-----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, SYGk3igRPGm3bTlOgU8qVhq69zFwMuIjJjOpVSegUGCv7Sh8d+rHxdoEnoe3pryz OZpMf+jipCy70jNL+E4CVA== 0000950123-04-003930.txt : 20040330 0000950123-04-003930.hdr.sgml : 20040330 20040329185431 ACCESSION NUMBER: 0000950123-04-003930 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 21 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040330 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: 04697698 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 y95330e10vk.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003 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 (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-5549268 -------- ---------- (State or Other Jurisdiction (I.R.S. Employee Identification No.) of Incorporation or Organization) 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 N/A Securities registered pursuant to Section 12(g) of the Act: N/A NOTE: ON MARCH 10, 2004, THE REGISTRANT'S COMMON STOCK, PAR VALUE $.50 PER SHARE, AND ITS $1.875 CUMULATIVE CONVERTIBLE PREFERRED STOCK (SERIES A), BOTH OF WHICH HAD BEEN REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT, WERE CANCELLED UPON THE EFFECTIVENESS OF THE REGISTRANT'S PLAN OF REORGANIZATION PURSUANT TO CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE. 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 [X] No [ ] 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] Indicate by check mark whether the registrant is an accelerated filer (as defined by Exchange Act Rule 12b-2). Yes [ ] No [X] The aggregate market value of the registrant's voting stock and preferred stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter ended June 30, 2003, 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 $298,945.51 $1.875 Cumulative Convertible Preferred Stock (Series A) No reported trading. The number of shares of the registrant's common stock outstanding as of February 1, 2004 was 49,824,251 shares. PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS Covanta Energy Corporation ("Covanta") and its subsidiaries (together with Covanta, the "Company") develop, construct, own and operate for others key infrastructure for the conversion of waste to energy, independent power production and the treatment of water and wastewater in the United States and abroad. The Company owns or operates 55 power generation facilities, 40 of which are in the United States and 15 of which are located outside of the United States. The Company's power generation facilities use a variety of fuels, including municipal solid waste, water (hydroelectric), natural gas, coal, wood waste, landfill gas and heavy fuel oil. The Company operates 8 water or wastewater treatment facilities, all of which are located in the United States. Until September 1999, and under prior management, the Company was also actively involved in the entertainment and aviation services industries. Covanta Energy Corporation was known as Ogden Corporation prior to March 13, 2001. The Company was incorporated in Delaware as a public utility 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 Corporation was listed on the New York Stock Exchange. Prior to September 1999, the Company conducted its business through operating groups in three principal business units: Energy, Entertainment and Aviation. In September 1999, the Company adopted a plan to discontinue its Entertainment and Aviation operations, pursue the sale or other disposition of these businesses, pay down corporate debt and concentrate on businesses previously conducted through its Covanta Energy Group, Inc. (f/k/a Ogden Energy Group, Inc.) subsidiary. As of the date hereof, the Company's plan to sell discontinued businesses has been largely completed. The Company's current principal business units are Domestic Energy and Water, International Energy and Other. This Annual Report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may differ materially from those contained in such forward-looking statements. See "Forward Looking Statements," below. On April 1, 2002, the New York Stock Exchange, Inc. the "New York Stock Exchange") 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. By order dated May 16, 2002 the SEC granted the application of the New York Stock Exchange for removal of the common stock and $1.875 Cumulative Convertible Preferred Stock of Covanta Energy Corporation from listing and registration on the New York Stock Exchange under the Securities Exchange Act of 1934. The removal from listing and registration on the New York Stock Exchange of these classes of stock became effective at the opening of the trading session of May 17, 2002 pursuant to the order of the SEC. All of the Company's outstanding common and preferred stock was cancelled and extinguished on March 10, 2004, in accordance with the Company's bankruptcy plan of reorganization. Chapter 11 Reorganization and Related Dispositions of Assets On March 10, 2004, Covanta and certain of its affiliates consummated a plan of reorganization and emerged from their reorganization proceedings under chapter 11 of the Bankruptcy Code. As a result of the consummation of the plan (further described below), Covanta is a wholly owned subsidiary of Danielson Holding Corporation, a Delaware corporation ("Danielson"). The chapter 11 proceedings commenced on April 1, 2002 (the "First Petition Date"), when Covanta and 123 of its domestic subsidiaries filed voluntary petitions for relief under chapter 11 of the 3 Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). After the First Petition Date, thirty-two additional subsidiaries filed their chapter 11 petitions for relief under the Bankruptcy Code. Eight subsidiaries that had filed petitions on the First Petition Date were sold as part of the Company's disposition of assets during the bankruptcy cases and are no longer owned by the Company. All of the bankruptcy cases (the "Chapter 11 Cases") were jointly administered under the caption "In re Ogden New York Services, Inc., et al., Case Nos. 02-40826 (CB), et al." The debtors under the Chapter 11 Cases (collectively, the "Debtors") operated their business as debtors-in-possession pursuant to the Bankruptcy Code. Until September 1999, and under prior management, the Company had been actively involved in the entertainment and aviation services industries. However, after extensive study and evaluation, the Company determined that most of its earnings were generated by the energy business, that the entertainment business was substantially over-leveraged and that the focus on the entertainment and aviation businesses had not proven successful. Accordingly, in September 1999, the Company adopted a restructuring strategy in which it would concentrate on its core energy business while seeking to sell its aviation and entertainment businesses. During 2000 and 2001, the Company divested multiple entertainment and aviation assets and significantly reduced overhead. However, the Company required waivers of financial covenants under its numerous credit agreements and new letter of credit facilities to be used by its core energy business in the event of a downgrade by the credit rating agencies below investment grade. The Company believed that, with a single master credit agreement in place, it could seek access to the capital markets with which it could raise equity or debt that, combined with additional cash from the sale of its remaining entertainment and aviation assets, would meet its liquidity needs, including the timely repayment of outstanding debentures maturing in 2002. By the fall of 2000, the Company and its key banks reached an agreement in principle on the terms of a new master credit facility that would include all then-existing bank credit arrangements and a new revolving and letter of credit facility. Due principally to intercreditor issues, the new Revolving Credit and Participation Agreement (as amended, the "Master Credit Facility") was not executed until March 14, 2001, at which time the Company paid down all outstanding bank debt. With the Master Credit Facility in place, the Company continued to dispose of entertainment and aviation assets and took steps to access the capital markets. However, these efforts were thwarted in the spring of 2001 by unanticipated events. The sale of the remaining assets from the non-core businesses took longer and yielded fewer proceeds than anticipated. The energy crisis in California (which led to the substantially delayed payment to the Company of approximately $75 million by two California utilities) and the perception that the independent power sector was overbuilt contributed to a reduction in demand for energy company securities. The delayed payment by two California utilities also caused the Company to seek cash flow covenant waivers under the Master Credit Facility in June 2001. These waivers were granted, but in consideration for the waivers the Company lost the capacity under the Master Credit Facility to obtain letters of credit that it had intended to provide to third parties in the event of a downgrade in the Company's credit rating. The Company's ability to access the capital markets was further hampered first by a sharp downturn in capital markets for energy companies in the middle of 2001, subsequently by the events of September 11, 2001, which dampened the capital markets generally, and the collapse of Enron, which brought the energy sector further investor disfavor. In December 2001, the Company publicly stated that it needed further covenant waivers and that it was encountering difficulties in achieving access to short-term liquidity. This resulted in a downgrade of the Company's credit rating below investment grade. Consequently, under its contracts for two waste-to-energy facilities the Company became obligated to provide credit support in the amount of $50 million for each project. On March 1, 2002, the Company availed itself of a grace period to defer for thirty days the payment of approximately $4.6 million of interest on its $100 million principal amount 9.25% Debentures due 2022 (the "9.25% Debentures"). In March 2002, substantial amounts of fees under the Master Credit Facility came due, but could not be paid without violating cash maintenance covenants under that facility. In addition, draw notices totaling approximately $105.2 million were presented on two letters of credit issued on behalf of the Company. Although the bank lenders honored such letters of credit, the Company had insufficient liquidity to reimburse the bank lenders as required under the Master Credit Facility. Furthermore, approximately $148.7 million of the 6% Convertible Subordinated Debentures and the 5.75% Convertible Subordinated Debentures (collectively, the "Convertible Subordinated Debentures") were to mature in 2002. 4 Ultimately, the Company concluded that the commencement of the Chapter 11 Cases was in the best interest of all creditors as the best means to protect the value of the Company's core business, reorganize its capital structure and complete the disposition of its remaining non-core entertainment and aviation assets. As debtors-in-possession, the Debtors were authorized to continue to operate as an ongoing business. In order to obtain post-petition financing, with the approval of the Bankruptcy Court the Debtors entered into a Debtor-in-Possession Credit Agreement dated as of April 1, 2002 (as amended, the "DIP Financing Facility") with certain of the Debtors' prepetition bank lenders (the "DIP Lenders"). The DIP Financing Facility is described in Note 17 to the Consolidated Financial Statements. After the First Petition Date, the Debtors continued their efforts to dispose of non-core businesses. With approval of the Bankruptcy Court, the Debtors sold their remaining aviation fueling assets, their interests in Casino Iguazu and La Rural Fairgrounds and Exhibition Center in Argentina (together, the "Argentine Assets"). They also transferred their remaining interests in the Corel Centre in Ottawa, Canada (the "Corel Centre") and in the Ottawa Senators Hockey Club Corporation (the "Team") and other miscellaneous assets related to the entertainment business. The Debtors also closed a transaction pursuant to which they have been released from their management obligations, and the Debtors have realized and compromised their financial obligations, in connection with the Arrowhead Pond Arena in Anaheim, California ("Arrowhead Pond," and with the Corel Centre, the "Arenas"). See the discussion in "Other" below for a description of material non-core business dispositions that occurred in 2003. In addition, in order to enhance the value of the Company's core business, on September 23, 2002, management announced a reduction in non-plant personnel, closure of satellite development offices and reduction in all other costs not directly related to maintaining operations at their current high levels. As part of the reduction in force, waste-to-energy and domestic independent power headquarters management were combined and numerous other structural changes were instituted in order to improve management efficiency. Over the course of the Chapter 11 Cases, the Debtors held discussions with the Official Committee of Unsecured Creditors (the "Creditors Committee"), representatives of the DIP Lenders, other pre-petition bank lenders and a committee of the holders of the 9.25% Debentures with respect to possible capital and debt structures for the Debtors and the formulation of a plan of reorganization. (The DIP Lenders and the other pre-petition bank lenders are referred to herein as the "Secured Bank Lenders".) In August 2003, the Debtors, in consultation with the Secured Bank Lenders, determined that it was desirable to sell the interests held by certain of the Debtors and non-debtor affiliates in certain geothermal energy projects (each project, a "Geothermal Project") located in Heber and Mammoth Lakes, California (the "Geothermal Business") in order to fund the Reorganized Debtors' emergence from Chapter 11. On December 18, 2003, Covanta and certain of its subsidiaries sold the Geothermal Business to Ormat Nevada, Inc. for cash consideration of $214 million, subject to working capital adjustments. The sale was effected pursuant to a competitive bidding procedure conducted by the Bankruptcy Court and a plan of reorganization for the six subsidiaries conducting the operation of the Geothermal Business. In connection with the sale, the Company paid a stalking horse bidder a break-up fee of approximately $5.4 million. On December 2, 2003, Covanta and Danielson entered into an Investment and Purchase Agreement (as amended, the "DHC Agreement"). The DHC Agreement provided for: - Danielson to purchase 100% of the equity in Covanta for $30 million as part of a plan of reorganization (the "DHC Transaction"); - agreement as to new revolving credit and letter of credit facilities for the Company's domestic and international operations, provided by certain of the Secured Bank Lenders and a group of additional lenders organized by Danielson; and - execution and consummation of the Tax Sharing Agreement between Danielson and Covanta (the "Tax Sharing Agreement"), pursuant to which Covanta's share of Danielson's consolidated group tax liability for 5 taxable years ending after consummation of the DHC Transaction will be computed taking into account net operating losses of Danielson, and Danielson will have an obligation to indemnify and hold harmless Covanta for certain excess tax liability. The Company determined that the DHC Transaction was in the best interests of its estate and its creditors, and was preferable to other alternatives under consideration because it provided: - a more favorable capital structure for the Company upon emergence from Chapter 11; - the injection of $30 million in equity from Danielson; - enhanced access to capital markets through Danielson; - diminished syndication risk in connection with the Company's financing under the exit financing agreements; and - reduced exposure of the Secured Bank Lenders as a result of financing arranged by new lenders. On March 5, 2004, the Bankruptcy Court entered an order confirming the Company's plans of reorganization premised on the DHC Transaction and liquidation for certain of those Debtors involved in non-core businesses. On March 10, 2004 both Plans were effected upon the consummation of the DHC Transaction (the plans of reorganization and liquidation collectively, the "Reorganization Plan"). The following is a summary of material provisions of the Reorganization Plan. The summary does not purport to be complete and is qualified in its entirety by reference to all of the provisions of the Reorganization Plan, including those exhibits and documents described therein, which have been filed with the Bankruptcy Court. The Debtors owning or operating the Company's Warren County, New Jersey, Lake County, Florida, and Tampa Bay, Florida projects remain debtors-in-possession (the "Remaining Debtors"), and are not the subject of either Plan. The Reorganization Plan provides for, among other things, the following distributions: (i) Secured Bank Lender and 9.25% Debenture Holder Claims On account of their allowed secured claims, the Secured Bank Lenders and the 9.25% Debenture holders received, in the aggregate, a distribution consisting of: - the cash available for distribution after payment by the Company of exit costs necessary to confirm the Amended Plans and establishment of required reserves pursuant to the Reorganization Plan, - new high-yield secured notes issued by Covanta and guaranteed by its subsidiaries (other than Covanta Power International Holdings, Inc. ("CPIH") and its subsidiaries) which are not contractually prohibited from incurring or guaranteeing additional debt (Covanta and such subsidiaries, the "Domestic Borrowers") with a stated maturity of seven years (the "High Yield Notes"), and - a term loan of CPIH with a stated maturity of 3 years. Additionally, the Reorganization Plan incorporates the terms of a pending settlement of litigation that had been commenced during the Chapter 11 Cases by the Creditors Committee challenging the validity of the lien asserted on behalf of the holders of the 9.25% Debentures (the "9.25% Debenture Adversary Proceeding"). Pursuant to the settlement, holders of general unsecured claims against the Company are entitled to receive 12.5% of the value that would otherwise be distributable to the holders of 9.25% Debenture claims that participate in the settlement. (ii) Unsecured Claims against Operating Company Subsidiaries 6 The holders of allowed unsecured claims against any of the Company's operating subsidiaries will receive new unsecured notes in a principal amount equal to the amount of their allowed unsecured claims with a stated maturity of 8 years (the "Unsecured Notes"). (iii) Unsecured Claims against Covanta and Holding Company Subsidiaries The holders of allowed unsecured claims against Covanta or certain of its holding company subsidiaries will receive, in the aggregate, a distribution consisting of (i) $4 million in principal amount of Unsecured Notes, (ii) a participation interest equal to 5% of the first $80 million in net proceeds received in connection with the sale or other disposition of CPIH and its subsidiaries, and (iii) the recoveries, if any, from avoidance actions not waived under the plan that might be brought on behalf of the Company. As described above, each holder of an allowed unsecured claim against Covanta or certain of its holding company subsidiaries is entitled to receive its pro-rata share of 12.5% of the value that would otherwise be distributable to the holders of 9.25% Debenture claims that participate in the settlement of the 9.25% Debenture Adversary Proceeding pursuant to the Reorganization Plan. (iv) Subordinated Claims of Holders of Convertible Subordinated Debentures The holders of Covanta's Convertible Subordinated Debentures did not receive any distribution or retain any property pursuant to the proposed Reorganization Plan. The Convertible Subordinated Debentures were cancelled as of March 10, 2004, the effective date of the Reorganization Plan. (v) Equity interests of common and preferred stockholders The holders of Covanta's preferred and common stock outstanding immediately before consummation of the DHC Transaction did not receive any distribution or retain any property pursuant to the Reorganization Plan. The preferred stock and common stock was cancelled as of March 10, 2004, the Effective Date of the Reorganization Plan. The Reorganization Plan provides for the complete liquidation of those of the Company's subsidiaries that have been designated as liquidating entities. Substantially all of the assets of these liquidating entities have already been sold. Under the Reorganization Plan the creditors of the liquidating entities will not receive any distribution other than those administrative creditors with respect to claims against the liquidating entities that have been incurred in the implementation of the Reorganization Plan and priority claims required to be paid under the Bankruptcy Code. As further set forth in this Part 1, Item 1. "Business" and Part II, Item 7 "Management's Discussion and Analysis," there are risks that might affect the Company's ability to implement its business plan and pay the various debt instruments to be issued pursuant to the Second Reorganization Plan. As a result of the consummation of the DHC Transaction, the Company emerged from bankruptcy with a new debt structure. Domestic Borrowers have two credit facilities - a letter of credit facility (the "First Lien Facility"), for the issuance of a letter of credit in the amount up to $139 million required in connection with a waste-to-energy facility, and - a letter of credit and liquidity facility (the "Second Lien Facility"), in the aggregate amount of $118 million, up to $10 million of which shall also be available for cash borrowings on a revolving basis and the balance for letters of credit. Both facilities have a term of five years, and are secured by the assets of the Domestic Borrowers on which they are not prohibited from placing liens under other prior agreements. The lien of the Second Lien Facility is junior to that of the First Lien Facility. The Domestic Borrowers also issued the High Yield Notes and issued or will issue the Unsecured Notes. The High Yield Notes are secured by a third priority lien in the same collateral securing the First Lien Facility and the Second Lien Facility. The High Yield Notes were issued in the initial principal amount of $205 million, which will accrete 7 to $230 million at maturity in 7 years. Unsecured Notes in a principal amount of $4 million were issued on the effective date of the Reorganization Plan, and the Company expects to issue additional Unsecured Notes in a principal amount of between $30 and $35 million including additional Unsecured Notes that may be issued to holders of allowed claims against the Remaining Debtors if and when such Remaining Debtors emerge from bankruptcy. The final principal amount of all Unsecured Notes will be equal to the amount of allowed unsecured claims against the Company's operating subsidiaries which were Reorganizing Debtors, and such amount will be determined at such time as the allowance of all such claims are resolved through settlement or further proceedings in the Bankruptcy Court. Notwithstanding the date on which Unsecured Notes are issued, interest on the Unsecured Notes accrues from March 10, 2004. Under the Reorganization Plan, the Company is authorized to issue up to $50 million in principal amount of Unsecured Notes. Also, CPIH and each of its domestic subsidiaries, which hold all of the assets and operations of the Company's international businesses (the "CPIH Borrowers") entered into two secured credit facilities: - a revolving credit facility, secured by a first priority lien on the stock of CPIH and substantially all of the CPIH Borrowers' assets not otherwise pledged, consisting of commitments for cash borrowings of up to $10 million for purposes of supporting the international businesses and - a term loan facility of up to $95 million, secured by a second priority lien on the same collateral. Both facilities will mature in three years. The debt of the CPIH Borrowers is non-recourse to Covanta and its other domestic subsidiaries. For further discussion, see Part II, Item 7, "Management's Discussion and Analysis." In addition, in the Chapter 11 cases, the Debtors had the right, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. As a condition to assuming a contract, each Debtor must cure all existing defaults (including payment defaults). The Company has paid or expects to pay approximately $9 million in cure amounts in connection with assumed executory contracts and unexpired leases. There can be no assurance that the cure amounts ultimately associated with assumed executory contracts and unexpired leases will not be materially higher than the amounts estimated by the Company. The Company has reconciled recorded pre-petition liabilities with proofs of claim filed by creditors with the Bankruptcy Court. Differences resulting from that reconciliation process are recorded as adjustments to pre-petition liabilities. The Company has not yet determined the reorganization adjustments. In total, approximately 4,550 proofs of claim in aggregate amount of approximately $13.3 billion were filed. Additional claims may be filed in connection with the rejection of contracts and other matters. The Debtors believe that many of the proofs of claim are invalid, duplicative, untimely, inaccurate or otherwise objectionable. During the course of the bankruptcy proceedings, the Debtors filed procedural objections to more than 3,000 claims, primarily seeking to reclassify as general unsecured claims certain claims that were filed as secured or priority claims. The Debtors have objected to and intend to contest claims to the extent they materially exceed the amounts the Debtors believe may be due. See Note 30 to the Consolidated Financial Statements for financial information about business segments. See Note 30 to the Consolidated Financial Statements for financial information about geographic areas. DESCRIPTION OF DOMESTIC ENERGY AND WATER BUSINESS The Company's domestic business is the design, construction and long-term operation of key infrastructure for municipalities and others in waste-to-energy, independent power production and water. The Company's largest operations are in waste-to-energy projects, and it currently operates 25 waste-to-energy projects, the majority of which were developed and structured contractually as part of competitive procurements conducted by municipal entities. The waste-to-energy plants combust municipal solid waste as a means of environmentally sound disposal and produce energy that is sold as electricity or steam to utilities and other purchasers. The Company processes approximately five percent of the municipal solid waste produced in the United States and therefore represents a vital part of the nation's solid waste disposal industry. 8 (i) Waste-to-Energy Projects. The essential purpose of the Company's waste-to-energy projects is to provide waste disposal services, typically to municipal clients who sponsor the projects ("Client Communities"). Generally, the Company provides these services pursuant to long term service contracts ("Service Agreements"). The electricity or steam is sold pursuant to long-term power purchase agreements ("PPAs") with local utilities or industrial customers, with one exception, and most of the resulting revenues reduce the overall cost of waste disposal services to the Client Communities. Each Service Agreement is different to reflect the specific needs and concerns of the Client Community, applicable regulatory requirements and other factors. The original terms of the Service Agreements are each 20 or more years, with the majority now in the second half of the applicable term. The Company currently operates the waste-to-energy projects identified below under "Domestic Project Summaries." Most of the Company's operating waste-to-energy projects were developed and structured contractually as part of competitive procurements conducted by municipal entities. As a result, these projects have many common features, which are described in subsection (A) below. Certain projects which do not follow this model, or have been or may be restructured, are described in subsection (B) below. The Company receives its revenue in the form of fees pursuant to Service Agreements, and in some cases PPAs, at facilities it owns. The Company's Service Agreements begin to expire in 2007, and PPAs at Company-owned projects generally expire at or after the date on which that project's Service Agreement expires. As the Company's contracts expire it will become subject to greater market risk in maintaining and enhancing its revenues. As its Service Agreements at municipally-owned facilities expire, the Company intends to seek to enter into renewal or replacement contracts to operate several such facilities. The Company also will seek to bid competitively in the market for additional contracts to operate other facilities as similar contracts of other vendors expire. As the Company's Service Agreements at facilities it owns begin to expire, it intends to seek replacement or additional contracts, and because project debt on these facilities will be paid off at such time the Company expects to be able to offer rates that will attract sufficient quantities of waste while providing acceptable revenues to the Company. At Company-owned facilities, the expiration of existing PPAs will require the Company to sell its output either into the local electricity grid at prevailing rates or pursuant to new contracts. There can be no assurance that the Company will be able to enter into such renewals, replacement or additional contracts, or that the terms available in the market at the time will be favorable to the Company. The Company's opportunities for growth by investing in new projects will be limited by existing debt covenants, as well as by competition from other companies in the waste disposal business. The Company intends to pursue opportunities to expand the processing capacity where Client Communities have encountered significantly increased waste volumes without corresponding increases in competitively-priced landfill availability. Other than expansions at existing waste-to-energy projects, the Company does not expect to engage in material development activity which will require significant equity investment. There can be no assurance that the Company will be able to implement expansions at existing facilities. (A) Structurally Similar Waste-to-Energy Projects. Each Service Agreement is different to reflect the specific needs and concerns of the Client Community, applicable regulatory requirements and other factors. However, 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 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 9 to pay material damages, including payments to discharge project indebtedness. Covanta or an intermediate holding company typically guarantees performance of the Service Agreement. - The Client Community is generally required to deliver minimum quantities of municipal solid waste to the facility on a put-or-pay basis 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"). A put-or-pay commitment means that the Client Community 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 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, and pays the balance to the Company. Financing for the Company's domestic waste-to-energy projects is generally accomplished through tax-exempt and taxable revenue bonds issued by or on behalf of the Client Community. If the facility is owned by a Covanta 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 "project debt (short and long term)" in the Company's consolidated financial statements. Generally, such debt is secured by the revenues pledged under the respective indentures and is collateralized by the assets of Covanta's subsidiary and with the only recourse to Covanta being related to construction and operating performance defaults. Covanta has issued instruments to its Client Communities and other parties which guarantee that Covanta's operating subsidiaries will perform in accordance with contractual terms including, where required, the payment of damages. Such contractual damages could be material, and in circumstances where one or more subsidiary's contract has been terminated for its default, such damages could include amounts sufficient to repay project debt. For facilities owned by Client Communities and operated by Covanta subsidiaries, Covanta's potential maximum liability as of December 31, 2003 associated with the repayment of project debt amounts was in aggregate approximately $1.3 billion. Additionally, damages payable under such guarantees on Company owned waste to energy facilities could expose Covanta to recourse liability on project debt with respect to such facilities. If Covanta is asked to perform under one or more of such guarantees, its liability for damages upon contract termination would be reduced by funds held in trust and proceeds from sales of the facilities securing the project debt and which is presently not estimable. To date, Covanta has not incurred material liabilities under such guarantees. (B) Other Waste-to-Energy Project Structures. Haverhill, Massachusetts The Company's Haverhill, Massachusetts waste-to-energy facility is not operated pursuant to a Service Agreement with a Client Community. In this project, the Company assumed 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. The Company retains all of the energy revenues from sales of power and disposal fees for waste accepted at this facility. Accordingly, the Company believes that this project carries both greater risks and greater potential rewards than projects in which there is a Client Community. During 2003, US Gen New England, Inc. ("USGenNE"), the power purchaser for the Haverhill project, filed a petition under Chapter 11 of the United States Bankruptcy Code. The Company is closely monitoring these proceedings and is a member of the USGenNE's Official Committee of Unsecured Creditors. The impact, if any, of the USGenNE's bankruptcy on the Company's earnings, financial position and liquidity will depend upon how USGenNE treats its contract to purchase power from the Haverhill project, which would otherwise expire in 2019. The Company believes that its contract provides for energy rates at or below both current and projected market rates, 10 and that it is possible that the contract will remain in effect. If USGenNE seeks to reject the contract, as it has the right to do under the Bankruptcy Code, the Company's operating subsidiary would seek to sell power from the Haverhill project in the applicable power pool or enter into a replacement contract at then-available rates. In such a circumstance, unless the Company is able to enter into a long term contract with a replacement power purchaser, the Haverhill project will be subjected to greater market price risk for energy sales than previously was the case. (C) Restructurings Warren County, New Jersey The Covanta subsidiary ("Covanta Warren") which operates the Company's waste-to-energy facility in Warren County, New Jersey (the "Warren Facility") and the Pollution Control Financing Authority of Warren County ("Warren Authority") have been engaged in negotiations for an extended time concerning a potential restructuring of the parties' rights and