Borrower, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent or the right of Documentation Agent to issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall (notwithstanding the provisions of Section 362 of the Bankruptcy Code and without application or motion to, or order from, the Bankruptcy Court), upon the written request or with the written consent of Requisite Lenders, by written notice to Borrowers, declare all or any portion of the amounts described in clauses (a) through (c) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of each Lender to make any Loan, the obligation of Administrative Agent and any other Issuing Lender to issue any Letter of Credit and the right of Documentation Agent and any other Issuing Lender to issue any Letter of Credit hereunder shall thereupon terminate. Any amounts described in clause (b) above, when received by Administrative Agent, shall be held by Administrative Agent pursuant to the terms of the Security Agreement and shall be applied as therein provided. Further upon the occurrence and during the continuance of any Event of Default, Administrative Agent may, and upon the written request of Requisite Lenders shall, (i) exercise all rights and remedies of Administrative Agent set forth in any of the Collateral Documents, in addition to all rights and remedies allowed by, the United States and of any state thereof, including but not limited to the UCC, and (ii) revoke Borrowers' rights to use cash collateral in which Administrative Agent has an interest; provided that, any other provision of this Agreement or any other Loan Document to the contrary notwithstanding, with respect to the foregoing, Administrative Agent shall give Loan Parties and counsel to any official committees in respect of the Chapter 11 Cases and the office of the United States Trustee five Business Days prior written notice (which notice shall be delivered by facsimile or overnight courier) of the exercise of its rights and remedies with respect to the Collateral and file a copy of such notice with the clerk of the Bankruptcy Court. Neither Administrative Agent nor Lenders shall have any obligation of any kind to make a motion or application to the Bankruptcy Court to exercise their rights and remedies set forth or referred to in this Agreement or in the other Loan Documents. The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative and not alternative. Borrowers waive, (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties or other property at any time held by Administrative Agent or Lenders on which Loan Parties may in any way be liable and hereby ratify and confirm whatever Administrative Agent and Lenders may lawfully do in this regard, (ii) subject to the notice provisions of the preceding paragraph, all rights to notice and hearing prior to Administrative Agent's taking possession or control of, or to Administrative Agent's or Lenders' reply, attachment or levy upon, the Collateral, or any bond or security which might be required by any court prior to allowing Administrative Agent or Lenders to exercise any of their remedies, and (iii) the benefit of all valuation, appraisal and exemption laws. Borrowers acknowledge they have been advised by counsel of their choice with respect to the effect of the foregoing waivers and this Agreement, the other Loan Documents and the transactions evidenced by this Agreement and the other Loan Documents. Section 9. ADMINISTRATIVE AGENT 9.1 Appointment. A. Appointment of Administrative Agent. BofA is hereby appointed Administrative Agent hereunder and under the other Loan Documents and Deutsche Bank is hereby appointed Documentation Agent hereunder. Each Lender hereby authorizes each Agent to act as its agent in accordance with the terms of this Agreement and the other Loan Documents. Each Agent agrees to act upon the express conditions contained in this Agreement and the other Loan Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Loan Party shall have rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties under this Agreement, Administrative Agent (other than as provided in subsection 2.1E) shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for any Borrower or any other Loan Party. B. Appointment of Supplemental Collateral Agents. It is the purpose of this Agreement and the other Loan Documents that there shall be no violation of any law of any jurisdiction denying or restricting the right of banking corporations or associations to transact business as agent or trustee in such jurisdiction. It is recognized that in case of litigation under this Agreement or any of the other Loan Documents, and in particular in case of the enforcement of any of the Loan Documents, or in case Administrative Agent deems that by reason of any present or future law of any jurisdiction it may not exercise any of the rights, powers or remedies granted herein or in any of the other Loan Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Administrative Agent appoint an additional individual or institution as a separate trustee, co-trustee, collateral agent or collateral co-agent (any such additional individual or institution being referred to herein individually as a "Supplemental Collateral Agent" and collectively as "Supplemental Collateral Agents"). In the event that Administrative Agent appoints a Supplemental Collateral Agent with respect to any Collateral, (i) each and every right, power, privilege or duty expressed or intended by this Agreement or any of the other Loan Documents to be exercised by or vested in or conveyed to Administrative Agent with respect to such Collateral shall be exercisable by and vest in such Supplemental Collateral Agent to the extent, and only to the extent, necessary to enable such Supplemental Collateral Agent to exercise such rights, powers and privileges with respect to such Collateral and to perform such duties with respect to such Collateral, and every covenant and obligation contained in the Loan Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Administrative Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to Administrative Agent shall inure to the benefit of such Supplemental Collateral Agent and all references therein to Administrative Agent shall be deemed to be references to Administrative Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from any Borrower or any other Loan Party be required by any Supplemental Collateral Agent so appointed by Administrative Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, such Borrower shall, or shall cause such Loan Party to, execute, acknowledge and deliver any and all such instruments promptly upon request by Administrative Agent. In case any Supplemental Collateral Agent, or a successor thereto, shall die, become incapable of acting, resign or be removed, all the rights, powers, privileges and duties of such Supplemental Collateral Agent, to the extent permitted by law, shall vest in and be exercised by Administrative Agent until the appointment of a new Supplemental Collateral Agent. 9.2 Powers and Duties; General Immunity. A. Powers; Duties Specified. Each Lender irrevocably authorizes each Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Loan Documents as are specifically delegated or granted to such Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. An Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Loan Documents. Each Agent may exercise such powers, rights and remedies and perform such duties by or through its Affiliates, agents or employees. No Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Lender or any Borrower; and nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon an Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. B. No Responsibility for Certain Matters. No Agent shall be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Loan Document or for any representations, warranties, recitals or statements made herein or therein or made in any written or oral statements or in any financial or other statements, instruments, reports or certificates or any other documents furnished or made by such Agent to Lenders or by or on behalf of any Borrower to such Agent or any Lender in connection with the Loan Documents and the transactions contemplated thereby or for the financial condition or business affairs of Borrowers or any other Person liable for the payment of any Obligations, nor shall such Agent be required to ascertain or inquire as to the performance or observance of any of the terms, conditions, provisions, covenants or agreements contained in any of the Loan Documents or as to the use of the proceeds of the Loans or the use of the Letters of Credit or as to the existence or possible existence of any Event of Default or Potential Event of Default. Anything contained in this Agreement to the contrary notwithstanding, Administrative Agent shall not have any liability arising from confirmations of the amount of outstanding Loans or the Tranche A Letter of Credit Usage or the Tranche B Letter of Credit Usage or the component amounts thereof. C. Exculpatory Provisions. No Agent or any of its officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by such Agent under or in connection with any of the Loan Documents except to the extent caused by such Agent's gross negligence or willful misconduct. An Agent shall be entitled to refrain from any act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Loan Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until such Agent shall have received instructions in respect thereof from Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6) and, upon receipt of such instructions from Requisite Lenders (or such other Lenders, as the case may be), such Agent shall be entitled to act or (where so instructed) refrain from acting, or to exercise such power, discretion or authority, in accordance with such instructions. Without prejudice to the generality of the foregoing, (i) each Agent shall be entitled to rely, and shall be fully protected in relying, upon any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons, and shall be entitled to rely and shall be protected in relying on opinions and judgments of attorneys (who may be attorneys for Company and its Subsidiaries), accountants, experts and other professional advisors selected by it; and (ii) no Lender shall have any right of action whatsoever against an Agent as a result of such Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Loan Documents in accordance with the instructions of Requisite Lenders (or such other Lenders as may be required to give such instructions under subsection 10.6). D. Agents Entitled to Act as Lender. The agency hereby created shall in no way impair or affect any of the rights and powers of, or impose any duties or obligations upon, an Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans and the Letters of Credit, an Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not performing the duties and functions delegated to it hereunder, and the term "Lender" or "Lenders" or any similar term shall, unless the context clearly otherwise indicates, include each Agent in its individual capacity. An Agent and its Affiliates may accept deposits from, lend money to, acquire equity interests in and generally engage in any kind of commercial banking, investment banking, trust, financial advisory or other business with Company or any of its Affiliates as if it were not performing the duties specified herein, and may accept fees and other consideration from any Borrower for services in connection with this Agreement and otherwise without having to account for the same to Lenders. 9.3 Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness. Each Lender agrees that it has made its own independent investigation of the financial condition and affairs of Company and its Subsidiaries in connection with the making of the Loans and the issuance of Letters of Credit hereunder and that it has made and shall continue to make its own appraisal of the creditworthiness of Company and its Subsidiaries. No Agent shall have any duty or responsibility, either initially or on a continuing basis, to make any such investigation or any such appraisal on behalf of Lenders or to provide any Lender with any credit or other information with respect thereto, whether coming into its possession before the making of the Loans or at any time or times thereafter, and no Agent shall have any responsibility with respect to the accuracy of or the completeness of any information provided to Lenders. 9.4 Right to Indemnity. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify Agents and the officers, directors, employees, agents, attorneys, professional advisors and affiliates of each of them to the extent that any such Person shall not have been reimbursed by Borrowers, for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements and fees and disbursements of any financial advisor engaged by Agents) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against an Agent or and other such Persons in exercising the powers, rights and remedies of an Agent or performing duties of an Agent hereunder or under the other Loan Documents or otherwise in its capacity as Agent in any way relating to or arising out of this Agreement or the other Loan Documents; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of an Agent resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to an Agent or any other such Person for any purpose shall, in the opinion of such Agent, be insufficient or become impaired, such Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. 9.5 Successor Agents. Any Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Borrowers, and an Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Borrowers and Administrative Agent and signed by Requisite Lenders. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon five Business Days' notice to Borrowers, to appoint a successor Agent. Upon the acceptance of any appointment as an Agent hereunder by a successor Agent, that successor Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent and the retiring or removed Agent shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Agent's resignation or removal hereunder as an Agent, the provisions of this Section 9 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was an Agent under this Agreement and the other Loan Documents. 9.6 Collateral Documents and Guaranties. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into each Collateral Document as secured party and to be the agent for and representative of Lenders under the Subsidiary Guaranty, and each Lender agrees to be bound by the terms of each Collateral Document and the Subsidiary Guaranty; provided that Administrative Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in any Collateral Document or the Subsidiary Guaranty or (ii) release any Collateral (except as otherwise expressly permitted or required pursuant to the terms of this Agreement or the applicable Collateral Document), in each case without the prior consent of Requisite Lenders (or, if required pursuant to subsection 10.6, all Lenders); provided further, however, that, without further written consent or authorization from Lenders, Administrative Agent may execute any documents or instruments necessary to (a) release any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets permitted by this Agreement or to which Requisite Lenders have otherwise consented, (b) release any Subsidiary Guarantor from the Subsidiary Guaranty if all of the Capital Stock of such Subsidiary Guarantor is sold to any Person (other than an Affiliate of Company) pursuant to a sale or other disposition permitted hereunder or to which Requisite Lenders have otherwise consented or (c) subordinate the Liens of Administrative Agent, on behalf of Lenders, to any Liens permitted by subsection 7.2A which are permitted under this Agreement to be senior to such Liens of Administrative Agent. Anything contained in any of the Loan Documents to the contrary notwithstanding, each Borrower, Administrative Agent and each Lender hereby agree that (1) no Lender shall have any right individually to realize upon any of the Collateral under any Collateral Document or to enforce the Subsidiary Guaranty, it being understood and agreed that all powers, rights and remedies under the Collateral Documents and the Subsidiary Guaranty may be exercised solely by Administrative Agent for the benefit of Lenders in accordance with the terms thereof, and (2) in the event of a foreclosure by Administrative Agent on any of the Collateral pursuant to a public or private sale, Administrative Agent or any Lender may be the purchaser of any or all of such Collateral at any such sale and Administrative Agent, as agent for and representative of Lenders (but not any Lender or Lenders in its or their respective individual capacities unless Requisite Lenders shall otherwise agree in writing) shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Obligations as a credit on account of the purchase price for any Collateral payable by Administrative Agent at such sale. 9.7 Administrative Agent May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to Company or any of the Subsidiaries of Company, Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether Administrative Agent shall have made any demand on Borrowers) shall be entitled and empowered, by intervention in such proceeding or otherwise (i) to file and prove a claim for the whole amount of principal and interest owing and unpaid in respect of the Loans and any other Obligations that are owing and unpaid and to file such other papers or documents as may be necessary or advisable in order to have the claims of Lenders and Agents (including any claim for the reasonable compensation, expenses, disbursements and advances of Lenders and Agents and their agents and counsel and all other amounts due Lenders and Agents under subsections 2.3 and 10.2) allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to Administrative Agent and, in the event that Administrative Agent shall consent to the making of such payments directly to Lenders, to pay to Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of Agents and their agents and counsel, and any other amounts due Agents under subsections 2.3 and 10.2. Nothing herein contained shall be deemed to authorize Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lenders or to authorize Administrative Agent to vote in respect of the claim of any Lender in any such proceeding. Section 10. MISCELLANEOUS 10.1 Successors and Assigns; Assignments and Participations in Loans and Letters of Credit. A. General. This Agreement shall be binding upon the parties hereto and their respective successors and assigns and shall inure to the benefit of the parties hereto and the successors and assigns of Lenders (it being understood that Lenders' rights of assignment are subject to the further provisions of this subsection 10.1). Neither any Borrower's rights or obligations hereunder nor any interest therein may be assigned or delegated by any Borrower without the prior written consent of all Lenders (and any attempted assignment or transfer by any Borrower without such consent shall be null and void). No sale, assignment or transfer or participation of any Letter of Credit or any participation therein may be made separately from a sale, assignment, transfer or participation of a corresponding interest in the Commitment and the Loans of the Lender effecting such sale, assignment, transfer or participation. Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Affiliates of each of Agents and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. No Lender shall be permitted to assign any portion of its rights or obligations hereunder to any other Person if, upon giving effect to such assignment, Borrowers would be obligated to pay such assignee amounts greater than the amounts, if any, which Borrowers would have been required to pay such assigning Lender under subsection 2.6 or 2.7 if such assignment did not occur. B. Assignments. (i) Amounts and Terms of Assignments. Any Lender may assign to one or more Eligible Assignees all or any portion of its rights and obligations under this Agreement; provided that (a), except (1) in the case of an assignment of the entire remaining amount of the assigning Lender's rights and obligations under this Agreement or (2) in the case of an assignment to a Lender or an Affiliate of a Lender or an Approved Fund of a Lender, the aggregate amount of the Loan Exposure of the assigning Lender and the assignee subject to each such assignment shall not be less than $5,000,000, unless Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed, (b) each assignment shall represent the assignment by the assigning Lender of a ratable portion of such Lender's Tranche A Loan Exposure and Tranche A Commitments, on the one hand, and Tranche B Loan Exposure and Tranche B Commitments, on the other hand, and concurrently with any such assignment the assigning Lender shall assign to the same assignee a ratable portion of such assigning Lender's Pooled Facility Exposure, (c) the parties to each assignment shall execute and deliver to Administrative Agent an Assignment Agreement, together with a processing and recordation fee of $5,000 (unless the assignee is an Affiliate or an Approved Fund of the assignor, in which case no fee shall be required), and the Eligible Assignee, if it shall not be a Lender, shall deliver to Administrative Agent a counterpart to the Intercreditor Agreement (as a "Pooled Facility Lender" thereunder) and such other documents and information reasonably requested by Administrative Agent, including such forms, certificates or other evidence, if any, with respect to United States federal income tax withholding matters as the assignee under such Assignment Agreement may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii), and no such assignment shall be effective unless and until such Assignment Agreement is accepted by Administrative Agent and recorded in the Register as provided in subsection 10.1B(ii), (d) any such Assignment Agreement shall include an assignment by the assigning Lender and an assumption by the assignee of a ratable portion of the assigning Lender's loss sharing obligations thereunder, (e) except in the case of an assignment to another Lender, an Affiliate of a Lender or an Approved Fund of a Lender, Administrative Agent and each Issuing Lender shall have consented thereto (which consents shall not be unreasonably withheld or delayed), and (f) no assignment by a Defaulting Lender shall be permitted unless such Defaulting Lender or assignee has funded such Defaulting Lender's defaulted funding obligations with respect to Loans and participations in Letters of Credit, if any. Upon such execution, delivery and consent, from and after the effective date specified in such Assignment Agreement, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a Lender hereunder, (y) the assignee shall be a party to the Intercreditor Agreement and, to the extent that rights and obligations have been assigned to it pursuant to such Assignment Agreement, shall have the rights and obligations of a "Pooled Facility Lender" and a "Creditor Party" thereunder (as such terms are defined in the Intercreditor Agreement) and (z) the assigning Lender thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment Agreement, relinquish its rights (other than any rights which survive the termination of this Agreement under subsection 10.9B) and be released from its obligations under this Agreement and the Intercreditor Agreement (and, in the case of an Assignment Agreement covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of subsection 10.9; provided that, anything contained in any of the Loan Documents to the contrary notwithstanding, if such Lender is the Issuing Lender with respect to any outstanding Letters of Credit such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to such Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The assigning Lender shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its Notes, if any, to Administrative Agent for cancellation, and thereupon new Notes shall, if so requested by the assignee and/or the assigning Lender in accordance with subsection 2.1F, be issued to the assignee and/or to the assigning Lender, substantially in the form of Exhibit IV-A or Exhibit IV-B annexed hereto, as the case may be, with appropriate insertions, to reflect the new Commitments and/or outstanding Loans, as the case may be, of the assignee and/or the assigning Lender. Other than as provided in subsection 10.5, any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection 10.1B shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with subsection 10.1C. Except as otherwise provided in this subsection 10.1, no Lender shall, as between Borrowers and such Lender, be relieved of any of its obligations hereunder as a result of any sale, assignment or transfer of, or any granting of participations in, all or any part of its Commitments or Loans, Letters of Credit or participations therein or the other Obligations owed to such Lender. (ii) Acceptance by Administrative Agent; Recordation in Register. Upon its receipt of an Assignment Agreement executed by an Assigning Lender and an assignee representing that it is an Eligible Assignee, together with an executed counterpart to the Intercreditor Agreement and the processing and recordation fee referred to in subsection 10.1B(i) and any forms, certificates or other evidence with respect to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.7B(iii), Administrative Agent shall, if Administrative Agent has consented to the assignment evidenced thereby (to the extent such consent is required pursuant to subsection 10.1B(i)), (a) accept such Assignment Agreement by executing a counterpart thereof as provided therein (which acceptance shall evidence any required consent of Administrative Agent to such assignment), (b) record the information contained therein in the Register, and (c) give prompt notice thereof to Company. Administrative Agent shall maintain a copy of each Assignment Agreement delivered to and accepted by it as provided in this subsection 10.1B(ii). C. Participations. Any Lender may, without the consent of, or notice to, any Borrower or Administrative Agent, sell participations to one or more Persons (other than a natural Person or any Borrower or any of its Affiliates) in all or a portion of such Lender's rights and/or obligations under this Agreement; provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) Borrowers, Administrative Agent and Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement. Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, modification or waiver directly affecting (i) the extension of the Stated Maturity Date or (ii) a reduction of the principal amount of or the rate of interest payable on any Loan allocated to such participation. Subject to the further provisions of this subsection 10.1C, each Borrower agrees that each Participant shall be entitled to the benefits of subsections 2.6D and 2.7 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection 10.1B. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 10.4 as though it were a Lender, provided such Participant agrees to be subject to subsection 10.5 as though it were a Lender. A Participant shall not be entitled to receive any greater payment under subsections 2.6D and 2.7 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant unless the sale of the participation to such Participant is made with Borrowers' prior written consent. A Participant that would be a Non-US Lender if it were a Lender shall not be entitled to the benefits of subsection 2.7. D. Pledges and Assignments. Any Lender may at any time pledge or assign a security interest in all or any portion of its Loans, and the other Obligations owed to such Lender, to secure obligations of such Lender, including any pledge or assignment to secure obligations to any Federal Reserve Bank; provided that (i) no Lender shall be relieved of any of its obligations hereunder as a result of any such assignment or pledge and (ii) in no event shall any assignee or pledgee be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. E. Information. Each Lender may furnish any information concerning Company and its Subsidiaries in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.18. F. Agreements of Lenders. Each Lender listed on the signature pages hereof hereby agrees (i) that it is an Eligible Assignee described in clause (i) of the definition thereof; (ii) that it has experience and expertise in the making of loans such as the Loans; and (iii) that it will make its Loans for its own account in the ordinary course of its business and without a view to distribution of such Loans within the meaning of the Securities Act or the Exchange Act or other federal securities laws (it being understood that, subject to the provisions of this subsection 10.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). Each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree that the agreements of such Lender contained in Section 2(c) of such Assignment Agreement are incorporated herein by this reference. 10.2 Expenses. Whether or not the transactions contemplated hereby shall be consummated, Borrowers agree, jointly and severally, to pay promptly (i) all the actual and reasonable costs and expenses of negotiation, preparation and execution of the Loan Documents and any consents, amendments, waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Loan Parties (including any opinions requested by Agents or Lenders as to any legal matters arising hereunder) and of Borrowers' performance of and compliance with all agreements and conditions on their part to be performed or complied with under this Agreement and the other Loan Documents including with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of advisors and counsel to Agents (including O'Melveny & Myers LLP, counsel to Agents, and Ernst & Young Corporate Finance LLC) and Lenders and each counsel (other than internal counsel) retained by any Lender (to the extent, in the case of counsel retained by such individual Lenders, incurred prior to or on the Closing Date or after the occurrence of any Potential Event of Default or in connection with any consent, amendment, waiver or other modification to the Loan Documents) in connection with the negotiation, preparation, execution, interpretation or administration of the Loan Documents and any proposed consents, amendments, waivers or other modifications thereto and any other documents or matters requested by any Borrower; (iv) all the actual costs and reasonable expenses of creating and perfecting Liens in favor of Administrative Agent on behalf of Lenders pursuant to any Collateral Document, including filing and recording fees, expenses and taxes, stamp or documentary taxes, search fees, title insurance premiums, and reasonable fees, expenses and disbursements of counsel to Administrative Agent and of counsel providing any opinions that Agents or Requisite Lenders may request in respect of the Collateral Documents or the Liens created pursuant thereto; (v) all the actual costs and reasonable fees, expenses and disbursements of any auditors, accountants or appraisers and any environmental or other consultants, advisors and agents employed or retained by Agents or their counsel; (vi) all the actual costs and reasonable expenses incurred in connection with the custody or preservation of any of the Collateral; (vii) all other actual and reasonable costs and expenses incurred by Agents in connection with the syndication of the Commitments; and (viii) all costs and expenses, including reasonable attorneys' fees and costs of settlement, incurred by Agents and Lenders in enforcing any Obligations of or in collecting any payments due from any Loan Party hereunder or under the other Loan Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty) or in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or pursuant to the Chapter 11 Cases or any other insolvency or bankruptcy proceedings. Without limiting the generality of the foregoing, if, at any time or times, regardless of whether an Event of Default has occurred, any Agent or any Lender shall incur reasonable expenses itself or employ counsel or other professional advisors, including environmental, financial and management consultants, for advice or other representation or shall incur legal, appraisal, accounting, consulting or other reasonable costs and expenses in connection with: (a) any litigation, contest, dispute, suit, proceeding or action (whether instituted by any Agent, any Bank, any Borrower or any other Person) in any way relating to the Collateral, any of the Loan Documents, or any other agreements to be executed or delivered in connection therewith or herewith, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case or proceeding commenced by or against any Borrower or any other Person that may be obligated to any Agent or any Lender by virtue of the Loan Documents, under the Bankruptcy Code, or any other applicable Federal, state, or foreign bankruptcy or other similar law; (b) any attempt to enforce any rights or remedies of any Agent or any Lender against any Borrower, or any other Person that may be obligated to any Agent or any Lender by virtue of being a party to any of the Loan Documents; (c) any attempt to appraise, inspect, verify, protect, collect, sell, liquidate or otherwise dispose of the Collateral, including obtaining and reviewing any environmental audits or reports provided for under this Agreement or any of the other Loan Documents; or (d) any Chapter 11 Case (including the on-going monitoring by Administrative Agent of any Chapter 11 Case, including attendance by Administrative Agent and their counsel at hearings or other proceedings and the on-going review of documents filed with a Court in respect thereof) and Administrative Agent's and Lenders' interests with respect to any Borrower (including the on-going review of any Borrower's business, assets, operations, prospects or financial condition as Administrative Agent shall deem necessary), the Collateral or the Obligations; then, and in any such event, the reasonable fees and expenses incurred by such Agent, such Lender and such attorneys and other professional advisors and consultants arising from such services, including those of any appellate proceedings, and all reasonable expenses, costs, charges and other fees incurred by such counsel or other professionals in any way or respect arising in connection with or relating to any of the events or actions described in this subsection 10.2 shall be payable, on demand, by Borrowers to such Agent and such Lender and shall be additional Obligations secured by the Collateral and under the other Loan Documents. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: paralegal fees, costs and expenses; accountants' and experts' fees, costs and expenses; appraisers' fees, costs and expenses; management and other consultants' fees, costs and expenses; court costs and expenses; photocopying and duplicating expenses; court reporter fees, costs and expenses; long distance telephone charges; communication charges, air express charges; telegram charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other professional services. 10.3 Indemnity. In addition to the payment of expenses pursuant to subsection 10.2, whether or not the transactions contemplated hereby shall be consummated, Borrowers jointly and severally agree to defend (subject to Indemnitees' selection of counsel), indemnify, pay and hold harmless Agents and Lenders (including Issuing Lenders), and the officers, directors, employees, agents and affiliates of Agents and Lenders (collectively called the "Indemnitees"), from and against any and all Indemnified Liabilities (as hereinafter defined); provided that Borrowers shall not have any obligation to any Indemnitee hereunder with respect to any Indemnified Liabilities to the extent such Indemnified Liabilities arise solely from the gross negligence or willful misconduct of that Indemnitee as determined by a final judgment of a court of competent jurisdiction. As used herein, "Indemnified Liabilities" means, collectively, any and all liabilities, obligations, losses, damages (including natural resource damages), penalties, actions, judgments, suits, claims (including Environmental Claims), costs (including the costs of any investigation, study, sampling, testing, abatement, cleanup, removal, remediation or other response action necessary to remove, remediate, clean up or abate any Hazardous Materials Activity), expenses and disbursements of any kind or nature whatsoever (including the reasonable fees and disbursements of counsel for Indemnitees in connection with any investigative, administrative or judicial proceeding commenced or threatened by any Person, whether or not any such Indemnitee shall be designated as a party or a potential party thereto, and any fees or expenses incurred by Indemnitees in enforcing this indemnity), whether direct, indirect or consequential and whether based on any federal, state or foreign laws, statutes, rules or regulations (including securities and commercial laws, statutes, rules or regulations and Environmental Laws), on common law or equitable cause or on contract or otherwise, that may be imposed on, incurred by, or asserted against any such Indemnitee, in any manner relating to or arising out of (i) this Agreement or the other Loan Documents or the Chapter 11 Cases or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Loans hereunder or the use or intended use of the proceeds thereof or the issuance of Letters of Credit hereunder or the use or intended use of any thereof, the failure of an Issuing Lender to honor a drawing under a Letter of Credit as a result of any act or omission, whether rightful or wrongful, of any present or future de jure or de facto Government Authority, or any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral or the enforcement of the Subsidiary Guaranty), (ii) the statements contained in the commitment letter delivered by any Lender with respect thereto, or (iii) any Environmental Claim or any Hazardous Materials Activity relating to or arising from, directly or indirectly, any past or present activity, operation, land ownership, or practice of Company or any of its Subsidiaries. To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 10.3 may be unenforceable in whole or in part because they are violative of any law or public policy, Borrowers shall contribute the maximum portion that they are permitted to pay and satisfy under applicable law to the payment and satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of them. 10.4 Set-Off. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, and notwithstanding the provisions of Section 362 of the Bankruptcy Code and without application or motion to, or order from, the Bankruptcy Court, upon the occurrence of any Event of Default each Lender is hereby authorized by Company at any time or from time to time, without notice to Company or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including Indebtedness evidenced by certificates of deposit, whether matured or unmatured, but not including trust accounts) and any other Indebtedness at any time held or owing by that Lender or any Affiliate of such Lender to or for the credit or the account of Company and each other Loan Party against and on account of the obligations and liabilities of Company or any other Loan Party to that Lender (or any Affiliate of such Lender) or to any other Lender (or any Affiliate of any other Lender) under this Agreement, the Letters of Credit and participations therein and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, the Letters of Credit and participations therein or any other Loan Document, irrespective of whether or not (i) that Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any amounts in respect of the Letters of Credit or any other amounts due hereunder shall have become due and payable pursuant to Section 8 and although said obligations and liabilities, or any of them, may be contingent or unmatured. 10.5 Ratable Sharing. A. Tranche A Lenders. Tranche A Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Tranche A Loans, Tranche A Letters of Credit, fees and other amounts then due and owing to that Tranche A Lender hereunder or under the other Loan Documents with respect to Tranche A Obligations (collectively, the "Tranche A Aggregate Amounts Due" to such Tranche A Lender) that is greater than the proportion received by any other Tranche A Lender in respect of the Tranche A Aggregate Amounts Due to such other Tranche A Lender, then the Tranche A Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Tranche A Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase assignments (which it shall be deemed to have purchased from each seller of an assignment simultaneously upon the receipt by such seller of its portion of such payment) of the Tranche A Aggregate Amounts Due to the other Tranche A Lenders so that all such recoveries of Tranche A Aggregate Amounts Due shall be shared by all Tranche A Lenders in proportion to the Tranche A Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Tranche A Lender is thereafter recovered from such Tranche A Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing Tranche A Lender ratably to the extent of such recovery, but without interest. Each Borrower expressly consents to the foregoing arrangement and agrees that any purchaser of an assignment so purchased may exercise any and all rights of a Lender as to such assignment as fully as if that Tranche A Lender had complied with the provisions of subsection 10.1B with respect to such assignment. In order to further evidence such assignment (and without prejudice to the effectiveness of the assignment provisions set forth above), each purchasing Tranche A Lender and each selling Tranche A Lender agree to enter into an assignment agreement at the request of a selling Tranche A Lender or a purchasing Tranche A Lender, as the case may be, in form and substance reasonably satisfactory to each such Tranche A Lender. B. Tranche B Lenders. Subject at all times to their obligations under subsection 2.12, Tranche B Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment (other than a voluntary prepayment of Loans made and applied in accordance with the terms of this Agreement), by realization upon security, through the exercise of any right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any right under the Loan Documents or otherwise, or as adequate protection of a deposit treated as cash collateral under the Bankruptcy Code, receive payment or reduction of a proportion of the aggregate amount of principal, interest, amounts payable in respect of Tranche B Loans, Tranche B Letters of Credit, fees and other amounts then due and owing to that Tranche B Lender hereunder or under the other Loan Documents with respect to Tranche B Obligations (collectively, the "Tranche B Aggregate Amounts Due" to such Tranche B Lender) that is greater than the proportion received by any other Tranche B Lender in respect of the Tranche B Aggregate Amounts Due to such other Tranche B Lender, then the Tranche B Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Tranche B Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase assignments (which it shall be deemed to have purchased from each seller of an assignment simultaneously upon the receipt by such seller of its portion of such payment) of the Tranche B Aggregate Amounts Due to the other Tranche B Lenders so that all such recoveries of Tranche B Aggregate Amounts Due shall be shared by all Tranche B Lenders in proportion to the Tranche B Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Tranche B Lender is thereafter recovered from such Tranche B Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing Tranche B Lender ratably to the extent of such recovery, but without interest. Each Borrower expressly consents to the foregoing arrangement and agrees that any purchaser of an assignment so purchased may exercise any and all rights of a Lender as to such assignment as fully as if that Tranche B Lender had complied with the provisions of subsection 10.1B with respect to such assignment. In order to further evidence such assignment (and without prejudice to the effectiveness of the assignment provisions set forth above), each purchasing Tranche B Lender and each selling Tranche B Lender agree to enter into an assignment agreement at the request of a selling Tranche B Lender or a purchasing Tranche B Lender, as the case may be, in form and substance reasonably satisfactory to each such Tranche B Lender. 10.6 Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes or the Loan Documents, and no consent to any departure by any Borrower therefrom, shall in any event be effective without the written concurrence of Requisite Lenders; provided that no such amendment, modification, termination, waiver or consent shall, without the consent of (a) each Lender with Obligations directly affected (whose consent shall be required for any such amendment, modification, termination or waiver in addition to that of Requisite Lenders) (1) reduce the principal amount of any Loan, (2) increase the maximum aggregate amount of Letters of Credit, (3) postpone the scheduled final maturity date of any Loan (other than pursuant to an extension of the "Stated Maturity Date" in accordance with the definition of such term), (4) postpone the date on which any interest or any fees are payable, (5) decrease the interest rate borne by any Loan (other than any waiver of any increase in the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or the amount of any fees payable hereunder (including any change in the manner in which any financial ratio used in determining any interest rate or fee is calculated that would result in a reduction of any such rate or fee), (7) reduce the amount or postpone the due date of any amount payable in respect of any Letter of Credit, (8) extend the expiration date of any Letter of Credit beyond the Termination Date (except as set forth in subsection 3.1A(ii) for Tranche B Letters of Credit), (9) change in any manner the obligations of Lenders relating to the purchase of participations in Letters of Credit, or (10) change in any manner or waive subsection 10.1B(i)(b); (b) each Lender, (1) change in any manner the definition of "Pro Rata Share" or the definition of "Requisite Lenders" (except for any changes resulting solely from an increase in Commitments approved by Requisite Lenders), (2) change in any manner any provision of this Agreement that, by its terms, expressly requires the approval or concurrence of all Lenders, (3) increase the maximum duration of Interest Periods permitted hereunder beyond 3 months, (4) release any Lien granted in favor of Administrative Agent with respect to all or substantially all of the Collateral, release any substantial portion of Borrowers from their obligations under this Agreement or release all or substantially all of the Subsidiary Guarantors from their obligations under the Subsidiary Guaranty, in each case other than in accordance with the terms of the Loan Documents, or (5) change in any manner or waive the provisions contained in subsection 8.1 or this subsection 10.6; or (c) Administrative Agent, Documentation Agent and each Issuing Lender, change in any manner the definition of "Eligible Assignee". In addition, (i) any amendment, modification, termination or waiver of any of the provisions contained in Section 4 shall be effective only if evidenced by a writing signed by or on behalf of Administrative Agent and Requisite Lenders, (ii) no amendment, modification, termination or waiver of any provision of any Note shall be effective without the written concurrence of the Lender which is the holder of that Note, (iii) no amendment, modification, termination or waiver of any provision of Section 3 shall be effective without the written concurrence of Administrative Agent and Documentation Agent and, with respect to the purchase of participations in Letters of Credit, without the written concurrence of each Issuing Lender that has issued an outstanding Letter of Credit or has not been reimbursed for a payment under a Letter of Credit, (iv) no amendment, modification, termination or waiver of any provision of Section 9 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Administrative Agent or Documentation Agent shall be effective without the written concurrence of Administrative Agent or Documentation Agent, as the case may be, (v) no amendment, modification, termination or waiver of the definition of "Requisite Class Lenders", or of subsections 2.4, 2.10, 2.12 or 10.5, that disproportionately disadvantages the Tranche B Lenders or the Tranche A Lenders relative to the Tranche A Lenders or the Tranche B Lenders, respectively, shall be effective without the written concurrence of the Requisite Class Lenders of the disproportionately disadvantaged Class, (vi) no amendment or modification of the definition of "Tranche A Letter of Credit Sublimit" that would have the effect of increasing or decreasing the Tranche A Letter of Credit Sublimit shall be effective without the written concurrence of the Requisite Class Lenders of the Class of Tranche A Lenders (and the consent of Requisite Lenders shall not be required for such an amendment or modification), (vii) no Commitment of a Lender shall be increased without the consent of such Lender, (viii) no amendment, modification, termination or waiver of the provisions contained in subsection 10.1A or subsection 10.1B shall be effective without the written concurrence of Supermajority Lenders, (ix) no amendment, modification, termination or waiver of any provision of this Agreement which, by its terms, expressly requires the approval or concurrence of the applicable Issuing Lender shall be effective without the written concurrence of such Issuing Lender, (x) no amendment, modification, termination or waiver of the provisions contained in subsection 7.7(ix) or the last sentence of subsection 7.10 shall be effective without the written concurrence of Tranche B Lenders having or holding (in their capacity as "Opt-Out Lenders" under the Prepetition Credit Agreement) more than 50% of the aggregate "Opt-Out Facility Exposure" of all such Tranche B Lenders with respect to the relevant "Opt-Out Facility" (as such terms are defined in the Prepetition Credit Agreement), (xi) no amendment, modification, termination or waiver of the definition of "Supermajority Lenders" (except for any changes resulting solely from an increase in Commitments approved by Requisite Lenders) or any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Supermajority Lenders shall be effective without the written concurrence of Supermajority Lenders, (xii) no amendment, modification, termination or waiver of the definition of "Supermajority Tranche A Lenders" or any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Supermajority Tranche A Lenders shall be effective without the written concurrence of Supermajority Tranche A Lenders, (xiii) no amendment, modification, termination or waiver of the provision of the definition of "Final Borrowing Order" (if such amendment, modification, termination or waiver would have the effect of requiring consent of less than all Lenders to an amendment, supplement or modification to such order resulting in less than 50% of the original Tranche B Loan Exposure of all Lenders having the priority and administrative claim status described in subsection 2.10 as being applicable to the Obligations) or of subsection 2.4A(iv)(a) (if such amendment, modification, termination or waiver would have the effect of reducing the portion of any Mandatory Payment from Net Asset Sale Proceeds required to be applied to repay Tranche A Loans or reducing below 75% the portion of any such Mandatory Payment required to be applied to permanently reduce Tranche A Commitments (to the extent such Tranche A Commitments exceed an amount equal to the sum of (x) the Tranche A Loss Sharing Sublimit (after giving effect to any reduction thereto arising from the repayment of outstanding Tranche A Loss Sharing Loans) and (y) the Tranche A Letter of Credit Usage)) shall be effective without the written concurrence of all Lenders, and (xiv) no amendment, modification, termination or waiver which would have the effect of increasing the portion of the aggregate Tranche A Commitments available for Tranche A Loans (other than Tranche A Loss Sharing Loans) and/or Tranche A Letters of Credit by reducing the amount of the Tranche A Loss Sharing Sublimit shall be effective without the written concurrence of all Tranche A Lenders. Administrative Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of that Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on any Borrower or Borrowers in any case shall entitle any Borrower or Borrowers to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this subsection 10.6 shall be binding upon each Lender at the time outstanding, each future Lender and, if signed by Borrowers, on Borrowers. Administrative Agent agrees that promptly after the effectiveness of any amendment, termination, supplement, waiver or other modification of this Agreement it shall provide, or cause to be provided, to each Lender a copy thereof to the extent such a copy is available to Administrative Agent. The parties hereto hereby agree that amendments, supplements, modifications, terminations, waivers or consents effected in accordance with this subsection 10.6 that are not material in the judgment of Borrowers and Agents (which shall include any amendment, supplement, modification, waiver or consent to the Monthly Budget) shall not require approval or consent of the Bankruptcy Court. 10.7 Independence of Covenants. All covenants hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or would otherwise be within the limitations of, another covenant shall not avoid the occurrence of an Event of Default or Potential Event of Default if such action is taken or condition exists. 10.8 Notices; Effectiveness of Signatures. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile in complete and legible form, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Administrative Agent and any Issuing Lender shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as set forth under such party's name on the signature pages hereof or (i) as to Company and Administrative Agent, such other address as shall be designated by such Person in a written notice delivered to the other parties hereto and (ii) as to each other party, such other address as shall be designated by such party in a written notice delivered to Administrative Agent. Electronic mail and Internet and intranet websites may be used to distribute routine communications, such as financial statements and other information as provided in subsection 6.1; provided, however, that no signature with respect to any notice, request, agreement, waiver, amendment or other document or any notice that is intended to have binding effect may be sent by electronic mail. Loan Documents and notices under the Loan Documents may be transmitted and/or signed by telefacsimile. The effectiveness of any such documents and signatures shall, subject to applicable law, have the same force and effect as an original copy with manual signatures and shall be binding on all Loan Parties, Agents and Lenders. Administrative Agent may also require that any such documents and signature be confirmed by a manually-signed copy thereof; provided, however, that the failure to request or deliver any such manually-signed copy shall not affect the effectiveness of any facsimile document or signature. 10.9 Survival of Representations, Warranties and Agreements. A. All representations, warranties and agreements made herein shall survive the execution and delivery of this Agreement and the making of the Loans and the issuance of the Letters of Credit hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Borrowers set forth in subsections 2.6D, 2.7, 3.5A, 10.2, 10.3, 10.4, 10.17 and 10.18 and the agreements of Lenders set forth in subsections 9.2C, 9.4, 10.5 and 10.18 shall survive the payment of the Loans, the cancellation or expiration of the Letters of Credit and the reimbursement of any amounts drawn thereunder, and the termination of this Agreement (and the benefits to a Lender of such agreements of Borrowers shall survive such Lender's ceasing to be a party hereto pursuant to subsection 10.1B). 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of an Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Loan Document shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement and the other Loan Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11 Marshalling; Payments Set Aside. Neither any Agent nor any Lender shall be under any obligation to marshal any assets in favor of Company or any other party or against or in payment of any or all of the Obligations. To the extent that Company makes a payment or payments to Administrative Agent or Lenders (or to Administrative Agent for the benefit of Lenders), or Agents or Lenders enforce any security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, any other state or federal law, common law or any equitable cause, then, to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, rights and remedies therefor or related thereto, shall be revived and continued in full force and effect as if such payment or payments had not been made or such enforcement or setoff had not occurred. 10.12 Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver. The obligations of Lenders hereunder are several and no Lender shall be responsible for the obligations or Commitments of any other Lender hereunder. Nothing contained herein or in any other Loan Document, and no action taken by Lenders pursuant hereto or thereto, shall be deemed to constitute Lenders, or Lenders and Company, as a partnership, an association, a Joint Venture or any other kind of entity. The amounts payable at any time hereunder to each Lender shall be a separate and independent debt, and each Lender shall be entitled to protect and enforce its rights arising out of this Agreement and it shall not be necessary for any other Lender to be joined as an additional party in any proceeding for such purpose. To the extent permitted by law, each Borrower shall not assert, and hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with or as a result of this Agreement (including subsection 2.1D hereof), any other Loan Document, any transaction contemplated by the Loan Documents, any Letter of Credit or Loan or the use of proceeds thereof. 10.13 Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 10.14 Applicable Law. SUBJECT TO THE JURISDICTION OF THE BANKRUPTCY COURT, THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER OR ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE APPLICATION OF ANOTHER LAW. 10.15 Construction of Agreement. Each of the parties hereto acknowledges that it has been represented by counsel in the negotiation and documentation of the terms of this Agreement, that it has had full and fair opportunity to review and revise the terms of this Agreement, and that this Agreement has been drafted jointly by all of the parties hereto. Accordingly, each of the parties hereto acknowledges and agrees that the terms of this Agreement shall not be construed against or in favor of another party. 10.16 Consent to Jurisdiction and Service of Process. SUBJECT TO THE JURISDICTION OF THE BANKRUPTCY COURT, ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK (AS ANY AGENT, AGENTS, LENDER OR LENDERS BRINGING SUCH ACTION MAY ELECT IN ITS OR THEIR SOLE DISCRETION). BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH BORROWER, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS (AND SUBMITS TO) GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH BORROWER AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 10.8; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH BORROWER IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH BORROWER IN THE BANKRUPTCY COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.6 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. 10.17 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each party hereto acknowledges that this waiver is a material inducement to enter into a business relationship, that each has already relied on this waiver in entering into this Agreement, and that each will continue to rely on this waiver in their related future dealings. Each party hereto further warrants and represents that it has reviewed this waiver with its legal counsel and that it knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION 10.17 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.18 Confidentiality. Each Lender shall hold all non-public information obtained pursuant to the requirements of this Agreement that has been identified as confidential by Company in accordance with such Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices, it being understood and agreed by Borrowers that in any event a Lender may make (a) disclosures to Affiliates and professional advisors of such Lender, (b) disclosures reasonably required by (i) any bona fide assignee, transferee or participant in connection with the contemplated assignment or transfer by such Lender of any Loans or any participations therein, or (ii) any direct or indirect contractual counterparties in swap agreements or such contractual counterparties' professional advisors provided that such assignee, transferee, participant, contractual counterparty or professional advisor agrees to keep such information confidential to the same extent required of Lenders hereunder, (c) disclosures to any court or tribunal (whether or not pursuant to subpoena) in connection with any action arising out of or related to this Agreement, or (d) disclosures required or requested by any Government Authority or representative thereof or pursuant to legal process; provided that, unless specifically prohibited by applicable law or court order, each Lender shall notify Company of any request by any Government Authority or representative thereof (other than any such request in connection with any examination of such Lender by such Government Authority) for disclosure of any such non-public information prior to disclosure of such information; and provided, further that in no event shall any Lender be obligated or required to return any materials furnished by Company or any of its Subsidiaries. 10.19 Release of Parties; Waivers. A. Each Borrower, on behalf of itself and each of its Subsidiaries (collectively, the "Releasors"), hereby releases, remises, acquits and forever discharges each Agent, each Lender (in its capacity as a Lender hereunder and as a lender, collateral agent, depository or letter of credit issuer and in any other capacity under or in connection with the Prepetition Credit Documents, any "Pooled Facility" or any "Opt-Out Facility" (as such terms are defined in the Prepetition Credit Agreement)), each other Prepetition Lender (in its capacity as a lender, collateral agent, depository or letter of credit issuer and in any other capacity under or in connection with the Prepetition Credit Documents, any "Pooled Facility" or any "Opt-Out Facility" (as such terms are defined in the Prepetition Credit Agreement)), and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporations, related corporate divisions, participants and assigns (all of the foregoing hereinafter called the "Released Parties"), from any and all actions and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, setoffs, recoupments, counterclaims, defenses, damages and expenses of any and every character, known or unknown, suspected or unsuspected, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this Agreement, any of the other Loan Documents, the Prepetition Credit Documents, the "Pooled Facility Documents" or the "Opt-Out Facility Documents" (as such terms are defined in the Prepetition Credit Agreement) or the administration or enforcement of any of such documents (all of the foregoing hereinafter called the "Released Matters"). Each Releasor acknowledges that the agreements in this subsection are intended to be in full satisfaction of all or any alleged injuries or damages suffered or incurred by such Releasor arising in connection with the Released Matters and constitute a complete waiver of any right of setoff or recoupment, counterclaim or defense of any nature whatsoever which arose prior to the Closing Date to payment or performance of the Obligations. Each Releasor represents and warrants that it has no knowledge of any claim by it against the Released Parties or of any facts, or acts or omissions of the Released Parties which on the date hereof would be the basis of a claim by the Releasors against the Released Parties which is not released hereby. Each Releasor represents and warrants that it has not purported to transfer, assign, pledge or otherwise convey any of its right, title or interest in any Released Matter to any other person or entity and that the foregoing constitutes a full and complete release of all Released Matters. Releasors have granted this release freely, and voluntarily and without duress. B. BORROWERS HEREBY WAIVE ANY AND ALL RIGHTS TO CHALLENGE, BY WAY OF CLAIMS, DEMANDS, AVOIDANCE, SUBORDINATION, OTHER CAUSES OF ACTION, ADVERSARY PROCEEDINGS OR OTHER LITIGATION, THE AMOUNT, VALIDITY, PERFECTION, PRIORITY OR ENFORCEABILITY OF, OR TO ASSERT ANY DEFENSE, OBJECTION, COUNTERCLAIM OR OFFSET TO, THE OBLIGATIONS, THE PREPETITION OBLIGATIONS, THE LIENS AND SECURITY INTERESTS GRANTED BY THE LOAN PARTIES TO ADMINISTRATIVE AGENT (FOR THE BENEFIT OF THE LENDERS) UPON ALL OF THE COLLATERAL, OR THE LIENS AND SECURITY INTERESTS GRANTED BY THE PREPETITION LOAN PARTIES TO THE PREPETITION AGENT (FOR THE BENEFIT OF THE PREPETITION LENDERS) UPON ALL OF THE PREPETITION COLLATERAL. C. Nothing in subsection 10.19A or 10.19B shall constitute a waiver of the rights of the official committee for the unsecured creditors, if any, appointed in the Chapter 11 Cases or any other party in interest to challenge the validity, enforceability, nonavoidability, perfection or priority of the Prepetition Obligations or the Liens granted to the Prepetition Agent (for the benefit of the Prepetition Lenders) on the Prepetition Collateral during the period prior to the date that is 90 days after the appointment of such committee. D. In accordance with the Interim Borrowing Orders and the Final Borrowing Order, each Borrower hereby irrevocably waives on behalf of itself and its estate, and shall cause each of its Subsidiaries to waive, any and all claims to any surcharge of the security interests of Administrative Agent in the Collateral under Section 506(c) of the Bankruptcy Code. E. Each Borrower hereby irrevocably waives on behalf of itself and its estate any and all right pursuant to Sections 364(c) or 364(d) of the Bankruptcy Code or otherwise to grant any Lien of equal or greater priority than the Lien securing the Obligations, or to approve a claim of equal or greater priority than the Obligations, or except as permitted in the Interim Borrowing Order or Final Borrowing Order or the Project Cash Collateral Order, to seek use of cash collateral. 10.20 No Fiduciary Duty. No Agent nor any Lender has or shall have, by reason of this Agreement or any of the Financing Documents, a fiduciary relationship in respect of, or a fiduciary duty to, any Borrower, Borrowers, any other Loan Party or Loan Parties, and the relationship between Administrative Agent, the other Agents and Lenders, on one hand, and Company, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. 10.21 Counterparts; Effectiveness. This Agreement and any amendments, waivers, consents or supplements hereto or in connection herewith may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 10.22 Parties Including Trustees; Court Proceedings. This Agreement and the other Loan Documents shall be binding upon, and inure to the benefit of, the successors of each Agent and each Lender, and the assigns, transferees and endorsees of each Agent and each Lender. The security interests and Liens created in this Agreement, the Collateral Documents and the other Loan Documents shall be and remain valid and perfected, and the claims of each Agent and Lenders hereunder valid and enforceable in accordance with the terms hereof, notwithstanding the discharge of any Borrower pursuant to 11 U.S.C. ss. 1141, the conversion of any Chapter 11 Case or any other bankruptcy case of any Loan Party to a case under Chapter 7 of the Bankruptcy Code, the dismissal of any Chapter 11 Case or any subsequent Chapter 7 case, the release of any Collateral from the property of any Loan Party, or the entry of any order which may be entered in the Chapter 11 Cases, including any order to the foregoing effect or appointing a trustee or responsible officer or examiner (including an examiner with expanded powers), and the terms and provisions of this Agreement, as well as (to the maximum extent permitted by law) the priorities in payment granted pursuant to the Interim Borrowing Order, the Final Borrowing Order, this Agreement and the other Loan Documents, shall continue in full force and effect notwithstanding the entry of any such order, until the indefeasible payment in full of all Obligations in accordance with the terms of this Agreement and the other Loan Documents, the termination of all Commitments and the cancellation or expiration of all Letters of Credit. If any or all of the provisions of this Agreement, the Interim Borrowing Order or the Final Borrowing Order are hereafter reversed, modified, vacated or stayed by subsequent order of the Bankruptcy Court or any other court, such reversal, stay, modification or vacatur shall not affect the validity and enforceability of any Obligation, debt or claim incurred or any security interest or Lien or the priority that is or was incurred or granted pursuant to this Agreement, the other Loan Documents, the Interim Borrowing Order or the Final Borrowing Order, and notwithstanding any stay, reversal, modification or vacatur of this Agreement, the Interim Borrowing Order or the Final Borrowing Order, any Obligations arising prior to the effective date of such stay, reversal, modification or vacatur shall be governed in all respects by the original provisions of this Agreement, the Interim Borrowing Order, the Final Borrowing Order and the Loan Documents, as the case may be, and Agents and the Lenders shall be entitled to all of their respective rights, privileges and benefits hereunder and under the Loan Documents, including the priorities, rights and remedies granted herein and therein to or for their benefit with respect to all Obligations. The security interests and Liens created in this Agreement, the Collateral Documents and the other Loan Documents shall be and remain valid and perfected without the necessity that Administrative Agent file financing statements or otherwise perfect its security interests or Liens under applicable law. This Agreement, the claims of Agents and Lenders hereunder, and all security interests or Liens created hereby or pursuant hereto or by or pursuant to the Collateral Documents or any other Loan Document shall at all times be binding upon Loan Parties, the estates of Loan Parties and any trustee appointed in any Chapter 11 Case or any Chapter 7 case, or any other successor in interest to Borrowers. This Agreement shall not be subject to Section 365 of the Bankruptcy Code. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION, as Debtor and Debtor-In-Possession By: /s/ Jeffrey R. Horowitz ----------------------------------------- Title: Senior Vice President, Legal Affairs and Secretary Each of the entities named on Schedule A annexed hereto, as Debtor and Debtor-In-Possession By: /s/ Jeffrey R. Horowitz ----------------------------------------- Title: Authorized Officer Each of the entities named on Schedule B annexed hereto, as Debtor and Debtor-In-Possession By: /s/ William J. Metzger ----------------------------------------- Title: Authorized Officer Notice Address for each Borrower: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, NJ 07007 Attn: Jeffrey Horowitz, Esq. AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger and as a Lender By: /s/ Michael R. Heredia ----------------------------------------- Name: Michael R. Heredia Title: Managing Director Notice Address: Attention: Barry Flynn 1 Independence Center 101 North Tryon Street Charlotte, N.C. 28255 DEUTSCHE BANK AG, NEW YORK BRANCH, As Documentation Agent and Co-Arranger and as a Lender By: /s/ Keith C. Braun ----------------------------------------- Name: Keith C. Braun Title: Director By: /s/ Mark B. Cohen ----------------------------------------- Name: Mark B. Cohen Title: Managing Director, Head of Workout Notice Address: Attention: Keith C. Braun Deutsche Bank AG New York Branch 31 West 52nd St., 7th Fl New York, NY 10019 ABN AMRO BANK N.V., as a Lender By: /s/ Neil J. Bivona ----------------------------------------- Name: Neil J. Bivona Title: Vice President By: /s/ Steven C. Wimpenny ----------------------------------------- Name: Steven C. Wimpenny Title: Group Senior Vice President Notice Address: Attention: Credit Administration ABN AMRO Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60604-1003 BANC OF AMERICA SECURITIES LLC, as agent for BANK OF AMERICA, N.A. as a Lender By: /s/ Gregory Ford ----------------------------------------- Name: Gregory Ford Title: Managing Director By: ----------------------------------------- Notice Address: Attention: Jon Barnes Bank of America 100 North Tryon Street Charlotte, NC 28255 THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Joseph J. Farricielli, Jr. ----------------------------------------- Name: Joseph J. Farricielli, Jr. Title: Director Notice Address: Attention: Joseph J. Farricielli, Jr. The Bank of Nova Scotia One Liberty Plaza, 23rd Floor New York, NY 10006 BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ John Sweeney ----------------------------------------- Name: John Sweeney Title: Director By: /s/ C. Theodore Wolf ----------------------------------------- Name: C. Theodore Wolf Title: Director Notice Address: Attention: Salvatore Esposito Bayerische Hypo-und Vereinsbank AG 150 E. 42nd Street New York, NY 10017 BNP PARIBAS, as a Lender By: /s/ Barbara Eppolito ----------------------------------------- Name: BARBARA EPPOLITO Title: VICE PRESIDENT By: /s/ Katheryn Quinn ----------------------------------------- Name: KATHERYN QUINN Title: VICE PRESIDENT Notice Address: Attention: BARBARA EPPOLITO BNP PARIBAS 787 SEVENTH AVENUE NEW YORK, NY 10019 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ Robert Donohue ----------------------------------------- Name: Robert Donohue Title: Senior Vice President By: /s/ Peter Doyle ----------------------------------------- Name: Peter Doyle Title: Vice President Notice Address: Attention: Robert Donohue Commerzbank AG 2 World Financial Center New York, NY 10281 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: /s/ James B. Hallock ----------------------------------------- Name: James B. Hallock Title: Vice President Notice Address: Attention: James B. Hallock Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 FLEET NATIONAL BANK, as a Lender By: /s/ Michael F. O'Neill ----------------------------------------- Name: Michael F. O'Neill Title: Senior Vice President Notice Address: Attention: Michael F. O'Neill Fleet National Bank 100 Federal Street Mail Stop: MA DE 10006A Boston, MA 02110 HSBC BANK USA, as a Lender By: /s/ Carol A. Kraus ----------------------------------------- Name: Carol A. Kraus Title: Vice President Notice Address: Attention: Carol A. Kraus HSBC Bank USA 8 East 40th Street New York, NY 10016 THE HUNTINGTON NATIONAL BANK, as a Lender By: /s/ Thomas P. Krumel ----------------------------------------- Name: Thomas P. Krumel Title: Vice President Notice Address: Attention: Thomas P. Krumel The Huntington National Bank 917 Euclid Ave. CM66 Cleveland, OH 444115 THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: /s/ Noel P. Purcell ----------------------------------------- Name: Noel P. Purcell Title: Senior Vice President Notice Address: Attention: John Davies The Industrial Bank of Japan Trust Company 1251 Avenue of the Americas New York, NY 10020 JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as a Lender By: /s/ Michael Lancia ----------------------------------------- Name: Michael Lancia Title: Vice President Notice Address: Attention: Michael Lancia JPMorgan Chase Bank 380 Madison Avenue Special Loan - 9 New York, NY 10017 IIB Bank Ltd, IFSC Branch, as a Lender By: /s/ Brian Dunne ----------------------------------------- Name: Brian Dunne Title: Director/ Authorized Signatory By: /s/ Niall Murray ----------------------------------------- Name: Niall Murray Title: Director/ Authorized Signatory Notice Address: Attention: John O'Connor KBC Finance Ireland KBC House, I.F.S.C., Dublin 1, Ireland LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: /s/ Dorothy A. Lacher ----------------------------------------- Name: Dorothy A. Lacher Title: Senior Vice President Corporate Finance Division Structured Finance Department By: /s/ David A. Leech ----------------------------------------- Name: David A. Leech Title: Vice President Corporate Finance Division Structured Finance Department Notice Address: Attention: David A. Leech Landesbank Hessen-Thuringen Girozentrale 420 Fifth Avenue 24th Floor New York, NY 10018 MIZUHO CORPORATE BANK, LTD., NEW YORK BRANCH, as a Lender By: /s/ Timothy White ----------------------------------------- Name: Timothy White Title: Senior Vice President Notice Address: Attention: David E. Lim Mizuho Corporate Bank, Ltd., New York Branch 1633 Broadway, 40th Floor New York, NY 10019 THE ROYAL BANK OF SCOTLAND, plc, as a Lender By: /s/ Graeme Hunter ----------------------------------------- Name: Graeme Hunter Title: Senior Vice President, Specialized Lending Services Notice Address: Attention: Graeme Hunter Specialized Lending Services 10th Floor 101 Park Avenue New York, NY 10178 SANPAOLO IMI S.p.A., as a Lender By: /s/ Carlo Persico ----------------------------------------- Name: Carlo Persico Title: GM By: /s/ Robert Wurster --------------------------------- Name: Robert Wurster Title: SVP Notice Address: Attention: Robert Wurster SAN PAOLO IMI S.P.A. 245 Park Avenue, 35th Floor New York, NY 10167 THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By:/s/ Elizabeth A. Quirk --------------------------------- Name: Elizabeth A. Quirk Title: Vice Presudebt Notice Address: Attention: Elizabeth A. Quirk The Sumitomo Trust & Banking Co., Ltd., NY Branch 527 Madison Avenue New York, NY 10022 SUNTRUST BANK, as a Lender By: /s/ Maria Mamilovich --------------------------------- Name: Maria Mamilovich Title: Director Notice Address: Attention: Maria Mamilovich SunTrust Bank 711 Fifth Avenue, 16th Floor New York, NY 10022 THE BANK OF NEW YORK, as a Lender By:/s/ Peter W. Helt --------------------------------- Name: Peter W. Helt Title: Vice President Notice Address: Attention: Peter W. Helt Bank of New York 1 Wall Street, 16th Floor New York, NY 10286 THE TORONTO-DOMINION BANK, as a Lender By: /s/ Mark A. Baird --------------------------------- Name: Mark A. Baird Title: Manager CR Administrator Notice Address: Attention: Mark A. Baird Toronto Dominion (Texas), Inc. 909 Fannin Street, 17th Floor Houston, TX 77010 UBS AG, STAMFORD BRANCH, as a Lender By: /s/ Kelly Smith --------------------------------- Name: Kelly Smith Title: Director Recovery Management By: /s/ David J. Kalaj --------------------------------- Name: David J. Kalaj Title: Executive Director Recovery Management Notice Address: Attention: Marie Haddad UBS AG, Stamford Branch 677 Washington Blvd. Stamford, CT 06901 UFJ BANK LIMITED, NEW YORK BRANCH (formerly known as The Sanwa Bank, Limited), as a Lender By: /s/ Nobud Harima --------------------------------- Name: Nobud Harima Title: Vice President U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: /s/ Alan R. Milster --------------------------------- Name: Alan R. Milster Title: Vice President Notice Address: Attention: Alan R. Milster Firstar Bank, N.A. 7th Floor - Special Assets One Firstar Plaza Seventh & Washington St. Louis, MO 63101 WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ Joel Thomas --------------------------------- Name: Joel Thomas Title: Vice President Notice Address: Attention: Joel Thomas 301 South College Street, DC-5 Charlotte, North Carolina 28288 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender By: /s/ Salvatore Battinelli --------------------------------- Name: Salvatore Battinelli Title: Managing Director By: /s/ Walter T. Duffy III --------------------------------- Name: Walter T. Duffy III Title: Associate Director Notice Address: Attention: Walter T. Duffy III Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, NY 10036 Schedule A Other Borrowers 1. AMOR14 Corp. 2. Covanta Acquisition, Inc. 3. Covanta Alexandria/Arlington, Inc. 4. Covanta Babylon, Inc. 5. Covanta Bessemer, Inc. 6. Covanta Bristol, Inc. 7. Covanta Cunningham Environmental Support, Inc. 8. Covanta Energy Americas, Inc. 9. Covanta Energy Construction, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy Services, Inc. 13. Covanta Energy West, Inc. 14. Covanta Engineering Services, Inc. 15. Covanta Fairfax, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations Holdings, Inc. 18. Covanta Geothermal Operations, Inc. 19. Covanta Heber Field Energy, Inc. 20. Covanta Hennepin Energy Resource Co., L.P. 21. Covanta Hillsborough, Inc. 22. Covanta Honolulu Resource Recovery Venture 23. Covanta Huntington Limited Partnership 24. Covanta Huntington Resource Recovery One Corp. 25. Covanta Huntington Resource Recovery Seven Corp. 26. Covanta Huntington, Inc. 27. Covanta Huntsville, Inc. 28. Covanta Hydro Energy, Inc. 29. Covanta Hydro Operations West, Inc. 30. Covanta Hydro Operations, Inc. 31. Covanta Imperial Power Services, Inc. 32. Covanta Indianapolis, Inc. 33. Covanta Kent, Inc. 34. Covanta Key Largo, Inc. 35. Covanta Lake, Inc. 36. Covanta Lancaster, Inc. 37. Covanta Lee, Inc. 38. Covanta Long Island, Inc. 39. Covanta Marion Land Corp. 40. Covanta Marion, Inc. 41. Covanta Mid-Conn., Inc. 42. Covanta Montgomery, Inc. 43. Covanta New Martinsville Hydro-Operations Corp. 44. Covanta Northwest Puerto Rico, Inc. 45. Covanta Oahu Waste Energy Recovery, Inc. 46. Covanta Oil & Gas, Inc. 47. Covanta Onondaga Five Corp. 48. Covanta Onondaga Four Corp. 49. Covanta Onondaga Limited Partnership 50. Covanta Onondaga Operations, Inc. 51. Covanta Onondaga Three Corp. 52. Covanta Onondaga Two Corp. 53. Covarita Onondaga, Inc. 54. Covanta Onondaga, Limited Partnership 55. Covanta Operations of Union LLC 56. Covanta OPW Associates, Inc. 57. Covanta OPWH, Inc. 58. Covanta Pasco, Inc. 59. Covanta Plant Services of New Jersey, Inc. 60. Covanta Power Development of Bolivia, Inc. 61. Covanta Power Development, Inc. 62. Covanta Power Equity Corp. 63. Covanta Projects of Hawaii, Inc. 64. Covanta Projects of Wallingford, LP 65. Covanta RRS Holdings, Inc. 66. Covanta Secure Services USA, Inc. 67. Covanta Secure Services, Inc. 68. Covanta SIGC Energy II, Inc. 69. Covanta SIGC Energy, Inc. 70. Covanta SIGC Geothermal Operations, Inc. 71. Covanta Stanislaus, Inc. 72. Covanta Systems, Inc. 73. Covanta Tampa Bay, Inc. 74. Covanta Tulsa, Inc. 75. Covanta Union, Inc. 76. Covanta Wallingford Associates, Inc. 77. Covanta Warren Energy Resources Co., LP 78. Covanta Waste Solutions, Inc. 79. Covanta Waste to Energy of Italy, Inc. 80. Covanta Waste to Energy, Inc. 81. Covanta Water Holdings, Inc. 82. Covanta Water Systems, Inc. 83. Covanta Water Treatment Services, Inc. 84. DSS Environmental, Inc. 85. ERC Energy II, Inc. 86. ERC Energy, Inc. 87. Heber Field Company 88. Heber Field Energy II, Inc. 89. Heber Geothermal Company 90. Heber Loan Partners 91. J.R. Jacks Construction Corp. 92. Ogden Constructors, Inc. 93. Ogden Environmental & Energy Services Co., Inc. 94. OPI Quezon, Inc. 95. Second Imperial Geothermal Co., L.P. 96. Three Mountain Operations, Inc. 97. Three Mountain Power LLC Schedule B Other Borrowers 1. Ogden Facility Management Corporation of Anaheim 2. LaGuardia Fuel Facilities Corp. 3. Lenzar Electro-Optics, Inc. 4. Newark Automotive Fuel Facilities Corporation, Inc. 5. Ogden Allied Abatement & Decontamination Service, Inc. 6. Ogden Allied Maintenance Corp. 7. Ogden Allied Payroll Services, Inc. 8. Ogden Attractions, Inc. 9. Ogden Aviation Distributing Corp. 10. Ogden Aviation Fueling Company of Virginia, Inc. 11. Ogden Aviation Service Company of Colorado, Inc. 12. Ogden Aviation Service Company of New Jersey, Inc. 13. Ogden Aviation Service Company of New York, Inc. 14. Ogden Aviation Service Company of Pennsylvania, Inc. 15. Ogden Aviation Service International Corporation 16. Ogden Aviation, Inc. 17. Ogden Cargo Spain, Inc. 18. Ogden Central and South America, Inc. 19. Ogden Facility Holdings, Inc. 20. Ogden Film and Theatre, Inc. 21. Ogden Firehole Entertainment Corp. 22. Ogden International Europe, Inc. 23. Ogden New York Services, Inc. 24. Ogden Support Services, Inc. 25. PA Aviation Fuel Holdings, Inc. 26. Philadelphia Fuel Facilities Corporation EX-10.1K 9 covex10-1k_718.txt EXHIBIT 10.1(k) --------------- SECURITY AGREEMENT This SECURITY AGREEMENT (this "Agreement") is dated as of April 1, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Covanta" or "Company"), each of THE OTHER BORROWERS LISTED ON THE SIGNATURE PAGES HEREOF, each of THE SUBSIDIARY GUARANTORS LISTED ON THE SIGNATURE PAGES HEREOF and each ADDITIONAL SUBSIDIARY GUARANTOR AND BORROWER that may become a party hereto after the date hereof in accordance with Section 24 hereof (each an "Additional Grantor" and collectively "Additional Grantors"; Borrowers and Subsidiary Guarantors, including any Additional Grantors, are sometimes collectively referred to herein as "Grantors" and individually as a "Grantor"), and BANK OF AMERICA, N.A., in its capacity as administrative agent for and representative of Lenders from time to time party to the Credit Agreement (in such capacity, "Secured Party"). Terms defined in the Credit Agreement and not otherwise defined herein are being used herein as therein defined. RECITALS WHEREAS, on April 1, 2002, each Borrower filed a voluntary petition for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"), and each Borrower continues to operate its businesses and manage its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, Secured Party, as Administrative Agent, Deutsche Bank AG, New York Branch, as Documentation Agent, and Lenders are entering into that certain Debtor-in-Possession Credit Agreement dated as of even date herewith with Borrowers (said Debtor-in-Possession Credit Agreement, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being the "Credit Agreement"), pursuant to which, inter alia, Lenders have agreed to provide, subject to the terms and conditions contained in the Credit Agreement, debtor-in-possession revolving credit facilities for the Borrowers to fund working capital and general corporate purposes and to make certain other payments during the Chapter 11 Cases; WHEREAS, Subsidiary Guarantors have entered into that certain Subsidiary Guaranty dated as of even date herewith (said Subsidiary Guaranty, as it may hereafter be amended, restated, supplemented or otherwise modified from time to time, being the "Subsidiary Guaranty") in favor of Secured Party for the benefit of Lenders, pursuant to which each Subsidiary Guarantor has guarantied the prompt payment and performance when due of all obligations of Borrowers under the Credit Agreement; WHEREAS, it is a condition precedent to the effectiveness of the Credit Agreement that Grantors listed on the signature pages hereof shall have granted a security interest in the Collateral (as defined below) for the benefit of Lenders; NOW, THEREFORE, in consideration of the premises and in order to induce Lenders to enter into the Credit Agreement and make loans and other extensions of credit thereunder from time to time and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, each Grantor hereby agrees with Secured Party as follows: Section 1. Grant of Security. In addition to, and not in lieu of, any security interests for the benefit of Lenders effected pursuant to the Interim Borrowing Order or the Final Borrowing Order, each Grantor hereby assigns to Secured Party, and hereby grants to Secured Party a security interest in, all of such Grantor's right, title and interest in and to all assets (including all real, personal and mixed property) of each of the Grantors (or, in the case of Borrowers, all assets of the estates of each of such Grantors), including, without limitation, the following, in each case whether now or hereafter existing, whether tangible or intangible, or in which such Grantor now has or hereafter acquires an interest and wherever the same may be located (all such assets being the "Collateral"): (a) all equipment, in all of its forms, all parts thereof and all accessions thereto (any and all such equipment, parts and accessions being the "Equipment"); (b) all inventory in all of its forms, including but not limited to (i) all goods held by such Grantor for sale or lease or to be furnished under contracts of service or so leased or furnished, (ii) all raw materials, work in process, finished goods, and materials used or consumed in the manufacture, packing, shipping, advertising, selling, leasing, furnishing or production of such inventory or otherwise used or consumed in such Grantor's business, (iii) all goods in which such Grantor has an interest in mass or a joint or other interest or right of any kind, and (iv) all goods which are returned to or repossessed by such Grantor and all accessions thereto and products thereof (collectively the "Inventory") and all negotiable and non-negotiable documents of title (including without limitation, documents, warehouse receipts, dock receipts and bills of lading) issued by any Person covering any Inventory (any such negotiable document of title being a "Negotiable Document of Title"); (c) all accounts, contract rights, chattel paper, documents, instruments, general intangibles, letter-of-credit rights and other rights and obligations of any kind owned by or owing to such Grantor and all rights in, to and under all security agreements, leases and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, documents, instruments, general intangibles, letter-of-credit rights or other rights and obligations (any and all such accounts, contract rights, chattel paper, documents, instruments, general intangibles and other obligations being the "Accounts," and any and all such security agreements, leases and other contracts being the "Related Contracts"). (d) all deposit accounts, including any restricted deposit accounts established and maintained by Secured Party pursuant to Section 12 and all the accounts and concentration accounts which constitute the Cash Management System, together with (i) all amounts on deposit from time to time in such deposit accounts and (ii) all interest, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the foregoing (the "Deposit Accounts"); (e) the "Securities Collateral," which term means: (i) the shares of stock, partnership interests, interests in joint ventures, limited liability company interests and all other equity