obligations under various agreements related to Covanta Warren's operation of the Warren Facility. Those negotiations were in part precipitated by a 1997 federal court of appeals decision invalidating certain of the State of New Jersey's waste-flow laws, which resulted in significantly reduced revenues for the Warren Facility. Since 1999, the State of New Jersey has been voluntarily making all debt service payments with respect to the project bonds issued to finance construction of the Warren Facility, and Covanta Warren has been operating the Warren Facility pursuant to an agreement with the Warren Authority which modifies the existing Service Agreement for the Warren Facility. Although discussions continue, to date Covanta Warren and the Warren Authority have been unable to reach an agreement to restructure the contractual arrangements governing Covanta Warren's operation of the Warren Facility. The Warren Authority has indicated that a consensual restructuring of the parties' contractual arrangements may be possible in 2004. In addition, the Warren Authority has agreed to release approximately $1.2 million being held in escrow to Covanta Warren so that Covanta Warren may perform an environmental retrofit during 2004. Based upon the foregoing, the Company has determined not to propose a plan of reorganization or plan of liquidation for Covanta Warren at this time, and instead have determined that Covanta Warren should remain a debtor-in-possession after the Reorganization Plan was consummated. In order to emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Warren Facility, Covanta rejected its guarantees of Covanta Warren's obligations relating to the operation and maintenance of the Warren Facility. The Company anticipates that if a restructuring is consummated, Covanta may at that time issue a new parent guarantee in connection with that restructuring and emergence from bankruptcy. In the event the parties are unable to timely reach agreement upon and consummate a restructuring of the contractual arrangements governing Covanta Warren's operation of the Warren Facility, the Company may, among other things, elect to litigate with counterparties to certain agreements with Covanta Warren, assume or reject one or more executory contracts related to the Warren Facility, attempt to file a plan of reorganization on a non-consensual basis, or liquidate Covanta Warren. In such an event, creditors of Covanta Warren may not receive any recovery on account of their claims. The Company expects that the outcome of this restructuring will not negatively affect its ability to implement its business plan. Onondaga County, New York Shortly before the First Petition Date, the Onondaga County Resource Recovery Agency ("OCRRA") purported to terminate the Service Agreement between OCRRA and Covanta Onondaga, LP ("Covanta Onondaga") relating to the waste-to-energy facility in Onondaga County, New York (the "Onondaga Facility"). The alleged termination was based upon Covanta's failure to provide a letter of credit following its downgrade by rating agencies. Covanta Onondaga challenged that purported termination by OCRRA. The dispute between Covanta Onondaga and OCRRA 11 concerning that termination, as well as disputes concerning which court would decide that dispute, was litigated in state court and several bankruptcy, district and appellate federal courts. The Company, OCRRA and certain bondholders and limited partners have reached an agreement to resolve their disputes. The Bankruptcy Court entered an order approving that compromise and restructuring on October 9, 2003. That agreement provides for the continued operation of the Onondaga Facility by Covanta Onondaga, as well as numerous modifications to agreements relating to the Onondaga Facility, including: (i) the restructuring of the bonds issued to finance development and construction of the Onondaga Facility; (ii) reduction in the amount of the service fee payable to Covanta Onondaga; (iii) elimination of the requirement that Covanta provide credit support, and a reduction in the maximum amount of the parent company guarantee; and (iv) material amendments to the agreements between Covanta Onondaga's third party limited partners and the Company. The Onondaga restructuring was completed in October 2003. Hennepin County, Minnesota On June 11, 2003, the Company received Bankruptcy Court approval to restructure certain agreements relating to the Company's waste-to-energy project at Hennepin, Minnesota. The elements of the restructuring are: (i) the purchase by Hennepin County of the ownership interests of General Electric Capital Corporation and certain of its affiliates ("GECC") in the operating facility, (ii) the termination of certain leases, the existing Service Agreement and certain financing and other agreements; (iii) entry into a new Service Agreement and related agreements, which reduces Hennepin County's payment obligations under the Service Agreement to the Company's subsidiary operating the facility and requires that subsidiary to provide a letter of credit in an initial amount of $25 million and then declining after the Company emerges from the bankruptcy process; (iv) the refinancing of bonds issued in connection with the development and construction of the project; and (v) assumption and assignment to Hennepin County of certain interests in the project's electricity sale agreement. The Hennepin restructuring was completed in July 2003. Union County, New Jersey On June 19, 2003, Covanta Union, Inc. ("Covanta Union") received Bankruptcy Court approval to restructure certain agreements relating to the Debtors' waste-to-energy facility at Rahway, Union County, New Jersey (the "Union Facility"), and to settle certain disputes with the Union County Utilities Authority (the "Union Authority"). The restructuring facilitates the Union Authority's implementation of a solid waste flow control program and accounts for the impact of recent court decisions upon the agreements between Covanta Union and the Union Authority. Key elements of the restructuring include: (i) modifying the existing project agreements between Covanta Union and the Union Authority and (ii) executing a settlement agreement and a release and waiver with the Union Authority resolving disputes that had arisen between Covanta Union and the Union Authority regarding unpaid fees. The Union restructuring was completed in July 2003. Babylon, New York The Town of Babylon, New York ("Babylon") filed a proof of claim against Covanta Babylon, Inc. ("Covanta Babylon") for approximately $13.4 million in prepetition damages and $5.5 million in post-petition damages, alleging that Covanta Babylon has accepted less waste than required under the Service Agreement between Babylon and Covanta Babylon at the waste-to-energy facility in Babylon, and that Covanta's Chapter 11 Cases imposed on Babylon additional costs for which Covanta Babylon should be responsible. The Company filed an objection to Babylon's claim, asserting that it is in full compliance with the express requirements of the Service Agreement and was entitled to adjust the amount of waste it is required to accept to reflect the energy content of the waste delivered. Covanta Babylon also asserted that the costs arising from its chapter 11 proceeding are not recoverable by Babylon. After lengthy discussions, Babylon and Covanta Babylon reached a settlement pursuant to which, in part, (i) the parties amended the Service Agreement to adjust Covanta Babylon's operational procedures for accepting waste, reduce Covanta Babylon's waste processing obligations, increase Babylon's additional waste service fee to Covanta Babylon, and reduce Babylon's annual operating and maintenance fee to Covanta Babylon; (ii) Covanta Babylon paid a specified amount to Babylon in consideration for a release of any and all claims (other than its rights under the settlement documents) that Babylon may hold against the Company and in satisfaction of Babylon's administrative expense claims against Covanta Babylon; and (iii) the parties allocated additional costs relating to the 12 swap financing as a result of Covanta Babylon's Chapter 11 proceedings until such costs are eliminated. The restructuring became effective on March 12, 2004. Lake County, Florida In late 2000, Lake County, Florida ("Lake County") commenced a lawsuit in Florida state court against Covanta Lake, Inc. ("Covanta Lake"), which also refers to its merged successor, as defined below) relating to the waste-to-energy facility operated by Covanta in Lake County, Florida (the "Lake Facility"). In the lawsuit, Lake County sought to have its Service Agreement with Covanta Lake declared void and in violation of the Florida Constitution. That lawsuit was stayed by the commencement of the Chapter 11 Cases. Lake County subsequently filed a proof of claim seeking in excess of $70 million from Covanta Lake and Covanta. On June, 20, 2003, Covanta Lake filed a motion with the Bankruptcy Court seeking entry of an order (i) authorizing Covanta Lake to assume, effective upon confirmation of a plan of reorganization for Covanta Lake, its Service Agreement with Lake County, (ii) finding no cure amounts due under the Service Agreement, and (iii) seeking a declaration that the Service Agreement is valid, enforceable and constitutional, and remains in full force and effect. Contemporaneously with the filing of the assumption motion, Covanta Lake filed an adversary complaint asserting that Lake County is in arrears to Covanta Lake in the amount of more than $8.5 million. Shortly before trial commenced in these matters, the Company and Lake County reached a tentative settlement calling for a new agreement specifying the parties' obligations and restructuring of the project. That tentative settlement and the proposed restructuring will involve, among other things, termination of the existing Service Agreement and the execution of a new waste disposal agreement which shall provide for a put-or-pay obligation on Lake County's part to deliver 163,000 tons per year of acceptable waste to the Lake Facility and a different fee structure; a replacement guarantee from Covanta in a reduced amount; the payment by Lake County of all amounts due as "pass through" costs with respect to Covanta Lake's payment of property taxes; the payment by Lake County of a specified amount in each of 2004, 2005 and 2006 in reimbursement of certain capital costs; the settlement of all pending litigation; and a refinancing of the existing bonds. The Lake settlement is contingent upon, among other things, receipt of all necessary approvals, as well as a favorable outcome to the Company's pending objection to the proof of claims filed by F. Browne Gregg, a third-party claiming an interest in the existing Service Agreement that would be terminated under the proposed settlement. On November 3-5, 2003, the Bankruptcy Court conducted a trial on Mr. Gregg's proofs of claim. At issue in the trial was whether Mr. Gregg is entitled to damages as a result of Covanta Lake's proposed termination of the existing Service Agreement and entry into a waste disposal agreement with Lake County. As of March 22, 2004, the Bankruptcy Court had not ruled on the Company's claims objections. Based on the foregoing, the Company has determined not to propose a plan of reorganization or plan of liquidation for Covanta Lake at this time, and instead that Covanta Lake should remain a debtor-in-possession after the effective date of the Reorganization Plan. To emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Lake Facility, Covanta has rejected its guarantees of Covanta's obligations relating to the operation and maintenance of the Lake Facility. The Company anticipates that if a restructuring is consummated, Covanta may at that time issue new parent guarantees in connection with that restructuring and emergence from bankruptcy. Depending upon the ultimate resolution of these matters with Mr. Gregg and the County, Covanta Lake may determine to assume or reject one or more executory contracts related to the Lake Facility, terminate the Service Agreement with Lake County for its breaches and default and pursue litigation against Lake County and/or Mr. Gregg. Based on this determination, the Company may reorganize or liquidate Covanta Lake. Depending on how Covanta Lake determines to proceed, creditors of Covanta Lake may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not affect its ability to implement its business plan. 13 Tulsa, Oklahoma Prior to October 2003, Covanta Tulsa, Inc. ("Covanta Tulsa") operated the waste-to-energy facility located in Tulsa, Oklahoma (the "Tulsa Facility") pursuant to a Service Agreement with the Tulsa Authority for Recovery of Energy which expires in 2007. Covanta leased the facility from CIT Group/Capital Finance, Inc. ("CIT") under a long-term lease expiring in 2012 (the "CIT Lease"). Covanta Tulsa was unable to restructure its contractual arrangements with CIT related to Covanta Tulsa's operation of the Tulsa Facility, which was projected to become unprofitable for Covanta Tulsa absent such a restructuring. As a result, the Company terminated business operations at the Tulsa Facility, turned over the Tulsa Facility to CIT and rejected the CIT Lease and certain other agreements relating to the Tulsa Facility. Covanta Tulsa is a liquidating debtor under the Reorganization Plan. (ii) Independent Power Projects Since 1989, the Company has been engaged in developing, owning and/or operating 20 independent power production facilities utilizing a variety of energy sources including water (hydroelectric), natural gas, coal, geothermal fluid, landfill gas and heavy fuel oil. The electrical output from each facility, with one exception, is sold to local utilities. The Company's revenue from the independent power production facilities is derived primarily from the sale of energy and capacity. During 2003, the Company sold its interests in its Geothermal Business, as described above. The regulatory framework for selling power to utilities from independent power facilities (including waste-to-energy facilities) after current contracts expire is in flux, given the energy crisis in California in 2000 and 2001, the over-capacity of generation at the present time in many markets and the uncertainty as to the adoption of new Federal energy legislation. Various states and Congress are considering a wide variety of changes to regulatory frameworks, but none has been established definitively at present. (A) Independent Power Projects in operation. Hydroelectric. The Company owns a 50% equity interest in two run-of-river hydroelectric facilities, Koma Kulshan and Weeks Falls, which have a combined gross capacity of 17 MW. Both Koma Kulshan and Weeks Falls are located in Washington State and both sell energy and capacity to Puget Sound Power & Light Company under long term PPAs. A subsidiary of the Company provides operation and maintenance services to the Koma Kulshan partnership under a cost plus fixed fee agreement. The Company operates the New Martinsville facility in West Virginia, a 40 MW run-of-river project pursuant to a short-term Interim Operations and Maintenance Agreement which will expire March 31, 2004. The Company chose not to renew the lease on the project, the term of which expired in October 2003. Wood. The Company owns 100% interests in Burney Mountain Power, Mt. Lassen Power, and Pacific Oroville Power three wood-fired generation facilities in northern California. A fourth facility, Pacific Ultra Power Chinese Station, is owned by a partnership in which the Company holds a 50% interest. Fuel for the facilities is procured from local sources primarily through short-term supply agreements. The price of the fuel varies depending on time of year, supply and price of energy. The four projects have a gross generating capacity of 67 MW. All four projects sell energy and capacity to Pacific Gas & Electric under PPAs. Until July 2001 the facilities were receiving Pacific Gas & Electric's short run avoided cost for energy delivered. However, beginning in July 2001 the four facilities entered into five-year fixed-price periods pursuant to PPA amendments. 14 Landfill Gas. The Company has interests in and operates eight landfill gas projects which produce electricity by burning methane gas produced in landfills. The Otay, Oxnard, Penrose, Salinas, Stockton, Santa Clara and Toyon projects are located in California, and the Gude project is located in Maryland. The eight projects have a total gross capacity of 36 MW. The Gude facility PPA has expired and the facility is currently selling its output into the regional utility grid. The Penrose and Toyon projects sell energy and delivered capacity to the local utility. The remaining five projects sell energy and contracted capacity to various California utilities. The Penrose and Toyon PPAs expire in 2006, and the Salinas, Stockton and Santa Clara PPAs expire in 2007. The Otay and Oxnard PPAs expire in 2011. Upon the expiration of the PPAs it is expected that these projects will enter into new off take arrangements or the projects will be shut down. (B) Independent Power Projects Divestitures Geothermal. As discussed above in "Chapter 11 Reorganization and Related Dispositions of Assets," the Company owned and operated the Geothermal Business, which consisted of independent power production facilities that convert geothermal fluid into energy. The Geothermal Business was composed of the following: (i) Second Imperial Geothermal Company, L.P. ("SIGC"), which is the sole lessee of a nominal 48-megawatt geothermal electric power plant located in Imperial County, California; (ii) Heber Geothermal Company ("HGC") the owner of a nominal 52-megawatt geothermal electric power plant located in Imperial County, California; (iii) Heber Field Company, which is owner of certain land and lessee under more than 200 royalty leases providing it the right to extract geothermal fluid which is sold to SIGC and HGC; and (iv) the interests of Covanta Power Pacific, Inc., a non-debtor affiliate, in non-debtor affiliates Pacific Geothermal Company and Mammoth Geothermal Company, which entities, in turn, collectively own 50% of the partnership interests in Mammoth Pacific, L.P., an entity which owns three geothermal electric power plants totaling 40 megawatts located on the eastern slopes of the Sierra Nevada Mountains at Casa Diablo Hot Springs in Mono County, California. The Company sold its interests in the Geothermal Business to Ormat Nevada, Inc. on December 18, 2003. (iii) Water Operations The Company's water operations are composed of wastewater treatment and water purification plants. The water operations are conducted through wholly-owned subsidiaries, which design, construct, maintain, and/or operate water treatment facilities and distribution and collection networks for municipalities in the United States. Currently, the Company operates and maintains seven water facilities in New York State and has designed and built and now operates and maintains a water treatment facility and associated transmission and pumping equipment in Alabama. During 2003, the Company completed construction of a desalination project on behalf of the Tampa Bay Water Authority ("TBW") in Florida. The Company's water operations face an immature but developing domestic market for private water and wastewater services. Growth of the privatized market has not been consistent and is constrained by a number of factors, including water's status as a most elemental and key community resource and the long history of entrenched municipal operation with corresponding public sector employment. (A) Water Projects in Construction During 2003 Covanta Tampa Construction, Inc. ("CTC"), completed construction of a 25 million gallon per day desalination-to-drinking water facility (the "Tampa Water Facility") under a contract with TBW near Tampa, Florida. Covanta Energy Group, Inc., guaranteed CTC's performance under its construction contract with TBW. A separate subsidiary, Covanta Tampa Bay, Inc. ("CTB"), entered into a contract with TBW to operate the Tampa Water Facility after construction and testing is completed by CTC. 15 As construction of the Tampa Water Facility neared completion, the parties had material disputes between them, primarily relating to (i) whether CTC has satisfied acceptance criteria for the Tampa Water Facility; (ii) whether TBW has obtained certain permits necessary for CTC to complete start-up and testing, and for CTB to subsequently operate the Tampa Water Facility; (iii) whether influent water provided by TBW for the Tampa Water Facility is of sufficient quality to permit CTC to complete start-up and testing, or to permit CTB to operate the Tampa Water Facility as contemplated and (iv) if and to the extent that the Tampa Water Facility cannot be optimally operated, whether such shortcomings constitute defaults under CTC's agreements with TBW. In October 2003, TBW issued a default notice to CTC, indicated that it intended to commence arbitration proceedings against CTC, and further indicated that it intended to terminate CTC's construction agreement. As a result, on October 29, 2003, CTC filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in order to, among other things, prevent attempts by TBW to terminate the construction agreement between CTC and TBW. On November 14, 2003, TBW commenced an adversary proceeding against CTC and filed a motion seeking a temporary restraining order and preliminary injunction directing that possession of the Tampa Water Facility be turned over to TBW. On November 25, 2003, the Bankruptcy Court denied the motion for a temporary restraining order and preliminary injunction and ordered, among other things, that the parties attempt to resolve their disputes in a non-binding mediation. In February 2004 the Company and TBW agreed to a compromise of their disputes which has been approved by the Bankruptcy Court, subject to confirmation of an acceptable plan of reorganization for CTC and CTB, which were not included in the Reorganization Plan. Under this compromise, all contractual relationships between the Company and TBW will be terminated, CTC will operate and maintain the facility for a limited transition period, for which CTC will be compensated, and the responsibility for optimization and operation of the Tampa Water Facility will be transitioned to TBW or a new, non-affiliated operator. In addition, TBW will pay $4.95 million to or for the benefit of CTC, of which up to $550,000 is earmarked for the payment of claims under the subcontracts previously assigned by the Company to TBW. The settlement funds ultimately would be distributed to creditors and equity holders of CTC and CTB pursuant to a plan of reorganization or liquidation for CTC and CTB. Depending upon, among other things, whether the parties are able to successfully effect the settlement described above, the Company may, among other things, commence additional litigation against TBW, assume or reject one or more executory contracts related to the Tampa Water Facility, or propose liquidating plans and/or file separate plans of reorganization for CTB and/or CTC. In such an event, creditors of CTC and CTB may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not negatively affect its ability to implement its business plan. (B) Water Projects in Operation The Company operates and maintains wastewater treatment facilities on behalf of seven municipal and industrial customers in upstate New York. Some of these contracts are short term agreements or may be terminated by the counterparty if it no longer desires to continue receiving service from the Company. The Company also designed, built and now operates and maintains a 24 mgd potable water treatment facility and associated transmission and pumping equipment that 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 it is paid a fixed fee plus pass-through costs for delivering processed water to Bessemer's water distribution system. Between 2000 and 2002, the Company was awarded contracts to supply its patented DualSandTM micro-filtration system ("DSS") to twelve municipalities in upstate New York as the one of the technological improvements necessary to upgrade their existing water and wastewater treatment systems. Five of these upgrades were made in connection with the United States Environmental Protection Agency and New York City Department of Environmental Protection ("NYCDEP"), as part of a $1.4 billion program to protect and enhance the drinking water supply, or watershed, for New York City. The Company does not expect to enter into further material contracts for such projects in the New York City Watershed. 16 DSS is a cost effective micro-filtration system for municipal water and wastewater treatment, desalinization pre-treatment, re-use, recycling and industrial applications. Its primary purpose is to effect the removal of nutrient and pathogenic pollutants. The Company's obligations in connection with DSS typically include equipment supply and installation and, in some cases, construction. DOMESTIC PROJECT SUMMARIES Summary information with respect to the Company's domestic projects(1) that are currently operating, or were under construction during 2003, is provided in the following table:
DATE OF ACQUISITION/ NATURE OF COMMENCEMENT LOCATION SIZE INTEREST(1) OF OPERATIONS A. MUNICIPAL SOLID WASTE 1. Marion County Oregon 13MW Owner/Operator 1987 2. Hillsborough County Florida 29MW Operator 1987 3. Bristol Connecticut 16.3MW Owner/Operator 1988 4. Alexandria/Arlington Virginia 22MW Owner/Operator 1988 5. Indianapolis Indiana N.A. Owner/Operator 1988 6. Hennepin County Minnesota 38.7MW Operator 1989 7. Stanislaus County California 22.5MW Owner/Operator 1989 8. Babylon(2) New York 16.8MW Owner/Operator 1989 9. Haverhill Massachusetts 46MW Owner/Operator 1989 10. Warren County(3) New Jersey 13MW Owner/Operator 1988 11. Kent County Michigan 18MW Operator 1990 12. Wallingford(3) Connecticut 11MW Owner/Operator 1989 13. Fairfax County Virginia 79MW Owner/Operator 1990 14. Huntsville Alabama N.A. Operator 1990 15. Lake County Florida 14.5MW Owner/Operator 1991 16. Lancaster County Pennsylvania 35.7MW Operator 1991 17. Pasco County Florida 31.2MW Operator 1991 18. Huntington(4) New York 24.3MW Owner/Operator 1991 19. Hartford(5) Connecticut 68.5MW Operator 1987 20. Detroit(6) Michigan 68MW Lessee/Operator 1991
17 21. Honolulu(6) Hawaii 57MW Lessee/Operator 1990 22. Union County(7) New Jersey 44MW Lessee/Operator 1994 23. Lee County Florida 39.7MW Operator 1994 24. Onondaga County(4) New York 39.5MW Owner/Operator 1995 25. Montgomery County Maryland 55MW Operator 1995 ------- SUBTOTAL 802.7MW B. HYDROELECTRIC 1. New Martinsville(1) West Virginia 40MW Operator 1991 2. Koma Kulshan(8) Washington 12MW Part Owner/Operator 1997 3. Weeks Falls(8) Washington 5MW Part Owner 1997 ------- SUBTOTAL 57MW C. WOOD 1. Burney Mountain California 11.4MW Owner/Operator 1997 2. Pacific Ultrapower California 25.6MW Part Owner 1997 Chinese Station(8) 3. Mount Lassen California 11.4MW Owner/Operator 1997 4. Pacific Oroville California 18.7MW Owner/Operator 1997 ------- SUBTOTAL 67.1MW D. 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 -------
18 TOTAL DOMESTIC MW IN OPERATION 962.9MW E. 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. Mohawk New York 0.1 mgd Operator 1995 8. Kirkland New York 0.3 mgd Operator 1995 ------- TOTAL MGD IN OPERATION 90.4 mgd DOMESTIC PROJECTS UNDER CONSTRUCTION DURING 2003: 1. Tampa Bay (9) Florida 25 mgd n/a -------
NOTES (1) The Company'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 lease and operation contract terminated in 2003 and is now being operated under a short-term Interim Operation and Maintenance Agreement; 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, Mohawk and Kirkland, for which the operation contracts are renewable annually. (2) Facility has been designed to allow for the addition of another unit. (3) Company subsidiaries were purchased after completion and use a mass-burn technology that is not the Martin Technology. (4) Owned by a limited partnership in which the limited partners are not affiliated with the Company. (5) Under contracts with the Connecticut Resource Recovery Authority, the Company operates only the boiler and turbine for this facility. (6) Operating contracts were acquired after completion. Facility uses a refuse-derived fuel technology and does not employ the Martin technology described below. (7) The Union County facility is leased to a Company subsidiary. (8) The Company has a 50% ownership interest in the project. (9) The Company has tentatively agreed to transfer possession of the Tampa Bay desalination facility to TBW , and will not operate this project. 19 DESCRIPTION OF INTERNATIONAL ENERGY BUSINESS The Company conducts its international energy businesses through its wholly-owned subsidiaries. Internationally, the largest element of the Company's energy business is its 26.166% ownership in and operation of the 470 MW (net) pulverized coal-fired electrical generating facility in Quezon Province, The Philippines. The Company has interests in other fossil-fuel generating projects in Asia, a waste-to-energy project in Italy, a natural gas project in Spain, and two small hydroelectric projects in Costa Rica. In general, these projects provide returns primarily from equity distributions and, to a lesser extent, operating fees. The projects sell the electricity and steam they generate under long-term contracts or market concessions to utilities, governmental agencies providing power distribution, creditworthy industrial users, or local governmental units. In select cases, such sales of electricity and steam may be provided under short-term arrangements as well. Similarly, the Company seeks to obtain long-term contracts for fuel supply from reliable sources. The Company presently has interests in international power projects with an aggregate generating capacity of approximately 1116 MW (gross). The Company's ownership in these facilities is approximately 522 MW. In addition to its headquarters in Fairfield, New Jersey, the Company's business is facilitated through field offices in Shanghai, China; Chennai, India; Manila, The Philippines; and Bangkok, Thailand. (i) General Approach to International Projects In developing its international businesses, the Company has employed the same general approach to projects as is described above with respect to domestic projects. Given its plan to refocus its business in domestic markets, no new international project development is anticipated. The Company may consider divesting itself from some or all of its international portfolio. The ownership and operation of facilities in foreign countries in connection with the Company's international business entails significant political and financial uncertainties that typically are not involved in such activities in the United States. Key international risk factors include governmentally-sponsored efforts to renegotiate long-term contracts, non-payment of fees and other monies owed to the Company, 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 material impairment to the value of the Company's international businesses. 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 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 PPA, 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. At the time it develops a project, the Company undertakes a credit analysis of the proposed power purchaser or fuel supplier. The Company's power projects in particular depend on 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 20 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. The Company has sought to manage and mitigate these risks through all 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 international and regional companies to pursue the development, financing and construction of these projects. The Company determines which mitigation measurers to apply based on its balancing of the risk presented, the availability of such measures and their cost. 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 a 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. Covanta has issued guarantees of its operating subsidiaries contractual obligations to operate certain international power projects. The potential damages owed under such arrangements for international projects may be material. Depending upon the circumstances giving rise to such domestic and international damages, the contractual terms of the applicable contracts, and the contract counterparty's choice of remedy at the time a claim against a guarantee is made, the amounts owed pursuant to one or more of such guarantees could be greater than the Company's then-available sources of funds. To date, Covanta has not incurred material liabilities under its guarantees on international projects. The following is a description of the Company's international power projects, by fuel type: (i) Waste-to-Energy. During 2000, the Company acquired a 13% equity interest in an 18 MW mass-burn waste-to-energy project at Trezzo sull' Adda in the Lombardy Region of Italy which burns up to 500 metric tons per day of municipal solid waste. 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. and the municipality of Trezzo Sull'Adda. The Trezzo project is operated by Ambiente 2000 S.r.l. an Italian special purpose limited liability company of which the Company owns 40%. The solid waste supply for the project comes from municipalities and privately owned waste management organizations under long term contracts. The electrical output from the Trezzo project is sold at governmentally established preferential rates under a long term purchase contract to Italy's state-owned grid operator, Gestore della Rete di Trasmissione Nazionale S.p.A. The project started accepting waste in September 2002, successfully passed its performance tests in early 2003 and reached full commercial operation in August 2003. The late completion of the plant by the engineering, procurement and construction contractor, Protecma, represents a non-compliance with the terms of the contract with Protecma, and arbitration proceedings are currently underway with regard to amounts withheld by the project company, Prima Srl, in respect of penalties for late delivery of the plant. The original project debt facility provided 21 by a consortium of commercial banks was extinguished by Falck S.p.A. during the third quarter of 2003. While this debt is currently being refinanced with a new banking consortium, it is currently provided partially by Falck S.p.A. and partially through a short-term commercial bank credit facility guaranteed by Falck S.p.A. In January 2001, Ambiente 2000 S.r.l. 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 Ener TAD to operate and maintain a 10 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. 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 off-take contract with GRTN. The project is now in its second year of operation, and is being operated by its German construction contractor, Lurgi. There was a significant delay in starting up the plant after construction was complete due to a legal action by an environmental group that has subsequently been overturned. The O&M Agreement provides that A2000 takes over the operation and maintenance of the project at final acceptance under the terms of the engineering, procurement and construction contract for the project, such final acceptance requiring the plant to have performed over 12 months at specified levels of output. Due to the partial loading of the plant in the early months of operation resulting from delays in obtaining a construction permit for a new transmission line to enable the plant to produce electricity at its full 10MW capacity, operation and maintenance of the plant by A2000 has been delayed, and is expected to take place in the second quarter of 2004. (ii) Hydroelectric The Company operates the Don Pedro project and the Rio Volcan facilities in Costa Rica through an operating subsidiary pursuant to long term contracts. 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. (iii) Coal A consortium, of which the Company is a 26% member, owns a 510 MW (gross) coal-fired electric generating facility in The Philippines (the "Quezon Project"). The project first generated electricity in October 1999, and full commercial operation occurred during the second 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 PPA expiring in 2025, Meralco is obligated to take or pay for stated minimum annual quantities of electricity produced by the facility at an all-in tariff which consists of capacity, operating, energy, transmission and other fees adjusted to inflation, fuel cost and foreign exchange fluctuations. The consortium has entered into two coal supply contracts expiring in 2015 and 2022. Under these supply contracts, cost of coal is determined using a base energy price adjusted to fluctuations of specified international benchmark prices. The Company is operating the project through a local subsidiary under a long term agreement with the consortium. The financial condition of Meralco has been recently stressed by the failure of regulators to grant tariff increases to allow Meralco to achieve rates of return permitted by law. For further discussion, see Item 7, "Management's Discussion and Analysis." The Company has obtained political risk insurance for its equity investment in this project. The Company has majority equity interests in three coal-fired cogeneration facilities in three provinces in the People's Republic of China. Two of these projects are operated by the project entity, in which the Company has a majority interest. The third project is operated by an affiliate of the minority equity shareholder. Parties holding minority positions in the projects include a private company, a local government enterprise and affiliates of the local municipal government. In connection with one of these projects, the municipal government has enacted a resolution calling for the relocation of the cogeneration facility from the city center to an industrial zone. The project company is currently reviewing its options in this matter. While the steam produced at each of the three projects is intended to be sold under long term contracts to the industrial hosts, in practice, steam has been sold on either a short term basis to local industries or the industrial host, in each case at varying rates and quantities. For each of these projects, the electric power is sold at "average grid rate" to a subsidiary of the Provincial Power Bureau as well as industrial customers. The Company has obtained political risk insurance for its equity investment in these projects. 22 (iv) 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 pursuant to a PPA with minimum energy off-take provisions at a tariff divided into a fuel component and an "other" component. The fuel component reimburses the fuel cost incurred by the project up to a specified heat rate. The "other" component consists of a pre-determined base rate adjusted to actual load factor and foreign exchange fluctuations. The PPA also obligates the Board to supply all the natural gas requirements of the project at a pre-determined base cost adjusted to fluctuations on actual landed cost of the fuel in Bangladesh. The Board'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. The Company obtained separate political risk coverage for its equity interest in this project. During 2002, the Company was unable to renew a letter of credit related to this project in the approximate amount of $600,000, the purpose of which was to partially backstop the project entity's obligations under the PPA. As a result, El Paso agreed to temporarily provide this letter of credit until the next renewal in June, 2003. In June 2003, the Company obtained a replacement letter of credit. 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 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. The natural gas that fuels the project is supplied by BP Gas Espana, S.A. under a five-year supply contract at a set discount off the Spanish government's quarterly regulated maximum natural gas price. (v) Heavy Fuel Oil The Company owns interests in three heavy fuel oil fired diesel engine facilities in The Philippines. The Bataan Cogeneration project is a 58 MW facility that is owned and operated by the Company and has a 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. After this contract expires in 2004, the Company believes that the projects revenues will not be sufficient to cover its costs. As a result, the Company wrote off its investment in this project in 2002. The Company intends to shut down this facility in 2004. The Company owns a minority interest in the Island Power project, a 7 MW facility that has a long-term power contract with the National Power Corporation. The Company does not believe its equity interest in this project has any value and in 1998 wrote off its investment. This project is not operated by the Company. The Company is exploring means of divesting its interest in this facility to the holders of the majority interest. It is uncertain at this time whether the Company would realize any value from such a sale. A subsidiary of Covanta owns and operates the Magellan cogeneration project ("Magellan"), a 63 MW diesel fired electric generating facility 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 Philippine Economic Zone Authority pursuant to long term PPAs. On January 3, 2002, the Authority, the main power off-taker for this project, served the project with notice of termination of the PPA for alleged non-performance by the project. The Company 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 Corporation 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 the Authority 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 23 injunction restrains the Authority from terminating the PPA until such time as the merits of the case are resolved. If such case were ultimately to be decided in favor of the Authority, the project would lose not only the PPA but also that portion of the plant site under lease from the Authority as such lease is tied to the PPA. Under current high fuel pricing and low tariff conditions, the Company believes that the project revenues will be insufficient to cover both operating costs and debt service beyond the second quarter of 2004. CPIH is continuing to evaluate its options regarding the Magellan project including among others restructuring the project, effecting a sale and or entering into corporate rehabilitation. Given the uncertainties regarding Magellan, the Company wrote-off its investment in the project in 2002. 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 Covanta. 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 pursuant to a long term agreement with full pass-through tariff at a specified heat rate, operation and maintenance cost, and return on equity. The Board's obligations are guaranteed by the government of the State of Tamil Nadu. Bharat Petroleum Corporation, Ltd. supplies the oil requirements of the project through a fifteen-year fuel supply agreement based on market prices. In 2000, the Company acquired a controlling interest in a second project in India, 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 76.6% of the project equity, and operates the project through a subsidiary. The balance of the project ownership interest is held by an Indian company controlled by the original project developer. The electrical output of the project is sold to the Tamil Nadu Electricity Board pursuant to a long term agreement with under which the project company is reimbursed its fuel costs based upon the assumption that it operates at a specified heat rate as well as operation and maintenance cost, and return on equity. The Electricity Board's obligations are guaranteed by the government of the state of Tamil Nadu. Indian Oil Corporation, Ltd. supplies the oil requirements of the project through a fifteen-year fuel supply agreement based on market prices. Due to a lack of funds and generally poor financial condition, the Electricity Board has failed to pay the full amount due under the PPAs for both the Samalpatti and Madurai projects. To date, the Electricity Board has paid that portion of its payment obligations (approximately 92% with respect to each of Samalpatti, and Madurai) representing each project's operating costs, fuel costs and debt service. The Board has indicated a desire to renegotiate tariffs for both projects. INTERNATIONAL PROJECT SUMMARIES. Summary information with respect to the Company's projects(1) that are currently operating is provided in the following table: 24
DATE OF ACQUISITION/ NATURE OF COMMENCEMENT LOCATION SIZE INTEREST(1) OF OPERATIONS A. WASTE TO ENERGY 1. Trezzo (2) Italy 18MW Part Owner/Operator 2003 2. San Vittore (3) Italy 10MW Operator 2004 (est.) ------- SUBTOTAL 28MW B. HYDROELECTRIC 1. Rio Volcan (4) Costa Rica 17MW Part Owner/Operator 1997 2. Don Pedro(4) Costa Rica 14MW Part Owner/Operator 1996 ------- SUBTOTAL 31MW C. COAL 1. Quezon(5) The Philippines 490MW Part Owner/Operator 2000 2. Lin'an(6) China 24MW Part Owner/Operator 1997 3. Huantai(7) China 36MW Part Owner 1997 4. Yanjiang(8) China 24MW Part Owner/Operator 1997 ------- SUBTOTAL 574MW D. NATURAL GAS 1. Haripur(9) Bangladesh 128MW Part Owner/Operator 1999 2. Linasa(10) Spain 15MW Part Owner/Operator 2000 ------- SUBTOTAL 143MW E. DIESEL/HEAVY FUEL OIL 1. Island Power The Philippines 7MW Part Owner 1996 Corporation(11) 2. Bataan Cogeneration The Philippines 58MW Owner/Operator 1996 3. Magellan Cogeneration The Philippines 63MW Owner/Operator 1999
25 4. Samalpatti(6) India 106MW Part Owner/Operator 2001 5. Madurai(12) India 106MW Part Owner/Operator 2001 ------- SUBTOTAL 340MW TOTAL INTERNATIONAL MW IN OPERATION 1116MW
NOTES (1) The Company's ownership and/or operation interest in each facility listed below extends at least into calendar year 2007. (2) The Company has a 40% interest in the operator Ambiente 2000 S.r.l. ("A 2000"). (3) Operation by A2000 begins one year after the project begins commercial operation provided certain criteria are satisfied. It is estimated that A2000 will begin operation in the third quarter of 2004. (4) The Company has a less than 1% interest in this project. (5) The Company has an approximate 26% ownership interest in this project. (6) The Company has a 60% ownership interest in this project. (7) The Company has a 63.85% interest in this project. (8) The Company has a 96% ownership interest in this project. (9) The Company has an approximate 45% interest in this project. This project is capable of operating through combustion of heavy fuel oil in addition to natural gas. (10) The Company has a 50% ownership interest in the project. (11) The Company has a 19.6% ownership interest in this project. (12) The Company has an approximate 76.6% interest in this project. DESCRIPTION OF OTHER BUSINESS Since the First Petition Date, the Company, with the approval of the Bankruptcy Court, has sold or otherwise disposed of its interests in the Argentine Assets, its interests in the Arenas and the Team, the remaining aviation fueling and fuel facility management business related to three airports operated by the Port Authority of New York and New Jersey, and other miscellaneous assets related to the entertainment businesses. MARKETS, COMPETITION AND BUSINESS CONDITIONS (A) General Business Conditions. The Company's business can be adversely affected by general economic conditions, war, inflation, adverse competitive conditions, governmental restrictions and controls, change in law, natural disasters, energy shortages, fuel cost and availability, weather, the adverse financial condition of customers and suppliers, various technological changes and other factors over which the Company has no control. 26 The Company expects in the foreseeable future that competition for new projects will be intense in all domestic markets in which the Company conducts or intends to conduct its businesses, and its businesses will be subject to a variety of competitive and market influences. Once a project is financed and constructed, the Company'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 may have an adverse impact on a project over a long term operation. These risks include changes in law, severe weather and related casualty events, and the emergence of technologies that offer less expensive means of generating electricity or of providing water or wastewater treatment services. (B) Technology. (i) Waste-to-Energy 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 own and/or 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 rights to the Martin technology are provided pursuant to a cooperation agreement between Martin and the Company. The cooperation agreement gives the Company exclusive rights to market, and distribute parts and equipment for, the Martin technology in the United States, Canada, Mexico, Bermuda, and certain Caribbean countries. Martin is obligated to assist the Company in installing, operating and maintaining facilities incorporating the Martin technology. The 10-year term of the cooperation agreement renews automatically each year unless notice of termination is given, in which case the cooperation agreement would terminate 10 years after such notice. 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. (ii) Water and Wastewater During 1999, the Company purchased a controlling interest in DSS Environmental, Inc., which owns the patent for the DualSand(TM) 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. EMPLOYEE LABOR RELATIONS As of December 31, 2003, the Company employed approximately 2,400 full-time employees worldwide, of which approximately 2,000 were employed in the United States. During 2003, the Company effected a reduction in workforce affecting approximately 100 employees in connection with the sale of the Geothermal Business, its sale of various non-core assets, as well as the Company's decision in September 2002, within its core energy business, to 27 reduce the number of non-plant personnel and close satellite development offices in order to enhance its value. As part of this reduction in force, waste-to-energy, water and domestic independent power project headquarters management were combined and numerous other structural changes were instituted to improve management efficiency. Of the Company's employees in the United States, approximately 20% are unionized. Currently, the Company is a party to eight (8) collective bargaining agreements: three (3) of these agreements are scheduled to expire in 2004, one (1) in 2005 and one (1) in 2006. With respect to the remaining three (3) agreements, each of which has recently expired, the Company is currently in negotiations with the applicable collective bargaining representatives and the Company currently expects to reach agreement with each such representative to extend each such agreement on its current or similar terms. Covanta considers relations with its employees to be good and does not anticipate any material labor disputes in 2004. ENVIRONMENTAL REGULATORY LAWS (a) Domestic. The Company'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 chemicals and petroleum products (such laws and the regulations thereunder, "Environmental Regulatory Laws"). Other federal, state and local laws, such as the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") (collectively, "Environmental Remediation Laws") make the Company 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 but not limited to landfills that the Company's subsidiaries have owned, operated or leased or at which there has been disposal of residue or other waste generated, handled or processed by such subsidiaries. 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 landfill sites pursuant to certain leases that 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 any waste-to-energy, independent power project or water facility, and further require that permits be maintained throughout the operating life of the facility. There can be no assurance that all required permits will be issued or re-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 fines, penalties, damages or other sanctions, such as orders requiring certain remedial actions or limiting or prohibiting operation. To date, the Company 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 Regulatory Laws or permit requirements. Although the Company's operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, which may result in fines, penalties, damages or other sanctions, 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 parties potentially responsible for contribution to 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 28 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 Environmental Regulatory Laws 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 Environmental Remediation Laws prohibit disposal of regulated hazardous waste 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 are subject to regulation of water quality by state and federal agencies 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. The Company aims to provide 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 is required. 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. 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. 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 businesses are subject to the provisions of federal, state and local energy laws applicable to the development, ownership and operation of their domestic facilities and to similar laws applicable to their foreign operations. Federal laws and regulations applicable to many of the Company's domestic energy businesses impose limitations on the types of fuel used, prescribe the degree to which these businesses are subject to federal and state utility-type regulation and restrict the extent to which these businesses may be owned by one or more electric utilities. State regulatory regimes govern rate approval and the other terms and conditions pursuant to which utilities purchase electricity from independent power producers, except to the extent such regulation is governed 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 ("QFs") (facilities meeting certain size, fuel and ownership requirements) from compliance with certain provisions of the Federal Power Act (the "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 29 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 30 MW (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. Many state public utility commissions have approved longer-term PPAs as part of their implementation of PURPA. 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" 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 under PUHCA. Congress continues to consider the enactment of comprehensive energy legislation, including the Energy Policy Act of 2003 which was passed by the House of Representatives but failed to be voted on by the Senate last year, that would include provisions to prospectively eliminate the mandatory purchase and sale obligation of PURPA under certain circumstances and to repeal PUHCA. Repeal of PUHCA would allow both independent power producers 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 the Company's existing 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. 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 the impact of the problems California experienced in 2001 and 2002 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 30 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. AVAILABLE INFORMATION The Company files annual reports, quarterly reports, current reports and other information with the Securities and Exchange Commission. Copies of such materials can be read and copied from the Public Reference Room of the Securities and Exchange Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. You can access our filings electronically by visiting the Securities and Exchange Commission's website at http://www.sec.gov. Filings are also available on Company's website at www.covantaenergy.com or free of charge by writing to Lou Walters at 40 Lane Road, Fairfield, N.J. 07004. 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 a subsidiary. In 2004, the Company will close its office in Fairfax, Virginia and City of Industry California. 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 (IN ACRES, EXCEPT AS OTHERWISE NATURE OF LOCATION NOTED) SITE USE (1) INTEREST (2) - -------------------------------------------------------------------------------------------------------------------- 1. Fairfield, New Jersey 5.4 Office space Own 2. Fairfax, Virginia 4800 sq ft. Office space Lease 3. Redding, California 3600 sq. ft. Office space Lease 4. City of Industry, California 953 sq. ft. Office space Lease 5. Marion County, Oregon 15.2 Waste-to-energy facility Own 6. Alexandria/Arlington, Virginia 3.3 Waste-to-energy facility Lease 7. Bristol, Connecticut 18.2 Waste-to-energy facility Own 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
31
APPROXIMATE SITE SIZE (IN ACRES, EXCEPT AS OTHERWISE NATURE OF LOCATION NOTED) SITE USE (1) INTEREST (2) - ------------------------------------------------------------------------------------------------------------ 12. Haverhill, Massachusetts 16.8 Landfill Expansion 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. Onondaga County, New York 12 Waste-to-energy facility Lease 23. Bataan, The Philippines 3,049 sq. m. Diesel power plant Lease 24. Zhejiang Province, 33,303 sq. m. Coal-fired Land Use Right cogeneration facility reverts to China Joint Venture People's Republic of China Partner upon termination of Joint Venture Agreement 25. Shandong Province, 33,303 sq. m. Coal-fired Land Use Right cogeneration facility reverts to China Joint Venture People's Republic of China Partner upon termination of Joint Venture Agreement 26. Jiangsu Province, 65,043.33 sq. m. Coal-fired co-generation Land Use Right facility reverts to China Joint Venture People's Republic of China Partner upon termination of Joint Venture Agreement
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APPROXIMATE SITE SIZE (IN ACRES, EXCEPT AS OTHERWISE NATURE OF LOCATION NOTED) SITE USE (1) INTEREST (2) - ------------------------------------------------------------------------------------------------------------ 27. Rockville, Maryland N/A Landfill gas project Lease 28. San Diego, California N/A Landfill gas project Lease 29. Oxnard, California N/A Landfill gas project Lease 30. Sun Valley, California N/A Landfill gas project Lease 31. Salinas, California N/A Landfill gas project Lease 32. Santa Clara, California N/A Landfill gas project Lease 33. Stockton, California N/A Landfill gas project Lease 34. Los Angeles, California N/A Landfill gas project Lease 35. Burney, California 40 Wood waste project Lease 36. Jamestown, California 26 Wood waste project Own (50%) 37. Westwood, California 60 Wood waste project Own 38. Oroville, California 43 Wood waste project Own 39. Whatcom County, Washington N/A Hydroelectric project Own (50%) 40. Weeks Falls, Washington N/A Hydroelectric project Lease 41. Cavite, The Philippines 13,122 sq. m. Heavy fuel oil project Lease 42. Cavite, The Philippines 10,200 sq. m. Heavy fuel oil project Lease 43. Manila, The Philippines 468 sq. m. Office space Lease 44. Bangkok, Thailand 675.63 sq. m. Office space Lease 45. Chennai, India 1797 sq. ft. Office space Lease 46. Samalpatti, India 2,546 sq. ft. Office space Lease 47. Samayanallur, India 1,300 sq. ft. Office space Lease 48. Samayanallur, India 17.09 Heavy fuel oil project Lease 49. Samayanallur, India 2.3153 Heavy fuel oil project Lease 50. Samalpatti, India 30.3 Heavy fuel oil project Lease
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APPROXIMATE SITE SIZE (IN ACRES, EXCEPT AS OTHERWISE NATURE OF LOCATION NOTED) SITE USE (1) INTEREST (2) - ------------------------------------------------------------------------------------------------------------ 51. Shanghai, China 144.7 sq. m. Office space Lease 52. Imperial County, California 83 Undeveloped Desert Land Own
- ---------------------- (1) 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 item 11, 23-25, 27-34. In addition, all leasehold interests existed 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 the First Petition Date, Covanta and 123 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. Since the First Petition Date, 32 additional subsidiaries filed their petitions for relief under Chapter 11 of the Bankruptcy Code. In addition, eight subsidiaries that had filed petitions on the First Petition Date have been sold as part of the Company's disposition of non-core assets, and are no longer owned by the Company or part of the bankruptcy proceeding. The Chapter 11 Cases were jointly administered for procedural purposes only during which the Company operated its business as debtors in possession pursuant to the Bankruptcy Code. Except for the Remaining Debtors which remain in bankruptcy and those subsidiaries that are being liquidated under the Reorganization Plan, the Company emerged from Chapter 11 on March 10, 2004 upon consummation of the DHC Transaction, as further described in Item 1. The Company is party to a number of other claims, lawsuits and pending actions, most of which are routine and all of which are incidental to its business. The Company assesses the likelihood of potential losses on an ongoing basis and when losses are considered probable and reasonably estimable, records as a loss an estimate of the ultimate outcome. If the Company can only estimate the range of a possible loss, an amount representing the low end of the range of possible outcomes is recorded. The final consequences of these proceedings are not presently determinable with certainty. Generally claims and lawsuits against each Debtor emerging from bankruptcy upon consummation of the DHC Transaction arising from events occurring prior to its respective Petition Date will be resolved pursuant to the Reorganization Plan. However, to the extent that claims are not dischargeable in bankruptcy, claims arising from events prior to the Petition Date may not be so resolved. For example, persons who were personally injured prior to the Petition Date but whose injury only became manifest thereafter will not be resolved pursuant to the Reorganization Plan. Environmental Matters The Company's operations are subject to the Environmental Regulatory Laws and the Environmental Remediation Laws. Although the Company's operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, which may result in fines, penalties, damages or other sanctions, 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 parties potentially responsible for contribution to 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 34 operations, its contractual arrangement with the purchaser of such operations. Generally such claims arising prior to the Petition Date will be resolved in and discharged by the Chapter 11 Cases. On December 31, 2002, the Company divested its remaining aviation assets, consisting of fueling operations at three airports. Ogden New York Services, Inc., a subsidiary of Covanta, retained certain environmental liabilities relating to the John F. Kennedy International Airport, as described below. In addition, the Company agreed to indemnify the buyer for various other liabilities, including certain environmental matters; however, the buyer's sole recourse is an offset right against payments it owes the Company under a $2.6 million promissory note delivered as part of the consideration for this sale. Because this indemnity arose after the Petition Date, it is not affected by the Debtors' discharge in bankruptcy. Prior to the First Petition Date, the Company agreed to indemnify various other 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. To date, such indemnification has been sought with respect to alleged environmental damages at the Miami Dade International Airport, as described below. 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 believes that these indemnities are pre-petition unsecured liabilities of a liquidating Debtor treated under the Liquidation Plan, and that therefore the Company would have no further financial responsibility regarding these matters. The Martin County Coal Corporation and others have as third party plaintiffs joined Ogden Environmental and Energy Services Co., Inc. ("Ogden Environmental"), a liquidating Debtor subsidiary of the Company, as a third party defendant to several pending litigations in the Circuit Court in Martin County, Kentucky arising from an October 2000 failure of a mine waste impoundment that resulted in the release of approximately 250 million gallons of coal slurry. The third party plaintiffs allege that Ogden Environmental is liable in an unspecified amount for contribution and/or indemnification arising from an independent contractor agreement to perform engineering and technological services with respect to the impoundment from 1994 to 1996. Prior to being joined, Ogden Environmental had not been a party to the underlying litigation, some of which had been pending for two years. Plaintiffs in the underlying action, have also indicated that they will seek to join Ogden Environmental to the litigation. On April 30, 2003, the Bankruptcy Court entered an agreed-upon order by which Third Party Plaintiffs may liquidate their claims (if any) against Ogden Environmental, but may not recover or execute judgment against Ogden Environmental. To date, First Party Plaintiffs have not sought similar relief from the Bankruptcy Court and thus the automatic stay continues to bar joinder of Ogden Environmental as a direct defendant. Because the Reorganization Plan does not contemplate that creditors of liquidated entities will receive any distribution and the Company should have no further financial responsibility regarding these matters, Ogden Environmental has informed counsel to the other parties to these actions that Ogden Environmental does not intend to participate in the litigation or otherwise defend against the claims against it. Because the extent to which Ogden Environmental is responsible for the impoundment failure will be a determinate of the amount that other defendants are ultimately responsible for damages due to injured parties, Ogden Environmental's liability is likely to be contested by the other parties to the case, regardless of Ogden Environmental's non-participation. On September 15, 2003, the Environmental Protection Agency (the "EPA") issued a "General Notice Letter" identifying Covanta as among 41 potentially responsible parties ("PRPs") with respect to the Diamond Alkali Superfund Site/"Lower Passaic River Project." The EPA alleges that the PRPs are liable for releases or potential releases of hazardous substances to a 17 mile segment of the Passaic River, located in northern New Jersey, and requests the PRPs' participation as "cooperating parties" with respect to the funding of a five to seven year study to determine an environmental remedial and restoration program. The EPA currently estimates the cost of this study at $20 million. The study also will be used in determining the PRPs' respective shares of liability for costs associated with implementation of the selected cleanup program, as well as potential damages for injury to, destruction of, or loss of natural resources. As a result of uncertainties regarding the source and scope of contamination, the number of PRPs that ultimately may be named in this matter, and the varying degrees of responsibility among classes of PRPs, the Company's share of liability, if any, cannot be determined at this time. Covanta was a Debtor and consequently its liability, if any, should be discharged in accordance with the Chapter 11 process. On March 5, 2004, one PRP filed a motion in the Bankruptcy Court for leave to file a late proof of claim; no other proofs of claim have been filed relating to this matter. The allegations as to Covanta relate to discontinued, non-energy operations. 35 In 1985, Covanta sold its interests in several manufacturing subsidiaries, some of which allegedly used asbestos in their manufacturing processes, and one of which was Avondale Shipyards, now a subsidiary of Northrop Grumman Corporation. Some of these former subsidiaries have been and continue to be parties to asbestos-related litigation. In 2001, Covanta was named a party, with 45 other defendants, to one such case. Before the First Petition Date, Covanta had filed for its dismissal from the case. Also, eleven proofs of claim seeking unliquidated amounts have been filed against Covanta in the Chapter 11 Cases based on what appears to be purported asbestos-related injuries that may relate to the operations of former Covanta subsidiaries. Covanta believes that these claims lack merit and has filed objections to them, and plans to object vigorously to such claims if necessary to resolve them. The potential costs related to all of the following 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. 1. On June 8, 2001, the EPA named the Company's wholly-owned subsidiary, Ogden Martin Systems of Haverhill, Inc., now known as Covanta Haverhill, Inc., as one of 2,000 PRPs at the Beede Waste Oil Superfund Site, Plaistow, New Hampshire in connection with alleged waste disposal by PRPs on this site. On January 9, 2004, the EPA signed its Record of Decision with respect to the cleanup of the site. According to the EPA, the costs of response actions incurred as of January 2004 by the EPA and the State of New Hampshire total approximately $19 million, and the estimated cost to implement the remedial alternative selected in the Record of Decision is an additional $48 million. Covanta Haverhill, Inc. is participating in PRP group discussions towards settlement of the EPA's claims and will continue to seek a negotiated resolution of this matter. Although Covanta Haverhill, Inc.'s share of liability, if any, cannot be determined at this time 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 PRPs, the Company believes that based on the amount of materials Covanta Haverhill, Inc. sent to the site, any liability will not be material. Covanta Haverhill, Inc. was not a Debtor. 2. On April 9, 2001, Ogden Ground Services, Inc. and Ogden Aviation, Inc., together with approximately 250 other parties, were named by Metropolitan Dade County, Florida as PRPs, pursuant to the Environmental Remediation Laws, with respect to an environmental cleanup at the Miami Dade International Airport. Dade County alleges that it has expended over $200 million in response and investigation costs and expects to spend an additional $250 million to complete necessary response actions. The lawsuit is currently subject to a tolling agreement between PRPs and Dade County. The Company's liability, if any, arose from its pre-petition unsecured obligation to indemnify the transferee of Ogden Ground Services, which obligation has been extinguished by means of the mutual settlement, waiver and release agreement between Covanta and the transferee approved by the Bankruptcy Court on December 23, 2003. Ogden Aviation, Inc. is a liquidating Debtor and the above matter is expected to have no impact on the Company. 