interests in any other Person, including all securities convertible into, and rights, warrants, options and other rights to purchase or otherwise acquire, any of the foregoing now or hereafter owned by such Grantor, including those owned on the date hereof and described on Schedule 1(e)(i), and the certificates or other instruments representing any of the foregoing and any interest of such Grantor in the entries on the books of any securities intermediary pertaining thereto (the "Pledged Shares"), and all dividends, distributions, returns of capital, cash, warrants, option, rights, instruments, rights to vote or manage the business of such Person pursuant to organizational documents governing the rights and obligations of the stockholders, partners, members or other owners thereof and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; provided, that if the issuer of any of such Pledged Shares is a Foreign Subsidiary, the Pledged Shares shall not include any shares of stock of such issuer in excess of the number of shares of such issuer possessing up to but not exceeding 65% of the voting power of all classes of capital stock entitled to vote of such issuer, and all dividends, cash, warrants, rights, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such Pledged Shares; provided, further, that Pledged Shares shall not include any shares of stock of those Subsidiaries the pledge of which would constitute a violation of (i) a valid and enforceable Contractual Obligation (to the extent such Contractual Obligation is enforceable on a post-Petition Date basis) in favor of or for the benefit of a Person other than Company or any of its Subsidiaries and their respective Affiliates for which the required consents have not been obtained or (ii) applicable law affecting such Grantor or such Subsidiary; (ii) the indebtedness from time to time owed to such Grantor by any obligor, and the instruments evidencing such indebtedness (the "Pledged Debt"), and all interest, cash, instruments and other property or proceeds from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Pledged Debt; and (iii) all other investment property of such Grantor not otherwise included in this clause (e) or the definition of Investment Collateral; (f) the "Investment Collateral", which term means: (i) all securities accounts, including any restricted securities accounts established and maintained by Secured Party pursuant to Section 12, (ii) all credit balances held from time to time in such securities accounts, (iii) any property, including any Financial Assets (as defined in the UCC) credited to any such securities account by Secured Party and any other property acquired by Secured Party as securities intermediary in exchange for, with proceeds from or distributions on, or otherwise in respect of any of the foregoing (any such property an "Investment") and any security entitlements, securities (whether certificated or uncertificated), instruments, accounts, chattel paper, general intangibles and deposits representing or evidencing any Investment, and (iv) all interest, dividends, cash, instruments, securities and other property from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of the Investments. (g) the "Intellectual Property Collateral," which term means: (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to all trademarks, service marks, designs, logos, indicia, tradenames, trade dress, corporate names, company names, business names, fictitious business names, trade styles and/or other source and/or business identifiers and applications pertaining thereto, owned by such Grantor, or hereafter adopted and used, in its business (including, without limitation, the trademarks specifically identified in Schedule 1(g)(i), as the same may be amended pursuant hereto from time to time) (collectively, the "Trademarks"), all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations and applications specifically identified in Schedule 1(g)(i), as the same may be amended pursuant hereto from time to time) (the "Trademark Registrations"), all common law and other rights in and to the Trademarks in the United States and any state thereof and in foreign countries (the "Trademark Rights"), and all goodwill of such Grantor's business symbolized by the Trademarks and associated therewith (the "Associated Goodwill"); (ii) all rights, title and interest (including rights acquired pursuant to a license or otherwise) in and to all patents and patent applications and rights and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned or held by such Grantor and all patents and patent applications and rights, title and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned by such Grantor in whole or in part (including, without limitation, the patents and patent applications listed in Schedule 1(g)(ii), as the same may be amended pursuant hereto from time to time), all rights corresponding thereto (including, without limitation, the right, exercisable only upon the occurrence and during the continuation of an Event of Default, to sue for past, present and future infringements in the name of such Grantor or in the name of Secured Party or Lenders), and all re-issues, divisions, continuations, renewals, extensions and continuations-in-part thereof (all of the foregoing being collectively referred to as the "Patents"); it being understood that the rights and interests included in the Intellectual Property Collateral hereby shall include, without limitation, all rights and interests pursuant to licensing or other contracts in favor of such Grantor pertaining to patent applications and patents presently or in the future owned or used by third parties but, in the case of third parties which are not Affiliates of such Grantor, only to the extent permitted by such licensing or other contracts and, if not so permitted, only with the consent of such third parties; and (iii) all rights, title and interest (including rights acquired pursuant to a license or otherwise) under copyright in various published and unpublished works of authorship including, without limitation, computer programs, computer data bases, other computer software, layouts, trade dress, drawings, designs, writings, and formulas owned by such Grantor (including, without limitation, the works listed on Schedule 1(g)(iii), as the same may be amended pursuant hereto from time to time) (collectively, the "Copyrights"), all copyright registrations issued to such Grantor and applications for copyright registration that have been or may hereafter be issued or applied for thereon by such Grantor in the United States and any state thereof and in foreign countries (including, without limitation, the registrations listed on Schedule 1(g)(iii), as the same may be amended pursuant hereto from time to time) (collectively, the "Copyright Registrations"), all common law and other rights in and to the Copyrights in the United States and any state thereof and in foreign countries including all copyright licenses (but with respect to such copyright licenses, only to the extent permitted by such licensing arrangements) (the "Copyright Rights"), including, without limitation, each of the Copyrights, rights, titles and interests in and to the Copyrights, all derivative works and other works protectable by copyright, which are presently, or in the future may be, owned, created (as a work for hire for the benefit of such Grantor), authored (as a work for hire for the benefit of such Grantor), or acquired by such Grantor, in whole or in part, and all Copyright Rights with respect thereto and all Copyright Registrations therefor, heretofore or hereafter granted or applied for, and all renewals and extensions thereof, throughout the world, including all proceeds thereof (such as, by way of example and not by limitation, license royalties and proceeds of infringement suits), the right to renew and extend such Copyright Registrations and Copyright Rights and to register works protectable by copyright and the right to sue for past, present and future infringements of the Copyrights and Copyright Rights; (h) all information used or useful or arising from the business including all goodwill, trade secrets, trade secret rights, know-how, customer lists, processes of production, ideas, confidential business information, techniques, processes, formulas, and all other proprietary information; (i) all licenses, contracts and agreements, as each such license, contract and agreement may be amended, restated, supplemented or otherwise modified from time to time (said agreements, as so amended, restated, supplemented or otherwise modified, being referred to herein individually as an "Assigned Agreement" and collectively as the "Assigned Agreements"), including, without limitation, (i) all rights of such Grantor to receive moneys due or to become due under or pursuant to the Assigned Agreements, (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect to the Assigned Agreements, (iii) all claims of such Grantor for damages arising out of any breach of or default under the Assigned Agreements, and (iv) all rights of such Grantor to terminate, amend, supplement, modify or exercise rights or options under the Assigned Agreements, to perform thereunder and to compel performance and otherwise exercise all remedies thereunder; (j) to the extent not included in any other paragraph of this Section 1, each Grantor's commercial tort claims, potential claims, causes of action and potential causes of action, including, but not limited to, those listed on Schedule 1(j) (collectively, the "Commercial Tort Claims"), and all general intangibles (including, without limitation, tax refunds, payment intangibles, other rights to payment or performance, choses in action, software and judgments taken on any rights or claims included in the Collateral); (k) all plant fixtures, business fixtures and other fixtures and storage and office facilities, and all accessions thereto and products thereof; (l) all real property of Borrowers (including, without limitation, leasehold and fee interests in such real property); (m) all books, records, ledger cards, files, correspondence, computer programs, tapes, disks and related data processing software that at any time evidence or contain information relating to any of the Collateral or are otherwise necessary or helpful in the collection thereof or realization thereupon; and (n) all proceeds, products, rents and profits of or from any and all of the foregoing Collateral and, to the extent not otherwise included, all payments under insurance related to the Collateral (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Collateral. For purposes of this Agreement, the term "proceeds" includes whatever is receivable or received when Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Collateral include, and no Grantor shall be deemed to have granted a security interest in (i) any of such Grantor's rights or interests in any license, contract or agreement to which such Grantor is a party or any of its rights or interests thereunder, to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under the provisions of any license, contract or agreement to which such Grantor is a party on the date hereof (other than to the extent that any such provision would be rendered ineffective pursuant to the Uniform Commercial Code, as it exists on the date of this Agreement or as it may hereafter be amended, in the State of New York (the "NY UCC") or any other applicable law (including the Bankruptcy Code) or principles of equity); provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Collateral shall include, and such Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect; provided, further that if the assignment of proceeds of such license, contract or agreement would not result in a breach of the terms of, or constitute a default under the provisions of such license, contract or agreement, such proceeds shall be included in the Collateral or (ii) any real property leasehold, unless a Grantor has executed a leasehold mortgage or leasehold deed of trust covering such real property leasehold. Each item of Collateral listed in this Section 1 that is defined in Articles 8 or 9 of the NY UCC shall have the meaning set forth in the NY UCC, as it exists on the date of this Agreement or as it may hereafter be amended, it being the intention of the Grantors that the description of the Collateral set forth above be construed to include the broadest possible range of assets. Section 2. Security for Obligations. Subject to Section 1 hereof, this Agreement secures, and the Collateral assigned by each Grantor is collateral security for, the prompt payment or performance in full when due, whether at stated maturity, by required prepayment, declaration, acceleration, demand or otherwise (including without limitation the payment of amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code), of all Secured Obligations of such Grantor. "Secured Obligations" means: (i) with respect to Borrowers, all obligations and liabilities of every nature of Borrowers now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents, and (ii) with respect to Subsidiary Guarantors, all obligations and liabilities of every nature of such Subsidiary Guarantors now or hereafter existing under or arising out of or in connection with the Subsidiary Guaranty; in each case together with all extensions or renewals thereof, whether for principal, interest (including without limitation interest that, but for the filing of a petition in bankruptcy with respect to such Subsidiary Guarantor, would accrue on such obligations, whether or not a claim is allowed against such Subsidiary Guarantor for such interest in the related bankruptcy proceeding), reimbursement of amounts drawn under Letters of Credit, obligations arising under or relating to any Hedge Agreements, fees, expenses, indemnities or otherwise, whether voluntary or involuntary, direct or indirect, absolute or contingent, liquidated or unliquidated, whether or not jointly owed with others, and whether or not from time to time decreased or extinguished and later increased, created or incurred, and all or any portion of such obligations or liabilities that are paid, to the extent all or any part of such payment is avoided or recovered directly or indirectly from Secured Party or any Lender as a preference, fraudulent transfer or otherwise, and all obligations of every nature of Grantors now or hereafter existing under this Agreement. Section 3. Grantors Remain Liable. Anything contained herein to the contrary notwithstanding, (a) each Grantor shall remain liable under any contracts, licenses and agreements included in the Collateral, to the extent set forth therein, to perform all of its duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of its rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts, licenses and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under any contracts, licenses, and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder. Section 4. Representations and Warranties. Each Grantor represents and warrants as follows: (a) Ownership of Collateral. Except as expressly permitted by subsection 7.2 of the Credit Agreement, such Grantor owns the Collateral owned by such Grantor free and clear of any Lien. Except as expressly permitted by subsection 7.2 of the Credit Agreement, no effective financing statement or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office. (b) Locations of Equipment and Inventory. All of the Equipment and Inventory having a value in excess of $500,000 is, as of the date hereof, or in the case of an Additional Grantor, the date of the applicable counterpart entered into pursuant to Section 23 (each, a "Counterpart") located at the places specified in Schedule 4(b), except for Equipment that is temporarily moved from places specified in Schedule 4(b) to undergo repair or Inventory which, in the ordinary course of business, is in transit either (i) from a supplier to a Grantor, (ii) between the locations specified in Schedule 4(b), or (iii) to customers of a Grantor. (c) Negotiable Documents of Title. Except as set forth on Schedule 4(c), no Negotiable Documents of Title are outstanding with respect to any of the Inventory. (d) Office Locations; Type and Jurisdiction of Organization. The chief place of business, the chief executive office and the office where such Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts are, as of the date hereof, and, except as described on Schedule 4(d), have been for the four month period preceding the date hereof, or, in the case of an Additional Grantor, the date of the applicable Counterpart, located at the locations described on Schedule 4(d); the type (i.e., corporation, limited partnership, etc.) and jurisdiction of organization of such Grantor are listed on Schedule 4(d); no Grantor is an unregistered entity; (e) Names. No Grantor (or predecessor by merger or otherwise of such Grantor) has, within the four month period preceding the date hereof, or, in the case of an Additional Grantor, the date of the applicable Counterpart, had a different name from the name of such Grantor listed or the signature pages hereof, except the names listed in Schedule 4(e) annexed hereto. (f) Delivery of Certain Collateral. All certificates or instruments (excluding checks) evidencing, comprising or representing the Collateral (including, without limitation, the Securities Collateral) have been or, when required pursuant to this Agreement, will be delivered to Secured Party duly endorsed or accompanied by duly executed instruments of transfer or assignment in blank. (g) Securities Collateral. (i) All of the Pledged Shares described on Schedule 1(e)(i) have been duly authorized and validly issued and are fully paid and non-assessable; (ii) all of the Pledged Debt issued by Company or any of its Subsidiaries has been duly authorized, authenticated or issued, and delivered and is the legal, valid and binding obligation of the issuers thereof and is not in default; (iii) except as described more fully on Schedule 1(e)(i), the Pledged Shares constitute all of the issued and outstanding shares of stock or other equity interests of each issuer thereof (subject to the proviso to Section 1(e)(i) with respect to shares of a Foreign Subsidiary), and there are no outstanding warrants, options or other rights to purchase, or other agreements outstanding with respect to, or property that is now or hereafter convertible into, or that requires the issuance or sale of, any Pledged Shares, except pursuant to any Contractual Obligation set forth on Schedule 4(g); (iv) the Pledged Debt issued by Company or any of its Subsidiaries constitutes all of the issued and outstanding intercompany indebtedness evidenced by a promissory note; and (v) Schedule 1(e)(i) sets forth all of the Pledged Shares owned by each Grantor on the date hereof. (h) Intellectual Property Collateral. (i) a true and complete list of all Trademark Registrations and Trademark applications owned, held (whether pursuant to a license or otherwise) or used by such Grantor, in whole or in part, is set forth in Schedule 1(g)(i); (ii) a true and complete list of all Patents owned, held (whether pursuant to a license or otherwise) or used by such Grantor, in whole or in part, is set forth in Schedule 1(g)(ii); (iii) a true and complete list of all Copyright Registrations and applications for Copyright Registrations held (whether pursuant to a license or otherwise) by such Grantor, in whole or in part, is set forth in Schedule 1(g)(iii); (iv) after reasonable inquiry, such Grantor is not aware of any pending claim by any third party that any of the Intellectual Property Collateral owned, held or used by such Grantor is invalid or unenforceable; and (v) no effective security interest or other Lien covering all or any part of the Intellectual Property Collateral is on file in the United States Patent and Trademark Office or the United States Copyright Office. (i) Perfection. The security interests in the Collateral granted hereunder to Secured Party for the benefit of Lenders constitute valid security interests in the Collateral, , to the extent the UCC or U.S. patent, trademark or copyright statutes are applicable thereto, securing the payment of the Secured Obligations. If the Grantor is a Subsidiary Guarantor, upon (i) the filing of UCC financing statements naming each such Subsidiary Guarantor as "debtor," naming Secured Party as "secured party" and describing the Collateral in the filing offices with respect to such Subsidiary Guarantor set forth on Schedule 4(i), (ii) in the case of the Securities Collateral consisting of certificated securities or evidenced by instruments, delivery of the certificates representing such certificated securities and delivery of such instruments to Secured Party, in each case duly endorsed or accompanied by duly executed instruments of assignment or transfer in blank, and (iii) in the case of the Intellectual Property Collateral listed on Schedule 5.5C to the Credit Agreement, excluding the Intellectual Property held under foreign law, in addition to the filing of such UCC financing statements, the filing of a Grant of Trademark Security Interest, substantially in the form of Exhibit I, and a Grant of Patent Security Interest, substantially in the form of Exhibit II, with the United States Patent and Trademark Office and the filing of a Grant of Copyright Security Interest, substantially in the form of Exhibit III, with the United States Copyright Office (each such Grant of Trademark Security Interest, Grant of Patent Security Interest and Grant of Copyright Security Interest being referred to herein as a "Grant"), the security interests in the Collateral granted to Secured Party for the benefit of Lenders will constitute perfected security interests therein, to the extent the UCC or U.S. patent, trademark or copyright statutes are applicable thereto, prior to all other Liens (except for Permitted Encumbrances and other Liens permitted under the Credit Agreement to the extent such Liens are permitted to be senior in priority to the Liens in favor of the Lenders), and all filings and other actions in the United States necessary or desirable to perfect and protect such security interests have been duly made or taken. In the case of Intellectual Property held under foreign law, after the occurrence of an Event of Default, all actions necessary or desirable to perfect and protect such security interests shall be taken. If Grantor is a Borrower, upon entry of the Interim Borrowing Order or Final Borrowing Order, the security interests in the Collateral granted to Secured Party for the benefit of Lenders hereunder will constitute security interests therein prior to all other Liens other than Liens permitted under the Credit Agreement to the extent such Liens are permitted to be senior in priority to the Liens in favor of the Lenders. (j) Commercial Tort Claims. Schedule 1(j) identifies each claim, potential claim, cause of action and potential cause of action that any Grantor may have which arises in tort, whether or not a Proceeding relating to such claim or cause of action has been initiated by any Person. (k) Rolling Stock. The rolling stock of the Grantors (collectively) as of the date hereof has an aggregate book value of less than $1,200,000.00. Section 5. Further Assurances. (a) Generally. Each Grantor agrees that from time to time, at the expense of Grantors, such Grantor will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby under the UCC or U.S. patent, trademark or copyright statutes or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, each Grantor will: (i) at the request of Secured Party, upon the occurrence and continuation of an Event of Default, mark conspicuously each item of chattel paper included in the Accounts, each Related Contract and, at the request of Secured Party, each of its records pertaining to the Collateral, with a legend, in form and substance satisfactory to Secured Party, indicating that such Collateral is subject to the security interest granted hereby, (ii) at the request of Secured Party, upon the occurrence and continuation of an Event of Default, deliver and pledge to Secured Party hereunder all instruments (including checks) and all original counterparts of chattel paper constituting Collateral, duly endorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party, (iii) execute and file such financing or continuation statements, or amendments thereto, and execute and deliver such agreements establishing that Secured Party has control of specified items of Collateral and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted or purported to be granted hereby under the UCC or U.S. patent, trademark or copyright statutes, (iv) furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may reasonably request, all in reasonable detail, (v) upon the request of Secured Party, execute and file with the registrar of motor vehicles or other appropriate authority in such jurisdiction an application or other document requesting the notation or other indication of the security interest created hereunder on such certificate of title or any item of Equipment that is covered by a certificate of title under a statute of any jurisdiction under the law of which indication of a security interest on such certificate is required as a condition of perfection thereof, (vi) at any time during normal business hours, upon request by Secured Party, exhibit the Collateral to and allow inspection of the Collateral by Secured Party, or persons designated by Secured Party, (vii) at Secured Party's request, appear in and defend any action or proceeding that may affect such Grantor's title to or Secured Party's security interest in all or any part of the Collateral, except for Intellectual Property Collateral; provided, however, that the foregoing exception for Intellectual Property Collateral shall not apply if such Intellectual Property is of material value as determined by Secured Party in its sole and absolute discretion; (viii) use commercially reasonable efforts to obtain any necessary consents of third parties to the assignment and perfection of a security interest to Secured Party with respect to any Collateral, and (ix) at Secured Party's request, Grantors shall promptly deliver, execute and file any and all documents, instruments and certificates that Secured Party deems necessary or desirable, and in each case in form and substance satisfactory to Secured Party. Each Grantor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of any Grantor. Each Grantor agrees that a carbon, photographic or other reproduction of this Agreement or of a financing statement signed by such Grantor shall be sufficient as a financing statement and may be filed as a financing statement in any and all jurisdictions. (b) Securities Collateral. Without limiting the generality of the foregoing Section 5(a), each Grantor agrees that it will, upon obtaining any additional shares of stock or other equity or debt securities required to be pledged hereunder, immediately (and in any event within three (3) Business Days) deliver to Secured Party a Pledge Supplement, duly executed by such Grantor, in substantially the form of Exhibit IV (a "Pledge Supplement"), in respect of the additional Pledged Shares or Pledged Debt (to the extent issued by Company or any of its Subsidiaries) to be pledged pursuant to this Agreement. Upon each delivery of a Pledge Supplement to Secured Party, the representations and warranties contained in clauses (i)-(iv) of Section 4(g) hereof shall be deemed to have been made by such Grantor as to the Securities Collateral described in such Pledge Supplement as of the date thereof. Each Grantor hereby authorizes Secured Party to attach each Pledge Supplement to this Agreement and agrees that all Pledged Shares or Pledged Debt of such Grantor listed on any Pledge Supplement shall for all purposes hereunder be considered Collateral of such Grantor; provided that the failure of any Grantor to execute a Pledge Supplement with respect to any additional Pledged Shares or Pledged Debt pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. (c) Intellectual Property Collateral. Without limiting the generality of the foregoing Section 5(a), each Grantor shall execute and deliver to Secured Party contemporaneous with its execution and delivery of this Agreement or a counterpart hereto (i) with respect to all of such Grantor's Trademark Collateral, a Grant of Trademark Security Interest, substantially in the form of Exhibit I, (ii) with respect to all of such Grantor's Patent Collateral, a Grant of Patent Security Interest, substantially in the form of Exhibit II, and (iii) with respect to all of such Grantor's Copyright Collateral, a Grant of Copyright Security Interest, substantially in the form of Exhibit III. In addition, if any Grantor shall hereafter obtain rights to any new Intellectual Property Collateral or become entitled to the benefit of (i) any patent application or patent or any reissue, division, continuation, renewal, extension or continuation-in-part of any Patent or any improvement of any Patent or (ii) any Copyright Registration, application for Copyright Registration or renewals or extension of any Copyright, then in any such case, the provisions of this Agreement shall automatically apply thereto. Each Grantor shall promptly notify Secured Party in writing of any of the foregoing rights acquired by such Grantor after the date hereof and of (i) any Trademark Registrations issued or application for a Trademark Registration or application for a Patent made, and (ii) any Copyright Registrations issued or applications for Copyright Registration made, in any such case, after the date hereof. Promptly after the filing of an application for any material (1) Trademark Registration; (2) Patent; and (3) Copyright Registration, each Grantor shall execute and deliver to Secured Party and record in all places where a Grant is recorded an IP Supplement, substantially in the form of Exhibit V (an "IP Supplement"), pursuant to which such Grantor shall grant to Secured Party a security interest to the extent of its interest in such Intellectual Property Collateral; provided, if, in the reasonable judgment of such Grantor, after due inquiry, granting such interest would result in the grant of a Trademark Registration or Copyright Registration in the name of Secured Party, such Grantor shall give written notice to Secured Party as soon as reasonably practicable and the filing shall instead be undertaken as soon as practicable but in no case later than immediately following the grant of the applicable Trademark Registration or Copyright Registration, as the case may be. Upon delivery to Secured Party of an IP Supplement, Schedules 1(g)(i), 1(g)(ii), and 1(g)(iii) hereto and Schedule A to each Grant, as applicable, shall be deemed modified to include reference to any right, title or interest in any existing Intellectual Property Collateral or any Intellectual Property Collateral included on Schedule A to such IP Supplement. Each Grantor hereby authorizes Secured Party to modify this Agreement without the signature or consent of any Grantor by attaching Schedules 1(g)(i), 1(g)(ii), and 1(g)(iii), as applicable, that have been modified to include such Intellectual Property Collateral or to delete any reference to any right, title or interest in any Intellectual Property Collateral in which any Grantor no longer has or claims any right, title or interest; provided, the failure of any Grantor to execute an IP Supplement with respect to any additional Intellectual Property Collateral pledged pursuant to this Agreement shall not impair the security interest of Secured Party therein or otherwise adversely affect the rights and remedies of Secured Party hereunder with respect thereto. Section 6. Certain Covenants of Grantors. Each Grantor shall: (a) not use or permit any Collateral under its control to be used unlawfully or in violation of any provision of this Agreement or any applicable statute, regulation or ordinance or any policy of insurance covering the Collateral; (b) notify Secured Party of any change in such Grantor's name, identity or corporate structure within 15 days of such change; (c) give Secured Party 30 days' prior written notice of (i) any change in such Grantor's chief place of business, chief executive office or residence or the office where such Grantor keeps its records regarding the Accounts and all originals of all chattel paper that evidence Accounts or (ii) reincorporation, reorganization or other action that results in a change of the jurisdiction of organization of such Grantor; (d) if Secured Party gives value to enable such Grantor to acquire rights in or the use of any Collateral, use such value for such purposes; (e) except as expressly permitted by the Credit Agreement, pay promptly when due all property and other taxes, assessments and governmental charges or levies imposed upon, and all claims (including claims for labor, services, materials and supplies) against, the Collateral; provided that such Grantor shall in any event pay such taxes, assessments, charges, levies or claims not later than five days prior to the date of any proposed sale under any judgment, writ or warrant of attachment entered or filed against such Grantor or any of the Collateral as a result of the failure to make such payment; and (f) after the date hereof, give Secured Party prompt notice with sufficient particularity of any claim or cause of action of any Grantor arising in tort and not otherwise identified on Schedule 1(j). Section 7. Special Covenants With Respect to Equipment and Inventory. Each Grantor shall: (a) keep the items of Equipment and Inventory owned by such Grantor having a value in excess of $500,000 at the places therefor specified on Schedule 4(b) or, upon 30 days' prior written notice to Secured Party, at such other places in jurisdictions where all action that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Equipment and Inventory shall have been taken; (b) promptly furnish to Secured Party a statement respecting any material loss or damage to any of the Equipment owned by such Grantor; (c) keep correct and accurate records of Inventory owned by such Grantor, itemizing and describing the kind, type and quantity of such Inventory, such Grantor's cost therefor and (where applicable) the current list prices for such Inventory; (d) if any Inventory is in possession or control of any of such Grantor's agents or processors, if the aggregate book value of all such Inventory exceeds $500,000, and in any event upon the occurrence of an Event of Default (as defined in Section 16(a)), instruct such agent or processor to hold all such Inventory for the account of Secured Party and subject to the instructions of Secured Party; (e) after an Event of Default has occurred and is continuing, promptly upon the issuance and delivery to such Grantor of any Negotiable Document of Title, deliver such Negotiable Document of Title to Secured Party; and (f) each Grantor shall, at its own expense, maintain insurance with respect to the Equipment and Inventory in accordance with the terms of the Credit Agreement. Section 8. Special Covenants with respect to Accounts and Related Contracts. (a) Each Grantor shall keep its chief place of business and chief executive office and the office where it keeps its records concerning the Accounts and Related Contracts, and all originals of all chattel paper in such Grantor's possession that evidence Accounts, at the locations therefor set forth on Schedule 4(d) or upon 30 days' prior written notice to Secured Party, at such other location in a jurisdiction where all action that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby, or to enable Secured Party to exercise and enforce its rights and remedies hereunder, with respect to such Accounts and Related Contracts shall have been taken. Each Grantor will hold and preserve such records and chattel paper and will permit representatives of Secured Party at any time during normal business hours to inspect and make abstracts from such records and chattel paper, and each Grantor agrees to render to Secured Party, at Grantor's cost and expense, such clerical and other assistance as may be reasonably requested with regard thereto. Promptly upon the request of Secured Party, each Grantor shall deliver to Secured Party complete and correct copies of each Related Contract. (b) Each Grantor shall maintain (i) complete records of each Account, in accordance with its customary business practices, including records of all payments received, credits granted and merchandise returned, and (ii) all documentation relating thereto. (c) Except as otherwise provided in this subsection (c), each Grantor shall continue to collect, at its own expense, all amounts due or to become due to such Grantor under the Accounts and Related Contracts. In connection with such collections, each Grantor may take (and, upon the occurrence and during the continuance of an Event of Default at Secured Party's direction, shall take) such action as such Grantor or Secured Party may deem necessary or advisable to enforce collection of amounts due or to become due under the Accounts; provided, however, that Secured Party shall have the right at any time, upon the occurrence and during the continuation of an Event of Default and upon written notice to such Grantor of its intention to do so, to notify the account debtors or obligors under any Accounts of the assignment of such Accounts to Secured Party and, to the extent such Grantor is not legally or contractually prohibited from doing so and such contractual prohibitions are enforceable under applicable law, to direct such account debtors or obligors to make payment of all amounts due or to become due to such Grantor thereunder directly to Secured Party, to notify each Person maintaining a lockbox or similar arrangement to which account debtors or obligors under any Accounts have been directed to make payment to remit all amounts representing collections on checks and other payment items from time to time sent to or deposited in such lockbox or other arrangement directly to Secured Party and, upon such notification and at the expense of Grantors, to enforce collection of any such Accounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. After receipt by such Grantor of the notice from Secured Party referred to in the proviso to the preceding sentence, (i) all amounts and proceeds (including checks and other instruments) received by such Grantor in respect of the Accounts and the Related Contracts shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 18, and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any Account, or release wholly or partly any account debtor or obligor thereof, or allow any credit or discount thereon. Section 9. Special Covenants With Respect to the Securities Collateral. (a) Delivery. Each Grantor agrees that all certificates or instruments representing or evidencing the Securities Collateral shall be delivered to and held by or on behalf of Secured Party pursuant hereto and shall be in suitable form for transfer by delivery or, as applicable, shall be accompanied by such Grantor's endorsement, where necessary, or duly executed instruments of transfer or assignment in blank, all in form and substance reasonably satisfactory to Secured Party. Secured Party shall have the right at any time to exchange certificates or instruments representing or evidencing Securities Collateral for certificates or instruments of smaller or larger denominations. (b) Covenants. Each Grantor shall (i) not, except as expressly permitted by the Credit Agreement, permit any issuer of Pledged Shares to merge or consolidate unless all of the outstanding capital stock or other equity interests of the surviving or resulting Person received by the Grantor is, upon such merger or consolidation, pledged hereunder and no cash, securities or other property is distributed in respect of the outstanding shares of any other constituent corporation; provided, if the surviving or resulting Person upon any such merger or consolidation involving an issuer of Pledged Shares which is a Foreign Subsidiary is a Foreign Subsidiary then such Grantor shall only be required to pledge outstanding capital stock of such surviving or resulting Person possessing up to but not exceeding 65% of the voting power of all classes of capital stock of such issuer entitled to vote; (ii) to the extent legally able to do so, cause each issuer of Pledged Shares that is controlled by such Grantor not to issue any stock, other equity interests or other securities in addition to or in substitution for the Pledged Shares issued by such issuer, except to such Grantor or unless such stock, equity interests or securities received by the Grantor are pledged hereunder; (iii) pledge hereunder, as soon as practicable (but in no event later than three Business Days) upon its acquisition (directly or indirectly) thereof, any and all additional shares of stock, other equity interests or other securities of each issuer of Pledged Shares; (iv) pledge hereunder, as soon as practicable (but in no event later than three Business Days) upon its acquisition (directly or indirectly) thereof, any and all shares of stock or other equity interests of any Person that, after the date of this Agreement, becomes, as a result of any occurrence, a direct Subsidiary of such Grantor; provided, notwithstanding anything contained in this clause (iv) to the contrary, such Grantor shall only be required to pledge the outstanding capital stock of a Foreign Subsidiary up to but not exceeding 65% of the voting power of all classes of capital stock of such Foreign Subsidiary entitled to vote; (v) pledge hereunder, as soon as practicable (but in no event later than three Business Days) upon their issuance, any and all instruments or other evidences of additional indebtedness from time to time owed to such Grantor by any obligor on the Pledged Debt (to the extent issued by Company or any of its Subsidiaries); (vi) pledge hereunder, as soon as practicable (but in no event later than three Business Days) upon their issuance, any and all instruments or other evidences of indebtedness from time to time owed to such Grantor by any Person that after the date of this Agreement becomes, as a result of any occurrence, a direct or indirect Subsidiary of such Grantor; and (vii) at the request of Secured Party, promptly execute and deliver to Secured Party an agreement providing for the control, as that term is defined in the UCC, by Secured Party of all securities entitlements and securities accounts of such Grantor. (c) Voting and Distributions. So long as no Event of Default shall have occurred and be continuing, (i) each Grantor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Securities Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Credit Agreement; provided, no Grantor shall exercise or refrain from exercising any such right if Secured Party shall have notified such Grantor that, in Secured Party's judgment, such action would have a material adverse effect on the value of the Securities Collateral or any part thereof; and provided further, such Grantor shall give Secured Party at least five Business Days' prior written notice of the manner in which it intends to exercise, or the reasons for refraining from exercising, any such right if the exercise, or the refrain from exercising, such right would reasonably be expected to have a material adverse effect on the value of the Securities Collateral or any part thereof (it being understood, however, that neither (among other things) (A) the voting by such Grantor of any Pledged Shares for or such Grantor's consent to the election of directors or other members of a governing body of an issuer of Pledged Shares at a regularly scheduled annual or other meeting of stockholders or holders of equity interests or with respect to incidental matters at any such meeting, nor (B) such Grantor's consent to or approval of any action otherwise permitted under this Agreement and the Credit Agreement shall be deemed inconsistent with the terms of this Agreement or the Credit Agreement within the meaning of this Section, and no notice of any such voting or consent need be given to Secured Party) and (ii) each Grantor shall be entitled to receive and retain, and to utilize any and all dividends, other distributions and interest paid in respect of the Securities Collateral to the extent permitted under the Credit Agreement; provided, that except as otherwise provided in the Credit Agreement, any and all (A) dividends, distributions and interest paid or payable other than in cash in respect of, and instruments and other property received, receivable or otherwise distributed in respect of, or in exchange for, any Securities Collateral, (B) dividends and other distributions paid or payable in cash in respect of any Securities Collateral in connection with a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise distributed in respect of principal or in redemption of or in exchange for any Securities Collateral, shall be, and shall forthwith be delivered to Secured Party to hold as, Securities Collateral and shall, if received by such Grantor, be received in trust for the benefit of Secured Party, be segregated from the other property or funds of such Grantor and be forthwith delivered to Secured Party as Securities Collateral in the same form as so received (with all necessary endorsements). Upon the occurrence and during the continuation of an Event of Default, (x) all rights of such Grantor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant hereto shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to exercise such voting and other consensual rights; (y) all rights of such Grantor to receive the dividends, other distributions and interest payments which it would otherwise be authorized to receive and retain pursuant hereto shall cease, and all such rights shall thereupon become vested in Secured Party who shall thereupon have the sole right to receive and hold as Securities Collateral such dividends, other distributions and interest payments; and (z) all dividends, principal, interest payments and other distributions which are received by such Grantor contrary to the provisions of clause (ii) of the immediately preceding paragraph or clause (y) above shall be received in trust for the benefit of Secured Party, shall be segregated from other funds of such Grantor and shall forthwith be paid over to Secured Party as Securities Collateral in the same form as so received (with any necessary endorsements). In order to permit Secured Party to exercise the voting and other consensual rights which it may be entitled to exercise pursuant hereto and to receive all dividends, principal or interest payments and other distributions which it may be entitled to receive hereunder, (I) each Grantor shall promptly execute and deliver (or cause to be executed and delivered) to Secured Party all such proxies, dividend payment orders and other instruments as Secured Party may from time to time request, and (II) without limiting the effect of clause (I) above, each Grantor hereby grants to Secured Party an irrevocable proxy to vote the Pledged Shares and to exercise all other rights, powers, privileges and remedies to which a holder of the Pledged Shares would be entitled (including giving or withholding written consents of shareholders or other holders of equity interests, calling special meetings of shareholders or other holders of equity interests and voting at such meetings), which proxy shall be effective, automatically and without the necessity of any action (including any transfer of any Pledged Shares on the record books of the issuer thereof) by any other Person (including the issuer of the Pledged Shares or any officer or agent thereof), upon the occurrence and during the continuance of an Event of Default and which proxy shall only terminate upon the payment in full in cash of all of the Secured Obligations and the termination of all commitments of the Lenders under the Credit Agreement and the satisfactory cash collateralization (as determined by the Secured Party) of all Letters of Credit and other letters of credit issued or maintained in connection therewith. Section 10. Special Covenants With Respect to the Intellectual Property Collateral. (a) Each Grantor shall: (i) use commercially reasonable efforts so as not to permit the inclusion in any contract to which it hereafter becomes a party of any provision that could or might in any way impair or prevent the creation of a security interest in, or the assignment of, such Grantor's rights and interests in any property included within the definition of any Intellectual Property Collateral acquired under such contracts; and (ii) furnish to Secured Party from time to time at Secured Party's reasonable request statements and schedules further identifying and describing any Intellectual Property Collateral and such other reports in connection with such Collateral, all in reasonable detail. (b) Except as otherwise provided in this Section 10, each Grantor shall continue to collect in accordance with its customary business practice, at its own expense, all amounts due or to become due to such Grantor in respect of the Intellectual Property Collateral or any portion thereof. In connection with such collections, each Grantor may take (and, after the occurrence and during the continuance of any Event of Default at Secured Party's reasonable direction, shall take) such action as such Grantor may deem reasonably necessary or advisable to enforce collection of such amounts; provided, Secured Party shall have the right at any time, upon the occurrence and during the continuation of an Event of Default, to notify the obligors with respect to any such amounts of the existence of the security interest created hereby and to direct such obligors to make payment of all such amounts directly to Secured Party, and, upon such notification and at the expense of such Grantor, to enforce collection of any such amounts and to adjust, settle or compromise the amount or payment thereof, in the same manner and to the same extent as such Grantor might have done. Upon the occurrence and during the continuation of any Event of Default, (i) all amounts and proceeds (including checks and other instruments) received by each Grantor in respect of amounts due to such Grantor in respect of the Intellectual Property Collateral or any portion thereof shall be received in trust for the benefit of Secured Party hereunder, shall be segregated from other funds of such Grantor and shall be forthwith paid over or delivered to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash Collateral and applied as provided by Section 19, and (ii) such Grantor shall not adjust, settle or compromise the amount or payment of any such amount or release wholly or partly any obligor with respect thereto or allow any credit or discount thereon. (c) Each Grantor shall give Secured Party 10 Business Days prior written notice of any abandonment of any material Intellectual Property Collateral or any pending patent application or any Patent. (d) Except as provided herein, each Grantor shall have the right to commence and prosecute in its own name, as real party in interest, for its own benefit and at its own expense, such suits, proceedings or other actions for infringement, unfair competition, dilution, misappropriation or other damage, or reexamination or reissue proceedings as are necessary to protect the Intellectual Property Collateral. Each Grantor shall promptly, following its becoming aware thereof, notify Secured Party of the institution of, or of any adverse determination in, any proceeding (whether in the United States Patent and Trademark Office, the United States Copyright Office or any federal, state, local or foreign court) regarding such Grantor's ownership, right to use, or interest in any material Intellectual Property Collateral. Each Grantor shall provide to Secured Party any information with respect thereto requested by Secured Party. (e) In addition to, and not by way of limitation of, the granting of a security interest in the Collateral pursuant hereto, each Grantor, effective upon the occurrence and during the continuation of an Event of Default, hereby assigns, transfers and conveys to Secured Party the nonexclusive right and license to use all trademarks, tradenames, copyrights, patents or technical processes (including, without limitation, the Intellectual Property Collateral) owned or used by such Grantor that relate to the Collateral and any other collateral granted by such Grantor as security for the Secured Obligations, together with any goodwill associated therewith, all to the extent necessary to enable Secured Party to realize on the Collateral in accordance with this Agreement and to enable any transferee or assignee of the Collateral to enjoy the benefits of the Collateral. This right shall inure to the benefit of all successors, assigns and transferees of Secured Party and its successors, assigns and transferees, whether by voluntary conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or otherwise. Such right and license shall be granted free of charge, without requirement that any monetary payment whatsoever be made to such Grantor. Section 11. Special Provisions With Respect to the Assigned Agreements. (a) Each Grantor shall at its expense: (i) if consistent with sound business practices, perform and observe all terms and provisions of the Assigned Agreements to be performed or observed by it, maintain the Assigned Agreements in full force and effect, enforce the Assigned Agreements in accordance with such Grantor's customary business practice, and (ii) after the occurrence and continuation of an Event of Default and upon the request of Secured Party, furnish to Secured Party, promptly upon receipt thereof, copies of all notices, requests and other documents received by such Grantor under or pursuant to the Assigned Agreements, and from time to time (A) furnish to Secured Party such information and reports regarding the Assigned Agreements as Secured Party may reasonably request and (B) upon request of Secured Party make to the parties to such Assigned Agreements such demands and requests for information and reports or for action as such Grantor is entitled to make under the Assigned Agreements. (b) Upon the occurrence and during the continuance of an Event of Default, no Grantor shall: (i) cancel or terminate any of the Assigned Agreements or consent to or accept any cancellation or termination thereof; (ii) amend or otherwise modify the Assigned Agreements or give any consent, waiver or approval thereunder; (iii) waive any default under or breach of the Assigned Agreements; (iv) consent to or permit or accept any prepayment of amounts to become due under or in connection with the Assigned Agreements, except as expressly provided therein; or (v) take any other action in connection with the Assigned Agreements that could reasonably be expected to materially impair the value of the interest or rights of such Grantor thereunder or that could reasonably be expected to materially impair the interest or rights of Secured Party. Section 12. Special Provisions with Respect to the Collateral Accounts. Secured Party is hereby authorized to establish and maintain at its offices restricted deposit accounts and restricted securities accounts which shall be in the names of Grantors and under the sole dominion and control of Secured Party. Each Grantor agrees that from time to time, at the expense of Grantors, such Grantor will promptly execute and deliver account control agreements in form and substance satisfactory to Secured Party and take all further action that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby in such accounts or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any such accounts. Section 13. Secured Party Appointed Attorney-in-Fact. Each Grantor hereby irrevocably appoints Secured Party as such Grantor's attorney-in-fact, with full authority in the place and stead of such Grantor and in the name of such Grantor, Secured Party or otherwise, from time to time in Secured Party's discretion to take any action and to execute any instrument that Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including without limitation: (a) upon the occurrence and during the continuance of an Event of Default, to obtain and adjust insurance required to be maintained by such Grantor or paid to Secured Party pursuant to Section 7; (b) upon the occurrence and during the continuance of an Event of Default, to ask for, demand, collect, sue for, recover, compound, receive and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral; (c) upon the occurrence and during the continuance of an Event of Default, to receive, endorse and collect any drafts or other instruments, documents and chattel paper in connection with clauses (a) and (b) above; (d) upon the occurrence and during the continuance of an Event of Default, to file any claims or take any action or institute any proceedings that Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral; (e) to pay or discharge taxes or Liens (other than Liens permitted under this Agreement or the Credit Agreement) levied or placed upon the Collateral, the legality or validity thereof and the amounts necessary to discharge the same to be determined by Secured Party in its sole discretion, any such payments made by Secured Party to become obligations of such Grantor to Secured Party, due and payable immediately without demand; (f) upon the occurrence and during the continuance of an Event of Default, to sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications and notices in connection with Accounts and other documents relating to the Collateral; and (g) upon the occurrence and during the continuance of an Event of Default, generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though Secured Party were the absolute owner thereof for all purposes, and to do, at Secured Party's option and Grantors' expense, at any time or from time to time, all acts and things that Secured Party reasonably deems necessary to protect, preserve or realize upon the Collateral and Secured Party's security interest therein in order to effect the intent of this Agreement, all as fully and effectively as such Grantor might do. Section 14. Secured Party May Perform. If any Grantor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of (but shall not be obligated to perform or cause the performance of), such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Grantors under Section 19(b). Section 15. Standard of Care. The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers. Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral. Secured Party shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which Secured Party accords its own property. Section 16. Remedies. (a) Generally. If any Event of Default (as defined in the Credit Agreement) shall have occurred and be continuing, Secured Party may exercise in respect of the Collateral, in addition to all other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the UCC (whether or not the UCC applies to the affected Collateral), and also may (i) require each Grantor to, and each Grantor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble all or part of the Collateral as directed by Secured Party and make it available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, (ii) enter onto the property where any Collateral is located and take possession thereof with or without judicial process, (iii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent Secured Party reasonably deems appropriate, (iv) take possession of any Grantor's premises or place custodians in exclusive control thereof, remain on such premises and use the same and any of such Grantor's equipment for the purpose of completing any work in process, taking any actions described in the preceding clause (iii) and collecting any Secured Obligation, (v) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party's offices or elsewhere, for cash, on credit or for future delivery, at such time or times and at such price or prices and upon such other terms as Secured Party may deem commercially reasonable, (vi) exercise dominion and control over and refuse to permit further withdrawals from any Deposit Account maintained with Secured Party or any Lender constituting a part of the Collateral, and (vii) without notice to any Grantor, transfer to or to register in the name of Secured Party or any of its nominees any or all of the Securities Collateral or exercise any and all voting rights in connection therewith pursuant to Section 9 hereof or otherwise. Secured Party or any Lender may be the purchaser of any or all of the Collateral at any such sale and Secured Party, as agent for and representative of Lender (but not any Lender in its individual capacity unless Requisite Lenders shall otherwise agree in writing), shall be entitled, for the purpose of bidding and making settlement or payment of the purchase price for all or any portion of the Collateral sold at any such public sale, to use and apply any of the Secured Obligations as a credit on account of the purchase price for any Collateral payable by Secured Party at such sale. Each purchaser at any such sale shall hold the property sold absolutely free from any claim or right on the part of any Grantor, and each Grantor hereby waives (to the extent permitted by applicable law) all rights of redemption, stay and/or appraisal which it now has or may at any time in the future have under any rule of law or statute now existing or hereafter enacted. Each Grantor agrees that, to the extent notice of sale shall be required by law, at least ten days' notice to such Grantor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. To the extent permitted by applicable law, each Grantor hereby waives any claims against Secured Party arising by reason of the fact that the price at which any Collateral may have been sold at such a private sale was less than the price which might have been obtained at a public sale, even if Secured Party accepts the first offer received and does not offer such Collateral to more than one offeree. If the proceeds of any sale or other disposition of the Collateral are insufficient to pay all the Secured Obligations, Grantors shall be jointly and severally liable for the deficiency and the fees of any attorneys employed by Secured Party to collect such deficiency. Each Grantor further agrees that a breach of any of the covenants contained in this Section will cause irreparable injury to Secured Party, that Secured Party has no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section shall be specifically enforceable against such Grantor, and each Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no default has occurred giving rise to the Secured Obligations becoming due and payable prior to their stated maturities. (b) Securities Collateral. (i) Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Secured Party may be compelled, with respect to any sale of all or any part of the Securities Collateral conducted without prior registration or qualification of such Securities Collateral under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Securities Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Each Grantor acknowledges that any such private sales may be at prices and on terms less favorable than those obtainable through a public sale without such restrictions (including a public offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to Secured Party by such Grantor pursuant hereto, each Grantor agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner and that Secured Party shall have no obligation to engage in public sales and no obligation to delay the sale of any Securities Collateral for the period of time necessary to permit the issuer thereof to register it for a form of public sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it. If Secured Party determines to exercise its right to sell any or all of the Securities Collateral, upon written request, each Grantor shall and shall cause each issuer of any Pledged Shares to be sold hereunder from time to time to furnish to Secured Party all such information as Secured Party may request in order to determine the number of shares and other instruments included in the Securities Collateral which may be sold by Secured Party in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect. (ii) If Secured Party shall determine to exercise its right to sell all or any of the Securities Collateral pursuant to this Section, each Grantor agrees that, upon request of Secured Party (which request may be made by Secured Party in its sole discretion), such Grantor will, at its own expense (A) execute and deliver, and cause each issuer of the Securities Collateral contemplated to be sold and the directors and officers thereof to execute and deliver, all such instruments and documents, and do or cause to be done all such other acts and things, as may be necessary or, in the opinion of Secured Party, advisable to register such Securities Collateral under the provisions of the Securities Act and to cause the registration statement relating thereto to become effective and to remain effective for such period as prospectuses are required by law to be furnished, and to make all amendments and supplements thereto and to the related prospectus which, in the opinion of Secured Party, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto; (B) use its best efforts to qualify the Securities Collateral under all applicable state securities or "Blue Sky" laws and to obtain all necessary governmental approvals for the sale of the Securities Collateral, as requested by Secured Party; (C) cause each such issuer to make available to its security holders, as soon as practicable, an earnings statement which will satisfy the provisions of Section 11(a) of the Securities Act; (D) do or cause to be done all such other acts and things as may be necessary to make such sale of the Securities Collateral or any part thereof valid and binding and in compliance with applicable law; and (E) bear all costs and expenses, including reasonable attorneys' fees, of carrying out its obligations under this Section. (iii) Without limiting the generality of subsections 10.2 and 10.3 of the Credit Agreement, in the event of any public sale described herein, each Grantor agrees to indemnify and hold harmless Secured Party, and each Lender and each of their respective directors, officers, employees and agents from and against any loss, fee, cost, expense, damage, liability or claim, joint or several, to which any such Persons may become subject or for which any of them may be liable, under the Securities Act or otherwise, insofar as such losses, fees, costs, expenses, damages, liabilities or claims (or any litigation commenced or threatened in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus, registration statement, prospectus or other such document published or filed in connection with such public sale, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse Secured Party and such other Persons for any legal or other expenses reasonably incurred by Secured Party and such other Persons in connection with any litigation, of any nature whatsoever, commenced or threatened in respect thereof (including any and all fees, costs and expenses whatsoever reasonably incurred by Secured Party and such other Persons and counsel for Secured Party and such other Persons in investigating, preparing for, defending against or providing evidence, producing documents or taking any other action in respect of, any such commenced or threatened litigation or any claims asserted). This indemnity shall be in addition to any liability which any Grantor may otherwise have and shall extend upon the same terms and conditions to each Person, if any, that controls Secured Party or such Persons within the meaning of the Securities Act. (c) Collateral Accounts. If an Event of Default has occurred and is continuing, Company shall, as and when required under the Credit Agreement, pay to Secured Party all amounts provided for in Section 8 thereof (including, without limitation, any amounts to be held in a collateral account as cash collateral for undrawn Letters of Credit). (d) Remedies with Respect to Borrowers. Furthermore, upon the occurrence and during the continuance of any Event of Default, Secured Party may revoke Borrowers' rights to use cash collateral in which Secured Party has an interest; provided that, any other provision of this Agreement or any other Loan Document to the contrary notwithstanding, with respect to the foregoing, Secured Party shall give Credit Parties and counsel to any official committees in respect of the Chapter 11 Cases and the office of the United States Trustee five Business Days prior written notice (which notice shall be delivered by facsimile or overnight courier) of the exercise of its rights and remedies with respect to the Collateral and file a copy of such notice with the clerk of the Bankruptcy Court. Neither Secured Party nor Lenders shall have any obligation of any kind to make a motion or application to the Bankruptcy Court to exercise their rights and remedies set forth or referred to in this Agreement or in the other Loan Documents. The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the exercise of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative and not alternative. Borrowers waive (i) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties or other property at any time held by Secured Party or Lenders on which Loan Parties may in any way be liable and hereby ratify and confirm whatever Secured Party and Lenders may lawfully do in this regard, (ii) subject to the notice provisions of the preceding paragraph, all rights to notice and hearing prior to Secured Party's taking possession or control of, or to Secured Party's or Lenders' reply, attachment or levy upon, the Collateral, or any bond or security which might be required by any court prior to allowing Secured Party or Lenders to exercise any of their remedies, and (iii) the benefit of all valuation, appraisal and exemption laws. Borrowers acknowledge they have been advised by counsel of their choice with respect to the effect of the foregoing waivers and this Agreement, the other Loan Documents and the transactions evidenced by this Agreement and the other Loan Documents. Section 17. Additional Remedies for Intellectual Property Collateral. (a) Anything contained herein to the contrary notwithstanding, upon the occurrence and during the continuation of an Event of Default, (i) Secured Party shall have the right (but not the obligation) to bring suit, in the name of any Grantor, Secured Party or otherwise, to enforce any Intellectual Property Collateral, in which event each Grantor shall, at the request of Secured Party, do any and all lawful acts and execute any and all documents required by Secured Party in aid of such enforcement and each Grantor shall promptly, upon demand, reimburse and indemnify Secured Party as provided in subsections 10.2 and 10.3 of the Credit Agreement and Section 19 hereof, as applicable, in connection with the exercise of its rights under this Section, and, to the extent that Secured Party shall elect not to bring suit to enforce any Intellectual Property Collateral as provided in this Section, each Grantor agrees to use all reasonable measures, whether by action, suit, proceeding or otherwise, to prevent the infringement of any of the Intellectual Property Collateral by others and for that purpose agrees to use its commercially reasonable judgment in maintaining any action, suit or proceeding against any Person so infringing reasonably necessary to prevent such infringement; (ii) upon written demand from Secured Party, each Grantor shall execute and deliver to Secured Party an assignment or assignments of the Intellectual Property Collateral and such other documents as are necessary or appropriate to carry out the intent and purposes of this Agreement; (iii) each Grantor agrees that such an assignment and/or recording shall be applied to reduce the Secured Obligations outstanding only to the extent that Secured Party (or any Lender) receives cash proceeds in respect of the sale of, or other realization upon, the Intellectual Property Collateral; and (iv) within five Business Days after written notice from Secured Party, each Grantor shall make available to Secured Party, to the extent within such Grantor's power and authority, such personnel in such Grantor's employ on the date of such Event of Default as Secured Party may reasonably designate, by name, title or job responsibility, to permit such Grantor to continue, directly or indirectly, to produce, advertise and sell the products and services sold or delivered by such Grantor under or in connection with the Trademarks, Trademark Registrations and Trademark Rights, such persons to be available to perform their prior functions on Secured Party's behalf and to be compensated by Secured Party at such Grantor's expense on a per diem, pro-rata basis consistent with the salary and benefit structure applicable to each as of the date of such Event of Default. (b) If (i) an Event of Default shall have occurred and, by reason of cure, waiver, modification, amendment or otherwise, no longer be continuing, (ii) no other Event of Default shall have occurred and be continuing, (iii) an assignment to Secured Party of any rights, title and interests in and to the Intellectual Property Collateral shall have been previously made, and (iv) the Secured Obligations shall not have become immediately due and payable, upon the written request of any Grantor, Secured Party shall promptly execute and deliver to such Grantor such assignments as may be necessary to reassign to such Grantor any such rights, title and interests as may have been assigned to Secured Party as aforesaid, subject to any disposition thereof that may have been made by Secured Party; provided, after giving effect to such reassignment, Secured Party's security interest granted pursuant hereto, as well as all other rights and remedies of Secured Party granted hereunder, shall continue to be in full force and effect; and provided further, the rights, title and interests so reassigned shall be free and clear of all Liens other than Liens (if any) encumbering such rights, title and interest at the time of their assignment to Secured Party and Liens permitted under subsection 7.2A of the Credit Agreement. Section 18. Application of Proceeds. Except as expressly provided elsewhere in this Agreement, all proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral shall be applied as provided in subsections 2.4A and 2.4C of the Credit Agreement. Section 19. Indemnity and Expenses. (a) Grantors jointly and severally agree to indemnify Secured Party and each Lender from and against any and all claims, losses and liabilities in any way relating to, growing out of or resulting from this Agreement and the transactions contemplated hereby (including without limitation enforcement of this Agreement), except to the extent such claims, losses or liabilities result solely from Secured Party's or such Lender's gross negligence or willful misconduct as finally determined by a court of competent jurisdiction. (b) Grantors jointly and severally agree to pay to Secured Party upon demand the amount of any and all costs and expenses, including the reasonable fees and expenses of its counsel and of any experts and agents, that Secured Party may incur in connection with (i) the administration of this Agreement, (ii) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by any Grantor to perform or observe any of the provisions hereof. (c) The obligations of Grantors in this Section 19 shall (i) survive the termination of this Agreement and the discharge of Grantors' other obligations under this Agreement, the Credit Agreement and the other Loan Documents, and (ii) as to any Grantor that is a party to a Subsidiary Guaranty, be subject to the provisions of Section 1(b) thereof. Section 20. Continuing Security Interest; Transfer of Loans; Termination and Release. (a) This Agreement shall create a continuing security interest in the Collateral and shall (i) remain in full force and effect until the payment in full in cash of the Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, (ii) be binding upon Grantors and their respective successors and assigns, and (iii) inure, together with the rights and remedies of Secured Party hereunder, to the benefit of Secured Party and its successors, transferees and assigns. Without limiting the generality of the foregoing clause (iii), but subject to the provisions of subsection 10.1 of the Credit Agreement, any Lender may assign or otherwise transfer any Loans held by it to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to Lenders herein or otherwise. (b) Upon the payment in full in cash of all Secured Obligations, the cancellation or termination of the Commitments and the cancellation or expiration of all outstanding Letters of Credit, the security interest granted hereby shall terminate and all rights to the Collateral shall revert to the applicable Grantors. Upon any such termination Secured Party will, at Grantors' expense, execute and deliver to Grantors such documents as Grantors shall reasonably request to evidence such termination. In addition, upon the proposed sale, transfer or other disposition of any Collateral by a Grantor in accordance with the Credit Agreement for which such Grantor desires to obtain a security interest release from Secured Party, such Grantor shall deliver an Officer's Certificate (x) stating that the Collateral subject to such disposition is being sold, transferred or otherwise disposed of in compliance with the terms of the Credit Agreement and (y) specifying the Collateral being sold, transferred or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate and so long as no Event of Default has occurred and is continuing or would result from the proposed disposition of the Collateral and so long as the Proceeds from such disposition are applied in accordance with the Loan Documents, Secured Party shall, at Grantor's expense, so long as Secured Party has no reason to believe that the Officer's Certificate delivered by such Grantor with respect to such sale is not true, correct and complete, execute and deliver such releases of its security interest in such Collateral which is to be so sold, transferred or disposed of, as may be reasonably requested by such Grantor. Section 21. Secured Party as Agent. (a) Secured Party has been appointed to act as Secured Party hereunder by Lenders. Secured Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action (including without limitation the release or substitution of Collateral), solely in accordance with this Agreement and the Credit Agreement. (b) Secured Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Secured Party under this Agreement; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Secured Party under this Agreement; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Secured Party under this Agreement. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by a successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Secured Party under this Agreement, and the retiring or removed Secured Party under this Agreement shall promptly (i) transfer to such successor Secured Party all sums, securities and other items of Collateral held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Secured Party under this Agreement, and (ii) execute and deliver to such successor Secured Party such amendments to financing statements, and take such other actions, as may be necessary or appropriate in connection with the assignment to such successor Secured Party of the security interests created hereunder, whereupon such retiring or removed Secured Party shall be discharged from its duties and obligations under this Agreement. After any retiring or removed Administrative Agent's resignation or removal hereunder as Secured Party, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it under this Agreement while it was Secured Party hereunder. Section 22. Additional Grantors. In accordance at all times with subsections 6.8A and 6.8E of the Credit Agreement, any Subsidiary of Company which is not a party hereto may become a party hereto as a Subsidiary Guarantor or as a Borrower, respectively, by executing a Counterpart substantially in the form of Exhibit VI annexed hereto, whereupon such Subsidiary shall become (i) in the case of a Subsidiary which is not a party hereto and is the subject of subsection 6.8A of the Credit Agreement, a Grantor with the obligations and liabilities of a Subsidiary Guarantor hereunder, and (ii) in the case of a Subsidiary which becomes a Borrower under the Credit Agreement pursuant to subsection 6.8E thereof or otherwise, a Grantor with the obligations and liabilities of a Borrower hereunder. Upon delivery of any such Counterpart to Secured Party, notice of which is hereby waived by Grantors, each such Additional Grantor shall be a Grantor and shall be as fully a party hereto as if such Additional Grantor were an original signatory hereto. Each Grantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Grantor hereunder, nor by any election of Administrative Agent not to cause any Subsidiary of Company to become an Additional Grantor hereunder. This Agreement shall be fully effective as to any Grantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Grantor hereunder. Section 23. Amendments; Etc. No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by any Grantor therefrom, shall in any event be effective unless the same shall be in writing and signed by Secured Party and, in the case of any such amendment or modification, by Grantors; provided that this Agreement may be modified by the execution of a Counterpart by an Additional Grantor in accordance with Section 22 and Grantors hereby waive any requirement of notice of or consent to any such amendment. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. Section 24. Notices. Any notice or other communication herein required or permitted to be given shall be in writing and may be personally served or sent by telefacsimile or United States mail or courier service and shall be deemed to have been given when delivered in person or by courier service, upon receipt of telefacsimile, or three Business Days after depositing it in the United States mail with postage prepaid and properly addressed; provided that notices to Secured Party shall not be effective until received. For the purposes hereof, the address of each party hereto shall be as provided in subsection 10.8 of the Credit Agreement or as set forth under such party's name on the signature pages hereof or such other address as shall be designated by such party in a written notice delivered to the other parties hereto. Electronic mail and Internet and intranet websites may be used to distribute routine communications, provided, however, that no signature with respect to any notice, request, agreement, waiver, amendment or other document or any notice that is intended to have binding effect may be sent by electronic mail. Section 25. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of Secured Party in the exercise of any power, right or privilege hereunder shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude any other or further exercise thereof or of any other power, right or privilege. All rights and remedies existing under this Agreement are cumulative to, and not exclusive of, any rights or remedies otherwise available. Section 26. Severability. In case any provision in or obligation under this Agreement shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. Section 27. Headings. Section and subsection headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. Section 28. Governing Law; Terms; Rules of Construction. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT THE UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise defined herein or in the Credit Agreement, terms used in Articles 8 and 9 of the NY UCC are used herein as therein defined. The rules of construction set forth in subsection 1.3 of the Credit Agreement shall be applicable to this Agreement mutatis mutandis. To the extent (if at all) any provision of this Agreement is inconsistent and conflicts with any particular provision of the Credit Agreement in any particular circumstance, the parties hereto agree that such provision of the Credit Agreement shall prevail in such circumstance. Section 29. Consent to Jurisdiction and Service of Process. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 24; (IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT SECURED PARTY RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR IN THE COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 29 RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE. SectAion 30. Waiver of Jury Trial. GRANTORS AND SECURED PARTY HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims, and all other common law and statutory claims. Each Grantor and Secured Party acknowledge that this waiver is a material inducement for Grantors and Secured Party to enter into a business relationship, that Grantors and Secured Party have already relied on this waiver in entering into this Agreement and that each will continue to rely on this waiver in their related future dealings. Each Grantor and Secured Party further warrant and represent that each has reviewed this waiver with its legal counsel, and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING (OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 30 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. Section 31. Counterparts. This Agreement may be executed in one or more counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. [Remainder of page intentionally left blank] IN WITNESS WHEREOF, Guarantors and Secured Party have caused this Agreement to be duly executed and delivered by their respective officers thereto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz ----------------------------------------------- Name: Jeffery R. Horowitz, Esq. Title: Secretary Each of the entities listed on Schedule A annexed hereto By: /s/ Jeffrey R. Horowitz ----------------------------------------------- on behalf of each of the entities listed on Schedule A annexed hereto Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Each of the entities listed on Schedule B annexed hereto By: /s/ William J. Metzger ----------------------------------------------- on behalf of each of the entities listed on Schedule B annexed hereto Name: William J. Metzger Title: Authorized Officer Notice Address: 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. SUBSIDIARY GUARANTORS:: Each of the entities listed on Schedule C annexed hereto By: /s/ Jeffrey R. Horowitz ---------------------------------------------- on behalf of each of the listed on Schedule C annexed hereto Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Each of the entities listed on Schedule D annexed hereto By: ----------------------------------------------- on behalf of each of the entities listed on Schedule D annexed hereto Name: William J. Metzger Title: Authorized Officer Notice Address: 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. SUBSIDIARY GUARANTORS:: Each of the entities listed on Schedule C annexed hereto By: ----------------------------------------------- on behalf of each of the entities listed on Schedule C annexed hereto Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Each of the entities listed on Schedule D annexed hereto By: /s/ William J. Metzger ----------------------------------------------- on behalf of each of the entities listed on Schedule D annexed hereto Name: William J. Metzger Title: Authorized Officer Notice Address: 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. BANK OF AMERICA, N.A. as Secured Party By: /s/ Michael R. Heredia ----------------------------------------------- Name: Michael R. Heredia Title: Authorized Officer Schedule A Other Borrowers 1. AMOR 14 Corp. 2. Covanta Acquisition, Inc. 3. Covanta Alexandria/Arlington, Inc. 4. Covanta Babylon, Inc. 5. Covanta Bessemer, Inc. 6. Covanta Bristol, Inc. 7. Covanta Cunningham Environmental Support, Inc. 8. Covanta Energy Americas, Inc. 9. Covanta Energy Construction, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy Services, Inc. 13. Covanta Energy West, Inc. 14. Covanta Engineering Services, Inc. 15. Covanta Fairfax, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations Holdings, Inc. 18. Covanta Geothermal Operations, Inc. 19. Covanta Heber Field Energy, Inc. 20. Covanta Hennepin Energy Resource Co., L.P. 21. Covanta Hillsborough, Inc. 22. Covanta Honolulu Resource Recovery Venture 23. Covanta Huntington Limited Partnership 24. Covanta Huntington Resource Recovery One Corp. 25. Covanta Huntington Resource Recovery Seven Corp. 26. Covanta Huntington, Inc. 27. Covanta Huntsville, Inc. 28. Covanta Hydro Energy, Inc. 29. Covanta Hydro Operations West, Inc. 30. Covanta Hydro Operations, Inc. 31. Covanta Imperial Power Services, Inc. 32. Covanta Indianapolis, Inc. 33. Covanta Kent, Inc. 34. Covanta Key Largo, Inc. 35. Covanta Lake, Inc. 36. Covanta Lancaster, Inc. 37. Covanta Lee, Inc. 38. Covanta Long Island, Inc. 39. Covanta Marion Land Corp. 40. Covanta Marion, Inc. 41. Covanta Mid-Conn., Inc. 42. Covanta Montgomery, Inc. 43. Covanta New Martinsville Hydro-Operations Corp. 44. Covanta Northwest Puerto Rico, Inc. 45. Covanta Oahu Waste Energy Recovery, Inc. 46. Covanta Oil & Gas, Inc. 47. Covanta Onondaga Five Corp. 48. Covanta Onondaga Four Corp. 49. Covanta Onondaga Limited Partnership 50. Covanta Onondaga Operations, Inc. 51. Covanta Onondaga Three Corp. 52. Covanta Onondaga Two Corp. 53. Covanta Onondaga, Inc. 54. Covanta Onondaga, Limited Partnership 55. Covanta Operations of Union LLC 56. Covanta OPW Associates, Inc. 57. Covanta OPWH, Inc. 58. Covanta Pasco, Inc. 59. Covanta Plant Services of New Jersey, Inc. 60. Covanta Power Development of Bolivia, Inc. 61. Covanta Power Development, Inc. 62. Covanta Power Equity Corp. 63. Covanta Projects of Hawaii, Inc. 64. Covanta Projects of Wallingford, LP 65. Covanta RRS Holdings, Inc. 66. Covanta Secure Services USA, Inc. 67. Covanta Secure Services, Inc. 68. Covanta SIGC Energy II, Inc. 69. Covanta SIGC Energy, Inc. 70. Covanta SIGC Geothermal Operations, Inc. 71. Covanta Stanislaus, Inc. 72. Covanta Systems, Inc. 73. Covanta Tampa Bay, Inc. 74. Covanta Tulsa, Inc. 75. Covanta Union, Inc. 76. Covanta Wallingford Associates, Inc. 77. Covanta Warren Energy Resources Co., LP 78. Covanta Waste Solutions, Inc. 79. Covanta Waste to Energy of Italy, Inc. 80. Covanta Waste to Energy, Inc. 81. Covanta Water Holdings, Inc. 82. Covanta Water Systems, Inc. 83. Covanta Water Treatment Services, Inc. 84. DSS Environmental, Inc. 85. ERC Energy II, Inc. 86. ERC Energy, Inc. 87. Heber Field Company 88. Heber Field Energy II, Inc. 89. Heber Geothermal Company 90. Heber Loan Partners 91. J.R. Jacks Construction Corp. 92. Ogden Constructors, Inc. 93. Ogden Environmental & Energy Services Co., Inc. 94. OPI Quezon, Inc. 95. Second Imperial Geothermal Co., L.P. 96. Three Mountain Operations, Inc. 97. Three Mountain Power LLC Schedule B Other Borrowers 1. Ogden Facility Management Corporation of Anaheim 2. LaGuardia Fuel Facilities Corp. 3. Lenzar Electro-Optics, Inc. 4. Newark Automotive Fuel Facilities Corporation, Inc. 5. Ogden Allied Abatement & Decontamination Service, Inc. 6. Ogden Allied Maintenance Corp. 7. Ogden Allied Payroll Services, Inc. 8. Ogden Attractions, Inc. 9. Ogden Aviation Distributing Corp. 10. Ogden Aviation Fueling Company of Virginia, Inc. 11. Ogden Aviation Service Company of Colorado, Inc. 12. Ogden Aviation Service Company of New Jersey, Inc. 13. Ogden Aviation Service Company of New York, Inc. 14. Ogden Aviation Service Company of Pennsylvania, Inc. 15. Ogden Aviation Service International Corporation 16. Ogden Aviation, Inc. 17. Ogden Cargo Spain, Inc. 18. Ogden Central and South America, Inc. 19. Ogden Facility Holdings, Inc. 20. Ogden Film and Theatre, Inc. 21. Ogden Firehole Entertainment Corp. 22. Ogden International Europe, Inc. 23. Ogden New York Services, Inc. 24. Ogden Support Services, Inc. 25. PA Aviation Fuel Holdings, Inc. 26. Philadelphia Fuel Facilities Corporation Schedule C Subsidiary Guarantors: 1. Covanta Energy Group, Inc. 2. Covanta Energy International, Inc. 3. Covanta Equity of Stanislaus, Inc. 4. Covanta Haverhill Properties, Inc. 5. Covanta Haverhill, Inc. 6. Covanta Omega Lease, Inc. 7. Covanta Power International Holdings, Inc. 8. Covanta Projects, Inc. 9. Haverhill Power, Inc. 10. LMI, Inc. 11. Michigan Waste Energy, Inc. 12. OFS Equity of Alexandria/Arlington, Inc. 13. OFS Equity of Babylon, Inc. 14. OFS Equity of Delaware, Inc. 15. OFS Equity of Huntington, Inc. 16. OFS Equity of Indianapolis, Inc. 17. OFS Equity of Stanislaus, Inc. 18. Ogden Management Services, Inc. 19. Covanta Equity of Alexandria/Arlington, Inc. Schedule D Subsidiary Guarantors: 1. Ogden Technology Services Corporation 2. Ogden Transition Corporation EXHIBIT I TO SECURITY AGREEMENT [FORM OF GRANT OF TRADEMARK SECURITY INTEREST] GRANT OF TRADEMARK SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Trademark Collateral (as defined below); and WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation ("Company") and the Subsidiaries of Company listed on the signature pages thereof (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower") have entered into a Debtor-in-Possession Credit Agreement dated as of April 1, 2002 (as such Credit Agreement may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented, restated or otherwise modified, being the "Credit Agreement") with the financial institutions listed on the signature pages thereof as Lenders (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent, and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, "Secured Party"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Borrowers; and [Insert if Grantor is a Subsidiary Guarantor:] [WHEREAS, Grantor has executed and delivered that certain Subsidiary Guaranty dated as of April 1, 2002 (said Subsidiary Guaranty, as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, being the "Guaranty") in favor of Secured Party for the benefit of Lenders, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Borrowers under the Credit Agreement, and the other Loan Documents, including without limitation the obligation of Borrowers to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of April 1, 2002 (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Trademark Collateral; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Trademark Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) in and to all trademarks, service marks, designs, logos, indicia, tradenames, trade dress, corporate names, company names, business names, fictitious business names, trade styles and/or other source and/or business identifiers and applications pertaining thereto, owned by such Grantor, or hereafter adopted and used, in its business (including, without limitation, the trademarks specifically identified in Schedule A) (collectively, the "Trademarks"), all registrations that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations and applications specifically identified in Schedule A) (the "Trademark Registrations"), all common law and other rights (but in no event any of the obligations) in and to the Trademarks in the United States and any state thereof and in foreign countries (the "Trademark Rights"), and all goodwill of such Grantor's business symbolized by the Trademarks and associated therewith (the "Associated Goodwill"); and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Trademark Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Trademark Collateral. For purposes of this Grant of Trademark Security Interest, the term "proceeds" includes whatever is receivable or received when Trademark Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Trademark Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Trademark Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Trademark Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. IN WITNESS WHEREOF, Grantor has caused this Grant of Trademark Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the __ day of _______, 200__. [NAME OF GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ SCHEDULE A TO GRANT OF TRADEMARK SECURITY INTEREST - -------------------------------------------------------------------------------- United States Trademark Registration Registration Registered Owner Description Number Date - -------------------------------------------------------------------------------- EXHIBIT II TO SECURITY AGREEMENT [FORM OF GRANT OF PATENT SECURITY INTEREST] GRANT OF PATENT SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Patent Collateral (as defined below); and WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation ("Company") and the Subsidiaries of Company listed on the signature pages thereof (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower," have entered into a Debtor-in-Possession Credit Agreement dated as of April 1, 2002 (as such Credit Agreement, may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented, or otherwise modified, being the "Credit Agreement") with the financial institutions listed on the signature pages thereof as Lenders (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent, and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, "Secured Party"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Borrowers; and [Insert if Grantor is a Subsidiary Guarantor:] [WHEREAS, Grantor has executed and delivered that certain Subsidiary Guaranty dated as of April 1, 2002 (said Subsidiary Guaranty, as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, being the "Guaranty") in favor of Secured Party for the benefit of Lenders, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Borrowers under the Credit Agreement, and the other Loan Documents, including without limitation the obligation of Borrowers to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of April 1, 2002 (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Patent Collateral; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Patent Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) in and to all patents and patent applications and rights and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned or held by such Grantor and all patents and patent applications and rights, title and interests in patents and patent applications under any domestic or foreign law that are presently, or in the future may be, owned by such Grantor in whole or in part (including, without limitation, the patents and patent applications listed in Schedule A), all rights (but not obligations) corresponding thereto to sue for past, present and future infringements and all re-issues, divisions, continuations, renewals, extensions and continuations-in-part thereof (all of the foregoing being collectively referred to as the "Patents"); and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Patent Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Patent Collateral. For purposes of this Grant of Patent Security Interest, the term "proceeds" includes whatever is receivable or received when Patent Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Patent Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Patent Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Patent Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. [The remainder of this page intentionally left blank.] IN WITNESS WHEREOF, Grantor has caused this Grant of Patent Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the ___ day of ____________, 200__. [NAME OF GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ NY1:852732 II-A-1 Security Agreement SCHEDULE A TO GRANT OF PATENT SECURITY INTEREST Patents Issued: - --------------- Patent No. Issue Date Invention Inventor ---------- ---------- --------- -------- Patents Pending: Applicant's Date Application Name Filed Number Invention Inventor ---- ----- ------ --------- -------- EXHIBIT III TO SECURITY AGREEMENT [FORM OF GRANT OF COPYRIGHT SECURITY INTEREST] GRANT OF COPYRIGHT SECURITY INTEREST WHEREAS, [NAME OF GRANTOR], a ___________ corporation ("Grantor"), owns and uses in its business, and will in the future adopt and so use, various intangible assets, including the Copyright Collateral (as defined below); and WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation ("Company") and the Subsidiaries of Company listed on the signature pages thereof (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower") have entered into a Debtor-in-Possession Credit Agreement dated as of April 1, 2002 (as such Credit Agreement, may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented, restated or otherwise modified, being the "Credit Agreement") with the financial institutions listed on the signature pages thereof as Lenders (collectively, together with their respective successors and assigns party to the Credit Agreement from time to time, the "Lenders"), DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent, and BANK OF AMERICA, N.A., as Administrative Agent for the Lenders (in such capacity, "Secured Party"), pursuant to which Lenders have made certain commitments, subject to the terms and conditions set forth in the Credit Agreement, to extend certain credit facilities to Borrowers; and [Insert if Grantor is a Subsidiary Guarantor:] [WHEREAS, Grantor has executed and delivered that certain Subsidiary Guaranty dated as of April 1, 2002 (said Subsidiary Guaranty, as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, being the "Guaranty") in favor of Secured Party for the benefit of Lenders, pursuant to which Grantor has guarantied the prompt payment and performance when due of all obligations of Borrowers under the Credit Agreement, and the other Loan Documents, including without limitation the obligation of Borrowers to make payments thereunder in the event of early termination thereof; and] WHEREAS, pursuant to the terms of a Security Agreement dated as of April 1, 2002 (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"), among Grantor, Secured Party and the other grantors named therein, Grantor has agreed to create in favor of Secured Party a secured and protected interest in, and Secured Party has agreed to become a secured creditor with respect to, the Copyright Collateral; NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, subject to the terms and conditions of the Security Agreement, Grantor hereby grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the following, in each case whether now or hereafter existing or in which Grantor now has or hereafter acquires an interest and wherever the same may be located (the "Copyright Collateral"): (i) all rights, title and interest (including rights acquired pursuant to a license or otherwise but only to the extent permitted by agreements governing such license or other use) under copyright in various published and unpublished works of authorship including, without limitation, computer programs, computer data bases, other computer software layouts, trade dress, drawings, designs, writings, and formulas (including, without limitation, the works listed on Schedule A, as the same may be amended pursuant hereto from time to time) (collectively, the "Copyrights"), all copyright registrations issued to Grantor and applications for copyright registration that have been or may hereafter be issued or applied for thereon in the United States and any state thereof and in foreign countries (including, without limitation, the registrations listed on Schedule A, as the same may be amended pursuant hereto from time to time) (collectively, the "Copyright Registrations"), all common law and other rights in and to the Copyrights in the United States and any state thereof and in foreign countries including all copyright licenses (but with respect to such copyright licenses, only to the extent permitted by such licensing arrangements) (the "Copyright Rights"), including, without limitation, each of the Copyrights, rights, titles and interests in and to the Copyrights, all derivative works and other works protectable by copyright, which are presently, or in the future may be, owned, created (as a work for hire for the benefit of Grantor), authored (as a work for hire for the benefit of Grantor), or acquired by Grantor, in whole or in part, and all Copyright Rights with respect thereto and all Copyright Registrations therefor, heretofore or hereafter granted or applied for, and all renewals and extensions thereof, throughout the world, including all proceeds thereof (such as, by way of example and not by limitation, license royalties and proceeds of infringement suits), the right (but not the obligation) to renew and extend such Copyright Registrations and Copyright Rights and to register works protectable by copyright and the right (but not the obligation) to sue in the name of such Grantor or in the name of Secured Party or Lenders for past, present and future infringements of the Copyrights and Copyright Rights; and (ii) all proceeds, products, rents and profits of or from any and all of the foregoing Copyright Collateral and, to the extent not otherwise included, all payments under insurance (whether or not Secured Party is the loss payee thereof), or any indemnity, warranty or guaranty, payable by reason of loss or damage to or otherwise with respect to any of the foregoing Copyright Collateral. For purposes of this Grant of Copyright Security Interest, the term "proceeds" includes whatever is receivable or received when Copyright Collateral or proceeds are sold, exchanged, collected or otherwise disposed of, whether such disposition is voluntary or involuntary. Notwithstanding anything herein to the contrary, in no event shall the Copyright Collateral include, and Grantor shall be not deemed to have granted a security interest in, any of Grantor's rights or interests in any license, contract or agreement to which Grantor is a party or any of its rights or interests thereunder to the extent, but only to the extent, that such a grant would, under the terms of such license, contract or agreement or otherwise, result in a breach of the terms of, or constitute a default under any license, contract or agreement to which Grantor is a party; provided, that immediately upon the ineffectiveness, lapse or termination of any such provision, the Copyright Collateral shall include, and Grantor shall be deemed to have granted a security interest in, all such rights and interests as if such provision had never been in effect. Grantor does hereby further acknowledge and affirm that the rights and remedies of Secured Party with respect to the security interest in the Copyright Collateral granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein. [The remainder of this page intentionally left blank.] IN WITNESS WHEREOF, Grantor has caused this Grant of Copyright Security Interest to be duly executed and delivered by its officer thereunto duly authorized as of the ___ day of ___________, 200__. [NAME OF GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ SCHEDULE A TO GRANT OF COPYRIGHT SECURITY INTEREST U.S. Copyrights: - --------------- Title Registration No. Date of Issue Registered Owner - ----- ---------------- ------------- ---------------- Pending U.S. Copyright Registrations & Applications: - --------------------------------------------------- Title Reference No. Date of Application Copyright Claimant - ----- ------------- ------------------- --------- --------- EXHIBIT IV TO SECURITY AGREEMENT PLEDGE SUPPLEMENT This Pledge Supplement, dated as of _________________, 200__ is delivered pursuant to the Security Agreement, dated as of April 1, 2002 among ____________, a ____________ ("Grantor"), the other Grantors named therein, and Bank of America, N.A., as Secured Party (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"). Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Security Agreement. Grantor hereby agrees that the [Pledged Shares] [Pledged Debt] listed on the schedule attached hereto shall be deemed to be part of the [Pledged Shares] [Pledged Debt] and shall become part of the Securities Collateral and shall secure all Secured Obligations. IN WITNESS WHEREOF, Grantor has caused this Amendment to be duly executed and delivered by its duly authorized officer as of _______________, 200__. [NAME OF GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ EXHIBIT V TO SECURITY AGREEMENT IP SUPPLEMENT This IP SUPPLEMENT, dated as of ____________, 200__ is delivered pursuant to and supplements (i) the Security Agreement, dated as of April 1, 2002 (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"), among _______________ ("Grantor"), the other Grantors named therein, and Bank of America, N.A., as Secured Party, and (ii) the [Grant of Trademark Security Interest] [Grant of Patent Security Interest] [Grant of Copyright Security Interest] dated as of ___________, 200__ (the "Grant") executed by Grantor. Capitalized terms used herein not otherwise defined herein shall have the meanings ascribed thereto in the Grant. Grantor grants to Secured Party a security interest in all of Grantor's right, title and interest in and to the [Trademark Collateral] [Patent Collateral] [Copyright Collateral] listed on Schedule A attached hereto. All such [Trademark Collateral] [Patent Collateral] [Copyright Collateral] shall be deemed to be part of the [Trademark Collateral] [Patent Collateral] [Copyright Collateral] and shall be hereafter subject to each of the terms and conditions of the Security Agreement and the Grant. IN WITNESS WHEREOF, Grantor has caused this Supplement to be duly executed and delivered by its duly authorized officer as of ______________, 200__. [NAME OF GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ [Attach Schedule A] EXHIBIT VI TO SECURITY AGREEMENT [FORM OF COUNTERPART] COUNTERPART (this "Counterpart"), dated as of __________, 200__ is delivered pursuant to Section 22 of the Security Agreement referred to below. The undersigned hereby agrees that this Counterpart may be attached to the Security Agreement, dated as of April 1, 2002 (as it may heretofore have been and as it may from time to time hereafter be amended, restated, supplemented or otherwise modified, the "Security Agreement"; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), among Covanta Energy Corporation, the other Grantors named therein, and Bank of America, N.A., as Secured Party. The undersigned by executing and delivering this Counterpart hereby becomes a Grantor under the Security Agreement in accordance with Section 22 thereof and agrees to be bound by all of the terms thereof. Without limiting the generality of the foregoing, the undersigned hereby [For new Subsidiary Borrowers only: agrees that it hereby becomes a party to the Security Agreement as a Grantor, and hereafter has the rights and obligations of a Borrower thereunder and is bound by all of the provisions thereof as fully as if the undersigned were one of the original parties thereto.][: **Paragraphs (i)-(v) for new Subsidiary Guarantors only** (i) agrees that all Collateral of the undersigned, including the items of property described on the Schedules attached hereto, shall become part of the Collateral and shall secure all Secured Obligations, and hereby grants to the Secured Party for the benefit of the Lenders a continuing security interest in all such Collateral of the undersigned; (ii) authorizes the Secured Party to add the information set forth on the Schedules to this Counterpart to the correlative Schedules attached to the Security Agreement(1); (iii) agrees that it hereby becomes a party to the Security Agreement as a Grantor and hereafter has the rights and obligations of a Subsidiary Guarantor thereunder and is bound by all of the provisions thereof as fully as if the undersigned were one of the original parties thereto; (iv) makes the representations and warranties set forth in the Security Agreement, as amended hereby, to the extent relating to the undersigned; and (v) agrees that the address and facsimile number of the undersigned for notice purposes pursuant to Section 25 of the Security Agreement shall be initially as set forth below. - ----------------- (1) The Schedules to the Counterpart should include copies of all Schedules that identify Collateral to be granted by the Subsidiary Guarantor. [NAME OF ADDITIONAL GRANTOR] By: ----------------------------- Name: ------------------------ Title: ------------------------ Notice Address: ---------------------- ---------------------- ---------------------- EX-10.1L 10 covex10-1l_718.txt EXHIBIT 10.1(l) --------------- FIRST AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT AND TO SECURITY AGREEMENT This FIRST AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT AND SECURITY AGREEMENT (this "Amendment") is dated as of April 3, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS SUBSIDIARY GUARANTORS (collectively, the "Subsidiary Guarantors"), THE LENDERS PARTY HERETO, BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Debtor-in-Possession Credit Agreement dated as of April 1, 2002 (the "Credit Agreement"), by and among Borrowers, the financial institutions parties thereto as Lenders, Documentation Agent and Administrative Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement (as amended by this Amendment). RECITALS WHEREAS, Borrowers and the undersigned Lenders desire to make certain amendments to the Credit Agreement and the Security Agreement as set forth below, in each case subject to the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Provisions Relating to Defined Terms. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the definitions of "Applicable Conversion Date" and "Chapter 11 Cases" in their entirety and inserting the following new definitions in the appropriate alphabetical order: "Applicable Conversion Date" means, with respect to the Existing L/Cs listed on Schedule 1.1D and Schedule 1.1E, the date of entry of the Interim Borrowing Order. "Chapter 11 Cases" has the meaning assigned to that term in the recitals to this Agreement, and shall also include proceedings commenced under the Bankruptcy Code in the United States Bankruptcy Court with respect to any Additional Subsidiary Borrowers. "First Amendment" means the First Amendment to this Agreement and the Security Agreement dated as of April 3, 2002. "First Amendment Effective Date" has the meaning assigned to that term in the First Amendment. 1.2 Provision Relating to Tranche A Commitments. Subsection 2.1A(i) of the Credit Agreement is hereby amended by adding (immediately prior to the ";" immediately preceding the last proviso to the second sentence thereof) the following new proviso: "; provided further, however, that on the First Amendment Effective Date, the aggregate amount of the Tranche A Commitments shall be further reduced by $5,800,000 (and the original Tranche A Commitments of Lenders shall be ratably reduced to reflect such reduction in the aggregate amount of the Tranche A Commitments) without any reduction to the Tranche A Loss Sharing Sublimit or the Tranche A Letter of Credit Sublimit then in effect." 1.3 Provisions Relating to Superpriority Nature of Obligations. Subsection 2.10 of the Credit Agreement is hereby amended by (i) adding the phrase "and other professional fees and expenses specified in the Borrowing Orders" immediately after the reference to "Chapter 11 Cases" contained in clause (ii) thereof, and (ii) adding the phrase "or such greater amount set forth in the Borrowing Orders" immediately after the reference to "$2,000,000" contained therein. 1.4 Provisions Relating to Tranche A Loss Sharing and Certain Tranche B Letters of Credit. Section 10 of the Credit Agreement is hereby further amended by adding at the end thereof the following new subsection 10.23: "10.23 Override Provisions. A. Tranche A Loss Sharing Loans. Anything contained in this Agreement to the contrary notwithstanding, (i) the Obligations described in clause (ii) of the definition of "Obligations" shall not be "Obligations" for any purpose under this Agreement or the Loan Documents, (ii) a portion of each Tranche A Lender's Tranche A Commitment equal to such Lender's Pro Rata Share of the amount of the Tranche A Loss Sharing Sublimit shall be converted to and deemed "Tranche C Commitments" for all purposes hereunder and shall cease to be Tranche A Commitments hereunder on and as of the date of effectiveness of this Agreement (and each Lender's Tranche C Commitment as so converted shall be governed by all provisions of this Agreement (except as expressly provided in this subsection 10.23A) applicable to the Tranche A Loss Sharing Sublimit and the Tranche A Loss Sharing Loans), (iii) the Tranche A Loss Sharing Sublimit shall have no further force and effect with the respect to the Tranche A Commitments and the Tranche A Loans, and (iv) all amounts funded under such Tranche C Commitments (such amounts being referred to as "Tranche C Loans") shall be applied solely for the purposes described in subsection 2.5A(iii) and shall be treated for all purposes hereunder in the same manner as, and shall be in lieu of, Tranche A Loss Sharing Loans (it being understood that any amounts funded by Lenders pursuant to subsection 2.1B shall be Tranche C Loans and shall not be Tranche A Loss Sharing Loans); provided, however, that the Obligations with respect to the Tranche C Loans shall not be Obligations for purposes of subsection 2.10 and the Subsidiary Guaranty, shall be Prepetition Obligations (and shall not accrue interest or fees (and shall not be entitled to prepayments) under this Agreement), shall not constitute Tranche A Obligations for any purposes hereunder, and shall not be entitled to any of the rights, privileges, Liens and claims of the Tranche A Obligations and the Tranche B Obligations under the Loan Documents or the Borrowing Orders. B. Tranche B Commitments and Tranche B Letters of Credit. Anything contained in this Agreement to the contrary notwithstanding: (i) in the event that any of the Existing L/Cs designated on Schedule 1.1A annexed hereto as "Fairfax", "Greenway", "LaGuardia", "LICA" and "Workers Compensation" and deemed reissued as Tranche B Letters of Credit hereunder shall be drawn prior to the date which is 60 days after the date of entry of the Interim Borrowing Order (any such drawn Tranche B Letter of Credit being a "Drawn Tranche B L/C") and such drawing is made on grounds upon which the beneficiary of such Drawn Tranche B L/C could have drawn on the date of entry of the Interim Borrowing Order, then upon such drawing (each such drawing being a "Specified Drawing") (a) all Obligations with respect to such Specified Drawing (including any Tranche B Loans made or amounts funded with respect to participations to reimburse such drawing when honored) shall cease to be Obligations for purposes of subsection 2.10 and the Subsidiary Guaranty, shall be Prepetition Obligations (and shall thereupon cease to accrue interest or fees (and shall not be entitled to prepayments) under this Agreement, and all fees and interest with respect to such Obligations that are accrued and unpaid at the time of such Specified Drawing shall cease to be payable under this Agreement), shall cease to constitute Tranche B Obligations for any purposes hereunder, and shall cease to be entitled to any of the rights, privileges, Liens and claims of the Tranche A Obligations and the Tranche B Obligations under the Loan Documents or the Borrowing Orders, and (b) the rights and obligations of Borrowers and Lenders solely with respect to (x) such Specified Drawing and (y) any participations with respect to such Specified Drawing shall be governed by, and construed in accordance with, the terms of the Prepetition Credit Documents as if this Agreement were null and void ab initio and such Specified Drawing were an honored drawing under the relevant Existing L/C; and (ii) the Existing L/Cs designated on Schedule 1.1A annexed hereto as "Alexandria Equity Bonds", "Babylon Equity Bonds", "Huntington Equity Bonds", "Indianapolis Equity Bonds" and "Stanislaus Equity Bonds" (such Tranche B Letters of Credit being "Non-Rolled Tranche B L/Cs") (a) shall not become Tranche B Letters of Credit, and all Obligations with respect to such Non-Rolled Tranche B L/Cs shall not be Obligations for purposes of subsection 2.10 and the Subsidiary Guaranty, shall be Prepetition Obligations, shall not constitute Tranche B Obligations for any purposes hereunder, and shall not be entitled to any of the rights, privileges, Liens and claims of the Tranche A Obligations and the Tranche B Obligations under the Loan Documents or the Borrowing Orders, (b) all Tranche B Commitments with respect to such Non-Rolled Tranche B L/Cs and all participations of the Tranche B Lenders in such Non-Rolled Tranche B L/Cs shall be cancelled, and (c) the rights and obligations of Borrowers and Lenders solely with respect to such Non-Rolled Tranche B L/Cs shall be governed by, and construed in accordance with, the terms of the Prepetition Credit Documents as if subsection 3.1A(ii) of this Agreement were null and void ab initio with respect to the aforementioned Existing L/Cs and such Existing L/Cs remained "Pooled Letters of Credit" as defined in the Prepetition Credit Agreement. 1.5 Replacement of Exhibit. The Credit Agreement is hereby further amended by deleting Exhibit IX in its entirety and substituting therefor a new Exhibit IX in the form attached hereto as Annex A. SECTION 2. AMENDMENT TO THE SECURITY AGREEMENT Section 2 of the Security Agreement is hereby amended by deleting clause (i) of the definition of "Secured Obligations" contained therein in its entirety and substituting therefor the following: "(i) with respect to Borrowers, all obligations and liabilities of every nature of Borrowers now or hereafter existing under or arising out of or in connection with the Credit Agreement and the other Loan Documents (excluding the Specified Drawings, the Non-Rolled Tranche B L/Cs, the Tranche C Loans and the Tranche C Commitments), and" SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this Amendment and to amend the Credit Agreement and the Security Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 3.1 Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement and the Security Agreement as amended by this Amendment (the "Amended Agreements"). 3.2 Authorization of Agreements. The execution and delivery of this Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreements has been duly authorized by all necessary corporate action on the part of each Loan Party. 3.3 No Conflict. The execution and delivery by each Loan Party of this Amendment and the performance by each Borrower of the Amended Agreements do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Organizational Documents of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, credit agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, credit agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent or Collateral Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 3.4 Governmental Consents. The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Amended Agreements do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 3.5 Binding Obligation. This Amendment has been duly executed and delivered by each Loan Party, and each of this Amendment and the Amended Agreements is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 3.6 Incorporation of Representations and Warranties From Credit Agreement. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the First Amendment Effective Date (as hereinafter defined) to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 3.7 Absence of Default. As of the date hereof after giving effect hereto, there exists no Event of Default or Potential Event of Default under the Credit Agreement. SECTION 4. ACKNOWLEDGEMENT AND CONSENT Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. SECTION 5. MISCELLANEOUS 5.1 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the First Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment. On and after the First Amendment Effective Date, each reference in the Security Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Security Agreement, and each reference in the other Loan Documents to the "Security Agreement", "thereunder", "thereof" or words of like import referring to the Security Agreement shall mean and be a reference to the Security Agreement as amended by this Amendment. B. Except as specifically amended by this Amendment, the Credit Agreement, the Security Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. 5.2 Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or the Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 5.3 Headings. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. 5.4 Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 5.5 Counterparts; Effectiveness. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective (the date of such effectiveness being referred to herein as the "First Amendment Effective Date") upon (i) the execution of a counterpart hereof by each Borrower, each Subsidiary Guarantor and Lenders constituting Requisite Lenders, and (ii) receipt by Company, Administrative Agent and Documentation Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz ------------------------ Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule A annexed hereto, as Borrowers By: /s/ Jeffrey R. Horowitz ------------------------ Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule B annexed hereto, as Borrowers By: /s/ William J. Metzger Name: William J. Metzger Title: Authorized Officer SUBSIDIARY GUARANTORS: Each of the entities named on Schedule C annexed hereto, as Subsidiary Guarantors By: /s/ Jeffrey R. Horowitz ------------------------ Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities named on Schedule D annexed hereto, as Subsidiary Guarantors By: /s/ William J. Metzger ------------------------ Name: William J. Metzger Title: Vice President and Treasurer AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger and as a Lender By: /s/ Michael R. Heredia ----------------------- Name: Michael R. Heredia Title: Managing Director Notice Address: Attention: Barry Flynn 1 Independence Center 101 North Tryon Street Charlotte, N.C. 28255 DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent and Co-Arranger and as a Lender By: /s/ Keith C. Braun ------------------- Name: Keith C. Braun Title: Director By: /s/ Mark B. Cohen ------------------- Name: Mark B. Cohen Title: Managing Director, Head of Workout Notice Address: Attention: Keith C. Braun Deutsche Bank AG New York Branch 31 West 52nd Street, 7th Floor New York, NY 10020 ABN AMRO BANK N.V., as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: Credit Administration ABN AMRO Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60604-1003 BANK OF MONTREAL, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Heather Turf Bank of Montreal 115 S. LaSalle Street, 12th Floor West Chicago, IL 60603 BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ John W. Sweeney -------------------- Name: John W. Sweeney Title: Director By: /s/ Michael Novellino ---------------------- Name: Michael Novellino Title: Associate Director Notice Address: Attention: Salvatore Esposito Bayerische Hypo-und Vereinsbank AG 150 E. 42nd Street New York, NY 10017 BNP PARIBAS, as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: Barbara Eppolito BNP Paribas 787 Seventh Avenue New York, New York 10019 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: Robert Donohue Commerzbank AG 2 World Financial Center New York, NY 10281 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: --------------------------------- Name: Title: Notice Address: Attention: James B. Hallock Credit Lyonnais New York Branch 1301 Avenue of the Americas New York, NY 10019 WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By: ------------------------------------- Name Title: Notice Address: Attention: Joel Thomas 301 South College Street DC-5 Charlotte, North Carolina 28288 MIZUHO CORPORATE BANK, LTD., NEW YORK BRANCH as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: David E. Lim Mizuho Corporate Bank, Ltd., New York Branch 1633 Broadway, 40th Floor New York, New York 10019 FLEET NATIONAL BANK, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Michael F. O'Neill Fleet National Bank 100 Federal Street Mail Stop: MA DE 10006A Boston, MA 02110 HSBC BANK USA, as a Lender By: /s/ Carol A. Kraus ------------------ Name: Carol A. Kraus Title: HSBC Bank USA, Vice President Notice Address: Attention: Carol A. Kraus HSBC Bank USA 8 East 40th Street New York, NY 10016 JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Michael Lancia The Chase Manhattan Bank 380 Madison Avenue Special Loan - 9 New York, NY 10017 IIB BANK LTD, IFSC BRANCH as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: John O'Connor KBC Finance Ireland KBC House, I.F.S.C. Dublin 1, Ireland LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: David A. Leech Landesbank Hessen-Thuringen Girozentrale 420 Fifth Avenue, 24th Floor New York, NY 10018 ROYAL BANK OF SCOTLAND, plc, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Graeme Hunter Specialised Lending Services 10th Floor 101 Park Avenue New York, NY 10178 SANPAOLO IMI S.p.A., as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: Robert Wurster SAN PAOLO IMI S.P.A. 245 Park Avenue, 35th Floor New York, NY 10167 BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender By: /s/ Peter T. Santez -------------------- Name: Peter T. Santez Title: Notice Address: Attention: Jon Barnes Bank of America 101 North Tryon Street Charlotte, NC 28255 SUNTRUST BANK, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Maria Mamilovich SunTrust Bank 711 Fifth Avenue, 16th Floor New York, NY 10022 THE BANK OF NEW YORK, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Peter W. Helt Bank of New York 1 Wall Street, 16th Floor New York, NY 10286 THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Joseph J. Farricielli Jr. ------------------------------ Name: Joseph J. Farricielli, Jr. Title: Director Notice Address: Attention: Joseph J. Farricielli, Jr. The Bank of Nova Scotia One Liberty Plaza, 23rd Floor New York, NY 10006 THE HUNTINGTON NATIONAL BANK, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Thomas P. Krumel The Huntington National Bank 917 Euclid Avenue, CM66 Cleveland, OH 44115 THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: John Davies The Industrial Bank of Japan Trust Company 1251 Avenue of the Americas New York, NY 10020 THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Elizabeth A. Quirk The Sumitomo Trust & Banking Co., Ltd. NY Branch 527 Madison Avenue New York, NY 10022 THE TORONTO-DOMINION BANK, as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Mark A. Baird Toronto Dominion (Texas), Inc. 909 Fannin Street, 17th Floor Houston, TX 77010 UBS AG, STAMFORD BRANCH as a Lender By: /s/ Kelly Smith ---------------- Name: Kelly Smith Title: Director, Recovery Management By: /s/ Robert Reuter ------------------ Name: Robert Reuter Title: Executive Director Notice Address: Attention: Marie Haddad UBS AG, Stamford Branch 677 Washington Blvd. Stamford, CT 06901 UFJ BANK LIMITED, NEW YORK BRANCH, (formerly The Sanwa Bank, Limited, New York Branch and The Tokai Bank, Limited - New York Branch), as a Lender By: ------------------------------------- Name: Title: By: ------------------------------------- Name: Title: Notice Address: Attention: U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: ------------------------------------- Name: Title: Notice Address: Attention: Alan R. Milster Firstar Bank, N.A. 7th Floor - Special Assets One Firstar Plaza Seventh & Washington St. Louis, MO 63101 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH as a Lender By: /s/ Salvatore Battinelli ------------------------- Name: Salvatore Battinelli Title: Managing Director, Credit Department By: /s/ Walter T. Duffy III ------------------------ Name: Walter T. Duffy III Title: Associate Director Notice Address: Attention: Walter T. Duffy III Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, NY 10036 Schedule A Other Borrowers 1. AMOR 14 Corp. 2. Covanta Acquisition, Inc. 3. Covanta Alexandria/Arlington, Inc. 4. Covanta Babylon, Inc. 5. Covanta Bessemer, Inc. 6. Covanta Bristol, Inc. 7. Covanta Cunningham Environmental Support, Inc. 8. Covanta Energy Americas, Inc. 9. Covanta Energy Construction, Inc. 10. Covanta Energy Resource Corp. 11. Covanta Energy Sao Jeronimo, Inc. 12. Covanta Energy Services, Inc. 13. Covanta Energy West, Inc. 14. Covanta Engineering Services, Inc. 15. Covanta Fairfax, Inc. 16. Covanta Financial Services, Inc. 17. Covanta Geothermal Operations Holdings, Inc. 18. Covanta Geothermal Operations, Inc. 19. Covanta Heber Field Energy, Inc. 20. Covanta Hennepin Energy Resource Co., L.P. 21. Covanta Hillsborough, Inc. 22. Covanta Honolulu Resource Recovery Venture 23. Covanta Huntington Limited Partnership 24. Covanta Huntington Resource Recovery One Corp. 25. Covanta Huntington Resource Recovery Seven Corp. 26. Covanta Huntington, Inc. 27. Covanta Huntsville, Inc. 28. Covanta Hydro Energy, Inc. 29. Covanta Hydro Operations West, Inc. 30. Covanta Hydro Operations, Inc. 31. Covanta Imperial Power Services, Inc. 32. Covanta Indianapolis, Inc. 33. Covanta Kent, Inc. 34. Covanta Key Largo, Inc. 35. Covanta Lake, Inc. 36. Covanta Lancaster, Inc. 37. Covanta Lee, Inc. 38. Covanta Long Island, Inc. 39. Covanta Marion Land Corp. 40. Covanta Marion, Inc. 41. Covanta Mid-Conn., Inc. 42. Covanta Montgomery, Inc. 43. Covanta New Martinsville Hydro-Operations Corp. 44. Covanta Northwest Puerto Rico, Inc. 45. Covanta Oahu Waste Energy Recovery, Inc. 46. Covanta Oil & Gas, Inc. 47. Covanta Onondaga Five Corp. 48. Covanta Onondaga Four Corp. 49. Covanta Onondaga Limited Partnership 50. Covanta Onondaga Operations, Inc. 51. Covanta Onondaga Three Corp. 52. Covanta Onondaga Two Corp. 53. Covanta Onondaga, Inc. 54. Covanta Onondaga, Limited Partnership 55. Covanta Operations of Union LLC 56. Covanta OPW Associates, Inc. 57. Covanta OPWH, Inc. 58. Covanta Pasco, Inc. 59. Covanta Plant Services of New Jersey, Inc. 60. Covanta Power Development of Bolivia, Inc. 61. Covanta Power Development, Inc. 62. Covanta Power Equity Corp. 63. Covanta Projects of Hawaii, Inc. 64. Covanta Projects of Wallingford, LP 65. Covanta RRS Holdings, Inc. 66. Covanta Secure Services USA, Inc. 67. Covanta Secure Services, Inc. 68. Covanta SIGC Energy II, Inc. 69. Covanta SIGC Energy, Inc. 70. Covanta SIGC Geothermal Operations, Inc. 71. Covanta Stanislaus, Inc. 72. Covanta Systems, Inc. 73. Covanta Tampa Bay, Inc. 74. Covanta Tulsa, Inc. 75. Covanta Union, Inc. 76. Covanta Wallingford Associates, Inc. 77. Covanta Warren Energy Resources Co., LP 78. Covanta Waste Solutions, Inc. 79. Covanta Waste to Energy of Italy, Inc. 80. Covanta Waste to Energy, Inc. 81. Covanta Water Holdings, Inc. 82. Covanta Water Systems, Inc. 83. Covanta Water Treatment Services, Inc. 84. DSS Environmental, Inc. 85. ERC Energy II, Inc. 86. ERC Energy, Inc. 87. Heber Field Company 88. Heber Field Energy II, Inc. 89. Heber Geothermal Company 90. Heber Loan Partners 91. J.R. Jacks Construction Corp. 92. Ogden Constructors, Inc. 93. Ogden Environmental & Energy Services Co., Inc. 94. OPI Quezon, Inc. 95. Second Imperial Geothermal Co., L.P. 96. Three Mountain Operations, Inc. 97. Three Mountain Power LLC Schedule B Other Borrowers 1. Ogden Facility Management Corporation of Anaheim 2. LaGuardia Fuel Facilities Corp. 3. Lenzar Electro-Optics, Inc. 4. Newark Automotive Fuel Facilities Corporation, Inc. 5. Ogden Allied Abatement & Decontamination Service, Inc. 6. Ogden Allied Maintenance Corp. 7. Ogden Allied Payroll Services, Inc. 8. Ogden Attractions, Inc. 9. Ogden Aviation Distributing Corp. 10. Ogden Aviation Fueling Company of Virginia, Inc. 11. Ogden Aviation Service Company of Colorado, Inc. 12. Ogden Aviation Service Company of New Jersey, Inc. 13. Ogden Aviation Service Company of New York, Inc. 14. Ogden Aviation Service Company of Pennsylvania, Inc. 15. Ogden Aviation Service International Corporation 16. Ogden Aviation, Inc. 17. Ogden Cargo Spain, Inc. 18. Ogden Central and South America, Inc. 19. Ogden Facility Holdings, Inc. 20. Ogden Film and Theatre, Inc. 21. Ogden Firehole Entertainment Corp. 22. Ogden International Europe, Inc. 23. Ogden New York Services, Inc. 24. Ogden Support Services, Inc. 25. PA Aviation Fuel Holdings, Inc. 26. Philadelphia Fuel Facilities Corporation Schedule C Subsidiary Guarantors 1. Covanta Energy Group, Inc. 2. Covanta Energy International, Inc. 3. Covanta Equity of Stanislaus, Inc. 4. Covanta Haverhill Properties, Inc. 5. Covanta Haverhill, Inc. 6. Covanta Omega Lease, Inc. 7. Covanta Power International Holdings, Inc. 8. Covanta Projects, Inc. 9. Haverhill Power, Inc. 10. LMI, Inc. 11. Michigan Waste Energy, Inc. 12. OFS Equity of Alexandria/Arlington, Inc. 13. OFS Equity of Babylon, Inc. 14. OFS Equity of Delaware, Inc. 15. OFS Equity of Huntington, Inc. 16. OFS Equity of Indianapolis, Inc. 17. OFS Equity of Stanislaus, Inc. 18. Ogden Management Services, Inc. 19. Covanta Equity of Alexandria/Arlington, Inc. Schedule D Subsidiary Guarantors 1. Ogden Technology Services Corporation 2. Ogden Transition Corporation Annex A Exhibit IX [FORM OF INTERIM BORROWING ORDER] See attached. EX-10.1M 11 covex10-1m_718.txt EXHIBIT 10.1(m) --------------- FIRST AMENDMENT TO INTERCREDITOR AGREEMENT This FIRST AMENDMENT TO INTERCREDITOR AGREEMENT (this "First Amendment") is dated as of April 1, 2002 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), and THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS BORROWERS (collectively, Company and such Subsidiaries of Company are "Borrowers" and each a "Borrower"), THE SUBSIDIARIES OF COMPANY LISTED ON THE SIGNATURE PAGES HEREOF AS SUBSIDIARY GUARANTORS (each a "Subsidiary Guarantor" and collectively, the "Subsidiary Guarantors"), the financial institutions parties hereto, BANK OF AMERICA, N.A., as Administrative Agent for the Lenders ("Administrative Agent"), and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent for the Lenders ("Documentation Agent"), and is made with reference to that certain Intercreditor Agreement dated as of March 14, 2001 (as in effect on the date hereof, the "Intercreditor Agreement"), by and among Company and the subsidiaries of Company party thereto, as borrowers, the financial institutions listed on the signature pages thereof as lenders, Administrative Agent, and Documentation Agent. Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Intercreditor Agreement (as amended by this First Amendment). RECITALS WHEREAS, on April 1, 2002 (the "Petition Date"), Borrowers filed a voluntary petition for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (such proceedings are hereinafter referred to as the "Chapter 11 Cases"), and each Borrower continues to operate its businesses and manage its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; and WHEREAS, Borrowers have requested Pooled Facility Lenders to provide, and Pooled Facility Lenders have agreed to provide, on the terms and conditions set forth in that certain Debtor-In-Possession Credit Agreement dated as of April 1, 2002 (as amended, restated, supplemented or otherwise modified, the "DIP Credit Agreement") by and among Company and the subsidiaries of Company party thereto, as borrowers, DIP Lenders and DIP Agents, debtor-in-possession credit facilities consisting of (i) a revolving loan and letter of credit facility of up to $115,000,000, and (ii) an additional letter of credit facility of up to $367,853,962.13; and WHEREAS, it is a condition precedent to the obligations of DIP Lenders to make loans and issue letters of credit under the DIP Credit Agreement that Borrowers, Subsidiary Guarantors, DIP Lenders and DIP Agents shall have entered into this First Amendment; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE INTERCREDITOR AGREEMENT 1.1. Provisions Relating to Defined Terms. Section 1.1 of the Intercreditor Agreement is hereby amended by deleting the definitions of "Borrower", "Creditor Parties", "Ratable Paydown", "Realized Deficiency", and "Realized Ratable Share" contained therein and inserting the following new definitions in the appropriate alphabetical order: "Bankruptcy Court" shall mean the United States Bankruptcy Court for the Southern District of New York. "Borrower" shall have the meaning assigned to that term in the introduction to this Agreement and shall also include each Subsidiary of Company listed on the signature pages of the First Amendment as a Borrower and each New Borrower. "Borrowing Order Entry Date" shall mean the day an order substantially in the form of Exhibit IX to the DIP Credit Agreement (with any modifications thereto approved by DIP Agents and Requisite DIP Lenders (or such other number of DIP Lenders as is required under the DIP Credit Agreement) in their sole discretion) is entered by the Bankruptcy Court in the Chapter 11 Cases after a final hearing under Bankruptcy Rule 4001(c)(2); provided that as of such day such order (x) is in full force and effect without amendment, supplement or other modification (other than amendments, supplements or modifications made with the express written consent or joinder of DIP Agents and Requisite DIP Lenders (or such other number of DIP Lenders as is required under the DIP Credit Agreement) and approved by the Bankruptcy Court), and (y) has not been reversed or stayed by the Bankruptcy Court or any other court of competent jurisdiction. "Creditor Parties" shall mean Lenders, Existing Opt-Out Facility Agents, Existing Pooled Facility Agents, Credit Agent, Collateral Agent and DIP Agents. "DIP Agents" shall mean the "Agents" as such term is defined in the DIP Credit Agreement. "DIP Closing Date" shall mean the "Closing Date" as such term is defined in the DIP Credit Agreement. "DIP Credit Agent" shall mean the "Administrative Agent" as such term is defined in the DIP Credit Agreement. "DIP Credit Agreement" shall mean that certain Debtor-In-Possession Credit Agreement dated as of April 1, 2002, by and among certain Borrowers and certain other domestic Subsidiaries of Company, DIP Lenders and DIP Agents, as such agreement may be amended, supplemented or otherwise modified time to time. "DIP Lenders" shall mean the financial institutions which are "Lenders" as defined in the DIP Credit Agreement. "DIP Loan Documents" shall mean the "Loan Documents" as such term is defined in the DIP Credit Agreement. "DIP Obligations" shall mean the "Obligations" as such term is defined in the DIP Credit Agreement. "First Amendment" shall mean that certain First Amendment to Intercreditor Agreement dated as of April 1, 2002 by and among Borrowers, the Subsidiary Guarantors, the Lenders party thereto, Bank of America, N.A., as administrative agent for such Lenders, and Deutsche Bank AG, New York Branch, as documentation agent for such Lenders. "Interim Borrowing Order" shall mean the "Interim Borrowing Order" as such term is defined in the DIP Credit Agreement. "New Borrower" shall mean each Subsidiary of Company that is not a party to the Credit Agreement that is a borrower under the DIP Credit Agreement. "Ratable Paydown" shall mean, with respect to any Opt-Out Lender at any time that a Realized Deficiency exists with respect to such Opt-Out Lender, the aggregate sum of such Opt-Out Lender's Realized Ratable Shares calculated with respect to each permanent prepayment of principal of the Pooled Facility Loans, each permanent principal reimbursement payment made in respect of honored drawings under the Pooled Letters of Credit, each permanent reduction of Revolving Loan Commitments and each permanent principal reimbursement payment made in respect of honored drawings under the Tranche B Letters of Credit described in clauses (i), (ii), (iii) and (iv) of the definition of Realized Ratable Share; provided, however, that the amount of the Ratable Paydown of any Opt-Out Lender shall be reduced pro rata by the amount of any financing needs for the project directly relating to the relevant Opt-Out Facility which is funded by the Borrowers after the Closing Date and is not recovered by the Borrowers from the sale price of such project (and reflected as a reduction in the Realized Deficiencies of Opt-Out Lenders relating to the relevant Opt-Out Facility) or through distributions from such project; and provided further, however, that the Ratable Paydown (and amounts owed with respect to the Ratable Paydown Indemnity) of any Opt-Out Lender with respect to the Anaheim Pond arena Opt-Out Facility shall not exceed, in any event, the Realized Deficiency of such Opt-Out Lender with respect to such Opt-Out Facility determined without giving effect to the last sentence of the definition of "Realized Deficiency". "Realized Deficiency" shall mean, with respect to any Opt-Out Lender under a particular Opt-Out Facility, the total amount of such Opt-Out Lender's deficiency claim (including, without limitation, any interest, fees or other costs, to the extent reimbursable pursuant to the applicable Opt-Out Facility Documents as in effect on the date hereof) against Company under Company's guaranty of such Opt-Out Facility and/or under the Class A Palladium Put Agreement, Class B Palladium Put Agreement or Class II Senators Put Agreement (in each case, if any), determined after any disputes with respect thereto have been resolved by settlement agreement, by liquidation of such Opt-Out Lender's claim (including liquidation of the relevant Opt-Out Lender Collateral or, as the case may be, application of any Excluded Collateral) or by the judgment of a court of competent jurisdiction (including a bankruptcy court pursuant to Section 502(c) of the Bankruptcy Code or otherwise in any case under the Bankruptcy Code concerning Company or its Subsidiaries). In order to establish a Realized Deficiency (or the amount thereof) for purposes of this Agreement, an Opt-Out Lender shall not be required to take any action against any Person other than Company or its applicable Subsidiary, except to the extent expressly required by the applicable Opt-Out Facility Documents. Subject to the last proviso to the definition of "Ratable Paydown", for purposes of this Agreement a Realized Deficiency in the aggregate amount of $60,000,000 shall be deemed to exist with respect to the Anaheim Pond arena Opt-Out Facility during the period from the first issuance of a Tranche B Letter of Credit until the date on which a Realized Deficiency exists with respect to such Opt-Out Facility without giving effect to this sentence. "Realized Ratable Share" shall mean, for any Opt-Out Lender under any Opt-Out Facility, with respect to (i) any repayment of principal on the Pooled Facility Loans on or after the Closing Date, (ii) any principal reimbursement payments made in respect of honored drawings under the Pooled Letters of Credit on or after the Closing Date (in each case under clause (i) and (ii), to the extent that such repayment does not result in an equal increase in the Revolving Loan Commitments or any other commitments in effect), (iii) any permanent reduction of the Revolving Loan Commitments, and (iv) any principal reimbursement payments made in respect of honored drawings under the Tranche B Letters of Credit on or after the Petition Date, as the case may be, the product of (a) the total amount of such Opt-Out Lender's Realized Deficiency multiplied by (b) the ratio obtained by dividing (x) the amount of such repayment of principal on the Pooled Facility Loans or the amount of such principal reimbursement payments made in respect of honored drawings under the Pooled Letters of Credit or such permanent reduction of the Revolving Loan Commitments or the amount of such principal reimbursement payments made in respect of honored drawings under the Tranche B Letters of Credit, as the case may be, by (y) the sum of the total Pooled Facility Exposure and the total Revolving Loan Exposure of all Lenders and the total Tranche B Loan Exposure, to be measured as of the time of any such repayment of principal on the Pooled Facility Loans or any such reimbursement of principal made in respect of honored drawings under the Pooled Letters of Credit or any such permanent reduction of the Revolving Loan Commitments or any such reimbursement of principal made in respect of honored drawings under the Tranche B Letters of Credit (without giving effect to such prepayment or reduction). "Requisite DIP Lenders" shall mean the "Requisite Lenders" as such term is defined in the DIP Credit Agreement. "Tranche A Facility" shall mean the revolving loan and letter of credit facility in the original principal amount of up to $115,000,000 established under the DIP Credit Agreement. "Tranche A Lender" shall mean a Lender in its capacity as a holder of Tranche A Loan Exposure. "Tranche A Letters of Credit" shall mean letters of credit issued under the Tranche A Facility. "Tranche A Loan Exposure" shall mean, with respect to any Lender, as of any date of determination (i) prior to the termination of such Lender's commitments to extend credit under the Tranche A Facility, the amount of such commitment, and (ii) after the termination of the such commitment, the sum of (a) the aggregate outstanding principal amount of the loans made by that Lender under the Tranche A Facility plus (b) in the event that Lender is an issuer of Tranche A Letters of Credit, the maximum amount available to be drawn under Tranche A Letters of Credit issued by that Lender and the amount of any unreimbursed drawings under such Tranche A Letters of Credit (in each case net of any participations purchased by other Lenders in such Tranche A Letters of Credit or in such unreimbursed drawings) plus (c) the aggregate amount of all participations purchased by that Lender in any outstanding Tranche A Letters of Credit or any unreimbursed drawings under any Tranche A Letters of Credit. "Tranche B Facility" shall mean the letter of credit facility of up to $367,853,962.13 established under the DIP Credit Agreement to replace certain Pooled Letters of Credit and other letters of credit issued and outstanding under the Credit Agreement as of the date of the DIP Credit Agreement. "Tranche B Lender" shall mean a Lender in its capacity as a holder of Tranche B Loan Exposure. "Tranche B Letters of Credit" shall mean letters of credit issued under the Tranche B Facility. "Tranche B Loan Exposure" shall mean with respect to any Lender, as of any date of determination (i) prior to the termination such Lender's commitments to extend credit under the Tranche B Facility, the amount of such commitment, and (ii) after the termination of such commitment, the sum of (a) the aggregate outstanding principal amount of the loans made by that Lender under the Tranche B Facility plus (b) in the event that Lender is an Issuing Lender of Tranche B Letters of Credit, the maximum amount available to be drawn under Tranche B Letters of Credit issued by that Lender and the amount of any unreimbursed drawings under such Tranche B Letters of Credit (in each case net of any participations purchased by other Lenders in such Tranche B Letters of Credit or in any such unreimbursed drawings thereunder) plus (c) the aggregate amount of all participations purchased by that Lender in any outstanding Tranche B Letters of Credit or any unreimbursed drawings under any Tranche B Letters of Credit. 1.2. Certain References to Pooled Facility Lenders and Collateral Agent. Section 1 of the Intercreditor Agreement is hereby amended by inserting the following new Section 1.3 at the end thereof: "Section 1.3 Certain References. (a) Each reference to "Collateral Agent" in Section 6.1 (other than paragraph (g) thereof) shall be deemed to include the DIP Credit Agent. (b) Each reference to a "Pooled Facility Lender" or the "Pooled Facility Lenders" in the definition of "Lenders" contained in this Agreement and each reference to a "Pooled Facility Lender" or the "Pooled Facility Lenders" in Section 4.1 of this Agreement shall be deemed to include each such Pooled Facility Lender in its capacity as a DIP Lender, if applicable. Notwithstanding anything to the contrary contained herein, no obligations owed to DIP Lenders or DIP Agents under the DIP Loan Documents shall constitute "Subordinated Obligations"." 1.3. Provisions Relating to Information. Section 4.1 of the Intercreditor Agreement is hereby amended by deleting it in its entirety and substituting therefor the following: "Section 4.1 Information. In the event Collateral Agent proceeds to foreclose upon, collect, sell or otherwise dispose of or take any other action with respect to the Collateral, or any portion thereof, or to enforce any Collateral Document, or in the event Collateral Agent or DIP Credit Agent proposes to take any other action pursuant to this Agreement or requests instructions from the Secured Parties as provided herein, upon the request of Collateral Agent, Credit Agent or DIP Credit Agent, each of the following Parties agrees to promptly provide to Collateral Agent, Credit Agent or DIP Credit Agent, as applicable, the information described below: (a) Credit Agent on behalf of Pooled Facility Lenders and Revolving Lenders agrees to promptly from time to time notify Collateral Agent and DIP Credit Agent of (i) the aggregate amount of principal of and interest on the Obligations as at such date as Collateral Agent or DIP Credit Agent may specify, (ii) the current Revolving Loan Commitment of each Revolving Lender under the Credit Agreement, the aggregate amount of all funded and unfunded participations under the Credit Agreement, the amounts due and payable under the Ratable Paydown Indemnity (upon notification from the relevant Opt-Out Lenders of a Realized Deficiency) and the amount of the Preferred Distribution, in each case as at such date as Collateral Agent or DIP Credit Agent may specify, and (iv) any payment received by Credit Agent to be applied to the principal of or interest on the Obligations. Credit Agent shall certify as to such amounts and Collateral Agent and DIP Credit Agent shall be entitled to rely conclusively upon such certification. (b) DIP Credit Agent on behalf of DIP Lenders agrees to promptly from time to time notify Collateral Agent and Credit Agent of (i) the aggregate amount of principal of and interest on the DIP Obligations, the current commitments of each DIP Lender under the DIP Credit Agreement, and the aggregate amount of all funded and unfunded participations under the DIP Credit Agreement, in each case as at such date as Collateral Agent or Credit Agent may specify, and (ii) any payment received by DIP Credit Agent to be applied to the principal of or interest on the DIP Obligations. DIP Credit Agent shall certify as to such amounts and Collateral Agent and Credit Agent shall be entitled to rely conclusively upon such certification. (c) Each Opt-Out Lender and Existing Opt-Out Facility Agent agrees to promptly from time to time notify Collateral Agent and DIP Credit Agent of (i) the aggregate amount of principal of and interest on the relevant Obligations arising under the relevant Opt-Out Facility as at such date as Collateral Agent or DIP Credit Agent may specify, (ii) the aggregate amount of all unfunded participations and commitments, and (iii) any payment received by such Opt-Out Lender or Existing Opt-Out Facility Agent to be applied to the principal of or interest on the Obligations. Each Opt-Out Lender and Existing Opt-Out Facility Agent shall certify as to such amounts and Collateral Agent and DIP Credit Agent shall be entitled to rely conclusively upon such certification. (d) The Senior Debenture Trustee agrees, by acceptance of the benefits hereof, to promptly from time to time notify Collateral Agent of the outstanding principal amount of the Senior Debentures and the amount of accrued but unpaid interest thereon, at such date as Collateral Agent may specify. The Senior Debenture Trustee shall, or shall cause the registrar for the Senior Debentures to, certify as to such amount as reflected in the register maintained for such purpose by the Senior Debenture Trustee or such registrar, as the case may be, and Collateral Agent shall be entitled to rely conclusively upon such certification." 1.4. Provision Relating to Ratable Paydown Indemnity. Section 5.2 of the Intercreditor Agreement is hereby amended by deleting it in its entirety therefrom and substituting therefor the following: "Section 5.2 Ratable Paydown Indemnity. Borrowers and the relevant Opt-Out Lenders (or the relevant Existing Opt-Out Facility Agent) shall notify Collateral Agent and DIP Credit Agent of the existence and the amount of any Realized Deficiency as soon as Borrowers and such Opt-Out Lenders become aware of it. Upon receipt of such notice, Collateral Agent shall calculate the Realized Ratable Shares and Ratable Paydowns (if any) of the relevant Opt-Out Lenders (which calculations shall be delivered by the Collateral Agent to each other Creditor Party (with a copy to the Company) and unless the Collateral Agent shall have been notified by any Creditor Party in writing within five Business Days of receipt of such notice, such calculations shall be conclusive and binding) and Borrowers shall immediately be obligated to pay and indemnify each Opt Out Lender in the amount of such Opt-Out Lender's Ratable Paydown. It is understood and agreed that the Borrowers' obligation to pay the Ratable Paydown Indemnity as set forth herein shall only be due and payable if (i) a Realized Deficiency exists and (ii) the Pooled Facility Lenders and/or the Revolving Lenders have received a permanent cash paydown (which shall occur at any time the Pooled Facility Lenders and/or the Revolving Lenders receive cash in repayment of outstanding Obligations and there is no dollar for dollar increase in the Revolving Loan Commitments or at any time there is a permanent dollar for dollar reduction in the Revolving Loan Commitments) and/or the DIP Lenders have received a permanent cash paydown of funded amounts of Tranche B Facility Exposure (which shall occur at any time the DIP Lenders receive cash in repayment of outstanding honored drawings under Tranche B Letters of Credit). Notwithstanding anything to the contrary contained in this Agreement, (x) the Canadian Loss Sharing Lenders shall not at any time be entitled to any Ratable Paydown or any claim arising under the Ratable Paydown Indemnity, (y) no Opt-Out Lender shall be entitled to payments on account of the Opt-Out Facility Obligations if and to the extent that the sum of all such payments on account of the Opt-Out Facility Obligations to such Opt-Out Lender and all payments on account of the Ratable Paydown Indemnity to such Opt-Out Lender would exceed the aggregate Opt-Out Facility Exposure of such Opt-Out Lender, and (z) each Opt-Out Lender under the Anaheim Pond arena Opt-Out Facility hereby agrees to repay to the applicable Persons entitled to the same any payment made to such Opt-Out Lender that is subsequently determined to be contrary to the terms of the last proviso to the definition of "Ratable Paydown". Assuming the aggregate amount of the Pooled Facilities at such time is $469,264,742 and the aggregate amount of the Revolving Facility at such time is $19,297,717, immediately upon availability of the Tranche B Facility for the issuance of Tranche B Letters of Credit and after giving effect to the First Amendment the aggregate amount owed to the Opt-Out Lenders with respect to the Anaheim Pond arena Opt-Out Facility under the Ratable Paydown Indemnity would be $13,600,000." 1.5. Miscellaneous Provisions. Section 7.1(f) of the Intercreditor Agreement is hereby amended by deleting it in its entirety and substituting therefor the following: "(f) The Collateral Agent may deem and treat the Secured Parties executing and delivering this Agreement, the First Amendment and the Senior Debenture Trustee as the "Secured Parties" for all purposes hereof unless and until (i) a notice of the assignment or transfer of any interest held by such Party shall have been filed with the Collateral Agent in accordance with the terms of the Credit Agreement, (ii) with respect to the Opt-Out Lenders, the Existing Opt-Out Facility Agents shall have so notified the Collateral Agent, or (iii) with respect to the DIP Lenders, the DIP Credit Agent shall have so notified the Collateral Agent. Company agrees that it will advise the Collateral Agent of any transfer by any Creditor Party of any Pooled Facility Exposure, Opt-Out Facility Exposure, Tranche A Loan Exposure or Tranche B Loan Exposure held by such Creditor Party and will, from time to time upon request of the Collateral Agent, deliver a list to the Collateral Agent (which shall be distributed by the Collateral Agent to each Creditor Party) setting forth, for the Pooled Facility Exposure, the Opt-Out Facility Exposure, the Tranche A Loan Exposure and the Tranche B Loan Exposure, the unpaid principal amount and holder thereof. The Collateral Agent may rely on such list unless, after the distribution thereof, the Collateral Agent is notified by a Secured Party that such information as set forth on such list is inaccurate." SECTION 2. BORROWER'S REPRESENTATIONS AND WARRANTIES In order to induce the Lenders to enter into this First Amendment and to amend the Intercreditor Agreement in the manner provided herein, Borrowers represent and warrant to each Lender that the following statements are true, correct and complete: 2.1. Corporate Power and Authority. Each Loan Party has all requisite corporate power and authority to enter into this First Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Intercreditor Agreement as amended by this First Amendment (the "Amended Agreement"). 2.2. Authorization of Agreements. The execution and delivery of this First Amendment has been duly authorized by all necessary corporate action on the part of each Loan Party and the performance of the Amended Agreement has been duly authorized by all necessary corporate action on the part of each Borrower. 2.3. No Conflict. The execution and delivery by each Loan Party of this First Amendment and the performance by each Borrower of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to any Loan Party or any of its Subsidiaries, or the Certificate or Articles of Incorporation or Certificate of Formation or Bylaws or Operating Agreement of any Loan Party or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on any Loan Party or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any indenture, mortgage, deed of trust, Intercreditor Agreement or loan agreement, or any other material agreement, contract or instrument to which any Loan Party or any of its Subsidiaries is a party or by which it or any of its property or assets is bound or to which it may be subject (each such indenture, mortgage, deed of trust, Intercreditor Agreement, loan agreement, material agreement, contract or instrument, a "Contractual Obligation"), (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of any Loan Party or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of any Loan Party or any of its Subsidiaries. 2.4. Governmental Consents. The execution and delivery by each Loan Party of this First Amendment and the performance by each Borrower of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 2.5. Binding Obligation. This First Amendment has been duly executed and delivered by each Loan Party, and each of this First Amendment and the Amended Agreement is the legally valid and binding obligations of each Loan Party enforceable against each Loan Party in accordance with its respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. SECTION 3. ACKNOWLEDGEMENT AND CONSENT 3.1. Loan Party Acknowledgements. Each Borrower and Subsidiary Guarantor hereby acknowledges that such Loan Party has read this First Amendment and consents to the terms hereof and further hereby confirms and agrees that, notwithstanding the effectiveness of this First Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects. 3.2. Borrower and Loan Party Acknowledgements. Borrowers and Lenders hereby acknowledge that the obligations of Borrowers arising under Sections 5.2 and 5.3 of the Amended Agreement are and shall be pre-Petition Date secured obligations of the relevant Borrowers. 3.3. New Borrowers. Each New Borrower hereby acknowledges and agrees that by executing and delivering this First Amendment it shall become a Borrower under the Intercreditor Agreement and hereafter shall have the rights and obligations of a Borrower thereunder. Each New Borrower agrees to be bound by all of the terms of the Intercreditor Agreement as fully as if such New Borrower was one of the original Borrowers party thereto. SECTION 4. MISCELLANEOUS 4.1. Reference to and Effect on the Intercreditor Agreement and the Other Loan Documents. A. On and after the effective date of any of the amendments contained herein, each reference in the Intercreditor Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Intercreditor Agreement, and each reference in the other Loan Documents to the "Intercreditor Agreement", "thereunder", "thereof" or words of like import referring to the Intercreditor Agreement shall mean and be a reference to the Amended Agreement. B. Except as specifically amended by this First Amendment, the Intercreditor Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this First Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent, any DIP Agent, Collateral Agent, Credit Agent or any Lender, under the DIP Loan Documents, the Intercreditor Agreement or any of the other Loan Documents. 4.2. Fees and Expenses. Each Borrower acknowledges that all costs, fees and expenses as described in subsection 10.2 of the Credit Agreement incurred by Administrative Agent, Documentation Agent or Lenders and their respective counsel (including, without limitation, O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC) with respect to this First Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 4.3. Headings. Section and subsection headings in this First Amendment are included herein for convenience of reference only and shall not constitute a part of this First Amendment for any other purpose or be given any substantive effect. 4.4. Applicable Law. THIS FIRST AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. 4.5. Counterparts; Effectiveness. This First Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This First Amendment shall become effective upon (i) the execution of a counterpart hereof by Requisite Lenders, (ii) receipt by Company, Credit Agent and DIP Agent of written or telephonic notification of such execution and authorization of delivery thereof, and (iii) receipt by Credit Agent, for distribution (as appropriate) to DIP Agents and DIP Lenders, of all reasonable and documented costs and expenses (including legal fees and other out-of-pocket expenses) of DIP Agents and DIP Lenders incurred in connection with this First Amendment and the transactions contemplated hereby, including such fees and expenses of (a) O'Melveny & Myers LLP, counsel to DIP Agents, (b) Ernst & Young Corporate Finance LLC, and (c) counsel to DIP Lenders to the extent invoiced to Company prior to the DIP Closing Date. 4.6. Notice Addresses. For the purposes of the Intercreditor Agreement, the addresses of the parties thereto (until notice of a change thereof is delivered as provided in Section 7.1(a) of the Intercreditor Agreement) shall be as set forth under each party's name on the signature pages attached hereto. [Remainder of this page intentionally left blank] IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: /s/ Jeffrey R. Horowitz ----------------------------------------------- Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Each of the entities listed on Schedule A annexed hereto By: /s/ Jeffrey R. Horowitz ----------------------------------------------- Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Each of the entities listed on Schedule B annexed hereto By: /s/ William J. Metzger ----------------------------------------------- Name: William J. Metzger Title: Authorized Officer Notice Address for each Borrower: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. SUBSIDIARY GUARANTORS:: Each of the entities listed on Schedule C annexed hereto By: /s/ Jeffrey R. Horowitz ----------------------------------------------- Name: Jeffrey R. Horowitz, Esq. Title: Authorized Officer Notice Address for each Subsidiary Guarantor: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. Each of the entities named on Schedule D annexed hereto By: /s/ William J. Metzger ----------------------------------------------- Name: William J. Metzger Title: Vice President and Treasurer Notice Address for each Subsidiary Guarantor: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, New Jersey 07007 Attn: William Metzger AGENTS AND LENDERS: BANK OF AMERICA, N.A. as Administrative Agent and Collateral Agent and as a Lender By: /s/ Michael R. Heredia ----------------------------------------------- Name: Michael R. Heredia Title: Managing Director Notice Address: Attention: Barry Flynn 1 Independence Center 101 North Tryon Street Charlotte, N.C. 28255 DEUTSCHE BANK AG, NEW YORK BRANCH As Documentation Agent and as a Lender By: /s/ Keith C. Braun ----------------------------------------------- Name: Keith C. Braun Title: Director By: /s/ Mark B. Cohen ----------------------------------------------- Name: Mark B. Cohen, Managing Director Title: Head of Workout Notice Address: Attention: Keith C. Braun Deutsche Bank AG New York Branch 31 West 52nd St., 7th floor New York, NY 10019 ABN AMRO BANK N.V. as a Lender By: /s/ Neil J. Bivona ----------------------------------------------- Name: Neil J. Bivona Title: Vice President By: /s/ Steven C. Wimpenny ----------------------------------------------- Name: Steven C. Wimpenny Title: Group Senior Vice President Notice Address: Attention: Credit Administration ABN AMRO Bank N.V. 208 South LaSalle Street, Suite 1500 Chicago, IL 60604-1003 BANK OF AMERICA SECURITIES LLC, as agent for BANK OF AMERICA, N.A. as a Lender By: /s/ Gregory Ford ----------------------------------------------- Name: Gregory Ford Title: Managing Director By: ----------------------------------------------- Notice Address: Attention: Jon Barnes Bank of America 100 North Tyron Street Charlotte, NC 28255 BANK OF MONTREAL, as a Lender By: /s/ Heather L. Turf ----------------------------------------------- Name: Heather L. Turf Title: Director Notice Address: Attention: Heather Turf Bank of Montreal 115 S. LaSalle Street, 12th Floor West Chicago, Il 60603 THE BANK OF NOVA SCOTIA, as a Lender By: /s/ Joseph J. Farricielli, Jr. ----------------------------------------------- Name: Joseph J. Farricielli, Jr. Title: Director Notice Address: Attention: Joseph J. Farricielli, Jr. The Bank of Nova Scotia One Liberty Plaza, 23rd Floor New York, NY 10006 BAYERISHCE HYPO-UND VEREINSBANK AG, as a Lender By: /s/ John Sweeney ----------------------------------------------- Name: John Sweeney Title: Director By: /s/ C. Theodore Wolf ----------------------------------------------- Name: C. Theodore Wolf Title: Director Notice Address: Attention: Salvatore Esposito Bayerische Hypo-und Vereinsbank AG 105 E. 42nd Street New York, NY 10017 BNP PARIBAS, as a Lender By: /s/ Barbara Eppolito ----------------------------------------------- Name: Barbara Eppolito Title: Vice President By: /s/ Kathryn Quinn ----------------------------------------------- Name: Kathryn Quinn Title: Vice President Notice Address: Attention: Barbara Eppolito BNP Paribas 787 Seventh Avenue New York, NY 10019 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: /s/ Robert Donohue ----------------------------------------------- Name: Robert Donohue Title: Senior Vice President By: /s/ Peter Doyle ----------------------------------------------- Name: Peter Doyle Title: Vice President Notice Address: Attention: Robert Donohue Commerzbank AG 2 World Financial Center New York, NY 10281 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: /s/ James B. Hallock ----------------------------------------------- Name: James B. Hallock Title: Vice President Notice Address: Attention: James B. Hallock Credit Lyonnais New York Branch 1391 Avenue of the Americas New York, NY 10019 MIZUHO CORPORATION BANK, LTD., NEW YORK BRANCH, as a Lender By: /s/ Timothy White ----------------------------------------------- Name: Timothy White Title: Senior Vice President Notice Address: Attention: David E. Lim Mizuho Corporate Bank, Ltd. New York Branch 1633 Broadway 40th Floor New York, NY 10019 WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By: /s/ Joel Thomas ----------------------------------------------- Name: Joel Thomas Title: Vice President Notice Address: Attention: Joel Thomas 301 South College Street, DC-5 Charlotte, North Carolina 28288 US BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: /s/ Alan R. Milster ----------------------------------------------- Name: Alan R. Milster Title: Vice President Notice Address: Attention: Alan R. Milster Firstar Bank, N.A. 7th Floor - Special Assets One Firstar Plaza Seventh & Washington St. Louis, MO 63101 FLEET NATIONAL BANK, as a Lender By: /s/ Michael F. O'Neill ----------------------------------------------- Name: Michael F. O'Neill Title: Senior Vice President Notice Address: Attention: Michael F. O'Neill Fleet National Bank 100 Federal Street Mail Stop: MA DE 10006A Boston, MA 02110 HSBC BANK USA, as a Lender By: /s/ Carol A. Kraus ----------------------------------------------- Name: Carol A. Kraus Title: Vice President Notice Address: Attention: Carol A. Kraus HSBC Bank USA 140 Broadway New York, NY 10005 THE HUNTINGTON NATIONAL BANK, as a Lender By: /s/ Thomas P. Krumel ----------------------------------------------- Name: Thomas P. Krumel Title: Vice President Notice Address: Attention: Thomas P. Krumel The Huntington National Bank 917 Euclid Avenue, CM66 Cleveland, OH 44115 THE INDUSTRIAL BANK OF JAPAN TRUST COMPANY, as a Lender By: /s/ Takuya Honjo ----------------------------------------------- Name: Takuya Honjo Title: Deputy General Manager Notice Address: Attention: John Davies The Industrial Bank of Japan Trust Company 1251 Avenue of the Americas New York, NY 10020 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: /s/ Dorothy A. Lacher ----------------------------------------------- Name: Dorothy A. Lacher Title: Senior Vice President Corporate Finance Division Structured Finance Department By: /s/ David A. Leech ----------------------------------------------- Name: David A. Leech Title: Vice President Corporate Finance Division Structured Finance Department Notice Address: Attention: David A. Leech Landesbank Hessen-Thuringen Girozentrale 420 Fifth Avenue, 24th Floor New York, NY 10018 THE ROYAL BANK OF SCOTLAND, plc, as a Lender By: /s/ Graeme Hunter ----------------------------------------------- Name: Graeme Hunter Title: Senior Vice President, Specialized Lending Services Notice Address: Attention: Graeme Hunter Specialized Lending Services 10th Floor 101 Park Avenue New York, NY 10178 NATIONAL WESTMINISTER BANK PLC, New York and/or Nassau Branch, as a Lender By: /s/ Graeme Hunter ----------------------------------------------- Name: Graeme Hunter Title: Senior Vice President, Specialized Lending Services Notice Address: Attention: Graeme Hunter Specialized Lending Services 10th Floor 101 Park Avenue New York, NY 10178 SANPAOLO IMI S.p.A., as a Lender By: /s/ Carlo Persico ----------------------------------------------- Name: Carlo Persico Title: GM By: /s/ Robert Wurster ----------------------------------------------- Name: Robert Wurster Title: SVP Notice Address: Attention: Robert Wurster San Paolo IMI S.p.A. 245 Park Avenue, 35th Floor New York, NY 10167 UFJ BANK LIMITED, NEW YORK BRANCH (formerly knows as The Sanwa Bank,Limited), as a Lender By: /s/ Nobuo Harima ----------------------------------------------- Name: Nobuo Harima Title: Vice President THE SUMITOMO TRUST & BANKING CO., LTD. NY BRANCH, as a Lender By: /s/ Elizabeth A. Quirk ----------------------------------------------- Name: Elizabeth A. Quirk Title: Vice President Notice Address: Attention: Elizabeth A. Quirk The Sumitomo Trust & Banking Co., Ltd. NY Branch 527 Madison Avenue New York, NY 10022 SUNTRUST BANK, as a Lender By: /s/ Maria Mamilovich ----------------------------------------------- Name: Maria Mamilovich Title: Director Notice Address: Attention: Maria Mamilovich SunTrust Bank 711 Fifth Avenue, 16th Floor New York, NY 10022 THE BANK OF NEW YORK, as a Lender By: /s/ Peter W. Helt ----------------------------------------------- Name: Peter W. Helt Title: Vice President Notice Address: Attention: Peter W. Helt Bank of New York 1 Wall Street, 16th Floor New York, NY 10286 JPMORGAN CHASE BANK (formerly known as the Chase Manhattan Bank), as a Lender By: /s/ Michael Lancia ----------------------------------------------- Name: Michael Lancia Title: Vice President Notice Address: Attention: Michael Lancia JPMorgan Chase Bank 380 Madison Avenue Special Loan - 9 New York, NY 10017 THE TORONTO-DOMINION BANK, as a Lender By: /s/ Mark A. Baird ----------------------------------------------- Name: Mark A. Baird Title: Manager Credit Administration Notice Address: Attention: Mark A. Baird Toronto Dominion (Texas), Inc. 909 Fannin Street, 17th Floor Houston, TX 77010 UBS AG, STAMFORD BRANCH, as a Lender By: /s/ Kelly Smith ----------------------------------------------- Name: Kelly Smith Title: Director Recovery Management By: /s/ David J. Kalal ----------------------------------------------- Name: David J. Kalal Title: Executive Director Recovery Management Notice Address: Attention: Marie Haddad UBS AG, Stamford Branch 677 Washington Blvd. Stamford, CT 06901 WESTDEUTSCHE LANDESBANK GIROZENTRALE, NEW YORK BRANCH, as a Lender By: /s/ Salvatore Battinelli ----------------------------------------------- Name: Salvatore Battinelli Title: Managing Director By: /s/ Walter T. Duffy III ----------------------------------------------- Name: Walter T. Duffy III Title: Associate Director Notice Address: Attention: Walter T. Duffy III Westdeutsche Landesbank Girozentrale 1211 Avenue of the Americas New York, NY 10036 EX-10.1N 12 covex10-1n_718.txt EXHIBIT 10.1(n) --------------- SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY is entered into as of April 1, 2002 by the undersigned (each a "Guarantor", and together with any future Subsidiaries of Company executing this Guaranty, being collectively referred to herein as the "Guarantors") in favor of and for the benefit of BANK OF AMERICA, N.A., as Administrative Agent for and representative of (in such capacity herein called "Guarantied Party") the Lenders from time to time party to the Credit Agreement referred to below. RECITALS Covanta Energy Corporation, a Delaware corporation ("Company"), and certain subsidiaries of Company (collectively, Company and such subsidiaries of Company are "Borrowers " and each a "Borrower"), have entered into that certain Debtor-in-Possession Credit Agreement dated as of April 1, 2002 with the financial institutions listed on the signature pages thereof as Lenders, Guarantied Party, as Administrative Agent for Lenders, and Deutsche Bank AG, New York Branch, as Documentation Agent (said Debtor-in-Possession Credit Agreement, as it may heretofore have been and as it may hereafter be amended, supplemented or otherwise modified from time to time, being the "Credit Agreement"; capitalized terms defined therein and not otherwise defined herein being used herein as therein defined). Guarantied Party and Lenders are sometimes referred to herein as "Beneficiaries". Pursuant to the Credit Agreement, Borrowers and the Lenders have agreed that the Lenders shall provide, subject to the terms and conditions contained in the Credit Agreement, debtor-in-possession revolving credit facilities for the Borrowers to fund working capital and general corporate purposes and to make certain other payments during the Chapter 11 Cases, and thus the Guarantied Obligations (as hereinafter defined) are being incurred for and will inure to the benefit of Guarantors (which benefits are hereby acknowledged). Guarantors are willing irrevocably and unconditionally to guaranty such obligations of Borrowers. NOW, THEREFORE based upon the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in order to induce Lenders and Guarantied Party to make Loans and other extensions of credit under the Credit Agreement, Guarantors hereby agree as follows: Guaranty. (a) In order to induce Lenders to extend credit to Borrowers pursuant to the Credit Agreement, Guarantors jointly and severally irrevocably and unconditionally guaranty, as primary obligors and not merely as sureties, the due and punctual payment in full of all Guarantied Obligations (as hereinafter defined) when the same shall become due, whether at stated maturity, by acceleration, demand or otherwise (including amounts that would become due but for the operation of the automatic stay under Section 362(a) of the Bankruptcy Code). The term "Guarantied Obligations " is used herein in its most comprehensive sense and includes, without limitation, any and all Obligations of Borrowers, including, without limitation, those arising under successive borrowing transactions under the Credit Agreement which shall either continue the Obligations of Borrowers or from time to time renew them after they have been satisfied. Each Guarantor acknowledges that a portion of the Loans may be advanced to it, that Letters of Credit may be issued for the benefit of its business, and that the Guarantied Obligations with respect to the Credit Agreement and the other Loan Documents are being incurred for and will inure to its benefit. Any interest, fees, costs, expenses or other charges on any portion of the Guarantied Obligations that accrue after the commencement of any proceeding, voluntary or involuntary, involving the bankruptcy, insolvency, receivership, reorganization, liquidation or arrangement of Borrowers or of Company and/or its Subsidiaries, as the case may be, including, without limitation, accruals permitted under Section 506(b) of the Bankruptcy Code (or, if interest, fees, costs, expenses or other charges on any portion of the Guarantied Obligations cease to accrue by operation of law by reason of the commencement of said proceeding, such interest as would have accrued on such portion of the Guarantied Obligations if said proceeding had not been commenced) shall be included in the Guarantied Obligations because it is the intention of each Guarantor and Guarantied Party that the Guarantied Obligations should be determined without regard to any rule of law or order that may relieve Borrowers or of Company and/or its Subsidiaries, as the case may be, of any portion of such Guarantied Obligations. In the