3. On May 25, 2000 the California Regional Water Quality Control Board, Central Valley Region, issued a cleanup and abatement order to Pacific-Ultrapower Chinese Station, a general partnership in which one of Covanta's subsidiaries owns 50% and which owns and operates an independent power project in Jamestown, California which uses waste wood as a fuel. The order is in connection with the partnership's neighboring property owner's use of ash generated by Chinese Station's plant. Chinese Station completed the cleanup in mid-2001 and submitted its Clean Closure Report to the Water Quality Control Board on November 2, 2001. The Board and other state agencies continue to investigate alleged civil and criminal violations associated with the management of the material. The partnership believes it has valid defenses, and a petition for review of the order is pending. Settlement discussions in this matter are underway. Based on penalties proposed by the Board, the Company believes that this matter can be resolved in amounts that will not be material to the Company taken as a whole. Chinese Station and Covanta's subsidiary that owns a partnership interest in Chinese station were not Debtors. 4. On January 4, 2000 and January 21, 2000, United Air Lines, Inc. and American Airlines, Inc., respectively, named Ogden New York Services, Inc., in two separate lawsuits (collectively, the "Airlines Lawsuits") 36 filed in the Supreme Court of the State of New York, which have been consolidated for joint trial. The lawsuits seek a judgment declaring that Ogden New York Services is responsible for petroleum contamination at airport terminals formerly or currently leased by United and American at John F. Kennedy International Airport in New York City. United seeks approximately $1.9 million in remediation costs and legal expenses, as well as certain declaratory relief, against Ogden New York Services and four airlines, including American Airlines. American seeks approximately $74.5 million in remediation costs and legal fees from Ogden New York Services and United Air Lines. Ogden New York Services has filed counter-claims and cross-claims against United and American for contribution. American filed a proof of claim against Ogden New York Services in the Chapter 11 Case, alleging an unsecured claim of approximately $74 million. Ogden New York Services disputes the allegations and believes that the damages sought are overstated in view of the airlines' responsibility for the alleged contamination and that Ogden New York Services has defenses under its respective leases and its permits with the Port Authority of New York and New Jersey which operates the airport. This litigation was stayed as to Ogden New York as a result of the Chapter 11 Cases. Ogden New York Services believes that the claims asserted by United and American are prepetition unsecured obligations of Ogden New York (a liquidating Debtor) under the Liquidation Plan, and that therefore the Company should have no further financial responsibility regarding those matters beyond the assets of Ogden New York Services, which may include its rights as an insured under the Company. In connection with this litigation, prior to the Petition Date, Ogden New York Services commenced an action against Zurich Insurance Company. This litigation sought, among other things, a declaratory judgment that Zurich was obligated to defend and indemnify Ogden New York Services in the litigation under certain environmental impairment liability policies. In April 2003, in order to avoid the uncertainty and continued costs of the litigation, Ogden New York Services and Zurich reached a settlement whereby Zurich agreed to pay to Ogden New York $1.8 million for environmental impairments allegedly resulting from the Ogden New York's fueling operations at JFK Airport. American Airlines maintains it is entitled to a portion of the insurance proceeds and in connection with obtaining Bankruptcy Court approval of the settlement with Zurich, American and Ogden New York Services agreed that the Bankruptcy Court's approval would provide that (i) Ogden New York Services preserved its rights to argue that American was not entitled to any amount of the settlement proceeds, (ii) American preserved its rights to assert a claim for the amount received by Ogden New York Services in the settlement, and (iii) Ogden New York Services agreed not to distribute this amount to any other party interest on account of any purported interests in such proceeds without prior Bankruptcy Court order and without prior notice to American's counsel. Although American has asserted its rights to the settlement proceeds in its objections to the settlement with Zurich, it has not to date filed an adversary proceeding in Ogden New York Services' bankruptcy case or taken any other action seeking a determination of its rights to the settlement proceeds. Under the Reorganization Plan, the settlement proceeds, as will be transferred to the Company and will not be available for distribution to any of Ogden New York's unsecured creditors, including American. The Company and American Airlines have reached a tentative agreement pursuant to which the Company would pay American Airlines $500,000 with respect to the Company's recovery from Zurich, American Airlines would be allowed a $15 million claim against Ogden New York Services, Inc, a liquidating Debtor, and American Airlines would be assigned the Company's rights against its insurers with respect to American Airlines' claims. The settlement is subject to definitive documentation and Bankruptcy Court approval. 5. On December 23, 1999, an aviation subsidiary of Covanta was named as a third-party defendant in an action filed in the Superior Court of the State of New Jersey alleging that the aviation subsidiary generated hazardous substances at a reclamation facility known as the Swope Oil and Chemical Company Site. Third-party plaintiffs seek contribution and indemnification from the aviation subsidiary and over 90 other third parties, as PRPs, for costs incurred and to be incurred in the cleanup. This action was stayed pending the outcome of first- and second-party claims. The aviation subsidiary's share of liability, if any, cannot be determined at this time because of uncertainties regarding the source and scope of contamination, the large number of PRPs and the varying degrees of responsibility among various classes of PRPs. The aviation subsidiary is a liquidating Debtor and this matter is expected to have no impact on the Company. 37 Other Matters 1. As discussed in "Developments in Project Restructurings", prior to the Petition Date, Covanta Onondaga commenced litigation challenging an effort by OCRRA to terminate its service agreement with Covanta Onondaga. All of this litigation, including the above mentioned appeals, has been resolved pursuant to the settlement between OCRRA and the Debtors, and is in the process of being dismissed following the effective date of the Reorganization Plan. 2. As discussed above in "Developments in Project Restructurings", the Town of Babylon, New York filed a proof of claim against Covanta Babylon for approximately $13.4 million in pre-petition damages and $5.5 million in post-petition damages, alleging that Covanta Babylon has accepted less waste than required under the service agreement between the Babylon and Covanta Babylon at the waste to energy facility in Babylon. The Company and the Town have reached a settlement of their disputes and associated litigation in Bankruptcy Court has been dismissed. See Item 1. 3. In late 2000, Lake County, Florida commenced a lawsuit in Florida state court against Covanta Lake, Inc. which also refers to its merged successor, as defined below) relating to the waste-to-energy facility operated by Covanta in Lake County, Florida (the "Lake Facility"). In the lawsuit, Lake County sought to have its Service Agreement with Covanta Lake declared void and in violation of the Florida Constitution. That lawsuit was stayed by the commencement of the Chapter 11 Cases. Lake County subsequently filed a proof of claim seeking in excess of $70 million from Covanta Lake and Covanta. On June, 20, 2003, Covanta Lake filed a motion with the Bankruptcy Court seeking entry of an order (i) authorizing Covanta Lake to assume, effective upon confirmation of a plan of reorganization for Covanta Lake, its Service Agreement with Lake County, (ii) finding no cure amounts due under the Service Agreement, and (iii) seeking a declaration that the Service Agreement is valid, enforceable and constitutional, and remains in full force and effect. Contemporaneously with the filing of the assumption motion, Covanta Lake filed an adversary complaint asserting that Lake County is in arrears to Covanta Lake in the amount of more than $8.5 million. Shortly before trial commenced in these matters, the Company and Lake County reached a tentative settlement calling for a new agreement specifying the parties' obligations and restructuring of the project. That tentative settlement and the proposed restructuring will involve, among other things, termination of the existing Service Agreement and the execution of a new waste disposal agreement which shall provide for a put-or-pay obligation on Lake County's part to deliver 163,000 tons per year of acceptable waste to the Lake Facility and a different fee structure; a replacement guarantee from Covanta in a reduced amount; the payment by Lake County of all amounts due as "pass through" costs with respect to Covanta Lake's payment of property taxes; the payment by Lake County of a specified amount in each of 2004, 2005 and 2006 in reimbursement of certain capital costs; the settlement of all pending litigation; and a refinancing of the existing bonds. The Lake settlement is contingent upon, among other things, receipt of all necessary approvals, as well as a favorable outcome to the Company's pending objection to the proof of claims filed by F. Browne Gregg, a third-party claiming an interest in the existing Service Agreement that would be terminated under the proposed settlement. On November 3-5, 2003, the Bankruptcy Court conducted a trial on Mr. Gregg's proofs of claim. At issue in the trial was whether Mr. Gregg is entitled to damages as a result of Covanta Lake's proposed termination of the existing Service Agreement and entry into a waste disposal agreement with Lake County. As of March 22, 2004, the Bankruptcy Court had not ruled on the Company's claims objections. Based on the foregoing, the Company has determined not to propose a plan of reorganization or plan of liquidation for Covanta Lake at this time, and instead that Covanta Lake should remain a debtor-in-possession after the effective date of the Reorganization Plan. To emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Lake Facility, Covanta has rejected its guarantees of Covanta's obligations relating to the operation and maintenance of the Lake Facility. The Company anticipates that if a restructuring is consummated, Covanta may at that time issue new parent guarantees in connection with that restructuring and emergence from bankruptcy. 38 Depending upon the ultimate resolution of these matters with Mr. Gregg and the County, Covanta Lake may determine to assume or reject one or more executory contracts related to the Lake Facility, terminate the Service Agreement with Lake County for its breaches and default and pursue litigation against Lake County and/or Mr. Gregg. Based on this determination, the Company may reorganize or liquidate Covanta Lake. Depending on how Covanta Lake determines to proceed, creditors of Covanta Lake may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not affect its ability to implement its business plan. 4. During 2003 Covanta Tampa Construction, Inc. completed construction of a 25 million gallon per day desalination-to-drinking water facility under a contract with TBW near Tampa, Florida. Covanta Energy Group, Inc., guaranteed CTC's performance under its construction contract with TBW. A separate subsidiary, Covanta Tampa Bay, Inc entered into a contract with TBW to operate the Tampa Water Facility after construction and testing is completed by CTC. As construction of the Tampa Water Facility neared completion, the parties had material disputes between them, primarily relating to (i) whether CTC has satisfied acceptance criteria for the Tampa Water Facility; (ii) whether TBW has obtained certain permits necessary for CTC to complete start-up and testing, and for CTB to subsequently operate the Tampa Water Facility; (iii) whether influent water provided by TBW for the Tampa Water Facility is of sufficient quality to permit CTC to complete start-up and testing, or to permit CTB to operate the Tampa Water Facility as contemplated and (iv) if and to the extent that the Tampa Water Facility cannot be optimally operated, whether such shortcomings constitute defaults under CTC's agreements with TBW. In October 2003, TBW issued a default notice to CTC, indicated that it intended to commence arbitration proceedings against CTC, and further indicated that it intended to terminate CTC's construction agreement. As a result, on October 29, 2003, CTC filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in order to, among other things, prevent attempts by TBW to terminate the construction agreement between CTC and TBW. On November 14, 2003, TBW commenced an adversary proceeding against CTC and filed a motion seeking a temporary restraining order and preliminary injunction directing that possession of the Tampa Water Facility be turned to TBW. On November 25, 2003, the Bankruptcy Court denied the motion for a temporary restraining order and preliminary injunction and ordered, among other things, that the parties attempt to resolve their disputes in a non-binding mediation. In February 2004 the Company and TBW reached a tentative compromise of their disputes which has been approved by the Bankruptcy Court, subject to definitive documentation, and confirmation of an acceptable plan of reorganization for CTC and CTB, which were not included in the Reorganization Plan. Under that tentative compromise, all contractual relationships between the Company and TBW will be terminated, CTC will operate the facility in "hot stand-by" for a limited period of time, and the responsibility for optimization and operation of the Tampa Water Facility will be transitioned to a new, non-affiliated operator. In addition, TBW will pay $4.95 million to or for the benefit of CTC, of which up to $550,000 is earmarked for the payment of claims under the subcontracts previously assigned by the Company to TBW. The settlement funds ultimately would be distributed to creditors and equity holders of CTC and CTB pursuant to a plan of reorganization for CTC. If the parties are unable to resolve their differences consensually, and depending upon, among other things, whether the parties are able to successfully effect the settlement described above, the Company may, among other things, commence additional litigation against TBW, assume or reject one or more executory contracts related to the Tampa Water Facility, or propose liquidating plans and/or file separate plans of reorganization for CTB and/or CTC. In such an event, creditors of CTC and CTB may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not negatively affect its ability to implement its business plan. 39 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 2003. 40 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 2003 2002 - ------------------------------------------------------------------------ High Low High Low Common: First Quarter .............. 0.02 0.01 $ 5.49 $ 0.56 Second Quarter ............. 0.02 0.005 0.09 0.015 Third Quarter .............. 0.01 0.006 0.028 0.008 Fourth Quarter ............. 0.009 0.003 0.015 0.005 -------------------------------------- Preferred: First Quarter .............. N/A* N/A $16.10 $ 15.00 Second Quarter ............. N/A N/A 2.50 0.25 Third Quarter .............. N/A N/A 0.35 0.35 Fourth Quarter ............. N/A N/A 0.25 0.25 -------------------------------------- * No closing or bid prices were available. The information above reflects the high and low closing sale price for the shares of the Company's common and $1.875 cumulative convertible preferred stock on the New York Stock Exchange (the "Exchange") for the first quarter of 2002, and the high and low bid prices for such stock on the National Quotation Bureau's Pink Sheets for the last three quarters of 2002 and all four quarters of 2003. Such over-the-counter quotations reflect inter-dealer prices without retail mark up, mark down or commission and may not represent actual transactions. On April 1, 2002, Covanta Energy Corporation and several of its domestic subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code. On the same day, the New York Stock Exchange suspended trading of the Company's common stock and $1.875 cumulative convertible preferred stock and began processing an application to the SEC to delist the Company from the Exchange. The SEC granted the application for the removal by Order dated May 16, 2002 and issued an order removing the Company's stock from listing and registration on the Exchange effective May 17, 2002. Since this date, the Company's shares are traded on the National Quotation Bureau's Pink Sheets. On March 10, 2004, all then outstanding preferred and common stock was cancelled and extinguished in accordance with the Reorganization Plan. Holders of preferred and common stock received no distributions or other consideration on account of their securities cancelled and extinguished under the Reorganization Plan. SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS See "ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - Equity Compensation Plan Information" of this Form 10-K. 41 ITEM 6. SELECTED FINANCIAL DATA COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES
- --------------------------------------------------------------------------------------------------------------------------------- DECEMBER 31, 2003 2002 2001 2000 1999 - --------------------------------------------------------------------------------------------------------------------------------- (In thousands of dollars, except per -share amounts) TOTAL REVENUES FROM CONTINUING OPERATIONS ...............$ 790,468 $ 825,781 $ 917,646 $ 856,434 $ 899,618 -------------- -------------- ----------- ----------- ---------- Loss from continuing operations before cumulative effect of change in accounting principles (26,764) (127,698) (205,686) (103,132) (49,860) Income (loss) from discontinued operations .............. 78,814 (43,355) (25,341) (126,153) (28,281) Cumulative effect of change in accounting principles .... (8,538) (7,842) -- -- (3,820) -------------- -------------- ----------- ----------- ---------- Net income (loss) ....................................... 43,512 (178,895) (231,027) (229,285) (81,961) -------------- -------------- ----------- ----------- ---------- BASIC EARNINGS (LOSS) PER SHARE: Loss from continuing operations before cumulative effect of change in accounting principles (0.54) (2.56) (4.14) (2.08) (1.02) Income (loss) from discontinued operations .............. 1.58 (0.88) (0.51) (2.55) (0.57) Cumulative effect of change in accounting principles .... (0.17) (0.16) -- -- (0.08) -------------- -------------- ----------- ----------- ---------- Total ................................................... 0.87 (3.60) (4.65) (4.63) (1.67) -------------- -------------- ----------- ----------- ---------- DILUTED EARNINGS (LOSS) PER SHARE: Loss from continuing operations before cumulative effect of change in accounting principles (0.54) (2.56) (4.14) (2.08) (1.02) Income (loss) from discontinued operations .............. 1.58 (0.88) (0.51) (2.55) (0.57) Cumulative effect of change in accounting principles .... (0.17) (0.16) -- -- (0.08) -------------- -------------- ----------- ----------- ---------- Total ................................................... 0.87 (3.60) (4.65) (4.63) (1.67) -------------- -------------- ----------- ----------- ---------- TOTAL ASSETS ............................................ 2,613,580 2,840,107 3,247,152 3,298,828 3,728,658 -------------- -------------- ----------- ----------- ---------- LONG-TERM DEBT (LESS CURRENT PORTION AND LIABILITIES SUBJECT TO COMPROMISE) .................. 935,335 1,151,996 1,600,983 1,749,164 1,884,427 -------------- -------------- ----------- ----------- ---------- SHAREHOLDERS' EQUITY (DEFICIT) ......................... (128,034) (172,313) 6,244 231,556 442,001 -------------- -------------- ----------- ----------- ---------- SHAREHOLDERS' EQUITY (DEFICIT) PER COMMON SHARE ........ (2.57) (3.47) 0.11 4.65 8.92 -------------- -------------- ----------- ----------- ---------- CASH DIVIDENDS DECLARED PER COMMON SHARE ................ -- -- -- -- 0.625 -------------- -------------- ----------- ----------- ----------
Net income in 2003 includes net after-tax gain on discontinued operations of $78.8 million or $1.58 per diluted share, $83.3 million or $1.67 per diluted share of reorganization expenses, net charges of $16.7 million, or $0.34 per diluted share, reflecting the write-down of and obligations related to held for use, and $8.5 million or $0.17 per diluted share for the cumulative effect of change in accounting principle related to asset retirement obligations. Net loss in 2002 includes net charges of $84.9 million, or $1.70 per diluted share, reflecting the write-down of and obligations related to assets held for use and $49.1 million, or $1.00 per diluted share, of reorganization costs, both within continuing operations, $43.4 million or $0.88 per diluted share, for discontinued operations and a $7.8 million or $0.16 per diluted share for the cumulative effect of change in accounting principle related to the write-off of goodwill. Net loss in 2001 includes net charges of $186.5 million, or $3.75 per diluted share, reflecting the write-down of and obligations related to assets held for sale and loss from discontinued operations of $25.3 million, or $0.51 per diluted share. Net loss in 2000 includes net charges of $56.0 million, or $1.13 per diluted share, reflecting the write-down of assets held for sale and $60.4 million, or $1.22 per diluted share, reflecting costs associated with non-energy businesses, and organizational streamlining costs composed of $45.5 million, or $0.92 per diluted share, for continuing operations and $126.2 million, or $2.55 per diluted share, for loss from discontinued operations. Net loss in 1999 includes net charges of $97.8 million, or $1.99 per diluted share, reflecting costs associated with then existing non-core businesses and impairment of certain assets, composed of $62.5 million, or $1.27 per diluted share, for continuing operations and $28.3 million, or $0.57 per diluted share, for loss from discontinued operations and a $3.8 million or $0.08 per diluted share for the cumulative effect of change in accounting principle related to the write-off of start up costs. 42 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS This report may contain forward looking statements relating to future events and future performance of the Company within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 including, without limitation, statements regarding the Company's expectations, beliefs, intentions or future strategies that are signified by the words "expects," "anticipates," "intends," "believes" or similar language. Actual results could differ materially from those anticipated in such forward looking statements. All forward-looking statements included in this document are based on information available to the Company on the date hereof, and the Company assumes no obligation to update any forward-looking statements. The Company cautions investors that its business and financial performance are subject to very substantial 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, the Company's reorganization and ability to continue as a going concern, 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. The following discussion and analysis also should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. REORGANIZATION On March 10, 2004, Covanta and certain of its affiliates consummated its Reorganization Plan and emerged from its reorganization proceeding under Chapter 11 of the Bankruptcy Code. As a result of the consummation of the Reorganization Plan, Covanta is a wholly owned subsidiary of Danielson. The Chapter 11 Cases commenced on the First Petition Date, when Covanta and 123 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York . After the First Petition Date, thirty-two additional subsidiaries filed their Chapter 11 petitions for relief under the Bankruptcy Code. Eight subsidiaries that had filed petitions on the First Petition Date were sold as part of the Company's disposition of assets during the Chapter 11 Cases and are no longer owned by the Company. All of the Chapter 11 Cases were jointly administered under the caption "In re Ogden New York Services, Inc., et al., Case Nos. 02-40826 (CB), et al." The debtors under the Chapter 11 Cases (collectively, the "Debtors") operated their business as debtors-in-possession pursuant to the Bankruptcy Code. The pending Chapter 11 Cases were jointly administered for procedural purposes only. International operations and certain other subsidiaries and joint venture partnerships were not included in the filing. (See Note 2 to the Consolidated Financial Statements for a more detailed discussion of these Chapter 11 Cases.) The 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. The Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, (i) the Company's ability to utilize the net operating loss carry forwards ("NOLs") of Danielson, and (ii) 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 that 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 uncertainty. Therefore, if the "going concern" basis were not used for the Consolidated Financial Statements, significant adjustments could be necessary to the carrying values of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used. See Note 2 to the Consolidated Financial Statements, for additional information about the Company's Reorganization Plan. The Company's Consolidated Financial Statements also have been prepared in accordance with The American Institute of Certified Public Accountants Statement of Position 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code", ("SOP 90-7"). Accordingly, all pre-petition liabilities believed to be subject to compromise have 43 been segregated in the Consolidated Balance Sheets and classified as Liabilities subject to compromise, at the estimated amount of allowable claims. Liabilities not believed to be subject to compromise are separately classified as current and non-current. Revenues, expenses, including professional fees, realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as Reorganization Items. Also, interest expense is 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. Cash used for reorganization items is disclosed separately in the Consolidated Statements of Cash Flows. At December 31, 2003, the Company had classified as discontinued operations the following businesses: the geothermal companies which were sold on December 18, 2003, the Tulsa waste-to-energy operations, and the Arrowhead Pond operations. At December 31, 2002, the Company classified as discontinued operations two Thailand subsidiaries which were sold in 2002. The statements of Consolidated Operations and Comprehensive Income (Loss) for December 31, 2002 and 2001 were reclassified to reflect these discontinued operations. See Note 3 to the Consolidated Financial Statements for additional information regarding these assets. As indicated below under Critical Accounting Policies, the discussion is based on historical financial information and does not reflect fresh start accounting changes at the effective date of the Company's emergence from bankruptcy. The Company's unaudited pro-forma balance sheet as of December 31, 2003, which reflects fresh start adjustments, is included in Item 8 as an unaudited note to the Consolidated Financial Statements. Because of the application of fresh start accounting effective upon emergence and the Company's new financial structure, the Consolidated Financial Statements of the Company after emergence are not presented on a comparable basis with the historical Consolidated Financial Statements of the Company. EXECUTIVE SUMMARY The Company has three business segments: Domestic energy and water, International energy, and Other. Domestic energy and water designs, constructs, and operates key infrastructure for municipalities and others in waste-to-energy, independent power production and water. Its principal business is the operation and, in some cases, ownership of waste-to-energy facilities. Waste-to-energy facilities combust municipal solid waste as a means of environmentally sound disposal and produce energy that is sold as electricity or steam to utilities and other purchasers. The International energy segment has ownership interests in, and/or operates, independent power production facilities in Asia, Spain, and Costa Rica, and one waste-to-energy facility in Italy. The Other segment consisted primarily of the entertainment and aviation businesses, which have been liquidated and will not be part of the reorganized business upon the Company's emergence from bankruptcy. The Company entered bankruptcy on April 1, 2002. Since that time, the Company disposed of its non-core businesses and focused its efforts on the effective management of the core domestic energy and water business. On December 2, 2003, the Company announced that it had entered into an agreement with Danielson pursuant to which Danielson agreed to acquire 100% of Covanta for a purchase price of $30.0 million, and on December 18, 2003 filed the Reorganization Plan based on the Danielson purchase and a debt structure for Covanta's domestic and international businesses. On March 5, 2004, the Bankruptcy Court entered an order confirming the Reorganization Plan, and on March 10, 2004, the Company consummated its Reorganization Plan, closed on the Danielson transaction, and emerged from bankruptcy. As further explained below, Covanta emerged from its Chapter 11 proceeding as a highly leveraged entity, with several series of debt which will be serviced solely from the cash generated from its domestic operations. Additional debt was issued by Covanta's subsidiary, CPIH. CPIH similarly emerged from bankruptcy as a highly leveraged entity, with its own series of debt which will be serviced solely from the cash generated from the international operations. Covanta will continue to provide guarantees of some of its subsidiaries' operating obligations with respect to international projects, and will continue to maintain existing letters of credit relating to international projects. Covanta's ability to service its domestic corporate indebtedness after it emerges from bankruptcy will depend upon: o the availability of the NOLs (as described below); o its ability to continue to operate and maintain its facilities consistent with historical performance levels; o its ability to maintain compliance with its debt covenants; o its ability to avoid increases in overhead and operating expenses in view of the largely fixed nature of its revenues; o its ability to refinance its debt on more favorable terms; 44 o its ability to maintain or enhance revenue from renewals or replacement of existing contracts (which begin to expire in October, 2007), and from new contracts to expand existing facilities or operate additional facilities; o market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after its existing contracts expire. Covanta's ability to grow by investing in new projects will be limited by debt covenants in its principal financing agreements, and from potentially fewer market opportunities for new waste-to-energy facilities. CPIH also emerged from bankruptcy as a highly leveraged entity. CPIH's ability to service its debt after it emerges from bankruptcy will depend upon: o its ability to continue to operate and maintain its facilities consistent with historical performance levels; o stable foreign political environments that do not resort to expropriation, contract renegotiations or currency changes; o the financial ability of the electric and steam purchasers to pay the full contractual tariffs on a timely basis; o the ability of its international project subsidiaries to maintain compliance with their respective project debt covenants in order to make equity distributions to CPIH; o its ability to sell existing projects in an amount sufficient to repay CPIH indebtedness at or prior to its maturity in three years, or to refinance its indebtedness at or prior to such maturity. CPIH's ability to grow by investing in new projects will be limited by debt covenants in its principal financing agreements. 2003 VS. 2002 CONSOLIDATED RESULTS Service revenues for 2003 were $499.2 million, an increase of $5.2 million compared to $494.0 million in 2002. The increase was due to a $14.6 million increase in Domestic energy and water segment service revenue primarily related to annual contractual service fee escalations and increased waste tonnage processed, and a $2.4 million increase in the International segment primarily related to an increase in operator bonuses earned by an operations and maintenance company, partially offset by a $11.7 million decrease in Other segment service revenues related to the wind-down and sale of non-energy businesses. Electricity and steam sales revenues for 2003 were $277.8 million, a decrease of $11.5 million compared to $289.3 million in 2002. The decrease was primarily due to a $14.5 million decrease in electricity sales at the Company's two plants in India combined with a reduction in electricity sales of $1.5 million at two of the Company's energy facilities in The Philippines resulting from rate reductions. These decreases were partially offset by a $4.8 million increase in electricity and steam sales in Domestic energy and water, primarily related to higher electric rates received by two plants due to increased market rates. Construction revenues for 2003 were $13.4 million, a decrease of $28.9 million compared to $42.3 million in 2002 primarily due to a $28.5 million decrease as a result of the Company's substantial completion of construction of the desalination project in Tampa, Florida. Other revenues-net for 2003 were comparable to 2002. Plant operating expenses were $500.6 million for 2003, an increase of $4.2 million compared to $496.4 million in 2002 primarily due to a $7.0 million increase in parts and labor related to pay increases and higher costs for routine maintenance and overhaul at several domestic energy facilities. In addition, plant operating expenses were reduced in 2002 by a $4.4 million adjustment to operating accruals in 2002. These changes were partially offset by a $6.4 million reversal in 2003 of bad debt reserves related to two Indian facilities. Construction costs for 2003 were $20.5 million, a decrease of $22.2 million compared to $42.7 million in 2002. The decrease is primarily attributable to the Company's substantial completion of the desalination project in Tampa, Florida. A charge of $9.1 million is included in 2003 consisting of $5.0 million for reserve against retainage receivables and $4.1 million in additional costs associated with termination of the Company's activities relating to the Tampa Bay desalination project. (See Note 2 to Consolidated Financial Statements for further discussion). 