event that all or any portion of the Guarantied Obligations is paid by Borrowers or of Company and/or its Subsidiaries, as the case may be, the obligations of each Guarantor hereunder shall continue and remain in full force and effect or be reinstated, as the case may be, in the event that all or any part of such payment(s) is rescinded or recovered directly or indirectly from Guarantied Party or any other Beneficiary as a preference, fraudulent transfer or otherwise, and any such payments that are so rescinded or recovered shall constitute Guarantied Obligations. Subject to the other provisions of this Section 1, upon the failure of Borrowers or of Company and/or its Subsidiaries, as the case may be, to pay any of the Guarantied Obligations when and as the same shall become due, each Guarantor will upon demand pay, or cause to be paid, in cash, to Guarantied Party for the ratable benefit of Beneficiaries, an amount equal to the aggregate of the unpaid Guarantied Obligations. (b) Anything contained in this Guaranty to the contrary notwithstanding, the obligations of each Guarantor under this Guaranty shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code or any applicable provisions of comparable state law (collectively, the " Fraudulent Transfer Laws "), in each case after giving effect to all other liabilities of such Guarantor, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Guarantor (x) in respect of intercompany indebtedness to Borrowers or other affiliates of Borrowers to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Guarantor hereunder and (y) under any guaranty of Subordinated Indebtedness which guaranty contains a limitation as to maximum amount similar to that set forth in this Section 1(b), pursuant to which the liability of such Guarantor hereunder is included in the liabilities taken into account in determining such maximum amount) and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Guarantor pursuant to applicable law or pursuant to the terms of any agreement. (c) Each Guarantor under this Guaranty, and each guarantor under other guaranties, if any, relating to the Credit Agreement (the "Related Guaranties") that contain a contribution provision similar to that set forth in this Section 1(c), together desire to allocate among themselves (collectively, the "Contributing Guarantors "), in a fair and equitable manner, their obligations arising under this Guaranty and the Related Guaranties. Accordingly, in the event any payment or distribution is made on any date by a Guarantor under this Guaranty or a guarantor under a Related Guaranty, each such Guarantor or such other guarantor shall be entitled to a contribution from each of the other Contributing Guarantors in the maximum amount permitted by law so as to maximize the aggregate amount of the Guarantied Obligations paid to Beneficiaries. Guaranty Absolute; Continuing Guaranty. The obligations of each Guarantor hereunder are irrevocable, absolute, independent and unconditional and shall not be affected by any circumstance which constitutes a legal or equitable discharge of a guarantor or surety other than payment in full of the Guarantied Obligations. In furtherance of the foregoing and without limiting the generality thereof, each Guarantor agrees that: (a) this Guaranty is a guaranty of payment when due and not of collectibility; (b) Guarantied Party may enforce this Guaranty upon the occurrence of an Event of Default under the Credit Agreement or the occurrence of an early termination date notwithstanding the existence of any dispute between Borrowers and any Beneficiary with respect to the existence of such event; (c) the obligations of each Guarantor hereunder are independent of the obligations of Borrowers under the Loan Documents, and the obligations of any other Guarantor and a separate action or actions may be brought and prosecuted against each Guarantor whether or not any action is brought against Borrowers or any of such other Guarantors and whether or not Borrowers are joined in any such action or actions; and (d) a payment of a portion, but not all, of the Guarantied Obligations by one or more Guarantors shall in no way limit, affect, modify or abridge the liability of such or any other Guarantor for any portion of the Guarantied Obligations that has not been paid. This Guaranty is a continuing guaranty and shall be binding upon each Guarantor and its successors and assigns, and each Guarantor irrevocably waives any right to revoke this Guaranty as to future transactions giving rise to any Guarantied Obligations. Actions by Beneficiaries. Any Beneficiary may from time to time, subject to the terms and conditions in the Credit Agreement, without notice or demand and without affecting the validity or enforceability of this Guaranty or giving rise to any limitation, impairment or discharge of any Guarantor's liability hereunder, (a) renew, extend, accelerate or otherwise change the time, place, manner or terms of payment of the Guarantied Obligations, (b) settle, compromise, release or discharge, or accept or refuse any offer of performance with respect to, or substitutions for, the Guarantied Obligations or any agreement relating thereto and/or subordinate the payment of the same to the payment of any other obligations, (c) request and accept other guaranties of the Guarantied Obligations and take and hold security for the payment of this Guaranty or the Guarantied Obligations, (d) release, exchange, compromise, subordinate or modify, with or without consideration, any security for payment of the Guarantied Obligations, any other guaranties of the Guarantied Obligations, or any other obligation of any Person with respect to the Guarantied Obligations, (e) enforce and apply any security now or hereafter held by or for the benefit of any Beneficiary in respect of this Guaranty or the Guarantied Obligations and direct the order or manner of sale thereof, or exercise any other right or remedy that Guarantied Party or the other Beneficiaries, or any of them, may have against any such security, as Guarantied Party in its discretion may determine consistent with the Credit Agreement and any applicable Loan Documents, including foreclosure on any such security pursuant to one or more judicial or nonjudicial sales, whether or not every aspect of any such sale is commercially reasonable, and (f) exercise any other rights available to Guarantied Party or the other Beneficiaries, or any of them, under the Loan Documents. No Discharge. This Guaranty and the obligations of Guarantors hereunder shall be valid and enforceable and shall not be subject to any limitation, impairment or discharge for any reason (other than payment in full in cash of the Guarantied Obligations), including without limitation the occurrence of any of the following, whether or not any Guarantor shall have had notice or knowledge of any of them: (a) any failure to assert or enforce or agreement not to assert or enforce, or the stay or enjoining, by order of court, by operation of law or otherwise, of the exercise or enforcement of, any claim or demand or any right, power or remedy with respect to the Guarantied Obligations or any agreement relating thereto, or with respect to any other guaranty of or security for the payment of the Guarantied Obligations, (b) any waiver or modification of, or any consent to departure from, any of the terms or provisions of the Credit Agreement, any of the other Loan Documents or any agreement or instrument executed pursuant thereto, or of any other guaranty or security for the Guarantied Obligations, (c) the Guarantied Obligations, or any agreement rela ting thereto, at any time being found to be illegal, invalid, unenforceable or disallowed in any respect (including, without limitation, pursuant to Section 502 of the Bankruptcy Code), (d) the application of payments received from any source to the payment of indebtedness other than the Guarantied Obligations, even though Guarantied Party or the other Beneficiaries, or any of them, might have elected to apply such payment to any part or all of the Guarantied Obligations, (e) any failure to perfect or continue perfection of a security interest in any collateral which secures any of the Guarantied Obligations, (f) any defenses, set-offs or counterclaims which Borrowers may assert against Guarantied Party or any Beneficiary in respect of the Guarantied Obligations, including but not limited to failure of consideration, breach of warranty, payment, statute of frauds, statute of limitations, accord and satisfaction and usury, and (g) any other act or thing or omission, or delay to do any other act or thing, which may or might in any manner or to any extent vary the risk of a Guarantor as an obligor in respect of the Guarantied Obligations. Waivers. Each Guarantor waives, for the benefit of Beneficiaries: (a) any right to require Guarantied Party or the other Beneficiaries, as a condition of payment or performance by such Guarantor, to (i) proceed against Borrowers, any other guarantor (including any other Guarantor) of the Guarantied Obligations or any other Person, (ii) proceed against or exhaust any security held from Borrowers, any other guarantor of the Guarantied Obligations or any other Person, (iii) proceed against or have resort to any balance of any deposit account or credit on the books of any Beneficiary in favor of Borrowers or any other Person, or (iv) pursue any other remedy in the power of any Beneficiary; (b) any defense arising by reason of the incapacity, lack of authority or any disability or other defense of Borrowers including, without limitation, any defense based on or arising out of the lack of validity or the unenforceability of the Guarantied Obligations or any agreement or instrument relating thereto or by reason of the cessation of the liability of Borrowers from any cause other than payment in full of the Guarantied Obligations; (c) any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in other respects more burdensome than that of the principal; (d) any defense based upon Guarantied Party's or any other Beneficiary's errors or omissions in the administration of the Guarantied Obligations, except behavior that amounts to bad faith; (e) (i) any principles or provisions of law, statutory or otherwise, that are or might be in conflict with the terms of this Guaranty and any legal or equitable discharge of such Guarantor's obligations hereunder, (ii) the benefit of any statute of limitations affecting such Guarantor's liability hereunder or the enforcement hereof, (iii) any rights to set-offs, recoupments and counterclaims, and (iv) promptness, diligence and any requirement that any Beneficiary protect, secure, perfect or insure any Lien or any property subject thereto; (f) notices, demands, presentments, protests, notices of protest, notices of dishonor and notices of any action or inaction, including acceptance of this Guaranty, notices of default under the Credit Agreement, notices of any renewal, extension or modification of the Guarantied Obligations or any agreement related thereto, notices of any extension of credit to Borrowers and notices of any of the matters referred to in Section 3 and 4 hereof and any right to consent to any thereof; and (g) to the fullest extent permitted by law, any defenses or benefits that may be derived from or afforded by law which limit the liability of or exonerate guarantors or sureties, or which may conflict with the terms of this Guaranty. Guarantors' Rights of Subrogation, Contribution, Etc.; Subordination of Other Obligations. Each Guarantor waives any claim, right or remedy, direct or indirect, that such Guarantor now has or may hereafter have against Borrowers or any of its assets in connection with this Guaranty or the performance by such Guarantor of its obligations hereunder, in each case whether such claim, right or remedy arises in equity, under contract, by statute under common law or otherwise and including without limitation (a) any right of subrogation, reimbursement or indemnification that such Guarantor now has or may hereafter have against Borrowers, (b) any right to enforce, or to participate in, any claim, right or remedy that any Beneficiary now has or may hereafter have against Borrowers, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Beneficiary. In addition, until the Guarantied Obligations shall have been paid in full in cash and the Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, each Guarantor shall withhold exercise of any right of contribution such Guarantor may have against any other guarantor of any of the Guarantied Obligations. Each Guarantor further agrees that, to the extent the waiver or agreement to withhold the exercise of its rights of subrogation, reimbursement, indemnification and contribution as set forth herein is found by a court of competent jurisdiction to be void or voidable for any reason, any rights of subrogation, reimbursement or indemnification such Guarantor may have against Borrowers or against any collateral or security, and any rights of contribution such Guarantor may have against any such other guarantor, shall be junior and subordinate to any rights Guarantied Party or the other Beneficiaries may have against Borrowers, to all right, title and interest Guarantied Party or the other Beneficiaries may have in any such collateral or security, and to any right Guarantied Party or the other Beneficiaries may have against such other guarantor. Any indebtedness of Borrowers now or hereafter held by any Guarantor is subordinated in right of payment to the Guarantied Obligations, and any such indebtedness of Borrowers to a Guarantor collected or received by such Guarantor after an Event of Default has occurred and is continuing, and any amount paid to a Guarantor on account of any subrogation, reimbursement, indemnification or contribution rights referred to in the preceding paragraph when all Guarantied Obligations have not been paid in full in cash, shall be held in trust for Guarantied Party on behalf of Beneficiaries and shall forthwith be paid over to Guarantied Party for the benefit of Beneficiaries to be credited and applied against the Guarantied Obligations. Expenses. Guarantors jointly and severally agree to pay, or cause to be paid, on demand, and to save Guarantied Party and the other Beneficiaries harmless against liability for, (i) any and all costs and expenses (including fees and disbursements of counsel and allocated costs of internal counsel) incurred or expended by Guarantied Party or any other Beneficiary in connection with the enforcement of or preservation of any rights under this Guaranty and (ii) any and all costs and expenses (including those arising from rights indemnification) required to be paid by Guarantors under the provisions of any other Loan Document, together with any and all interest (at the default rate set forth in subsection 2.2E of the Credit Agreement) that shall accrue on unpaid costs and expenses referred to in clause (i) and (ii) hereof (to the extent permitted by applicable law). Financial Condition of Borrowers. No Beneficiary shall have any obligation, and each Guarantor waives any duty on the part of any Beneficiary, to disclose or discuss with such Guarantor its assessment, or such Guarantor's assessment, of the financial condition of Borrowers or any matter or fact relating to the business, operations or condition of Borrowers. Each Guarantor has adequate means to obtain information from Borrowers on a continuing basis concerning the financial condition of Borrowers and their ability to perform their obligations under the Loan Documents, and each Guarantor assumes the responsibility for being and keeping informed of the financial condition of Borrowers and of all circumstances bearing upon the risk of nonpayment of the Guarantied Obligations. Representations and Warranties. Each Guarantor makes, for the benefit of Beneficiaries, each of the representations and warranties made in the Credit Agreement by Borrowers as to such Guarantor, its assets, financial condition, operations, organization, legal status, business and the Loan Documents to which it is a party. Covenants. Each Guarantor agrees that, so long as any part of the Guaranteed Obligations shall remain unpaid, any Letter of Credit shall be outstanding, or any Lender shall have any Commitment, such Guarantor will, unless Requisite Lenders shall otherwise consent in writing, perform or observe, and cause its Subsidiaries to perform or observe, all of the terms, covenants and agreements that the Loan Documents state that Borrowers are to cause a Guarantor and such Subsidiaries to perform or observe. Set Off. In addition to any other rights any Beneficiary may have under law or in equity, if any amount shall at any time be due and owing by a Guarantor to any Beneficiary under this Guaranty, such Beneficiary is authorized at any time or from time to time, without notice (any such notice being expressly waived), to set off and to appropriate and to apply any and all deposits (general or special, including but not limited to indebtedness evidence by certificates of deposit, whether matured or unmatured) and any other indebtedness of such Beneficiary owing to a Guarantor and any other property of such Guarantor held by a Beneficiary to or for the credit or the account of such Guarantor against and on account of the Guarantied Obligations and liabilities of such Guarantor to any Beneficiary under this Guaranty. Taxes and Set-off by Guarantors. All payments to be made by the Guarantors hereunder will be made without set-off or counterclaim and without deduction for any taxes, levies, duties, fees, deductions, withholdings, restrictions or conditions of any nature whatsoever. If at any time any applicable law, regulation or international agreement requires any Guarantor to make any such deduction or withholding from any such payment, the sum due from such Guarantor with respect to such payment will be increased to the extent necessary to ensure that, after the making of such deduction or withholding, each Lender receives a net sum equal to the sum which it would have received had no deduction or withholding been required. Discharge of Guaranty Upon Sale of Guarantor. If all of the stock of a Guarantor or any of its successors in interest under this Guaranty shall be sold or otherwise disposed of (including by merger or consolidation) in a sale not prohibited by the Credit Agreement or otherwise consented to by Lenders, the obligations of such Guarantor or such successor in interest, as the case may be, hereunder shall automatically be discharged and released without any further action by any Beneficiary or any other Person effective as of the time of such sale; provided that, if the sale of such stock constitutes an Asset Sale as a condition precedent to such discharge and release, Guarantied Party shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery to Guarantied Party of the Net Asset Sale Proceeds of such Asset Sale as required by the Credit Agreement. Amendments and Waivers. No amendment, modification, termination or waiver of any provision of this Guaranty, and no consent to any departure by any Guarantor therefrom, shall in any event be effective without the written concurrence of Guarantied Party and, in the case of any such amendment or modification, Guarantors. Any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. Miscellaneous. It is not necessary for Beneficiaries to inquire into the capacity or powers of any Guarantor or Borrowers or the officers, directors or any agents acting or purporting to act on behalf of any of them. The rights, powers and remedies given to Beneficiaries by this Guaranty are cumulative and shall be in addition to and independent of all rights, powers and remedies given to Beneficiaries by virtue of any statute or rule of law or in any of the Loan Documents or any agreement between one or more Guarantors and one or more Beneficiaries or between Borrowers and one or more Beneficiaries. Any forbearance or failure to exercise, and any delay by any Beneficiary in exercising, any right, power or remedy hereunder shall not impair any such right, power or remedy or be construed to be a waiver thereof, nor shall it preclude the further exercise of any such right, power or remedy. In case any provision in or obligation under this Guaranty shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. THIS GUARANTY AND THE RIGHTS AND OBLIGATIONS OF GUARANTORS, GUARANTIED PARTY AND THE OTHER BENEFICIARIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. This Guaranty shall inure to the benefit of Beneficiaries and their respective successors and assigns. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS GUARANTY EACH GUARANTOR ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS GUARANTY. Each Guarantor agrees that service of all process in any such proceeding in any such court may be made by registered or certified mail, return receipt requested, to such Guarantor at its address set forth below its signature hereto, such service being acknowledged by such Guarantor to be sufficient for personal jurisdiction in any action against such Guarantor in any such court and to be otherwise effective and binding service in every respect. Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of Guarantied Party or any Beneficiary to bring proceedings against such Guarantor in the courts of any other jurisdiction. EACH GUARANTOR AND, BY ITS ACCEPTANCE OF THE BENEFITS HEREOF, GUARANTIED PARTY EACH AGREES TO WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS GUARANTY. The scope of this waiver is intended to be all-encompassing of any and all disputes that may be filed in any court and that relate to the subject matter of this transaction, including without limitation contract claims, tort claims, breach of duty claims and all other common law and statutory claims. Each Guarantor and, by its acceptance of the benefits hereof, Guarantied Party each (i) acknowledges that this waiver is a material inducement for such Guarantor and Guarantied Party to enter into a business relationship, that such Guarantor and Guarantied Party have already relied on this waiver in entering into this Guaranty or accepting the benefits thereof, as the case may be, and that each will continue to rely on this waiver in their related future dealings, and (ii) further warrants and represents that each has reviewed this waiver with its legal counsel and that each knowingly and voluntarily waives its jury trial rights following consultation with legal counsel. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS OF THIS GUARANTY. In the event of litigation, this Guaranty may be filed as a written consent to a trial by the court. Additional Guarantors . The initial Guarantor(s) hereunder shall be such of the Subsidiaries of Borrowers as are signatories hereto on the date hereof. From time to time subsequent to the date hereof, Subsidiaries of Borrowers shall become parties hereto, in accordance with and subject to subsection 6.8A of the Credit Agreement, as additional Guarantors (each an "Additional Guarantor"), by executing a counterpart of this Guaranty. A form of such a counterpart is attached as Exhibit A. Upon delivery of any such counterpart to Guarantied Party, notice of which is hereby waived by Guarantors, each such Additional Guarantor shall be a Guarantor and shall be as fully a party hereto as if such Additional Guarantor were an original signatory hereof. Each Guarantor expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Guarantor hereunder, nor by any election of the Guarantied Party not to cause any Subsidiary of Borrowers to become an Additional Guarantor hereunder. This Guaranty shall be fully effective as to any Guarantor that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Guarantor hereunder. Counterparts; Effectiveness. This Guaranty may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original for all purposes; but all such counterparts together shall constitute but one and the same instrument. This Guaranty shall become effective as to each Guarantor upon the execution of a counterpart hereof by such Guarantor (whether or not a counterpart hereof shall have been executed by any other Guarantor) and receipt by the Guaranteed Party of written or telephonic notification of such execution and authorization of delivery thereof. Guarantied Party as Agent. Guarantied Party has been appointed to act as Guarantied Party hereunder by Lenders. Guarantied Party shall be obligated, and shall have the right hereunder, to make demands, to give notices, to exercise or refrain from exercising any rights, and to take or refrain from taking any action, solely in accordance with this Guaranty and the Credit Agreement. Guarantied Party shall at all times be the same Person that is Administrative Agent under the Credit Agreement. Written notice of resignation by Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute notice of resignation as Guarantied Party under this Guaranty; removal of Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute removal as Guarantied Party under this Guaranty; and appointment of a successor Administrative Agent pursuant to subsection 9.5 of the Credit Agreement shall also constitute appointment of a successor Guarantied Party under this Guaranty. Upon the acceptance of any appointment as Administrative Agent under subsection 9.5 of the Credit Agreement by successor Administrative Agent, that successor Administrative Agent shall thereupon succeed to become vested with all the rights, powers, privileges and duties of the retiring or removed Guarantied Party under this Guaranty, and the retiring or removed Guarantied Party under this Guaranty shall promptly (i) transfer to such successor Guarantied Party all sums held hereunder, together with all records and other documents necessary or appropriate in connection with the performance of the duties of the successor Guarantied Party under this Guaranty, and (ii) take such other actions as may be necessary or appropriate in connection with the assignment to such successor Guarantied Party of the rights created hereunder, whereupon such retiring or removed Guarantied Party shall be discharged from its duties and obligations under this Guaranty. After any retiring or removed Guarantied Party's resignation or removal hereunder as Guarantied Party, the provisions of this Guaranty shall inure to its benefits as to any actions taken or omitted to be taken by it under this Guaranty while it was Guarantied Party hereunder. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, each Guarantor (and Guarantied Party solely for the purposes of the waiver of the right to jury trial contained in Section 15) has caused this Guaranty to be duly executed and delivered by its respective officer thereunto duly authorized as of the date first written above. Each of the entities listed on Schedule A annexed hereto By: /s/ Jeffrey R. Horowitz ----------------------------------------------- Name: Jeffrey R. Horowitz Title: Authorized Officer Each of the entities listed on Schedule B annexed hereto By: /s/ William J. Metzger ----------------------------------------------- Name: William J. Metzger Title: Authorized Officer Notice Address: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, New Jersey 07007 Attn: Jeffrey Horowitz, Esq. BANK OF AMERICA, N.A. as Guarantied Party By: /s/ Michael R. Heredia ----------------------------------------------- Name: Michael R. Heredia Title: Managing Director Notice Address: Attention: Barry Flynn 1 Independence Center 101 North Tryon Street Charlotte, NC 28255 EX-10.3DIII 13 covex10-3diii_718.txt EXHIBIT 10.3(d)(iii) -------------------- COVANTA ENERGY CORPORATION RESTRICTED STOCK UNIT PLAN FOR NON-EMPLOYEE DIRECTORS (as amended and restated on May 23, 2001) INTRODUCTION The purpose of this Plan is to enhance the profitability and value of the Company for the benefit of its stockholders by enabling: (i) the Company to automatically grant Restricted Stock Units to Non-Employee Directors with respect to fifty percent (50%) of their Retainer Fees; (ii) the Company to automatically grant Common Stock to Non-Employee Directors with respect to 50% of their Meeting Fees and (iii) Non-Employee Directors to elect to receive Restricted Stock Units in lieu of Common Stock and cash with respect to the Retainer and Meeting Fees not automatically paid in Restricted Stock Units, thereby creating a means to raise the level of stock ownership by Non-Employee Directors in order to attract, retain and reward such individuals and strengthen the mutuality of interests between such individuals and the Company's stockholders. This Plan is an amendment and restatement of the Ogden Corporation Restricted Stock Plan for Non-Employee Directors, which was adopted on February 17, 2000, and any grants of restricted stock or other awards made prior to July 1, 2001 under such plan shall continue to be governed by the terms of such plan prior to this amendment and restatement. ARTICLE I DEFINITIONS For purposes of this Plan, the following terms shall have the following meanings: I.1 "BOARD" shall mean the Board of Directors of the Company. I.2 "CAUSE" shall mean (with regard to a Non-Employee Director's Termination of Directorship) an act or failure to act that constitutes cause for removal of a director under applicable Delaware law. I.3 "CHANGE IN CONTROL" shall have the meaning set forth in Article VII. I.4 "CODE" shall mean the Internal Revenue Code of 1986, as amended. I.5 "COMMON STOCK" shall mean the common stock, $.50 par value per share, of the Company. I.6 "COMPANY" shall mean Covanta Energy Corporation and any successor by merger, consolidation or otherwise. I.7 "DEFAULT PAYMENT DATE" shall mean the date specified in Article VI.5(a) of the Plan. I.8 "DEFERRAL ACCOUNT" shall mean the account established and maintained by the Company pursuant to Article VI.3 of the Plan. Deferral Accounts shall be maintained solely as bookkeeping entries by the Company to evidence unfunded obligations of the Company. I.9 "DEFERRAL ELECTION" shall mean an election made to defer receipt of certain awards pursuant to Article VI of the Plan. I.10 "DEFERRAL ELECTION FORM" shall mean a written election form submitted by the Non-Employee Director to make a Deferral Election, pursuant to Article VI.1 of the Plan. I.11 "DISABILITY" shall mean the inability of the Non-Employee Director to perform his material duties as a director of the Company due to a physical or mental injury, infirmity or incapacity for one hundred eighty (180) consecutive days. The existence or nonexistence of a Disability shall be determined by a physician agreed upon in good faith by the Non-Employee Director and the Board. I.12 "DIVIDEND EQUIVALENT" shall mean a right credited to a Non-Employee Director's Deferral Account pursuant to Article VI.4 of the Plan. I.13 "EFFECTIVE DATE" shall mean February 17, 2000 with respect to any awards granted prior to July 1, 2001, or May 23, 2001 with respect to awards granted on or after July 1, 2001. I.14 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended. I.15 "FAIR MARKET VALUE" shall mean, on any date, (i) the closing price of a share of Common Stock as reported on the principal securities exchange on which shares of Common Stock are then listed or admitted to trading or (ii) if not so reported, the average of the closing bid and ask prices on such date as reported on the Nasdaq Stock Market, Inc. or (iii) if not so reported, as furnished by any member of the National Association of Securities Dealers, Inc. selected by the Board. In the event that the price of a share of Common Stock shall not be so reported, the Fair Market Value of a share of Common Stock shall be determined by a qualified appraiser selected by the Board. Notwithstanding anything herein to the contrary, the fair market value of a share of Common Stock on any date means the price for Common Stock set by the Board in good faith based on reasonable methods set forth under Section 422 of the Code and the regulations thereunder including, without limitation, a method utilizing the average prices of the Common Stock reported on the principal national securities exchange on which it is then traded on the Nasdaq Stock Market, Inc. during a reasonable period designated by the Board. I.16 "MEETING FEE(S)" shall mean any fees to which a Non-Employee Director is entitled for attending Board meetings (including by telephonic means) or for attending the meetings of any Board committee (including by telephonic means) of which the Non-Employee Director is a member. Meeting Fees shall not include expense reimbursements, amounts realized upon the exercise of a stock option, restricted stock, RSUs or any other amounts paid to the Non-Employee Director. I.17 "MODIFIED PAYMENT DATE" shall mean the date specified in Article VI.5(c) of the Plan. I.18 "NON-EMPLOYEE DIRECTOR" shall mean any director of the Company who is not an employee of the Company or any of its subsidiaries. I.19 "PAYMENT DATE" shall mean the date specified in Article VI.5(c) of the Plan. I.20 "PLAN" shall mean the Covanta Energy Corporation RSU Plan for Non-Employee Directors (formerly known as the Ogden Corporation Restricted Stock Plan for Non-Employee Directors). I.21 "PLAN YEAR" shall mean January 1, 2002 through December 31, 2002, and each fiscal year of the Company thereafter; provided, however, that the initial Plan Year with respect to awards made on or after July 1, 2001, shall begin on July 1, 2001 and shall end on December 31, 2001. I.22 "QUARTERLY GRANT DATE" shall mean the date specified in Article V.2(b) of the Plan. I.23 "RESTRICTED STOCK UNITS" or "RSUs" shall mean an award made to Non-Employee Directors under the Plan pursuant to Article V. I.24 "RETAINER FEE(S)" shall mean the fee to which a Non-Employee Director is entitled for service on the Board as a director during a fiscal year of the Company. Retainer Fees shall not include expense reimbursements, amounts realized upon the exercise of a stock option, restricted stock, RSUs or any other amounts paid to the Non-Employee Director. I.25 "RETAINER GRANT DATE" shall mean the date specified in Article V.2 of the Plan. I.26 "RULE 16b-3" shall mean Rule 16b-3 under Section 16(b) of the Exchange Act as then in effect or any successor provisions. I.27 "TERMINATION OF DIRECTORSHIP" shall mean that the Non-Employee Director has ceased to be a director (whether as a non-employee director or an employee director) of the Company. I.28 "TRANSFER" or "TRANSFERRED" shall mean anticipate, alienate, attach, sell, assign, pledge, encumber, charge or otherwise transfer. ARTICLE II ADMINISTRATION II.1 THE BOARD. The Plan shall be administered and interpreted by the Board. II.2 AWARDS OF RSUs. The Board shall have full authority to interpret the Plan and to decide any questions and settle all controversies and disputes that may arise in connection with the Plan; to establish, amend and rescind rules for carrying out the Plan; to administer the Plan, subject to its provisions; to make grants under the Plan, subject to its provisions; to prescribe the form or forms of instruments evidencing awards of RSUs and any other instruments required under the Plan and to change such forms from time to time; and to make all other determinations and to take all such steps in connection with the Plan and the awards of RSUs as the Board, in its sole discretion, deems necessary or desirable, including the delegation of its administrative responsibilities. II.3 GUIDELINES. The Board may correct any defect, supply any omission or reconcile any inconsistency in this Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to carry this Plan into effect but only to the extent any such action would be permitted under the applicable provisions of Rule 16b-3. The Board may adopt special guidelines and provisions for persons who are residing in, or subject to, the taxes of, countries other than the United States to comply with applicable tax and securities laws. To the extent applicable, this Plan is intended to comply with the applicable requirements of Rule 16b-3 and shall be limited, construed and interpreted in a manner so as to comply therewith. II.4 DECISIONS FINAL. Any decision, interpretation or other action made or taken in good faith by or at the direction of the Company or the Board (or any of its members) arising out of or in connection with the Plan shall be within the absolute discretion of all and each of them, as the case may be, and shall be final, binding and conclusive on the Company and Non-Employee Directors and their respective heirs, executors, administrators, successors and assigns. II.5 DESIGNATION OF CONSULTANTS/LIABILITY. (a) The Board may designate employees of the Company and professional advisors to assist the Board in the administration of the Plan and may grant authority to employees to execute agreements or other documents on behalf of the Board. (b) The Company or the Board may consult with and employ such legal counsel, consultants and agents as it may deem desirable for the administration of the Plan (who may be legal counsel, a consultant or agent of the Company) and may rely upon any opinion received from any such counsel or consultant and any computation received from any such consultant or agent. Expenses incurred by the Board in the engagement of any such counsel, consultant or agent shall be paid by the Company. The Board, its members and any person designated pursuant to paragraph (a) above shall not be liable for any action or determination made in good faith with respect to the Plan. To the maximum extent permitted by applicable law, no officer of the Company or member or former member of the Board shall be liable for any action or determination made in good faith with respect to the Plan or any award of RSUs granted under it. To the maximum extent permitted by applicable law and the Certificate of Incorporation and By-Laws of the Company, and to the extent not covered by insurance, each officer and member or former member of the Board shall be indemnified and held harmless by the Company against any cost or expense (including reasonable fees of counsel reasonably acceptable to the Company) or liability (including any sum paid in settlement of a claim with the approval of the Company), and advanced amounts necessary to pay the foregoing at the earliest time and to the fullest extent permitted, arising out of any act or omission to act in connection with the Plan, except to the extent arising out of such officer's, member's or former member's own fraud or bad faith. Such indemnification shall be in addition to any rights of indemnification the officers, directors or members or former officers, directors or members may have under applicable law or under the Certificate of Incorporation or By-Laws of the Company. Notwithstanding anything else herein, this indemnification will not apply to the actions or determinations made by an individual with regard to awards of RSUs granted to him under this Plan. ARTICLE III SHARE AND OTHER LIMITATIONS III.1 SHARES TO BE DELIVERED. Shares to be issued under the Plan shall be made available only from issued shares of Common Stock reacquired by the Company and held in treasury. The aggregate number of shares of Common Stock which may be issued under this Plan (including any shares issued under the Plan prior to the May 23, 2001 amendment and restatement) shall not exceed 160,000 shares (subject to any increase or decrease pursuant to Article III.2). Notwithstanding the foregoing, if (i) any shares underlying RSUs awarded under this Plan to a Non-Employee Director or (ii) any shares of restricted stock granted to a Non-Employee Director are forfeited for any reason, the number of forfeited shares underlying such RSUs or the restricted stock shall again be available for purposes of granting awards of RSUs under the Plan. III.2 ADJUSTMENTS UPON CERTAIN EVENTS. (a) Adjustments. The existence of the Plan and any award of RSUs granted hereunder shall not affect in any way the right or power of the Board or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company's capital structure or its business, any merger or consolidation of the Company, any issue of bonds, debentures, preferred or prior preference stocks ahead of or affecting Common Stock, the dissolution or liquidation of the Company, any sale or transfer of all or part of the assets or business of the Company, or any other corporate act or proceeding. (b) Capital Structure. In the event of (i) any such change in the capital structure or business of the Company by reason of any stock dividend or distribution, stock split or reverse stock split, recapitalization, reorganization, merger, consolidation, spin-off, split-up, combination or exchange of shares, distribution with respect to its outstanding Common Stock or capital stock other than Common Stock, sale or transfer of all or part of its assets or business, reclassification of its capital stock, or any similar change affecting the Company's capital structure or business and (ii) the Board determines an adjustment is appropriate under the Plan, then the aggregate number and kind of shares which thereafter may be issued under this Plan shall be appropriately adjusted consistent with such change in such manner as the Board may deem equitable to prevent substantial dilution or enlargement of the rights granted to, or available for, Non-Employee Directors under this Plan or as otherwise necessary to reflect the change, and any such adjustment determined by the Board shall be binding and conclusive on the Company and all Non-Employee Directors and their respective heirs, executors, administrators, successors and assigns. (c) Fractional Shares. Fractional shares resulting from adjustment pursuant to Article III.2(a) and (b) shall rounded to the nearest three decimal places. ARTICLE IV ELIGIBILITY Awards may be granted under this Plan only to Non-Employee Directors. ARTICLE V AWARDS UNDER THE PLAN V.1 GENERAL. In addition to the Retainer and Meeting Fees discussed in this Article V, the Board shall have the discretion to grant RSUs from time to time as it deems appropriate. For purposes of this Plan, each RSU represents the right to receive one share of Common Stock pursuant to the terms and conditions set forth in this Plan, unless otherwise provided in an individual Restricted Stock Unit award agreement. V.2 RETAINER FEES. Non-Employee Directors are entitled to receive a Retainer Fee, half of which is paid on the Retainer Grant Date, the other half of which is paid in four equal installments on the Quarterly Grant Dates, as described below. (a) Retainer Fee Paid on Retainer Grant Date. Fifty percent (50%) of the Non-Employee Director's total Retainer Fee shall be paid in the form of RSUs on the first Board meeting of the Company's fiscal year (the "Retainer Grant Date"). The number of RSUs to which the Non-Employee Director will be entitled on the Retainer Grant Date will be equal to 50% of the total Retainer Fee divided by the Fair Market Value of the Common Stock on the Retainer Grant Date, with fractional RSUs being rounded to the nearest three decimal places. These RSUs shall vest on the earliest to occur of the following events: (i) the first anniversary of the applicable Retainer Grant Date; (ii) a Non-Employee Director's attainment of age seventy-two (72); (iii) a Non-Employee Director's Disability; or (iv) a Non-Employee Director's death. Prior to the lapse of the vesting period, the Non-Employee Director shall have no rights as a shareholder with respect to RSUs, and such RSUs may not be Transferred. Unless the Board decides to take specific action at grant with respect to RSUs (provided that it is consistent with the Plan's terms), any grant to a Non-Employee Director of RSUs described in this Article V.2(a) shall be automatic without further action by the Board or the stockholders of the Company. Unless a Deferral Election is made with respect to the RSUs granted in this Article V.2(a), once the RSUs have vested, the Non-Employee Director shall receive certificates for whole shares of Common Stock for each RSU, with any fractional shares being paid in cash based on the then Fair Market Value of the Common Stock. Unless otherwise determined by the Board at grant or thereafter, upon a Non-Employee Director's Termination of Directorship for any reason (other than death or Disability), all RSUs that have not yet vested shall be forfeited. Upon a Non-Employee Director's Termination of Directorship by the Company for Cause, all unvested RSUs shall be forfeited. (b) Retainer Fees Paid on Quarterly Grant Dates. The remaining fifty percent (50%) of the total Retainer Fee shall be paid in four equal installments on the last day of each calendar quarter (the "Quarterly Grant Date") either in cash, or the case of a Deferral Election, in RSUs. If the Non-Employee Director makes a Deferral Election to receive RSUs in lieu of cash, the number of RSUs to which the Non-Employee Director will be entitled on the applicable Quarterly Grant Date will be equal to twelve and one-half percent (12.5%) of the total Retainer Fee divided by the Fair Market Value of the Common Stock on such date, with fractional RSUs being rounded to the nearest three decimal places. These RSUs shall be immediately vested. V.3. MEETING FEES. Non-Employee Directors shall be granted Meeting Fees four times in each Plan Year (two times, in the initial Plan Year), which shall be paid on the Quarterly Grant Dates. (a) Meeting Fees Required to be Paid in Common Stock or RSUs. Fifty percent (50%) of the Meeting Fees will be paid in Common Stock or, in the case of a Deferral Election, in RSUs. The number of shares of Common Stock or RSUs, as applicable, to which the Non-Employee Director will be entitled on each Quarterly Grant Date will be equal to 50% of the Meeting Fees for the applicable quarter then ending, divided by the Fair Market Value of the Common Stock on the applicable Quarterly Grant Date, with fractional shares of Common Stock or RSUs being rounded to the nearest three decimal places. If a Deferral Election has been made, these RSUs shall be immediately vested. Unless the Board decides to take specific action at grant with respect to Common Stock or RSUs (provided that it is consistent with the Plan's terms), any grant to a Non-Employee Director of Common Stock or RSUs described in this Article V.3(a) shall be automatic without further action by the Board or the stockholders of the Company. (b) Meeting Fees Paid in Cash or RSUs. The remaining 50% of the Meeting Fees will be paid either in cash, or in the case of a Deferral Election, in a number of RSUs calculated in accordance with Article V.3(a) above, which shall also be immediately vested. V.4 SPECIAL RULE FOR CHAIRMAN OF THE BOARD. Notwithstanding anything in this Plan to the contrary, the Chairman of the Board of the Company shall receive his Retainer Fee in four equal installments on each Quarterly Grant Date. Unless otherwise provided by the Board, the Chairman of the Board shall not be entitled to any awards that are attributable to Meeting Fees. Fifty percent (50%) of the Chairman's Retainer Fee shall be paid in Common Stock or, in the case of a Deferral Election, in RSUs, with the Chairman receiving a number of shares of Common Stock or RSUs, as applicable, in each Quarterly Grant Date equal to twelve and one-half percent (12.5%) of his total Retainer Fee divided by the Fair Market Value of the Common Stock on the applicable Quarterly Grant Date. Unless the Board decides to take specific action at grant with respect to Common Stock or RSUs (provided that it is consistent with the Plan's terms), any grant to the Chairman of the Board of the Common Stock or RSUs described above shall be automatic without further action by the Board or the stockholders of the Company. The remaining 50% of the Chairman's Retainer Fee shall be paid in cash, or in the case of a Deferral Election, in a number of RSUs calculated in accordance with this Article V.4, in lieu of cash. All RSUs granted pursuant to this Article V.4 shall be immediately vested. V.5 SPECIAL RULE FOR PARTIAL YEAR OF SERVICE. If a Non-Employee Director commences service for the Company in the middle of a fiscal year, he shall be entitled to a pro-rata share of the annual Retainer Fee for the number of full months remaining in the fiscal year, and Meeting Fees for the remaining Quarterly Grant Dates in the fiscal year. The pro-rata RSUs attributable to the Retainer Fee shall be granted on the date the Non-Employee Director commences service with the Company based on the Fair Market Value on such date, and shall vest on the first anniversary of the grant date. The remainder of the pro-rata Retainer Fee shall be paid in equal installments on each of the Quarterly Grant Dates remaining in the fiscal year. Except as provided in this Article V.5, all pro-rata fees shall be governed by the terms and conditions in this Plan. ARTICLE VI DEFERRAL OF AWARDS VI.1 DEFERRAL ELECTION. On or before the December 31 preceding the Plan Year in which the Non-Employee Director earns the Retainer Fee and Meeting Fees for such Plan Year, the Non-Employee Director may make an election to defer receipt subject to this Article VI (a "Deferral Election"), of certain types of awards made pursuant to the plan, as follows: (a) The Non-Employee Director may make a Deferral Election so that the RSUs granted pursuant to Article V.2(a) that would normally be paid to the Non-Employee Director in shares of Common Stock on the anniversary of the applicable Retainer Grant Date shall instead be placed in a Deferral Account, and settled in Common Stock on the Payment Date. (b) The Non-Employee Director may make a Deferral Election to have the portion of the fees that would normally be paid in cash pursuant to Article V.2(b) or Article V.3(b) to instead be paid in RSUs, which shall be placed in a Deferral Account and settled in Common Stock on the Payment Date. (c) The Non-Employee Director may make a Deferral Election to have the portion of the Meeting Fee that would normally be paid in Common Stock pursuant to Article V.3(a) to instead be paid in RSUs, which shall be placed in a Deferral Account and settled in Common Stock on the Payment Date. (d) The Chairman of the Board may make a Deferral Election to receive RSUs in lieu of the Common Stock or cash that would normally be paid pursuant to Article V.4, which shall instead be placed in a Deferral Account and settled in Common Stock on the Payment Date. The Company will provide a form of election that will permit a Non-Employee Director to make appropriate elections (the "Deferral Election Form"). Deferral Elections shall be deemed continuing, and therefore applicable to Plan Years after the first Plan Year covered by the election, until the election is modified or superseded by the Non-Employee Director; however, Deferral Elections shall become irrevocable at the commencement of the Plan Year to which an election relates. Under no circumstances may a Non-Employee Director defer receipt of Common Stock or cash under this Plan if, at the time of the attempted deferral, such director has a legally enforceable right to current receipt of such an award. Prior to the Payment Date, the Non-Employee Director shall have no rights as a shareholder with respect to any Common Stock (except as provided in Article VI.4), and RSUs may not be Transferred prior to the Payment Date. VI.2 SPECIAL RULE FOR INITIAL PLAN YEAR. Notwithstanding the foregoing, in the initial Plan Year, a Non-Employee Director may make a Deferral Election with respect to awards to be received for the last two calendar quarters of 2001, provided that such election is made on or before June 30, 2001. VI.3 DEFERRAL ACCOUNT. If the Non-Employee Director makes a Deferral Election, the Company will establish a Deferral Account on behalf of the Non-Employee Director. RSUs will be credited to the Deferral Account as of the date on which the cash or Common Stock would have been paid to the Non-Employee Director but for the Deferral Election. Any fractional RSUs shall be rounded to the nearest three decimal places. VI.4 DIVIDEND EQUIVALENTS. Dividend Equivalents will be credited to the Non-Employee Director's Deferral Account with respect to RSUs as follows: (a) Cash and Non-Share Dividends. If the Company declares and pays a dividend on Common Stock in the form of cash or property other than shares of Common Stock, then a number of additional RSUs shall be credited to a Non-Employee Director's Deferral Account as of the payment date for such dividend equal to (i) the number of RSUs credited to the Deferral Account as of the record date for such dividend, multiplied by (ii) the amount of cash plus the Fair Market Value of any property other than shares actually paid as a dividend on each share at such payment date, divided by (iii) the Fair Market Value of a share of Common Stock at such payment date, with any fractional shares being rounded to the nearest three decimal places. (b) Share Dividends and Splits. If the Company declares and pays a dividend on Common Stock in the form of additional shares of Common Stock, or there occurs a forward split of Common Stock, then a number of additional RSUs shall be credited to the Non-Employee Director's Deferral Account as of the payment date for such dividend or forward stock split equal to (i) the number of RSUs credited to the Deferral Account as of the record date for such dividend or split multiplied by (ii) the number of additional shares actually paid as a dividend or issued in such split in respect of each share of Common Stock, with any fractional shares being rounded to the nearest three decimal places. VI.5 PAYMENT DATE. (a) General Rule. Except as otherwise permitted herein and so indicated in writing in the Deferral Election Form, the Non-Employee Director's Deferral Account will be settled in a lump sum on the first day of the calendar quarter following the calendar quarter of the Termination of Directorship (the "Default Payment Date"). (b) Election to Receive Annual Installments. In the Deferral Election Form, the Non-Employee Director may elect to have the Deferral Account settled in up to ten (10) annual installments beginning on the Payment Date, rather than in a lump-sum payment, provided that any such election made pursuant to this Article VI.5 is made at least one year prior to the Payment Date. (c) Election to Modify Payment Date. A Non-Employee Director may choose to have his Deferral Account settled on a date earlier than the Default Payment Date at any time (the new date referred to herein as the "Modified Payment Date") by so indicating in a Deferral Election Form, provided that such an election is made at least one year prior to the earlier of the Default Payment Date or, if applicable, any previously elected Modified Payment Date, and subject to any other requirements as may be specified by the Company. The foregoing notwithstanding, the Board may disapprove or limit elections under this Article VI.5(c) in order to ensure that the Non-Employee Director will not be deemed to have constructively received compensation in respect of his Deferral Account prior to payment. As used in this Plan, the term "Payment Date" shall refer to either the Default Payment Date or the Modified Payment Date, as applicable. VI.6 PAYMENT OF DEFERRAL ACCOUNTS. The Company will settle a Non-Employee Director's Deferral Account by making one or more distributions to the Non-Employee Director (or his beneficiary, following such Non-Employee Director's death) at the time or times, in a lump sum or installments, pursuant to the Deferral Election Form and Article VI.5 of the Plan; provided, however, that a Deferral Account will be settled at times earlier than those specified in such Deferral Election Form in accordance with Article VI.6(b) and (c), and Article VII.1(b). (a) Form of Distribution. Distributions in respect of a Non-Employee Director's Deferral Account shall be made only in shares of Common Stock, with any fractional shares being paid in cash. Shares may be delivered in certificate form to a Non-Employee Director (or his beneficiary) or to a nominee for the account of the Non-Employee Director (or his beneficiary), or in such other manner as the Board may determine. (b) Death. If a Non-Employee Director ceases to serve as a director due to death or dies prior to distribution of all amounts from his Deferral Account, the Company shall make a single lump-sum distribution to the Non-Employee Director's beneficiary. Any such distribution shall be made as soon as practicable following notification to the Company of the Non-Employee Director's death. (c) Financial Emergency and Other Payments. Other provisions of the Plan notwithstanding, if, upon the written application of a Non-Employee Director, the Board determines that the Non-Employee Director has a financial emergency of such a substantial nature and beyond the Non-Employee Director's control that payment of amounts previously deferred under the Plan is warranted, the Board may direct the payment to the Non-Employee Director of all or a portion of the balance of a Deferral Account and the time and manner of such payment. ARTICLE VII CHANGE IN CONTROL PROVISIONS VII.1 BENEFITS. Notwithstanding anything in this Plan to the contrary, upon the occurrence of a Change in Control of the Company: (a) the vesting requirements with respect to any RSUs granted to a Non-Employee Director prior to the Change in Control shall lapse as if the RSUs had vested upon such Change in Control; (b) payments of any Deferral Account (including a Deferral Account with respect to which one or more installment payments have previously been made) shall be made within fifteen (15) business days of the Change in Control; and (c) with respect to cash or Common Stock granted on Quarterly Grant Dates, any cash or Common Stock that would otherwise be made on the last day of the calendar quarter in which the Change in Control occurs shall be made as of the date of the Change in Control, utilizing the Fair Market Value of the Common Stock on the date of the Change in Control to determine the number of shares of Common Stock to be granted. VII.2 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have occurred upon: (a) the acquisition by any person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of twenty-five percent (25%) or more of either (i) the then outstanding shares of Common Stock of the Company or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, provided that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding any acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or any corporation controlled by the Company or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation the conditions described in clause (iii) of paragraph (c) below are met; (b) individuals who, as of the Effective Date, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the Effective Date, whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) the stockholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition of all or substantially all the Company's assets; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. ARTICLE VIII TERMINATION OR AMENDMENT OF THE PLAN VIII.1 Notwithstanding any other provision of this Plan, the Board may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan, or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, unless otherwise required by law or specifically provided herein, the rights of a Non-Employee Director with respect to an award of RSUs granted, or with respect to amounts credited to Deferral Accounts, prior to such amendment, suspension or termination, may not be impaired without the consent of such Non-Employee Director. VIII.2 The Board may amend the terms of any award of RSUs theretofore granted, prospectively or retroactively, but, subject to Article III above or as otherwise specifically provided herein, no such amendment or other action by the Board shall impair the rights of any holder without the holder's consent. ARTICLE IX UNFUNDED PLAN This Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments as to which a Non-Employee Director has a fixed and vested interest but which are not yet made to a Non-Employee Director by the Company, nothing contained herein shall give any such Non-Employee Director any rights that are greater than those of a general creditor of the Company. ARTICLE X GENERAL PROVISIONS X.1 CERTIFICATES. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Board may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the Common Stock is then listed or any national securities association system upon whose system the Common Stock is then quoted, any applicable Federal or state securities law, and any applicable corporate law, and the Board may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. X.2 OTHER PLANS. Nothing contained in this Plan shall prevent the Board from adopting other or additional compensation arrangements, subject to stockholder approval if such approval is required, and such arrangements may be either generally applicable or applicable only in specific cases. X.3 NO RIGHT TO DIRECTORSHIP. Neither this Plan nor the grant of any award of RSUs hereunder shall impose any obligation on the Company to retain any Non-Employee Director as a director nor shall it impose on the part of any Non-Employee Director any obligation to remain as a director of the Company. X.4 WITHHOLDING OF TAXES. The Company shall have the right to deduct from any payment to be made to a Non-Employee Director, or to otherwise require, prior to the issuance or delivery of any shares of Common Stock or the payment of any cash hereunder, payment by the Non-Employee Director of, any federal, state or local taxes required by law to be withheld. The Board may permit any such statutory withholding obligation with regard to any Non-Employee Director to be satisfied by reducing the number of shares of Common Stock otherwise deliverable or by delivering shares of Common Stock already owned. Any fraction of a share of Common Stock required to satisfy such tax obligations shall be disregarded and the amount due shall be paid instead in cash by the Non-Employee Director. X.5 LISTING AND OTHER CONDITIONS. (a) As long as the Common Stock is listed on a national securities exchange or system sponsored by a national securities association, the issue of any shares of Common Stock pursuant to an award of a RSU shall be conditioned upon such shares being listed on such exchange or system. The Company shall have no obligation to issue such shares unless and until such shares are so listed. (b) If at any time counsel to the Company shall be of the opinion that any sale or delivery of shares of Common Stock pursuant to an award of a RSU is or may in the circumstances be unlawful or result in the imposition of excise taxes on the Company under the statutes, rules or regulations of any applicable jurisdiction, the Company shall have no obligation to make such sale or delivery, or to make any application or to effect or to maintain any qualification or registration under the Securities Act of 1933, as amended, or otherwise with respect to shares of Common Stock or awards of RSUs. (c) Upon termination of any period of suspension under this Article X.5, any award of RSUs affected by such suspension that shall not then have expired or terminated shall be reinstated as to all shares available before such suspension and as to shares that would otherwise have become available during the period of such suspension. X.6 GOVERNING LAW. This Plan shall be governed and construed in accordance with the laws of the State of Delaware (regardless of the law that might otherwise govern under applicable Delaware principles of conflict of laws). X.7 CONSTRUCTION. Wherever any words are used in this Plan in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and wherever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply. X.8 OTHER BENEFITS. No award of RSUs or Common Stock under this Plan shall be deemed compensation for purposes of computing benefits under any retirement plan of the Company nor affect any benefits under any other benefit plan now or subsequently in effect under which the availability or amount of benefits is related to the level of compensation. X.9 COSTS. The Company shall bear all expenses included in administering this Plan, including expenses of issuing Common Stock pursuant to any award of RSUs hereunder. X.10 NO RIGHT TO SAME BENEFITS. The provisions of an award of RSUs need not be the same with respect to each Non-Employee Director, and such awards of RSUs to individual Non-Employee Directors need not be the same in subsequent years. X.11 SECTION 16(b) OF THE EXCHANGE ACT. All transactions under the Plan by persons subject to Section 16 of the Exchange Act involving shares of Common Stock, including, without limitation, the grant of RSUs and any withholding of shares of Common Stock by the Company to satisfy required withholding are intended to comply with all exemptive conditions under Rule 16b-3. The Board may establish and adopt written administrative guidelines, designed to facilitate compliance with Section 16(b) of the Exchange Act, as it may deem necessary or proper for the administration and operation of the Plan and the transaction of business thereunder. X.12 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be held invalid or unenforceable, such invalidity or unenforceability shall not affect any other provisions hereof, and the Plan shall be construed and enforced as if such provisions had not been included. X.13 HEADINGS AND CAPTIONS. The headings and captions herein are provided for reference and convenience only, shall not be considered part of the Plan, and shall not be employed in the construction of the Plan. ARTICLE XI TERM OF PLAN No award of RSUs shall be granted pursuant to the Plan on or after the tenth anniversary of the Effective Date, but awards of RSUs granted prior to such tenth anniversary may extend beyond that date. EX-10.3GI 14 covex10-3gi_718.txt EXHIBIT 10.3(g)(i) ------------------ COVANTA ENERGY PENSION PLAN TABLE OF CONTENTS SECTION 1. INTRODUCTION AND PURPOSE............................................1 SECTION 2. DEFINITIONS.........................................................2 SECTION 3. PARTICIPATION......................................................16 3.1. Date of Participation..............................................16 3.2. Enrollment and Adjustment..........................................17 3.3. Duration...........................................................17 3.4. Reemployment.......................................................17 SECTION 4. RETIREMENT DATE....................................................18 4.1. Normal Retirement and Deferred Retirement Dates....................18 4.2. Early Retirement Date..............................................19 SECTION 5. ACCRUED BENEFIT....................................................19 5.1. Computation of Accrued Benefit.....................................19 5.2. Effect of Reemployment on Accrued Benefit..........................20 SECTION 6. NORMAL RETIREMENT BENEFIT..........................................20 6.1. Normal Retirement Benefit..........................................20 SECTION 7. EARLY RETIREMENT BENEFIT...........................................21 7.1. Early Retirement Benefit...........................................21 7.2. Deferral of Payment After Early Retirement Age.....................21 SECTION 8. TERMINATION OF SERVICE BEFORE RETIREMENT...........................22 8.1. Vesting............................................................22 8.2. Payment after Termination of Service at Early Retirement Date......22 8.3. Consent of Participant.............................................22 8.4. Forfeitures........................................................23 SECTION 9. DISABILITY BEFORE RETIREMENT.......................................23 9.1. Disability Prior to Retirement.....................................23 SECTION 10. DEATH BENEFITS BEFORE RETIREMENT..................................24 10.1. Death Benefit Before Retirement....................................24 10.2. Consent............................................................24 SECTION 11. METHOD OF PAYMENT.................................................25 11.1. Payment of Benefits................................................25 11.2. Optional Forms of Benefits.........................................25 11.3. Preretirement Survivor Annuity.....................................27 11.4. Commencement of Payment............................................31 11.5. Explanation of Annuities...........................................34 11.6. Small Amounts......................................................35 11.7. Suspension of Retirement Benefits..................................35 11.8. Consent............................................................36 11.9. Deemed Distribution................................................36 11.10. Automatic Payment of Retirement Benefits...........................36 11.11. Direct Rollover....................................................37 11.12. Military Service Credit............................................37 SECTION 12. MAXIMUM AMOUNT OF RETIREMENT BENEFIT..............................37 12.1. Application of Section 12..........................................37 12.2. Maximum Benefit....................................................38 12.3. Adjustments to Maximum Benefit.....................................38 12.4. Inapplicability of Section 12......................................41 12.5. Limitation Prior to October 3, 1973................................42 12.6. Limitation Prior to December 31, 1982..............................42 12.7. Additional Limitations.............................................43 12.8. Maximum Limitations................................................44 SECTION 13. DESIGNATION OF BENEFICIARIES......................................45 13.1. Beneficiary Designation............................................45 13.2. Failure to Designate Beneficiary...................................46 SECTION 14. FUNDING AND CONTRIBUTIONS.........................................46 14.1. Funding............................................................46 14.2. Actuarial Assumptions..............................................47 14.3. Trustee............................................................47 14.4. Expenses...........................................................48 14.5. Return of Contributions............................................48 SECTION 15. ADMINISTRATION OF THE PLAN........................................49 15.1. Powers and Duties of Administrative Committee......................49 15.2. Powers and Duties of Investment Committee..........................49 15.3. Agents; Reports to Board of Directors..............................50 15.4. Structure of Committees............................................51 15.5. Adoption of Procedures of Committee................................52 15.6. Demands for Money..................................................52 15.7. Trust Agreement; Powers and Duties of Trustee; Trust Fund..........52 15.8. Hold Harmless; Indemnification.....................................53 15.9. Claims for Benefits................................................54 15.10. Communications.....................................................55 15.11. Agent for Service of Process.......................................56 15.12. Specific Power and Duties..........................................57 SECTION 16. TERMINATION OF PARTICIPATING COMPANY PARTICIPATION................57 16.1. Termination of Participating Company Participation.................57 16.2. Rights of Former Participants......................................58 16.3. Transfer to Successor Plan.........................................59 SECTION 17. AMENDMENT OR TERMINATION OF THE PLAN AND THE TRUST................59 17.1. Right to Amend, Suspend or Terminate Plan..........................59 17.2. Retroactivity......................................................60 17.3. Notices............................................................61 17.4. Termination........................................................61 17.5. Not a Title IV Termination.........................................61 17.6. Title IV Termination...............................................62 17.7. Asset Allocation by Court..........................................64 17.8. Partial Termination................................................64 SECTION 18. TOP HEAVY PROVISIONS..............................................65 18.1. Top Heavy Plan.....................................................65 18.2. Definition for Section 18..........................................66 18.3. Minimum Vesting....................................................71 18.4. Minimum Benefits...................................................72 18.5. Limitations on Benefits............................................73 18.6. Other Plans........................................................73 SECTION 19. GENERAL LIMITATIONS AND PROVISIONS................................74 19.1. No Right to Continued Employment...................................74 19.2. Trust is Sole Source of Benefits...................................74 19.3. Payment on Behalf of Payee.........................................75 19.4. No Alienation......................................................75 19.5. Missing Payee......................................................76 19.6. Subject to Trust Agreement.........................................77 19.7. Required Information...............................................77 19.8. Subject to Insurance Contract......................................77 19.9. Communications to Committees.......................................78 19.10. Communications from Participating Company or Committees............78 19.11. Gender, Tense......................................................78 19.12. Captions...........................................................78 19.13. Applicable Law.....................................................79 APPENDIX I....................................................................78 SECTION 1. INTRODUCTION AND PURPOSE 1.1 The purpose of the Covanta Energy Pension Plan (the "Plan") is to provide retirement benefits and certain other benefits to eligible employees of Covanta Energy and its participating subsidiaries and other participating companies, or to the beneficiaries of such employees, and thereby to continue to encourage employees to make and continue careers with Covanta Energy, all as set forth herein and in the related trust thereunder (the "Trust") adopted as a part of the Plan. 1.2 In accordance with the terms of the Plan, the Company has the right to amend the Plan from time to time. The Company has amended and restated the Plan, generally effective January 1, 2001 (the "Restatement Date"), to comply with the provisions of the Small Business Jobs Protection Act of 1996 ("SBJPA"), the Uniformed Services Employment and Reemployment Rights Act of 1994 ("USERRA"), the Community Renewal Tax Relief Act of 2000, and other applicable Internal Revenue Service guidance, although certain provisions may have a later effective date to comply in good faith with the requirements of the Economic Growth and Tax Reconciliation Relief Act ("EGTRRA"). The Trust agreement entered into in connection with the Plan shall continue in full force and effect pursuant to the applicable provisions of the amended and restated Plan. Except as may be otherwise specifically provided in the Plan or required by law, the nonforfeitable interests of Participants who retired or terminated their Employment with Covanta Energy prior to the Restatement Date or prior to the effective date of any Plan provision which is different than the Restatement Date, shall be determined solely under the applicable provisions of the Plan as of the date of their retirement or termination. The Plan and Trust is intended to be a plan and trust qualifying under Sections 401(a) and 501(a) of the Code, respectively, and covered by the Employee Retirement Income Security Act of 1974 ("ERISA"). SECTION 2. DEFINITIONS When used herein the following terms shall have the following meanings: 2.1 "Accrued Benefit" means a Straight Life Annuity commencing at age 65 or at any later date specified under the Plan, whichever is applicable. 2.2 "Act" means the Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended. 2.3 "Actuary" means the enrolled actuary (within the meaning of the Act) engaged by the Administrative Committee. 2.4 "Administrative Committee" means the Covanta Administrative Committee as provided for in Section 15. For purposes of the Act, the Administrative Committee shall be the administrator of the Plan. 2.5 "Affiliate" means any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Code) which includes the, Company, any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code), any organization included in the same "affiliated service group" (within the meaning of Section 414(m) of the Code) as the Company, and any other entity required to be aggregated with the Company pursuant to Regulations under Section 414(o) of the Code; except that for purposes of applying the provisions of Sections 12 and 18 with respect to the limitations on benefits, Section 415(h) of the Code shall apply. 2.6 "Beneficiary" means the beneficiary or beneficiaries designated by a Participant pursuant to Section 13 to receive the amount, if any, payable under the Plan upon the death of such Participant. 2.7 "Board" means the board of directors of the Company. 2.8 "Break in Service" means a Plan Year during which an individual has not completed more than 500 Hours of Service, as determined by the Administrative Committee in accordance with the Regulations. Solely for purposes of determining whether a Break in Service has occurred, an individual shall be credited with the Hours of Service which such individual would have completed but for a maternity or paternity absence, as determined by the Administrative Committee in accordance with this Section 2.8 and the Labor Department Regulations; provided, however, that the total Hours of Service so credited shall not exceed 501 Hours and that the individual timely provide the Administrative Committee with such information as it shall require. Hours of Service credited for a maternity or paternity absence shall be credited entirely (i) in the Plan Year in which the absence began if such Hours of Service are necessary to prevent a Break in Service in such Plan Year, or (ii) in the following Plan Year. For purposes of this Section 2.8, "maternity or paternity absence" shall mean an absence from work by reason of the individual's pregnancy, the birth of the individual's child, or the placement of a child with the individual in connection with adoption of the child by such individual, or for purposes of caring for a child for the period immediately following such birth or placement. 2.9 "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered. 2.10 "Committee" means the Administrative Committee and the Investment Committee. 2.11 "Company" means Covanta Projects, Inc. 2.12 "Compensation" means the Participant's "wages" within the meaning of Section 3401(a)(1) of the Code for each Plan Year, including performance bonuses and all other payments of compensation made to a Participant in the course of the Employer's trade or business which must be reported on a Form W-2, but excluding any special or irregular payments made to the Participant such as hiring bonuses and income which arises from non-performance based restricted stock awards. Compensation includes any amount otherwise included in Compensation which is contributed by the Employer pursuant to a salary reduction agreement and which is not includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h), or 132(f)(4). In addition to other applicable limitations set forth in the Plan, and notwithstanding any other provision of the Plan to the contrary, the Compensation of each Employee taken into account under the Plan shall not exceed the limit on Compensation prescribed in Section 401(a)(17) of the Code (the "Section 401(a)(17) Limit"). The Section 401(a)(17) Limit is $150,000, as adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. Effective January 1, 2002, the Section 401(a)(17) Limit increases to $200,000, as adjusted for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code. The cost of living adjustment in effect on January 1 of any calendar year shall apply to any determination period beginning in such calendar year. For this purpose, the "determination period" is any period not exceeding 12 months, over which Compensation is determined. If a determination period consists of fewer than 12 months, the Section 401(a)(17) Limit will be multiplied by a fraction, the numerator of which is the number of months in the determination period, and the denominator of which is 12. Any reference in this Plan to the limitation under Section 401(a)(17) of the Code shall be deemed a reference to the Section 401(a)(17) Limit. If Compensation for any prior determination period is taken into account in determining an employee's benefits accruing in the current Plan Year, the Compensation for that prior determination period is subject to the Section 401(a)(17) Limit in effect for that prior determination period. For this purpose, for determination periods beginning prior to January 1, 1994, the Section 401(a)(17) Limit is $150,000. Notwithstanding the foregoing, in determining benefit accruals for Plan Years beginning after December 31, 2001, the Section 401(a)(17) Limit for determination periods beginning before January 1, 2002 shall be $200,000. 2.13 "Covered Compensation" means, for a Plan Year, the average (without indexing) of the Taxable Wage Bases in effect for such calendar year during the 35-year period ending with the last day of the calendar year in which the Participant attains (or will attain) Social Security Retirement Age. No increase in Covered Compensation shall decrease a Participant's Accrued Benefit under the Plan. In determining a Participant's Covered Compensation for a Plan Year, the Taxable Wage Base in effect for the current Plan Year and any subsequent Plan Year shall be assumed to be the same as the Taxable Wage Base in effect as of the beginning of the Plan Year for which the determination is being made. A Participant's Covered Compensation for a Plan Year before the 35-year period ending with the last day of the calendar year in which the Participant attains Social Security Retirement Age is the Taxable Wage Base in effect as of the beginning of the Plan Year. A Participant's Covered Compensation for a Plan Year after such 35-year period is the Participant's Covered Compensation for the Plan Year during which the 35-year period ends. 2.14 "Credited Service" means the number of full years and months of employment beginning on the date the Employee first performed an Hour of Service with the Employer and ending on the date of his retirement or other termination of employment. If an Employee was a participant of the Prior Plan on December 31, 1988 and thereafter becomes a Participant of the Plan, Credited Service shall also include his period of Service under the Prior Plan, as defined by such Prior Plan. Years and months of employment shall be determined by the Administrative Committee in accordance with the Regulations. 2.15 "Direct Rollover" means a distribution by the Plan to an Eligible Retirement Plan as specified by a Distributee. 2.16 "Disabled" or "Disability" means a Participant's inability to perform the duties of employment with an Employer as would constitute disability under the Employer's long term disability plan. 2.17 "Distributee" means a Participant or a former Participant. A Participant's or former Participant's spouse or a former spouse of a Participant or former Participant who is an alternate payee under a Qualified Domestic Relations Order to which a distribution is to be made under the Plan shall also be deemed to be a Distributee. 2.18 "Early Retirement Age" means the date on which a Participant has attained age 55 and has completed 10 years of Credited Service. 2.19 "Early Retirement Date" means the first day of the month coincident with or next following a Participant's retirement after reaching his Early Retirement Age but prior to his Normal Retirement Age. 2.20 "Effective Date" means, for this amendment and restatement, January 1, 2001, and for the Plan, January 1, 1989. 2.21 "Eligible Employee" means any Employee who completes at least 1,000 Hours of Service during a Plan Year, but excluding (i) any nonresident alien, (ii) any Leased Employee, and (iii) any Employee who is included in a unit of Employees covered by a collective bargaining agreement which does not provide for participation in the Plan. A director of the Employer is not eligible for participation in the Plan unless he is also an Eligible Employee. 2.22 "Eligible Retirement Plan" means (i) an individual retirement account, as described in Section 408(a) of the Code, (ii) an individual retirement annuity, as described in Section 408(b) of the Code, (iii) an annuity plan, as described in Section 403(a) of the Code, and (iv) a qualified plan and trust, as described in Sections 401(a) and 501(a) of the Code; provided, however, that in the case of an Eligible Rollover Distribution to a spouse, an Eligible Retirement Plan means an individual retirement account or an individual retirement annuity, as described in Sections 408(a) and 408(b) of the Code, respectively. Effective January 1, 2002, the term "Eligible Retirement Plan" shall also include an annuity contract described in Section 403(b) of the Code and an eligible plan described in Section 457(b) of the Code which is maintained by a state, political subdivision of a state, or an agency or instrumentality of a state or political subdivision of a state. Effective January 1, 2002, the definition of Eligible Retirement Plan shall apply in the case of an Eligible Rollover Distribution to a Participant's surviving spouse, or to a spouse or former spouse who is the alternate payee under a Qualified Domestic Relations Order, as defined in Section 414(p) of the Code. 2.23 "Eligible Rollover Distribution" means any distribution from the Plan of all or any portion of the balance to the credit of a Distributee, except that an Eligible Rollover Distribution shall not include: (i) any distribution to the extent such distribution is required under Section 11.4 and Section 401(a)(9) of the Code, (ii) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a period of ten years or more, and (iii) the portion of any distribution that is not includible in gross income. 2.24 "Employee" means any individual in the employ of the Employer. 2.25 "Employer" means the Company and each other Participating Company. 2.26 "Equivalent Actuarial Value" or "Actuarial Equivalent" means, unless otherwise specified in the Plan, a benefit of equivalent value to the benefit for which it is to be substituted, computed on the basis of the actuarial tables and interest rates specified in Appendix I attached hereto; provided, however, that effective January 1, 2000, the interest rate used to determine the Equivalent Actuarial Value of any lump sum payment that may be made under the Plan shall be determined based on the applicable mortality table and applicable interest rate pursuant to Section 417(e)(3) of the Code. In accordance with Section 417(e)(3) of the Code, the term "applicable interest rate" shall mean the annual rate of interest on 30-year Treasury securities as specified by the Commissioner each October and shall remain fixed for annuity starting dates which occur during October of each Plan Year through September 30 of the following Plan Year. The term "applicable mortality rate" shall mean the table prescribed by the Secretary in accordance with Section 417(e)(3)(A)(ii) of the Code. Such table shall be based on the prevailing commissioners' standard table (described in Section 807(d)(5)(A)) used to determine reserves for group annuity contracts issued on the date as of which present value is being determined (without regard to any other subparagraph of Section 807(d)(5) of the Code). 2.27 "Final Average Compensation" means a Participant's average annual Compensation for the five consecutive calendar years out of his last 10 (or fewer) consecutive Years of Service rendered immediately prior to his Normal Retirement Date, or his earlier retirement or other termination of employment, as the case may be, during which his Compensation was the highest. 2.28 "High 3 Year Average Compensation" means the average annual amount of the Participant's total Compensation from the Company for the three consecutive Years of Service during which such Compensation was the highest. 2.29 "Hours of Service" means the hours for which an Employee shall receive credit for purposes of the Plan, as follows: (a) One hour for each hour for which he is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate for the performance of duties during the applicable computation period for which his Hours of Service are being determined under the Plan. (These hours shall be credited to the Employee for the computation period or periods in which the duties were performed, and shall include hours for which back pay has been either awarded or agreed to by the Company or an Affiliate as provided by the Regulations under the Act, with no duplication of credit for hours.) (b) One hour for each hour, in addition to the hours in paragraph (a) above, for which he is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate, for reasons other than for the performance of duties during the applicable computation periods, such as paid vacation, paid holiday, paid sickness, and similar paid periods of nonworking time. (These hours shall be counted in the computation period or periods in which the hours for which payment is made occur). (c) One hour for each hour of the normally scheduled work hours for each day during any period he is on leave of absence from work with the Company or an Affiliate for military service with the armed forces of the United States, but not to exceed the period required under the law pertaining to veterans' reemployment rights; provided, that if he fails to report for work at the end of such leave during which he has reemployment rights he shall not receive credit for hours on such leave. (d) The number of normally scheduled work hours for each day of authorized leave of absence granted by the Company or an Affiliate in accordance with reasonable policies established therefor for which he is not compensated. When no time records are available, the Employee shall be given credit for Hours of Service based upon the number of normally scheduled work hours for each day he is on the Company's or an Affiliate's payroll, as determined in accordance with reasonable standards and policies from time to time adopted by the Administrative Committee under Section 2530.200b-2(b) and (c) of the Regulations, which are incorporated herein by this reference thereto. Notwithstanding the foregoing, an Employee shall be credited with 45 Hours of Service with respect to each week for which he is entitled to be credited with at least one Hours of Service. The Administrative Committee may, on a uniform, nondiscriminatory basis, give credit to Participants for Hours of Service for employment with employers other than the Company or an Affiliate. 