45 Debt service charges-net for 2003 were $76.8 million, a decrease of $9.6 million compared to $86.4 million in 2002. The decrease is primarily the result of a reduction in project debt and the restructuring of Hennepin. Depreciation and amortization was $71.9 million for 2003, a decrease of $5.5 million compared to $77.4 million for 2002. The decrease is primarily related to the Hennepin restructuring in 2003, and an asset impairment adjustment at two international facilities in 2002. Other operating costs and expenses were $2.2 million for 2003, a decrease of $13.0 million compared to $15.2 million in 2002 primarily due to the wind-down of many non-energy businesses. Net loss on sale of businesses in 2003 of $7.2 million is primarily related to the sale of the equity investee included in the geothermal business offset by additional proceeds received from businesses sold in prior years. The remaining geothermal businesses disposed of in 2003 have been recorded as discontinued operations, in accordance with generally accepted accounting principles. See further discussion below. Net loss on sale of businesses in 2002 of $1.9 million was primarily related to a loss on the sale of an investment in an energy project in Thailand of $6.5 million in 2002, and a $4.6 million gain on the sale of assets in 2002. (See Note 4 to the Consolidated Financial Statements for further discussion.) Selling, general and administrative expenses were $35.6 million for 2003, a decrease of $18.7 million compared to $54.3 million in 2002 primarily due to a $8.3 million reduction in professional fees, and $7.4 million in reduced costs related to headquarter staff reductions. Project development costs for 2003 were zero, a decrease of $3.8 million compared to $3.8 million in 2002, due to no new project development in 2003. Other expenses - net for 2003 were $(1.1) million, a decrease of $17.1 million compared to $16.0 in 2002 primarily due to a reduction in fees related to the Master Credit Facility of $24.0 million in 2002. The write-down of and obligations related to assets held for use of $16.7 million in 2003 relates to an increase in the Ottawa obligations (Note 4 to Consolidated Financial Statements). The 2002 amount of $84.9 million consists of a $6.0 million pre-tax charge related to Ottawa obligations and a $78.9 million pre-tax charge related to two international energy projects. The charges were the result of a 2002 review. Equity in income from unconsolidated investments for 2003 was $29.9 million, an increase of $4.8 million compared to $25.1 million in 2002 resulting primarily from a $3.5 million increase at an International energy project due to favorable operating costs. Interest expense-net for 2003 was $37.0 million, a decrease of $4.6 million from $41.6 million in 2002 primarily due to contract restructuring at two domestic energy projects. (See Note 2 to Consolidated Financial Statements for further discussion). Reorganization items for 2003 were $83.3 million, an increase of $34.2 million compared to $49.1 million in 2002. In accordance with SOP 90-7, certain income and expenses are classified as reorganization items. The 2003 amount primarily consists of legal and professional fees and charges for the Hennepin restructuring and worker's compensation insurance. The 2002 amount primarily consists of legal and professional fees, severance, retention and office closure costs, and bank fees. See Note 2 to the Consolidated Financial Statements for further discussion. Minority interests for 2003 were comparable to 2002. The effective tax rate in 2003 was 41.2% compared to 0.2% for 2002. This increase in the effective rate is primarily due to deductions and foreign losses included in the pre-tax book loss in the prior year period for which certain tax benefits were not recognized compared to pre-tax book loss in the current period for which certain tax benefits were recorded. DISCONTINUED OPERATIONS: For 2003, the gain from discontinued operations totaled $78.8 million, due to the sale of the Geothermal Business, the rejection of a waste-to-energy lease, and the final disposition of the Arrowhead Pond 46 interests. The gain before income taxes and minority interests from discontinued operations was $95.0 million. For 2002, the loss from discontinued operations totaled $43.4 million. The loss before income taxes and minority interests from discontinued operations was $56.7 million, due to the sale of two international energy subsidiaries in 2002 and reclassification of operations of the businesses disposed of in 2003 discussed above. (See Note 3 to the Consolidated Financial Statements for further discussion). Cumulative effect of change in accounting principles was $8.5 million in 2003, an increase of $0.7 million compared to $7.8 million in 2002. The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143") effective January 1, 2003. Under SFAS No. 143, entities are required to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. The Company's adoption of SFAS No. 143 resulted in the cumulative effect of a change in accounting principle of $8.5 million. The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") in 2002. In connection with its adoption of SFAS No. 142, the Company completed the required impairment evaluation of goodwill, which resulted in a cumulative effect of a change in accounting principle of $7.8 million at January 1, 2002. See Note 1 to the Consolidated Financial Statements for further discussion. Property, plant and equipment - net: A decrease of $208.5 million for 2003 was due mainly to depreciation expense of $68.0 million for the year, a reduction of $69.7 million for the sale of the Geothermal Business, and a reduction of $84.2 million for the Hennepin restructuring (See Note 2 to the Consolidated Financial Statements for further discussion) offset by capital additions of $22.1 million and $3.6 million related to amounts capitalized upon the adoption of Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations". DOMESTIC ENERGY AND WATER SEGMENT Total revenues for 2003 for the Domestic energy and water segment were $619.1 million, a decrease of $9.1 million compared to $628.2 million in 2002. This decline resulted primarily from the reduction in construction revenue of $28.5 million due to the Company's substantial completion of construction of the desalination project in Tampa, Florida, which was offset by increases in service revenues and electricity and steam sales. Service revenues increased by $14.6 million or 3.1% as a result of annual contractual service fee escalations, and increased tonnage processed. In addition there was a $4.8 million increase in electricity and steam sales, primarily related to higher electric rates received by two plants from local electricity purchasers at which the output is sold at market rates. Income from operations for 2003 for the Domestic energy and water segment was $61.4 million, an increase of $7.7 million compared to $53.7 million for 2002 primarily due to a decrease in total costs and expenses of $16.3 million offset by the $9.1 million decrease in revenue discussed above. The decrease in total costs and expenses is a function of the $21.9 million decrease in construction expenses resulting from the Company's substantial completion of construction of the desalination project in Tampa, Florida and the $11.9 million increase in loss on sale of businesses, which includes the loss on the sale of the equity investee included in the geothermal business. These decreases were partially offset by a $7.0 million increase in parts and labor related to pay increases, and higher costs for routine maintenance and overhaul at several domestic energy facilities. In addition, plant operating expenses were reduced in 2002 by a $4.4 million adjustment to operating accruals. Construction expense in 2003 includes a charge of $9.1 million consisting of $5.0 million for reserve against retainage receivables and $4.1 million in additional costs associated with completion of the desalination project. INTERNATIONAL ENERGY SEGMENT Total revenues for 2003 for the International energy segment were $171.4 million, a decrease of $14.0 million compared to $185.4 million in 2002, primarily due to a $14.5 million decrease in electricity sales at the Company's two plants in India resulting from reduced demand from the contractual purchaser, combined with a reduction in electricity sales of $1.5 million at two of the Company's energy facilities in The Philippines as a result of government imposed rate reductions. Income from operations for 2003 for the International energy segment was $50.0 million, an increase of $94.0 million compared to a loss of $44.0 million in 2002 primarily due to a $78.9 million pre-tax impairment charge in 2002 related to two Philippine energy projects. The decrease in revenue of $14.0 million discussed above was offset by a $13.5 million decrease in plant operating costs. The increase in income from operations in 2003 was also due to a loss on the sale of an equity investment in an energy project in Thailand of $6.5 million in 2002. 47 OTHER SEGMENT Total revenues for 2003 for the Other segment were $0.0 million, a decrease of $12.1 million compared to $12.1 million in 2002. This decrease was due to the wind-down and sale of non-core businesses. Loss from operations for 2003 for the Other segment was $5.7 million, a decrease of $10.1 million compared to $15.8 million in 2002, primarily due to a decrease in operating costs of $15.9 million and a $10.4 million reduction in selling, general and administrative costs consisting of a $2.3 million reduction in professional fees and reduced costs related to headquarter staff reductions of $6.5 million combined with a $6.0 million charge related to Ottawa commitments in 2002. This decrease was partially offset by a $16.8 million increase in provision for Ottawa commitments in 2003, in addition to the decrease in revenue of $12.1 million discussed above. 2002 VS. 2001 Service revenues were $494.0 in 2002, a decrease of $66.8 million compared to $560.8 in 2001. This change resulted from the decline in domestic energy and water service revenues in 2002 of $7.6 million primarily related to a $6.8 million decrease at California energy facilities due to decreased rates. Also, other service revenues decreased $58.5 million due to the wind-down of many non-energy businesses. Electricity and steam sales revenue were $289.3 million in 2002, an increase of $57.7 million compared to $231.6 million in 2001, attributable mainly to a $45.4 million increase due to the completion of an energy facility in India which came online during the fourth quarter of 2001 and a $12.9 million increase due to the completion of another energy facility in India which came online during the second quarter of 2001. Construction revenues were $42.3 million in 2002 a decrease of $20.8 million compared to $63.1 million in 2001 due to the substantial completion of various projects offset by a $12.8 million increase attributable to the Company's construction of the desalination project in Tampa, Florida. Other sales - net were zero for 2002, a decrease of $31.3 million compared to $31.3 million in 2001 due mainly to the sale of the Datacom business in November 2001. This business had been included in the Other segment. Other revenues- net were $0.3 million for 2002, a decrease of $30.6 million compared to $30.9 million in 2001 due mainly to revenues in 2001 including $21.0 million of insurance settlements and other matters related to two domestic energy facilities for business interruption, $5.7 million of development fees and other matters related to an international energy plant and insurance proceeds of $2.8 million related to aviation businesses. Plant operating expenses were $496.4 million for 2002, an increase of $60.7 million compared to $435.7 million in 2001 primarily due to a $30.0 million increase in plant operating expenses related to the completion of an energy facility in India which came online during the fourth quarter of 2001, a $10.1 million increase due to the completion of another energy facility in India which came online during the second quarter of 2001, and a $8.0 million increase in operating costs, mainly due to a $5.1 million increase in overhaul and maintenance expenses at several domestic energy facilities. Construction costs were $42.7 million for 2002, a decrease of $27.4 million compared to $70.1 million in 2001. The decrease is mainly attributable to the substantial completion of various projects and termination of one project offset by a $13.2 million increase attributable to the Company's construction of the desalination project in Tampa, Florida. Depreciation and amortization and debt service charges for 2002 were comparable to the same period in 2001. Other operating costs and expenses were $15.2 million a decrease of $47.7 million compared to $62.9 in 2001 due to the wind-down of many non-energy businesses. Net loss on sale of businesses in 2002 of $1.9 million was primarily related to a loss on the sale of an investment in an energy project in Thailand of $6.5 million, offset by a $4.0 million gain on the sale of assets (see Note 4 to the Consolidated Financial Statements for further discussion) and a $0.6 million gain on the sale of an investment in Bolivia (see Note 4 to the Consolidated Financial Statements for further discussion). Net loss on sale of businesses for the year 48 ended December 31, 2001 of $2.8 million related to the sale of non-core assets (see Note 4 to the Consolidated Financial Statements for further discussion). Costs of goods sold were zero in 2002, a decrease of $37.2 million compared to the same period of 2001 due to the sale of the Datacom business in November 2001. Selling, general and administrative expenses were $54.3 million in 2002, a decrease of $24.5 million compared to $78.8 million in 2001 primarily due to the wind-down of many non-energy businesses. Project development expenses were $3.8 million in 2002, a decrease of $29.5 million compared to $33.3 million in 2001 primarily due to the write-off of $24.5 million in development costs related to an energy project in California that was terminated in 2001. Other expenses net were $16.0 million in 2002, a decrease of $13.9 million compared to $29.9 million in 2001 primarily due to a $13.4 million decrease related to the reversal of a pre-petition severance accrual during the year ended December 31, 2002. (See Note 25 to the Consolidated Financial Statements for further discussion.) The Company recorded pre-tax charges for write-down and obligations related to assets held for use of $84.9 million during 2002 and a pre-tax charge for assets held for sale of $186.5 million during 2001. (See Note 4 to the Consolidated Financial Statements for further discussion.) Equity in income from unconsolidated investments was $25.1 million in 2002, an increase of $7.4 million compared to $17.7 million in 2001. The increase is primarily attributable to an increase in earnings from the Company's investment in international energy projects mainly due to improved operating performance. Interest expense-net was $41.6 million in 2002, an increase of $2.3 million compared to $39.3 million in 2001 mainly due to decreased interest income as a result of a lower interest rate environment for investments. Reorganization items for 2002 were $49.1 million, an increase of $49.1 million compared to zero in 2001. In accordance with SOP 90-7, certain income and expenses are classified as reorganization items. The 2002 amount primarily consists of legal and professional fees, severance, retention and office closure costs, and bank fees. See Note 2 to the Consolidated Financial Statements for further discussion. Minority interests were $9.1 million in 2002, an increase of $3.0 million compared to $6.1 million in 2001 due mainly to the two international energy facilities in India that became operational during 2001. The effective tax rate in 2002 was 0.2% compared to 2.9% for the same period of 2001. In 2002, the loss from discontinued operations totaled $43.4 million. The loss before income taxes and minority interests from discontinued operations was $56.7 million, including the sale of two international energy subsidiaries in 2002. (See Note 3 to the Consolidated Financial Statements for further discussion.) In 2001, the loss from these discontinued operations totaled $25.3 million. The 2001 loss before income taxes and minority interests from discontinued operations was $34.9 million. Cumulative effect of change in accounting principles was $7.8 million in 2002, an increase of $7.8 million compared to zero in 2001. The Company adopted SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") in 2002. In connection with its adoption of SFAS No. 142, the Company completed the required impairment evaluation of goodwill, which resulted in a cumulative effect of a change in accounting principle of $7.8 million at January 1, 2002. See Note 1 to the Consolidated Financial Statements for further discussion. Property, plant and equipment - net decreased $239.4 million during 2002 due mainly to the sale of $82.5 million of Thailand fixed assets on March 28, 2002, a $78.9 million pre-tax impairment charge against fixed assets (see Note 9 to the Consolidated Financial Statements for further discussion) and depreciation expense of $83.6 million for the period offset by capital additions of $21.3 million. DOMESTIC ENERGY AND WATER SEGMENT 49 Total revenues for 2002 for the Domestic energy and water segment were $628.2 million, a decrease of $30.4 million compared to $658.6 million in 2001. This decrease was mainly due to the receipt of insurance settlements and other matters related to two domestic energy facilities in 2001 and a decrease at California energy facilities due to decreased energy rates in 2002. Income from operations for 2002 for the Domestic energy and water segment was $53.7 million, a decrease of $36.8 million compared to $90.5 million in 2001. As discussed above, this decrease was mainly due to a decrease in proceeds from insurance settlements and other matters related to two domestic energy facilities in 2001 and a decrease in revenue during 2002 at California energy facilities due to decreased energy rates combined with an increase in overhaul and maintenance expenses at several domestic energy facilities. INTERNATIONAL ENERGY SEGMENT Total revenues for the International energy segment were $185.4 million, an increase of $52.8 million compared to $132.6 million in 2001. As discussed above, this increase was mainly due to the completion of an energy facility in India which came online during the fourth quarter of 2001 and the completion of another energy facility in India which came online during the second quarter of 2001. Loss from operations for 2002 for the International energy segment was $44.0 million, a decrease of $70.8 million compared to income from operations of $26.8 million in 2001. This decrease was a result of a pre-tax impairment charge at two of the energy facilities and an increase in plant operating costs, related to the completion of an energy facility in India which came online during the fourth quarter of 2001 and the completion of another energy facility in India which came online during the second quarter of 2001. These decreases were partially offset by an increase in equity earnings of investees and joint ventures and an increase in operating revenue. OTHER SEGMENT Total revenues for the Other segment were $12.3 million, a decrease of $114.2 million compared to $126.5 million in 2001. As discussed above, this decrease was due to the wind-down and sale of non-energy businesses. Loss from operations for 2002 for the Other segment was $15.8 million, a decrease of $232.4 million compared to $248.2 million in 2001. As discussed above, this decrease was mainly due to a reduction in revenue related to the wind down and sale of non-energy business combined with a reduction in pretax impairment charges for assets held for sale. CAPITAL INVESTMENTS AND COMMITMENTS: For the year ended December 31, 2003, capital investments for continuing operations amounted to $22.2 million, of which $13.9 million related to domestic energy and water investments and $8.3 million related to international energy investments. These investments were largely for planned capital expenditures at existing facilities. Financing for the Company's domestic waste-to-energy projects is generally accomplished through tax-exempt and taxable revenue bonds issued by or on behalf of the Client Community. If the facility is owned by a Covanta 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 "project debt (short and long term)" in the Company's consolidated financial statements. Generally, such project debt, is secured by the revenues generated by the project and other project assets. The only recourse to Covanta relates to construction and operating performance defaults; in addition the Company has several operating leases that are non-recourse to Covanta. Such project debt and operating leases of Covanta subsidiaries are described in the table below as non-recourse to the parent entity Covanta ("Non-recourse"). The following table summarizes the Company's gross contractual obligations including: project debt, debt, leases, purchase commitments and other contractual obligations as of December 31, 2003. (Amounts expressed in thousands of dollars. Note references are to the Notes to the Consolidated Financial Statements): 50
PAYMENTS DUE BY PERIOD Less than After TOTAL ONE YEAR 1 TO 3 YEARS 4 TO 5 YEARS 5 YEARS ----------- ----------- ------------ ------------ ----------- Total Debt excluding $78 of Capital lease obligations (Notes 15 and 16) $ 1,043,965 $ 108,687 $ 214,046 $ 207,211 $ 514,021 Total Operating Leases (Note 27) 355,137 19,045 37,338 38,588 260,166 Total Capital Leases (Note 15) 78 21 50 7 -- Other Long-Term Obligations (Note 18) 78,358 1,235 11,945 12,219 52,959 Purchase Commitments and contractual obligations (Notes 2 and 29) 25,060 14,369 -- -- 10,691 ----------- ----------- ----------- ----------- ----------- Total Contractual Obligations of the Company 1,502,598 143,357 263,379 258,025 837,837 Less: Non-recourse Project Debt (Note 16) (1,032,401) (99,216) (211,953) (207,211) (514,021) Non-recourse Operating Leases (Note 27) (317,345) (15,207) (30,812) (34,968) (236,358) ----------- ----------- ----------- ----------- ----------- Total Non-recourse Obligations (1,349,746) (114,423) (242,765) (242,179) (750,379) ----------- ----------- ----------- ----------- ----------- Net Contractual Obligations of Covanta $ 152,852 $ 28,934 $ 20,614 $ 15,846 $ 87,458 =========== =========== =========== =========== ===========
The table above excludes $956.1 million of Liabilities subject to compromise at December 31, 2003 that were stayed by the Company's bankruptcy filing on April 1, 2002. The ultimate amount and timing of payments of Liabilities subject to compromise is addressed in the Reorganization Plan (see Note 2 to the Consolidated Financial Statements for further discussion.) The Company's other commitments as of December 31, 2003 are as follows (expressed in thousands of dollars. Note references are to the Notes to the Consolidated Financial Statements): COMMITMENTS EXPIRING BY PERIOD Less than More than TOTAL ONE YEAR ONE YEAR --------- --------- --------- Standby Letters of Credit (Note 17) $ 193,699 $ 193,699 $ -- Less: Obligations included in the Consolidated Balance Sheet (38,027) (38,027) -- Surety Bonds 76,767 30,757 46,010 Additional guarantees 16,879 1,300 15,579 --------- --------- --------- Total Other Commitments - net $ 249,318 $ 187,729 $ 61,589 ========= ========= ========= The Standby Letters of Credit were issued to secure the Company's performance under various contractual undertakings related to its domestic and international projects, or in connection with financings related to international projects. Each letter of credit is required to be maintained in effect during the term of applicable project contracts, and generally may be drawn if it is not renewed prior to expiration of its term. At the effective date of the Reorganization Plan, existing letters of credit issued pursuant to the DIP Financing Facility were replaced with new letters of credit pursuant to the First Lien Facility and Second Lien Facility, described below. One such letter of credit related to a waste-to-energy project, currently in the amount of approximately $138 million, reduces semi-annually until 2009, when it is no longer contractually required to be maintained. Another such letter of credit related to a waste-to-energy project, currently in the amount of $17 million, will be reduced annually beginning in 2010 through 2016. In addition, one contract for a waste-to-energy facility requires a new $50 million letter of credit, which will similarly secure performance under applicable project contracts, and is required to be maintained as long as Covanta does not have an investment grade rating. The Company believes that it will be able to fully perform on its contracts and that it is unlikely that letters of credit would be drawn upon because of its performance. The First Lien Facility and the Second Lien Facility, each of which is secured, provide commitments for all letters of credit required to be provided by the Company, except one letter of credit related to an international project, in the amount of approximately $2.6 million. Such letter of credit is issued pursuant to a separate, unsecured , arrangement. Were any of the Company's letters of credit to be drawn, under the Company's debt facilities, the amount drawn would be immediately repayable to the issuing bank. The surety bonds relate to the Tampa Water Facility construction contract ($29.6 million), performance under its waste water treatment operating contracts ($12.7 million), possible closure costs for various energy projects when such projects cease operating ($10.8 million) and performance of contracts related to non-energy businesses ($23.7 million). Were these bonds to be drawn upon, the Company would have a contractual obligation to indemnify the surety company. As these indemnity obligations arose prior to April 2, 2002, they are expected to be treated as pre-petition 51 debt in the Company's bankruptcy case, unless the Company otherwise agrees to enter into replacement indemnity obligations. Additional guarantees include approximately $16.9 million of guarantees related to international energy projects. Two of the guarantees totaling approximately $15.1 million relate to the construction of two power plants in India. The guarantees are not expected to be called upon as the construction of both power plants was completed in 2001 and the Company is awaiting release from the guarantees upon acceptance of the power plants. The Company also has a guarantee to contribute an additional $1.3 million in capital to an investment in a waste-to-energy facility in Italy. Covanta and certain of its subsidiaries have issued or are party to performance guarantees and related contractual obligations undertaken mainly pursuant to agreements to construct and operate certain energy and water facilities. With respect to its domestic businesses, Covanta has issued guarantees to Client Communities and other parties that Covanta's operating subsidiaries will perform in accordance with contractual terms, including, where required, the payment of damages. Such contractual damages could be material, and in circumstances where one or more subsidiary's contract has been terminated for its default, such damages could include amounts sufficient to repay project debt. For facilities owned by Client Communities and operated by the Company, Covanta's potential maximum liability as of December 31, 2003 associated with the repayment of the municipalities' debt on such facilities, amounts in aggregate to approximately $1.3 billion. This amount is not recorded as a liability in the Company's Consolidated Balance Sheet as of December 31, 2003 as Covanta believes that it has not incurred such liability at the date of the financial statements. Additionally, damages payable under such guarantees on Company-owned waste to energy facilities could expose Covanta to recourse liability on Project Debt shown on the foregoing table. Covanta also believes that it has not incurred such damages at the date of the financial statements. If Covanta is asked to perform under one or more of such guarantees, its liability for damages upon contract termination would be reduced by funds held in trust and proceeds from sales of the facilities securing the project debt, which is presently not estimable. With respect to its international businesses, Covanta has issued guarantees of its operating subsidiaries contractual obligations to operate power projects. The potential damages owed under such arrangements for international projects may be material. Depending upon the circumstances giving rise to such domestic and international damages, the contractual terms of the applicable contracts, and the contract counterparty's choice of remedy at the time a claim against a guarantee is made, the amounts owed pursuant to one or more of such guarantees could be greater than the Company's then-available sources of funds. To date, the Company has not incurred material liabilities under its guarantees, either on domestic or international projects. In the normal course of business, the Company and its subsidiaries also are involved in legal proceedings in which damages and other remedies are sought. LIQUIDITY/CASH FLOW: At December 31, 2003, the Company had approximately $289.4 million in cash and cash equivalents, of which $39.7 million related to cash held in foreign bank accounts that could be difficult to transfer to the U.S. A significant amount of such cash has been paid or is committed to payment of creditors and expenses under the Reorganization Plan. As of March 10, 2004, the Company had approximately $44 million in cash excluding reserves dedicated to pay costs associated with emergence. In addition, as of the same date, CPIH had approximately $5 million in its domestic accounts. Net cash provided by operating activities for 2003 was $34.4 million compared to $67.5 million for 2002. The decrease of $33.1 was primarily due to a $15.8 million decrease in accrued project debt service charges and an $18.5 million decrease in accrued selling, general and administrative expenses for the year. Net cash provided by investing activities for 2003 was $24.0 million compared to $26.8 million for 2002. The decrease of $2.8 million was primarily due to a $16.4 million decrease in funds received from equity investees as a result of variation in the cash generated by such projects and a $3.0 million increase in investments in energy facilities, partially offset by a $14.3 million increase in proceeds from sale of business. Net cash used in financing activities for 2003 was $102.6 million compared to $128.5 million for 2002. The decrease of $25.9 million was primarily due to the application of amounts then held in restricted accounts to pay down bonds in connection with the restructuring of the agreements related to the Onondaga waste-to-energy facility. See Note 2 to the Consolidated Financial Statements for further discussion. 52 All obligations under the DIP Credit Facility and the pre-petition Master Credit Facility were discharged on March 10, 2004, the effective date of the Reorganization Plan. On the same date and pursuant to the Reorganization Plan, the Company entered into new credit facilities and issued secured and unsecured notes, as described below. (A) DOMESTIC FACILITIES The Domestic Borrowers entered into two credit facilities to provide letters of credit and liquidity in support of the Company's domestic operations and to maintain existing letters of credit in support of its international operations. The Domestic Borrowers entered into the First Lien Facility, secured by a first priority lien on substantially all of the assets of the Domestic Borrowers not subject to prior liens (the "Collateral"). The First Lien Facility provides commitments for the issuance of letters of credit in the initial aggregate face amount of up to $138 million with respect to a waste-to-energy facility. The First Lien Facility will reduce semi-annually as the amount of the letter of credit requirement for this facility reduces. Additionally, the Domestic Borrowers entered into the Second Lien Facility, secured by a second priority lien on the Collateral. The Second Lien Facility is a letter of credit and liquidity facility in the aggregate amount of $118 million up to $10 million of which may be used for cash borrowings on a revolving basis for general corporate purposes. Among other things, the Second Lien Facility will provide the Company with the ability to obtain new letters of credit as may be required with respect to various domestic waste-to-energy facilities, as well as to maintain existing letters of credit with respect to international projects. Both the First Lien Facility and the Second Lien Facility have a term of five years from the Effective Date of the Reorganization Plan. Pursuant to the Reorganization Plan, Covanta issued or will issue Reorganization Plan Notes for distribution to holders of Allowed Claims. The material terms of the Reorganization Plan Notes are as follows: HIGH YIELD NOTES: Covanta issued High Yield Notes in an aggregate principal amount of $205 million accreting to an aggregate principal amount of $230 million upon maturity in seven years. Interest will be paid semi-annually in arrears on the principal amount at stated maturity of the outstanding High Yield Notes at a rate of 8.25% per annum. The High Yield Notes are secured by a third priority lien on the Collateral. The High Yield Notes are guaranteed by the other Domestic Borrowers. UNSECURED NOTES: Covanta issued or will issue Unsecured Notes to holders of allowed unsecured claims against Covanta's operating subsidiaries which were reorganizing Debtors. Unsecured Notes in a principal amount of $4 million were issued on the effective date of the Reorganization Plan, and the Company expects to issue additional Unsecured Notes in a principal amount of between $30 and $35 million, including additional Unsecured Notes that may be issued to holders of allowed claims against Remaining Debtors if and when they emerge from bankruptcy. The final principal amount of all Unsecured Notes will be equal to the amount of allowed unsecured claims against the Company's operating subsidiaries which were reorganized Debtors, and such amount will be determined when all such claims are resolved through settlement or further proceedings in the Bankruptcy Court. Notwithstanding the date on which Unsecured Notes are issued, interest on the Unsecured Notes accrues from March 10, 2004. Under the Reorganization Plan, the Company is authorized to issue up to $50 million in principal amount of Unsecured Notes. Unsecured Notes mature eight years after the Effective Date, and interest thereon will be payable semi-annually at an interest rate of 7.5%. Annual amortization payments of approximately $3.9 million will be paid beginning in year 2006, with the balance due on maturity. The Unsecured Notes are subordinated in right of payment to all senior indebtedness of Covanta including, the First Lien Facility, the Second Lien Facility, the High Yield Notes, and the Unsecured Notes will otherwise rank equal with, or be senior to, all other indebtedness of Covanta. The First Lien Facility, Second Lien Facility, High Yield Notes and the Unsecured Notes are referred to herein as the "Domestic Facilities". TAX NOTES: Covanta may issue Tax Notes in an aggregate principal amount equal to the aggregate amount of allowed priority tax claims with a maturity six years after the date of assessment. Interest will be payable semi-annually at the rate of four percent. Under the Reorganization Plan, the Company may pay the amount of such claims in cash. The Domestic Borrowers also entered into the Domestic Intercreditor Agreement, with the respective lenders under the First Lien Facility and Second Lien Facility and the trustee under the indenture for the High Yield Notes. It provides for certain provisions regarding the application of payments made by the Domestic Borrowers among the respective creditors and certain matters relating to priorities upon the exercise of remedies with respect to the Collateral. 