2.30 "IRS" means the United States Internal Revenue Service. 2.31 "Investment Committee" means the Investment Committee as provided for in Section 15. For purposes of the Act, the members of the Investment Committee shall be "named fiduciaries" (with respect to the matters for which they are hereby made responsible under the Plan) of the Plan. 2.32 "Labor Department" means the United States Department of Labor. 2.33 "Leased Employee" means any person who is not an Employee of the Employer and who provides services to the Employer if (i) such services are provided pursuant to an agreement between the Employer and any other person, (ii) such person has performed such services for the Employer on a substantially full-time basis for a period of at least one year, and (iii) such services are performed under the primary direction or control of the Employer. Contributions or benefits provided a Leased Employee by the leasing organization which are attributable to services performed for the recipient Employer shall be treated as provided by such Employer. For purposes of this Plan, a Leased Employee shall be considered an Employee unless: (i) such Employee is covered by a money purchase pension plan providing: (1) a nonintegrated employer contribution rate of at least 10% of compensation, (2) immediate participation, and (3) full and immediate vesting; and (ii) Leased Employees do not constitute more than 20% of the recipient Employer's "nonhighly compensated workforce," as defined in Section 414(n)(5) of the Code. 2.34 "Normal Retirement Age" means the date which is the Participant's 65th birthday. 2.35 "Normal Retirement Date" means the first day of the month coincident with or next following a Participant's attainment of his Normal Retirement Age. 2.36 "Participant" means any Eligible Employee who is enrolled in the Plan as provided in Section 3. 2.37 "Participating Company" means an Affiliate of the Company, designated by the Board as such, the board of directors or equivalent governing body of which shall adopt the Plan and the Trust Agreement by appropriate action and the Employees of which shall be eligible to participate in the Plan in the manner and to the extent determined by the Board so long as such Affiliate remains so designated. Any such Affiliate so designated and which adopts the Plan shall be deemed thereby to appoint the Company, the Administrative Committee, the Investment Committee, and the Trustee its exclusive agents to exercise on its behalf all of the powers and authority conferred hereby, or by the Trust Agreement, upon the Company and shall make its allocable contributions to the Plan. The authority of the Company, the Administrative Committee, the Investment Committee, and the Trustee to act as such agent shall continue until the Plan has terminated as to such Affiliate and the relevant Trust assets have been distributed by the Trustee as provided in Section 16 of the Plan. 2.38 "PBGC" means the Pension Benefit Guaranty Corporation. 2.39 "Plan" means the Covanta Energy Pension Plan, as set forth herein and as may be amended from time to time. 2.40 "Plan Year" means the calendar year. 2.41 "Preretirement Survivor Annuity" means a benefit providing for payment of a survivor annuity to a Participant 's Surviving Spouse, if any, for the life of such Surviving Spouse equal to 50% of the annuity which would have been payable for the life of the Participant under a Qualified Joint and Survivor Annuity. 2.42 "Prior Plan" means the Ogden Corporation Pension Plan. 2.43 "Qualified Domestic Relations Order" means any judgment, decree, or order (including approval of a property settlement agreement) which has been determined by the Administrative Committee in accordance with procedures established under the Plan, to constitute a "qualified domestic relations order" within the meaning of Section 414(p)(1) of the Code. 2.44 "Qualified Joint and Survivor Annuity" means a benefit providing an annuity for the life of the Participant, ending with the payment due on the first day of the month coincident with or preceding the date of his death, and, if the Participant dies leaving a Surviving Spouse, a survivor annuity for the life of such Surviving Spouse equal to 50% of the annuity payable for the life of the Participant under his Qualified Joint and Survivor Annuity, commencing on the first day of the month following the date of the Participant 's death and ending with the payment due on the first day of the month coincident with or preceding the date of such Surviving Spouse's death. 2.45 "Regulations" means the applicable regulations issued under the Code (referred to herein as "IRS Regulations"), the Act (referred to herein as "Labor Department Regulations") or other applicable law, by the IRS, the PBGC, the Labor Department or any other governmental authority and any temporary regulations or rules promulgated by such authorities pending the issuance of such regulations. 2.46 "Retirement Benefit" means a benefit payable on the dates, in the forms, and in the amounts specified in Sections 6, 7, and 8, whichever is applicable. 2.47 "Retirement Date" means a Participant 's Early Retirement Date, Normal Retirement Date or any other retirement date that has become effective in lieu thereof pursuant to Section 4. 2.48 "Service" means employment or reemployment (whether or not as an Eligible Employee) with the Company, any Participating Company, or with any subsidiary of or other corporation or entity affiliated or associated with the Company which is a Participant of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code). Service includes all periods of employment credited to an Employee while a participant under the Prior Plan. 2.49 "Social Security Retirement Age" means age 65 in the case of a Participant attaining age 62 before January 1, 2000 (i.e., born before January 1, 1938), age 66 for a Participant attaining age 62 after December 31, 1999, and before January 1, 2017 (i.e., born after December 31, 1937, but before January 1, 1955), and age 67 for a Participant attaining age 62 after December 31, 2016 (i.e., born after December 31, 1954). 2.50 "Straight Life Annuity" means an annuity payable for the life of a Participant, ending with the payment due on the first day of the month coincident with or preceding the date of the annuitant's death. 2.51 "Surviving Spouse" means the survivor of a deceased Participant or a deceased former Participant to whom such deceased Participant or deceased former Participant has been legally married (as determined by the Administrative Committee) throughout the one-year period ending on the earlier of (i) the date as of which payments commence under the Plan, or (ii) the date of the Participant 's death. For purposes of Section 11, if a Participant marries within one year of the date as of which payments commence under the Plan and was married to that spouse for at least a one-year period ending on or before the date of the Participant's death, such Participant and his spouse shall be treated as having been married throughout the one-year period ending on the date as of which payments commence. 2.52 "Taxable Wage Base" means the contribution and benefit base under Section 230 of the Social Security Act at the beginning of the Plan Year. 2.53 "Trust" or "Trust Fund" means the Trust established by the Company pursuant to the Trust Agreement as a part of the Plan. 2.54 "Trustee" means the trustee or trustees of the Trust. 2.55 "Trust Agreement" means the agreement entered into between the Company and the Trustee regarding the investment and holding of Plan assets, as provided in the Plan, as amended or restated from time to time. 2.56 "Year of Service" means any Plan Year during which an individual completed at least 1,000 Hours of Service as determined by the Administrative Committee in accordance with the Regulations. In addition, solely for purposes of determining whether an Eligible Employee is enrolled as a Participant as provided in Section 3 and his vested interest under Sections 8.1 and 18.3, if an Employee does not complete 1,000 Hours of Service during the Plan Year in which his Service commenced but does complete at least 1,000 Hours of Service during the 12 consecutive month period beginning on the date his Service commenced, as determined by the Administrative Committee, then he shall be credited with a Year of Service for such 12 consecutive month period. In determining the number of Years of Service a Participant is credited with, he shall be credited with all years of service he had completed, as of December 31, 1988, under the terms of the Prior Plan. SECTION 3. PARTICIPATION 3.1. Date of Participation. (a) Each Eligible Employee who was a Participant of the Plan on December 31, 2000 shall continue to be a Participant of the Plan after such date. Each Eligible Employee in Service on December 31, 2000, but who was not then a Participant of the Plan shall be enrolled in the Plan on the first day of the month coincident with or next following the earlier of: (i) the date on which he satisfies the requirements for participating in the Plan as in effect on December 31, 2000; and (ii) the date on which he satisfies the requirements of Section 3.1(b) for enrollment in the Plan. (b) Each Eligible Employee who commences Service on or after January 1, 2001 shall be automatically enrolled in the Plan on the first day of the month coincident with or next following the date on which the Eligible Employee has (i) attained age 21, and (ii) the later of (a) the completion of one Year of Service, and (b) the date which is the anniversary of the Eligible Employee's date of hire, provided that he is an Eligible Employee on such date. 3.2. Enrollment and Adjustment. The Administrative Committee shall take any necessary or appropriate action to enroll each Eligible Employee who has met the requirements of this Section 3 and, if it is determined that an Eligible Employee has for any reason not been enrolled in the Plan or, if an administrative adjustment is required, such Employee shall be retroactively enrolled or such administrative adjustment shall be made. 3.3. Duration. The participation of a Participant shall cease upon his Retirement Date, death, or upon any Break in Service. The participation of a Participant who, without any Break in Service, ceases to be an Eligible Employee shall not cease on account thereof but, notwithstanding Section 2.47, no subsequent Service shall be treated as Credited Service unless and until he again becomes an Eligible Employee. 3.4. Reemployment. (a) If a Participant without any vested right to his Retirement Benefit (as determined under Section 8.1) incurs any Break in Service, and if the number of consecutive Plan Years in which he incurs a Break in Service equals or exceeds the greater of five (5) or the aggregate number of his Years of Service prior to such Break in Service (excluding any Years of Service previously disregarded under this Section), then, in the event that he returns to Service, he shall be treated as a new Employee for all purposes of the Plan. (b) In all other cases following a Break in Service, if a former Participant completes one Year of Service, he shall again be enrolled in the Plan as of the first day of the month coincident with or next following the date such Year of Service commenced, except that, if he is not then an Eligible Employee, he shall again be enrolled in the Plan as of the first day of the month coincident with or next following the date, if any, on which he again becomes an Eligible Employee. SECTION 4. RETIREMENT DATE 4.1. Normal Retirement and Deferred Retirement Dates. Any Participant may retire on his Normal Retirement Date. Notwithstanding the previous sentence, a Participant may elect to defer his Normal Retirement Date if he has not had a termination of Service on or prior to his Normal Retirement Age. A retiring Participant shall submit a written application for benefits to the Administrative Committee not less than 30 days nor more than 90 days prior to the day the Participant will retire from Service. The Deferred Retirement Date of a Participant shall be the first day of the month coincident with or next following the date of his termination of Service following his Normal Retirement Age. Notwithstanding any provision in the Plan to the contrary, a Participant shall have a 100% vested right to his Retirement Benefit upon attaining his Normal Retirement Age. 4.2. Early Retirement Date. A Participant may retire on his Early Retirement Date. A Participant must make written application to the Administrative Committee specifying an Early Retirement Date which is the first day of a month and not less than 30 nor more than 90 days following the date of the filing of the application. SECTION 5. ACCRUED BENEFIT 5.1. Computation of Accrued Benefit. For Plan Years beginning prior to January 1, 2002, a Participant's Accrued Benefit is equal to (a) less (b) where: (a) is 1.5% of his Final Average Compensation multiplied by his years of Credited Service; and (b) is the amount of his Prior Plan accrued benefit determined as of December 31, 1988. For Plan Years beginning on or after January 1, 2002, a Participant's Accrued Benefit is equal to (1) less (2) plus (3), where: (1) equals [(A+B) x C] + (D x E): (A) is .95% of Final Average Compensation up to Covered Compensation; (B) is 1.5% of Final Average Compensation in excess of Covered Compensation; (C) is years of Credited Service up to 35; (D) is .95% of Final Average Compensation; and (E) total years of Credited Service in excess of 35 which are credited on or after January 1, 2002; and (2) equals the amount of the Participant's Prior Plan accrued benefit determined as of December 31, 1988. 5.2. Effect of Reemployment on Accrued Benefit. If a Participant who incurs a Break in Service for any reason returns to Service and is treated as a new Eligible Employee pursuant to Section 3.4, then on his subsequent retirement or termination of Service, his Accrued Benefit shall be based only upon his Credited Service subsequent to his return to Service. In all other cases following a Break in Service, a Participant 's Accrued Benefit shall be based on his total Credited Service (provided this does not decrease his Accrued Benefit), reduced by the Equivalent Actuarial Value of any payments to him before his return to Service. SECTION 6. NORMAL RETIREMENT BENEFIT 6.1. Normal Retirement Benefit. Subject to Section 11.4, a Participant who retires from Service on his Normal Retirement Date shall be entitled to receive a Retirement Benefit equal to his Accrued Benefit (or any larger Retirement Benefit he could have received commencing on any date which could have been his Early Retirement Date), commencing on the first day of the month in which his Normal Retirement Date occurs. Notwithstanding the foregoing, for Plan Years beginning on or after January 1, 2002, in no event shall any Participant's Accrued Benefit commencing on the Participant's Normal Retirement Date and payable in the Normal Form be less than $50 per month. SECTION 7. EARLY RETIREMENT BENEFIT 7.1. Early Retirement Benefit. A Participant who retires from Service on an Early Retirement Date shall be entitled to receive, commencing on the first day of the month in which his Early Retirement Date occurs, a Retirement Benefit which is the Actuarial Equivalent of the Retirement Benefit which would be payable on his Normal Retirement Date reduced by an early retirement factor of .5% for each month between the day on which his payments would have commenced if he had not retired until the first date of the month coincident with or next following the Participant's Normal Retirement Age and the Participant's Early Retirement Date. 7.2. Deferral of Payment After Early Retirement Age. Subject to Section 11.4, a Participant who retires on an Early Retirement Date may elect, at least 60 days prior to his Early Retirement Date, to defer commencement of the payment of his Retirement Benefit until the first day of any month after his Early Retirement Date but no later than the first month in which his Normal Retirement Date could have occurred. Such an election may be revoked only with the consent of the Administrative Committee. If a Participant makes such an election and dies before the payment of his Retirement Benefit commences, then except as provided in Section 10 or 11.3, no benefit shall be payable under the Plan. SECTION 8. TERMINATION OF SERVICE BEFORE RETIREMENT 8.1. Vesting Subject to Section 11.4, a Participant whose Service terminates, after his completion of five (5) Years of Service, for any reason other than death, Disability or retirement shall have a nonforfeitable right to a Retirement Benefit equal to his Accrued Benefit as of the date of his termination of Service and shall be entitled to receive his Retirement Benefit commencing on the first day of the month following the month in which he attains his Normal Retirement Age. 8.2. Payment after Termination of Service. A Participant who has completed 10 years of Credited Service and who has terminated his Service as described in Section 8.1 may elect, by written notice to the Administrative Committee at least 30 days prior to his Early Retirement Date, to commence payment of his Retirement Benefit on his Early Retirement Date or on the first day of any subsequent month, but not later than the first day of the month in which the first date which could have been his Normal Retirement Date occurs, actuarially reduced. Such an election may be revoked only with the consent of the Administrative Committee. 8.3. Consent of Participant. (a) Notwithstanding any other provisions of this Section 8, to the extent required by the Code and IRS Regulations, if the Equivalent Actuarial Value of the Retirement Benefit of a Participant is in excess of $3,500 ($5,000 effective January 1, 1998) at the time of the distribution or any prior distribution, no benefit shall be paid pursuant to this Section 8 prior to his Normal Retirement Date without the Participant's written consent, and if the Participant is married at the date payments would otherwise commence and his benefit is to be paid in a form other than a Qualified Joint and Survivor Annuity, the written consent of the Participant's Surviving Spouse. Absence of any required consent shall be deemed to be an election under Section 8.2 to receive the Actuarial Equivalent of the Participant's Retirement Benefit commencing at the earlier of (i) the later of (A) the first day of the month following receipt of the required consent by the Administrative Committee or (B) the date otherwise designated under Section 8.2, or (ii) the Participant's Normal Retirement Date. 8.4. Forfeitures. If a Participant's Service terminates for any reason other than death, Disability or retirement (as provided in Sections 6, 7, 9 and 10) prior to his completion of five (5) Years of Service, no benefit shall be payable under the Plan. In determining whether a Participant has completed five (5) Years of Service for this purpose, his Years of Service before any Break in Service shall be disregarded if he had not then completed five (5) Years of Service and if the number of consecutive Plan Years in which he incurred a Break in Service equals or exceeds the greater of five or the aggregate number of his Years of Service prior to such Break in Service (excluding any Years of Service previously disregarded under this Section). SECTION 9. DISABILITY BEFORE RETIREMENT 9.1. Disability Prior to Retirement. A Participant who is Disabled shall have a nonforfeitable right to a Retirement Benefit, determined as of the date of the Participant's Disability, in accordance with the provisions of Section 5.1 and shall not thereafter be credited with Credited Service. Such Retirement Benefit shall commence on his Normal Retirement Date. SECTION 10. DEATH BENEFITS BEFORE RETIREMENT 10.1. Death Benefit Before Retirement. Subject to Section 11.3, the Beneficiary of a Participant with a nonforfeitable right to his Accrued Benefit who dies before the payment of his Retirement Benefit commences shall have a nonforfeitable right to a Retirement Benefit equal to the Participant's Accrued Benefit, such Retirement Benefit to commence on his Early Retirement Date, reduced as provided in Section 7.1. A Participant shall receive any death benefit to which he was entitled under the Prior Plan as in effect on December 31, 1984 for benefits accrued prior to January 1, 1985. 10.2. Consent. Notwithstanding the foregoing, to the extent required by the Code and IRS Regulations, if, immediately prior to his death, the Participant had a Retirement Benefit and the Equivalent Actuarial Value of such Retirement Benefit is in excess of $3,500 ($5,000, effective January 1, 1998) at the time of the distribution or any prior distribution, no lump sum cash payment shall be made under Section 10.1 to the Participant's Surviving Spouse prior to the date which was or would have been the Participant's Normal Retirement Date (had he lived) without the Surviving Spouse's written consent. SECTION 11. METHOD OF PAYMENT 11.1. Payment of Benefits. The Retirement Benefit to which an unmarried Participant or a Participant who has not been legally married for at least one year ending on the date as of which payment of his Retirement Benefit commences, is entitled under the Plan shall, except as otherwise provided in this Section 11, be payable in the form of a Straight Life Annuity. The Equivalent Actuarial Value of the Retirement Benefit to which a Participant who has been legally married for at least one year ending on the date as of which payment of his Retirement Benefit commences is entitled under the Plan shall, except as otherwise provided in this Section 11, be payable in the form of a Qualified Joint and Survivor Annuity. 11.2. Optional Forms of Benefits. (a) Subject to the provisions of Sections 11.4 and 11.5, in lieu of receiving his Benefit in the form described in Section 11.1, a Participant may elect to receive his Retirement Benefit in any one of the optional forms described in Sections 11.2(a)(i) through (iv) below; provided, however, that the benefits under such options shall be the Equivalent Actuarial Value of the Retirement Benefits described in Section 11.1. (i) Contingent Annuitant Option. A Participant may elect a benefit of Equivalent Actuarial Value payable to him for life with payments to be made, after his death, in 100% of such amount or 50% of such amount, to the Beneficiary designated by such Participant, if living, for the life of such Beneficiary. The designation of a Beneficiary may be revoked or changed at any time prior to the date the Participant's Retirement Benefit is to begin. In the event of the death of either the Participant or the Beneficiary prior to the date such Retirement Benefit is to begin, the election of this option shall be inoperative. (ii) Contingent Annuitant Option; Ten Year Certain Payment Period. A Participant may elect a benefit of Equivalent Actuarial Value payable to him for life with monthly payments to be made, after his death, in the same amount, or 50% of such amount, to the Beneficiary designated by him, if living, for the life of such Beneficiary. If the Participant dies after the date his Retirement Benefit commences but prior to receiving 120 monthly payments, the remainder of such 120 monthly payments will be paid to his Beneficiary (or, in the event of the death of the Beneficiary after the death of the Participant, to the Beneficiary's estate). After such 120 monthly payments have been made, the Beneficiary shall receive monthly payments for life in the same amount, or 50% of such amount, in accordance with the Participant's election. The designation of a Beneficiary may be revoked or changed at any time prior to the date payment of such Retirement Benefit commences. In the event of the death of the Participant prior to the date payment of the Participant's Retirement Benefit begins, the election of the contingent annuitant portion of this option shall be inoperative. (iii) Ten Year Certain and Life Annuity. A Participant may elect to receive the Equivalent Actuarial Value of his Retirement Benefit in the form of a Ten Year Certain and Life Annuity. In lieu of receiving the continuing monthly payments as provided by a Ten Year Certain and Life Annuity, the Participant's Beneficiary may elect, within 60 days after the date of the Participant's death, to receive in one lump cash sum the Actuarial Equivalent of such payments. (b) If a Participant has elected an option in accordance with this Section 11.2 and dies prior to the date payment of his Retirement Benefit commences (i) without leaving a Surviving Spouse, or (ii) leaving a Surviving Spouse and having made a valid election to waive the Preretirement Survivor Annuity in accordance with Section 11.5, then such optional form of benefit shall become payable to his Beneficiary in the same amount, if any, that would have been payable to such Beneficiary if the payments thereunder had commenced to the Participant on the first day of the month coincident with or preceding the date of the Participant's death. If such Participant dies prior to the date payment of his Retirement Benefit commences, leaving a Surviving Spouse and without having made a valid election to waive the Preretirement Survivor Annuity in accordance with Section 11.5, then the election under this Section 11.2 shall be null and avoid, and the Surviving Spouse shall receive the Preretirement Survivor Annuity in accordance with Section 11.3. (c) If a person entitled to receive payments under this Section 11.2 is not the spouse of the Participant, the Equivalent Actuarial Value of the benefits allocated to such person shall not be greater than one-half of the Equivalent Actuarial Value of the Retirement Benefit which the Participant could otherwise have received. 11.3. Preretirement Survivor Annuity. (a) Married Participants. (i) Subject to Section 11.5, a Preretirement Survivor Annuity shall be paid to the Surviving Spouse of a Participant or former Participant who, after earning a nonforfeitable right to his Accrued Benefit, dies before the commencement of payment of his Retirement Benefit. In the case of a Participant who dies on or after the first date which could have been his Early Retirement Date but before payment of his Retirement Benefit has commenced, the Preretirement Survivor Annuity shall be based on the Qualified Joint and Survivor Annuity which would have been payable if the Participant had retired and payments under the Qualified Joint and Survivor Annuity had commenced on the first day of the month coincident with or preceding the date of his death. In the case of a Participant who dies before the first date which could have been his Early Retirement Date, the Preretirement Survivor Annuity shall be based on the Qualified Joint and Survivor Annuity which would have been payable if the Participant had terminated Service on the date of death, survived until the first date which could have been his Early Retirement Date, immediately began receiving payments under the Qualified Joint and Survivor Annuity and died on the day following such Early Retirement Date. (ii) Designation of Non-Spouse Beneficiary. In accordance with the notice and waiver provisions of Section 11.5, a Participant and his Spouse may designate a non-Spouse Beneficiary to receive the Preretirement Survivor Annuity. The designation of the non-Spouse Beneficiary must be made prior to the death of the Participant. Notwithstanding anything in this Section 11.3 to the contrary, the actuarial present value of the Preretirement Survivor Annuity payable to a designated non-Spouse Beneficiary of a Married Participant will be no larger than the actuarial present value of the Preretirement Survivor Annuity that would have been payable to the Spouse pursuant to paragraph (a), above. (iii) Simultaneous Death. If the Surviving Spouse of a Participant described in subparagraph (i) dies within thirty (30) days following the date of death of the Participant, a benefit shall be paid to a surviving contingent Beneficiary previously designated by the Participant in addition to any final payment which may be due to the Surviving Spouse. The amount of the benefit payable to the contingent Beneficiary shall be determined pursuant to paragraph (b), as if the Participant had been single at the time of death. If no contingent Beneficiary is designated by the Participant, the benefit which would have been payable pursuant to paragraph (b), determined as though the Participant was single and failed to designate a Beneficiary, will be paid to the Participant's estate. Additionally, in the event the Participant and Participant's Spouse die simultaneously and no contingent Beneficiary has been designated by the Participant, any benefit payable, also determined as though the Participant was single and failed to designate a Beneficiary, shall be paid to the Participant's estate. (b) Unmarried Participants. A Preretirement Survivor Annuity shall be paid to the designated Beneficiary of an unmarried Participant or unmarried former Participant who, after earning a nonforfeitable right to his Accrued Benefit, dies before the commencement of payment of his Retirement Benefit. In the case of a Participant who dies on or after the first date which could have been his Early Retirement Date but before payment of his Retirement Benefit has commenced, the Preretirement Survivor Annuity shall be based on the Joint and Survivor Annuity which would have been payable if the Participant had retired and payments under the Joint and Survivor Annuity had commenced on the first day of the month coincident with or preceding the date of his death. In the case of a Participant who dies before the first date which could have been his Early Retirement Date, the Preretirement Survivor Annuity shall be based on the Joint and Survivor Annuity which would have been payable if the Participant had terminated Service on the date of death, survived until the first date which could have been his Early Retirement Date, immediately began receiving payments under the Joint and Survivor Annuity and died on the day following such Early Retirement Date. Notwithstanding the foregoing, if the designated Beneficiary is more than five (5) years younger than the Participant, the amount of the Preretirement Survivor Annuity payable to the Designated Beneficiary will be actuarially reduced to be of the same value as the Preretirement Survivor Annuity which would be paid to a Designated Beneficiary only five (5) years younger than the Participant. If an unmarried Participant or unmarried former Participant does not designate a Beneficiary, his estate will receive a lump sum payment which is actuarially equivalent to the benefit that would have been provided to a designated Beneficiary who is the same age as the Participant. (c) Payment of Preretirement Survivor Annuity. Payment of a Preretirement Survivor Annuity shall commence on the last day of the month following the later of (i) the first month in which the Participant could have attained his Normal Retirement Date (had he lived), or (ii) the month in which the Participant dies; provided, however, to the extent required by the Code and IRS Regulations, if the Equivalent Actuarial Value of a Preretirement Survivor Annuity is in excess of $3,500 ($5,000, effective January 1, 1998) at the time of distribution or any prior distribution, it shall not commence to be paid prior to the date which was or would have been the Participant's Normal Retirement Date (had the Participant lived) without the written consent of the Participant's Surviving Spouse. In the absence of consent, payment of the Preretirement Survivor Annuity shall not be made until the earlier of (i) the first day of the month following receipt of the required consent by the Administrative Committee, or (ii) the date which would have been the Participant's Normal Retirement Date had the Participant lived. Notwithstanding anything in the Plan to the contrary, in the event that a Preretirement Survivor Annuity is payable pursuant to this Section 11.3 to the Spouse or child of the Participant or to the guardian of a child of the Participant, the recipient of the benefit may elect to commence the benefit early, on an actuarially reduced basis. 11.4. Commencement of Payment. (a) Notwithstanding any other provision of the Plan, effective for Plan Years beginning after December 31, 1996, a Participant's benefits shall be distributed to him not later than April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the calendar year in which the Participate retires, provided, however, that this clause (ii) shall not apply in the case of a Participant who is a "five (5) percent owner" at any time during the five-plan year period ending in the calendar year in which he attains age 70 1/2 or, in the case of a Participant who becomes a "five (5) percent owner" during any subsequent Plan Year, clause (ii) shall no longer apply and the required beginning date shall be the April 1st of the calendar year following the calendar year in which such subsequent Plan Year ends. Alternatively, distributions to a Participant must begin no later than the applicable April 1st as determined under the preceding sentence and must be made over a period certain measured by the life expectancy of the Participant (or the life expectancies of the Participant and his designated Beneficiary) in accordance with Regulations. With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a)(9) of the Code in accordance with the regulations under Section 401(a)(9) that were proposed on January 17, 2001 (the 2001 Proposed Regulations), notwithstanding any provision of the Plan to the contrary. This provision shall continue in effect until the last calendar year beginning before the effective date of the final regulations under Section 401(a)(9) or such other date as may be published by the Internal Revenue Service. In the case of any such Participant whose benefits commence upon his termination of Service after attaining age 70-1/2 pursuant to this Section, such Participant's Accrued Benefit shall be no less than the Accrued Benefit at the end of the calendar year during which the Participant attains age 70-1/2, actuarially increased from that date to the date of his termination of Service, plus benefits accrued (if any) for each Plan Year thereafter actuarially increased from the end of each Plan Year to the date of his termination of Service. (b) If distribution of a Participant's benefit has commenced prior to a Participant 's death, and such Participant dies before his entire benefit is distributed to him, distribution of the remaining portion of the Participant 's benefit to the Participant 's Beneficiary shall be made at least as rapidly as under the method of distribution in effect as of the date of the Participant 's death. (c) If a Participant dies before distribution of his benefit has commenced, distributions to any Beneficiary shall be made on or before the December 31st of the calendar year which contains the fifth anniversary of the date of such Participant's death; provided, however, at the Beneficiary's irrevocable election, duly filed with the Administrative Committee before the applicable commencement date set forth in the following sentence, any distribution to a Beneficiary may be made over the life of the Beneficiary or a period not extending beyond the life expectancy of the Beneficiary. Such distribution shall commence not later than the December 31st of the calendar year immediately following the calendar year in which the Participant died or, in the event such Beneficiary is the Participant's spouse, on or before the December 31st of the calendar year in which such Participant would have attained age 70-1/2, if later (or, in either case, on any later date prescribed by IRS Regulations). If such Participant's spouse dies after such Participant's death but before distributions to such spouse commence, this Section 11.4(c) shall be applied to require payment of any further benefits as if such spouse were the Participant. (d) Pursuant to IRS Regulations, any benefit paid to a child shall be treated as if paid to a Participant's spouse if such amount will become payable to such spouse on the child's attaining majority, or other designated event permitted by the Regulations. (e) All distributions made hereunder shall be made in accordance with the provisions of Section 401(a)(9) of the Code and IRS Regulations thereunder. (f) Notwithstanding the foregoing, distributions to a Participant may be made in accordance with a written designation made before January 1, 1984 by the Participant if such designation satisfied the requirements of Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). 11.5. Explanation of Annuities. (a) The Administrative Committee shall furnish or cause to be furnished to each married Participant, to the extent required by the Code and IRS Regulations at least 30 days but no more than 90 days prior to the date a distribution is to be made under the Plan, explanations of the Qualified Joint and Survivor Annuity and the Preretirement Survivor Annuity under procedures developed by the Administrative Committee in accordance with the Code and IRS Regulations. A Participant may, with the written consent of his Surviving Spouse (unless the Administrative Committee makes a written determination in accordance with the Code and IRS Regulations that no such consent is required), elect in writing (i) to receive his Retirement Benefit in one of the optional forms described in Section 11.2 in lieu of a Qualified Joint and Survivor Annuity within the 90-day period ending on the date payment of his Retirement Benefit commences, or (ii) to waive the Preretirement Survivor Annuity within the period beginning on the first day of the Plan Year in which the Participant attains age 35 and ending on the date of his death. Any election made pursuant to this Section 11.5 may be revoked by a Participant, without spousal consent, at any time within which such election could have been made. Such an election or revocation must be made in accordance with procedures developed by the Administrative committee in accordance with the Code and IRS Regulations. (b) The Administrative Committee may provide the explanation of the Qualified Joint and Survivor Annuity after the date on which payment of the Participant's Retirement Benefit commences, provided that the election period described above shall not end before the 30th day following the date on which the explanation was provided. Subject to the above, a Participant may elect to waive the requirement that the explanation must be provided at least 30 days before the date payment of his Retirement Benefit is to commence or at least 30 days before the end of the election period (as applicable). In the event of such a waiver, distribution of the Participant's Retirement Benefit must commence more than seven (7) days after the explanation was provided. 11.6. Small Amounts. Notwithstanding any other provisions of this Section 11, any annuity amounting to less than $10 per month shall be paid in quarterly or semi-annual installments, and payment of any Retirement Benefit with an Equivalent Actuarial Value of $3,500 or less ($5,000, effective January 1, 1998) at the time of the distribution or any prior distribution shall be made in a lump sum cash payment in full settlement of the Plan's liability therefore; provided, however, that in the case of a Participant, no such lump sum payment shall be made after benefits have commenced without the consent of the Participant and, if the Participant is married at the time such payment would otherwise commence, the consent of the Participant and his spouse or, if the Participant has died, the Participant's Surviving Spouse or Beneficiary. 11.7. Suspension of Retirement Benefits. Except as may be otherwise required in Section 11.4 and notwithstanding any other provisions of this Section 11, if a Participant for any reason returns to Service, payment of his Retirement Benefit, if any, shall, to the extent permitted under the Regulations, be suspended until his subsequent termination of Service or retirement. To the extent that the application of this Section 11.7 constitutes a suspension of benefits, such suspension shall be in accordance with the Act, the Code and the Regulations. 11.8. Consent. Notwithstanding any other provisions of this Section 11, to the extent required by the Code and IRS Regulations, if the Equivalent Actuarial Value of the Retirement Benefit of a Participant who retires is, or has been, in excess of $3,500 ($5,000, effective January 1, 1998) no benefit shall be paid until the Participant's Normal Retirement Date without the Participant's written consent, and if the Participant is married at the date payment would otherwise commence and his benefit is to be paid in a form other than a Qualified Joint and Survivor Annuity, no benefit shall be paid without the written consent of the Participant's Surviving Spouse, unless it is paid on the Participant's Normal Retirement Date. 11.9. Deemed Distribution. If the Participant's nonforfeitable Retirement Benefit on the date he terminates Service equals zero, such Participant shall be deemed to have received his Retirement Benefit on the date he terminates Service. 11.10. Automatic Payment of Retirement Benefits. Notwithstanding any other provision of the Plan, unless a Participant elects to otherwise defer his distribution, payment of his Retirement Benefit shall commence on the 60th day after the close of the Plan Year following (i) the date the Participant reaches his Normal Retirement Date, (ii) the 10th anniversary of the date the Participant's participation in the Plan began, or (iii) the date the Participant terminates Service with the Employer, whichever is the latest to occur. 11.11. Direct Rollover. A Distributee may elect, at a time and manner prescribed by the Administrative Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by such Distributee in the form of a Direct Rollover. A Distributee may not elect to make a Direct Rollover if the total Eligible Rollover Distributions to which the Distributee is entitled during the calendar year equal, or are reasonable expected to equal, less than $200. A Distributee may not elect to make a Direct Rollover of any portion of an Eligible Rollover Distribution if that portion is not at least $500 or more. A Distributee may not make a Direct Rollover of less than the entire amount of an Eligible Rollover Distribution if the entire Eligible Rollover Distribution equals less than $500. 11.12. Military Service Credit. Notwithstanding any provision of the Plan to the contrary, contributions, benefits, and service credit with respect to qualified military service will be provided in accordance with Section 414(u) of the Code. SECTION 12. MAXIMUM AMOUNT OF RETIREMENT BENEFIT 12.1. Application of Section 12. The provisions of this Section 12 shall govern the benefits to which it is applicable notwithstanding any other provision of the Plan. The benefits to which this Section 12 is applicable are: (i) any annuity payable to a Participant for life as part of a Qualified Joint and Survivor Annuity or as part of a survivorship option elected by the Participant under Section 11.2 and having the effect of a Qualified Joint and Survivor Annuity (excluding in either case any survivor annuity payable to a Surviving Spouse thereunder); (ii) any Single Life Annuity payable to a Participant under Section 11.1 or elected by a Participant under Section 11.2; and (iii) any other option elected by a Participant under Section 11.2 (including both the annuity payable to the Participant and any other annuity or benefit payable thereunder). 12.2. Maximum Benefit. The benefits to which this Section 12 is applicable may not exceed the Actuarial Equivalent of a Single Life Annuity equal to the lesser of (i) $140,000 (the "Dollar Limitation"), or (ii) 100 percent of the Participant's High 3 Year Average Compensation (the "Compensation Limitation"), subject, however, to the following provisions of section 12. 12.3. Adjustments to Maximum Benefit. The limitations on the maximum amount of benefits contained in Section 12.2 shall be adjusted as follows: (a) The Dollar Limitation shall be adjusted annually, for Plan Years beginning after December 31, 1987, for increases in the cost-of-living in accordance with IRS Regulations and, in the case of Participants who have separated from Service, the Compensation Limitation shall be adjusted annually for increases in the cost-of-living in accordance with IRS Regulations. As a result of such an adjustment, a benefit which had been limited by the provisions of this Section in a previous Plan Year may be increased with respect to future payments to the least of (i) the adjusted Dollar Limitation amount, (ii) the adjusted Compensation Limitation or (iii) the amount of benefit which would have been payable under the Plan without regard to the provisions of this Section 12. (b) Effective for Plan Years beginning before January 1, 2002, in the case of a benefit beginning prior to a Participant's "social security retirement age", as defined in Section 415(b)(8) of the Code, but on or after age 62, the Dollar Limitation applicable to such benefit shall be reduced as follows: (i) If a Participant's social security retirement age is 65, the Dollar Limitation for benefits commencing on or after age 62 is determined by reducing the Dollar Limitation by 5/9 of one percent for each month by which benefits commence before the month in which the Participant attains age 65. (ii) If a Participant's social security retirement age is greater than 65, the Dollar Limitation for benefits commencing on or after age 62 is determined by reducing the Dollar Limitation by 5/9 of one percent for each of the first 36 months and 5/12 of one percent for each of the additional months (up to 24 months) by which benefits commence before the month of the Participant's social security retirement age. The adjustment provided for in this Section 12.3(b) the preceding sentence shall be made in such manner as IRS Regulations may prescribe which is consistent with the reduction for old-age insurance benefits commencing before the social security retirement age under the Social Security Act. (iii) If the annual benefit of a Participant commences prior to age 62, the Dollar Limitation shall be the actuarial equivalent of an annual benefit beginning at age 62 reduced for each month by which benefits commence before the month in which the Participant attains age 62. A decrease in the Dollar Limitation determined in accordance with this Section 12.3(b)(iii) shall not reflect the mortality decrement to the extent that benefits will not be forfeited upon the death of the Participant. (c) Effective for Plan Years beginning before January 1, 2002, in the case of a benefit beginning after the Participant's social security retirement age, the Dollar Limitation shall be adjusted in accordance with IRS Regulations to an amount which is equal to a Straight Life Annuity commencing at the same time, which is the Actuarial Equivalent of a Single Life Annuity equal to the Dollar Limitation commencing at social security retirement age. For the purposes of this Section 12.3, actuarial equivalence shall have the same meaning as described in Section 2.25, except the interest rate assumptions for the purposes of Section 12.3(b) and (d)(i) shall not be less than the greater of the interest rate assumptions provided in the Plan or five percent, and the interest rate assumption for the purposes of this Section 12.3(c) and (d)(ii) shall not be greater than the lesser of five percent or the rate specified in the Plan. (d) Effective for Plan Years beginning on or after January 1, 2002: (i) in the case of a benefit beginning prior to a Participant attaining age 62, the determination of whether the Dollar Limitation applicable to such benefit has been satisfied shall be made, in accordance with Regulations, by reducing the Dollar Limitation so that such limitation (as so reduced) equals an annual benefit (beginning when such benefit begins) which is equivalent to a annual benefit equal to the amount of such limitation beginning at age 62; and (ii) in the case of a benefit beginning after a Participant attains age 65, the determination of whether the Dollar Limitation applicable to such benefit has been satisfied shall be made, in accordance with Regulations, by increasing the Dollar Limitation so that such limitation (as so reduced) equals an annual benefit (beginning when such benefit begins) which is equivalent to a annual benefit equal to the amount of such limitation beginning at age 65. (e) If a Participant has fewer than 10 years of Plan participation, the Dollar Limitation shall be multiplied by a fraction, the numerator of which is the number of years (computed to fractional parts of a year) of participation in the Plan, and the denominator of which is 10. If the Participant has fewer than 10 Years of Service, the Compensation Limitation shall be multiplied by a fraction, the numerator being the Participant's Years of Service (computed to fractional parts of a year) and the denominator of which is 10. (f) In no event shall Section 12.3(e) above reduce the Dollar Limitation and the Compensation Limitation to an amount less than one-tenth of the applicable limitation (determined without regard to Section 12.3(e)). To the extent provided by IRS Regulations and pronouncements, Section 12.3(e) above shall be applied separately with respect to each change in the benefit structure of the Plan. 12.4. Inapplicability of Section 12. The limitations contained in Section 12.2 shall not be applicable if (i) the annual benefits subject to Section 12 with respect to the Participant do not exceed $10,000 and (ii) the Participant has not participated in any defined contribution plan (within the meaning of Section 414(i) of the Code) maintained by the Company; provided, however, that the $10,000 limitation contained in this Section 12.4 shall be reduced in the same manner as the Compensation Limitation is reduced under Section 12.3(d). 12.5. Limitation Prior to October 3, 1973. In the case of any individual who was a Participant prior to October 3, 1973, the benefits to which section 12 is applicable may not exceed the greater of (i) the limitations contained in either Section 12.2 or Section 12.4, adjusted as described in Section 12.3, or (ii) the smallest of (A) the Actuarial Equivalent of a Single Life Annuity (as described in Section 11.2) equal to 100% of the Participant's annual rate of Compensation on October 2, 1973 (or the date of his termination of Service, if earlier), (B) the Actuarial Equivalent of the benefits which would have been provided under the Plan as in effect on October 2, 1973 without taking account of any increases in his annual rate of compensation after such date, or (C) in the case of a Participant whose Service terminated prior to October 2, 1973, the Actuarial Equivalent of his nonforfeitable benefits after his termination of Service. 12.6. Limitation Prior to December 31, 1982. Notwithstanding the foregoing provisions of this Section 12, the maximum limitation on a Participant's Retirement Benefits, with respect to any person who was a Participant prior to December 31, 1982 and whose Retirement Benefit (determined without regard to any changes in the Plan after July 1, 1982 and without regard to cost-of-living adjustments, if any, occurring after July 1,1982) as of December 31, 1982, exceeds the limitations set forth in section 12.2, shall be such Participant's Retirement Benefit as of December 31, 1982; provided that such Participant's Retirement Benefit did not exceed the maximum limitation thereon as of December 31, 1982. 12.7. Additional Limitations. (a) Effective for Plan Years beginning before January 1, 2000, notwithstanding the foregoing provisions of this Section 12, and subject to the provisions of Section 12.7(c), if a Participant in the Plan also participates or ever participated in any defined contribution plan (as defined in Sections 414(i) and 415(k) of the Code) currently or formerly maintained by the Company or any of its Affiliates, the sum of the Participant's "Defined Benefit Fraction" (as defined in Section 12.7(b)(1)) and the Participant's "Defined Contribution Fraction" (as defined in Section 12.7(b)(2)) shall not exceed 1.0. If the Plan satisfied the applicable requirements of Section 415 of the Code as in effect for all Limitation Years beginning before January 1, 1987, an amount shall be subtracted from the numerator of the Defined Contribution Fraction (not exceeding such numerator) as prescribed by IRS Regulations so that the sum of the defined benefit plan fraction and defined contribution plan fraction computed under Section 415(e)(1) of the Code does not exceed 1.0 for such Limitation Year. In the event that in any Plan Year the sum of a Participant's Defined Benefit Fraction and the Participant's Defined Contribution Fraction exceeds 1.0, then the Retirement Benefit payable under the Plan shall be reduced so that the sum of such fractions in respect of that Participant will not exceed 1.0. (b) For purposes of Section 12.7(a) the following terms shall have the meanings set forth below: (1) "Defined Benefit Fraction" shall mean as to any Participant for any Plan Year, a fraction, (A) the numerator of which is the projected annual Retirement Benefit the Participant is expected to receive under the Plan determined as of the end of the Plan Year and in accordance with the IRS Regulations and (B) the denominator of which is the lesser of (i) the product of 1.25 multiplied by the dollar limitation in effect under clause (i) of Section 12.2 for the Plan Year, or (B) the product of 1.4 multiplied by the amount which may be taken into account under clause (ii) of Section 12.2 with respect to the Participant for the Plan Year; and (2) "Defined Contribution Fraction" shall mean, as to any Participant for any Plan Year, a fraction, (A) the numerator of which is the sum of the annual additions (as defined in Section 415(c)(2) of the Code) credited to the accounts of the Participant under any defined contribution plan (as defined in Sections 414(i) and 415(k) of the Code) maintained by the Company or any of its Affiliates for the Plan Year and for all prior Plan Years, and (B) the denominator of which is the sum of the lesser of the following amounts, determined for such Plan Year and for each prior Year of Service (regardless of whether the Participant was a participant in the defined contribution plan during any such prior Year of Service): (i) the product of 1.25 multiplied by the dollar limitation in effect under Section 415(c)(1)(A) of the Code for such year, or (ii) the product of 1.4 multiplied by the amount which may be taken into account under Section 415(c)(1)(B) of the Code with respect to the Participant for such year. 12.8. Maximum Limitations. Notwithstanding the foregoing provisions of this Section 12, the maximum limitation on Retirement Benefits, with respect to any person who is a Participant prior to January 1, 1987 and whose Retirement Benefit (determined without regard to any changes in the Plan after May 6, 1986 and without regard to cost of living adjustments occurring after December 31, 1986), exceeds the limitations set forth in Section 12.2, then, for purposes of such section and Section 415(b) and (e) of the Code, the Dollar Limitation with respect to such Participant shall be equal to such Participant's accrued Retirement Benefit as of December 31, 1986; provided that such Participant's Retirement Benefit did not exceed the maximum limitation as in effect for all Plan Years commencing prior to January 1, 1987. SECTION 13. DESIGNATION OF BENEFICIARIES 13.1. Beneficiary Designation. Each Participant shall file with the Administrative Committee a written designation of one or more persons as the Beneficiary who, subject to Section 11.5, shall be entitled to receive the amount, if any, payable under the Plan upon his death. Subject to the requirements of Section 11, a Participant may from time to time revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Administrative Committee. The last such designation received by the Administrative Committee shall be controlling, provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Administrative Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. However, if a Participant is married, his Beneficiary shall be his spouse unless such spouse has consented in writing to such other designation, on a form supplied by the Administrative Committee and has waived her rights pursuant to Section 11.5 of the Plan. 13.2. Failure to Designate Beneficiary. If no such Beneficiary designation is in effect at the time of a Participant's death, or if no designated Beneficiary survives the Participant, the payment of the amount, if any, payable under the Plan upon his death shall be made to the Participant's Surviving Spouse, if any, or if the Participant has no Surviving spouse, then the following persons (if then living) in the following order of priority; (i) children, in equal shares, (ii) parents, in equal shares, and (iii) the Participant's estate. If the Administrative Committee is in doubt as to the right of any person to receive such amount, the Administrative Committee may direct the Trustee to retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Administrative Committee may direct the Trustee to pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Trust therefor. SECTION 14. FUNDING AND CONTRIBUTIONS 14.1. Funding. Subject to the provisions of Sections 16 and 17, the Company shall contribute to the Trust, not less frequently than quarterly during each Plan Year, the amounts recommended by the Actuary to the Administrative Committee as necessary to maintain the Plan on a sound actuarial basis, in accordance with the Act and the Code. The Administrative Committee shall arrange for the establishment and maintenance by the Actuary, or in accordance with his recommendations, of such funding accounts as are required by the Act. 14.2. Actuarial Assumptions. The Administrative Committee shall adopt and may change from time to time, in accordance with the provisions of the Act and the Code, such actuarial assumptions and methods as are recommended by the Actuary for purposes of actuarial valuations of the Plan. The Actuary shall make an annual actuarial valuation of the Plan and shall estimate the contributions required under Section 14.1 on the basis thereof. At least once in each three year period the Actuary shall make an actuarial study of the mortality, Service and compensation experience of the Participants of the Plan and the investment experience and any other relevant experience gains and losses under the Plan, including such calculations as may be necessary to determine whether the Plan is adequately funded, and shall report the results of its study to the Administrative Committee. Prior to termination of the Plan, forfeitures of benefits arising from termination of Service, death, or any other reason under the Plan shall not be applied to increase the benefits that any Participant would otherwise be entitled to receive under the Plan, but may be anticipated in estimating costs under the Plan and shall be applied to reduce the Company's contributions under the Plan. 14.3. Trustee. All monies, securities or other property received as contributions under the Plan shall be delivered to the Trustee under the Trust, to be managed, invested, reinvested and distributed in accordance with the Plan, the Trust and any agreement with an insurance company or other financial institution constituting a part of the Plan and the Trust. 14.4. Expenses. The expenses of administering the Plan including (i) the fees and expenses of any Employee and of the Trustee for the performance of their duties under the Trust, (ii) the expenses incurred by the members of the Administrative Committee and of the Investment Committee in the performance of their duties under the Plan (including reasonable compensation for any legal counsel, certified public accountants and any agents and cost of services rendered in respect of the Plan), and (iii) all other proper charges and disbursements of the Trustee or the members of the Administrative Committee and of the Investment Committee (including settlements of claims or legal actions approved by counsel to the Plan) are to be paid by the Employer unless the Administrative Committee determines that such expenses may be paid out of the Trust. In estimating costs under the Plan, administrative costs may be anticipated. 14.5. Return of Contributions. Any contribution made by an Employer because of a mistake of fact shall be returned to the Employer which made such contribution within one year of such contribution. Any contribution made by an Employer that is conditioned upon the contribution's deductibility or the Plan's initial qualification under the Code, and if either the deduction or the initial qualification is denied, such contribution shall be returned to the Employer which made such contribution within one year after the date such deduction or qualification is denied. SECTION 15. ADMINISTRATION OF THE PLAN 15.1. Powers and Duties of Administrative Committee. The Administrative Committee shall have general responsibility and discretionary authority for the administration, establishment, and interpretation of the Plan (including, but not limited to, complying with reporting and disclosure requirements, establishing and maintaining Plan records, adopting amendments to the Plan as described in Section 17.1, deciding all questions arising in connection with the Plan, including eligibility, benefit payments, vesting and factual questions). The Administrative Committee shall engage the Actuary and such certified public accountants, who may be accountants for the Company, as it shall require or may deem advisable for purposes of the Plan. The Administrative Committee shall have sole discretionary authority to determine, a Participant's or Beneficiary's benefit eligibility. The Administrative Committee shall communicate any requirements and objectives of the Plan, and any audit information which may be pertinent to the investment of Plan assets to the Investment Committee, which shall establish investment standards and policies and communicate the same to the Trustee (or other funding agencies under the Plan). The Administrative Committee shall have no responsibility for the investment of assets under the Plan and the Trust. 15.2. Powers and Duties of Investment Committee. The Investment Committee shall periodically review the investment performance and methods of the Trustee and any other funding agency, including any insurance company under the Plan and may appoint and remove or change the Trustee and any such funding agency. The Investment Committee shall have the power to appoint or remove one or more Investment Managers and to delegate to such Investment Manager authority and discretion to manage (including the power to acquire and dispose of) the assets of the Plan, or any portion thereof, provided that (i) each Investment Manager with such authority and discretion shall be either a bank, an insurance company or a registered investment adviser under the Investment Advisers Act of 1940, and shall acknowledge in writing that it is a fiduciary with respect to the Plan and (ii) the Investment Committee shall periodically review the investment performance and methods of each Investment Manager with such authority and discretion. The Administrative Committee shall communicate any requirements and objectives of the Plan (including any interest rate or other actuarial assumptions) which may be pertinent to the investment of Plan assets, to the Investment Committee which shall establish investment standards and policies incorporating such requirements and objectives and communicate the same to the Trustee (or other funding agencies under the Plan). If annuities are to be purchased under the Plan, the Investment Committee shall determine what contracts should be made available to terminated Participants or purchased by the Trust. 15.3. Agents; Reports to Board of Directors. The Administrative Committee and the Investment Committee may arrange for the engagement of legal counsel, who may be counsel for the Company, and make use of such agents and clerical or other personnel as they each shall require or may deem advisable for purposes of the Plan. The Committees may rely upon the written opinion of such counsel and the Actuary and accountants engaged by the Administrative Committee and may delegate to any agent or to any sub-committee or members of such Committee its authority to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion (including the appointment of an Investment Manager), provided that such delegation shall be subject to revocation at any time at the discretion of the Committee. The Committees shall report to the Board, or to a committee of the Board designated for that purpose, no less frequently than at each annual meeting ad shall be specified by the Board, or such committee with respect to the Board with regard to the matters for which it is responsible under the Plan. 15.4. Structure of Committees. The Administrative Committee and the Investment Committee shall consist of at least three members, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Board. Any member of either of said Committees may resign at any time. No member of either of said Committees shall be entitled to act on or decide any matter relating solely to himself or any of his rights or benefits under the Plan. The members of the Administrative Committee and of the Investment Committee shall not receive any special compensation for serving in their capacities as members of such Committees but shall be reimbursed for any reasonable expenses incurred in connection therewith. Except as otherwise required by the Act, no bond or other security need be required of the Administrative Committee or the Investment Committee or any member thereof in any jurisdiction. Any person may serve on both Committees, and any member of either Committee, any sub-Committee or agent to whom either Committee delegates any authority, and any other person or group of persons, may serve in more than one fiduciary capacity (including service both as a trustee and administrator) with respect to the Plan. 15.5. Adoption of Procedures of Committee. Each Committee shall elect or designate its own Chairman, establish its own procedures and the time and place for its meetings, and provide for the keeping of minutes of all meetings. A majority of the members of a Committee shall constitute a quorum for the transaction of business at a meeting of such Committee. Any action of a Committee may be taken upon the affirmative vote of a majority of the members of such Committee at a meeting or, at the direction of its Chairman, without a meeting by mail, telegraph, telex, telecopier or telephone, provided that all of the members of such Committee are informed by mail, telegraph, telex, telecopier or telephone, of their right to vote on the proposal and of the outcome of the vote thereon. 15.6. Demands for Money. All demands for money of the Plan shall be signed by an officer or officers or such other person or persons as the Administrative Committee may from time to time designate in writing who shall cause to be kept full and accurate accounts of receipts and disbursements of the Plan, shall cause to be deposited all funds of the Plan to the name and credit of the Plan, in such depositories as may be designated by the Investment Committee, shall cause to be disbursed the monies and funds of the Plan when so authorized by the Administrative Committee and shall generally perform such other duties as maybe assigned to him from time to time by either such Committee. 15.7. Trust Agreement; Powers and Duties of Trustee; Trust Fund. The Company has entered into the Trust Agreement with the Trustee providing for the administration and management of the Trust Fund. The Trustee shall have responsibility under the Plan for the management and control of the assets of the Plan but shall have no discretionary responsibility for the investment and management of such assets unless, and if so, only to the extent that the Trustee has been appointed an investment adviser pursuant to Section 15.2. All benefits and other amounts payable hereunder shall be paid exclusively from the Trust Fund, and neither the Company, any Affiliate, any Trustee, nor any director, officer, Employee or agent of the Company assumes any responsibility or liability therefor. The Trust Fund may be commingled for investment purposes with like separate trust funds of any other plans and trusts of the Company or any Affiliate which meet the requirements of Sections 401(a) and 501(a) of the Code. 15.8. Hold Harmless; Indemnification. Each Participant, each Beneficiary, or each other person who shall claim the right to any payment under the Plan shall look exclusively to the Trust Fund therefor and shall not have any right or claim therefor against the Company, any Participating Company, any Trustee, or any director, officer, Employee or agent of the Company. Except as otherwise required by the Act, neither the Company, nor any member of the Administrative Committee or the Investment Committee, any director, officer, Employee or agent of the Company shall be required to inquire into or be responsible for any act or failure to act of any Trustee or any Participant. To the maximum extent permitted by the Act and applicable state law, each Trustee, each member of the Administrative Committee and the Investment Committee, each director and officer of the Company, any Participating Company and each Employee who performs service on behalf of the Plan or the Trust, shall be indemnified and saved harmless by the Company and by the Participating Company out of their own assets (including the proceeds of any insurance policy the premiums of which are paid by the Company) from and against any and all losses, costs and expense (including any amounts paid in settlement of a claim with the Company's or Administrative Committee's approval) to which any of them may be subjected by reason of any act done or omitted to be done in good faith in their official capacities with respect to the Plan or the Trust Agreement, including all expenses reasonably incurred in their defense. 15.9. Claims for Benefits. Benefits under this plan will be paid only if the Administrative Committee decides in its discretion that the claimant is entitled to them. (a) All claims for benefits under the Plan shall be submitted to, and within a reasonable period of time decided by, a person or persons designated in writing by the Administrative Committee. If the claim is wholly or partially denied, written notice of the denial shall be furnished within 90 days after receipt of the claim; provided that, if special circumstances require an extension of time for processing the claim, an additional 90 days from the end of the initial period shall be allowed for processing the claim, in which event the claimant shall be furnished with a written notice of the extension prior to the termination of the initial 90 day period indicating the special circumstances requiring an extension. The written notice denying the claim shall set forth the reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based, a description of any additional information necessary to perfect the claim, and information regarding review of the claim and its denial. (b) A claimant may review all pertinent documents and may request a review by the Administrative Committee of such a decision denying the claim. Such a request shall be made in writing and filed with the Administrative Committee within 60 days after delivery to the claimant of written notice of the decision. Such written request for review shall contain all additional information which the claimant wishes the Administrative Committee to consider. The Administrative Committee may hold a hearing or conduct any independent investigation, and the decision on review shall be made as soon as possible after the Administrative Committee's receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant within 60 days after receipt by the Administrative Committee of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review and the claimant shall be so notified in writing. Written notice of the decision on review shall include specific reasons for the decision. For all purposes under the Plan, such decisions on claims (where no review is requested) and decisions on review (where review is requested) shall be final, binding and conclusive on all interested persons as to participation and benefits eligibility, the amount of benefits and as to any other matter of fact or interpretation relating to the Plan. 15.10. Communications. Any notice, election, application, instruction, designation or other form of communication required to be given or submitted by any Participant, other Employee or Beneficiary shall be in such form as is prescribed from time to time by the Administrative Committee or Investment Committee, sent by first class mail or delivered in person, and shall be deemed to be duly given only upon actual receipt thereof by such Committee. Any notice, statement, report and other communication from the Company or either Committee to any Participant, other Employee or Beneficiary required or permitted by the Plan shall be deemed to have been duly given when delivered to such person or mailed by first class mail to such person at his address last appearing on the records of the Company or the Committee. Each person entitled to receive a payment under the Plan shall file in accordance herewith his complete mailing address and each change therein. A check or communication mailed to any person at his address on file with the Company or the appropriate Committee shall be deemed to have been received by such person for all purposes of the Plan, and no Employee or agent of the Company, or a Participating company or Participant of the Administrative Committee or the Investment Committee, shall be obliged to search for or ascertain the location of any such person except as required by the Act. If the Administrative Committee shall be in doubt as to whether payments are being received by the person entitled thereto, it may, by registered mail addressed to such person at his address last known to the Administrative Committee, notify such person that all future payments will be withheld until such person submits to the Administrative Committee his proper mailing address and such other information as the Administrative Committee may reasonably request. 15.11. Agent for Service of Process. The agent for the service of legal process of the Plan shall be the Secretary of the Company or such other person as may from time to time be designated by the Board. 15.12. Specific Power and Duties. The Administrative Committee and the Investment Committee each shall have only those specific powers, duties, responsibilities, and obligations as are specifically given them under the Plan or the Trust, as may be amended from time to time. It is intended that each Committee shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations and shall not be responsible for any act or failure to act on the part of the other committee or of another fiduciary. SECTION 16. TERMINATION OF PARTICIPATING COMPANY PARTICIPATION 16.1. Termination of Participating Company Participation. Any Participating Company may terminate its participation in the Plan by giving the Administrative Committee prior written notice specifying a termination date which shall be the last day of a month at least 60 days subsequent to the date such notice is received by the Administrative Committee. The Administrative Committee may terminate any Participating Company's participation in the Plan, as of any termination date specified by the Administrative Committee, for the failure of the Participating Company to make proper contributions or to comply with any other provision of the Plan. In the event of any such termination, the Administrative Committee shall promptly notify counsel to the Plan and take such action as counsel may recommend and as the Administrative Committee may deem desirable, including contacting the IRS and requesting a determination. 16.2. Rights of Former Participants. To the maximum extent permitted by the Act, any rights of Participants no longer employed by the Participating Company, former Participants and their Beneficiaries, Surviving Spouses and other eligible survivors under the Plan shall be unaffected by a termination of the Plan as to any Participating Company. Subject to the provisions of Section 17.8, the benefits provided under the Plan with respect to each Participant who is employed by such Participating Company as of the termination date will be paid or forfeited in accordance with the Plan as if such termination had not occurred, except that the Administrative Committee may direct the Trustee to segregate such portion of the assets of the Trust (the "Distributable Reserve") as the Actuary shall determine to be properly allocable in accordance with the Act to the Participants who are Employees of such Participating Company and direct the Trustee to apply the Distributable Reserve for the benefit of the Participants employed by the Participating Company as of the termination date in such matter as the Administrative Committee shall determine. This may include, without limitation, payment to such Participants in lump cash sums, cash installments, or the purchase of immediate or deferred annuities, a transfer to a successor employee benefit plan which is qualified under Section 401(a) of the Code, or any combination thereof; provided, however, that in the event of any transfer of assets to a successor employee benefit plan, the provisions of Section 16.3 will apply. Any such payments or transfers of the Distributable Reserve shall constitute a complete discharge of all liabilities under the Plan with respect to such Participating Company's participation in the Plan and any Participant then employed by such Participating Company. To the maximum extent permitted by the Act, the termination of the Plan as to any Participating Company shall not in any way affect any other Participating Company's participation in the Plan. 16.3. Transfer to Successor Plan. No transfer of the Plan's assets and liabilities to a successor employee benefit plan (whether by merger or consolidation with such successor plan or otherwise) shall be made unless each Participant would, if either the Plan or such successor plan then terminated, receive a benefit immediately after such transfer which (after taking account of any distributions or payments to them as part of the same transaction) is equal to or greater than the benefit he would have been entitled to receive immediately before such transfer if the Plan had then been terminated. The Administrative Committee or the Investment Committee or both of the Committees may also request appropriate indemnification from the employer or employers maintaining such successor plan before making such a transfer. SECTION 17. AMENDMENT OR TERMINATION OF THE PLAN AND THE TRUST 17.1. Right to Amend, Suspend or Terminate Plan. (a) Subject to the provisions of section 17.1(b), the Board reserves the right at any time, by majority consent in writing or by a meeting, to amend, suspend or terminate the Plan, any contributions thereunder, the Trust or any contract issued by an insurance carrier forming a part of the Plan, in whole or in part and for any reason and without the consent of any Participating Company, Participant, other Employee Beneficiary, or Surviving Spouse. Each Participating Company by its adoption of the Plan shall be deemed to have delegated this authority to the Board and the Administrative Committee. (b) The Administrative Committee may adopt amendments, by majority consent in writing or by a meeting, which may be necessary or appropriate to facilitate the administration, management, or interpretation of the Plan or to conform the Plan thereto, or to qualify or maintain the Plan and the Trust as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code or any other applicable section of law (including the Act) and the Regulations, provided that any such amendment does not materially increase the cost to the Employer of maintaining the Plan. (c) No amendment or modification shall be made which would retroactively impair any right to any benefit under the Plan which any Participant, Beneficiary, or Surviving Spouse would otherwise have had at the date of such amendment by reason of the contributions theretofore made, except as provided in Section 17.2 below, or (ii) make it possible for any part of the funds of the Plan (other than such part as is required to pay taxes, if any, and administrative expenses as provided in Section 13.4) to be used for or diverted to any purposes other than for the exclusive benefit of Participants and their Beneficiaries and Surviving Spouses under the Plan prior to the satisfaction of all liabilities with respect thereto. 17.2. Retroactivity. Subject to the provisions of Section 17.1, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively if necessary or appropriate to qualify or maintain the Plan, the Trust, and any contract with an insurance company which may form a part of the Plan as a plan and trust meeting the requirements of Sections 401(a) and 501(a) of the Code, or any other applicable section of law (including the Act) and the Regulations issued thereunder. 17.3. Notices. Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Board or the Administrative Committee, whichever adopts the amendment, to the other and to the Trustee, all Participating Companies and, where and to the extent required by law, to Participants and other interested parties. 17.4. Termination. Upon termination of the Plan, no amount shall thereafter be payable under the Plan to or in respect of any Participant except as provided in this Section 17. To the maximum extent permitted by the Act, transfers, distributions or other disposition of the assets of the Plan as provided in this Section 17 shall constitute a complete discharge of all liabilities under the Plan. The Administrative and Investment Committees shall remain in existence and all of the provisions of the Plan which in the opinion of the Administrative Committee are necessary for the execution of the Plan and the administration and distribution transfer or other disposition of the assets of the Plan in accordance with this Section 17.4 shall remain in force. 17.5. Not a Title IV Termination. If the termination of the Plan does not constitute a plan termination for purposes of Title IV of the Act, the assets of the Plan shall be applied for the benefit of Participants, former Participants, Beneficiaries and Surviving Spouses in such manner as the Administrative Committee shall determine; provided, however, that in the event of any transfer of assets to a successor employee benefit plan, the provisions of section 16.3 will apply. 17.6. Title IV Termination. (a) If the termination of the Plan does constitute a plan termination for purposes of Title IV of the Act, then the rights of all Participants to their Retirement Benefits accrued to the date of such termination shall thereupon be nonforfeitable, but only to the extent that such Retirement Benefits have then been funded by contributions made prior to such termination and that such funds are available to provide such Retirement Benefits upon the allocations hereinafter provided in this Section 17.6. (b) Upon receipt by the Administrative Committee of all necessary PBGC regulatory approvals with respect to the sufficiency of the assets of the Plan to discharge when due all obligations thereunder with respect to benefits which are guaranteed by the PBGC under Title IV of the Act, the assets of the Plan which remain after reservation of an amount sufficient to pay all expenses of final administration shall be allocated, to the extent sufficient, in the following order of priority: (i) To provide for the benefits payable under Section 11 of the Plan or, if the Plan existed on December 31, 1975, the corresponding Section or Sections of the Plan as in effect on December 31, 1975, to or in respect of Participants who retired or died, who could have retired, or who, having terminated Service, either began receiving payments of such benefits or could have begun receiving such payments if they had not elected to defer commencement of such payments, at least three years prior to the termination date, determined in each case on the basis of the provisions of the Plan at anytime during the five year period ending on the termination date when such benefits were or would have been the lowest and without regard to any increases in such benefits which accrued less than three years prior to the termination date; then (ii) To provide all other benefits under the Plan which are guaranteed by the PBGC under Title IV of the Act, or which would be guaranteed if Sections 4022B(a) and 4022(b)(5) of the Act were not applicable, but which have not been allocated under (i) above; then (iii) To provide all other benefits which had become nonforfeitable under the Plan prior to the termination date but which have not been allocated under (i) or (ii) above; then (iv) To provide all other benefits which had accrued under the Plan prior to the termination date but which have not been allocated under (i), (ii) or (iii) above; then (v) Any surplus assets of the Plan remaining after the payment of all expenses of final administration and after the satisfaction of all liabilities accrued to the termination date with respect to Participants, former Participants, Beneficiaries and Surviving Spouses under the Plan shall revert to the Company. (c) The foregoing allocations shall be made by the Administrative Committee in accordance with determinations made pursuant to the Labor Department Regulations. If the balance remaining for allocation under any of the foregoing Sections 17.6 (b) (i), (ii), (iii),(iv) or (v) is insufficient to provide in full the allocations under such Section, allocations to individuals under such Section shall be reduced pro rata (except that, under Section 17.6(b)(iii) only, such balance shall first be allocated to provide the benefits described therein determined on the basis of the provisions of the Plan which were in effect at the beginning of the five year period ending on the termination date and then, if the balance remaining for allocation is sufficient, to provide the benefits described therein which result from each successive amendment to the Plan during such five year period until the first such amendment as to which such balance is insufficient before reducing such allocation pro rata) and no allocations shall be made under a subsequent Section. The assets of the Plan allocated in accordance with Sections 17.6(b)(i), (ii), (iii) and (iv) above shall be distributed in such manner as the Administrative Committee shall determine, including without limitation, lump sum cash payments, cash installments, the purchase of immediate or deferred annuities, or any combination of the foregoing as the PBGC and, if applicable, the IRS, may approve. 17.7. Asset Allocation by Court. Notwithstanding the provisions of Section 17.6, if the PBGC notifies the Administrative Committee that it is unable to determine whether the assets of the Plan are sufficient (or that such assets are insufficient) to discharge when due all obligations thereunder with respect to benefits which are guaranteed by the PBGC under Title IV of the Act, then the assets of the Plan shall be allocated and distributed only as a court having competent jurisdiction over the Plan and the Trust, or a trustee appointed by such court, shall direct or permit. 