53 MATERIAL TERMS OF FIRST AND SECOND LIEN FACILITIES: Both the First Lien Facility and the Second Lien Facility provide for mandatory prepayments of all or a portion of amounts funded by the lenders under letters of credit and the revolving loan upon the sales of assets, incurrence of additional indebtedness, availability of annual cash flow, or cash on hand above certain base amounts, and change of control transactions. To the extent that no amounts have been funded under the revolving loan or letters of credit, Covanta is obligated to apply excess cash to collateralize its reimbursement obligations with respect to outstanding letters of credit, until such time as such collateral equals 105% of the maximum amount that may at any time be drawn under outstanding letters of credit. The terms of both of these facilities require Covanta to furnish the lenders with periodic financial, operating and other information. In addition, these facilities further restrict, without a consent of its lenders under these facilities, Covanta's ability to, among others: o incur indebtedness, or incur liens on its property, subject to specific exceptions o pay any dividends on or repurchase any of its outstanding securities, subject to specific exceptions; o make new investments, subject to specific exceptions o deviate from specified financial ratios and covenants, including those pertaining to consolidated net worth, adjusted EBITDA, and capital expenditures; o sell any material amount of assets, enter into a merger transaction, liquidate or dissolve; o enter into any material transactions with shareholders and affiliates; amend its organization documents; and o engage in a new line of business. All unpaid principal of and accrued interest on the revolving loan, and an amount equal to 105% of the maximum amount that may at any time be drawn under outstanding letters of credit, would become immediately due and payable in the event that Covanta or certain of its affiliates (including DHC) become subject to specified events of bankruptcy or insolvency. Such amounts shall also become immediately due and payable, upon action taken by a certain specified percentage of the lenders, in the event that any of the following occurs after the expiration of applicable cure periods: o a failure by Covanta to pay amounts due under the Domestic Facilities or other debt instruments; o breaches of representations, warranties and covenants under the Domestic Facilities; o a judgment or judgments are rendered against Covanta that involve an amount in excess of $5 million, to the extent not covered by insurance; o any event that has caused a material adverse effect on Covanta; o a change in control; o the Intercreditor Agreement or any security agreement pertaining to the Domestic Facilities ceases to be in full force and effect; o certain terminations of material contracts; or o any securities issuance or equity contribution which is reasonably expected to have a material adverse effect on the availability of net operating losses. MATERIAL TERMS OF HIGH YIELD NOTES: Interest is due semi-annually in arrears on the principal amount of the outstanding High Yield Notes at a rate of 8.25% per annum. The High Yield Notes will be secured by a third priority lien on Covanta's domestic assets. In addition, all or part of the High Yield Notes are pre-payable by Covanta at par of 100% of the accreted value during the first two years and at a premium starting at 104.625% of par and decreasing during the remainder of the term of the High Yield Notes. There are no mandatory sinking fund provisions. Upon the occurrence of a change of control event and certain sales of assets, Covanta is obligated to offer to repurchase all or any part of the High Yield Notes at 101% of par on the accreted value. Covanta must comply with certain covenants, including among others: o restrictions on the payment of dividends, the repurchase of stock, the incurrence of indebtedness and liens and the repayment of subordinated debt, unless certain specified financial and other conditions are met; 54 o restrictions on the sale of certain material amounts of assets or securities, unless certain specified conditions are met; o restrictions on material transactions with affiliates; o limitations on engaging in new lines of business; and o preserving its corporate existence and its material rights and franchises. The High Yield Notes shall become immediately due and payable in the event that Covanta or certain of its affiliates become subject to specified events of bankruptcy or insolvency, and shall become immediately due and payable, upon action taken by the trustee under the indenture or holders of a certain specified percentage of principal under outstanding High Yield Notes, in the event that any of the following occurs after expiration of applicable cure periods: o a failure by Covanta to pay amounts due under the High Yield Notes or certain other debt instruments; o a judgment or judgments are rendered against Covanta that involve an amount in excess of $10 million, to the extent not covered by insurance; and o a failure by Covanta to comply with its obligations under the indenture relating to the High Yield Notes. MATERIAL TERMS OF UNSECURED NOTES: Covanta has authorized the issuance of up to $50 million in principal of Unsecured Notes. Interest will be payable semi-annually at a rate of 7.5%. Annual amortization payments of approximately $3.9 million will be paid beginning in 2006, with the balance due on maturity. There are no mandatory sinking fund provisions and Covanta may redeem the Unsecured Notes at any time without penalty or premium. Upon the occurrence of a change of control event and certain sales of assets, Covanta is obligated to offer to repurchase all or any part of the Unsecured Notes at 101% of par on the accreted value. Covanta must comply with certain covenants, including among others: o restrictions on the payment of dividends, the repurchase of stock, the incurrence of indebtedness and liens and the repayment of subordinated debt, unless certain specified financial and other conditions are met; o restrictions on the sale of certain material amounts of assets or securities, unless certain specified conditions are met; o restrictions on material transactions with affiliates; and o preserving its corporate existence and its material rights and franchises. The Unsecured Notes shall become immediately due and payable in the event that Covanta or certain of its affiliates become subject to specified events of bankruptcy or insolvency, and shall become immediately due and payable, upon action taken by the trustee under the indenture or holders of a certain specified percentage or principal under outstanding Unsecured Notes, in the event that any of the following occurs after expiration of applicable cure periods: o a failure by Covanta to pay amounts due under the High Yield Notes or certain other debt instruments; and o a failure by Covanta to comply with its obligations under the indenture pertaining to the Unsecured Notes. The Company believes its cash, together with cash generated from its domestic businesses, will provide sufficient liquidity to meet its domestic operational cash need and to pay scheduled debt service prior to maturity. The Company believes that the Second Lien Facility will provide a secondary source of liquidity. The Company believes that it will need to refinance its High Yield Notes at maturity in seven years. There can be no assurance that such refinancing can be achieved. (B) CPIH FACILITIES The CPIH Borrowers entered into two credit facilities. They entered into a new revolving credit facility, which is secured by a pledge of the stock of CPIH and a first priority lien on substantially all of the CPIH Borrowers' assets not otherwise pledged. The revolver provides commitments for cash borrowings of up to $10 million for purposes of supporting the international independent power business. CPIH also entered into a term loan facility which is secured by a second priority lien on the same collateral junior only the lien with respect to the revolver. The CPIH term debt will be 55 in the original aggregate principal amount of $95 million, with a maturity date of three years after the Effective Date. The CPIH Borrowers also entered into the International Intercreditor Agreement, with the respective lenders under the revolver and the term debt, and Reorganized Covanta, that sets forth, among other things, certain provisions regarding the application of payments made by the CPIH Borrowers among the respective lenders and Reorganized Covanta and certain matters relating to the exercise of remedies with respect to the collateral pledged under the loan documents. Certain Domestic Borrowers are guarantors of performance obligations of some international projects or are the reimbursement parties with respect to letters of credit issued to secure obligations relating to some international projects. The International Intercreditor Agreement provides that the Domestic Borrowers will be entitled to reimbursements of operating expenses incurred by the Domestic Borrowers on behalf of the CPIH Borrowers and payments, if any, made with respect to the above mentioned guarantees and reimbursement obligations. MATERIAL TERMS OF THE CPIH FACILITIES: The CPIH revolving credit facility bears interest at the rate of either (i) 7% over a base rate or (ii) 8% over a formula Eurodollar rate, the applicable rate to be determined by CPIH (increasing by 2% over the then applicable rate in specified default situations). CPIH also paid a 2% upfront fee ($200,000) upon entering into the revolving credit facility, and will pay (i) a commitment fee equal to 0.5% per annum of the daily calculation of available credit, and (ii) an annual agency fee of $30,000. The CPIH term loan bears interest at 10.5%, 6.0% of such interest to be paid in cash and the remaining 4.5% to be paid in cash to the extent available and otherwise payable by adding it to the outstanding principal balance. The interest rate increases to 12.5% in specified default situations. The mandatory prepayment provisions, affirmative covenants, negative covenants and events of default under the two international credit facilities are similar to those found in the First Lien Facility and the Second Lien Facility. The Company believes cash available to CPIH and its subsidiaries, together with borrowing under the CPIH revolver will provide CPIH with sufficient liquidity to meet its operational needs and pay required debt service due prior to maturity. The Company believes that CPIH will need to refinance its indebtedness at maturity in three years unless asset sales effected prior to such time are sufficient to repay all CPIH indebtedness. There can be no assurance that CPIH will be able to refinance such indebtedness at maturity or that such assets sales will be sufficient to repay CPIH indebtedness prior to its maturity (C) RELATIONSHIP BETWEEN DOMESTIC FACILITIES AND CPIH FACILITIES The Domestic Facilities provide commitments to, and are obligations of, the Domestic Borrowers and are without recourse to, the CPIH Borrowers. Similarly, the CPIH Facilities provide commitments to, and are obligations of, the CPIH Borrowers and are without recourse to the Domestic Borrowers. The Company will establish separate cash management systems for its domestic and international businesses. Cash distributions from CPIH are not available to Covanta or its other domestic subsidiaries. Thus, until the CPIH Facilities or any replacement thereof are paid in full, the assets and cash flow of CPIH is not available to repay the Domestic Facilities. OTHER: HAVERHILL The Company's Haverhill, Massachusetts waste-to-energy facility sells electricity to USGenNE. On July 7, 2003, USGenNE and certain of its affiliates filed a petition for relief under Chapter 11 of the United States Bankruptcy Code. USGenNE owed approximately $1.3 million to the Company at the time of USGenNE's petition. A reserve has been established for the entire receivable as of December 31, 2003. The Company is closely monitoring this proceeding and is a member of USGenNE's Official Committee of Unsecured Creditors. The impact, if any, of the USGenNE bankruptcy on the Company's earnings, financial position, and liquidity will depend upon how USGenNE treats its contract to purchase power from the Haverhill project, which would otherwise expire in 2019. The Company believes 56 that its contract provides for energy rates at or below both current and projected market rates, and that it is possible that the contract will remain in effect. Were the contract assumed or assumed and assigned on its current terms, USGenNE would have to pay the current receivable and honor its contracted obligations in the future. Thus, assumption on these terms would not have a material impact on the Company. However, it is also possible that USGenNE would seek to reject the contract or renegotiate it on less favorable terms to the Company. If the contract were rejected, the Company's potential liability to refund a prepayment made by USGenNE would be eliminated, and the Company would seek to sell the project's electricity to a new purchaser at rates higher than those paid by USGenNE. In such a circumstance, unless the Company is able to enter into a long term contract with a new purchaser, the Haverhill project will be subjected to greater market price risk for energy prices than previously was the case. During the first quarter of 2004, the Company recognized a $138.3 million gain for tax purposes as a result of the termination of the tax partnership holding the contract. QUEZON POWER Manila Electric Company ("Meralco"), the power purchaser for the Company's Quezon Project, is engaged in discussions and legal proceedings with the government of The Philippines relating to Meralco's financial condition. The Quezon Project is currently in negotiations with Meralco to amend the Power Purchase Agreement to address concerns about Meralco's ability to meet its off-take obligations under that Agreement. Lenders to the Quezon Project have expressed concern about the resolution of those matters, as well as compliance with the Quezon Project operational parameters and the Quezon Project's failure to obtain required insurance coverage, as these matters relate to requirements under the applicable debt documents and have limited distributions from the project pending resolutions of these matters. The Company, the Quezon project participants, and the Quezon Project lenders have reached a tentative agreement on amendments to the Quezon Project documents which address the issues relating to operational matters and insurance coverage. The agreement is subject to definitive documentation. Adverse developments in Meralco's financial condition and with respect to finalization of the tentative agreement with the project participants is not expected to adversely affect Covanta's liquidity, although it may have a material affect on CPIH's ability to repay its debt described above. INSURANCE The Company has obtained or is in the process of renewing insurance for its assets and operations that provide coverage for what the Company believes are probable maximum losses, subject to self-insured retentions, policy limits and premium costs which the Company believes to be appropriate. However, the insurance obtained does not cover the Company for all possible losses. OFF BALANCE SHEET ARRANGEMENTS During 2003, the Company was party to several lease arrangements with unrelated parties under which it rents energy generating facilities. The Company generally uses operating lease treatment for these arrangements. (See Note 27 to the Consolidated Financial Statements for additional information regarding these leases.) The Company has investments in several investees and joint ventures accounted for under the equity and cost method and therefore does not consolidate the financial information of those companies. (See Note 5 to the Consolidated Financial Statements for summarized financial information for those investees and joint ventures.) CRITICAL ACCOUNTING POLICIES The Company prepares its Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts and classification of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially could result in materially different results under different conditions. The Company's critical accounting policies include liabilities subject to compromise, revenue recognition, management's estimated useful lives of long-lived assets, pension plans, liabilities for 57 restructuring, litigation and other claims against the Company, and the estimated fair value of the Company's assets and liabilities, including guarantees. (See Note 33 to the Consolidated Financial Statements). The Company's Consolidated Financial Statements also have been prepared in accordance with The American Institute of Certified Public Accountants Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all pre-petition liabilities believed to be subject to compromise have been segregated in the Consolidated Balance Sheet and classified as Liabilities subject to compromise, at the estimated amount of allowable claims. Revenues, expenses, including professional fees, realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as Reorganization Items. The amount of allowable claims may differ significantly from the amounts for which these claims may be settled and settlement or resolution of disputed claims are expected to occur during 2004. SERVICE REVENUES: The Company's revenues are generally earned under contractual arrangements. Service revenues include: 1) Fees earned under contract to operate and maintain waste to energy, independent power and water facilities; 2) Fees earned to service Project debt (principal and interest) where such fees are expressly included as a component on the service fee paid by the Client Community pursuant to applicable waste to energy Service Agreements. Regardless of the timing of amounts paid by Client Communities relating to Project debt principal, the Company records service revenue with respect to this principal component on a levelized basis over the term of the Service Agreement. Long-term unbilled service receivables related to waste to energy operations are discounted in recognizing the present value for services performed currently in order to service the principal component of the Project debt; 3) Fees earned for processing waste in excess of Service Agreement requirements; 4) Tipping fees earned under waste disposal agreements; 5) Other miscellaneous fees such as revenue for scrap metal recovered and sold. ELECTRICITY AND STEAM SALES: Revenues 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 net of amounts due to client communities under applicable Service Agreements. CONSTRUCTION REVENUES: Revenues under fixed-price contracts, including construction, are recognized on the basis of the estimated percentage of completion of services rendered. Anticipated losses are recognized as soon as they become known. A significant change in these revenue recognition policies, or a change in accounting principles generally accepted in the United States could have an impact on the Company's recorded operating results and financial condition. ESTIMATED LIFE OF LONG-LIVED ASSETS: 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. PENSION AND POSTRETIREMENT PLANS: The Company has pension and post-retirement obligations and costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected 58 return on plan assets and medical trend rates. Changes in these assumptions can result in different expense and liability amounts, and future actual experience can differ from the assumptions. Changes are primarily influenced by factors outside the Company's control and can have a significant effect on the amounts reported in the financial statements. LITIGATION: The Company is party to a number of claims, lawsuits and pending actions, most of which are routine and all of which are incidental to its businesses. The Company assesses the likelihood of potential losses on an ongoing basis and when they are considered probable and reasonably estimable, records an estimate of the ultimate outcome. If there is no single point estimate of loss that is considered more likely than others, an amount representing the low end of the range of possible outcomes is recorded. See Note 1 to the Consolidated Financial Statements for a summary of additional accounting policies and new accounting pronouncements. CONTRACT STRUCTURES AND DURATION The Company attempts to structure contracts related to its domestic waste-to-energy projects as fixed price operating contracts which escalate in accordance with indices the Company believes appropriate to reflect price inflation, so that its revenue is relatively stable for the contract term. The Company's returns will be similarly stable if it does not incur material unexpected operation and maintenance or other expense. In addition, most of the Company's waste-to-energy project contracts are structured so that contract counterparties generally bear the costs associated with events or circumstances not within the Company's control, such as uninsured force majeure events and changes in legal requirements. The stability of the Company's domestic revenue and returns could be affected by its ability to continue to enforce these obligations. Also, at some of the Company's waste-to-energy facilities, commodity price risk is further mitigated by passing through commodity costs to contract counterparties. With respect to its domestic and international independent power projects, such structural features generally do not exist because either the Company operates and maintains such facilities for its own account or does so on a cost-plus rather than a fixed fee basis. Certain PPAs related to domestic projects provide for energy sales prices linked to the "avoided costs" of producing such energy and, therefore, energy revenues fluctuate with various economic factors. In most of the Company's waste to energy projects, the operating subsidiary retains only a fraction of the energy revenues (generally 10%) with the balance used to provide a credit to the Client Community against its disposal costs. Therefore, the Client Community derives most of the benefit and risk of changing energy prices. One of the Company's waste-to-energy facilities sells electricity to the regional electricity grid without a contract and is therefore subject to energy market price fluctuation. At some of the Company's domestic and international independent power projects, the Company's operating subsidiary purchases fuel in the open markets. The Company is exposed to fuel price risk at these projects. At other plants, fuel costs are contractually included in the Company's electricity revenues, or fuel is provided by the Company's customers. In some of the Company's international projects, the project entity (which in some cases is not a subsidiary of the Company) has entered into long term fuel purchase contracts that protect the project from changes in fuel prices, provided counterparties to such contracts perform their commitments. The Company's Service Agreements for domestic waste-to-energy projects begin to expire in 2007, and energy sales contracts at Covanta-owned waste-to-energy projects generally expire at or after the date on which that project's Service Agreement expires. Expiration of these contracts will subject the Company to greater market risk in maintaining and enhancing its revenues. As its Service Agreements at municipally-owned projects expire, the Company will seek to enter into renewal or replacement contracts to continue operating such projects. As its Service Agreements at facilities it owns begin to expire, Covanta intends to seek replacement or additional contracts for waste supplies, and because project debt on these facilities will be paid off at such time, Covanta believes it will be able to offer disposal services at rates that will attract sufficient quantities of waste and provide acceptable revenues. The Company will seek to bid competitively in the market for additional contracts to operate other facilities as similar contracts of other vendors expire. At the Company's domestic facilities, the expiration of existing energy sales contracts will require the Company to sell project energy output either into the electricity grid or pursuant to new contracts. There can be no assurance that Covanta will be able to enter into such renewals, replacement or additional contracts, or that the terms available in the market at the time will be favorable to the Company. The Company's opportunities for growth by investing in new domestic projects will be limited by existing debt covenants, as well as by competition from other companies in the waste disposal business. The Company intends to 59 pursue opportunities to expand the processing capacity where Client Communities have encountered significantly increased waste volumes without corresponding competitively-priced landfill availability. Other than expansions at existing waste-to-energy projects, the Company does not expect to engage in material development activity which will require significant equity investment. There can be no assurance that the Company will be able to implement expansions at existing facilities. DANIELSON NOLS AVAILABILITY The Company cannot be certain that the net operating loss carryforwards ("NOLs") of Danielson will be available to offset the tax liability of Covanta and its domestic subsidiaries. CPIH and its subsidiaries will not be consolidated with the balance of the Company for federal income tax purposes. If the NOLs were not available to offset the tax liability of the Company (other than CPIH), the Company does not expect to have sufficient cash flow available to pay debt service on the Domestic Facilities described above under Liquidity/Cash Flow. Danielson expects, based on the Danielson Form 10-K for the fiscal year ended December 31, 2003 filed with the SEC, to have NOLs estimated to be approximately $652 million for federal income tax purposes as of the end of 2003. The NOLs will expire in various amounts beginning on December 31, 2004 through December 31, 2023, if not used. The amount of NOLs available to Covanta will be reduced by any taxable income generated by current members of Danielson's tax consolidated group. The existence and availability of Danielson's NOLs is dependent on factual and substantive tax issues, including issues in connection with a 1990 restructuring by Danielson. The Internal Revenue Service ("IRS") has not audited any of Danielson's tax returns for the years in which the losses giving rise to the NOLs were reported, and it could challenge any past and future use of the NOLs. If the IRS were successful in challenging Danielson's NOLs, the NOLs would not be available to offset future income of the Company. The Company has neither requested nor received a ruling from the IRS or an opinion of tax counsel with respect to the use and availability of the NOLs. Under applicable tax law, the use and availability of Danielson's NOLs could be limited if there is a more than 50% increase in stock ownership during a 3-year testing period by stockholders owning 5% or more of Danielson's stock. Danielson's Certificate of Incorporation contains stock transfer restrictions that were designed to help preserve Danielson's NOLs by avoiding such an ownership change. Danielson expects that they will remain in-force as long as Danielson has NOLs. There can be no assurance, however, that these restrictions will prevent such an ownership change. 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. The Company uses a sensitivity model to evaluate 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, 2003. Further information is included in Note 33 to the Consolidated Financial Statements. INTEREST RATE RISK The Company has long-term debt and Project debt outstanding bearing interest at floating rates that could subject it to the risk of increased interest expense due to rising market interest rates, 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 $11.6 million was floating rate at December 31, 2003. Of the Project debt, approximately $263.1 million was floating rate at December 31, 2003. However, of that floating rate Project debt, $130.3 million related to waste-to-energy projects where, because of their contractual structure, interest rate risk is borne by Client Communities because debt service is passed through to those clients. The Company had only one interest rate swap outstanding at December 31, 2003 in the notional amount 60 of $80.2 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 20 percent hypothetical increase in the underlying December 31, 2003 market interest rates would result in a potential loss to twelve month future earnings of $2.1 million. For fixed rate debt, the potential reduction in fair value from a 20 percent hypothetical decrease in the underlying December 31, 2003 market interest rates would be approximately $37.5 million. The fair value of the Company's fixed rate debt (including $764.1 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 $824.2 million at December 31, 2003, 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 and Bangladesh, and to a much lesser degree, Italy, Spain, 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. As a result, the U.S. dollar is the functional currency at most of the Company's international projects. Therefore, only local operating expenses and project debt denominated in other than a project entity's functional currency are exposed to currency risks. At December 31, 2003, the Company had $114.7 million of project debt related to two diesel engine projects in India. Exchange rate fluctuations on $21.6 million of the debt (related to a project entity whose functional currency is in the U.S. dollar) are recorded as adjustments to the recorded amount of the debt and foreign currency transaction gains and losses are included in Other-net in the Statements of Consolidated Operations. For $61.9 million of the debt (related to project entities whose functional currency is the Indian Rupee), exchange rate fluctuations are recorded as translation adjustments to the cumulative translation adjustment account within stockholders' deficit in the Company's Consolidated Balance Sheets. The remaining $31.2 million of debt is denominated in U.S. dollars. The potential loss in fair value for such financial instruments from a 10% adverse change in December 31, 2003 quoted foreign currency exchange rates would be approximately $9.0 million. Upon consummation of the Second Plan of Reorganization and the Danielson transaction, these risks will be borne primarily by the CPIH Borrowers to the extent they affect the cash flow available to the CPIH Borrowers to repay CPIH indebtedness. These risks will continue to affect items reflected on the Company's consolidated financial statements. At December 31, 2003, the Company also had net investments in foreign subsidiaries and projects. See Note 9 to the Consolidated Financial Statements for further discussion. COMMODITY PRICE RISK AND CONTRACT REVENUE 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. Alternatively, the Company attempts to mitigate the risk of energy and fuel market fluctuations by structuring contracts related to its energy projects in the manner described above under Management's Discussion and Analysis, Contract Structures and Duration. Generally, the Company is protected against fluctuations in the waste disposal market, and thus its ability to charge acceptable fees for its services, through existing long-term disposal contracts ("Service Agreements") at its waste-to-energy facilities. At three of its waste-to-energy facilities, differing amounts of waste disposal capacity are not subject to long-term contracts and, therefore, the Company is partially exposed to the risk of market fluctuations in the waste disposal fees it may charge. The Company's Service Agreements begin to expire in 2007, and energy sales contracts at Company-owned projects generally expire at or after the date on which that project's Service Agreement expires. Expiration of these contracts will subject the Company to greater market risk in maintaining and enhancing its revenues. As its Service Agreements at municipally-owned projects expire, the Company will seek to enter into renewal or replacement contracts to continue operating such projects. As the Company's Service Agreements at facilities it owns begin to expire, the Company intends to seek replacement or additional contracts for waste supplies, and because project debt on these facilities will be paid off at such time, the Company expects to be able to offer disposal services at rates 61 that will attract sufficient quantities of waste and provide acceptable revenues. The Company will seek to bid competitively in the market for additional contracts to operate other facilities as similar contracts of other vendors expire. At Company-owned facilities, the expiration of existing energy sales contracts will require the Company to sell its output either into the local electricity grid or pursuant to new contracts. There can be no assurance that the Company will be able to enter into such renewals, replacement or additional contracts, or that the terms available in the market at the time will be favorable to the Company. The Company's opportunities for growth by investing in new projects will be limited by existing debt covenants, as well as by competition from other companies in the waste disposal business. The Company intends to pursue opportunities to expand the processing capacity where municipal clients have encountered significantly increased waste volumes without corresponding competitively-priced landfill availability. Other than expansions at existing waste-to-energy projects, the Company does not expect to engage in material development activity which will require significant equity investment. There can be no assurance that the Company will be able to implement expansions at existing facilities. 62 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX Statements of Consolidated Operations and Comprehensive Income (Loss) for the Years ended December 31, 2003, 2002, and 2001 Consolidated Balance Sheets - December 31, 2003 and 2002 Statements of Shareholders' Equity (Deficit) for the Years ended December 31, 2003, 2002, and 2001 Statements of Consolidated Cash Flows for the Years ended December 31, 2003, 2002 and 2001 Notes to Consolidated Financial Statements Independent Auditors' Report Report of Management Quarterly Results of Operations 63 COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
- -------------------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- (In Thousands of Dollars, Except Per Share Amounts) Service revenues $ 499,245 $ 493,960 $ 560,771 Electricity and steam sales 277,766 289,281 231,603 Construction revenues 13,448 42,277 63,052 Other sales-net -- -- 31,343 Other revenues-net 9 263 30,877 ----------- ----------- ----------- Total revenues 790,468 825,781 917,646 ----------- ----------- ----------- Plant operating expenses 500,627 496,443 435,692 Construction costs 20,479 42,698 70,124 Depreciation and amortization 71,932 77,368 78,487 Debt service charges-net 76,770 86,365 85,924 Other operating costs and expenses 2,209 15,163 62,850 Net loss on sale of businesses and equity investments 7,246 1,943 2,768 Cost of goods sold -- -- 37,173 Selling, general and administrative expenses 35,639 54,329 78,805 Project development costs -- 3,844 33,326 Other expense-net (1,119) 16,008 29,914 Write-down of and obligations related to assets held for use 16,704 84,863 -- Write-downs and obligations related to assets held for sale -- -- 186,513 ----------- ----------- ----------- Total costs and expenses 730,487 879,024 1,101,576 ----------- ----------- ----------- Equity in income from unconsolidated investments 29,941 25,076 17,665 ----------- ----------- ----------- Operating income (loss) 89,922 (28,167) (166,265) Interest expense (net of interest income of $2,948, $2,472 and $8,164, respectively, and excluding post-petition contractual interest of $970 and $3,607 in 2003 and 2002, respectively) (36,990) (41,587) (39,306) Reorganization items (83,346) (49,106) -- ----------- ----------- ----------- Loss from continuing operations before income taxes, minority interests, discontinued operations and the cumulative effect of changes in accounting principles (30,414) (118,860) (205,571) Income tax benefit 12,555 266 5,959 Minority interests (8,905) (9,104) (6,074) ----------- ----------- ----------- Loss from continuing operations before discontinued operations and change in accounting principles (26,764) (127,698) (205,686) Gain (loss) from discontinued operations (net of income tax benefit (expense) of ($16,147), $13,165 and $11,071, respectively) 78,814 (43,355) (25,341) Cumulative effect of change in accounting principles (net of income tax benefit of $5,532, zero and zero, respectively) (8,538) (7,842) -- ----------- ----------- ----------- Net income (loss) 43,512 (178,895) (231,027) ----------- ----------- ----------- Other comprehensive income (loss), net of income tax: Foreign currency translation adjustments (net of income taxes of zero, $415 and $1,443, respectively) 2,743 (1,485) (3,976) Less: reclassification adjustments for translation adjustments included in: continuing operations (2,753) 1,233 7,048 discontinued operations -- 297 -- Unrealized holding gains (losses) arising during the year (net of income tax (expense) benefit of ($262) and $112 in 2003 and 2002, respectively) 392 (167) -- Minimum pension liability adjustment -- 88 409 ----------- ----------- ----------- Other comprehensive income (loss) 382 (34) 3,481 ----------- ----------- ----------- Comprehensive income (loss) $ 43,894 $ (178,929) $ (227,546) =========== =========== =========== Basic income (loss) per share: Loss from continuing operations $ (0.54) $ (2.56) $ (4.14) Income (loss) from discontinued operations 1.58 (0.88) (0.51) Cumulative effect of change in accounting principles (0.17) (0.16) -- ----------- ----------- ----------- Net income (loss) $ 0.87 $ (3.60) $ (4.65) =========== =========== =========== Diluted income (loss) per share: Loss from continuing operations $ (0.54) $ (2.56) $ (4.14) Income (loss) from discontinued operations 1.58 (0.88) (0.51) Cumulative effect of change in accounting principles (0.17) (0.16) -- ----------- ----------- ----------- Net income (loss) $ 0.87 $ (3.60) $ (4.65) =========== =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 64 COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
- ------------------------------------------------------------------------------------------ DECEMBER 31, 2003 2002 - ------------------------------------------------------------------------------------------ (In Thousands of Dollars, Except Share and Per Share Amounts) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 289,424 $ 115,815 Restricted funds held in trust 79,404 92,039 Receivables (less allowances of $27,893 and $20,476, in 2003 230,093 259,082 and 2002 ) Deferred income taxes 9,763 11,200 Prepaid expenses and other current assets (less allowances of $5,000 and zero in 2003 and 2002) 82,115 85,997 ----------- ----------- TOTAL CURRENT ASSETS 690,799 564,133 Property, plant and equipment-net 1,453,354 1,661,863 Restricted funds held in trust 119,480 169,995 Unbilled service and other receivables (less allowances of $5,026 and $2,957 in 2003 and 2002) 125,363 147,640 Unamortized contract acquisition costs-net 27,073 60,453 Other intangible assets-net 7,073 7,631 Investments in and advances to investees and joint ventures 137,374 166,465 Other assets 53,064 61,927 ----------- ----------- TOTAL ASSETS $ 2,613,580 $ 2,840,107 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES: CURRENT LIABILITIES: Current portion of long-term debt $ 9,492 $ 16,450 Current portion of project debt 99,216 115,165 Accounts payable 23,584 23,593 Accrued expenses 208,342 294,781 Deferred income 37,431 41,402 ----------- ----------- TOTAL CURRENT LIABILITIES 378,065 491,391 Long-term debt 2,150 23,779 Project debt 933,185 1,128,217 Deferred income taxes 195,059 209,783 Deferred income 129,304 151,000 Other liabilities 78,358 80,369 Liabilities subject to compromise 956,095 892,012 ----------- ----------- TOTAL LIABILITIES 2,672,216 2,976,551 ----------- ----------- MINORITY INTERESTS 69,398 35,869 ----------- ----------- SHAREHOLDERS' DEFICIT: Serial cumulative convertible preferred stock, par value $1.00 per share, authorized, 4,000,000 shares; shares outstanding: 33,049 in 2003 2002 and 2002, net of treasury shares of 29,820 in 2003 and 2002 33 33 Common stock, par value $.50 per share; authorized, 80,000,000 shares; outstanding: 49,824,251 in 2003 and 2002, net of treasury shares of 4,125,350 in 2003 and 2002 24,912 24,912 Capital surplus 188,156 188,156 Notes receivable from key employees for common stock issuance (451) (870) Unearned restricted stock compensation -- (54) Deficit (340,661) (384,173) Accumulated other comprehensive loss (23) (317) ----------- ----------- TOTAL SHAREHOLDERS' DEFICIT (128,034) (172,313) ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,613,580 $ 2,840,107 =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 65 COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------------------------------- (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 62,869 $ 63 63,300 $ 64 65,402 $ 66 Shares converted into common stock -- -- (431) (1) (2,102) (2) ---------- ------------ ------------ ------------ ---------- ------------ Total 62,869 63 62,869 63 63,300 64 Treasury shares (29,820) (30) (29,820) (30) (29,820) (30) ---------- ------------ ------------ ------------ ---------- ------------ Balance at end of year (aggregate involuntary liquidation value 2003, $666) 33,049 33 33,049 33 33,480 34 ---------- ------------ ------------ ------------ ---------- ------------ COMMON STOCK, PAR VALUE $.50 PER SHARE, AUTHORIZED, 80,000,000 SHARES: Balance at beginning of year 53,949,601 26,975 53,947,026 26,974 53,910,574 26,956 Exercise of stock options -- -- -- -- 23,898 12 Conversion of preferred shares -- -- 2,575 1 12,554 6 ---------- ------------ ------------ ------------ ---------- ------------ Total 53,949,601 26,975 53,949,601 26,975 53,947,026 26,974 ---------- ------------ ------------ ------------ ---------- ------------ Treasury shares at beginning of year 4,125,350 2,063 4,111,950 2,056 4,265,115 2,133 Exercise of stock options -- -- -- -- (38,966) (20) Issuance (cancellation) of restricted stock -- -- 13,400 7 (114,199) (57) ---------- ------------ ------------ ------------ ---------- ------------ Treasury shares at end of year 4,125,350 2,063 4,125,350 2,063 4,111,950 2,056 ---------- ------------ ------------ ------------ ---------- ------------ Balance at end of year 49,824,251 24,912 49,824,251 24,912 49,835,076 24,918 ---------- ------------ ------------ ------------ ---------- ------------ CAPITAL SURPLUS: Balance at beginning of year 188,156 188,371 185,681 Exercise of stock options -- -- 776 Conversion of preferred shares -- -- (4) Issuance (cancellation) of restricted stock (215) 1,918 ------------ ------------ ------------ Balance at end of year 188,156 188,156 188,371 ------------ ------------ ------------ NOTES RECEIVABLE FROM KEY EMPLOYEES FOR COMMON STOCK ISSUANCE: Balance at beginning of year (870) (870) (870) Settlement 419 -- -- ------------ ------------ ------------ Balance at end of year (451) (870) (870) ------------ ------------ ------------ UNEARNED RESTRICTED STOCK COMPENSATION: Balance at beginning of year (54) (664) -- Issuance (cancellation) of restricted common stock -- 222 (1,567) Amortization of unearned restricted stock compensation 54 388 903 ------------ ------------ ------------ Balance at end of year -- (54) (664) --------- --------- --------- EQUITY (DEFICIT): Balance at beginning of year (384,173) (205,262) 25,829 Net income (loss) 43,512 (178,895) (231,027) ------------ ------------ ------------ Total (340,661) (384,157) (205,198) ------------ ------------ ------------ Preferred dividends-per share of zero, $.46875, and $1.875, respectively 16 64 ------------ ------------ ------------ Balance at end of year (340,661) (384,173) (205,262) ------------ ------------ ------------ CUMULATIVE TRANSLATION ADJUSTMENT: Balance at beginning of year (238) (283) (3,355) Foreign currency translation adjustments 2,743 (1,485) (3,976) Less reclassification adjustments for translation adjustments included in: gain (loss) from continuing operations (2,753) 1,233 7,048 gain from discontinued operations -- 297 -- ------------ ------------ ------------ Balance at end of year (248) (238) (283) ------------ ------------ ------------ MINIMUM PENSION LIABILITY ADJUSTMENT: Balance at beginning of year 88 -- (409) Minimum pension liability adjustment (88) 88 409 ------------ ------------ ------------ Balance at end of year -- 88 -- ------------ ------------ ------------ NET UNREALIZED GAIN (LOSS) ON SECURITIES AVAILABLE FOR SALE: Balance at beginning of year (167) -- -- Gain (loss) for year 392 (167) -- ------------ ------------ ------------ Balance at end of year 225 (167) -- ------------ ------------ ------------ ACCUMULATED OTHER COMPREHENSIVE LOSS (23) (317) (283) ------------ ------------ ------------ TOTAL SHAREHOLDERS' EQUITY (DEFICIT) $(128,034) $(172,313) $ 6,244 ============ ============ ============
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 66 COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS
- -------------------------------------------------------------------------------------------------------------------- FOR THE YEARS ENDED DECEMBER 31, 2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------- (In Thousands of Dollars) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 43,512 $(178,895) $(231,027) Adjustments to Reconcile Net Income (Loss) to Net Cash Provided by Operating Activities of Continuing Operations: Loss (gain) from discontinued operations (78,814) 43,355 25,341 Reorganization items 83,346 49,106 -- Payment of reorganization items (57,034) (26,928) -- Depreciation and amortization 71,932 77,368 78,487 Deferred income taxes (17,909) 3,376 (20,749) Provision for doubtful accounts 10,241 20,013 14,212 Bank fees -- 23,685 14,684 Write-down of and obligations related to assets held for sale -- -- 186,513 Write-downs and obligations related to assets held for use 16,704 84,863 -- Equity in income from unconsolidated investments (29,941) (25,076) (17,665) Cumulative effect of change in accounting principles, net of income taxes 8,538 7,842 -- Other 15,279 (13,003) 37,208 Management of Operating Assets and Liabilities: Decrease (Increase) in Assets: Receivables 866 24,215 (56,207) Other assets 10,803 (504) (20,087) Increase (Decrease) in Liabilities: Accounts payable 23,150 33,571 (15,749) Accrued expenses (73,240) 853 32,235 Deferred income (693) (2,815) (15,349) Other liabilities 7,662 (53,543) 17,495 --------- --------- --------- Net cash provided by operating activities of continuing operations 34,402 67,483 29,342 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of businesses 33,171 18,871 34.904 Proceeds from sale of property, plant, and equipment 406 988 915 Proceeds from sale of marketable securities available for sale 564 646 584 Proceeds from sale of investment 493 -- -- Investments in facilities (21,174) (18,164) (51,951) Other capital expenditures (980) (3,103) (9,442) Increase in other receivables -- -- 2,011 Distributions from investees and joint ventures 11,511 27,863 31,182 Increase in investments in and advances to investees and joint ventures -- (296) (18,576) --------- --------- --------- Net cash provided by (used in) investing activities of continuing operations 23,991 26,805 (10,373) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings for facilities 3,768 -- -- New borrowings 6,794 6,102 18,174 Decrease (increase) in restricted funds held in trust 42,092 (9,549) (6,925) Decrease in restricted cash -- -- 194,118 Proceeds from exercise of stock options -- -- 808 Payment of debt (149,956) (120,924) (271,867) Dividends paid -- (16) (64) Other (5,265) (4,087) (4,075) --------- --------- --------- Net cash used in financing activities of continuing operations (102,567) (128,474) (69,831) --------- --------- --------- Net cash provided by discontinued operations 217,783 63,228 56,992 --------- --------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 173,609 29,042 6,130 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 115,815 86,773 80,643 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 289,424 $ 115,815 $ 86,773 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 67 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) ("Covanta") and its subsidiaries (collectively, "the Company"). In March 2001, Covanta changed its name from Ogden Corporation to Covanta Energy Corporation. The Company develops, constructs, owns and operates for others key infrastructure for the conversion of waste to energy, independent power production and the treatment of water and waste water in the United States and abroad. Companies in which the Company has equity investments of 20% to 50% are accounted for using the equity method since the Company has the ability to exercise significant influence over their operating and financial policies. Those companies in which the Company owns less than 20% are accounted for using the cost method. All intercompany transactions and balances have been eliminated. BASIS OF ACCOUNTING: On March 10, 2004, the Company consummated a plan of reorganization and except for six subsidiaries, emerged from its reorganization proceeding under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). As a result of the consummation of the plan (further described below), Covanta is a wholly owned subsidiary of Danielson Holding Corporation, a Delaware corporation ("Danielson"). The Chapter 11 proceedings commenced on April 1, 2002 (the "First Petition Date"), when Covanta and 123 of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"). After the First Petition Date, thirty-two additional subsidiaries filed their Chapter 11 petitions for relief under the Bankruptcy Code. Eight subsidiaries that had filed petitions on the First Petition Date were sold as part of the Company's disposition of assets during the bankruptcy cases and are no longer owned by the Company. All of the bankruptcy cases (the "Chapter 11 Cases") were jointly administered under the caption "In re Ogden New York Services, Inc., et al., Case Nos. 02-40826 (CB), et al." During the Chapter 11 Cases, the debtors in the proceeding (collectively, the "Debtors") operated their business as debtors-in-possession pursuant to the Bankruptcy Code. International operations and certain other subsidiaries and joint venture partnerships were not included in the bankruptcy filings. The 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. The Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, (i) the Company's ability to utilize the net operating loss carry forwards ("NOLs") of Danielson, and (ii) 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 that 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 uncertainty. Therefore, if the "going concern" basis were not used for the Consolidated Financial Statements, significant adjustments could be necessary to the carrying values of assets and liabilities, the revenues and expenses reported, and the balance sheet classifications used. See Note 2, for additional information about the Company's Reorganization Plan. The Company's Consolidated Financial Statements also have been prepared in accordance with The American Institute of Certified Public Accountants Statement of Position 90-7 ("SOP 90-7"), "Financial Reporting by Entities in Reorganization under the Bankruptcy Code." Accordingly, all pre-petition liabilities believed to be subject to compromise have been segregated in the Consolidated Balance Sheets and classified as Liabilities subject to compromise, at the estimated amount of allowable claims. Liabilities not believed to be subject to compromise are separately classified as current and non-current. Revenues, expenses, including professional fees, realized gains and losses, and provisions for losses resulting from the reorganization are reported separately as Reorganization Items. Also, interest expense is 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. Cash used for reorganization items is disclosed separately in the Statements of Consolidated Cash Flows. The consolidated financial statements do not reflect fresh start adjustments which will be adopted on the emergence date. 68 USE OF ESTIMATES: The preparation of financial statements 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 estimated useful lives of long-lived assets, liabilities for restructuring, litigation and other claims against the Company and the fair value of the Company's assets and liabilities, including guarantees. CASH AND CASH EQUIVALENTS: Cash and cash equivalents include all cash balances and highly liquid investments having original maturities of three months or less. 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 Income (Loss) (see Note 6). SERVICE REVENUES: The Company's revenues are generally earned under contractual arrangements. Service revenues include: 1) Fees earned under contract to operate and maintain waste to energy, independent power and water facilities; 2) Fees earned to service Project debt (principal and interest) where such fees are expressly included as a component on the service fee paid by the Client Community pursuant to applicable waste to energy Service Agreements. Regardless of the timing of amounts paid by Client Communities relating to Project debt principal, the Company records service revenue with respect to this principal component on a levelized basis over the term of the Service Agreement. Long-term unbilled service receivables related to waste to energy operations are discounted in recognizing the present value for services performed currently in order to service the principal component of the Project debt. Such unbilled receivables amounted to $115.3 million and $134.9 million at December 31, 2003 and 2002, respectively; 3) Fees earned for processing waste in excess of Service Agreement requirements; 4) Tipping fees earned under waste disposal agreements; 5) Other miscellaneous fees such as revenue for scrap metal recovered and sold. ELECTRICITY AND STEAM SALES: 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 net amounts due to Client Communities under applicable Service Agreements. CONSTRUCTION REVENUES: Revenues under fixed-price contracts, including construction, are recognized on the basis of the estimated percentage of completion of services rendered. Anticipated losses are recognized as soon as they become known. OTHER SALES-NET: Other sales-net in 2001 included the sale of product by subsidiaries, mainly a contract computer equipment manufacturer, in the Other segment. Sales were recognized when goods were shipped to customers and title and risk of loss for such goods passed to those customers. No goods were shipped on consignment. OTHER REVENUES-NET: Other revenues-net for 2001 primarily included amounts related to insurance proceeds resulting from the settlement of certain legal matters related to a policy which insured that an energy facility purchased by the Company would produce minimum quantities of steam. PROPERTY, PLANT AND EQUIPMENT: Property, plant, and equipment is stated at cost. For financial reporting purposes, depreciation is calculated 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. Landfill costs are amortized based on the quantities deposited into each landfill compared to the total estimated capacity of such landfill. CONTRACT ACQUISITION COSTS: Contract acquisition costs are capitalized for external costs incurred to acquire the rights to design, construct and operate waste-to-energy and water treatment facilities and are amortized over the life of the contracts. Contract acquisition costs are presented net of accumulated amortization of $46.6 million and $55.1 million at December 31, 2003 and 2002, respectively. 69 BOND ISSUANCE COSTS: Costs incurred in connection with the issuance of bonds are amortized using the effective interest rate method over the terms of the respective debt issues. Unamortized bond issuance costs are included in Other assets on the Consolidated Balance Sheets. RESTRICTED FUNDS: Restricted funds held in trust are primarily amounts received by third party trustees relating to projects owned by the Company, and which may be used only for specified purposes. The Company generally does not control these accounts. They include debt service reserves for payment of principal and interest on project debt, deposits of revenues received with respect to projects prior to their disbursement as provided in the relevant indenture or other agreements, 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. DEFERRED FINANCING COSTS: Costs incurred in connection with obtaining financing are capitalized and amortized straight line over the terms of the related financings. Unamortized deferred financing costs are included in Other assets on the Consolidated Balance Sheets. 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, permitting expense 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 facility owned by a municipality. Capitalized project development costs are charged to expense when it is determined that the related project is impaired. PENSION AND POSTRETIREMENT PLANS: The Company has pension and post-retirement obligations and costs that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates, expected return on plan assets and medical trend rates. Changes in these assumptions are primarily influenced by factors outside the Company's control and can have a significant effect on the amounts reported in the financial statements. OTHER INTANGIBLE ASSETS: These assets are amortized by the straight-line method over periods ranging from 15 to 25 years. Intangibles of $7.1 million and $7.6 million at December 31, 2003 and 2002, respectively, are net of accumulated amortization of $1.9 million and $1.4 million, respectively (see Note 11). Also see Changes in Accounting Principles and New Accounting Pronouncements below regarding the change in accounting for goodwill and other intangible assets. INTEREST RATE SWAP AGREEMENTS: The fair value of interest rate swap agreements are recorded as assets and liabilities, with changes in fair value during the year credited or charged to debt service revenue or debt service charges, as appropriate. INCOME TAXES: During the periods covered by the Consolidated Financial Statements, the Company filed a consolidated Federal income tax return, which included all eligible United States subsidiary companies. Foreign subsidiaries were taxed according to regulations existing in the countries in which they do business. Provision has not been made for United States income taxes on income earned by foreign subsidiaries as the income is considered to be permanently invested overseas. LONG-LIVED ASSETS: The Company 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 anticipated future undiscounted cash flows of those assets, the Company would measure and record the impairment amount, if any, as the difference between the carrying value of the assets and the fair value of those assets. 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 in the Statements of Consolidated Operations and Comprehensive Income (Loss) as a component of other comprehensive income (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 70 income (loss) and shareholders' equity (deficit). Currency transaction gains and losses are recorded in Other-net in the Statements of Consolidated Operations and Comprehensive Income (Loss). 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 28). CHANGES IN ACCOUNTING PRINCIPLES AND NEW ACCOUNTING PRONOUNCEMENTS: In May 2003, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity" ("SFAS No. 150"). SFAS No. 150 establishes standards for how an issuer classifies and measures in its statement of financial position certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability because that financial instrument embodies an obligation of the issuer. The requirements of SFAS No. 150 are effective for financial instruments entered into or modified after May 31, 2003. For financial instruments created prior to the issuance date of SFAS No. 150, transition shall be achieved by reporting the cumulative effect of a change in accounting principle. The Company adopted the provisions of SFAS No. 150 on July 1, 2003, without impact on its financial position or results of operations. In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No. 149 amends and clarifies the accounting and reporting for derivative instruments, including certain derivatives embedded in other contracts, and for hedging activities under SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133"). The amendments in SFAS No. 149 require that contracts with comparable characteristics be accounted for similarly. SFAS No. 149 clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative according to SFAS No. 133 and when a derivative contains a financing component that warrants special reporting in the statement of cash flows. In addition, SFAS No. 149 amends the definition of an "underlying" to conform it to language used in FIN No. 45 (see below) and amends certain other existing pronouncements. The provisions of SFAS No. 149 that relate to SFAS No. 133 "Implementation Issues" that have been effective for periods that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. The requirements of SFAS No. 149 are effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The Company adopted the provisions of SFAS No. 149 on July 1, 2003 without impact on its financial position or results of operations. In January 2003, the FASB issued Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN No. 46"). FIN No. 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements," and applies immediately to any variable interest entities created after January 31, 2003 and to variable interest entities in which an interest is obtained after that date. FIN No. 46 was revised in December 2003 and is applicable for the Company on January 1, 2004 for interests acquired in variable interest entities prior to February 1, 2003. The Company does not expect the adoption of FIN No. 46 to have an impact on its financial position or results of operations. The Company adopted SFAS No. 143, "Accounting for Asset Retirement Obligations" ("SFAS No. 143"), effective January 1, 2003. Under SFAS No. 143, entities are required to record the fair value of a legal liability for an asset retirement obligation in the period in which it is incurred. The Company's legal liabilities include capping and post-closure costs of landfill cells and site restoration at certain waste-to-energy and power producing sites. When a new liability for asset retirement obligations is recorded, the entity capitalizes the costs of the liability by increasing the carrying amount of the related long-lived asset. The liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. At retirement, an entity settles the obligation for its recorded amount or incurs a gain or loss. The Company adopted SFAS No. 143 on January 1, 2003 and recorded a cumulative effect of change in accounting principle of $ 8.5 million, net of a related tax benefit of $ 5.5 million. 71 The following table summarizes the impact on the Company's Balance Sheet following the adoption of SFAS No. 143 (in thousands):
Change Balance at resulting from Balance at December 31, application of January 1, 2002 SFAS NO. 143 2003 ----------- ------------ ----------- Property, plant and equipment $ 2,378,672 $ 6,509 $ 2,385,181 Less: Accumulated depreciation (716,809) (2,935) (719,744) ----------- ----------- ----------- Net property, plant and equipment $ 1,661,863 $ 3,574 $ 1,665,437 Investments in and advances to investees and joint ventures $ 166,465 $ (1,223) $ 165,242 Deferred income tax liability $ 249,600 $ (5,532) $ 244,068 Non-current asset retirement obligation $ -- $ 19,136 $ 19,136 Non-current other liabilities $ 80,369 $ (2,536) $ 77,833 Minority interest $ 35,869 $ (179) $ 35,690
The change to the non-current asset retirement obligation for 2003 is as follows (in thousands): Non-current asset retirement obligation Balance at December 31, 2002 $ -- Asset retirement obligation as of January 1, 2003 19,136 Accretion expense 1,345 Less obligation related to assets sold (See Note 3) (2,094) -------- Balance at December 31, 2003 $ 18,387 ======== The asset retirement obligation is included in other liabilities on the consolidated balance sheet. The following table summarizes the pro forma impact to net income (loss) and income (loss) per common share for the years ended December 31, 2003, 2002, and 2001 as if the Company adopted SFAS No. 143 as of January 1 (in thousands of dollars, except per share amounts):
YEAR ENDED DECEMBER 31, 2003 2002 2001 - ------------------------------------------------------------------------------------------------------------------- Loss from continuing operations before discontinued operations and the change in accounting principles, as reported $ (26,764) $ (127,698) $ (205,686) Gain (loss) from discontinued operations 78,814 (43,355) (25,341) Cumulative effect of change in accounting principles -- (7,842) -- Deduct: SFAS No. 143 depreciation and accretion expense -- (1,356) (1,356) ----------- ----------- ----------- Pro forma income (loss) $ 52,050 $ (180,251) $ (232,383) =========== =========== =========== Basis income (loss) per share: Loss from continuing operations before discontinued operations and the change in accounting principles, per share $ (0.54) $ (2.56) $ (4.14) =========== =========== =========== Income (loss) from discontinued operations $ 1.58 $ (0.87) $ (0.51) =========== =========== =========== Cumulative effect of change in accounting principles $ -- $ (0.16) $ -- =========== =========== =========== Net income (loss) pro forma $ 1.04 $ (3.62) $ (4.68) =========== =========== =========== Diluted income (loss) per share: Loss from continuing operations before discontinued operations and the change in accounting principles, per share $ (0.54) $ (2.56) $ (4.14) =========== =========== =========== Income (loss) from discontinued operations $ 1.58 $ (0.87) $ (0.51) =========== =========== =========== Cumulative effect of change in accounting principles $ -- $ (0.16) $ -- =========== =========== =========== Net income (loss) pro forma $ 1.04 $ (3.62) $ (4.68) =========== =========== ===========
72 In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure, an amendment of SFAS No 123 ("SFAS No. 148"). SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 "Accounting for Stock-Based Compensation" (SFAS No. 123), to require prominent disclosures in annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect in measuring compensation expense. The disclosure requirements of SFAS No. 148 are effective for periods beginning after December 15, 2002. At December 31, 2003, the Company has three stock-based employee compensation plans, which are described more fully in Note 20. The Company accounts for those plans under the recognition and measurement provision of APB Opinion No. 25, "Accounting for Stock Issued to Employees", and related Interpretations. No stock-based employee compensation cost is reflected in 2003, 2002 and 2001 net income (loss), as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant. No options were granted in 2003 or 2002. Awards under the Company's plans vest over periods ranging from three to five years. Therefore, the cost related to stock-based employee compensation included in the determination of net income (loss) for 2003, 2002 and 2001 is less than that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of SFAS No. 123. The following table summarizes the pro forma impact on net income (loss) and income (loss) per common share for the years ended December 31, 2003, 2002, and 2001 including the effect on net income (loss) and income (loss) per share if the fair value based method had been applied to all outstanding and unvested awards in each period (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31, 2003 2002 2001 ----------- ----------- ----------- Net income (loss), as reported $ 43,512 $ (178,895) $ (231,027) Deduct: SFAS No. 123 total stock based employee compensation expense determined under the fair value method for all awards, net of related tax effects (2,975) (4,933) (3,772) ----------- ----------- ----------- Pro forma net income (loss) $ 40,537 $ (183,828) $ (234,799) =========== =========== =========== Basic income (loss), per share: Basic - as reported $ 0.87 $ (3.60) $ (4.65) =========== =========== =========== Basic - pro forma $ 0.81 $ (3.69) $ (4.73) =========== =========== =========== Diluted income (loss), per share: Diluted - as reported $ 0.87 $ (3.60) $ (4.65) =========== =========== =========== Diluted - pro forma $ 0.81 $ (3.69) $ (4.73) =========== =========== ===========