17.8. Partial Termination. In the event of a partial termination (within the meaning of the Act) of the Plan has occurred then (i) the rights of all Participants affected thereby to their Accrued Benefits accrued to the date of such partial termination shall thereupon be nonforfeitable, but only to the extent that such Accrued Benefits have then been funded by such portion of the assets of the Trust as are determined to be properly allocable to such Participants and that such portion of assets is available to provide such Retirement Benefits upon the allocations provided in Section 17.6, and (ii) the provisions of Sections 16.3, 17.2, 17.3, 17.4 and 17.7, which in the opinion of the Administrative Committee are necessary for the execution of the Plan and the allocation and distribution of the assets of the Plan, shall apply. If a partial termination of the Plan has occurred as to any Participating Company, then to the maximum extent permitted by the Act, only the Participating Company as to which the partial termination of the Plan has occurred shall be liable to the PBGC for any insufficiency of assets. SECTION 18. TOP HEAVY PROVISIONS 18.1. Top Heavy Plan. The Plan will be considered a Top Heavy Plan for any Plan Year if it is determined to be a Top Heavy Plan as of the last day of the preceding Plan Year (or, with respect to the first Plan Year, the last day of such Plan Year). For purposes of determining whether the Plan is a Top Heavy Plan, when appropriate, actuarial assumptions which reflect reasonable mortality experience and a reasonable interest rate that uniformly applies for accrual purposes under all plans maintained by the Company and its Affiliates shall be used. Such actuarial assumptions shall be the same assumptions used to determine benefits under Section 11. The present value of a Participant's Accrued Benefit shall be determined as of the last Valuation Date used for computing Plan costs for minimum funding purposes which occurs within the Plan Year in which the determination is being made, and shall include amounts distributed to or on behalf of the Participant within the five-year period ending on the Determination Date, as defined in Section 18.2(a). Effective January 1, 2002, however, the phrase "five-year period" shall refer instead to a "one-year period" with respect to distributions made on account of a Participant's termination of service, death or Disability. Notwithstanding any other provisions of the Plan, the provisions of this Section 18 shall apply and supersede all other provisions of the Plan during each Plan Year with respect to which the Plan is determined to be a Top Heavy Plan. 18.2. Definition for Section 18. For purposes of this Section 18 and as otherwise used in the Plan, the following terms shall have the meanings set forth below: (a) "Determination Date" means the last day of the preceding Plan Year or the last day of the first Plan Year. (b) "Key Employee" means: (i) For Plan Years beginning prior to January 1, 2002, each Employee or former Employee (including a deceased Employee) and his Beneficiary who at any time during the five Plan Years ending on the Determination Date: (A) was an officer of the Company or an Affiliate having an "annual compensation," as defined in Section 415(c)(3) of the Code, greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code, for any such Plan Year; (B) was one of the 10 Employees owning the largest interest of the Company and its Affiliates, but only if he received annual compensation equal to or greater than the dollar amount applied for purposes of Section 415(c)(1)(A) of the Code for the calendar year ending coincident with or immediately after the Determination Date; (C) owned at least five percent of an Employer's outstanding shares of stock or at least five percent of the total combined voting power of an Employer's shares of stock (a "five-percent owner"); or (D) owned at least one percent of an Employer's shares of stock or at least one percent of the total combined voting power of an Employer's shares of stock (a "one-percent owner") and whose annual compensation from the Employer exceeds $150,000. (ii) For Plan Years beginning on or after January 1, 2002, any Employee or former Employee (including any deceased Employee) and his Beneficiary who at any time during the Plan Year that includes the Determination Date: (A) was an officer of the Employer having annual compensation greater than $130,000 (as adjusted under Section 416(i)(1) of the Code for Plan Years beginning after December 31, 2002); (B) was a five-percent owner of the Employer; or (C) was a one-percent owner of the Employer having annual Compensation of more than $150,000. (iii) The following special rules apply to this definition: (A) No more than 50 officers, or, if less, the greater of three or 10% of all Employees will be Key Employees under Section 18.2(b)(i)(A) and (b)(ii)(A). (B) A person is an officer only if he is in regular and continued service as an administrative executive of the Company or a Participating Company. (C) No person will be a Key Employee under more than one paragraph ofthis definition unless he also is a Beneficiary of a deceased Key Employee. (D) A person will be treated as owning all shares of stock which he owns directly or constructively by application Section 318 of the Code. (E) For purposes of determining whether a person is a one-percent or five-percent owner of the Company or any Affiliate, his ownership interest in any entity related to the Company solely by reason of Sections 414(b), (c) and (m) of the Code shall be disregarded. (F) For purposes of determining whether a person receives annual Compensation of more than $150,000, amounts received from each Employer required to be aggregated under Sections 414(b), (c) and (m) of the Code shall be taken into account. (G) The determination of who is a Key Employee will be made in accordance with Section 416(i) of the Code and the applicable Regulations and other guidance of general applicability issued thereunder. (c) "Non-Key Employee" means (i) any Employee or former Employee who is not a Key Employee, or (ii) a Beneficiary of a Non-Key Employee. (d) "Permissive Aggregation Group" means all qualified employee pension benefit plans in the Required Aggregation Group and any qualified employee pension benefit plans sponsored by the Company or an Affiliate which are not part of the Required Aggregation Group, but which satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group and which the Company elects to have included in the Permissive Aggregation Group. (e) "Required Aggregation Group" means the Plan and any other qualified employee pension benefit plan that was sponsored by the Company or an Affiliate (i) in which a Key Employee participates or (ii) which enables the Plan to meet the requirements of Sections 401(a)(4) or 410 of the Code. (f) "Top Heavy Group" means all qualified employee pension benefit plans of the Company and its Affiliates in the Required Aggregation Group and any other qualified employee benefit plan of the Company and its Affiliates which the Company elects to aggregate as part of a Permissive Aggregation Group if, on any Determination Date, the Value of the cumulative annual accrued benefits for Key Employees under all defined benefit plans and the aggregate Value of all Key Employees' accounts under all defined contribution plans exceed 60% of a similar sum determined for all Employees. For purposes of this computation, the account balances and cumulative annual accrued benefits of a Participant (i) who is a Non-Key Employee but who was a Key Employee in a prior Plan Year, or (ii) who has not been credited with at least one Hour of Service with any Employer at any time during the five year period ending on the Determination Date will be disregarded. Effective January 1, 2002, clause (ii) of the preceding sentence shall be applied by replacing the phrase "five year period" with "one year period. If the aggregated plans do not have the same Determination Date, this test will be made using the Value calculated as of each plan's Determination Date occurring during the same Plan Year. (g) "Top Heavy Plan" means the Plan if, on any Determination Date, the present Value of the cumulative accrued benefits under the Plan for Key Employees exceeds 60% of the Value of the cumulative accrued benefits under the Plan for all Employees. For purposes of the comparison, the cumulative accrued benefits of all Non-Key Employees who were, but no longer are, Key Employees will be disregarded. (h) "Top Heavy Plan Year" means any Plan Year during which the Plan is Top Heavy or part of a Top Heavy Group. (i) "Value" means: (i) for all defined benefit plans, the present value calculated as provided in those plans; and (ii) for all defined contribution plans, the fair market value of each Participant's account (including amounts attributable to voluntary employee contributions from a qualified employee pension benefit plan sponsored by the Company or an Affiliate) determined as of the most recent Determination Date increased by: (A) distributions made during the five Plan Years ending on the Determination Date (except distributions already included in determining the Value of the accounts and distributions made during the five Plan Years preceding the Determination Date under a terminated plan which, if it had not been terminated, would have been required to be included in the Required Aggregation Group), provided that effective January 1, 2002, the phrase "five plan years" shall be replaced by "plan year" with respect to distributions made on account of a Participant's termination of service, death, or Disability; and (B) all rollover contributions distributed from the plans to a qualified employee benefit plan not sponsored by the Company or an Affiliate, and decreased by; (C) any deductible employee contributions; and (D) rollover contributions received by the plans from a qualified employee benefit plan not sponsored by the Company or an Affiliate; and (E) rollover contributions distributed from the Plan to a qualified employee pension benefit plan sponsored by the Company or an Affiliate. 18.3. Minimum Vesting. (a) If a Plan is a Top Heavy Plan with respect to any Plan Year, the nonforfeitable percentage of the Accrued Benefit derived from Company contributions of each Participant who is credited with at least one Hour of Service on or after the date the Plan becomes Top Heavy shall not be less than the amount determined in accordance with the following vesting schedule: Years of Service Percentage ---------------- ---------- Less than 2 years 0% 2 years but less than 3 years 20% 3 years but less than 4 years 40% 4 years but less than 5 years 60% 5 years but less than 6 years 80% 6 or more 100% (b) In the event the vesting provisions of Section 8.1 are amended, or changed on account of the Plan becoming or ceasing to be a Top Heavy Plan, any Participant who has completed at least three Years of Service, may elect to have the amount of his nonforfeitable right to his Retirement Benefit computed under the Plan without regard to such amendment or change by notifying the Administrative Committee in writing within the election period hereinafter described. The election period shall begin on the date such amendment is adopted or the date such change is effective, as the case may be, and shall end no earlier than the latest of the following dates: (i) the date which is 60 days after the day such amendment is adopted; or (ii) the date which is 60 days after the day such amendment or change becomes effective; or (iii) the date which is 60 days after the day the Participant is given written notice of such amendment or change by the Administrative Committee. Any election made pursuant to this Section 18.3(b) shall be irrevocable. 18.4. Minimum Benefits. (a) Subject to the provisions of Section 18.5, if the Plan is a Top Heavy Plan at any point in time, the Accrued Benefit derived from the Company's contributions for each Participant who has completed a Year of Service regardless of whether he is employed by the Employer on the last day of the Plan Year and who is a Non-Key Employee shall not, regardless of the Participant's Compensation, at such point be less than such Participant's Average Compensation, multiplied by the lesser of (i) two percent multiplied by the number of Years of Service or (ii) 20%. For purposes of the preceding sentence, Years of Service shall not include any Year of Service credited with respect to Plan Years which began prior to January 1, 1984, or any other Year of Service credited with respect to a Plan Year during which the Plan was not a Top Heavy Plan. (b) For purposes of this Section 18.4, "Average Compensation" shall mean the average of a Participant's aggregate annual compensation (or to the extent required by the Code or Section 1.415-2(d) of the IRS Regulations) for the period of five consecutive years (or, if the Participant does not have five consecutive years, his actual number of consecutive years) during which the Participant had the greatest annual compensation (or to the extent required by the Code or Section 1.415-2(d) of the IRS Regulations). 18.5. Limitations on Benefits. (a) This Section 18.5 shall apply only with respect to Plan Years beginning before January 1, 2000. (b) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 as the multiplicand of the Dollar Limitation in determining the denominator of the Defined Benefit Fraction and of the Defined Contribution Fraction for purposes of Section 12. (c) If, after substituting 90% for 60% wherever the latter appears in Section 416(g) of the Code, the Plan is not determined to be a Top Heavy Plan, then the provisions of Section 18.5(a) shall not be applicable if the Accrued Benefit of any Participant who is a Non-Key Employee is determined in accordance with Section 18.4(a) by substituting "three percent" for "two percent" in Section 18.4(a) and increasing "20%" in Section 18.4(a) by one percent for each Plan Year described in the last sentence of Section 18.4(a), but not beyond "30%". 18.6. Other Plans. If, with respect to a Non-Key Employee who benefits in a Plan Year under both a defined contribution and defined benefit plan which are Top Heavy Plans maintained by the Employer, a top heavy minimum benefit is not provided for such Plan Year under both plans, then such determination for such Plan Year shall be made in conformity with the comparability analysis described in Q&A M-12 of Section 1.416-1 of the IRS Regulations. Effective for Plan Years beginning prior to January 1, 2000, such analysis shall be modified, where a factor of 1.25 is utilized for such Plan Year in connection with the satisfaction of the limitations set forth in Section 415(e) of the Code, in accordance with the last sentence of Q&A M-14 of Section 1.416-1 of the IRS Regulations. SECTION 19. GENERAL LIMITATIONS AND PROVISIONS 19.1. No Right to Continued Employment. Nothing contained in the Plan shall give any Employee the right to be retained in the employment of the Company, any Participating Company, or any of its subsidiaries or affiliated or associated corporations, or affect the right of any such Employer to dismiss any Employee. The adoption and maintenance of the Plan shall not constitute a contract between the Employer and any Employee or consideration for, or an inducement to or condition of, the employment of any Employee. 19.2. Trust is Sole Source of Benefits. The Trust shall be the sole source of benefits under the Plan and, except as otherwise required by the Act, the Employer, the Administrative Committee, and the Investment Committee assume no liability or responsibility for payment of such benefits, and each Participant, Surviving Spouse, Beneficiary, or other person who shall claim the right to any payment under the Plan shall be entitled to look only to the Trust for such payment and shall not have any right, claim or demand therefor against the Employer, the Administrative Committee or the Investment Committee, or any member thereof, or any Employee or director of the Employer. 19.3. Payment on Behalf of Payee. If the Administrative Committee shall find that any person to whom any amount is payable under the Plan is found by a court of competent jurisdiction to be unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due his or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Administrative Committee so elects, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Administrative Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Trust therefor. 19.4. No Alienation. (a) Except insofar as may otherwise be required by law or pursuant to the terms of a Qualified Domestic Relations Order, no amount payable at any time under the Plan and the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any amount payable under the Plan and Trust, or any part thereof, or if by reason of his bankruptcy or other event happening at any such time such amount would be made subject to his debts or liabilities or would otherwise not be enjoyed by him, then the Administrative Committee, if it so elects, may direct that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his spouse, children or other dependents, or any of them, in such manner and proportion as the Administrative Committee may deem proper. (b) Notwithstanding Section 19.4(a), with respect to judgments, orders, decrees issued and settlement agreements entered into on or after August 5, 1997, a Participant's benefit may be reduced if a court order or requirement to pay arises from: (1) a judgment of conviction for a crime involving the Plan; (2) a civil judgment (or consent order or decree) that is entered by a court in an action brought in connection with a breach (or alleged breach) of fiduciary duty under ERISA; or (3) a settlement agreement entered into by the Participant and either the Secretary of Labor or the PBGC in connection with a breach of fiduciary duty under ERISA by a fiduciary or any other person. The court order, judgment, decree, or settlement agreement must specifically require that all or part of the amount to be paid to the Plan be offset against the Participant's Plan benefits. If the survivor annuity requirements of Section 401(a)(11) of the Code apply with respect to distributions from the Plan to the Participant and the Participant has a spouse at the time at which the offset is to be made, such offset shall not be made unless the Plan complies with Section 401(a)(13)(C)(ii) of the Code. 19.5. Missing Payee. If the Administrative Committee cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, and if, after five years from the date such payment is due, a notice of such payment due is mailed to the last known address of such person, as shown on the records of the Administrative Committee or the Employer, and within three months after such mailing such person has not made written claim therefor, the Administrative Committee, if it so elects, after receiving advice from counsel to the Plan, may direct that such payment and all remaining payments otherwise due to such person be canceled on the records of the Plan. The amount thereof shall be applied to reduce the contributions of the Participating Company that had employed the Participant, and upon such cancellation, the Plan and the Trust shall have no further liability therefore. Notwithstanding the foregoing, in the event such person later notifies the Administrative Committee (prior to termination of the Plan) of his whereabouts and requests the payment or payments due to him under the Plan, the amount so applied shall be paid to him as provided in Section 11 of the Code. 19.6. Subject to Trust Agreement. Any and all rights or benefits accruing to any persons under the Plan shall be subject to the terms of the Trust Agreement which the Company shall enter into with the Trustee providing for the administration of the Trust Fund. 19.7. Required Information. Each Participant shall file with the Administrative Committee such pertinent information concerning himself, his spouse, his Beneficiary, or any other person as the Administrative Committee may specify and in such manner and form as the Administrative Committee may specify or provide, and no Participant, Surviving Spouse or Beneficiary, or other person shall have any rights or be entitled to any benefits or further benefits under the Plan unless such information is filed by or with respect to him. 19.8. Subject to Insurance Contract. If the payment of any benefit under the Plan is provided for by a contract with an insurance company, the payment of such benefit shall be subject to all the provisions of such contract. 19.9. Communications to Committees. All elections, designations, requests, notices, instructions, and other communications from a Participating Company, a Participant, Beneficiary, Surviving Spouse, or other person to the Administrative Committee required or permitted under the Plan shall be in such form as is prescribed from time to time by the Administrative Committee, shall be mailed by first class mail or delivered to such location as shall be specified by the Administrative Committee, and shall be deemed to have been given and delivered only upon actual receipt thereof by the Administrative Committee at such location. 19.10. Communications from Participating Company or Committees. All notices, statements, reports and other communications from a Participating Company or either Committee, to any Eligible Employee, Participant, Beneficiary, or other person required or permitted under the Plan shall be deemed to have been duly given when delivered to, or when mailed by first class mail, postage prepaid and addressed to, such Eligible Employee, Participant, Beneficiary, or other person at his address last appearing on the records of the Administrative Committee. 19.11. Gender, Tense. Whenever used in the Plan, the masculine gender includes the feminine gender and the singular includes the plural, unless the content indicates otherwise. 19.12. Captions. The captions preceding the Sections of the Plan have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provisions of the Plan. 19.13. Applicable Law. The Plan and all rights thereunder shall be governed by and construed in accordance with the Act and the laws of the State of New Jersey. COVANTA ENERGY ------------------------------ By: Date: COVANTA ENERGY PENSION PLAN APPENDIX I ACTUARIAL ASSUMPTIONS AND TABLES Except as limited in Section 2.26, the actuarial tables and interest rates used to calculate the Equivalent Actuarial Value or Actuarial Equivalent of a particular form of benefit shall be as follows: Interest: Eight percent, compounded annually. Mortality: 1983 Group Annuity Table weighted to reflect 80% of the male and 20% of the female annuity rates. Provided, however, that for purposes of calculating Equivalent Actuarial Values under Section 11.6 for Plan Years beginning on or after January 1, 2000, the "applicable interest rate" and "applicable mortality table" shall be used in accordance with Section 417(e)(3) of the Code. EX-10.3HI 15 covex10-3hi_718.txt EXHIBIT 10.3(h)(i) ------------------ COVANTA ENERGY GROUP PROFIT SHARING PLAN As Amended and Restated Effective January 1, 1998 And As In Effect Through December 31, 2001 COVANTA ENERGY GROUP PROFIT SHARING PLAN TABLE OF CONTENTS SECTION PAGE - ------- ---- SECTION 1. BACKGROUND AND PURPOSE.............................................1 SECTION 2. DEFINITIONS........................................................4 SECTION 3. PARTICIPATION.....................................................23 SECTION 4. SALARY REDUCTION CONTRIBUTIONS AND VOLUNTARY CONTRIBUTIONS...........................................25 SECTION 5. EMPLOYER CONTRIBUTIONS............................................35 SECTION 6. INVESTMENT OF CONTRIBUTIONS.......................................42 SECTION 7. VALUATIONS AND MAINTENANCE OF PARTICIPANTS' ACCOUNTS............................................45 SECTION 8. ELIGIBILITY FOR BENEFITS..........................................48 SECTION 9. VESTING...........................................................51 SECTION 10. METHOD OF PAYMENT OF BENEFITS.....................................54 SECTION 11. DESIGNATION OF BENEFICIARIES......................................60 SECTION 12. WITHDRAWALS.......................................................62 SECTION 13. LOANS TO PARTICIPANTS.............................................65 SECTION 14. ADMINISTRATION OF THE PLAN........................................71 SECTION 15. TERMINATION OF PARTICIPATING COMPANY PARTICIPATION.............................................79 SECTION 16. AMENDMENT OR TERMINATION OF THE PLAN AND THE TRUST............................................81 SECTION 17. GENERAL LIMITATIONS AND PROVISIONS................................84 SECTION 18. MAXIMUM AMOUNT OF ALLOCATION......................................87 SECTION 19. TOP HEAVY PROVISIONS..............................................92 APPENDIX A. PRIOR PLAN ACCOUNTS..............................................98 APPENDIX B. METHOD OF PAYMENT OF RETIREMENT AND DEATH BENEFITS FROM CERTAIN PRIOR ACCOUNTS............................101 SECTION 1. BACKGROUND AND PURPOSE 1.1 The purpose of the Covanta Energy Group Profit Sharing Plan (formerly know as, from time to time, the (i) Ogden Projects Profit Sharing Plan, (ii) OPI Profit Sharing Plan, (iii) Ogden Projects, Inc. Profit Sharing Plan and (iv) Ogden Energy Group Profit Sharing Plan) (the "Plan"), is to provide eligible employees of Covanta Energy Group, Inc. and its participating subsidiaries and other participating companies, with a convenient way to save on a regular and long-term basis and by providing such Eligible Employees with a beneficial interest in the profits of the business, all as set forth herein and in the trust agreement adopted as part of the Plan. The Plan, as hereby amended and restated, and the trust continued hereunder, are intended to continue to qualify as a plan and a trust which meet the requirements of Sections 401(a), 401(k) and 501(a), respectively, of the Internal Revenue Code of 1986, as now in effect or as hereafter amended, or any other applicable provisions of law including, without limitation, the Employee Retirement Income Security Act of 1974, as now in effect or hereafter amended. 1.2 (a) Prior to the adoption of the Plan, Ogden Projects, Inc. (now known as Covanta Energy Group, Inc.) and several other subsidiaries of Ogden Corporation (now known as Covanta Energy Corporation) were each a "Participating Company" under the Ogden Corporation Profit Sharing Plan (now known as The Ogden 401(k) Plan) (the "Prior Plan"), and the related trust thereunder (the "Prior Plan Trust"). As a result of the Tax Reform Act of 1986, Ogden Corporation, parent of the sponsor of the Prior Plan, determined that it would be in the best interest of all Prior Plan Participating Companies, and their respective employees, to elect whether to continue to be a Participating Company under the Prior Plan or to establish a separate defined contribution plan. Effective as of January 1, 1989, the Board of Directors of Ogden Projects, Inc. determined that it was in the best interest of Ogden Projects, Inc., its subsidiaries, affiliated companies and the employees of such companies, to adopt the Plan, such plan being substantially similar to and a continuation of, the Prior Plan. All service credited to an individual as a participant under the Prior Plan was credited to such individual under the Plan; provided, that such individual became a participant of the Plan on or after January 1, 1989, and further provided, that such service was credited solely in accordance with the terms and provisions of the Plan. With the adoption of the Plan, the trustee of the Prior Plan Trust segregated a proportional share of the assets of the Prior Plan Trust, including any earnings, and transferred such assets to the trustee of the Plan's trust to be held in trust for the participants of the Prior Plan who continue to be participants of the Plan. By letter dated June 19, 1991, the District Director of Internal Revenue, Baltimore, Maryland determined that (i) the adoption of the Plan and its related trust, (ii) the spinoff and transfer of assets and liabilities from the Prior Plan and Prior Plan Trust to the Plan and the Plan's trust, and (iii) the crediting of service, as described herein, satisfied the requirements of Sections 401(a), 401(k) and 501(a) of the Internal Revenue Code of 1986. (b) Subsequent to the issuance of the District Director's favorable determination letter, effective December 31, 1991, the Ogden Environmental Services ("OES") Profit Sharing Plan (the "OES Plan") merged with the Plan. After the merger of the OES Plan, the employees of Ogden Yorkshire Water Co. became eligible to participate in the Plan. (c) As a result of the enactment of the Unemployment Compensation Amendments of 1992, the Omnibus Budget Reconciliation Act of 1993, as well as the adoption of miscellaneous administrative and operational changes, the Plan was amended and restated. By letter dated June 15, 1995, the District Director of Internal Revenue, Brooklyn, New York, again determined that the Plan, as so amended and restated, continued to comply with the requirements of Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as then in effect. 1.3 The Plan, as set forth herein, constitutes a restatement of the Plan through December 31, 2001. This restatement is generally effective January 1, 1998 and includes amendments to conform with the requirements of the (i) Uruguay Round Agreements Act of 1994, (ii) Uniform Service Employment and Reemployment Rights Act of 1994, (iii) Small Business Job Protection Act of 1996, (iv) Taxpayer Relief Act of 1997, (v) Surface Transportation Revenue Act of 1998, (vi) Internal Revenue Service Restructuring and Reform Act of 1998 and (vii) Community Renewal Tax Relief Act of 2000, and other applicable laws, regulations, notices, and announcements. Accordingly, notwithstanding the general effective date of this amendment and restatement, certain Plan provisions are effective as of the date indicated in the text contained herein. 1.4 The rights of any person (including such person's beneficiaries) who terminated employment or who retired on or before the effective date of the Plan, as amended and restated herein, or of a particular amendment, including his eligibility for benefits and the time and form in which benefits, if any, will be paid, shall be determined solely under the terms of the Plan as in effect on the date of his termination of employment or retirement, unless such person is thereafter reemployed and again becomes a participant of the Plan. SECTION 2. DEFINITIONS When used herein the following terms shall have the following meanings: 2.1 "Account" or "Participant's Account" means the Account established and maintained on behalf of a Participant pursuant to Section 3.4, including such Participant's Employer Contribution Account, Salary Reduction Contribution Account, Voluntary Contribution Account and Rollover Contribution Account and any other account established pursuant to Appendix A. 2.2 "Act" means the Employee Retirement Income Security Act of 1974, as now in effect or as hereafter amended. 2.3 "Actual Contribution Percentage" means for a Plan Year, for each specified group of Eligible Employees, the average of the Actual Contribution Ratios calculated separately for each Eligible Employee in such group. 2.4 "Actual Contribution Ratio" means for a Plan Year the ratio of (i) the sum of (A) Employer Contributions described in Section 5.1(a) made on account of Salary Reduction Contributions made during the Plan Year and allocated to the Participant's Employer Contribution Account during the Plan Year and paid to the Trust within 12 months after the Plan Year for which such contributions are made (except for Employer Contributions which are nonforfeitable when made and which are subject to the distribution requirements under Section 1.401(k)-1(b) of the IRS Regulations, and are used to meet the actual deferral percentage test under Section 4.1(b)), (B) Voluntary Contributions credited to his Voluntary Contribution Account if such Voluntary Contributions are paid to the Trust during the Plan Year or paid to an agent of the Plan and transmitted to the Trust within a reasonable period after the end of the Plan Year (including Salary Reduction Contributions recharacterized as Voluntary Contributions pursuant to Section 4.1(b)(iii) which are includible in the Participant's gross income for the Plan Year), and if the Administrative Committee so elects in accordance with and to the extent permitted by IRS Regulations, including IRS Regulation Section 1.401(m)-1(b)(5), and (B) Salary Reduction Contributions (including excess contributions under Section 4.1(b) if the contribution would have been received in cash by the Participant had the Participant not elected to defer such amounts under Section 4.1(a)) credited to his Salary Reduction Account, to (ii) the amount of the Participant's Salary for the Plan Year. 2.5 "Actual Deferral Percentage" means for a Plan Year, for each specified group of Eligible Employees, the average of the Actual Deferral Ratios calculated separately for each Eligible Employee in such group. 2.6 "Actual Deferral Ratio" means for a Plan Year the ratio of (i) the amount of contributions allocated to the Participant's Salary Reduction Contribution Account (and any contribution under Section 5.1(a) which meets the requirements of Section 1.401(k)-1(b)(5) of the IRS Regulations) during the Plan Year to (ii) the amount of the Participant's Salary for the Plan Year. 2.7 "Administrative Committee" means, effective March 14, 2001, the Covanta Energy Group Administrative Committee as provided for in Section 14. Prior to such date, Administrative Committee means the (i) Ogden Energy Group Administrative Committee and (ii) OPI Administrative Committee. For purposes of the Act, the Administrative Committee shall be the administrator of the Plan and its members shall be named fiduciaries with respect to matters for which they are responsible under the Plan. 2.8 "Affiliate" means any corporation which is included in a controlled group of corporations (within the meaning of Section 414(b) of the Code) which includes the Company, any trade or business (whether or not incorporated) which is under common control with the Company (within the meaning of Section 414(c) of the Code), any organization included in the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Company and any other entity required to be aggregated with the Company pursuant to the Regulations under Section 414(o) of the Code; except that for purposes of applying the provisions of Sections 18 and 19 with respect to the limitations on contributions, Section 415(h) of the Code shall apply. 2.9 "Aggregate Limit" means for a Plan Year the greater of (i) or (ii) where (i) is the sum of (A) 1.25 multiplied by the greater of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees, and (B) two plus the lesser of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees provided that the amount shall not exceed twice the lesser of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees; and (ii) is the sum of (A) 1.25 multiplied by the lesser of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees, and (B) two plus the greater of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees, provided that this amount shall not exceed twice the greater of the Actual Deferral Percentage or the Actual Contribution Percentage of those Eligible Employees who are not Highly Compensated Employees. 2.10 "Beneficiary" means the beneficiary or beneficiaries designated by a Participant pursuant to Section 11 to receive the amount, if any, payable under the Plan upon the death of such Participant. 2.11 "Board of Directors" means the Board of Directors of the Company. 2.12 "Break in Service" means a Plan Year during which an individual has not completed more than 500 Hours of Service, as determined by the Administrative Committee in accordance with the Regulations. Solely for purposes of determining whether a Break in Service has occurred, an individual shall be credited with the Hours of Service which such individual would have completed but for a maternity or paternity absence, as determined by the Administrative Committee in accordance with this Section 2.12 and the Labor Department Regulations; provided, however, that the total Hours of Service so credited shall not exceed 501 Hours of Service and that the individual timely provides the Administrative Committee with such information as it may require. Hours of Service credited for a maternity or paternity absence shall be credited entirely (i) in the Plan Year in which the absence began if such Hours of Service are necessary to prevent a Break in Service in such Plan Year, or (ii) in the following Plan Year. For purposes of this Section 2.12, maternity or paternity absence shall mean an absence from work by reason of the individual's pregnancy, the birth of the individual's child or the placement of a child with the individual in connection with adoption of the child by such individual, or for purposes of caring for a child for the period immediately following such birth or placement. 2.13 "Business Day" means any day that the New York Stock Exchange is open. 2.14 "Code" means the Internal Revenue Code of 1986, as now in effect or as hereafter amended. All citations to sections of the Code are to such sections as they may from time to time be amended or renumbered. 2.15 "Committee" means the Administrative Committee and the Investment Committee as provided for in Section 14. 2.16 "Common Stock" means effective March 14, 2001, shares of common stock of Covanta Energy Corporation. Prior to March 14, 2001, Common Stock means shares of common stock of Ogden Corporation. 2.17 "Company" means Covanta Energy Group, Inc. a State of Delaware corporation. Prior to March 14, 2001, Company means Ogden Energy Group, Inc. and Ogden Projects, Inc., each being a State of Delaware corporation. 2.18 "Company Stock Fund" means the Investment Fund described in Section 6.4. 2.19 "Compensation" means an Employee's first $160,000 (as adjusted by the Commissioner of the IRS, for years beginning after December 31, 1999, for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code) of remuneration paid or payable for Service while an Employee and performed during the Plan Year and, but for the Eligible Employee's Salary Reduction Contributions, would have been received by such Employee by the March 15 following the close of the Plan Year, without giving effect to any reduction therein pursuant to such Participant's election under Section 4.1(a) or, effective for Plan Years beginning on and after January 1, 1998, any reduction pursuant to such Participant's election under Section 125 of the Code. Compensation does not include amounts contributed to the Plan, any group insurance plan or other employee benefit plan, tuition reimbursement, salary deferrals other than deferrals made pursuant to Section 4.1(a), deferred compensation paid to Employees imputed income, other noncash compensation, reimbursed expenses, a benefit payment under the Plan or similar plan, withholding taxes remitted by the Company or a Participating Company on behalf of an Employee with respect to imputed income, other amounts of extra or special discretionary compensation, including severance payments and retention bonuses. 2.20 "Direct Rollover" means (i) a distribution by the Plan to an Eligible Retirement Plan as specified by a Distributee and (ii) a payment by another employee retirement plan to the Plan as a Rollover Contribution as specified by a Participant. 2.21 "Disability" or "Disabled" means an Employee's physical or mental inability to perform the duties of employment with the Employer such that he is ineligible to receive either benefits under the long-term disability plan of the Company or any Affiliate, or disability benefits under the federal Social Security Act and such incapacity is expected to last for more than 12 months as determined in a uniform manner by the Administrative Committee after reviewing any medical evidence which the Administrative Committee considers necessary, including the reports of any medical examinations required by the Administrative Committee; provided, however, that any incapacity or disability due to, suffered or incurred while the Participant was engaged in, or resulted from, the Participant engaging in a felonious enterprise or the addiction to narcotics, or due to a self inflicted wound, injury or to service in the armed forces of any country (except as required to comply with the provisions of Section 414(u) of the Code), shall not be a Disability and the Participant shall not be Disabled. 2.22 "Distributee" means a Participant or a former Participant. A Participant's or former Participant's Surviving Spouse or a former spouse of a Participant or former Participant who is a payee under a Qualified Domestic Relations Order to which a distribution is to be made under the Plan shall also be deemed to be a Distributee. 2.23 "Early Retirement Age" means the date on which a Participant has attained age 55 and has completed five Years of Service. 2.24 "Early Retirement Date" means the first day of the month coincident with or next following a Participant's retirement after reaching his Early Retirement Age but prior to his Normal Retirement Age. 2.25 "Effective Date" means, for this amendment and restatement, January 1, 1998. The original effective date of the Plan is January 1, 1989. 2.26 "Eligible Employee" means any Employee excluding any (i) nonresident alien of the United States who does not receive earned income within the meaning of Section 911(d)(2) of the Code from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code), (ii) Employee who is included in a unit of Employees covered by a collective bargaining agreement which does not provide for his participation in the Plan, (iii) individual who is employed by the Employer as an independent contractor who is subsequently determined by a court of law to be an Employee, (iv) leased employee, and commencing January 1, 1994, (v) Highly Compensated Employee designated by the Administrative Committee as ineligible to participate in the Plan, unless or until the Administrative Committee rescinds such prohibition. A director of the Employer is not eligible to participate in the Plan unless he is also an Eligible Employee. For all purposes of the Plan, (i) an "independent contractor" includes an individual who is a payroll service or agency employee, which means an individual (A) for whom the direct payor of compensation with respect to the performance of services for the Employer is any outside agency and not the Employer's internal corporate payroll system or (B) who is paid directly by the Employer, but not through an internal corporate payroll system and (ii) a "leased employee" means (A) any individual who provides services pursuant to an agreement between the Employer and any other person, (B) such individual performs such services for the Employer on a substantially full-time basis for a period of at least one year, and (C) such services are performed under the primary direction or control of the Employer. The determination whether an individual is a "payroll service or agency employee" shall be made by the Administrative Committee, in its sole discretion, based solely upon these criteria, without regard to whether the individual is considered a common law employee of the Employer for any other purpose. 2.27 "Eligible Retirement Plan" means (i) an individual retirement account, as described in Section 408(a) of the Code, (ii) an individual retirement annuity, as described in Section 408(b) of the Code, (iii) an annuity plan, as described in Section 403(a) of the Code, and (iv) a qualified plan and trust, as described in Sections 401(a) and 501(a) of the Code; provided, however, that in the case of an Eligible Rollover Distribution to a Surviving Spouse, an Eligible Retirement Plan means an individual retirement account or an individual retirement annuity, as described in Sections 408(a) and 408(b) of the Code, respectively. 2.28 "Eligible Rollover Distribution" means any distribution from the Plan of all or any portion of the balance to the credit of a Distributee, except that an Eligible Rollover Distribution shall not include: (i) any distribution to the extent such distribution is required under Section 10.2 and Section 401(a)(9) of the Code, (ii) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a period of ten years or more, (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities) and effective January 1, 2000, (iv) any hardship distribution under Section 12 and as described in Section 401(k)(2)(B)(i)(IV) of the Code. 2.29 "Employee" means an individual in the employ of the Employer. 2.30 "Employer" means the Company and each other Participating Company, or any of them. 2.31 "Employer Contributions" and "Employer Contribution Account" (formerly known as "Company Contributions" and "Company Contribution Account") mean those Employer Contributions made pursuant to Sections 5.1(a) and (b) and that portion of the Participant's Account to which such Contributions and earnings, if any, are credited. 2.32 "Excess Aggregate Contributions" means, with respect to any Plan Year the excess of the aggregate amount of contributions (and any earnings and losses allocable thereto) made to (i) the Employer Contribution Accounts (except to the extent used to meet the requirements of Section 4.1(b)), (ii) the Voluntary Contribution Accounts (including Salary Reduction Contributions recharacterized as Voluntary Contributions pursuant to Section 4.1(b)(iii) which are includible in the Participants' gross income for the Plan Year) and (iii) the Salary Reduction Contribution Accounts (to the extent permitted by the IRS Regulations and if the Administrative Committee elects to take into account Salary Reduction Contributions when calculating the Actual Contribution Percentage under Section 5.1(d)(i)) of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions that could be made to the Employer Contribution Accounts, Voluntary Contribution Accounts and Salary Reduction Contribution Accounts of such Participants without violating the requirements of Section 5.1(d)(i). 2.33 "Excess Contributions" means with respect to any Plan Year, the excess of the aggregate amount of Salary Reduction Contributions (and any earnings and losses allocable thereto) made to the Salary Reduction Contribution Accounts of Highly Compensated Participants for such Plan Year, over the maximum amount of such contributions that could be made to the Salary Reduction Contribution Accounts of such Participants without violating the requirements of Section 4.1(b)(i). 2.34 "Five Percent Owner" means a five percent owner of the Company as described in Section 416(i)(1) of the Code. 2.35 "Highly Compensated Employee" or "Highly Compensated Participant" means an Employee or Participant who, during the relevant period, is treated as a Highly Compensated Employee. Effective for Plan Years beginning on or after January 1, 1997, a Highly Compensated Employee includes any Employee who performs Service for the Employer during the Plan Year and who (i) was a Five Percent Owner at any time during the Plan Year or the preceding Plan Year, or (ii) for the preceding Plan Year, (A) received Salary from the Employer in excess of $80,000 (as adjusted pursuant to Section 414(q) of the Code) and (B) with respect to such preceding Plan Year, received Salary from the Employer in excess of $80,000 (as adjusted pursuant to Section 414(q) of the Code) for the preceding Plan Year and was a member of the top-paid group for such Plan Year. The term Highly Compensated Employee also includes any Employee who separated from Service or was deemed to have separated from Service prior to the Plan Year, performs no Service for the Employer or an Affiliate during the Plan Year, and was a Highly Compensated Employee for either the separation year or any Plan Year ending on or after such Employee's 55th birthday. 2.36 "Hours of Service" means the hours for which an Employee shall receive credit for purposes of the Plan, as follows: (a) One hour for each hour for which he is directly or indirectly paid, or entitled to payment, by the Company or an Affiliate for the performance of duties during the applicable computation period for which his Hours of Service are being determined under the Plan. (These hours shall be credited to the Employee for the computation period or periods in which the duties were performed, and shall include hours for which back pay has been either awarded or agreed to by the Company or Affiliate as provided by Labor Department Regulations under the Act, with no duplication of credit for hours.) (b) One hour for each hour, in addition to the hours in Section 2.36(a), for which he is directly or indirectly paid, or entitled to payment, by the Company or Affiliate, for reasons other than for the performance of duties during the applicable computation periods, such as paid vacation, paid holiday, paid sickness, and similar paid periods of nonworking time. (These hours shall be counted in the computation period or periods in which the hours for which payment is made occur). (c) One hour for each hour of the normally scheduled work hours for each day during any period he is on leave of absence from work with the Company or Affiliate for military service with the armed forces of the United States, but not to exceed the period required under the law pertaining to veterans' reemployment rights; provided that if he fails to report for work at the end of such leave during which he has reemployment rights he shall not receive credit for hours on such leave. (d) The number of normally scheduled work hours for each day of authorized leave of absence granted by the Company or Affiliate in accordance with reasonable policies established therefor for which he is not compensated. When no time records are available, the Employee shall be given credit for Hours of Service based upon the number of normally scheduled work hours for each day he is on the Company's or Affiliate's payroll, as determined in accordance with reasonable standards and policies from time to time adopted by the Administrative Committee under Section 2530.200b-2(b) and (c) of the Labor Department Regulations, which are incorporated herein by this reference thereto. (e) Notwithstanding the foregoing, the Employee shall be credited with 190 Hours of Service with respect to each month for which he is entitled to be credited with at least one Hour of Service. 2.37 "Individual Retirement Account Rollover Contribution" means the entire amount received by a Participant from an individual retirement account representing the entire amount in the account (the "qualifying amount") if no part of the amount in the account is attributable to any source other than (i) an employer's plan and trust described in Section 401(a) of the Code, that is exempt from federal income tax under Section 501(a) of the Code, or (ii) a qualified annuity plan meeting the requirements of Section 403(a) of the Code, and any earnings on such sums. An Individual Retirement Account Rollover Contribution shall be accepted only if (i) the entire qualifying amount was received by the Participant in cash, and (ii) such cash amount is included in the Individual Retirement Account Rollover Contribution. The Participant may transfer any portion of such cash amount to the Trust on or before the 60th day after the day on which the Participant received the qualifying amount. 2.38 "Investment Committee" means, effective March 14, 2001, the Covanta Energy Group Investment Committee as provided for in Section 14. Prior to such date, Investment Committee means the (i) Ogden Energy Group Investment Committee and (ii) OPI Investment Committee. For purposes of the Act, the members of the Investment Committee shall be named fiduciaries with respect to matters for which they are responsible under the Plan. 2.39 "Investment Fund" means the investment fund or funds provided for in Section 6 which are effective from time to time. 2.40 "Investment Manager" means an Investment Manager, as that term is defined in Section 3(38) of the Act, appointed by the Investment Committee in accordance with Section 14.2 hereof. 2.41 "IRS" means the United States Internal Revenue Service. 2.42 "Labor Department" means the United States Department of Labor. 2.43 "Net Profit" means the current and accumulated income and earnings of the Company and of each Participating Company, as determined by each Participating Company, in accordance with generally accepted accounting principles, without regard to any federal, state, and local income taxes. 2.44 "Normal Retirement Age" means the date which is the Participant's 65th birthday. Upon attainment of Normal Retirement Age, the Participant shall have a nonforfeitable right to his entire Account balance. 2.45 "Normal Retirement Date" means the first day of the month coincident with or next following a Participant's attainment of his Normal Retirement Age. 2.46 "Participant" means any Eligible Employee who participates in the Plan as provided in Section 3. 2.47 "Participating Company" means an Affiliate of the Company, designated by the Board of Directors as such, the board of directors or equivalent governing body of which shall adopt the Plan and the Trust Agreement by appropriate action and the employees of which shall be eligible to participate in the Plan in the manner and to the extent determined by the Board of Directors so long as such Affiliate remains so designated. Any such Affiliate so designated and which adopts the Plan shall be deemed thereby to appoint the Company, the Administrative Committee, the Investment Committee and the Trustee its exclusive agents to exercise on its behalf all of the powers and authority conferred hereby, or by the Trust Agreement, upon the Company, and shall make its allocable contributions to the Plan. The authority of the Company, the Administrative Committee, the Investment Committee, and the Trustee to act as such agent shall continue until the Plan has terminated as to such Affiliate and the relevant Trust Fund assets have been distributed by the Trustee as provided in Section 16.4 hereof. 2.48 "Plan" means the Plan, as set forth herein and as the same may be amended from time to time. Prior to March 14, 2001, the Plan was known, from time to time, as the (i) Ogden Energy Group Profit Sharing Plan, (ii) OPI Profit Sharing Plan and (iii) Ogden Projects Profit Sharing Plan. The Plan is intended to satisfy the requirements of Section 404(c) of the Act. 2.49 "Plan Year" means the calendar year and shall be the Plan's limitation year, as defined by Section 415(j) of the Code. 2.50 "Prior Plan" means The Ogden 401(k) Plan (formerly known as the Ogden Profit Sharing Plan), as in effect on December 31, 1998. 2.51 "Qualified Domestic Relations Order" means any judgment, decree or order (including approval of a settlement agreement) which has been determined by the Administrative Committee in accordance with procedures established under the Plan, to constitute a qualified domestic relations order within the meaning of Section 414(p)(1) of the Code. If such judgment, decree or order is determined to be a Qualified Domestic Relations Order that provides for an immediate payment to an alternate payee, within the meaning of Section 414(p)(8) of the Code, then the Administrative Committee shall cause to be paid to the alternative payee, the amounts specified by the Qualified Domestic Relations Order. If an immediate payout is not required, then the Administrative Committee shall pay the amounts specified by the Qualified Domestic Relations Order on the earliest date the Participant is entitled to receive his Account under the terms and provisions of the Plan. 2.52 "Qualified Plan Rollover Contribution" means any distribution paid to a Participant from an employee retirement plan meeting the requirements of Section 401(a) of the Code, of all or any portion of the balance to the credit of a Participant, except that a Qualified Plan Rollover Contribution shall not include: (i) any distribution to the extent such distribution is required under Section 10.2 and Section 401(a)(9) of the Code, (ii) any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's Beneficiary, or for a period of ten years or more, (iii) the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities) and effective January 1, 2000, (iv) distribution as described in Section 401(k)(2)(B)(i)(IV) of the Code. The Participant must transfer any portion of his distribution to be rolled over to the Trust on or before the 60th day after the day on which he received the distribution. 2.53 "Regulations" means the applicable regulations issued under the Code (referred to herein as "IRS Regulations"), the Act (referred to herein as "Labor Department Regulations") or other applicable law, by the IRS, the Labor Department or any other governmental authority and any temporary regulations or rules promulgated by such authorities pending the issuance of such regulations. 2.54 "Rollover Contribution" and "Rollover Contribution Account" means any contribution made by a Participant pursuant to Section 4.5 and that portion of the Participant's Account to which such Contributions and earnings, if any are credited. 2.55 "Salary" means an Employee's first $160,000 (as adjusted by the Commissioner of the IRS, for years beginning after December 31, 1999, for increases in the cost of living in accordance with Section 401(a)(17)(B) of the Code) of total remuneration paid or payable for Service while an Eligible Employee, without giving effect to any reduction therein pursuant to an election under Section 4.1(a) or Section 125 of the Code nor any contributions by the Employer to the Plan or any other retirement plan maintained by the Employer, as reported on IRS Form W-2. For Plan Years beginning on and after January 1, 2001, for purposes of applying the limitations of Section 18, Salary paid or made available during such Plan Year, includes elective amounts that are not included in the gross income of the Employee by reason of Section 132(f)(4) of the Code. 2.56 "Salary Reduction Contributions" and "Salary Reduction Contribution Account" (formerly known as "Pre-Tax Contributions" and "Pre-Tax Contribution Account") mean those contributions made by the Employer on behalf of a Participant in accordance with such Participant's election pursuant to Section 4.1(a) and that portion of the Participant's Account to which such Contributions and earnings, if any, are credited. 2.57 "Service" means employment or reemployment (whether or not as an Eligible Employee) with the Company, any Participating Company or with any subsidiary of or other corporation or entity affiliated or associated with the Company which is a member of the same controlled group of corporations (within the meaning of Section 1563(a) of the Code), including all (i) periods of employment rendered by an individual from his date of employment or reemployment, as the case may be, with the Employer and (ii) periods of employment credited to the Participant while a participant of the Prior Plan, in accordance with the terms and conditions of the Prior Plan. To the extent and for the purposes determined by the Administrative Committee under rules uniformly applicable to all Eligible Employees similarly situated and in accordance with the Regulations (including Labor Department Regulation Section 2530.200b-2(b) and (c)), Service includes (i) periods of vacation, (ii) periods of layoff, (iii) periods of absence authorized by the Company or a Participating Company for sickness, temporary disability or personal reasons and (iv) periods of absence from employment for military service in the Armed Forces of the United States. Service may also include any period of a Participant's prior employment by any organization upon such terms and conditions as the Administrative Committee may approve, subject to any required IRS approval. 2.58 "Surviving Spouse" means the survivor of a deceased Participant or a deceased former Participant to whom such deceased Participant or deceased former Participant had been legally married (as determined by the Administrative Committee) on the date of the Participant's death or at the time payments commence, whichever is earlier. 2.59 "Trust" or "Trust Fund" means the trust established by the Company pursuant to the Trust Agreement as a part of the Plan. 2.60 "Trustee" means the trustee or trustees of the Trust. 2.61 "Trust Agreement" means the agreement entered into between the Company and the Trustee regarding the investment and holding of Plan assets as provided in the Plan, as amended or restated from time to time. 2.62 "Valuation Date" means (i) the last day of each Plan Year, (ii) each Business Day of the Plan Year that the Investment Funds are valued, and (iii) any other date as the Administrative Committee in its discretion may determine from time to time. 2.63 "Vested Interest" means the portion of a Participant's Account which has become nonforfeitable pursuant to Section 9.2. 2.64 "Voluntary Contributions" and "Voluntary Contribution Account" (formerly known as "After-Tax Contributions" and "After-Tax Contribution Account") mean those Participant contributions made on or before December 31, 1997, and that portion of the Participant's Account to which such Contributions and earnings, if any, are credited. Effective January 1, 1998, a Participant may not elect nor continue to make Voluntary Contributions to the Plan. 2.65 "Year of Service" means any Plan Year during which an Employee completed at least 1,000 Hours of Service as determined by the Administrative Committee in accordance with the Regulations. In addition, solely for purposes of determining whether an Eligible Employee is enrolled as a Participant as provided in Section 3, if an Employee does not complete 1,000 Hours of Service during the Plan Year in which his Service commenced but does complete at least 1,000 Hours of Service during the 12 consecutive month period beginning on the date his Service commenced, as determined by the Administrative Committee, then, he shall be credited with a Year of Service for such 12 consecutive month period. In determining the number of Years of Service a Participant is to be credited with under Section 9.2, all years of service credited to such Participant, as of December 31, 1988 under the Prior Plan, shall be counted. SECTION 3. PARTICIPATION 3.1 Each Employee who is an Eligible Employee on the Effective Date and who was a Participant in the Plan on December 31, 1997, shall continue to be a Participant, provided that such Eligible Employee is employed by the Employer on such date. Each Employee who was an Eligible Employee prior to the Effective Date but who was not a Participant in the Plan prior to that date and each other Eligible Employee shall become a Participant in the Plan on the first day of the month coincident with or next following the later of (i) the date on which the Eligible Employee has completed 1,000 Hours of Service with the Employer and (ii) six months of Service, provided that such Eligible Employee is employed by the Employer on that date. 3.2 A Participant shall file with the Administrative Committee a written or electronic application form which shall include an election to reduce the Participant's Compensation, specifying the amount of contributions elected under Section 4 and authorizing any necessary payroll deductions, an investment direction, beneficiary designation and an agreement to be bound by all the terms and conditions of the Plan and the Trust and any agreement with any other funding agency, including an insurance company, constituting a part of the Plan and the Trust Fund. 3.3 The participation of a Participant shall end when no further benefits are payable to him or his Beneficiary from his Account under the Plan. 3.4 (a) If a Participant who terminates Service while being a Participant, again become an Eligible Employee, he shall be eligible to participate in the Plan on the day of his return to Service, and his Hours of Service and Years of Service prior to his termination shall be reinstated. (b) If an Eligible Employee was not a Participant at the time he was terminated, then upon his reemployment with the Employer, his Hours of Service completed prior to his termination of Service shall be immediately reinstated. If he had fulfilled the requirements of Section 3.1 at the time of his termination of employment, then he shall be treated as a new Employee for all purposes under the Plan and become a Participant as provided in Section 3.1. 3.5 The Administrative Committee shall establish and maintain or cause to be established and maintained with respect to each Participant an Account showing his interest under the Plan and in the Trust Fund (including separate accounts showing his respective interests, if any, in each of the Investment Funds) with respect to (i) Salary Reduction Contributions made under Section 4.1(a), (ii) Employer Contributions made under Sections 5.1(a) and (b), (iii) Voluntary Contributions made under Section 4.1(c), (iv) Rollover Contributions made pursuant to Section 4.5, and (v) such other accounts as described in Appendix A, and all other relevant data pertaining thereto. Each Participant shall be furnished with a written statement of his Account and the value of each such separate interest at least annually. In maintaining the Accounts under the Plan or causing them to be maintained, the Administrative Committee may conclusively rely on the valuations of the Trust Fund made in accordance with the Plan and the terms of the Trust Agreement. 3.6 The establishment and maintenance of, or allocations and credits to, the Account of any Participant shall not vest in any Participant any right, title or interest in and to any Plan assets or benefits except at the time or times and upon the terms and conditions and to the extent expressly set forth in the Plan and in accordance with the terms of the Trust. SECTION 4. SALARY REDUCTION CONTRIBUTIONS AND VOLUNTARY CONTRIBUTIONS 4.1 (a) A Participant may elect to reduce his Compensation by an amount not less than one percent and not more than ten percent of such Compensation for a Plan Year in any whole percentage in accordance with procedures adopted by the Administrative Committee, and the Employer shall contribute such amount to the Plan on behalf of the Participant as a Salary Reduction Contribution. (i) Notwithstanding the foregoing, such Salary Reduction Contributions in any calendar year shall not exceed $10,500, as adjusted, for years beginning after December 31, 1999, for increases in the cost of living in accordance with Section 402(g)(5) of the Code. In the event that the aggregate amount of Salary Reduction Contributions for a Participant exceeds the limitation in the previous sentence, the amount of such excess, increased by any gains and decreased by any losses attributable thereto, shall be refunded to the Participant no later than the April 15th of the calendar year following the calendar year for which the Salary Reduction Contributions were made. If a Participant also participates, in any calendar year, in any other plans subject to the limitation set forth in Section 402(g) of the Code and has made deferrals under the Plan when combined with the other plans subject to such limits in excess of the limitation described above, to the extent the Participant designates, in writing submitted to the Administrative Committee no later than the March 1 of the calendar year following the calendar year for which the Salary Reduction Contributions were made, any Salary Reduction Contributions under the Plan as excess deferrals, the amount of such designated excess, increased by any gains and decreased by any losses attributable thereto, shall be refunded to the Participant no later than the April 15th of the calendar year following the calendar year for which the Salary Reduction Contributions were made. The amount of such excess gains or losses is determined by multiplying the gain or loss for the calendar year allocable to the excess deferrals of the Participant by a fraction, the numerator of which is the excess deferral amount made by the Participant for the calendar year and the denominator of which is the balance of the Salary Reduction Contribution Account as of the end of such calendar year, without regard to any gain or loss, allocable to such Account for the calendar year. The gain or loss allocable to the excess deferrals for the period between the end of the Plan Year and the distribution date shall be equal to 10% of the income allocated to such excess deferrals for the Plan Year multiplied by the number of calendar months which have elapsed since the end of the Plan Year. For purposes of determining the number of calendar months, a distribution occurring on or before the 15th day of the month will be treated as having been made on the last day of the preceding month, a distribution made after the 15th day of the month will be treated as having been made on the first day of the next month. The amount of excess deferrals that may be distributed pursuant to this Section 4.1(a) with respect to a Participant shall be reduced by any Excess Contributions previously distributed with respect to the Participant for the Plan Year beginning with or within the calendar year to which such excess deferrals relate. (b) (i) Effective for Plan Years beginning on or after January 1, 1997, notwithstanding any other provision of this Section 4.1, the Actual Deferral Percentage for the Plan Year for Highly Compensated Employees shall not exceed the greater of the following actual deferral percentage tests: (A) the Actual Deferral Percentage for the preceding Plan Year of those Eligible Employees who are not Highly Compensated Employees multiplied by 1.25, or (B) the Actual Deferral Percentage for the preceding Plan Year of those Eligible Employees who are not Highly Compensated Employees multiplied by 2.0; provided that the Actual Deferral Percentage for Highly Compensated Employees does not exceed the Actual Deferral Percentage for such other Eligible Employees by more than two percentage points. A Participant's Salary Reduction Contribution will be taken into account under the actual deferral percentage test, as described herein, for a Plan Year only if such contribution relates to Compensation that either would have been received by the Employee during the Plan Year, but for the election pursuant to Section 4.1(a), or is attributable to Service performed by the Employee during the Plan Year and would have been received by the Employee within two and one-half months after the close of the Plan Year, but for the election pursuant to Section 4.1(a). A Salary Reduction Contribution will be taken into account under the actual deferral percentage test for a Plan Year only if it is allocated to the Participant's Salary Reduction Contribution Account as of a date within such Plan Year. For purposes of the actual deferral percentage test described herein, a Salary Reduction Contribution will be considered allocated within a Plan Year if such allocation is not contingent on participation or the performance of Service after such date and the Participant's Salary Reduction Contribution is actually paid to the Trust no later than 12 months after the Plan Year to which such contribution relates. An Eligible Employee's Actual Deferral Ratio shall be zero if no Salary Reduction Contributions are made on his behalf for such Plan Year. If the Plan and one or more other plans which include cash or deferred arrangements are considered as one plan for purposes of Sections 401(a)(4) and 410(b) of the Code, the cash or deferred arrangements included in such plans shall be treated as one arrangement for purposes of this Section 4.1(b). The Actual Deferral Ratio taken into account under this Section 4.1(b) for any Highly Compensated Employee who is a participant under two or more Section 401(k) of the Code cash or deferred arrangements of the Employer shall be determined as if all such Section 401(k) cash or deferred arrangements were treated as one Section 401(k) cash or deferred arrangement. (ii) The Administrative Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion, whether one of the actual deferral percentage tests specified in Section 4.1(b)(i) is satisfied for such Plan Year. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Section 4.1(a). The Administrative Committee may, in its sole discretion, and without the consent of a Participant, reduce or suspend the Salary Reduction Contributions of a Highly Compensated Employee, or return excess Salary Reduction Contributions, such Contributions increased by any income and decreased by any losses to the extent necessary to satisfy one of the actual deferral percentage tests. In the event that neither of such actual deferral percentage tests is satisfied, the Administrative Committee shall, to the extent permissible under the Code and IRS Regulations, refund the Excess Contributions in the manner calculated in accordance with this Section 4.1(b)(ii) and described in Section 4.1(b)(iii). The amount of Excess Contributions attributable to each such Highly Compensated Participant shall be calculated by reducing Salary Reduction Contributions made by, or on behalf of, the Highly Compensated Participant who has made the greatest Salary Reduction Contributions with respect to such Plan Year (or, in the event that more than one Highly Compensated Participant shall have made Salary Reduction Contributions of an equal amount, the Salary Reduction Contributions of each such Highly Compensated Participant) shall be reduced so that the Salary Reduction Contribution of such Highly Compensated Participant (or Highly Compensated Participants, as the case may be) shall equal the Salary Reduction Contributions with respect to such Plan Year of the Highly Compensated Participant (or Highly Compensated Participants, as the case may be) who shall have made the next greatest Salary Reductions Contributions with respect to such Plan Year, and an amount equal to the amount of reduction (or reductions, as the case may be) shall be distributed to such Highly Compensated Participant (or Highly Compensated Participants, as the case may be) in accordance with the provisions of Section 4.1(b)(iii), provided, however, that the amount to be distributed shall in no event exceed the Excess Contributions. In the event that the amount of Excess Contributions attributed to the Highly Compensated Participant who shall have made the greatest Salary Reduction Contributions with respect to such Plan Year is less than the Excess Contributions, then further reductions shall be made in accordance with the provisions of the previous sentence of this Section 4.1(b)(ii) until such time as the amount allocated to each such Highly Compensated Participant and distributed to such participants in accordance with Section 4.1(b)(iii) shall equal the Excess Contributions. (iii) If required in order to comply with the provisions of Section 4.l(b)(i) and the Code, then the Administrative Committee shall refund Excess Contributions for a Plan Year. The distribution of such Excess Contributions shall be made to Highly Compensated Participants to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such Excess Contributions were made, but in no event later than the end of the Plan Year following such Plan Year or, in the case of the termination of the Plan in accordance with Section 16, no later than the end of the 12-month period immediately following the date of such termination. Any such distribution shall be made to each Highly Compensated Participant on the basis of the amounts attributable to each such Highly Compensated Participant determined under Section 4.1(b)(ii). The distribution of any Excess Contributions shall include the gains and losses allocable thereto for the Plan Year as well as for the period between the end of the Plan Year and the date of the distribution. The gain or loss allocable to Excess Contributions for a Plan Year is the gain or loss allocable to the Participant's Salary Reduction Contribution Account (and the portion of his Employer Contribution Account included in the actual deferral percentage test, if any) for the Plan Year multiplied by a fraction, the numerator of which is the Participant's Salary Reduction Contributions for the year (and his Employer Contribution Account to the extent included in the actual deferral percentage test) and the denominator of which is the Participant's Salary Reduction Contribution Account (and his Employer Contribution Account to the extent included in the actual deferral percentage test) as of the end of such Plan Year without regard to any gain or loss for the Plan Year. The gain or loss allocable to the Excess Contributions for the period between the end of the Plan Year and the distribution date is equal to 10% of the income allocated to such Excess Contributions for the Plan Year multiplied by the number of calendar months which have elapsed since the end of the Plan Year. For purposes of determining the number of calendar months, a distribution occurring on or before the 15th day of the month will be treated as having been made on the last day of the preceding month, a distribution made after the 15th day of the month will be treated as having been made on the first day of the next month. In the event Salary Reduction Contributions which have been the basis for amounts allocated to the Employer Contribution Account of a Highly Compensated Employee are refunded for a Plan Year, such amounts contributed to the Employer Contribution Account (whether or not fully vested), plus earnings thereon, shall be forfeited and shall be used to reduce Employer Contributions in accordance with Section 5.1(c). (iv) Notwithstanding the foregoing provisions of this Section 4.1(b), the amount of Excess Contributions to be distributed pursuant to Sections 4.1(b)(ii) and 4.1(b)(iii) with respect to a Highly Compensated Employee for a Plan Year, shall be reduced by any excess deferrals distributed to such Participant for such Plan Year pursuant to Section 4.1(a). In no case may the amount of such distributed Excess Contributions exceed the amount of Salary Reduction Contributions made on behalf of the Highly Compensated Employee for the Plan Year. (c) Prior to January 1, 1998, a Participant may elect to make Voluntary Contributions to the Plan of an amount of up to ten percent of his Compensation in any whole percentage through payroll deductions, in accordance with procedures adopted by the Administrative Committee. Effective January 1, 1998, notwithstanding anything to the contrary, a Participant may not elect nor continue to make Voluntary Contributions to the Plan. Any Voluntary Contributions made by a Participant on or before December 31, 1997, credited to his or her Voluntary Contribution Account, shall remain in such Voluntary Contribution Account and will continue to be adjusted for any earnings, losses and expenses in accordance with the terms and provisions of the Plan. (d) (i) Notwithstanding any other provision of the Plan, the sum of the Actual Deferral Percentage determined in accordance with Section 4.l(b)(i) of those Eligible Employees who are Highly Compensated Employees and the Actual Contribution Percentage determined in accordance with Section 5.1(d)(i) of those Eligible Employees who are Highly Compensated Employees shall not exceed the Aggregate Limit. (ii) The Administrative Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion whether the Aggregate Limit has been exceeded. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Section 4.1(a), then determining the treatment of Excess Contributions under Section 4.1(b), and then determining the treatment of Excess Aggregate Contributions under Section 5.1(d). In the event that the Aggregate Limit is exceeded, the Actual Contribution Percentage of those Eligible Employees who are Highly Compensated Employees shall be reduced in the sole discretion of the Committee in a uniform, nondiscriminatory manner until the Aggregate Limit is no longer exceeded. 4.2 A Participant may suspend Salary Reduction Contributions made on his behalf or change the rate of the reduction of his Compensation pursuant to Section 4.1 upward or downward within the percentage limitations set forth in Section 4.1, without terminating his participation in the Plan, upon advance written or electronic notice thereof to the Administrative Committee or its designee. Such change or suspension shall be effective as soon as practicable, but in no event later than two payroll periods following notice of such change or suspension. A Participant may change the rate of the reduction of his Compensation once every payroll period. Notwithstanding the foregoing, a Participant may suspend the reduction of his Compensation pursuant to Section 4.1 at any time by notifying the Administrative Committee or its designee, electronically, no later than the Thursday prior to the payroll period such suspension is to be effective. The Administrative Committee or its designee may, in its sole discretion and in a uniform and nondiscriminatory manner, (i) waive its right to any such written notice at any time and from time to time and, upon written notice to the Highly Compensated Participants, (ii) suspend or reduce the Salary Reduction Contributions of Highly Compensated Participants, if such suspension or reduction is necessary to satisfy the requirements of Section 4.1(b), the Code or the Act. 4.3 All Salary Reduction Contributions made on behalf of a Participant shall be delivered by the Employer to the Trustee by the 15th Business Day of the month following the month in which such amounts would otherwise have been payable to the Participant in cash, to be commingled, managed, invested and reinvested with the other assets of the Plan. Such Salary Reduction Contributions shall be credited by the Administrative Committee to the Participant's Salary Reduction Contribution Account which the Administrative Committee shall establish and maintain or cause to be established and maintained as part of the Participant's Account in accordance with Section 3.4. 4.4 The amount credited to a Participant's Salary Reduction Contribution Account shall be paid from the Trust Fund to the Participant or his Beneficiary or Surviving Spouse at the same time and in the same manner as any payment made in accordance with Section 10. 4.5 (a) A Participant may make a Rollover Contribution to the Plan at any time of a Qualified Plan Rollover Contribution or an Individual Retirement Account Rollover Contribution. The Plan will also accept a Direct Rollover of an amount paid to the Plan on behalf of a Participant an which would qualify as an Qualified Plan Rollover Contribution if paid to the Eligible Employee. If the Participant elects to make a Rollover Contribution, the Participant shall supply the Administrative Committee with evidence, assurances, opinions and certifications it may deem necessary to establish to its satisfaction that the amounts to be contributed qualify as a Qualified Plan Rollover Contribution, an Individual Retirement Account Rollover Contribution or a Direct Rollover and will not affect the qualification of the Plan or the tax-exempt status of the Trust under Sections 401(a) and 501(a) of the Code, respectively. The amount so transferred must consist of cash distributed from such other plan or any portion of the cash proceeds from the sale of distributed property other than cash, to the extent permitted by Section 402(c)(6) of the Code. (b) Any Rollover Contribution shall be allocated to the appropriate Participant's Rollover Contribution Account which shall be established and separately accounted for, shall be invested in accordance with the direction of the Participant pursuant to Section 6, be debited or credited in accordance with Section 7, and shall be distributed in the same manner and at the same time as described in Sections 8 and 10 with respect to a distribution of benefits under the Plan to such Participant. (c) Each request by the Participant to make a Rollover Contribution shall be subject to review by the Administrative Committee which shall make a case by case determination that each Rollover Contribution meets the requirements set forth in Section 4.5(a) and such other requirements or conditions as the Administrative Committee may, from time to time and in its sole discretion, impose; provided, however, that any determination made by the Administrative Committee pursuant to this Section 4.5(c) shall not have the effect of discriminating in favor of Employees who are officers, shareholders or Highly Compensated Employees. SECTION 5. EMPLOYER CONTRIBUTIONS 5.1 (a) The Employer, in its sole discretion, may contribute an amount from time to time that is based upon the Participant's Salary Reduction Contributions that are made on behalf of each Participant pursuant to Section 4.1(a). (b) In addition to the contributions under Section 4.1 and Section 5.1(a), the Company and the Participating Company may contribute additional amounts from time to time, (either a fixed dollar amount or a percentage of total Compensation earned by the Eligible Employees of the Company or of the Participating Company, who were Participants for a Plan Year), as may be determined in a nondiscriminatory manner by the Board of Directors or the board of directors of the respective Participating Company in its sole discretion. Such amount or percentage, if any, shall be determined by resolution of the Board of Directors or the board of directors of such Participating Company as soon as practical following the close of the Plan Year. The resolution fixing the annual contributions of the Company or of the Participating Company, duly certified by the Secretary or Assistance Secretary of the Company, shall be delivered to the Trustee, as soon as practicable following the close of the Plan Year. In no event shall any contribution by the Company or by a Participating Company exceed the amount deductible by it for federal income tax purposes. On or about the date of determining the annual contribution, the Administrative Committee shall be advised of the amount of such annual contribution upon which its allocation is to be calculated. Any Company contribution or Participating Company contributions made hereunder shall be reduced to the extent necessary to comply with the requirements of Section 415 of the Code. (c) The amount of any forfeitures shall first, be used to pay administrative expenses of the Plan, second, be used to reduce the amount of Employer Contributions required for each Plan Year pursuant to Section 5.1(b), and third, be used to reduce the amount of Employer Contributions required for each Plan Year pursuant to Section 5.1(a). For purposes of this Section 5.1(c), all Participants of the Employer shall be treated as Eligible Employees of a single employer. (d) (i) Effective for Plan Years beginning on or after January 1, 1997, notwithstanding any other provision of this Section 5.1, the actual contribution percentage for the Plan Year for Highly Compensated Employees shall not exceed the greater of the following actual contribution percentage tests: (A) the actual contribution percentage for the preceding Plan Year of those Eligible Employees who are not Highly Compensated Employees multiplied by 1.25, or (B) the actual contribution percentage for the preceding Plan Year of those Eligible Employees who are not Highly Compensated Employees multiplied by 2.0; provided that the actual contribution percentage for Highly Compensated Employees does not exceed the actual contribution percentage for such other Eligible Employees by more than two percentage points. An Eligible Employee's Actual Contribution Percentage shall be zero if no contributions are made on his behalf for such Plan Year. If the Plan and one or more other plans of the Employer to which Salary Reduction Contributions, Voluntary Contributions or Employer Contributions are made are treated as one plan for purposes of Sections 401(a)(4) and 410(b) of the Code, all Salary Reduction Contributions, Voluntary Contributions or Employer Contributions of such plans shall be treated as being made under a single plan for purposes of this Section 5.1(d). The Actual Contribution Ratio taken into account under this Section 5.1(d) for any Highly Compensated Employee who is eligible to make Voluntary Contributions or receive Employer Contributions under two or more plans described in Section 401(a) of the Code or arrangements described in Section 401(k) of the Code that are maintained by the Employer shall be determined as if all such contributions were made under a single plan. The determination and treatment of the Actual Contribution Ratio of any Participant shall satisfy such other requirements as may be required by the IRS Regulations. (ii) The Administrative Committee shall determine as of the end of the Plan Year, and at such time or times in its discretion, whether one of the actual contribution percentage tests specified in Section 5.1(d)(i) is satisfied for such Plan Year. This determination shall be made after first determining the treatment of excess deferrals within the meaning of Section 402(g) of the Code under Section 4.1(a) and then determining the treatment of Excess Contributions under Section 4.1(b). In the event that neither of the actual contribution percentage tests is satisfied, the Administrative Committee shall refund or forfeit the Excess Aggregate Contributions in the manner calculated in accordance with Section 5.1(d)(i) and described in Section 5.1(d)(iii). The amount of Excess Aggregate Contribution attributable to each such Participant shall be calculated by reducing the Excess Aggregate Contribution made by, or on behalf of the Participant who has made or been credited with the greatest Excess Aggregate Contribution with respect to such Plan Year (or, in the event that more than one Participant shall have made or been credited with Excess Aggregate Contributions of an equal amount, the Excess Aggregate Contribution of each such Participant) shall be reduced so that the Excess Aggregate Contribution of such Participant (or Participants, as the case may be) shall equal the Excess Aggregate Contribution with respect to such Plan Year of the Participant who shall have made or been credited with the next greatest Excess Aggregate Contribution with respect to such Plan Year, and an amount equal to the amount of reduction (or reductions, as the case may be) shall be refunded or forfeited in accordance with Section 5.1(d)(iii), provided, however, that the amount to be refunded or forfeited shall in no event exceed the Excess Aggregate Contributions. In the event that the amount of Excess Aggregate Contributions attributed to the Participant who shall have made or been credited with the greatest Excess Aggregate Contributions with respect to such Plan Year is less than the Excess Aggregate Contributions, then further reductions shall be made in accordance with the provisions of the previous sentence of this Section 5.1(d)(ii) until such time as the amount allocated to each such Participant and forfeited or refunded in accordance with Section 5.1(d)(iii) shall equal the Excess Aggregate Contributions. (iii) If the Administrative Committee is required to refund or forfeit Excess Aggregate Contributions for any Highly Compensated Participant for a Plan Year in order to satisfy the requirements of Section 5.1(d)(i), then the refund or forfeiture of such Excess Aggregate Contributions shall be made with respect to such Highly Compensated Participants to the extent practicable before the 15th day of the third month immediately following the Plan Year for which such Excess Aggregate Contributions were made, but in no event later than the end of the Plan Year following such Plan Year or, in the case of the termination of the Plan in accordance with Section 16, no later than the end of the 12-month period immediately following the date of such termination. For each such Participant, amounts so refunded or forfeited shall be made in the following order of priority: (A) by distributing amounts contributed to the Voluntary Contribution Account, and earnings thereon; and (B) by distributing amounts contributed to the Salary Reduction Contribution Account (to the extent such amounts are included in the actual contribution percentage), and earnings thereon, including amounts contributed to the Employer Contribution Account, and earnings thereon, to the extent such amounts were based on Salary Reduction Contributions so distributed. However, in no case may the amount of Excess Aggregate Contributions refunded or forfeited with respect to any Highly Compensated Employee exceed the amount of Voluntary Contributions and Employer Contributions under Section 5.1(a) made on behalf of the Highly Compensated Employee for the Plan Year. All such distributions and forfeitures shall be made to, or shall be with respect to, Highly Compensated Participants on the basis of the amounts attributable to each such Highly Compensated Participant as determined under Section 5.1(d)(ii). The distribution of any Excess Aggregate Contributions shall include the gains and losses allocable thereto for the Plan Year as well as for the period between the end of the Plan Year and the date of the distribution. The gain or loss allocable to Excess Aggregate Contributions is the gain or loss allocable to the Participant's Employer Contribution Account attributable to contributions under Section 5.1(a) and his Voluntary Contributions Account to the extent not included in the actual deferral percentage test multiplied by a fraction, the numerator of which is the Excess Aggregate Contribution for the Participant for the Plan Year and the denominator is the Participant's Employer Contribution Account attributable to contributions under Section 5.1(a) and Voluntary Contributions at the end of such Plan Year, without regard to gains and losses attributable to such Accounts for the Plan Year. The gain or loss allocable to the Excess Aggregate Contributions for the period between the end of the Plan Year and the distribution date is equal to 10% of the income allocated to such Excess Aggregate Contributions for the Plan Year multiplied by the number of calendar months which have elapsed since the end of the Plan Year. For purpose of determining the number of calendar months, a distribution occurring on or before the 15th day of the month will be treated as having been made on the last day of the preceding month, a distribution made after the 15th day of the month will be treated as having been made on the first day of the next month. 5.2 Employer Contributions under Section 5.1(a) shall be allocated each month to the Employer Contribution Account of each Employee who participates in the Plan based upon the Salary Reduction Contribution made on behalf of such Employee pursuant to Section 4.1(a) during such month. Employer Contributions under Section 5.1(b) shall be allocated as of the last day of the Plan Year to the Employer Contribution Accounts of each Participant who (i) has completed one Hour of Service and was in Service as of the last day of the Plan Year or (ii) retired on or after his Normal Retirement Date, Early Retirement Date, after becoming Disabled or (iii) died, during such Plan Year in the proportion that each Participant 's Compensation bears to the total Compensation of all Participants in Service as of the last day of the Plan Year. 5.3 The Employer Contributions under Section 5.1(a) shall be paid directly to the Trustee as soon as practicable but in no event later than the month next following the month in which the amount of such contribution is determinable, as the Administrative Committee may determine, and the Employer Contributions, if any, under Section 5.1(b) shall be paid as soon as practicable to the Trustee following the approval of such contribution by the Board of Directors or the board of directors of the Participating Company, as the case may be; provided that the total amount of the Employer Contributions under the Plan for any taxable year shall be paid in full on or before such date as the federal income tax laws applicable to such payment require the payment to be made in order to permit deduction of such payment for such taxable year. 5.4 The Salary Reduction Contributions made for a taxable year pursuant to Section 4.1(a), and the Employer Contributions made for a taxable year pursuant to Section 5.1 and the Participants' Voluntary Contributions under Section 4.1(c), and the Participant's Rollover Contributions made pursuant to Section 4.5, shall be paid directly by the Employer to the Trustee in cash, or, at the option of the Employer, in whole or in part in other property acceptable to the Trustee. Without limiting the foregoing, to the extent allocable to the Company Stock Fund, such contributions may be made in whole or part in shares of appropriate capital stock of the Company. 5.5 If any Participating Company, which is a member of the affiliated group (within the meaning of Section 1504 of the Code) and which is permitted to file a consolidated federal income tax return with the Company, is prevented from making its allocable share of the contribution which it would otherwise have made under the Plan, by reason of having insufficient Net Profit, then so much of the contribution of such Participating Company which it was so prevented from making shall be made, for the benefit of the Participants who are Employees of such Participating Company, by the other Employers which are members of such affiliated group to the extent of their respective Net Profit remaining after deduction of their respective contributions under the Plan or any other plan for the benefit of their employees, as may be provided by resolution of the Board of Directors and the board of directors of each affected Participating Company. 5.6 Any contribution made by an Employer because of a mistake of fact shall be returned to the Employer which made such contribution within one year of such contribution. Any contribution made by an Employer that is conditioned upon the contribution's deductibility or the Plan's initial qualification under the Code, and if either the deduction or the initial qualification is denied, such contribution shall be returned to the Employer which made such contribution within one year after the date such deduction or qualification is denied. SECTION 6. INVESTMENT OF CONTRIBUTIONS 6.1 All amounts of money, securities or other property received under the Plan shall be delivered to the Trustee to be managed, invested, reinvested and distributed for the exclusive benefit of the Participants and their Beneficiaries in accordance with the Plan, the Trust and any agreement with an insurance company or other financial institution constituting a part of the Plan and the Trust. The Administrative Committee reserves the right to create and terminate any Investment Fund for the investment of the Trust Fund in the future. 6.2 The Investment Funds shall consist of registered investment company, corporation, partnership or trust registered under the Investment Company Act of 1940. Interest, dividends and other distributions received and gains realized on securities or other property held in any Investment Fund shall be similarly invested in such Investment Fund. 6.3 Sums received for investment in the Company Stock Fund shall be invested and reinvested, without distinction between principal and income, in shares of Common Stock, subject to the limitations of Section 6.6 and, to the extent the Investment Committee deems advisable, held in cash or invested in short-term investments including, without limitation, interest bearing accounts and accounts which do not bear interest at banks and savings and loan associations. All dividends on the shares of Common Stock or any other securities held in the Company Stock Fund shall be added to the Company Stock Fund, and to the extent necessary, Accounts in the Company Stock Fund shall be adjusted accordingly as of the date the dividend is paid. Cash dividends shall be reinvested in shares of Common Stock as soon as is practicable after receipt by the Trustee. Dividends in property other than cash or shares of Common Stock may continue to be held in the Company Stock Fund, may be sold and reinvested in shares of Common Stock, may be transferred to another appropriate Investment Fund, or may be distributed to the Participants in the Company Stock Fund as of the date such dividend is declared, all as the Administrative Committee shall determine, in its discretion. 6.4 (a) Each Participant, upon electing to reduce his Compensation pursuant to Section 4.1, shall designate the Investment Fund or Funds in which the Employer Contributions and Salary Reduction Contributions made on his behalf and Rollover and Voluntary Contributions shall be invested. Each Participant upon making a Rollover Contribution shall designate the Investment Funds in which his Rollover Contributions shall be invested until such time as the Participant changes his investment election pursuant to Section 6.4(b). The amount of the Participant's Salary Reduction Contributions, Employer Contributions and Voluntary Contributions shall be invested uniformly in the Investment Funds designated pursuant to this Section 6.4(a) until such time as the Participant changes his investment election pursuant to Section 6.4(b). The Investment Fund or Funds designated by the Participant pursuant to this Section 6.4(a) must be designated in multiples of one percent of all contributions subject to designation pursuant to Sections 6.4. If the Participant fails to designate any Investment Fund, then such Participant's Account shall be invested in the Investment Fund designated by the Administrative Committee as a "money market" fund. (b) Any investment direction given by a Participant shall be deemed to be a continuing direction until changed. A Participant may change an investment direction as to future contributions, past contributions with earnings and gains thereon in multiples of one percent, pursuant to the T. Rowe Price Associates, Inc. Telephone Procedures and Voice Response System or through the use of the T. Rowe Price Associates, Inc. internet website dedicated to the Plan. Investment Fund election changes that are requested before 4 P.M., Eastern Time on a Business Day, are effective on the same Business Day; Investment Fund election changes that are requested on or after 4 P.M., Eastern Time on a Business Day, are effective on the next Business Day; and Investment Fund election changes that are requested on any day other than a Business Day are effective on the next Business Day. Each Participant is solely responsible for the selection of his investment options and the availability of an Investment Fund or Funds to Participants for investment under the Plan shall not be construed as a recommendation for investment in such Investment Fund or Funds. 6.5 Each Participant whose interest in the Plan is invested in whole or in part in the Company Stock Fund, shall have the right to direct the Trustee with respect to any voting and tender of the shares of Common Stock in such Investment Fund allocated to the Salary Reduction Contribution Account, Voluntary Contribution Account, Rollover Contribution Account, and the Employer Contribution Account of such Participant under the Plan as of the record date for such voting or date of tender. Such right to direct the Trustee with respect to voting may be exercisable by means of direct voting of specified shares by Participants, by means of instruction to the Trustee by Participants or by any other method, as the Trustee, in its discretion, shall determine. 6.6 Notwithstanding anything herein to the contrary, the Company in its discretion at any time may limit the aggregate value of the Plan that may be invested in Common Stock. If the Company establishes such a limit and the Company or the Investment Administrative Committee later determines that the limit might be exceeded, the Investment Committee may direct that no further assets of the Plan be invested in the Company Stock Fund. SECTION 7. VALUATIONS AND MAINTENANCE OF PARTICIPANTS' ACCOUNTS 7.1 (a) As of each Valuation Date and after giving effect to any hardship withdrawal under Section 12, any loan under Section 13, any Rollover Contribution or transfer under Appendix A, the Trust Fund shall be valued pursuant to the terms of the Trust to reflect the effect of income received and accrued, realized and unrealized profits and losses, and all other transactions of the preceding period. Such valuation shall be conclusive and binding upon all persons having an interest in the Trust Fund. The Trustee shall value the Trust Fund at its fair market value as of the close of business on the last day of each Plan Year. As soon as practicable after such valuation, but in no case more than six months after the end of such Plan Year, the Trustee shall deliver in writing to the Investment Committee a certified report of such valuation together with a statement of the amount of net income or loss, including appreciation or depreciation in value of trust investments, since the previous valuation. (b) With respect to the valuation of the Common Stock held in the Company Stock Fund, the cash withheld from Participants shall be delivered to the Trustee as soon as practicable. Upon receipt of such cash, the Trustee shall purchase shares in the Company Stock Fund as may be needed and as soon as practicable. The shares purchased shall be valued under the Plan at the closing price as of the next succeeding Valuation Date. Subsequent to the valuation of shares upon first entering the Company Stock Fund, such shares shall be valued at the closing price as of each Valuation Date thereafter. 7.2 All contributions made on behalf of, or allocated to, a Participant shall be credited to his Account. The value of a Participant's Account shall be determined by aggregating the value of his separate interests, if any, in each Investment Fund. Except to the extent otherwise determined by the Administrative Committee with respect to payments from a Participant's Salary Reduction Contribution Account, Employer Contribution Account, Voluntary Contribution Account, and Rollover Contribution Account, adjustments, charges or allocations to the Participant's Salary Reduction Contribution Account, Employer Contribution Account, Voluntary Contribution Account, or Rollover Contribution Account shall be made by adding to, or deducting from, as the case may be, the Salary Reduction Contribution Account, Employer Contribution Account, Voluntary Contribution Account, or Rollover Contribution Account such proportion of any adjustment or charge as the amount in the Salary Reduction Contribution Account, Employer Contribution Account, Voluntary Contribution Account, or Rollover Contribution Account as of the last preceding Valuation Date bears to the total amount in the Participant's Account as of such preceding Valuation Date. In making such adjustments or charges, the Administrative Committee may conclusively rely on the valuations of the Trust Fund by the Trustee and in accordance with the Plan and the terms of the Trust. 7.3 The Administrative Committee shall have complete discretion to establish and utilize an accounting system to account for the interests of each Participant. To the extent permitted by the Code and IRS Regulations, the Administrative Committee may change the accounting system from time to time. 7.4 The expenses of administering the Plan, including (i) the fees and expenses of (A) any Employee, (B) the Trustee and (C) any Investment Manager for the performance of their duties under the Plan and the Trust, (ii) the expenses incurred by the members of the Administrative Committee and of the Investment Committee in the performance of their duties under the Plan (including reasonable compensation for any legal counsel, certified public accountants, consultants, and agents and cost of services rendered in respect of the Plan), and (iii) all other proper charges and disbursements of the Trustee or members of either the Administrative Committee or the Investment Committee (including settlements of claims or legal actions approved by counsel to the Plan) may be paid out of the Trust Fund, and allocated to and deducted from the Participants' Accounts by the Administrative Committee in accordance with the provisions of Section 7.2 above, if the Company does not pay such expenses directly. 7.5 Brokerage fees, transfer taxes and any other expenses incident to the purchase or sale of securities by the Trustee may be deemed to be part of the cost of such securities, or deducted in computing the proceeds therefrom, as the case may be. Taxes, if any, of any and all kinds whatsoever which are levied or assessed on any assets held or income received by the Trustee shall be allocated to and deducted from the Accounts of Participants by the Administrative Committee in accordance with the provisions of Section 7.2 above. SECTION 8. ELIGIBILITY FOR BENEFITS 8.1 (a) Upon the death of a Participant while an Employee, benefits equal to the value of the Participant's Account (reduced by any unpaid loans) as of the Valuation Date coincident with or next following the date of his death shall be payable to the Beneficiary of such Participant (as determined in Section 11) from the Trust by a method of distribution described and at the time specified in Section 10; provided that the Administrative Committee has received all the necessary forms from the Beneficiary. (b) If a former Employee who was a Participant dies before payment of the full value of his Account from the Trust Fund, an amount equal to the value of the unpaid portion thereof (reduced by any unpaid loans) as of the Valuation Date coincident with or next following the date of his death shall be paid to the Beneficiary of such former Participant (as determined under Section 11) in accordance with a method of distribution described and at the time specified in Section 10; provided that the Administrative Committee has received all necessary forms from the Beneficiary. 8.2 Upon termination of a Participant's Service on or after his Normal Retirement Date, his Early Retirement Date or by reason of his Disability and subject to Sections 10.2 and 10.4, a benefit equal to the value of the Participant's Account (reduced by any unpaid loans) as of the Valuation Date coincident with or next following the date on which his Service is terminated shall be paid from the Trust Fund; provided that the Administrative Committee has received all the necessary forms from the Participant. Such payment shall be made by a method of distribution described and at the time specified in Section 10. 8.3 Upon the termination of Service of any Participant which occurs other than on his Normal Retirement Date, his Early Retirement Date or for any reason other than death or Disability, the Participant shall be paid an amount equal to the value of his Account, after reduction for the amount of any unpaid loans, as of the Valuation Date coincident with or next following the date on which his Service is terminated, of the sum of the Participant's (i) Salary Reduction Contribution Account, (ii) Voluntary Contribution Account, (iii) Vested Interest in his Employer Contribution Account, and (iv) Rollover Contribution Account; provided the Administrative Committee receives all of the necessary forms from the Participant. Such distribution shall be made as soon as practicable thereafter by a method of distribution described and at the time specified in Section 10. Any excess of the amount credited to such Participant's Employer Contribution Account over his Vested Interest in such Account shall be forfeited and used pursuant to Section 5.1(c). 8.4 Notwithstanding the foregoing, a Participant's Salary Reduction Contribution Account may not be distributed earlier than upon one of the following events: (a) The Participant's retirement, death, Disability or termination of Service; (b) The termination of the Plan without the establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan or a simplified employee plan); (c) The Participant's attainment of age 59-1/2 or upon the Participant's hardship, if so permitted by the Plan; or (d) The sale or disposition by the Employer to an unrelated corporation of (i) substantially all of the assets used in a trade of business or (ii) the Employer's interest in a subsidiary, but only with respect to Participants who continue employment with the acquiring corporation or the subsidiary, as the case may be, and the acquiring corporation does not maintain the Plan after the disposition. SECTION 9. VESTING 9.1 At all times, each Participant shall have a nonforfeitable right to 100% of the value of his Salary Reduction Contribution Account, his Voluntary Contribution Account and his Rollover Contribution Account, if any. 9.2 (a) A Participant's interest in his Employer Contribution Account shall vest according to the following vesting schedule: Nonforfeitable Years of Service Percentage ---------------- ---------- less than 1 0% 1 but less than 2 20% 2 but less than 3 40% 3 but less than 4 60% 4 but less than 5 80% 5 or more 100% (b) In the event the vesting schedule of Section 9.2(a) is amended, any Participant who has completed at least three Years of Service, for purposes of determining a Participant's nonforfeitable right to his Employer Contribution Account, may elect to have the nonforfeitable percentage of such Employer Contribution Account computed under the Plan without regard to such amendment or change by notifying the Administrative Committee in writing within the election period hereinafter described. The election period shall begin on the date such amendment is adopted or the date such change is effective, as the case may be, and shall end no earlier than the latest of the following dates: (i) the date which is 60 days after the day such amendment is adopted; (ii) the date which is 60 days after the day such amendment or change becomes effective; or (iii) the date which is 60 days after the day the Participant is given written notice of such amendment or change by the Administrative Committee. Any election made pursuant to this Section 9.2(b) shall be irrevocable. 9.3 If a Participant receives a distribution of his Vested Interest in his Account, the nonvested portion of the Participant's Account shall be forfeited and shall be used pursuant to Section 5.1. However, if the Participant returns to Service, his forfeited nonvested Account balance shall be restored if he repays to the Plan all amounts previously distributed, in cash, before the earlier of: (i) five years after the date on which the Participant is reemployed by the Employer, or (ii) the date on which the Participant incurs five consecutive one-year Breaks in Service, reinstated and recredited, if necessary, by additional Employer Contributions by his Participating Company to the Participant's Employer Contribution Account as of the last day of the month in which the terminated Participant performs an Hour of Service, the last day of the next following month or by a priority reallocations of the current forfeitures. As of any Valuation Date thereafter, such Participant's Vested Interest shall be determined by (i) adjusting the amount of his Account on the date of his most recent termination of employment as if such amount had been held in the Trust since the date of distribution as provided in Section 8, and then (ii) multiplying his Vested Interest by such adjusted total account, and then (iii) subtracting the amount of his distribution on his most recent termination of employment, adjusted as if such distribution as provided in Section 8, from his adjusted total account. Any amount repaid pursuant to this Section 9.3 shall be invested in the Investment Funds in the proportions selected in the most recent written election filed by the Participation with the Administrative Committee pursuant to Section 6. 9.4 In the case of a Participant who has five or more consecutive one-year Breaks in Service, all Service after such Breaks in Service will be disregarded for purposes of determining the Participant's Vested Interest in his Employer Contribution Account that accrued prior to the first day of such Breaks in Service. Such Participant's Service prior to such Breaks in Service will be taken into account with regard to determining the Participant's Vested Interest in his Employer Contribution Account which accrues after the Breaks in Service if either(i) such Participant has any nonforfeitable interest in the Account (other than his Rollover Contribution Account) on the first day of his Break in Service, or (ii) upon his return to Service, the number of one-year Breaks in Service is less than his number of Years of Service. 9.5 Notwithstanding the foregoing, a Participant or his Beneficiary, whichever is appropriate, shall be fully vested in the entire value of the Participant's Account upon the Participant's attainment of his Normal Retirement Age, Early Retirement Age, or upon such Participant's Disability or death. SECTION 10. METHOD OF PAYMENT OF BENEFITS 10.1 (a) Except as otherwise provided in Section 8, any benefit payable under Sections 8.1, 8.2, 8.3 or 8.4 of the Plan shall be paid in one of the following methods of distribution, as the Participant (or in the case of his death, either the Participant or his Beneficiary as provided in Section 8.2) in one lump sum payment from the Trust Fund. (b) With respect to any benefit earned or accrued on or before December 31, 1988 under the Prior Plan, a Participant may elect either a lump sum payment in accordance with this Section 10.1 or any method of payment which was available under the Prior Plan as in effect on December 31, 1988 and consisting of equal monthly, quarterly or annual installments. (c) If the Participant or Beneficiary fails to select a distribution method at least 30 days prior to the date by which distribution must commence, such benefits shall be paid in one lump sum payment. 10.2 (a) Effective January 1, 1997, notwithstanding any other provision of the Plan and unless otherwise provided by law, any benefit payable to a Participant who is (i) not a Five Percent Owner, shall commence no later than the April 1st of the calendar year following the later of (A) the calendar year in which the Participant attains age 70 1/2 and (B) the calendar year in which the Participant retires and (ii) a Five Percent Owner shall, except as otherwise provided in Section 10.2(f), commence no later than the April 1st of the calendar year following the calendar year in which such Participant attains age 70 1/2. Any benefit payable under this Section 10.2(a) shall be paid, in accordance with IRS Regulations, over a period not extending beyond the life expectancy of such Participant or the joint life expectancies of such Participant and his Beneficiary. Life expectancy for purposes of this Section shall not be recalculated annually in accordance with IRS Regulations. (b) If distribution of a Participant's benefit has commenced prior to a Participant's death, and such Participant dies before his entire benefit is distributed to him, distribution of the remaining portion of the Participant's benefit to the Participant's Beneficiary shall be made at least as rapidly as under the method of distribution in effect as of the date of the Participant's death. (c) If a Participant dies before distribution of his benefit has commenced, distributions to any Beneficiary shall be made on or before the December 31st of the calendar year which contains the fifth anniversary of the date of such Participant's death; provided, however, at the Beneficiary's irrevocable election, duly filed with the Administrative Committee before the applicable commencement date set forth in the following sentence, any distribution to a Beneficiary may be made over a period not extending beyond the life expectancy of the Beneficiary. Such distribution shall commence not later than the December 31st of the calendar year immediately following the calendar year in which the Participant died or, in the event such Beneficiary is the Participant's Surviving Spouse, on or before the December 31st of the calendar year in which such Participant would have attained age 70 1/2, if later (or, in either case, on any later date prescribed by IRS Regulations). If such Participant's Surviving Spouse dies after the Participant's death but before distributions to such Surviving Spouse commence, this Section 10.2(c) shall be applied to require payment of any further benefits as if the Surviving Spouse were the Participant. (d) Pursuant to IRS Regulations, any benefit paid to a child shall be treated as if paid to a Participant's Surviving Spouse if such amount will become payable to such Surviving Spouse on the child's attaining majority, or other designated event permitted by IRS Regulations. (e) Any distributions made hereunder on or before December 31, 2000, shall be made in accordance with the provisions of Section 401(a)(9) of the Code and IRS Regulations thereunder as in effect on such date. Notwithstanding any provisions of the Plan to the contrary, with respect to distributions made under the Plan for Plan Years beginning on or after January 1, 2001, the Plan will apply the minimum distribution requirements of Section 401(a) of the Code in accordance with the IRS Regulations thereunder that were proposed on January 17, 2001. The provisions of the penultimate sentence of this Section 10.2(e) shall cease on the last day of the Plan Year beginning before the effective date of the final IRS Regulations under Section 401(a)(9) of the Code or such other date as specified in guidance published by the IRS. (f) If a Participant who is a Five Percent Owner attained age 70 1/2 before January 1, 1988, any benefit payable to such Participant shall commence no later than the April 1st of the calendar year following the later of (i) the calendar year in which the Participant attains age 70 1/2 or (ii) the earlier of (A) the calendar year within which the Participant becomes a Five Percent Owner or (B) the calendar year in which the Participant retires. (g) If the amount of the distribution pursuant to the Plan cannot be determined on the date such distribution is required to begin, then payment shall be made as soon as practicable thereafter, but in no event later than 90 days after the date the amount to be distributed can be determined. (h) Notwithstanding the foregoing, distributions to a Participant may be made in accordance with a written designation made before January 1, 1984 by the Participant if such designation satisfied the requirements of Section 242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982. 10.3 Any election under Section 10.1 must be made by the payee prior to the 60th day following the date of the Participant's termination of employment by reason of his retirement, death, or Disability and prior to the date that payments commence pursuant to the provisions of the Plan. Subject to Section 10.4, in any event, payments shall be made no later than the 60th day following the date on which the amount of the payment under the Plan (or in the case of more than one payment, the first said payment) can be ascertained under the Plan. 10.4 Notwithstanding any other provision of the Plan, to the extent required by the Code and IRS Regulations, (i) if the value of a Participant's Account does not or never has exceeded $3,500 for a Plan Year commencing prior to January 1, 1998 or exceeds $5,000 for a Plan Year commencing on or after January 1, 1998, a distribution may be made to such Participant prior to the date he attains his Normal Retirement Age without his written consent and (ii) if the value of a Participant's Account exceeds or has ever exceeded $3,500 for a Plan Year commencing prior to January 1, 1998 or exceeds $5,000 for a Plan Year commencing on or after January 1, 1998, no distribution may be made to such Participant prior to the date he attains his Normal Retirement Age without his written consent. In the absence of receipt of such consent by the Administrative Committee prior to the 60th day following the date of the Participant's termination of Service, payment of the benefit to such Participant shall commence as soon as practicable after the Participant's attainment of Normal Retirement Age, which benefit shall be in an amount equal to the value of the Participant's distributable Account as of the Valuation Date coincident with or immediately following the Participant's attainment of Normal Retirement Age and, during the period of deferral mandated by the absence of receipt of consent, the Participant may change his investment direction as described pursuant to Section 6. 10.5 Benefits payable under the Plan to a Participant or Beneficiary from the Company Stock Fund, other than hardship withdrawals or loans, made pursuant to Section 12, shall be paid in cash, unless the Participant (or Beneficiary if the Participant is deceased) elects to receive such distribution whole shares of the stock held in the Company Stock Fund (containing such legends and upon such terms and conditions and restrictions as the Administrative Committee may, in its sole discretion, direct), together with any cash credited to his Account either awaiting investment in such stock or representing fractional shares of such stock. 10.6 Unless the Participant elects otherwise, the payment of benefits under the Plan shall commence not later than the 60th day after the latest of the close of the Plan Year in which (i) the Participant obtains age 65, (ii) occurs the 10th anniversary of the year the Participant commenced participation under the Plan, and (iii) the Participant terminates employment with the Company or an Affiliate. 10.7 A Distributee may elect, at a time and manner prescribed by the Administrative Committee, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by such Distributee in the form of a Direct Rollover. 10.8 Notwithstanding any other provision of the Plan, no distribution may be made to a Participant unless the Participant receives from the Administrative Committee an officially approved tax notice (pursuant to the Code and IRS Regulations) which specifies certain information regarding the federal income tax treatment of Plan benefits paid in the form of a lump cash sum no less than 30 days and no more than 90 days before the date benefits are to be distributed. Such distribution may commence less than 30 days after the required notice is given, provided that (i) the Administrative Committee clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution, and (ii) the Participant, after receiving the notice, affirmatively elects a distribution. SECTION 11. DESIGNATION OF BENEFICIARIES 11.1 Each Participant shall file with the Administrative Committee a written designation of one or more persons (which may include the Participant's spouse) as the Beneficiary who shall be entitled to receive the amount, if any, payable under the Plan upon his death. A Participant may from time to time revoke or change his Beneficiary designation without the consent of any prior Beneficiary by filing a new designation with the Administrative Committee. Notwithstanding the foregoing, if the Participant is married, his spouse must consent, in writing, to the designation of a Beneficiary other than the Participant's spouse (unless the Administrative Committee makes a written determination in accordance with the Code and IRS Regulations that no such consent is required). The last such designation received by the Administrative Committee shall be controlling, provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Administrative Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. 11.2 If no such Beneficiary designation is in effect at the time of a Participant's death, or if no designated Beneficiary survives the Participant, the Participant shall be deemed to have designated his Surviving Spouse, if any, as Beneficiary, or if the Participant has no Surviving Spouse, then the following persons (if then living) in the following order of priority: (i) children, in equal shares, (ii) parents, in equal shares, (iii) the persons designated as beneficiary under the group life insurance plan of the Employer, and (iv) the Participant's estate. If the Administrative Committee is in doubt as to the right of any person to receive such amount, the Administrative Committee may direct the Trustee to retain such amount, without liability for any interest thereon, until the rights thereto are determined, or the Administrative Committee may direct the Trustee to pay such amount into any court of appropriate jurisdiction and such payment shall be a complete discharge of the liability of the Plan and the Trust. SECTION 12. WITHDRAWALS 12.1 Subject to the following provisions of this Section, each Participant may request a withdrawal of all or any portion of his Salary Reduction Contribution Account; provided, however, that no amount in a Participant's Salary Reduction Contribution Account that is deemed invested in an outstanding loan to the Participant may be withdrawn. Salary Reduction Contributions may not be withdrawn, or otherwise distributed to a Participant until the earliest to occur of the Participant's retirement, death, Disability, an event described in Section 8.4, separation from Service or immediate and heavy financial need (as determined by the Administrative Committee in accordance with this Section 12.1). Notwithstanding the foregoing, in the case of a withdrawal on account of an immediate and heavy financial need, no earnings in the Participant's Salary Reduction Contribution Account may be distributed under this Section 12.1. For the purposes of this Section 12.1, the term "immediate and heavy financial need" shall include the need of funds for (i) the payment of medical care as described in Section 213(d) of the Code incurred by, or necessary (even though not yet incurred) for the treatment of, the Participant, the Participant's spouse, or any of the Participant's dependents (as defined in Section 152 of the Code), (ii) the payment of tuition, related educational expenses, and room and board expenses for the 12 months following the date of withdrawal for post-secondary education of the Participant, the Participant's spouse, the Participant's children, or any of the Participant's dependents (as defined in Section 152 of the Code), (iii) the purchase (excluding mortgage payments) of a principal residence for the Participant, (iv) the prevention of eviction of the Participant from his principal residence or the prevention of foreclosure on the mortgage of the Participant's principal residence or (v) such other immediate and heavy financial emergency as determined by the Administrative Committee pursuant to uniformly applicable guidelines and IRS Regulations. The amount of any withdrawal pursuant to this Section 12.1 shall not exceed the amount required to meet the financial emergency, including amounts needed to pay any taxes or penalties as a result of such withdrawal. A withdrawal by reason of an immediate and heavy financial need may be requested by a Participant only after he has (i) withdrawn from his Voluntary Contribution Account, (ii) withdrawn all employee contributions permitted to be withdrawn under any other plan maintained by the Employer and (iii) received all loans permitted under Section 13 or under any other plan maintained by the Employer. 12.2 Subject to the provisions of this Section 12.2 and Section 12.3, each Participant may withdraw all or any portion of the aggregate amount of his Voluntary Contribution Account; provided, however, that no amount in a Participant's Voluntary Contribution Account that is deemed invested in an outstanding loan under Section 13 to the Participant may be withdrawn. 12.3 A Participant shall give the Administrative Committee written notice of a request for a withdrawal pursuant to the provisions of this Section 12 in accordance with such procedures as the Administrative Committee shall establish. In distributing a Participant's withdrawal pursuant to this Section 12, the Investment Fund or Funds in which a Participant's Employer Contribution Account, Salary Reduction Contribution Account or Voluntary Contribution Account (whichever is applicable) is invested shall be reduced proportionately in the ratio which the amount invested in each Investment Fund bears to the entire account so reduced. No withdrawal pursuant to this Section 12 shall be of an aggregate amount less than $500. In the event a Participant who has requested a withdrawal terminates Service prior to the effective date (as specified below) of the withdrawal, the withdrawal request shall be void and the provisions of Section 8.3 shall apply. Withdrawals shall become effective on the Business Day in which the Administrative Committee or its designee receives a properly executed withdrawal form, unless a later date is requested therein. Payment of any withdrawals pursuant to this Section 12 shall be made solely in cash. A Participant who makes a hardship withdrawal pursuant to Sections 12.3 or 12.4 shall be suspended from making any further Salary Reduction Contributions under the Plan or any other plan of the Employer for a period of 12 months, effective as of the date the withdrawal is received. Notwithstanding any other provision of the Plan, the Salary Reduction Contributions of a Participant made in the Plan Year following the Plan Year during which a hardship withdrawal was made, shall not exceed the applicable limit under Section 402(g) of the Code for such Plan Year less the amount of Salary Reduction Contributions made by the Participant during the Plan Year during which the hardship withdrawal was made. SECTION 13. LOANS TO PARTICIPANTS 13.1 A Participant who is an Employee shall be permitted to request a loan from the Plan. A loan request must be submitted in writing by each requesting Participant no less than 30 days prior to the date on which the loan is to be distributed. Each requesting Participant, shall be required to provide the Administrative Committee or its designee with such information and to execute such documents and other instruments as may be reasonably requested by the Administrative Committee in connection with approving the loan. The Administrative Committee shall establish nondiscriminatory standards in accordance with the Code and the Act which shall be uniformly applicable to all Participants similarly situated and shall govern the Administrative Committee's or its designee's approval or disapproval of a completed application. The terms for each loan shall be set solely in accordance with such standards. The Administrative Committee or its designee shall determine, in its sole discretion and in accordance with applicable law, whether the application for a loan is to be approved. In making its determination, the Administrative Committee or its designee may consider the applicant's creditworthiness, financial need and any other commercially reasonable factors, however, all applications for loans shall be evaluated in a uniform and nondiscriminatory manner. Notwithstanding any other provision of this Section 13, a Participant shall not be permitted to have more than two loans outstanding from the Plan at any time. 13.2 (a) The amount of any loan granted to a Participant, together with the aggregate outstanding balance (determined as of the date the loan is made) of all previous loans to the Participant under the Plan may not exceed the lesser of: (i) $50,000, reduced by the excess (if any) of: (A) the highest outstanding balance of loans from the Plan to the Participant during the one year period ending on the day before the date on which such loan is made, over (B) the outstanding balance of loans from the Plan to the Participant on the date on which such loan is made, or (ii) 50% of his Vested Interest in his Account. For purposes of this Section 13.2(a), valuation of the Vested Interest of the Participant shall be made as of the Valuation Date which occurs prior to the submission of a loan request. (b) Notwithstanding anything in Section 13.2(a) to the contrary, no loan shall be (i) made in a principal amount of less than $1,000, (ii) granted to any Participant whose total Account is less than $2,000 and (iii) granted from the vested value of his Account invested in the Company Stock Fund and the Stock Bonus Account (as such Account is described in Appendix A). The Administrative Committee may require reduction of the principal amount of any loan if repayment of the loan as provided in Section 13.2(d) hereof would require reduction of the Participant's payroll by more than 15%. (c) A loan shall be deemed an investment of the borrowing Participant's Account and shall not reduce the amount credited to his Account. At the time a loan is made, the amount loaned shall first be deemed an investment of, and allocated to, the Participant's Vested Interest in his Employer Contribution Account not already allocated to a loan; to the extent it is in excess of such amounts, it shall then be deemed an investment of, and allocated to the Participant's Salary Reduction Contribution Account; to the extent it is in excess of such amounts, it shall then be deemed an investment of, and allocated to the Participant's Voluntary Contribution Account not already allocated to a loan; to the extent it is in excess of such amounts, it shall then be deemed an investment of, and allocated to the Participant's Salary Reduction Contribution Account; to the extent it is in excess of such amounts, it shall then be deemed an investment of, and allocated to, the Participant's Rollover Contribution Account not already allocated to a loan; and to the extent it is in excess of such amounts, it shall then be deemed an investment of, and allocated to, the Participant's Vested Interest in any account (except as provided to the contrary herein) described in Appendix A, not already allocated to a loan. A Participant shall be responsible for the payment of all fees associated with the granting and maintenance of a loan. (d) The Investment Funds in which the Participant's Account is invested in accordance with Section 6 of the Plan shall be reduced by the amount of any loan made hereunder in the ratio that the value of each such Investment Fund bears to the value of all Investment Funds in which the Participant's Account are invested; provided, however, that the Company Stock Fund and the Stock Bonus Fund (as described in Appendix A) may not be reduced for any loan made hereunder. 13.3 The Administrative Committee or its designee shall, in accordance with the Administrative Committee's established standards, review and approve or disapprove a completed application as soon as practicable after its receipt thereof, and shall promptly notify the applicant of such approval or disapproval. In addition, in the event the Trustee, in its sole discretion, determines that it is not reasonably and prudently able, in the interests of Participants and Beneficiaries, to liquidate the necessary amount from any of the Investment Funds, the Trustee shall notify the Administrative Committee, and the amount to be paid to each Participant whose completed application designated that a loan be made from such Investment Fund shall be reduced in proportion to the ratio which the aggregate amount that the Trustee has advised the Administrative Committee may prudently be liquidated bears to the aggregate amount which all such Participants designated to be paid from such Investment Fund. 13.4 (a) Interest shall be charged on a loan at the prime lending rate, as published in the Wall Street Journal on the first Business Day of the calendar month plus one percent determined as of the date the Participant's application is received by the Administrative Committee or its designee. The term of the loan shall be fixed by the Administrative Committee at the time the loan is made and shall not be extended. All loans shall be for a minimum term of one year and must be in one year increments. A loan must be repaid within a maximum of five years, ten years if the loan is used to acquire any dwelling unit which within a reasonable period of time is to be used as the principal residence of the Participant. Principal residence status shall be determined by the Administrative Committee or its designee at the time the loan is made. (b) A Participant may repay all (but not part) of any loan without penalty by payment of the outstanding principal amount thereof, plus unpaid accrued interest to the date of repayment. (c) Regardless of its original maturity, the outstanding principal amount of any loan, and accrued interest thereon, shall become immediately due and must be paid within 90 days following the date a Participant's employment with the Employer terminates for any reason whatsoever. 13.5 (a) All loans made to Participant shall be repaid by payroll deduction under a fixed schedule, as determined by the Administrative Committee, in substantially equal installments consisting of level amortized payments of principal and interest at least quarterly. Such installments shall be appropriately adjusted in the event of a change in payroll frequency but shall not otherwise be modified while the loan is outstanding. Loan repayments other than by payroll deduction will be permitted by a Participant (i) on an unpaid authorized leave of absence in accordance with a fixed schedule determined by the Administrative Committee and (ii) who elects to prepay his loan in full. Withholding of loan repayments from a Participant's payroll will commence as of the next day on which the Participant receives payment of Compensation from an Employer following the date on which the applicable loan is made. (b) As security for repayment of each loan made to a Participant, such Participant shall pledge that portion of his Vested Interest in his Account equal to the outstanding loan, and such other collateral as may from time to time be required by controlling law or Regulation. In the event a Participant defaults on his obligation to repay his loan, the Trustee may, at the direction of the Administrative Committee, foreclose on such security to the extent such Participant would be entitled to withdraw the amount foreclosed from his Account. Upon termination of a Participant's employment with the Employer, the value of the distributable benefit of his Vested Interest in his Account shall be reduced by the amount of any unpaid principal balance of the loan plus interest accrued to the date of termination; provided, however, that a Participant who has elected to defer distribution of his Plan benefit until any time up to his Normal Retirement Date may repay the loan from other sources provided such repayment is effected no later than 60 days after the date of termination of his employment or such longer period as the Administrative Committee may determine to be appropriate in its sole discretion. (c) Each loan shall be evidenced by a promissory note executed by the Participant, payable to the Trustee in such form as may be specified by the Administrative Committee. Spousal consent shall be obtained no earlier than the beginning of the 60 day period that ends on the date on which the loan is to be secured. Except as provided in this Section 13.5(c), at the time the Participant's Account is used as security for a loan, spousal consent to such use must be obtained. The spouse's consent must be in writing, must acknowledge the effect of the loan and must be witnessed by a Plan representative or by a notary public. Such spousal consent shall thereafter be binding with respect to the consenting spouse or any subsequent spouse with respect to that loan. For purposes of obtaining any required spousal consent, any renegotiation, extension, renewal, or other revision of a loan shall be treated as a new loan made on the date of the renegotiation, extension, renewal, or other revision of a loan. (d) Notwithstanding any provision of this Section 13.5 to the contrary, loan repayments shall be suspended during the period a Participant is in "qualified military service" as permitted under Section 414(u)(4) of the Code and the IRS Regulations thereunder. 13.6 The right to receive loan repayments, including interest thereon, shall be considered an asset of the Plan and all loan repayments of principal and interest shall be credited to the Investment Funds in the same proportion that the Participant's future contributions are allocated on the date of such repayment. 13.7 Outstanding loans shall share in Plan expenses in a manner determined by the Administrative Committee. The Administrative Committee shall apply these rules on a uniform and nondiscriminatory basis. With appropriate notice, the Administrative Committee may amend these rules, including amendments that affect outstanding loans, as may be required to conform to applicable law or regulation. SECTION 14. ADMINISTRATION OF THE PLAN 14.1 The Administrative Committee shall have general responsibility and discretionary authority for the administration, establishment and interpretation of the Plan (including but not limited to complying with reporting and disclosure requirements, establishing and maintaining Plan records, adopting amendments to the Plan as described in Section 16.1, deciding all questions arising in connection with the Plan including eligibility, benefit payments, vesting and factual questions). The Administrative Committee shall engage such certified public accountants, who may be accountants for the Company, as it shall require or may deem advisable for purposes of the Plan. The Administrative Committee shall have sole discretionary authority to determine, a Participant's or Beneficiary's benefit eligibility. The Administrative Committee shall communicate any requirements and objectives of the Plan, and any audit information which may be pertinent to the investment of Plan assets to the Investment Committee, which shall establish investment standards and policies and communicate the same to the Trustee (or other funding agencies under the Plan). 14.2 The Investment Committee shall periodically review the investment performance and methods of the Trustee and any other funding agency, including any insurance company, under the Plan, and may appoint and remove or change the Trustee and any such funding agency. The Investment Committee shall have the power to appoint or remove one or more Investment Managers and to delegate to such Investment Manager the authority and discretion to manage (including the power to acquire and dispose of) the assets of the Plan, provided that (i) each Investment Manager with such authority and discretion shall be either a bank, an insurance company or a registered investment adviser under the Investment Advisers Act of 1940, and shall acknowledge in writing that it is a fiduciary with respect to the Plan and (ii) the Investment Committee shall periodically review the investment performance and methods of each Investment Manager with such authority and discretion. If annuities are to be purchased under the Plan, the Investment Committee shall determine what contracts should be made available to terminated Participants or purchased by the Trust. 14.3 Both Administrative Committee and the Investment Committee may arrange for the engagement of such legal counsel who may be counsel for the Company, and make use of such agents and clerical or other personnel as they each shall require or may deem advisable for purposes of the Plan. Each Committee may rely upon the written opinion of such counsel and the accountants engaged by the Administrative Committee and may delegate to any such agent or to any subcommittee or member of such Committee its authority to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion (including the appointment of an Investment Manager), provided that such delegation shall be subject to revocation at any time at the discretion of such Committee. Each Committee shall report to the Board of Directors, or to a committee of the Board of Directors designated for that purpose, no less frequently than at each annual meeting as shall be specified by the Board of Directors, or such committee with regard to the Board of Directors the matters for which it is responsible under the Plan. 14.4 Both the Administrative Committee and the Investment Committee shall consist of at least three members, each of whom shall be appointed by, shall remain in office at the will of, and may be removed, with or without cause, by the Board of Directors. Any member of either of said Committee may resign at any time. No member of either of said Committees shall be entitled to act on or decide any matter relating solely to himself or any of his rights or benefits under the Plan. The members of the Administrative Committee and of the Investment Committee shall not receive any special compensation for serving in their capacities as members of such Committees but shall be reimbursed for any reasonable expenses incurred in connection therewith. Except as otherwise required by the Act, no bond or other security need be required of the Administrative Committee or the Investment Committee or any member thereof in any jurisdiction. Any person may serve on both Committees, and any member of either Committee, any subcommittee or agent to whom either Committee delegates any authority, and any other person or group of persons, may serve in more than one fiduciary capacity (including service both as a trustee and administrator) with respect to the Plan. 14.5 Each Committee shall elect or designate its own Chairman, establish its own procedures and the time and place for its meetings, and provide for the keeping of minutes of all meetings. A majority of the members of the Committee shall constitute a quorum for the transaction of business at a meeting of such Committee. Any action of the Committee may be taken upon the affirmative vote of a majority of the members of the Committee at a meeting or, at the direction of its Chairman, without a meeting, by mail, electronic mail ("email"), telegraph, telex, telecopier or telephone, provided that all of the members of the Committee are informed by mail, email, telegraph, telex, telecopier or telephone of their right to vote on the proposal and of the outcome of the vote thereon. 14.6 All demands for money of the Plan shall be signed by an officer or officers or such other person or persons as the Administrative Committee may from time to time designate in writing who shall cause to be kept full and accurate accounts of receipts and disbursements of the Plan, shall cause to be deposited all funds of the Plan to the name and credit of the Plan, in such depositories as may be designated by the Investment Committee, shall cause to be disbursed the monies and funds of the Plan when so authorized by the Administrative Committee and shall generally perform such other duties as may be assigned to him from time to time by either Committee. 14.7 The Company has entered into the Trust Agreement with the Trustee providing for the administration and management of the Trust Fund. The Trustee shall have responsibility under the Plan for the management and control of the assets of the Plan. All benefits and other amounts payable hereunder shall be paid exclusively from the Trust Fund, and neither the Company, any Affiliate, any Trustee, nor any director, officer, Employee or agent of the Company assumes any responsibility or liability therefor. The Trust Fund may be commingled for investment purposes with like separate trust funds of any other plans and trusts of the Company or any Affiliate which meet the requirements of Sections 401(a) and 501(a) of the Code. Each Participant, each Beneficiary or each other person who shall claim the right to any payment under the Plan shall look exclusively to the Trust Fund therefor and shall not have any right or claim therefor against the Company, any Participating Company, any Trustee, or any director, officer, Employee or agent of the Company. Except as otherwise required by the Act, neither the Company, nor any member of the Administrative Committee or the Investment Committee, any director, officer, Employee or agent of the Company shall be required to inquire into or be responsible for any act or failure to act of any Trustee or any Participant. To the maximum extent permitted by the Act and applicable state law, each Trustee, each member of the Administrative Committee and the Investment Committee, each director and officer of the Company, any Participating Company and each Employee who performs service on behalf of the Plan or the Trust, shall be indemnified and saved harmless by the Company or by the Participating Company out of its own assets (including the proceeds of any insurance policy the premiums of which are paid by the Company) from and against any and all losses, costs and expense (including any amounts paid in settlement of a claim with the Company or Administrative Committee's approval) to which any of them may be subjected by reason of any act done or omitted to be done in good faith in their official capacities with respect to the Plan or the Trust Agreement, including all expenses reasonably incurred in their defense. 14.8 (a) All claims for benefits under the Plan shall be submitted in writing to and within a reasonable period of time decided by, a person or persons designated in writing by the Administrative Committee. If the claim is wholly or partially denied, written notice of the denial shall be furnished within 90 days after receipt of the claim; provided that, if special circumstances require an extension of time for processing the claim, an additional 90 days from the end of the initial period shall be allowed for processing the claim, in which event the claimant shall be furnished with a written notice of the extension prior to the termination of the initial 90-day period indicating the special circumstances requiring an extension. The written notice denying the claim shall set forth the reasons for the denial, including specific reference to pertinent provisions of the Plan on which the denial is based, a description of any additional information necessary to perfect the claim and information regarding review of the claim and its denial. (b) A claimant may review all pertinent documents and may request a review by the Administrative Committee of a decision denying the claim. Such a request shall be made in writing and filed with the Administrative Committee within 60 days after delivery to the claimant of written notice of the decision. Such written request for review shall contain all additional information which the claimant wishes the Administrative Committee to consider. The Administrative Committee may hold a hearing or conduct an independent investigation, and the decision on review shall be made as soon as possible after the Administrative Committee's receipt of the request for review. Written notice of the decision on review shall be furnished to the claimant within 60 days after receipt by the Administrative Committee of a request for review, unless special circumstances require an extension of time for processing, in which event an additional 60 days shall be allowed for review and the claimant shall be so notified in writing. Written notice of the decision on review shall include specific reasons for the decision. For all purposes under the Plan, such decision on claims (where no review is requested) and decision on review (where review is requested) shall be in the sole discretion of the Administrative Committee, final, binding and conclusive on all interested persons as to participation and benefits eligibility, the amount of benefits and as to any other matter of fact or interpretation relating to the Plan. 14.9 Any notice, election, application, instruction, designation or other form of communication required to be given or submitted by any Participant, other Employee or Beneficiary shall be in such form as is prescribed from time to time by the Administrative Committee or Investment Committee, sent by first class mail or delivered in person, and shall be deemed to be duly given only upon actual receipt thereof by such Committee. Any notice, statement, report and other communication from the Company or either Committee to any Participant, other Employee, or Beneficiary required or permitted by the Plan shall be deemed to have been duly given when delivered to such person or mailed by first class mail to such person at his address last appearing on the records of the Company or the Administrative Committee. Each person entitled to receive a payment under the Plan shall file in accordance herewith his complete mailing address and each change therein. A check or communication mailed to any person at his address on file with the Company or the appropriate Committee shall be deemed to have been received by such person for all purposes of the Plan, and no Employee or agent of the Company, of a Participating Company or member of the Administrative Committee or the Investment Committee, shall be obliged to search for or ascertain the location of any such person except as required by the Act. If the Administrative Committee shall be in doubt as to whether payments are being received by the person entitled thereto, it may, by registered mail addressed to such person at his address last known to the Administrative Committee notify such person that all future payments will be withheld until such person submits to the Administrative Committee his proper mailing address and such other information as the Administrative Committee may reasonably request. 14.10 Each Participant shall file with the Administrative Committee such pertinent information concerning himself and his Beneficiary, and each Beneficiary shall file with the Administrative Committee such information concerning himself, as the Administrative Committee may specify, and in such manner and form as the Administrative Committee may specify or provide, and no Participant or Beneficiary shall have any right or be entitled to any benefits or further benefits under the Plan unless such information is filed by him or on his behalf. 14.11 The Administrative Committee and the Investment Committee each shall have only those specific powers, duties, responsibilities and obligations as are specifically authorized by the Plan or the Trust, as the Plan or the Trust may be amended from time to time. It is intended that each Committee shall be responsible for the proper exercise of its own powers, duties, responsibilities and obligations and shall not be responsible for any act or failure to act on the part of another fiduciary. 14.12 The agent for the service of legal process of the Plan shall be the Corporate Secretary of Covanta Energy Group, Inc. or such other person as may from time to time be designated by the Administrative Committee. Service of legal process may also be made upon the Trustee. SECTION 15. TERMINATION OF PARTICIPATING COMPANY PARTICIPATION 15.1 Any Participating Company may terminate its participation in the Plan by giving the Administrative Committee prior written notice specifying a termination date which shall be the last day of a month at least 60 days subsequent to the date such notice is received by the Administrative Committee. The Administrative Committee may terminate any Participating Company's participation in the Plan, as of any termination date specified by the Administrative Committee, for the failure of the Participating Company to make proper contributions or to comply with any other provision of the Plan and shall terminate a Participating Company's participation upon complete and final discontinuance of the contributions. In the event of any such termination, the Administrative Committee shall promptly notify the IRS and request such determination as counsel to the Plan may recommend and as the Administrative Committee may deem desirable. 15.2 (a) Upon termination of the Plan as to any Participating Company, such Participating Company shall not make any further contributions under the Plan and no amount shall thereafter be payable under the Plan to or in respect of any Participants then employed by such Participating Company except as provided in this Section 15. To the maximum extent permitted by the Act, any rights of Participants no longer employed by such Participating Company and of former Participants and their Beneficiaries and Surviving Spouses under the Plan shall be unaffected by such termination and any transfers, distributions or other dispositions of the assets of the Plan as provided in this Section 15 shall constitute a complete discharge of all liabilities under the Plan with respect to such Participating Company's participation in the Plan and any Participant then employed by such Participating Company. (b) The interest of each such Participant in Service with such Participating Company as of the termination date in the amount, if any, credited to his Account after payment of or provision for expenses and charges and appropriate adjustment of the Accounts of all such Participants for expenses, charges, forfeitures and profits and losses as described in Section 16.4, shall be nonforfeitable as of the termination date, and upon receipt by the Administrative Committee of IRS approval of such termination, the full current value of such amount, reduced by any unpaid loans, shall be paid from the Trust Fund in the manner described in Section 16.4 or transferred to a successor employee benefit plan which is qualified under Section 401(a) of the Code; provided, however, that in the event of any transfer of assets to a successor employee benefit plan the provisions of Section 15.3 will apply. (c) All determinations, approvals and notifications referred to above shall be in form and substance from a source satisfactory to counsel for the Plan. To the maximum extent permitted by the Act, the termination of the Plan as to any Participating Company shall not in any way affect any other Participating Company's participation in the Plan. 15.3 No transfer of the Plan's assets and liabilities to a successor employee benefit plan (whether by merger or consolidation with such successor plan or otherwise) shall be made unless each Participant would, if either the Plan or such successor plan then terminated, receive a benefit immediately after such transfer which (after taking account of any distributions or payments to them as part of the same transaction) is equal to or greater than the benefit he would have been entitled to receive immediately before such transfer if the Plan had then been terminated. The Administrative Committee or the Investment Committee or both of the Committees may request appropriate indemnification from the employer or employers maintaining such successor plan before making such a transfer. SECTION 16. AMENDMENT OR TERMINATION OF THE PLAN AND THE TRUST 16.1 (a) Subject to the provisions of Section 16.1(b), the Board of Directors reserves the right at any time, by majority consent in writing or by a meeting, to amend, suspend or terminate the Plan, any contributions thereunder, the Trust, in whole or in part, for any reason and without the consent of any Participating Company, Participant, other Employee, Beneficiary or Surviving Spouse. The Administrative Committee may adopt amendments, by majority consent in writing or by a meeting, which may be necessary or appropriate to facilitate the administration, management, or interpretation of the Plan or to conform the Plan thereto, or to qualify or maintain the Plan and the Trust as a plan and trust meeting the requirements of Sections 401(a), 401(k) and 501(a) of the Code or any other applicable section of law (including the Act) and the Regulations, provided that any such amendment does not materially increase the cost to the Employers of maintaining the Plan. Each Participating Company by its adoption of the Plan shall be deemed to have delegated this authority to the Board of Directors and the Administrative Committee. The Plan shall automatically be terminated upon complete and final discontinuance of contributions thereunder. (b) No amendment or modification shall be made which would retroactively impair any right to any benefit under the Plan which any Participant, Beneficiary or Surviving Spouse would otherwise have had at the date of such amendment by reason of the contributions theretofore made and credited to his Account, except as provided in Section 16.2 below. 16.2 Subject to the provisions of Section 16.1, any amendment, modification, suspension or termination of any provisions of the Plan may be made retroactively if necessary or appropriate to qualify or maintain the Plan and the Trust as a plan and trust meeting the requirements of Sections 401(a), 401(k) and 501(a) of the Code or any other applicable section of law (including the Act) and the Regulations issued thereunder. 16.3 Notice of any amendment, modification, suspension or termination of the Plan shall be given by the Board of Directors or the Administrative Committee, whichever adopts the amendment to the other and to the Trustee and all Participating Companies and, where and to the extent required by law, to Participants and other interested parties. 16.4 (a) Upon termination of the Plan, the Employer shall not make any further contributions under the Plan and no amount shall thereafter be payable under the Plan in respect of any Participant except as provided in this Section 16. To the maximum extent permitted by the Act, transfers, distributions or other dispositions of the assets of the Plan as provided in this Section 16 shall constitute a complete discharge of all liabilities under the Plan. The Administrative and Investment Committees shall remain in existence and all of the provisions of the Plan which in the opinion of the Administrative Committee are necessary for the execution of the Plan and the administration and distribution, transfer or other disposition of the assets of the Plan in accordance with this Section 16.4 shall remain in force. After (i) payment of or provision for all expenses and charges referred to in Sections 7.4 and 7.5 and appropriate adjustment of all Accounts for such expenses and charges in the manner described in Section 7.4 and (ii) adjustment for profits and losses of the Trust to such termination date in the manner described in Section 7.2, the interest of each Participant in Service as of the date of such termination in the amount, if any, credited to his Account shall be nonforfeitable as of such date. (b) The full current value of such adjusted amount, [reduced by the amount of any unpaid loans to the Participant, shall be paid from the Trust to each Participant and former Participant, (or, in the event of the death of such Participant or former Participant, the Beneficiary or Surviving Spouse thereof) in any manner of distribution specified in Section 10 above, including payments which are deferred until the Participant's termination of Service, as the Administrative Committee shall determine in a nondiscriminatory manner. Without limiting the foregoing, any such distributions may be made in cash or in property, or both, as the Administrative Committee in its sole discretion may direct. (c) All determinations, approvals and notifications referred to above shall be in form and substance and from a source satisfactory to counsel for the Plan. 16.5 In the event a partial termination (within the meaning of the Act) of the Plan has occurred then (i) the interest of each Participant affected thereby in his Account shall be nonforfeitable as of the date of such partial termination and (ii) the provisions of Sections 16.2, 16.3 and 16.4 and Section 15.2 which in the opinion of the Administrative Committee are necessary for the execution of the Plan and the allocation and distribution of the assets of the Plan shall apply. 16.6 Except as provided in Section 5.6 and Section 13 of the Plan or Section 414(p) of the Code, in no event shall any part of the funds of the Plan (other than such part as is required to pay taxes, if any, and expenses as provided in Section 7) be used for or diverted to any purposes other than for the exclusive benefit of Participants and their Beneficiaries and Surviving Spouses under the Plan. SECTION 17. GENERAL LIMITATIONS AND PROVISIONS 17.1 Each Participant, former Participant, Beneficiary and Surviving Spouse shall assume all risk in connection with any decrease in the value of the assets of the Trust and the Participants' Accounts or special accounts and neither the Employer nor the Administrative Committee nor the Investment Committee shall be liable or responsible therefor. 17.2 Nothing contained in the Plan shall give any Employee the right to be retained in the employment of the Company, any Participating Company or any of its subsidiaries or affiliated or associated corporations or affect the right of any such Employer to dismiss any Employee. The adoption and maintenance of the Plan shall not constitute a contract between an Employer and any Employee or consideration for, or an inducement to or condition of, the employment of any Employee. 17.3 If the Administrative Committee shall find that any person to whom any amount is payable under the Plan is found by a court of competent jurisdiction to be unable to care for his affairs because of illness or accident, or is a minor, or has died, then any payment due him or his estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Administrative Committee so elects, be paid to his spouse, a child, a relative, an institution maintaining or having custody of such person, or any other person deemed by the Administrative Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Plan and the Trust therefor. 17.4 Except insofar as may otherwise be required by law or pursuant to the terms of a Qualified Domestic Relations Order, or pursuant to certain judgments and settlements for a breach of fiduciary duty or criminal act against the Plan as described in Section 401(a)(13) of the Code, no amount payable at any time under the Plan and the Trust shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind nor in any manner be subject to the debts or liabilities of any person and any attempt to so alienate or subject any such amount, whether presently or thereafter payable, shall be void. If any person shall attempt to, or shall, alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any amount payable under the Plan and the Trust, or any part thereof, or if by reason of his bankruptcy or other event happening at any such time such amount would be made subject to his debts or liabilities or would otherwise not be enjoyed by him, then the Administrative Committee, if it so elects, may direct that such amount be withheld and that the same or any part thereof be paid or applied to or for the benefit of such person, his spouse, children or other dependents, or any of them, in such manner and proportion as the Administrative Committee may deem proper. The prohibition against assignment or alienation of benefits contained in this Section 17.4 shall not apply to any loan to a Participant made under Section 13 of the Plan. 17.5 If the Administrative Committee cannot ascertain the whereabouts of any person to whom a payment is due under the Plan, and if, after five years from the date such payment is due or upon the termination of the Plan in accordance with Section 16, a notice of such payment due is mailed to the last known address of such person, as shown on the records of the Administrative Committee or the Employer, and within three months after such mailing such person has not made written claim therefor, the Administrative Committee, if it so elects, after receiving advice from counsel to the Plan, may direct that such payment and all remaining payments otherwise due to such person be canceled on the records of the Plan and the amount thereof applied to reduce the contributions of the Employer or, in the case of the termination of the Plan, allocated on a pro rata basis among the Participants of the Plan, and upon such cancellation, the Plan and the Trust shall have no further liability therefor except that, in the event such person later notifies the Administrative Committee of his whereabouts and requests the payment or payments due to him under the Plan, the amount so applied shall be paid to him as provided in Section 10. 17.6 Notwithstanding any provision of the Plan to the contrary, effective December 12, 1994, contributions, benefits and service credit with respect to "qualified military service" shall be provided in accordance with Section 414(u) of the Code and the IRS Regulations thereunder. 17.7 Any and all rights or benefits accruing to any persons under the Plan shall be subject to the terms of the Trust Agreement which the Company shall enter into with the Trustee providing for the administration of the Trust Fund. 17.8 Whenever used in the Plan the masculine gender includes the feminine gender and the singular includes the plural, unless the context indicates otherwise. 17.9 The captions preceding the sections of the Plan have been inserted solely as a matter of convenience and in no way define or limit the scope or intent of any provisions of the Plan. 17.10 The Plan and all rights thereunder shall be governed by and construed in accordance with the Act and the laws of the State of New York. SECTION 18. MAXIMUM AMOUNT OF ALLOCATION 18.1 The provisions of this Section 18 shall govern notwithstanding any other provisions of the Plan. 18.2 Annual Additions to a Participant's Account in respect of any Plan Year may not exceed the lesser of (a) $30,000, but for Plan Years ending on or before December 31, 1994, the greater of (i) $30,000 and (ii) one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1)(A) of the Code as in effect for such Plan Year; or (b) 25% of the Participant's Salary for such Plan Year. For this purpose, the term "Annual Additions" shall mean the sum of the following amounts which, without regard to this Section 18, would have been credited to the Participant's Account for any Plan Year under the Plan and under any other defined contribution plans of the Employer or an Affiliate: (i) Employer Contributions; (ii) Salary Reduction Contributions and all elective contributions made under any cash or deferred arrangement within the meaning of Section 1.401(k)-1(g)(3) of the IRS Regulations including excess deferrals; (iii) Voluntary Contributions or voluntary employee after-tax contributions made under any qualified employee pension benefit plan; (iv) forfeitures, if applicable; and, with respect to any plan maintained by the Employer or an Affiliate (v) contributions allocated to any individual medical account defined in Section 415(l)(2) of the Code that is part of a pension or annuity plan maintained by the Employer; and (vi) in the case of a Participant who is a "key employee," as defined in Section 419A(d)(3) of the Code, the amount allocated to a separate account established for post-retirement medical or life insurance benefits of such Participant described in Section 419A(d)(1) of the Code under a welfare benefit fund as defined in Section 419(e) of the Code, and as maintained by the Employer. The term Annual Additions shall not include any Rollover Contributions. The term Annual Additions shall include, whether or not refunded, excess deferrals as described in Section 4.1(a), Excess Contributions and Excess Aggregate Contributions. Solely for the purposes of Section 18.4(a), Annual Additions shall include a Participant's contributions under a qualified cost-of-living arrangement described in Section 415(k)(2) of the Code. 18.3 If the limitations of Section 18.2 are violated as a result of the allocation of (i) forfeitures, (ii) a reasonable error in estimating a Participant's Compensation or Salary, (iii) or under such other facts and circumstances as determined by the IRS, amounts which would otherwise be allocated to a Participant's Account must be reduced by reason of the limitations of Section 18.2, such reduction shall be made in the following order of priority, but only to the extent necessary: (1) The amount of the Participant's Voluntary Contributions, exclusive of any earnings of the Trust Fund attributable thereto, shall be refunded to the Participant; then (2) Employer Contributions made pursuant to Section 5.1(b) allocable to such Participant in respect of such Plan Year shall be reduced and the amount of such reduction shall be utilized to reduce Employer Contributions which would otherwise be made to the Plan; and then (3) Employer Contributions made pursuant to Section 5.1(a) allocable to such Participant in respect of such Plan Year shall be reduced and the amount of such reduction shall be utilized to reduce Employer Contributions which would otherwise be made to the Plan; and then (4) To the extent permitted by the Code and IRS Regulations, the amount of Salary Reduction Contributions, including any earnings of the Trust Fund attributable thereto, shall be refunded to the Participant or, to the extent required by law, shall be held unallocated in a suspense account and shall be applied, as directed by the Administrative Committee in accordance with the law and regulations, as a credit to reduce the contributions of the Employer for the next Plan Year and in the event of termination of the Plan shall be returned to the Employer. 18.4 (a) Subject to 18.4(c) and 18.4(d), In the event that, in any Plan Year and with respect to any Participant, the sum of the "Defined Contribution Fraction" (as defined in Section 18.4(b)(1)) and the "Defined Benefit Fraction" (as defined in Section 18.4(b)(2)) would otherwise exceed 1.0, then the benefit payable under the defined benefit plan or plans shall be reduced in accordance with the provisions of that plan or those plans, but only to the extent necessary to ensure that such limitation is not exceeded. If this reduction does not ensure that the limitation set forth in this Section 18.4 is not exceeded, then the Annual Addition to any defined contribution plan, other than the Plan, shall be reduced in accordance with the provisions of that plan but only to the extent necessary to ensure that such limitation is not exceeded. (b) For purposes of this Section 18.4, the following terms shall have the following meanings: 1. "Defined Contribution Fraction" shall mean, as to any Participant for any Plan Year, a fraction, (A) the numerator of which is the sum of Annual Additions, for the Plan Year and all prior Plan Years, as of the close of the Plan Year and (B) the denominator of which is the sum of the lesser of the following amounts, determined for such Plan Year and for each prior Year of Service (i) the product of 1.25 multiplied by the dollar limitation in effect for such Year under Section 18.2(a) or (ii) the product of 1.4 multiplied by the amount which may be taken into account under Section 18.2(b) with respect to the Participant for such Year; provided, however, that for years ending prior to January 1, 1976, the numerator of such fraction shall in no event be deemed to exceed the denominator of such fraction; and, further provided, that the Administrative Committee, in determining the Defined Contribution Fraction may elect to use the special transitional rules permitted by Section 415 of the Code and IRS Regulations thereunder; and 2. "Defined Benefit Fraction" shall mean, as to any Participant for any Plan Year, a fraction, (A) the numerator of which is the projected annual benefit (determined as of the close of the Plan Year and in accordance with IRS Regulations) of the Participant under any defined benefit plan (as defined in Sections 414(j) and 415(k) of the Code) maintained by the Company or any of its Affiliates and (B) the denominator is the lesser of (i) the product of 1.25 multiplied by the dollar limitation in effect under Section 415(b)(1) (A) of the Code for such Plan Year or (ii) the product of 1.4 multiplied by an amount equal to 100% of the Participant's average compensation for his high three years within the meaning of Section 415(b)(3) of the Code for such Plan Year. (c) In the case of a Participant with respect to whom the sum of the Defined Contribution Fraction and the Defined Benefit Fraction exceeds 1.0 with respect to the last Plan Year beginning before January 1, 1983, an amount, determined in accordance with IRS Regulations, may be subtracted from the numerator of the Defined Contribution Fraction (not exceeding such numerator) so that the sum of such Participant's Defined Contribution Fraction and his Defined Benefit Fraction computed under Section 18.4(a) does not exceed 1.0 for the last Plan Year beginning before January 1, 1983. (d) Notwithstanding the foregoing provisions of this Section 18.4, in determining the maximum Annual Addition for any Plan Year beginning before January 1, 1987, the Annual Addition shall not be recomputed to treat all Voluntary Contributions as an Annual Addition. (e) The provisions of this Section 18.4 shall not apply with respect to any Plan Year beginning after December 31, 1999. SECTION 19. TOP HEAVY PROVISIONS 19.1 The Plan will be considered a Top Heavy Plan for any Plan Year if it is determined to be a Top Heavy Plan as of the last day of the preceding Plan Year (or, with respect to the first Plan Year, the last day of such Plan Year). For purposes of determining whether the Plan is a Top Heavy Plan, when appropriate, actuarial assumptions which reflect reasonable mortality experience and a reasonable interest rate that uniformly applies for accrual purposes under all plans maintained by the Company and its Affiliates shall be used. The Value of a Participant's Account shall be determined as of the last Valuation Date used for computing Plan costs for minimum contribution purposes which occurs within the Plan Year in which the determination is being made, and shall include amounts distributed to or on behalf of the Participant within the four preceding Plan Years. Notwithstanding any other provisions of the Plan, the provisions of this Section 19 shall apply and supersede all other provisions of the Plan during each Plan Year with respect to which the Plan is determined to be a Top Heavy Plan. 19.2 For purposes of this Section 19 and as otherwise used in the Plan, the following terms shall have the meanings set forth below: (a) "Determination Date" means the last day of the preceding Plan Year or the last day of the first Plan Year. (b) "Key Employee" means (i) each person (and his Beneficiary) who at any time during the five Plan Years ending on the Determination Date: (A) was an officer of the Company or an Affiliate having an annual Salary greater than 50% of the amount in effect under Section 415(b)(1)(A) of the Code for any such Plan Year; (B) was one of the 10 Employees owning the largest interest of the Company and its Affiliates but only if he received Salary equal to or greater than the dollar amount applied for purposes of Section 415(c)(1)(A) of the Code for the calendar year ending coincident with or immediately after the Determination Date; (C) was a Five Percent Owner; or (D) owned more than one percent of the Company's shares of stock or more than one percent of the total combined voting power of the Company's shares of stock ("One Percent Owner"), and whose annual Salary from the Company exceeds $150,000. (ii) The following special rules apply to this definition: (A) No more than 50 officers, or, if less, the greater of three or 10% of all Employees will be Key Employees under Section 19.2(b)(i)(A). If there are more officers than are counted under the preceding sentence, only those who had the highest aggregate Salary, during the five Plan Years ending on the Determination Date will be considered Key Employees. (B) A person is an officer only if he is in regular and continued service as an administrative executive of the Company or a Participating Company. (C) No person will be a Key Employee under more than one paragraph of this definition unless he also is a Beneficiary of a deceased Key Employee. (D) A person will be treated as owning all shares of stock which he owns directly or constructively by application of Section 318 of the Code. (E) For purposes of determining whether a person is a One Percent or Five Percent Owner of the Company or any Affiliate, his ownership interest in any entity related to the Company solely by reason of Sections 414(b), (c) and (m) of the Code shall be disregarded. (F) For purposes of determining whether a person receives an annual Salary of more than $150,000, Salary received from each Employer required to be aggregated under Sections 414(b), (c) and (m) of the Code shall be taken into account. (c) "Non-Key Employee" means (i) any Employee who is not a Key Employee, or (ii) a Beneficiary of a Non-Key Employee. (d) "Permissive Aggregation Group" means all qualified employee pension benefit plans in the Required Aggregation Group and any qualified employee pension benefit plans sponsored by the Company or an Affiliate which are not part of the Required Aggregation Group, but which satisfy the requirements of Sections 401(a)(4) and 410 of the Code when considered together with the Required Aggregation Group and which the Company elects to have included in the Permissive Aggregation Group. (e) "Required Aggregation Group" means the Plan and any other qualified employee pension benefit plan that was sponsored or terminated during the five year period ending on the applicable Determination Date by the Company or an Affiliate (i) in which a Key Employee participates or (ii) which enables the Plan to meet the requirements of Sections 401(a)(4) or 410 of the Code. (f) "Top Heavy Group" means all qualified employee pension benefit plans of the Company and its Affiliates in the Required Aggregation Group and any other qualified employee benefit plan of the Company and its Affiliates which the Company elects to aggregate as part of a Permissive Aggregation Group if, on any Determination Date, the Value of the cumulative annual accrued benefits for Key Employees under all defined benefit plans and the aggregate Value of all Key Employees' accounts under all defined contribution plans exceed 60% of a similar sum determined for all Employees. For purposes of this computation, the account balances and cumulative annual accrued benefits of a Participant (i) who is a Non-Key Employee but who was a Key Employee in a prior Plan Year, or (ii) who has not been credited with at least one Hour of Service with any Employer at any time during the five year period ending on the Determination Date will be disregarded. If the aggregated plans do not have the same Determination Date, this test will be made using the Value calculated as of each plan's Determination Date occurring during the same Plan Year. (g) "Top Heavy Plan" means the Plan if, on any Determination Date, the present Value of the Accounts under the Plan for Key Employees exceeds 60% of the Value of the Accounts under the Plan for all Employees. For purposes of the comparison, the Accounts of all Non-Key Employees who were, but no longer are, Key Employees will be disregarded. The Plan is Super Top Heavy if it would be a Top Heavy Plan if 90% were substituted for 60% wherever it appears in the definition of Top Heavy Plan and Top Heavy Group. (h) "Top Heavy Plan Year" means any Plan Year during which the Plan is Top Heavy or part of a Top Heavy Group. (i) "Value" means (i) or all defined benefit plans, the present value calculated as provided in those plans; and (ii) for all defined contribution plans, the fair market value of each Participant's account (including amounts attributable to voluntary employee contributions from a qualified employee pension benefit plan sponsored by the Company or an Affiliate) determined as of the most recent Determination Date increased by: (A) distributions made during the five Plan Years ending on the Determination Date (except distributions already included in determining the Value of the accounts and distributions made during the five Plan Years preceding the Determination Date under a terminated plan which, if it had not been terminated, would have been required to be included in the Required Aggregation Group); and (B) all rollover contributions distributed from the plans to a qualified employee benefit plan not sponsored by the Company or an Affiliate, and decreased by; (C) any deductible Employee contributions; and (D) rollover contributions received by the plans from a qualified employee benefit plan not sponsored by the Company or an Affiliate; and (E) rollover contributions distributed from the Plan to a qualified employee pension benefit plan sponsored by the Company or an Affiliate. 19.3 Subject to Section 19.4, for each Plan Year that the Plan is a Top Heavy Plan, the Employer's contribution allocable to the Account of each Non-Key Employee, regardless of his Salary, who has satisfied the eligibility requirements of Section 3.1, whether or not a Participant in the Plan, and who is in Service at the end of the Plan Year shall not be less than the lesser of (i) three percent of such Non-Key Employee's Salary (or to the extent required by the Code or Section 1.415-2(d) of the IRS Regulations), or (ii) the percentage at which contributions for such Plan Year are made and allocated on behalf of the Key Employee for whom such percentage is the highest. For the purpose of determining the appropriate percentage under clause (ii), all defined contribution plans required to be included in an Aggregation Group shall be treated as one plan. Clause (ii) shall not be applicable if the Plan is required to be included in an Aggregation Group which enables a defined benefit plan also required to be included in said Aggregation Group to satisfy Sections 401(a)(4) or 410 of the Code. 19.4 (a) For each Plan Year that the Plan is a Top Heavy Plan, 1.0 shall be substituted for 1.25 as the multiplicand of the dollar limitation in determining the denominator of the defined benefit plan fraction and of the defined contribution plan fraction for purposes of Section 18.4. (b) If, after substituting 90% for 60% wherever the latter appears in Section 416(g) of the Code, the Plan is not determined to be a Top Heavy Plan, the provisions of Section 19.4(a) shall not be applicable if the minimum contribution by the Employer allocable to the Account of any Participant who is a Non-Key Employee as specified in Section 19.3 is determined by substituting "four percent" for "three percent". 19.5 If, with respect to a Non-Key Employee who benefits in a Plan Year under both a defined contribution and defined benefit plan which are Top Heavy Plans maintained by the Employer, a top-heavy minimum benefit is not provided for such Plan Year under both plans, then such determination for such Plan Year shall be made in conformity with the comparability analysis described in Q&A M-12 of Section 1.416-1 of the IRS Regulations. Such analysis shall be modified, where a factor of 1.25 is utilized for such Plan Year in connection with the satisfaction of the limitations set forth in Section 415(e) of the Code, in accordance with the last sentence of Q&A M-14 of Section 1.416-1 of the IRS Regulations. EX-10.4AI 16 covex10-4ai_718.txt EXHIBIT 10.4(a)(i) ------------------ AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- THIS AMENDMENT (the "Amendment"), effective as of November 26, 2001, to the Employment Agreement by and between Lynde H. Coit (the "Employee") and Covanta Energy Corporation (f/k/a Ogden Corporation) (the "Company"), dated as of October 1, 1998 (the "Agreement"), is by and between the Company and the Employee. WITNESSETH THAT WHEREAS, the Company and the Employee are parties to the Agreement; and WHEREAS, the parties wish to amend the Agreement to reflect the change from the Ogden Corporation to Covanta Energy Corporation, and to revise the definition of Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and the Employee hereby agree to amend the Agreement in the following respects, and only in the following respects, with all other terms and conditions remaining in full force and effect as previously agreed in the Agreement: 1. All references in the Agreement to Ogden Corporation are hereby amended to refer to Covanta Energy Corporation. 2. Appendix A to the Agreement shall be amended to read as follows: "The following definition of Change in Control shall apply for purposes of Paragraph 10(f) of the Agreement: Change in Control. Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) the acquisition by any person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, provided that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding any acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation the conditions described in clause (iii) of paragraph (c) below are met. (b) Individuals who, as of May 20, 1998 constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to May 20, 1998 whose election, or nomination for election by the Company shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) The stockholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition of all or substantially all the Company's assets; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization." All provisions of the Agreement not specifically mentioned in this Amendment shall be considered modified to the extent necessary to be consistent with the changes made by this Amendment. IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company has caused this Amendment to be executed. ATTEST: COVANTA ENERGY CORPORATION /s/ Jeffrey R. Horowitz /s/ Stephen M. Gansler - -------------------------------- -------------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources Date: LYNDE H. COIT /s/ Lynde H. Coit -------------------------------- Lynde H. Coit Date: 11/26/01 EX-10.4AII 17 covex10-4aii_718.txt EXHIBIT 10.4(a)(ii) ------------------- SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE THIS SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AND AMENDED DEMAND NOTE (the "Agreement"), is made effective as of November 26, 2001, between Lynde H. Coit ("Coit") and Covanta Energy Corporation (f.k.a., Ogden Corporation) ("Covanta"). W I T N E S S E T H : WHEREAS, Coit and Covanta are entering into a Consolidated Amended and Restated Demand Note (the "Consolidated Amended and Restated Demand Note") simultaneous with the execution of this Agreement; and WHEREAS, Coit and Covanta wish to set forth in this Agreement certain of their additional rights and obligations relating to such Consolidated Amended and Restated Demand Note. NOW, THEREFORE, in consideration of the mutual grants and covenants contained in the Consolidated Amended and Restated Demand Note and herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do hereby agree as follows: 1. Consistent Reporting. Covanta and Coit each shall report, to every applicable government authority (including the Internal Revenue Service), ordinary income characterized as compensation in the amount of $43,816, which represents the difference between the aggregate principal and accrued interest due on that certain (i) Demand Note made by Coit to and in favor of Covanta dated August 6, 1999, in the principal amount of $86,099.41, and (ii) Demand Note made by Coit to and in favor of Covanta dated August 6, 1999, in the principal amount of $20,764.59 as of November 26, 2001, and the aggregate "Fair Market Value" of the "Shares" (as these terms are defined in the Consolidated Amended and Restated Demand Note) held by Coit on that day. 2. Payment of Bonus. Covanta shall pay Coit a bonus in the amount of $55,004. 3. Providing Documentation of Tax Benefits. Coit shall provide Covanta with documentation detailing the use of any item arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note, including but not limited to the use of capital losses and/or interest deductions, and any tax benefit accruing to Coit therefrom that reduces the tax liability as shown on his return filed in accordance with Section 1 above. Coit shall also provide Covanta with documentation detailing any adjustment, regardless of the source, relating to his tax return filed in accordance with Section 1 above, and the extent that Coit realizes a tax benefit from such adjustment. To the extent Coit realizes a tax benefit from any such use or adjustment, Covanta may (i) require immediate payment from Coit in an amount equal to this tax benefit or (ii) offset other payments due to Coit by the amount of this tax benefit. To the extent required by Covanta, Coit shall provide to Covanta's independent tax preparer a copy of his tax return for any tax years beginning in 2001 and ending on the later of the time when all items arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note have expired or have been used, or the time when the statute of limitations for adjustments to be made to Coit's tax return filed in accordance with Section 1 above has expired. 4. Indemnification for Unexpected Tax Liability. Covanta shall indemnify Coit against any additional taxes and penalties that result from a final determination by an applicable governmental authority (with which a return was filed as provided in Section 1 above) that the amount of compensation income resulting from the execution of the Consolidated Amended and Restated Demand Note exceeds the amount set forth in Section 1 hereof. Covanta shall also indemnify Coit against any additional taxes and penalties that may result in the event that a final determination is made by an applicable governmental authority that Coit has compensation in the future as a result of interest that is imputed on the Consolidated Amended and Restated Demand Note (net of any tax benefits that may accrue to Coit as a result of such imputation, such as an interest deduction). COVANTA ENERGY CORPORATION /s/ Stephen M. Gansler -------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources LYNDE H. COIT /s/ Lynde H. Coit -------------------------- By: Lynde H. Coit EX-10.4AIII 18 covex10-4aiii_718.txt EXHIBIT 10.4(a)(iii) -------------------- CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE ----------- Dated as of November 26, 2001 ON DEMAND, FOR VALUE RECEIVED, Lynde H. Coit, (the "Undersigned"), promises to pay to the order of COVANTA ENERGY CORPORATION, a corporation organized and existing under the laws of the State of Delaware, f/k/a Ogden Corporation, located and doing business at 40 Lane Road, Fairfield, New Jersey 07007, (the "Holder") the amount equal to the aggregate Fair Market Value (as defined herein) of the Shares (as defined herein) (such amount being referred to hereinafter as the "Indebtedness") in lawful money of the United States of America. The Undersigned agrees to pay all costs and expenses incurred by the Holder of this Note in any action taken to enforce or collect all or part of the Indebtedness evidenced hereby after default, including court costs and reasonable attorneys' fees. This Consolidated Amended and Restated Demand Note liquidates and consolidates, effective as of November 26, 2001, all of the Indebtedness, including interest thereon, evidenced by, and amends and restates the terms and conditions in their entirety of, that certain (i) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $86,099.41, and (ii) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $20,764.59. For the purposes of this Note, the term "Shares" shall mean, subject to any Adjustment (as defined below), 6,300 shares of common stock of Covanta Energy Corporation, a Delaware corporation, with a par value of $0.50 per share. If the shares of Holder common stock, with a par value of $0.50 per share, are changed as a result of any merger, reorganization, consolidation, recapitalization, liquidation, stock dividend, split-up, spin-off, stock split, reverse stock split, share combination, share exchange or other similar transaction, the Shares shall be equitably adjusted (an "Adjustment"). For the purposes of this Note, the term "Fair Market Value" shall mean the price at which the Undersigned actually sells his shares, net of all costs of sale, in accordance with this Note. Additionally, if the Undersigned sells different portions of the "Shares" on different Business Days, the "Fair Market Value" of each portion of the Shares sold shall be determined on the Business Day that such portion of the Shares is actually sold. The term "Business Day," as used in this Note, shall mean any day on which the New York Stock Exchange is open for the transaction of business. Upon the sale of the Shares, the net proceeds shall be applied by the Undersigned within 10 Business Days to the discharge of this Note. There shall be no interest payable on this Note. Upon default in any payment hereunder for a period of thirty (30) days, or upon any default under any other indebtedness between the Undersigned and Holder in existence on the date hereof or existing at any time in the future, then all of the Indebtedness and any other obligations of the Undersigned hereunder shall become due and payable immediately, at the option of the Holder hereof, without the necessity for demand or notice. No failure to exercise such option shall be deemed a waiver on the part of the Holder of this Note of any right accruing thereafter. At any time within eighteen (18) months of the date hereof, the Holder may direct the Undersigned to sell the Shares on the open market. Such sale may only be required in accordance with the Holder's policy of business conduct. In addition, the Undersigned may decline to make such sale if he is advised against such sale by counsel on the grounds that such sale might violate state or federal securities laws or the rules of the New York Stock Exchange or other applicable self-regulatory organization. The demand for such sale shall be made in writing by the Chairman of the Holder's Compensation Committee. In addition, the Undersigned may sell the Shares on his own initiative, subject to the other provisions of this Note. The proceeds from any such sale of the Shares shall be applied by the Holder in full satisfaction of the Indebtedness of the Undersigned hereunder. Holder shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by the Holder, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. After any acceleration of, or the entry of any judgment on, this Note, the acceptance by Holder of any payments by or on behalf of the Undersigned on account of the Indebtedness evidenced by this Note shall not cure or be deemed to cure any default or reinstate or be deemed to reinstate the terms of this Note absent an express written agreement duly executed by the Holder and the Undersigned. The Undersigned waives demand, notice, presentment, protest, notice of dishonor, notice of protest and diligence of collection of this Note. The Undersigned consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Holder with respect to the payment or other provisions of this Note. The covenants, conditions, waivers, releases and agreements contained in this Note shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and assigns, provided, however, that this Note cannot be assigned by the Undersigned without the prior written consent of Holder, and any such assignment or attempted assignment by the Undersigned shall be void and of no effect with respect to Holder. This is a demand note and all Indebtedness and any other obligations of the Undersigned hereunder shall become immediately due and payable upon demand. Notwithstanding all other provisions of this Note, no demand for any payment hereunder shall be made at any time except after providing direction to sell the Shares and allowing a reasonable period of time with which to comply with such direction and only insofar as such direction is one that the Undersigned is required to accept under this Note. In addition, the Indebtedness and any other obligations of the Undersigned hereunder shall automatically become immediately due and payable if the Undersigned or any endorser of this Note commences or has commenced against it any bankruptcy or insolvency proceeding. This Note may not be supplemented, extended, modified or terminated except by an agreement in writing signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought. Unless applicable law requires a different method, any notice that must be given to Undersigned under this Note will be given by delivering it or mailing it by First Class Mail to Undersigned at 40 Lane Road, Fairfield, New Jersey 07007 or at a different address if the Undersigned gives the Holder a notice of a different address. Unless the Holder requires a different method, any notice that must be given to the Holder under this Note will be given by mailing it by First Class Mail to the Holder at the address stated above, or at a different address if the Holder gives the Undersigned a notice of a different address. Privilege is reserved to pay this debt in whole or in part at any time prior to maturity. This Note shall be governed by and construed in accordance with the substantive laws of the State of New York without reference to conflict of laws principles. /s/ Lynde H. Coit ------------------------ Lynde H. Coit EX-10.4BI 19 covex10-4bi_718.txt EXHIBIT 10.4(b)(i) ------------------ AMENDMENT TO EMPLOYMENT AGREEMENT -------------------- THIS AMENDMENT (the "Amendment"), effective as of November 26, 2001, to the Employment Agreement by and between Scott G. Mackin (the "Employee") and Covanta Energy Corporation (f/k/a Ogden Corporation) (the "Company") and Covanta Energy Group, Inc., dated as of October 1, 1998 (the "Agreement"), is by and between the Company and the Employee. WITNESSETH THAT WHEREAS, the Company and the Employee are parties to and Covanta Energy Group, Inc. wishes to become a party to the Agreement; and WHEREAS, the parties wish to amend the Agreement to reflect the change from the Ogden Corporation to Covanta Energy Corporation, and to reflect the Employee's new position and compensation and to revise the definition of Change in Control; NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the Company and the Employee hereby agree to amend the Agreement in the following respects, and only in the following respects, with all other terms and conditions remaining in full force and effect as previously agreed in the Agreement: 1. All references in the Agreement to Ogden Corporation are hereby amended to refer to Covanta Energy Corporation and Covanta Energy Group, Inc, and all references to the Employee's title are hereby amended to refer to President and Chief Executive Officer of the Company and President and Chief Executive Officer of Covanta Energy Group, Inc. 2. The last sentence of Section 4(a) of the Agreement shall be amended to read as follows: "The minimum annual salary payable to the Employee under this Agreement shall be in the amount of $625,000, payable in equal monthly or bi-weekly installments." 3. Appendix A to the Agreement shall be amended to read as follows: "The following definition of Change in Control shall apply for purposes of Paragraph 10(f) of the Agreement: Change in Control. Change in Control of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) the acquisition by any person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Company or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors, provided that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from the Company (excluding any acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by the Company; (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or any corporation controlled by the Company, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation the conditions described in clause (iii) of paragraph (c) below are met. (b) Individuals who, as of May 20, 1998 constitute the Board of Directors of the Company (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to May 20, 1998 whose election, or nomination for election by the Company shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) The stockholders of the Company approve: (i) a plan of complete liquidation of the Company; or (ii) an agreement for the sale or disposition of all or substantially all the Company's assets; or (iii) a merger, consolidation, or reorganization of the Company with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation, or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization." All provisions of the Agreement not specifically mentioned in this Amendment shall be considered modified to the extent necessary to be consistent with the changes made by this Amendment. IN WITNESS WHEREOF, the Employee has hereunto set his hand and the Company has caused this Amendment to be executed. ATTEST: COVANTA ENERGY CORPORATION /s/ Jeffrey R. Horowitz /s/ Stephen M. Gansler - -------------------------------- -------------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources Date: COVANTA ENERGY GROUP, Inc. /s/ Jeffrey R. Horowitz /s/ Stephen M. Gansler - -------------------------------- -------------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources Date: SCOTT G. MACKIN /s/ Scott G. Mackin -------------------------------- Scott G. Mackin Date: EX-10.4BII 20 covex10-4bii_718.txt EXHIBIT 10.4(b)(ii) ------------------- SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE ----------- THIS SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AND AMENDED DEMAND NOTE (the "Agreement"), is made effective as of November 26, 2001, between Scott G. Mackin ("Mackin") and Covanta Energy Corporation (f.k.a., Ogden Corporation) ("Covanta"). W I T N E S S E T H : WHEREAS, Mackin and Covanta are entering into a Consolidated Amended and Restated Demand Note (the "Consolidated Amended and Restated Demand Note") simultaneous with the execution of this Agreement; and WHEREAS, Mackin and Covanta wish to set forth in this Agreement certain of their additional rights and obligations relating to such Consolidated Amended and Restated Demand Note. NOW, THEREFORE, in consideration of the mutual grants and covenants contained in the Consolidated Amended and Restated Demand Note and herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do hereby agree as follows: 1. Consistent Reporting. Covanta and Mackin each shall report, to every applicable government authority (including the Internal Revenue Service), ordinary income characterized as compensation in the amount of $212,212, which represents the difference between the aggregate principal and accrued interest due on that certain (i) Demand Note made by Mackin to and in favor of Covanta dated August 6, 1999, in the principal amount of $401,800.98, and (ii) Demand Note made by Mackin to and in favor of Covanta dated August 6, 1999, in the principal amount of $104,037.06 as of November 26, 2001, and the aggregate "Fair Market Value" of the "Shares" (as these terms are defined in the Consolidated Amended and Restated Demand Note) held by Mackin on that day. 2. Payment of Bonus. Covanta shall pay Mackin a bonus in the amount of $254,146. 3. Providing Documentation of Tax Benefits. Mackin shall provide Covanta with documentation detailing the use of any item arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note, including but not limited to the use of capital losses and/or interest deductions, and any tax benefit accruing to Mackin therefrom that reduces the tax liability as shown on his return filed in accordance with Section 1 above. Mackin shall also provide Covanta with documentation detailing any adjustment, regardless of the source, relating to his tax return filed in accordance with Section 1 above, and the extent that Mackin realizes a tax benefit from such adjustment. To the extent Mackin realizes a tax benefit from any such use or adjustment, Covanta may (i) require immediate payment from Mackin in an amount equal to this tax benefit or (ii) offset other payments due to Mackin by the amount of this tax benefit. To the extent required by Covanta, Mackin shall provide to Covanta's independent tax preparer a copy of his tax return for any tax years beginning in 2001 and ending on the later of the time when all items arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note have expired or have been used, or the time when the statute of limitations for adjustments to be made to Mackin's tax return filed in accordance with Section 1 above has expired. 4. Indemnification for Unexpected Tax Liability. Covanta shall indemnify Mackin against any additional taxes and penalties that result from a final determination by an applicable governmental authority (with which a return was filed as provided in Section 1 above) that the amount of compensation income resulting from the execution of the Consolidated Amended and Restated Demand Note exceeds the amount set forth in Section 1 hereof. Covanta shall also indemnify Mackin against any additional taxes and penalties that may result in the event that a final determination is made by an applicable governmental authority that Mackin has compensation in the future as a result of interest that is imputed on the Consolidated Amended and Restated Demand Note (net of any tax benefits that may accrue to Mackin as a result of such imputation, such as an interest deduction). COVANTA ENERGY CORPORATION /s/ Stephen M. Gansler -------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources SCOTT G. MACKIN /s/ Scott G. Mackin -------------------------- EX-10.4BIII 21 covex10-4biii_718.txt EXHIBIT 10.4(b)(iii) -------------------- CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE ----------- Dated as of November 26, 2001 ON DEMAND, FOR VALUE RECEIVED, Scott G. Mackin, (the "Undersigned"), promises to pay to the order of COVANTA ENERGY CORPORATION, a corporation organized and existing under the laws of the State of Delaware, f/k/a Ogden Corporation, located and doing business at 40 Lane Road, Fairfield, New Jersey 07007, (the "Holder") the amount equal to the aggregate Fair Market Value (as defined herein) of the Shares (as defined herein) (such amount being referred to hereinafter as the "Indebtedness") in lawful money of the United States of America. The Undersigned agrees to pay all costs and expenses incurred by the Holder of this Note in any action taken to enforce or collect all or part of the Indebtedness evidenced hereby after default, including court costs and reasonable attorneys' fees. This Consolidated Amended and Restated Demand Note liquidates and consolidates, effective as of November 26, 2001, all of the Indebtedness, including interest thereon, evidenced by, and amends and restates the terms and conditions in their entirety of, that certain (i) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $401,800.98, and (ii) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $104,037.06. For the purposes of this Note, the term "Shares" shall mean, subject to any Adjustment (as defined below), 29,400 shares of common stock of Covanta Energy Corporation, a Delaware corporation, with a par value of $0.50 per share. If the shares of Holder common stock, with a par value of $0.50 per share, are changed as a result of any merger, reorganization, consolidation, recapitalization, liquidation, stock dividend, split-up, spin-off, stock split, reverse stock split, share combination, share exchange or other similar transaction, the Shares shall be equitably adjusted (an "Adjustment"). For the purposes of this Note, the term "Fair Market Value" shall mean the price at which the Undersigned actually sells his shares, net of all costs of sale, in accordance with this Note. Additionally, if the Undersigned sells different portions of the "Shares" on different Business Days, the "Fair Market Value" of each portion of the Shares sold shall be determined on the Business Day that such portion of the Shares is actually sold. The term "Business Day," as used in this Note, shall mean any day on which the New York Stock Exchange is open for the transaction of business. Upon the sale of the Shares, the net proceeds shall be applied by the Undersigned within 10 Business Days to the discharge of this Note. There shall be no interest payable on this note. Upon default in any payment hereunder for a period of thirty (30) days, or upon any default under any other indebtedness between the Undersigned and Holder in existence on the date hereof or existing at any time in the future, then all of the Indebtedness and any other obligations of the Undersigned hereunder shall become due and payable immediately, at the option of the Holder hereof, without the necessity for demand or notice. No failure to exercise such option shall be deemed a waiver on the part of the Holder of this Note of any right accruing thereafter. At any time within eighteen (18) months of the date hereof, the Holder may direct the Undersigned to sell the Shares on the open market. Such sale may only be required in accordance with the Holder's policy of business conduct. In addition, the Undersigned may decline to make such sale if he is advised against such sale by counsel on the grounds that such sale might violate state or federal securities laws or the rules of the New York Stock Exchange or other applicable self-regulatory organization. The demand for such sale shall be made in writing by the Chairman of the Holder's Compensation Committee. In addition, the Undersigned may sell the Shares on his own initiative, subject to the other provisions of this Note. The proceeds from any such sale of the Shares shall be applied by the Holder in full satisfaction of the Indebtedness of the Undersigned hereunder. Holder shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by the Holder, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. After any acceleration of, or the entry of any judgment on, this Note, the acceptance by Holder of any payments by or on behalf of the Undersigned on account of the Indebtedness evidenced by this Note shall not cure or be deemed to cure any default or reinstate or be deemed to reinstate the terms of this Note absent an express written agreement duly executed by the Holder and the Undersigned. The Undersigned waives demand, notice, presentment, protest, notice of dishonor, notice of protest and diligence of collection of this Note. The Undersigned consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Holder with respect to the payment or other provisions of this Note. The covenants, conditions, waivers, releases and agreements contained in this Note shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and assigns, provided, however, that this Note cannot be assigned by the Undersigned without the prior written consent of Holder, and any such assignment or attempted assignment by the Undersigned shall be void and of no effect with respect to Holder. This is a demand note and all Indebtedness and any other obligations of the Undersigned hereunder shall become immediately due and payable upon demand. Notwithstanding all other provisions of this Note, no demand for any payment hereunder shall be made at any time except after providing direction to sell the Shares and allowing a reasonable period of time with which to comply with such direction and only insofar as such direction is one that the Undersigned is required to accept under this Note. In addition, the Indebtedness and any other obligations of the Undersigned hereunder shall automatically become immediately due and payable if the Undersigned or any endorser of this Note commences or has commenced against it any bankruptcy or insolvency proceeding. This Note may not be supplemented, extended, modified or terminated except by an agreement in writing signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought. Unless applicable law requires a different method, any notice that must be given to Undersigned under this Note will be given by delivering it or mailing it by First Class Mail to Undersigned at 40 Lane Road, Fairfield, New Jersey 07007 or at a different address if the Undersigned gives the Holder a notice of a different address. Unless the Holder requires a different method, any notice that must be given to the Holder under this Note will be given by mailing it by First Class Mail to the Holder at the address stated above, or at a different address if the Holder gives the Undersigned a notice of a different address. Privilege is reserved to pay this debt in whole or in part at any time prior to maturity. This Note shall be governed by and construed in accordance with the substantive laws of the State of New York without reference to conflict of laws principles. /s/ Scott G. Mackin ------------------------ Scott G. Mackin EX-10.4EI 22 covex10-4ei_718.txt EXHIBIT 10.4(e)(i) ------------------ SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE ----------- THIS SUPPLEMENTAL AGREEMENT TO CONSOLIDATED AND AMENDED DEMAND NOTE (the "Agreement"), is made effective as of November 26, 2001, between Bruce W. Stone ("Stone") and Covanta Energy Corporation (f.k.a., Ogden Corporation) ("Covanta"). W I T N E S S E T H : WHEREAS, Stone and Covanta are entering into a Consolidated Amended and Restated Demand Note (the "Consolidated Amended and Restated Demand Note") simultaneous with the execution of this Agreement; and WHEREAS, Stone and Covanta wish to set forth in this Agreement certain of their additional rights and obligations relating to such Consolidated Amended and Restated Demand Note. NOW, THEREFORE, in consideration of the mutual grants and covenants contained in the Consolidated Amended and Restated Demand Note and herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties do hereby agree as follows: 1. Consistent Reporting. Covanta and Stone each shall report, to every applicable government authority (including the Internal Revenue Service), ordinary income characterized as compensation in the amount of $184,657, which represents the difference between the aggregate principal and accrued interest due on that certain (i) Demand Note made by Stone to and in favor of Covanta dated August 6, 1999, in the principal amount of $344,399.90, and (ii) Demand Note made by Stone to and in favor of Covanta dated August 6, 1999, in the principal amount of $91,621.10 as of November 26, 2001, and the aggregate "Fair Market Value" of the "Shares" (as these terms are defined in the Consolidated Amended and Restated Demand Note) held by Stone on that day. 2. Payment of Bonus. Covanta shall pay Stone a bonus in the amount of $212,626. 3. Providing Documentation of Tax Benefits. Stone shall provide Covanta with documentation detailing the use of any item arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note, including but not limited to the use of capital losses and/or interest deductions, and any tax benefit accruing to Stone therefrom that reduces the tax liability as shown on his return filed in accordance with Section 1 above. Stone shall also provide Covanta with documentation detailing any adjustment, regardless of the source, relating to his tax return filed in accordance with Section 1 above, and the extent that Stone realizes a tax benefit from such adjustment. To the extent Stone realizes a tax benefit from any such use or adjustment, Covanta may (i) require immediate payment from Stone in an amount equal to this tax benefit or (ii) offset other payments due to Stone by the amount of this tax benefit. To the extent required by Covanta, Stone shall provide to Covanta's independent tax preparer a copy of his tax return for any tax years beginning in 2001 and ending on the later of the time when all items arising from or attributable to the execution of the Consolidated Amended and Restated Demand Note have expired or have been used, or the time when the statute of limitations for adjustments to be made to Stone's tax return filed in accordance with Section 1 above has expired. 4. Indemnification for Unexpected Tax Liability. Covanta shall indemnify Stone against any additional taxes and penalties that result from a final determination by an applicable governmental authority (with which a return was filed as provided in Section 1 above) that the amount of compensation income resulting from the execution of the Consolidated Amended and Restated Demand Note exceeds the amount set forth in Section 1 hereof. Covanta shall also indemnify Stone against any additional taxes and penalties that may result in the event that a final determination is made by an applicable governmental authority that Stone has compensation in the future as a result of interest that is imputed on the Consolidated Amended and Restated Demand Note (net of any tax benefits that may accrue to Stone as a result of such imputation, such as an interest deduction). COVANTA ENERGY CORPORATION /s/ Stephen M. Gansler -------------------------- By: Stephen M. Gansler Its: Vice President, Human Resources BRUCE W. STONE /s/ Bruce W. Stone -------------------------- EX-10.4EII 23 covex10-4eii_718.txt EXHIBIT 10.4(e)(ii) ------------------- CONSOLIDATED AMENDED AND RESTATED DEMAND NOTE ----------- Dated as of November 26, 2001 ON DEMAND, FOR VALUE RECEIVED, Bruce W. Stone, (the "Undersigned"), promises to pay to the order of COVANTA ENERGY CORPORATION, a corporation organized and existing under the laws of the State of Delaware, f/k/a Ogden Corporation, located and doing business at 40 Lane Road, Fairfield, New Jersey 07007, (the "Holder") the amount equal to the aggregate Fair Market Value (as defined herein) of the Shares (as defined herein) (such amount being referred to hereinafter as the "Indebtedness") in lawful money of the United States of America. The Undersigned agrees to pay all costs and expenses incurred by the Holder of this Note in any action taken to enforce or collect all or part of the Indebtedness evidenced hereby after default, including court costs and reasonable attorneys' fees. This Consolidated Amended and Restated Demand Note liquidates and consolidates, effective as of November 26, 2001, all of the Indebtedness, including interest thereon, evidenced by, and amends and restates the terms and conditions in their entirety of, that certain (i) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $344,399.90, and (ii) Demand Note made by the Undersigned to and in favor of the Holder dated August 6, 1999, in the principal amount of $91,621.10. For the purposes of this Note, the term "Shares" shall mean, subject to any Adjustment (as defined below), 25,200 shares of common stock of Covanta Energy Corporation, a Delaware corporation, with a par value of $0.50 per share. If the shares of Holder common stock, with a par value of $0.50 per share, are changed as a result of any merger, reorganization, consolidation, recapitalization, liquidation, stock dividend, split-up, spin-off, stock split, reverse stock split, share combination, share exchange or other similar transaction, the Shares shall be equitably adjusted (an "Adjustment"). For the purposes of this Note, the term "Fair Market Value" shall mean the price at which the Undersigned actually sells his shares, net of all costs of sale, in accordance with this Note. Additionally, if the Undersigned sells different portions of the "Shares" on different Business Days, the "Fair Market Value" of each portion of the Shares sold shall be determined on the Business Day that such portion of the Shares is actually sold. The term "Business Day," as used in this Note, shall mean any day on which the New York Stock Exchange is open for the transaction of business. Upon the sale of the Shares, the net proceeds shall be applied by the Undersigned within 10 Business Days to the discharge of this Note. There shall be no interest payable on this Note. Upon default in any payment hereunder for a period of thirty (30) days, or upon any default under any other indebtedness between the Undersigned and Holder in existence on the date hereof or existing at any time in the future, then all of the Indebtedness and any other obligations of the Undersigned hereunder shall become due and payable immediately, at the option of the Holder hereof, without the necessity for demand or notice. No failure to exercise such option shall be deemed a waiver on the part of the Holder of this Note of any right accruing thereafter. At any time within eighteen (18) months of the date hereof, the Holder may direct the Undersigned to sell the Shares on the open market. Such sale may only be required in accordance with the Holder's policy of business conduct. In addition, the Undersigned may decline to make such sale if he is advised against such sale by counsel on the grounds that such sale might violate state or federal securities laws or the rules of the New York Stock Exchange or other applicable self-regulatory organization. The demand for such sale shall be made in writing by the Chairman of the Holder's Compensation Committee. In addition, the Undersigned may sell the Shares on his own initiative, subject to the other provisions of this Note. The proceeds from any such sale of the Shares shall be applied by the Holder in full satisfaction of the Indebtedness of the Undersigned hereunder. Holder shall not be deemed to have modified or waived any of its rights or remedies hereunder unless such modification or waiver is in writing and signed by the Holder, and then only to the extent specifically set forth therein. A waiver in one event shall not be construed as continuing or as a waiver of or bar to such right or remedy on a subsequent event. After any acceleration of, or the entry of any judgment on, this Note, the acceptance by Holder of any payments by or on behalf of the Undersigned on account of the Indebtedness evidenced by this Note shall not cure or be deemed to cure any default or reinstate or be deemed to reinstate the terms of this Note absent an express written agreement duly executed by the Holder and the Undersigned. The Undersigned waives demand, notice, presentment, protest, notice of dishonor, notice of protest and diligence of collection of this Note. The Undersigned consents to any and all extensions of time, renewals, waivers or modifications that may be granted by Holder with respect to the payment or other provisions of this Note. The covenants, conditions, waivers, releases and agreements contained in this Note shall bind, and the benefits thereof shall inure to, the parties hereto and their respective heirs, executors, administrators, successors and assigns, provided, however, that this Note cannot be assigned by the Undersigned without the prior written consent of Holder, and any such assignment or attempted assignment by the Undersigned shall be void and of no effect with respect to Holder. This is a demand note and all Indebtedness and any other obligations of the Undersigned hereunder shall become immediately due and payable upon demand. Notwithstanding all other provisions of this Note, no demand for any payment hereunder shall be made at any time except after providing direction to sell the Shares and allowing a reasonable period of time with which to comply with such direction and only insofar as such direction is one that the Undersigned is required to accept under this Note. In addition, the Indebtedness and any other obligations of the Undersigned hereunder shall automatically become immediately due and payable if the Undersigned or any endorser of this Note commences or has commenced against it any bankruptcy or insolvency proceeding. This Note may not be supplemented, extended, modified or terminated except by an agreement in writing signed by the party against whom enforcement of any such waiver, change, modification or discharge is sought. Unless applicable law requires a different method, any notice that must be given to Undersigned under this Note will be given by delivering it or mailing it by First Class Mail to Undersigned at 40 Lane Road, Fairfield, New Jersey 07007 or at a different address if the Undersigned gives the Holder a notice of a different address. Unless the Holder requires a different method, any notice that must be given to the Holder under this Note will be given by mailing it by First Class Mail to the Holder at the address stated above, or at a different address if the Holder gives the Undersigned a notice of a different address. Privilege is reserved to pay this debt in whole or in part at any time prior to maturity. This Note shall be governed by and construed in accordance with the substantive laws of the State of New York without reference to conflict of laws principles. /s/ Bruce W. Stone ------------------------ Bruce W. Stone EX-10.4G 24 covex10-4g_718.txt EXHIBIT 10.4(g) --------------- EMPLOYMENT AGREEMENT OGDEN ENERGY GROUP, INC. (the "Company") and Anthony Orlando ("Executive") agree to enter into this EMPLOYMENT AGREEMENT dated as of May 1, 1999, as follows: 1. Employment. This Agreement constitutes the complete understanding between the parties with respect to the subject matter hereof and no statement, representation, warranty or covenant has been made by either party with respect thereto except as expressly set forth herein. From the date hereof, this Agreement supersedes in all respects all previous agreements in regard to employment between the Executive and the Company, and Executive shall have no rights under such agreements all of which merged herein and are governed hereby. The Company hereby agrees to employ Executive, and Executive hereby agrees to be employed by the Company, upon the terms and subject to the conditions set forth in this Agreement. 2. Employment Term. The period of Executive's employment under this Agreement shall be for a period of five years commencing as of May 1, 1999 (the "Effective Date") and continuing until May 1, 2004 and thereafter from year to year until terminated in accordance with Section 5 below (the "Employment Term"). 3. Duties and Responsibilities. (a) The Company will employ Executive as the Executive Vice President of Ogden Waste to Energy, Inc. In such capacity, Executive shall perform the customary duties and have the customary responsibilities of such position and such other duties as may be assigned to Executive from time to time by the Company or by the Company's Board of Directors (the "Board"). (b) Executive agrees to faithfully serve the Company, devote his full working time, attention and energies to the business of the Company its subsidiaries and affiliated entities, and perform the duties under this Agreement to the best of his abilities. Executive may perform services without direct compensation therefor in connection with the management of personal investments, or in connection with charitable or civic organizations. The Executive shall be excused from rendering his service during reasonable vacation periods and during other reasonable temporary absences as may be authorized by the Board. (c) Executive agrees (i) to comply with all applicable laws, rules and regulations, and all requirements of all applicable regulatory, self-regulatory, and administrative bodies; (ii) to comply with the Company's Policy of Business Conduct; and (iii) not to engage in any other business or employment without the written consent of the Company except as otherwise specifically provided herein. 4. Compensation and Benefits. (a) Base Salary. During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $201,250 per year or such higher rate as may be determined from time to time by the Board ("Base Salary"). Such Base Salary shall be paid in accordance with the Company's standard payroll practice for senior executives. (b) Annual Incentive Bonus. During the Employment Term, the Executive will be eligible for an annual incentive bonus in such amount as may be determined by the Board. (c) Expense Reimbursement. The Company shall promptly reimburse Executive for the ordinary and necessary business expenses incurred by Executive in the performance of the duties under this Agreement in accordance with the Company's customary practices applicable to senior executives, provided that such expenses are incurred and accounted for in accordance with the Company's policy. (d) Other Benefit Plans, Fringe Benefits and Vacations. Executive shall be eligible to participate in or receive benefits under any pension plan, profit sharing plan, 401(k) plan, non-qualified deferred compensation plan, medical and dental benefits plan, life insurance plan, short-term and long-term disability plans, incentive compensation plans, vacations, or any other fringe benefit plan, generally made available by the Company to senior executives. Except as otherwise provided in this Agreement, any such participation shall be in accordance with the provisions of such plans and nothing contained in this Agreement is intended to, or should be deemed to, affect adversely any of Executive's rights as a participant under any such plans. Nothing herein shall prevent the Board from modifying or discontinuing any benefit plan on a consistent and non-discriminatory basis applicable to all such executives. 5. Termination of Employment. Executive's employment under this Agreement may be terminated under the following circumstances: (a) Death. Executive's employment shall terminate upon Executive's death. (b) Total Disability. The Company may terminate Executive's employment upon his becoming "Totally Disabled". For purposes of this Agreement, Executive shall be "Totally Disabled" if he is physically or mentally incapacitated so as to render him incapable of performing his usual and customary duties under this Agreement. Executive's receipt of disability benefits under the Company's long-term disability plan or receipt of Social Security disability benefits shall be deemed conclusive evidence of Total Disability for purpose of this Agreement. (c) Termination by the Company for Cause. The Company may terminate Executive's employment for "Cause". Such termination shall be effective as of the date specified in the written Notice of Termination provided to Executive. Termination of employment by the Company for Cause shall be deemed to have occurred only if such termination directly results from: (A) an act or acts of dishonesty on Executive's part constituting a felony; (B) Executive's willful and continued failure to devote the time, attention, and effort necessary to substantially perform his duties as an executive officer of the Company in a manner consistent with Executive's past performance (other than any such failure resulting from Executive's incapacity due to physical or mental illness or total disability), after a demand for substantial performance is delivered to Executive by the Board which specifically identifies the manner in which the Board believes that Executive has not substantially performed his duties and Executive is given a reasonable time after such demand substantially to perform his duties; (C) gross misconduct or gross negligence in connection with the business of the Company or an affiliate which has a material adverse effect on the Company and its subsidiaries, taken as a whole; or (D) a material breach of any of the covenants set forth in Section 7 hereof. (d) Termination by the Company without Cause. The Company may terminate Executive's employment under this Agreement without Cause thirty (30) days after providing Notice of Termination to Executive. (e) Termination by Executive. Executive may terminate his employment under this Agreement at any time after providing Notice of Termination to the Company. Such Notice shall state whether the Executive's termination is for "Good Reason". Termination of employment by Executive for Good Reason shall be deemed to have occurred, if Executive provides the Notice of Termination within 60 days (180 days after the event listed in (v) below) after the occurrence of any of the following: (i) A change in Executive's responsibilities, status, title, or position, which, in Executive's reasonable judgment, represents a diminution of Executive's responsibilities, status, title, or position, or any removal of Executive from, or any failure to re-elect Executive to, any of such titles, offices, or positions, provided that this clause shall not apply if Executive's employment is terminated as a result of: (A) Executive's death, (B) Executive's Total Disability in accordance with Section 5(b), (C) Cause in accordance with Section 5(c), or (D) Executive's voluntary termination in accordance with this Section 5(e) other than for Good Reason. (ii) A reduction by the Company in Executive's Base Salary. (iii) The failure by the Company to pay any material amount of current compensation owing to Executive, or any material amount of compensation deferred under any plan, agreement or arrangement of or with the Company owing to Executive, within 20 days after the Executive makes written demand for such amount. (iv) The failure by the Company to obtain an assumption (in form and substance reasonably satisfactory to the Executive, except in the case of a merger or consolidation which does not constitute a Change in Control for which no separate assumption is necessary) of the obligations of the Company under this Agreement by any successor to the Company. (v) Any "Change in Control" as defined in Appendix A to this Agreement (f) Notice of Termination. Any termination of Executive's employment by the Company or by Executive (other than by reason of Executive's death) shall be communicated by written Notice of Termination to the other party in accordance with Section 15 below. For purposes of this Agreement, a "Notice of Termination" shall mean a notice in writing which shall indicate the specific termination provision in this Agreement relied upon to terminate Executive's employment and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated. (g) Termination Date. Termination Date means (i) if Executive's employment is terminated because of his death, the date of death, or (ii) if employment is terminated for any other reason, the date specified in the Notice of Termination. 6. Compensation Following Termination of Employment. (a) Termination by Reason of Death. In the event that Executive's employment is terminated by reason of Executive's death, the Company shall pay the following amounts to Executive's beneficiary or estate: (i) Earned But Unpaid Compensation. Any accrued but unpaid Base Salary for services rendered to the date of death, any accrued but unpaid expenses required to be reimbursed under this Agreement and any vacation accrued to the date of death. (ii) Lump Sum Payment. An amount equal to the Base Salary (at the rate in effect as of the date of Executive's death) which would have been payable to Executive if Executive had continued in employment until the last day of the month in which Executive's death occurs. Such amount shall be paid in a single lump sum cash payment within 30 days after Executive's death. (iii) Other Benefits. Any benefits to which Executive may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof as determined and paid in accordance with the terms of such plans, policies and arrangements. (b) Termination by Reason of Total Disability. In the event that Executive's employment is terminated by reason of Executive's Total Disability prior to the last day of the Employment Term as determined in accordance with Section 5(b), the Company shall pay the following amounts to Executive: (i) Earned But Unpaid Compensation. Any accrued but unpaid Base Salary for services rendered to Executive's Termination Date, any accrued but unpaid expenses required to be reimbursed under this Agreement, any vacation accrued to the Termination Date. (ii) Continuation of Base Salary. An amount equal to (A) the Base Salary (at the rate in effect as of the date of Executive's Total Disability) which would have been payable to Executive if Executive had continued in active employment until the end of the 12-month period following Executive's Termination Date, or such longer period as may be determined by the Board, (B) reduced by amount of disability insurance benefits payable to Executive during such period under any employer-paid disability insurance plan. Payment shall be made at the same time and in the same manner as such compensation would have been paid if Executive had remained in active employment until the end of such period. (iii) Other Benefits. Any benefits to which Executive may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof shall be determined and paid in accordance with the terms of such plans, policies and arrangements. (c) Termination for Cause or Termination by Executive for Other Than Good Reason. In the event that Executive's employment is terminated by the Company for Cause pursuant to Section 5(c), or by Executive pursuant to Section 5(e) for other than Good Reason, the Company shall pay the following amounts to Executive: (i) Earned But Unpaid Compensation. Any accrued but unpaid Base Salary for services rendered to Executive's Termination Date, any accrued but unpaid expenses required to be reimbursed under this Agreement and any vacation accrued to Executive's Termination Date. (ii) Other Benefits. Any benefits to which Executive may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof shall be determined and paid in accordance with the terms of such plans, policies and arrangements. (d) Termination By the Company Without Cause or Termination by Executive for Good Reason. Execute shall be entitled to the benefits described in this Section 6(d) in the event that Executive's employment is terminated (i) by the Company pursuant to Section 5(d) for reasons other than death, Total Disability, or Cause, or (ii) by Executive for Good Reason pursuant to Section 5(e). (i) Earned But Unpaid Compensation. The Company shall pay Executive any accrued but unpaid Base Salary for services rendered to Executive's Termination Date, any accrued but unpaid expenses required to be reimbursed under this Agreement and any vacation accrued to Executive's Termination Date. (ii) Lump Sum Payment. The Company shall pay Executive an amount equal to the product of five times the sum of (A) and (B) below: (A) Executive's annualized Base Salary at the highest annual rate in effect as any time prior to the Termination Date; and (B) the highest amount of annual bonus payable to Executive at any time prior to the Executive's Termination Date. This amount will be paid to Executive in a single lump sum within 30 business days after the Termination Date. (iii) Other Benefits. Any benefits to which Executive may be entitled pursuant to the plans, policies and arrangements referred to in Section 4(d) hereof shall be determined and paid in accordance with the terms of such plans, policies and arrangements. (iv) No Mitigation Required. Executive shall not be required to mitigate the amount of any compensation provided for under this Section 6(d) by seeking other employment or otherwise, nor shall the amount of any payment provided for under this Agreement be reduced by any compensation earned by the Employee as the result of employment with another employer after the Termination Date or by any other compensation. (v) Non-Competitive Covenant Does Not Apply. The restrictive covenant prohibiting competitive activity set forth in Section 7(b) below shall not be applicable to Executive and shall be null and void. (e) No Other Benefits or Compensation. Except as may be provided under this Agreement, under the terms of any incentive compensation, employee benefit, or fringe benefit plan, applicable to Executive at the time of Executive's termination or resignation of employment, Executive shall have no right to receive any other compensation, or to participate in any other plan, arrangement or benefit, with respect to future periods after such termination or resignation. 7. Restrictive Covenants. (a) Protected Information. Executive recognizes and acknowledges that he will have access to various confidential or proprietary information concerning the Company and entities affiliated with the Company of a special and unique value which may include, without limitation, (i) books and records relating to operations, finance, accounting, sales, personnel and management, (ii) policies and matters relating particularly to operations such as customer service requirements, costs of providing service and equipment, operating costs and pricing matters, and (iii) various trade or business secrets, including business opportunities, marketing or business diversification plans, business development and bidding techniques, methods and processes, financial data and the like (collectively, the "Protected Information"). Executive therefore covenants and agrees that he will not at any time, either while employed by the Company or afterwards, knowingly make any independent use of, or knowingly disclose to any other person or organization (except as authorized by the Company) any of the Protected Information. (b) Competitive Activity. Executive covenants and agrees that at all times during his period of employment with the Company, and for a period of two (2) years after the date of termination of his employment by reason of (i) termination by the Company for Cause in accordance with Section 5(c) above, or (ii) termination by the Executive in accordance with Section 5(e) above for other than Good Reason, he will not, directly or indirectly, engage in, assist, or have any active interest or involvement whether as an employee, agent, consultant, creditor, advisor, officer, director, stockholder (excluding holding of lees than 1% of the stock of a public company), partner, proprietor or any type of principal whatsoever, in any person, firm, or business entity which is engaged in the same business as that conducted and principally carried on by the Company on the date of Termination and continued thereafter, without the Company's specific written consent to do so. (c) Return of Documents and Other Materials. Executive shall promptly deliver to the Company, upon termination of his employment, or at any other time as the Company may so request, all customer lists, leads and refunds, data processing programs and documentation, employee information, memoranda, notes, records, reports, tapes, manuals, drawings, blueprints, programs, and any other documents and other materials (and all copies thereof) relating to the Company's business or that of its customers, and all property associated therewith, which Executive may then possess or have under his control. 8 Enforcement of Covenants. (a) Right to Injunction. Executive acknowledges that a breach of the covenants set forth in Section 7 hereof will cause irreparable damage to the Company with respect to which the Company's remedy at law for damages will be inadequate. Therefore, in the event of breach or anticipatory breath of the covenants set forth in this section by Executive, Executive and the Company agree that the Company shall be entitled to the following particular forms of relief, in addition to remedies otherwise available to it at law or equity, injunctions, both preliminary and permanent, enjoining or retraining such breach or anticipatory breach and Executive hereby consents to the issuance thereof forthwith and without bond by any court of competent jurisdiction. (b) Separability of Covenants. The covenants contained in Section 7 hereof constitute a series of separate covenants, one for each applicable State in the United States and the District of Columbia, and one for each applicable foreign country. If in any judicial proceeding, a court shall hold that any of the covenants set forth in Section 7 exceed the time, geographic, or occupational limitations permitted by applicable laws, Executive and the Company agree that such provisions shall and are hereby reformed to the maximum time, geographic, or occupational limitations permitted by such laws. Further, in the event a court shall hold unenforceable any of the separate covenants deemed included herein, then such unenforceable covenant or covenants shall be deemed eliminated from the provisions of this Agreement for the purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be enforced in such proceeding. Executive and the Company further agree that the covenants in Section 7 shall each be construed as a separate agreement independent of any other provisions of this Agreement, and the existence of any claim or cause of action by Executive against the Company whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of any of the covenants of Section 7. 9. Certain Proprietary Rights. Executive agrees to and hereby does assign to the Company all his right, title and interest in and to all inventions, whether or not patentable, which are made or conceived solely or jointly by him: (a) at any time during the term of his employment by the Company in an executive, manageria1, or planning capacity (including development and sales); or (b) during the course of or in connection with his duties during the Employment Text; or (c) with the use of time or materials of the Company. Executive agrees to communicate to the Company or its representatives all facts known to him concerning such inventions, to sign all rightful papers, make all rightful oaths and generally to do everything possible to aid the Company in obtaining and enforcing proper patent protection for all such inventions in all countries and in vesting title to such inventions in all countries and in vesting title to such inventions and patents in the Company. For the purpose of this Agreement, the subject matter of any application for patent naming Employee as a sole or joint inventor filed during the course of employment or within one year subsequent to the termination thereof shall be deemed to be an invention made or conceived by him during the course of his employment by the Company and assignable to the Company hereunder, unless Executive establishes by a preponderance of the evidence that such invention was made or conceived by him subsequent to termination of his employment hereunder. At the Company's request (during or after the term of this Agreement) and expense, Executive will promptly execute a specific assignment of title to the Company, and perform any other acts reasonably necessary to implement the foregoing assignment. 10. Withholding of Taxes. The Company shall withhold from any compensation and benefits payable under this Agreement all required federal, state, local, or other taxes. 11. Source of Payments. All payments provided under this Agreement, other than payments made pursuant to a plan which provides otherwise, shall be paid from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. Executive shall have no right, title or interest whatever in or to any investments which the Company may make to aid the Company in meeting its obligations under this Agreement. To the extent that any person acquires a right to receive payments from the Company under this Agreement, such right shall be no greater than the right of an unsecured creditor of the Company and its affiliates. 12. Successor and Binding Agreement. (a) Company Successor. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the same extent as the Company would be required to perform it if no such succession had taken place. Failure of the Company to obtain such agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to compensation from the Company in the same amount and on the same terms as Executive would be entitled to under this Agreement if Executive had given Notice of Termination for Good Reason as of the day immediately before such succession became effective and had specified that day in the notice of termination. As used in this Agreement, "Company" shall mean the Company as defined in the first sentence of this Agreement and any successor to all or substantially all its business or assets or which otherwise becomes bound by all the terms and provisions of this Agreement, whether by the terms hereof, by operation of law or otherwise. (b) Executives Successor. This Agreement shall inure to the benefit of and be enforceable by Executive and his personal or legal representatives and permitted successors in interest under this Agreement. (c) Facility of Payment. In she event of Executives legal incapacity, the Company may make any payments due under this Agreement to his legal representative. In the event of Executive's death, the Company may make any payment due under this Agreement to his named beneficiaries or, if none, to Executive's estate. Any payment made in accordance with this provision fully discharges the obligation of the Company therefor. 13. Assignment by Executive. The rights and benefits of Executive under this Agreement are personal to him and no such right or benefit shall be subject to voluntary or involuntary alienation, assignment or transfer; provided, however, that nothing in this Section 13 shall preclude Executive from designating a beneficiary or beneficiaries to receive any benefit payable following his incapacity or death. In the event of a dispute arising under this Agreement, the Company agrees to pay any and all reasonable legal fees incurred by Executive in connection therewith. 14. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be performed in that State, without regard to its conflict of laws provisions. 15. Notices. Any notice, consent, request or other communication made or given in connection with this Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to those listed below at their following respective addresses or at such other address as each may specify by notice to the others: To the Company: Ogden Energy Group, Inc. 40 Lane Road P.O. Box 2615 Fairfield, New Jersey 07007-2615 Attention: President To Executive: Anthony Orlando 1025 Springfield Avenue New Providence, NJ 07974 16. Miscellaneous. (a) Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver thereof or deprive that parry of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (b) Separability. If any term or provision of this Agreement is declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to be enforceable, such term or provision shall immediately become null and void, leaving the remainder of this Agreement in full force and effect. (c) Headings. Section headings are used herein for convenience of reference only and shall not affect the meaning of any provision of this Agreement. (d) Rules of Construction. Whenever the context so requires, the use of the singular shall be deemed to include the plural and vice versa. (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, and such counterparts will together constitute but one Agreement. (f) Definition of Change in Control. At any time commencing on the date which is 30 days after the effective date of the disposition by Ogden Corporation of its aviation and entertainment businesses and continuing for a period of 30 days thereafter, the Company, acting through its Board of Directors, may propose to Executive in writing a revision of this Agreement relating only to the definition of Change-in-Control and the terms under which a Change-in-Control triggers the Executive's rights to terminate for Good Reason. The Executive and the Company shall thereafter negotiate in good faith regarding such proposal. If the Executive and the Company shall fail to reach agreement regarding this proposal within 30 days of the date the proposal is received by Executive, then this Agreement shall be deemed to be amended to delete clause (v) of Section 5(e) and as amended this Agreement shall remain in full force and effect. Notwithstanding the foregoing, if at any time between the date of this Agreement and the earlier of the date Executive and the Company reach agreement on any proposal by the Company, or the period for negotiation of such proposal expires, there occurs a Change-in-Control, or there is an announcement of a proposed Change-in-Control (in each case, as defined without regard to the Company's proposal), the Company's rights under this section shall immediately terminate. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year set forth below. OGDEN ENERGY GROUP, INC. EXECUTIVE By /s/ Scott G. Mackin By /s/ Anthony Orlando ----------------------------- ----------------------------- Scott G. Mackin, Anthony Orlando President and Chief Operating Officer Date: May 5, 1999 Date: May 1, 9999 --------------------------- -------------------------- APPENDIX A DEFINITION OF CHANGE IN CONTROL The following definition of "Change in Control" shall apply for purposes of Paragraph 5(e)(v) of the Employment Agreement between Ogden Energy Group, Inc. and Anthony Orlando. Change in Control. A "Change in Control" of the Company shall be deemed to have occurred as of the first day any one or more of the following conditions shall have been satisfied: (a) For purposes of this agreement, a "change in control" shall mean: the acquisition by any person or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule l3d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of Parent (as defined in (d) below) or (ii) the combined voting power of the then outstanding voting securities of Parent entitled to vote generally in the election of directors, provided that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Parent (excluding any acquisition by virtue of the exercise of a conversion privilege), (ii) any acquisition by Parent (iii) any acquisition by any employee benefit plan (or relaxed trust) sponsored or maintained by Parent, or any corporation controlled by Parent, or (iv) any acquisition by any corporation pursuant to a reorganization, merger or consolidation, if following such reorganization, merger or consolidation the conditions described in clause (iii) of paragraph (c) below are met, (b) Individuals who, as of May 20, 1998, constitute the Board of Directors of the Parent (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to May 20, 1998, whose election, or nomination for election by the Parent shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or (c) The stockholders of the Parent approve; (i) a plan of complete liquidation of the Parent or (ii) an agreement for the sale or disposition of all or substantially all the Parent's assets; or (iii) a merger, consolidation, or reorganization of the Parent with or involving any other corporation, limited liability entity or similar person, other than a merger, consolidation, or reorganization that would result in the voting securities of the Parent outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) at least seventy-five percent (75%) of the combined voting power of the voting securities of the Parent (or such surviving entity) outstanding immediately after such merger, consolidation, or reorganization. (d) As used herein, Parent means Ogden Corporation and any successor to all or substantially all of its business or assets, provided that following a disposition by Ogden. Corporation of all or substantially all of the stock business or assets of Ogden Energy Group, Inc., Parent shall mean Ogden Energy Group, Inc. or any company which controls, directly or indirectly a majority of the voting power of Ogden Energy Group, Inc.'s then outstanding voting securities. EX-21 25 covex21_718.txt EXHIBIT 21 ---------- COVANTA ENERGY CORPORATION SUBSIDIARIES LIST COMPANY NAME % STATE OF FEDERAL OWNERSHIP INCORP. TAX ID Covanta Energy Corporation Public DE 13-5549268 Covanta Energy Group, Inc. 100 DE 13-3213657 Covanta Financial Services, Inc. 100 DE 13-3057250 BDC Liquidating Corp. 100 DE 13-2757633 Bouldin Development Corp. 100 CA 94-1695641 Greenway Insurance Company of Vermont 100 VT 13-3167991 OFS Equity of Delaware, Inc. 100 DE 13-3495890 Denver Fuel Facilities Corportion 100 CO 105*/13-2594896 OFS Equity of Alexandria/Arlington, Inc. 100 VA 13-3495889 OFS Equity of Indianapolis, Inc. 100 IN 13-3495887 OFS Equity of Stanislaus, Inc. 100 CA 13-3495880 Ogden Management Services, Inc. 100 DE 13-2918484 OFS Equity of Babylon, Inc. 100 NY 13-3543094 OFS Equity of Huntington, Inc. 100 NY 13-3543092 Ogden Services Corporation 100 DE 141*/13-3058273 Doggie Diner, Inc. 100 DE 003/92-1228666 Offshore Food Service, Inc. 100 LA 027/72-0535141 Gulf Coast Catering Company, Inc. 100 LA 028/13-3537164 Ogden Allied Abatement & Decontamination Service, Inc. 100 NY 144*/13-3429112 Ogden Allied Maintenance Corporation 100 NY 010*/13-5565939 Lenzar Electro-Optics, Inc. 100 DE 175/59-3063752 Ogden Allied Payroll Services, Inc. 100 NY 063*/13-6160158 Ogden Aviation, Inc. 100 DE 13-4097234 Ogden Aviation Service Company of Texas, Inc. 100 TX 13-5661328 Ogden Aviation Service Company of Pennsylvania, Inc. 100 PA 018*/13-2749962 Ogden Aviation Services International Corporation 100 NY 006*/13-5565926 Ogden Aviation Terminal Services, Inc. 100 MA 005*/13-5565923 PA Aviation Fuel Holdings, Inc. 100 DE 22-3842185 La Guardia Fuel Facilities Corporation 100 NY 100*/13-2660143 Newark Automotive Fuel Facilities Corporation 100 NJ 114*/13-2806865 Ogden Aviation Service Company of New Jersey, Inc. 100 NJ 003*13-5565924 Ogden Aviation Service Company of New York, Inc. 100 NY 007*/13-5565925 Ogden New York Services, Inc. 100 NY 020/13-5623889 Philadelphia Fuel Facilities Corporation 100 PA 097*/13-2671427 Ogden Aviation Distributing Corp. 100 NY 046*/13-1835320 Ogden Aviation Fueling Company of Virginia, Inc. 100 DE 038*/13-1954027 Ogden Aviation Service Company of Colorado, Inc. 100 CO 104*/13-2694899 Ogden Cisco, Inc. 100 DE 157*/13-3670141 Ogden Communication, Inc. 100 DE 130/13-3793364 Ogden Facility Holdings, Inc. 100 DE 13-3852102 Ogden Pipeline Services Corporation 100 DE 125*/13-2949046 Ogden Attractions, Inc. 100 DE 13-3934857 Ogden-Burtco Services, Inc. 100 WA 042/92-0022939 Alpine Food Products, Inc. 100 WA 041/91-0760148 Ogden Facility Management Corporation of West Virginia 100 WV 55-0459949 Ogden Film and Theater, Inc. 100 DE 13-3934858 Ogden Food Service Corporation of Milwaukee 100 WI 063/13-2783130 Ogden Leisure, Inc. 100 DE 54-0848368 Ogden Central and South America, Inc. 100 DE 135/13-3793248 Compania Legir S.A. 100 Uruguay N/A Irodel 100 Uruguay N/A Casino Iquazu, S.A. 100 Argentina N/A Ogden Holdings S.A. (11,999 shrs - Irodel 1 shr - Legir) 100 Argentina N/A Menezul, S.A. 100 Uruguay N/A Modigold, S.A. 100 Uruguay N/A Ogden Argentina, S.A. 100 Argentina N/A Ogden Rural S.A. 50 Argentina N/A Ogden Ground Services, Inc. (St. Thomas) (liquidation in progress) 100 Virg. Isl. N/A Ogden Facility Management Corporation of Anaheim 100 CA Ogden Firehole Entertainment Corp. 100 DE 13-3516164 Ogden International Europe, Inc. 100 DE 164/13-3688536 Ogden Cargo Spain, Inc. 100 DE 22-3830759 Ogden Entertainment Services Spain, S.A. 100 Spain N/A Ogden Spain S.A. 100 Spain A07568876 Estadio Olimpico de Sevilla, S.A. 15.9 Spain N/A Ogden Power Agua y Energia Torre Pacheco, S.A. 83.3 Spain N/A Parque Isla Magica, S.A. 26.12 Spain N/A Ogden Palladium Services, Inc. 100 Canada N/A Ogden Technology Services Corporation 100 DE 13-3977971 Ogden Support Services, Inc. 100 DE 13-3688521 Ogden Transition Corporation (f/k/a OCSA Financing Services, Inc.) 100 DE 22-3830762 Ogden Allied Services GmbH 100 Germany N/A Ogden Gaming of Ontario, Ltd. 100 Canada N/A
COVANTA ENERGY GROUP, INC. - U.S. AND FOREIGN SUBSIDIARIES LIST ATTACHMENT B % OWNER STATE OF FEDERAL COMPANY NAME SHIP INCORP. ID NO: - ------------ ------- -------- ------- Covanta Energy Corporation 100 Delaware 13-5549268 Covanta Energy Group, Inc. 100 Delaware 13 3939460 Covanta Energy Group do Brasil Ltda. 100(f) Brazil 023105570001 54 Covanta Projects, Inc. 100 Delaware 13 3213657 Covanta Energy International, Inc. 100 Delaware 22 3405522 Covanta Philippines Operating, Inc. 100 Cayman NA Covanta Energy West, Inc. 100 Delaware 13 4060437 Covanta Energy Europe Ltd. 100 UK NA Covanta Energy Sao Jeronimo, Inc. 100 Delaware 13 4060434 Mecaril S.A. 100 Uruguay NA Cladox International S.A. 100 Uruguay NA Covanta Energy Americas, Inc. 100 Delaware 54 1732981 Covanta Geothermal Operations Holdings, Inc. 100 Delaware 22 3682217 Covanta Imperial Power Services, Inc. 100 California 95 3677245 Covanta New Martinsville Hydro-Operations Corporation 100 W. Virginia 31 1275468 Covanta Energy Construction, Inc. 100 Delaware 22-3738898 Covanta Geothermal Operations, Inc. 100 Delaware 54 1607228 Covanta Hydro Operations, Inc. 100 Tennessee 52 1661862 Covanta Hydro Operations West, Inc. 100 Delaware 22-3749001 Covanta Oil & Gas, Inc. 100 Delaware 54 1734589 Covanta Power Equity Corporation 100 Delaware 54 1504746 Covanta New Martinsville Hydroelectric Corporation 100 Delaware 13 3372123 ERC Energy, Inc. 100 Delaware 54 1523295 ERC Energy II, Inc. 100 Delaware 13 4060418 Heber Field Energy II, Inc. 100 Delaware 13 4060416 Covanta Heber Field Energy, Inc. 100 Delaware 54 1661569 Covanta Hydro Energy, Inc. 100 Delaware 54 1606911 Covanta Power International Holdings, Inc. 100 Delaware 54 1742808 Enereurope Holdings III B.V. 100 Netherlands NA El Gorguel Energia S.L. 100 Spain NA Covanta Operaciones LICA S.L. 100 Spain NA Edison Bataan Cogeneration Corporation 100 Philippines NA Hidro Operaciones Don Pedro S.A. 100 Costa Rica NA Hungarian-American Geothermal Limited Liability Company 37.5(g) Hungary NA Island Power Corporation 40(d) Philippines NA LINASA Cogeneracion y Asociados, S.L. 50(e) Spain B30556484 Covanta Energy (Gulf) Limited 100 Mauritius NA Covanta Energy India (Bakreshwar) Ltd. 100 Mauritius NA Covanta Energy India (Balaji) Limited 100 Mauritius NA Covanta Energy India Investments Ltd. 100 Mauritius 98 0340083 Bal-Sam India Holdings Limited 100 Mauritius NA Covanta Bangladesh Operating Limited 95(k) Bangladesh NA Covanta Chinese Investments Ltd. 100 Mauritius 98 0183946 Covanta Energy China (Alpha) Ltd. 100 Mauritius 98 0183947 Covanta Energy China (Beta) Ltd. 100 Mauritius 98 0183949 Covanta Energy China (Delta) Ltd. 100 Mauritius 98 0183951 Covanta Energy China (Gamma) Ltd. 100 Mauritius 98 0183952 Covanta Energy of Bongaigaon 100 India NA Private Limited Covanta Energy India (CBM) Limited 100 Mauritius NA Covanta One Ltd. 100 Mauritius NA Bangladesh Technical Services Aps 100 Denmark NA Covanta Energy India Private Limited 50 India NA Covanta Two Ltd. 100 Mauritius NA Covanta Cayman (Sahacogen) Ltd. 100 Cayman NA Covanta Three Ltd. 100 Mauritius NA Covanta Cayman (Rojana) Ltd. 100 Cayman NA Covanta Four Ltd. 100 Mauritius NA Covanta Five Ltd. 100 Mauritius NA Covanta Energy India Private Ltd. 50 India NA Ogden Madhya Pradesh Operating Private Limited 100 Calcutta NA Ogden Taiwan Investments Limited 100 Mauritius NA Covanta Energy India (Samalpatti) Limited 100 Mauritius NA Covanta Energy Philippine Holdings, Inc. 100 Philippines NA Magellan Cogeneration, Inc. 100 Philippines NA Covanta Energy (Thailand) Limited 100 Thailand NA OPI Quezon, Inc. 100 Delaware 13 3670144 Ogden Power Development - Cayman, Inc. 100 Cayman NA Quezon Power, Inc. 27.5(b) Cayman NA Covanta Power Development, Inc. 100 Delaware 13 3662254 Covanta Power Development of 100 Delaware 13 3852464 Bolivia, Inc. OPDB, Ltd. 100 Cayman NA Covanta Energy Asia Pacific Limited 100(a) Hong Kong NA Covanta Power Pacific, Inc. (f/k/a Pacific Energy) 100 California 95 3845189 Burney Mountain Power 100 California 95 3149256 Mammoth Geothermal Company 100 California 95 4311279 Mammoth Power Company 100 California 95 4484066 Mt. Lassen Power 100 California 95 3149255 Covanta Power Plant Operations 100 California 95 4497795 Pacific Energy Resources Incorporated 100 California 95 3499702 Pacific Geothermal Company 100 California 95 3950189 Pacific Hydropower Company 100 California 95 3734859 Pacific Oroville Power, Inc. 100 California 95 3987027 Pacific Recovery Corporation 100 California 95 4080088 Pacific Wood Fuels Company 100 California 95-4046356 Pacific Wood Services Company 100 California 95 4497794 Penstock Power Company 100 California 95 4250440 8309 Tujunga Avenue Corp. 100 California 95 4130759 Covanta SIGC Energy, Inc. 100 Delaware 54 1742810 Amor 14 Corporation 100 Delaware 88 0243401 Covanta SIGC Energy II, Inc. 100 California 54 1742553 Covanta SIGC Geothermal Operations, Inc. 100 California 54 1645557 Three Mountain Operations, Inc. 100 Delaware 22-3738896 Three Mountain Power, LLC. 100 Delaware 22 3604711 Ogden Environmental and Energy Services Co., Inc. 100 Delaware 52 1594168 Ogden Constructors, Inc. (f/k/a Covanta Engineering and Construction, Inc.) 100 Florida 59 2661991 J. R. Jacks Construction Corporation 100 Nevada 88 0266733 Covanta Operations of Union, LLC 100(i) New Jersey 22 3596572 Covanta Waste to Energy, Inc. 100 Delaware 13 3871973 Covanta Energy Resource Corp. 100 Delaware 63 0837475 Covanta Systems, Inc. 100 Delaware 13 3162629 Covanta Engineering Services, Inc. 100 New Jersey 13 3284896 Covanta Marion Land Corp. 100 Oregon 13 3369730 Covanta Alexandria/Arlington, Inc. 100 Virginia 58 1594213 Covanta Equity of Alexandria/Arlington, Inc. 100 Virginia 13 3389573 Covanta Babylon, Inc. 100 New York 13 3246689 Covanta Bristol, Inc. 100 Connecticut 13 3246723 Covanta Fairfax, Inc. 100 Virginia 13 3410434 Covanta Haverhill, Inc. 100 Mass 13 3375647 Haverhill Power, Inc. 100 Mass 04 2908628 LMI, Inc. 100 Mass 04 2943947 Covanta Omega Lease, Inc. 100 Delaware 13 3028120 Covanta Haverhill Properties, Inc. 100 Mass 13 3382130 Covanta Hillsborough, Inc. 100 Florida 13 3228206 Covanta Huntington, Inc. 100 New York 13 3394817 Covanta Huntington Resource Recovery One Corp. 100 Delaware 06 1260495 Covanta Huntington Resource Recovery Seven Corp. 100 Delaware 13 3631168 Covanta Huntsville, Inc. 100 Alabama 13 3456026 Covanta Indianapolis, Inc. 100 Indiana 13 3977970 Covanta Kent, Inc. 100 Michigan 13 3369158 Covanta Lake, Inc. 100 Florida 13 3482491 Covanta Lancaster, Inc. 100 Pennsylvania 13 3408215 Covanta Lee, Inc. 100 Florida 13 3557826 Covanta Long Island, Inc. 100 Delaware 11 3081090 Covanta Marion, Inc. 100 Oregon 91 1246805 Covanta Montgomery, Inc. 100 Maryland 13 3547268 Covanta Northwest Puerto Rico, Inc. 100 Puerto Rico 52 2198228 Ogden Martin Systems of Nova Scotia, Ltd. 100 Nova Scotia NA Covanta Onondaga, Inc. 100 New York 13 3528458 Covanta Onondaga Two Corp. 100 Delaware 13 3690841 Covanta Onondaga Three Corp. 100 Delaware 13 3690843 Covanta Onondaga Four Corp. 100 Delaware 13 3690838 Covanta Onondaga Five Corp. 100 Delaware 13 3684127 Covanta Onondaga Operations, Inc. 100 Delaware 13 3714674 Covanta Pasco, Inc. 100 Florida 13 3447536 Covanta Stanislaus, Inc. 100 California 13 3315310 Covanta Equity of Stanislaus, Inc. 100 California 13 3436232 Covanta Tulsa, Inc. 100 Oklahoma 13 3203172 Covanta Union, Inc. 100 New Jersey 13 3323867 Covanta Energy Services, Inc. 100 Delaware 13 3560729 Covanta Plant Services of New Jersey, Inc. 100 New Jersey 13 3597547 Covanta Wallingford Associates, Inc. 100 Connecticut 13 3494166 Covanta Waste to Energy Asia Investments 100 Mauritius NA Covanta Waste to Energy of Italy, Inc. 100 Delaware 22 3564096 Ambiente 2000 S.r.l 40(h) Italy NA Covanta Secure Services, Inc. 100 Delaware 13 3362679 Covanta Waste Solutions, Inc. 100 Delaware 22 3557169 Covanta Secure Services USA, Inc. 100 Delaware 13 3940678 Covanta OPW Associates, Inc. 100 Connecticut 13 3487064 Covanta OPWH, Inc. 100 Delaware 13 3592054 Covanta RRS Holdings, Inc. 100 Delaware 13 3697005 Michigan Waste Energy, Inc. 100 Delaware 06 1331600 Covanta Oahu Waste Energy Recovery, Inc. 100 California 95 2638052 Covanta Projects of Hawaii, Inc. 100 Hawaii 99 0230284 Covanta Mid-Conn, Inc. 100 Connecticut 13 3696927 OPI Carmona Limited (dissolution in progress) 100 Cayman NA OPI Carmona One Limited (dissolution in progress) 100 Cayman NA Covanta Water Holdings, Inc. 100 Delaware 13 3779130 Covanta Water Systems, Inc. 100 Delaware 13 3756577 DSS Environmental, Inc. 90(j) New York 16 1514912 Covanta Bessemer, Inc. 100 Delaware 22 3405521 Covanta Key Largo, Inc. 100 Florida 22 3715853 Covanta Tampa Bay, Inc. 100 Florida 22 3773066 Covanta Tampa Construction, Inc. 100 Delaware Pending Covanta Acquisition, Inc. 100 Delaware 13 3806665 Covanta Cunningham Environmental Support, Inc. 100 New York 16 1386872 Covanta Water Treatment Support Services, Inc. 100 Delaware 13 3807441 Olmec Insurance, Ltd. 100 Bermuda NA
(a) Covanta Energy Asia Pacific Limited's stock is owned 50% by Covanta Projects, Inc. and 50% by Covanta Power Development, Inc. (b) Quezon Power, Inc. is owned 27.5% by Covanta Power Development - Cayman, Inc., and 72.5% by Quezon Generating Company, Ltd. (c) 40% of the stock of Island Power Corporation is owned by Covanta Power International Holdings, Inc. and 60% is owned by various stockholders (d) 50% of the stock of LINASA Cogeneracion y Asociados, S.L. is owned by Covanta Power International Holdings, Inc. and 50% is owned by Industria Jabonera Lina, S.A. (e) 50% of the stock of Covanta Energy Group do Brasil Ltda is owned by Covanta Energy Group, Inc and 50% by Covanta Projects, Inc. Covanta Energy Group is the Management Company (f) 37.5% of the stock of Hungarian-American Geothermal Limited Liability Company is owned by Covanta Power International Holdings, Inc., 37.5% is owned by Davenport Power, LLC and 25% is owned by MOL Magyar Olau-es G zipari Rt. (g) 40% of the stock of Ambiente 2000 S.r.l is owned by Covanta Waste to Energy of Italy, Inc. and 60% by Ecosesto S.p.A. (h) 99% of the stock of Covanta Martin Operations of Union LLC is owned by Covanta Projects, Inc. and 1% is owned by Covanta Waste to Energy, Inc. (i) 90% of the stock of DSS Environmental, Inc. is owned by Covanta Water Systems, Inc. and the other 10% is owned by individual shareholders (j) 95% of the stock of Covanta Bangladesh Operating Limited is owned by Covanta Energy India Investments and the other 5% is owned by five Covanta employees EX-23 26 covex23_7-18.txt EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 33-36658, 33-36657, 33-54143, 333-19641, 333-82801 and 333-40140 of Covanta Energy Corporation (Debtor in Possession) on Forms S-8 of our report dated July 10, 2002 (which report expresses an unqualified opinion and includes explanatory paragraphs relating to Covanta Energy Corporation and certain of its domestic subsidiaries having filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code, writedowns and obligations related to certain net assets held for sale, substantial doubt about the Company's ability to continue as a going concern, and the Company's adoption of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended, and Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities") appearing in this Annual Report on Form 10-K of Covanta Energy Corporation for the year ended December 31, 2001. /s/ Deloitte & Touche LLP Parsippany, New Jersey July 19, 2002 -----END PRIVACY-ENHANCED MESSAGE-----