As noted above, no options were granted in 2003 or 2002. Compensation expense, under the fair value method shown in the table above has been determined consistent with the provisions of SFAS No. 123 using the binomial option-pricing model with the following assumptions: dividend yield of 0% in 2001; volatility of 42.47% in 2001, risk-free interest rate of 5.8% in 2001; and weighted average expected life of 6.5 years in 2001. In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others - an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34" ("FIN No. 45"). FIN No. 45 elaborates on the disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. FIN No. 45 also clarifies that a guarantor is required to recognize, at the inception of a guarantee covered by FIN No. 45, a liability for the fair value of the obligation undertaken in issuing the guarantee. FIN No. 45 does not prescribe a specific approach for subsequently measuring the guarantor's recognized liability over the term of the related guarantee. FIN No. 45 also incorporates, without change, the guidance in FASB Interpretation No. 34, "Disclosure of Indirect Guarantees of Indebtedness of Others," which is superseded. The initial recognition and initial 73 measurement provisions of FIN No. 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor's fiscal year-end. The requirements in FIN No. 45 are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company has adopted the requirements of FIN No. 45 which did not have an effect on the Company's financial position or results of operations. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)". The provisions of SFAS No. 146 are effective for exit or disposal activities initiated after December 31, 2002. Previously issued financial statements shall not be restated. The provisions of EITF Issue No. 94-3 shall continue to apply for an exit activity initiated under an exit plan that met the criteria of that issue prior to the initial application of SFAS No. 146. The adoption on January 1, 2003 of SFAS No. 146 did not have an effect on the Company's financial position or results of operations. On June 30, 2002, the Company completed the required impairment evaluation of goodwill in conjunction with its adoption of SFAS No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). As a result of the risks and other conditions in its energy business and based upon the expected present value of future cash flows, the Company determined that $7.8 million of goodwill related to its energy business was impaired and was therefore written-off. As required by SFAS No. 142, this adjustment has been accounted for as a cumulative effect of a change in accounting principle as of January 1, 2002, and had no tax impact. (See Note 11). In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4 ("Reporting Gains and Losses from Extinguishment of Debt"), No. 44 ("Accounting for Intangible Assets of Motor Carriers") and No. 64 ("Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements"), Amendment of SFAS No. 13 ("Accounting for Leases") and Technical Corrections" ("SFAS No. 145"). The provisions of SFAS No. 145 related to the rescission of SFAS No. 4 require application in fiscal years beginning after May 15, 2002. Any gain or loss on extinguishment of debt that was classified as an extraordinary item in prior periods presented that does not meet the current criteria for classification as an extraordinary item shall be reclassified. The provisions of this statement related to SFAS No. 13 and the technical corrections are effective for transactions occurring after May 15, 2002. All other provisions of SFAS No. 145 shall be effective for financial statements issued on or after May 15, 2002. The Company adopted the provisions of SFAS No. 145 on December 1, 2002, without impact on its financial position or results of operations. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" ("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, including assets held for sale. SFAS No. 144 requires that assets held for sale be measured at the lower of carrying amount or fair value less associated selling expenses. It also broadens this reporting 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. SFAS No. 144 did not have a material effect at the date of adoption. On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133"), which 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 Consolidated 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 Income (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 only 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 74 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 $80.2 million of 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 $6.8 million during the years ended December 31, 2002 and 2001 to adjust for an increase in the swap's fair value to $19.1 million at December 31, 2002. The carrying value of this asset and liability decreased to $16.7 million at December 31, 2003. (See Notes 10 and 18.) In June 2001, the FASB issued SFAS No. 141, "Business Combinations" ("SFAS No. 141"). 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. RECLASSIFICATION: Certain prior year amounts have been reclassified in the Consolidated Financial Statements to conform with the current year presentation. 2. REORGANIZATION REORGANIZATION: Prior to the Effective Date of the Company's Reorganization Plan,, the Debtors acted as debtors-in-possession and were authorized to continue to operate as an ongoing business, but could not engage in transactions outside the ordinary course of business without the approval of the Bankruptcy Court. The Debtors obtained numerous orders from the Bankruptcy Court that were intended to enable the Debtors to operate in the normal course of business during the Chapter 11 Cases. Among other things, these orders authorized: (i) the retention of professionals to represent and assist the Debtors in the Chapter 11 Cases, (ii) the use and operation of the Debtors' 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, (iii) the payment of prepetition employee salaries, wages, health and welfare benefits, retirement benefits and other employee obligations, (iv) the payment of prepetition obligations to certain critical vendors to aid the Debtors in maintaining the operation of their businesses, (v) the use of cash collateral and the grant of adequate protection to creditors in connection with such use, (vi) the adoption of certain employee benefit plans, and (vii) the obtaining of post-petition financing. With respect to post-petition financing, the Debtors entered into the DIP Financing Facility with the DIP Lenders as of April 1, 2002. On April 5, 2002, the Bankruptcy Court issued an interim order approving the DIP Financing Facility and on May 15, 2002, a final order approving the DIP Financing Facility. On August 2, 2002, the Court issued an order that overruled objections by holders of minority interests in two Debtor limited partnerships who disputed the inclusion of the limited partnerships in the DIP Financing Facility. Although the holders of such interests at one of the limited partnerships appealed the order, they reached an agreement with the Company that in effect deferred the appeal. The DIP Financing Facility is described in Note 17 to the Consolidated Financial Statements. Pursuant to the Bankruptcy Code, pre-petition obligations of the Debtors, including obligations under debt instruments, generally could not be enforced against the Debtors, and any actions to collect pre-petition indebtedness were automatically stayed, unless the stay was lifted by the Bankruptcy Court. The obligations of, and the ultimate payments by, the Debtors under pre-petition commitments were substantially altered in the course of the Chapter 11 cases. This resulted in claims being liquidated in Chapter 11 Cases at less than their face value or being paid other than in cash. However, as authorized by the Bankruptcy Court, debt service continued to be paid on the Company's Project debt throughout the Chapter 11 Case. After the First Petition Date, the Debtors disposed of their non-core businesses. With approval of the Bankruptcy Court, the Debtors sold the remaining aviation fueling assets, their interests in Casino Iguazu and La Rural Fairgrounds and Exhibition Center in Argentina (together, the "Argentine Assets"). The Debtors have also closed a transaction pursuant to which they have been released from their management obligations, and the Debtors have realized and compromised their financial obligations, in connection with the Arrowhead Pond Arena in Anaheim, California ("Arrowhead Pond," and with the Corel Centre, the "Arenas"). See the discussion in Note 3 for a description of material non-core business dispositions that occurred. 75 In addition, in order to enhance the value of the Company's core business, on September 23, 2002, management announced a reduction in non-plant personnel, closure of satellite development offices and reduction in all other costs not directly related to maintaining operations at their current high levels. As part of the reduction in force, waste-to-energy and domestic independent power headquarters management were combined and numerous other structural changes were instituted in order to improve management efficiency (see Note 25). DEVELOPMENTS IN PROJECT RESTRUCTURINGS The Debtors and contract parties have reached agreement with respect to material restructuring of their mutual obligations in connection with the waste-to-energy projects and the water project described below. The Debtors were also involved in material disputes and/or litigation with respect to the waste-to-energy projects in Warren County, New Jersey and Lake County, Florida. Please see the discussions below for possible ramifications if agreement is not reached in these restructurings. 1. WARREN COUNTY, NEW JERSEY The Covanta subsidiary ("Covanta Warren") which operates the Company's waste-to-energy facility in Warren County, New Jersey (the "Warren Facility") and the Pollution Control Financing Authority of Warren County ("Warren Authority") have been engaged in negotiations for an extended time concerning a potential restructuring of the parties' rights and obligations under various agreements related to Covanta Warren's operation of the Warren Facility. Those negotiations were in part precipitated by a 1997 federal court of appeals decision invalidating certain of the State of New Jersey's waste-flow laws, which resulted in significantly reduced revenues for the Warren Facility. Since 1999, the State of New Jersey has been voluntarily making all debt service payments with respect to the project bonds issued to finance construction of the Warren Facility, and Covanta Warren has been operating the Warren Facility pursuant to an agreement with the Warren Authority which modifies the existing Service Agreement for the Warren Facility. During the fourth quarter of 2003 Covanta Warren filed an election with the Internal Revenue Service to be treated for tax purposes as a C Corporation. By doing this taxable income was recognized and a stepped up tax basis in the underlying assets was achieved. Although discussions continue, to date Covanta Warren and the Warren Authority have been unable to reach an agreement to restructure the contractual arrangements governing Covanta Warren's operation of the Warren Facility. The Warren Authority has indicated that a consensual restructuring of the parties' contractual arrangements may be possible in 2004. In addition, the Warren Authority has agreed to release approximately $1.2 million being held in escrow to Covanta Warren so that Covanta Warren may perform an environmental retrofit during 2004. Based upon the foregoing and internal projections which indicate that Covanta Warren may not operate at a loss next year, the Debtors have determined not to propose a plan of reorganization or plan of liquidation for Covanta Warren at this time, and instead have determined that Covanta Warren should remain a debtor-in-possession after the Second Plans are confirmed. In order to emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Warren Facility, Covanta will reject its guarantees of Covanta Warren's obligations relating to the operation and maintenance of the Warren Facility. The Debtors anticipate that if a restructuring is consummated, reorganized Covanta may at that time issue a new parent guarantee in connection with that restructuring and emergence from bankruptcy. In the event the parties are unable to timely reach agreement upon and consummate a restructuring of the contractual arrangements governing Covanta Warren's operation of the Warren Facility, the Debtors may, among other things, elect to litigate with counterparties to certain agreements with Covanta Warren, assume or reject one or more executory contracts related to the Warren Facility, attempt to file a plan of reorganization on a non-consensual basis, or liquidate Covanta Warren. In such an event, creditors of Covanta Warren may not receive any recovery on account of their claims. The Company expects that the outcome of this restructuring will not negatively affect its ability to implement its business plan. 2. ONONDAGA COUNTY, NEW YORK 76 Shortly before the First Petition Date, the Onondaga County Resource Recovery Agency ("OCRRA") purported to terminate the Service Agreement between OCRRA and Covanta Onondaga, LP ("Covanta Onondaga") relating to the waste-to-energy facility in Onondaga County, New York (the "Onondaga Facility"). The alleged termination was based upon Covanta's failure to provide a letter of credit following its downgrade by rating agencies. Covanta Onondaga challenged that purported termination by OCRRA. The dispute between Covanta Onondaga and OCRRA concerning that termination, as well as disputes concerning which court would decide that dispute, was litigated in state court and several bankruptcy, district and appellate federal courts. The Company, OCRRA and certain bondholders and limited partners have reached an agreement to resolve their disputes. The Bankruptcy Court entered an order approving that compromise and restructuring on October 9, 2003. That agreement provides for the continued operation of the Onondaga Facility by Covanta Onondaga, as well as numerous modifications to agreements relating to the Onondaga Facility, including: (i) the restructuring of the bonds issued to finance development and construction of the Onondaga Facility; (ii) reduction in the amount of the service fee payable to Covanta Onondaga; (iii) elimination of the requirement that Covanta provide credit support, and a reduction in the maximum amount of the parent company guarantee; and (iv) material amendments to the agreements between Covanta Onondaga's third party limited partners and the Company. The Onondaga restructuring was completed in October 2003, resulting in the refinancing of $134.0 million of Project debt and a net gain of $3.9 million was classified as a Reorganization item. 3. CITY OF TULSA, OKLAHOMA Prior to October 2003, Covanta Tulsa, Inc. ("Covanta Tulsa") operated the waste-to-energy facility located in Tulsa, Oklahoma (the "Tulsa Facility") pursuant to a Service Agreement with the Tulsa Authority for Recovery of Energy which expires in 2007. Covanta leased the facility from CIT Group/Capital Finance, Inc. ("CIT") under a long-term lease expiring in 2012 (the "CIT Lease"). Covanta Tulsa sought to restructure its contractual arrangements with CIT related to Covanta Tulsa's operation of the Tulsa Facility, which was projected to become unprofitable for Covanta Tulsa absent such a restructuring, but those negotiations failed. As a result, the Debtors terminated business operations at the Tulsa Facility, turned over the Tulsa Facility to CIT and rejected the CIT Lease and certain other agreements relating to the Tulsa Facility. CIT has asserted a material claim against Covanta, as guarantor of Covanta Tulsa's obligations and it may attempt to assert material administrative claims against Covanta Tulsa. Other than the administrative claim of CIT, the Debtors are not anticipating that any other claims will be filed with respect to Covanta Tulsa. Covanta Tulsa is a liquidating Debtor under the Reorganization Plan. Covanta Tulsa has been reported as discontinued operations and includes a net loss of $38.6 million on the termination of the Service Agreement, which is primarily due to CIT's unsecured claim of $57.9 million for the rejection of the lease. 4. HENNEPIN COUNTY, MINNESOTA On June 11, 2003, the Company received Bankruptcy Court approval to restructure certain agreements relating to the Company's waste-to-energy project at Hennepin, Minnesota. The elements of the restructuring are: (i) the purchase by Hennepin County of the ownership interests of General Electric Capital Corporation and certain of its affiliates ("GECC") in the operating facility, (ii) the termination of certain leases, the existing Service Agreement and certain financing and other agreements; (iii) entry into a new Service Agreement and related agreements, which reduces Hennepin County's payment obligations under the Service Agreement to the Company's subsidiary operating the facility and requires that subsidiary to provide a letter of credit in an initial amount of $25 million and then declining after the Company emerges from the bankruptcy process; (iv) the refinancing of bonds issued in connection with the development and construction of the project; and (v) assumption and assignment to Hennepin County of certain interests in the project's electricity sale agreement. The Hennepin restructuring was completed in July 2003, resulting in a restructuring charge of $15.4 million. 5. UNION COUNTY, NEW JERSEY On June 19, 2003, Debtor Covanta Union, Inc. ("Covanta Union") received Bankruptcy Court approval to restructure certain agreements relating to the Debtors' waste-to-energy facility at Rahway, Union County, New Jersey (the "Union Facility"), and to settle certain disputes with the Union County Utilities Authority (the "Union Authority") related to Covanta Union's operation of the Union Facility. The restructuring facilitates the Union Authority's implementation of 77 a solid waste flow control program and accounts for the impact of recent court decisions upon the agreements between Covanta Union and the Union Authority. Key elements of the restructuring include: (i) modifying the existing project agreements between Covanta Union and the Union Authority and (ii) executing a settlement agreement and a release and waiver with the Union Authority resolving disputes that had arisen between Covanta Union and the Union Authority regarding unpaid fees. The Union restructuring was completed in July 2003. 6. TOWN OF BABYLON, NEW YORK The Town of Babylon, New York ("Babylon") filed a proof of claim against Covanta Babylon, Inc. ("Covanta Babylon") for approximately $13.4 million in pre-petition damages and $5.5 million in post-petition damages, alleging that Covanta Babylon has accepted less waste than required under the Service Agreement between Babylon and Covanta Babylon, and that Covanta's Chapter 11 proceeding imposed on Babylon additional costs for which Covanta Babylon should be responsible. The Company filed an objection to Babylon's claim, asserting that it is in full compliance with the express requirements of the Service Agreement and was entitled to adjust the amount of waste it is required to accept to reflect the energy content of the waste delivered. Covanta Babylon also asserted that the costs arising from its Chapter 11 proceeding are not recoverable by Babylon. After lengthy discussions, Babylon and Covanta Babylon reached a settlement in principle pursuant to which, in part, (i) the parties shall amend the Service Agreement to adjust Covanta Babylon's operational procedures for accepting waste, reduce Covanta Babylon's waste processing obligations, increase Babylon's additional waste service fee to Covanta Babylon, and reduce Babylon's annual operating and maintenance fee to Covanta Babylon; (ii) Covanta Babylon will pay a specified amount to Babylon in consideration for a release of any and all claims (other than its rights under the settlement documents) that Babylon may hold against the Company and in satisfaction of Babylon's administrative expense claims against Covanta Babylon; and (iii) allocates additional costs relating to the swap financing as a result of Covanta Babylon's Chapter 11 proceedings until such costs are eliminated. The restructuring became effective on March 12, 2004. A settlement charge of $2.7 million was recorded in reorganization items for 2003. 7. LAKE COUNTY, FLORIDA In late 2000, Lake County, Florida ("Lake County") commenced a lawsuit in Florida state court against Covanta Lake, Inc. ("Covanta Lake") relating to the waste-to-energy facility operated by Covanta in Lake County, Florida (the "Lake Facility"). In the lawsuit, Lake County sought to have its Service Agreement with Covanta Lake declared void and in violation of the Florida Constitution. That lawsuit was stayed by the commencement of the Chapter 11 Cases. Lake County subsequently filed a proof of claim seeking in excess of $80 million from Covanta Lake and Covanta. After months of negotiations that failed to produce a settlement between Covanta Lake and Lake County, on June 20, 2003, Covanta Lake filed a motion with the Bankruptcy Court seeking entry of an order (i) authorizing Covanta Lake to assume, effective upon confirmation of a plan of reorganization for Covanta Lake, its Service Agreement with Lake County, (ii) finding no cure amounts due under the Service Agreement, and (iii) seeking a declaration that the Service Agreement is valid, enforceable and constitutional, and remains in full force and effect. Contemporaneously with the filing of the assumption motion, Covanta Lake filed an adversary complaint asserting that Lake County is in arrears to Covanta Lake in the amount of more than $8.5 million. Shortly before trial commenced in these matters, the Debtors and Lake County reached a tentative settlement calling for a new agreement specifying the parties' obligations and restructuring of the project. That tentative settlement and the proposed restructuring will involve, among other things, termination of the existing Service Agreement and the execution of a new waste disposal agreement which shall provide for a put-or-pay obligation on Lake County's part to deliver 163,000 tons per year of acceptable waste to the Lake Facility and a different fee structure; a replacement guarantee from Covanta in a reduced amount; the payment by Lake County of all amounts due as "pass through" costs with respect to Covanta Lake's payment of property taxes; the payment by Lake County of a specified amount in each of 2004, 2005 and 2006 in reimbursement of certain capital costs; the settlement of all pending litigation; and a refinancing of the existing bonds. The Lake settlement is contingent upon, among other things, receipt of all necessary approvals, as well as a favorable outcome to the Debtors' pending objection to the proof of claims filed by F. Browne Gregg, a third-party claiming an interest in the existing Service Agreement that would be terminated under the proposed settlement. On November 3-5, 2003, the Bankruptcy Court conducted a trial on Mr. Gregg's proofs of claim. At issue in the trial was whether Mr. Gregg is entitled to damages as a result of Covanta Lake's proposed termination of the existing Service Agreement and entry into a waste disposal agreement with Lake County. As of March 22, 2004, the Bankruptcy Court has not ruled on the Debtors' claims objections. Based on the foregoing and internal projections which indicate that Covanta Lake likely 78 will not operate at a loss next year, the Debtors have determined not to propose a plan of reorganization or plan of liquidation for Covanta Lake at this time, and instead that Covanta Lake should remain a debtor-in-possession after the effective date of the Reorganization Plan. To emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Lake Facility, Covanta has rejected its guarantees of Covanta's obligations relating to the operation and maintenance of the Lake Facility. The Debtors anticipate that if a restructuring is consummated, reorganized Covanta may at that time issue new parent guarantees in connection with that restructuring and emergence from bankruptcy. Depending upon the ultimate resolution of these matters with Mr. Gregg and the County, Covanta Lake may determine to assume or reject one or more executory contracts related to the Lake Facility, terminate the Service Agreement with Lake County for its breaches and default and pursue litigation against Lake County and/or Mr. Gregg. Depending on how Covanta Lake determines to proceed, creditors of Covanta Lake may not receive any recovery on account of their claims. 8. TAMPA WATER FACILITY During 2003 Covanta Tampa Construction, Inc. ("CTC"), completed construction of a 25 million gallon per day desalination-to-drinking water facility (the "Tampa Water Facility") under a contract with TBW near Tampa, Florida. Covanta Energy Group, Inc., guaranteed CTC's performance under its construction contract with TBW. A separate subsidiary, Covanta Tampa Bay, Inc. ("CTB"), entered into a contract with TBW to operate the Tampa Water Facility after construction and testing is completed by CTC. As construction of the Tampa Water Facility neared completion, the parties had material disputes between them, primarily relating to (i) whether CTC has satisfied acceptance criteria for the Tampa Water Facility; (ii) whether TBW has obtained certain permits necessary for CTC to complete start-up and testing, and for CTB to subsequently operate the Tampa Water Facility; (iii) whether influent water provided by TBW for the Tampa Water Facility is of sufficient quality to permit CTC to complete start-up and testing, or to permit CTB to operate the Tampa Water Facility as contemplated and (iv) if and to the extent that the Tampa Water Facility cannot be optimally operated, whether such shortcomings constitute defaults under CTC's agreements with TBW. In October 2003, TBW issued a default notice to CTC, indicated that it intended to commence arbitration proceedings against CTC, and further indicated that it intended to terminate CTC's construction agreement. As a result, on October 29, 2003, CTC filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in order to, among other things, prevent attempts by TBW to terminate the construction agreement between CTC and TBW. On November 14, 2003, TBW commenced an adversary proceeding against CTC and filed a motion seeking a temporary restraining order and preliminary injunction directing that possession of the Tampa Water Facility be turned over to TBW. On November 25, 2003, the Bankruptcy Court denied the motion for a temporary restraining order and preliminary injunction and ordered, among other things, that the parties attempt to resolve their disputes in a non-binding mediation. In February 2004 the Company and TBW agreed to a compromise of their disputes which has been approved by the Bankruptcy Court, subject to confirmation of an acceptable plan of reorganization for CTC and CTB, which were not included in the Reorganization Plan. Under this compromise, all contractual relationships between the Company and TBW will be terminated, CTC will operate and maintain the facility for a limited transition period, for which CTC will be compensated, and the responsibility for optimization and operation of the Tampa Water Facility will be transitioned to TBW or a new, non-affiliated operator. In addition, TBW will pay $4.95 million to or for the benefit of CTC, of which up to $550,000 is earmarked for the payment of claims under the subcontracts previously assigned by the Company to TBW. The settlement funds ultimately would be distributed to creditors and equity holders of CTC and CTB pursuant to a plan of reorganization or liquidation for CTC and CTB. Depending upon, among other things, whether the parties are able to successfully effect the settlement described above, the Company may, among other things, commence additional litigation against TBW, assume or reject one or more executory contracts related to the Tampa Water Facility, or propose liquidating plans and/or file separate plans of reorganization for CTB and/or CTC. In such an event, creditors of CTC and CTB may not receive any recovery on account of their claims. 79 A charge of $9.1 million was recorded in construction costs which consists of $5.0 million for reserve against retainage receivables and $4.1 million in additional costs associated with the termination. The Company expects that the outcome of these disputes will not negatively affect its ability to implement its plan of reorganization. DEVELOPMENTS IN PLAN OF REORGANIZATION Over the course of the Chapter 11 Cases, the Company held discussions with the Official Committee of Unsecured Creditors (the "Creditors Committee"), representatives of certain of the Company's prepetition bank lenders and other lenders (the "DIP Lenders" and together with the Company's pre-petition bank lenders, the "Secured Bank Lenders") under the DIP Financing Facility, as discussed below, and the holders of the 9.25% Debentures with respect to possible capital and debt structures for the Debtors and the formulation of a plan of reorganization On December 2, 2003, Covanta and Danielson entered into an Investment and Purchase Agreement (as amended, the "DHC Agreement"). The DHC Agreement provided for: o Danielson to purchase 100% of the equity in Covanta for $30 million as part of a plan of reorganization (the "DHC Transaction"); o agreement as to new revolving credit and letter of credit facilities for the Company's domestic and international operations, provided by certain of the Secured Bank Lenders and a group of additional lenders organized by Danielson; and o execution and consummation of the Tax Sharing Agreement between Danielson and Covanta (the "Tax Sharing Agreement"), pursuant to which Covanta's share of Danielson's consolidated group tax liability for taxable years ending after consummation of the DHC Transaction will be computed taking into account net operating losses of Danielson, and Danielson will have an obligation to indemnify and hold harmless Covanta for certain excess tax liability. The Company determined that the DHC Transaction was in the best interests of their estates and their creditors, and was preferable to other alternatives under consideration because it provided: o a more favorable capital structure for the Company upon emergence from Chapter 11; o the injection of $30 million in equity from Danielson; o enhanced access to capital markets through Danielson; o diminished syndication risk in connection with the Company's financing under the exit financing agreements; and o reduced exposure of the Secured Bank Lenders as a result of financing arranged by new lenders. On March 5, 2004, the Bankruptcy Court entered an order confirming the Company's plan of reorganization premised on the DHC Transaction (the "Reorganization Plan") and liquidation for certain of those Debtors involved in non-core businesses (the "Liquidation Plan"). On March 10, 2004 both plans were effected upon the consummation of the DHC Transaction (the plans of reorganization and liquidation collectively, the "Reorganization Plan") . The following is a summary of material provisions of the Reorganization Plan. The Debtors owning or operating the Company's Warren County, New Jersey, Lake County, Florida, and Tampa Bay, Florida projects remain debtors-in-possession (the "Remaining Debtors"), and are not the subject of either Plan. The Reorganization Plan provides for, among other things, the following distributions: (i) Secured Lender and 9.25% Debenture Holder Claims On account of their allowed secured claims, the Secured Lenders and the 9.25% Debenture holders received, in the aggregate, a distribution consisting of: o the cash available for distribution after payment by the Company of exit costs necessary to confirm the Amended Plans and establishment of required reserves pursuant to the Reorganization Plan, o new high-yield secured notes issued by Covanta and guaranteed by its subsidiaries (other than Covanta Power International Holdings, Inc. ("CPIH") and its subsidiaries) which are not contractually prohibited from incurring or 80 guaranteeing additional debt (Covanta and such subsidiaries, the "Domestic Borrowers") with a stated maturity of seven years (the "High Yield Notes"), and o a term loan of CPIH with a stated maturity of 3 years. Additionally, the Reorganization Plan incorporates the terms of a pending settlement of litigation that had been commenced during the Chapter 11 Cases by the Creditors Committee challenging the validity of the lien asserted on behalf of the holders of the 9.25% Debentures (the "9.25% Debenture Adversary Proceeding"). Pursuant to the settlement, holders of general unsecured claims against the Company are entitled to receive 12.5% of the value that would otherwise be distributable to the holders of 9.25% Debenture claims that participate in the settlement. (ii) Unsecured Claims against Operating Company Subsidiaries The holders of allowed unsecured claims against any of the Company's operating subsidiaries will receive new unsecured notes in a principal amount equal to the amount of their allowed unsecured claims with a stated maturity of 8 years (the "Unsecured Notes"). (iii) Unsecured Claims against Covanta and Holding Company Subsidiaries The holders of allowed unsecured claims against Covanta or certain of its holding company subsidiaries will receive, in the aggregate, a distribution consisting of (i) $4 million in principal amount of Unsecured Notes, (ii) a participation interest equal to 5% of the first $80 million in net proceeds received in connection with the sale or other disposition of CPIH and its subsidiaries, and (iii) the recoveries, if any, from avoidance actions not waived under the Reorganization Plan that might be brought on behalf of the Company. As described above, each holder of an allowed unsecured claim against Covanta or certain of its holding company subsidiaries is entitled to receive its pro-rata share of 12.5% of the value that would otherwise be distributable to the holders of 9.25% Debenture claims that participate in the settlement of the 9.25% Debenture Adversary Proceeding pursuant to the Reorganization Plan. (iv) Subordinated Claims of Holders of Convertible Subordinated Debentures The holders of Covanta's Convertible Subordinated Debentures did not receive any distribution or retain any property pursuant to the proposed Reorganization Plan. The Convertible Subordinated Debentures were cancelled as of March 10, 2004, the Effective Date of the Reorganization Plan. (v) Equity interests of common and preferred stockholders The holders of Covanta's preferred and common stock outstanding immediately before consummation of the DHC Transaction did not receive any distribution or retain any property pursuant to the Reorganization Plan. The preferred stock and common stock was cancelled as of March 10, 2004, the effective date of the Reorganization Plan. The Reorganization Plan provides for the complete liquidation of those of the Company's subsidiaries that have been designated as liquidating entities. Substantially all of the assets of these liquidating entities have already been sold. Under the Reorganization Plan the creditors of the liquidating entities will not receive any distribution other than those administrative creditors with respect to claims against the liquidating entities that have been incurred in the implementation of the Reorganization Plan and priority claims required to be paid under the Bankruptcy Code. As a result of the consummation of the DHC Transaction, the Company emerged from bankruptcy with a new debt structure. Domestic Borrowers have two credit facilities: o a letter of credit facility (the "First Lien Facility"), for the issuance of a letter of credit in the amount up to $139 million required in connection with a waste-to-energy facility, and o a letter of credit and liquidity facility (the "Second Lien Facility"), in the aggregate amount of $118 million, up to $10 million of which shall also be available for cash borrowings on a revolving basis and the balance for letters of credit. Both facilities have a term of five years, and are secured by the assets of the Domestic Borrowers not otherwise pledged. The lien of the Second Lien Facility is junior to that of the First Lien Facility. 81 The Domestic Borrowers also issued the High Yield Notes and issued or will issue the Unsecured Notes. The High Yield Notes are secured by a third priority lien in the same collateral securing the First Lien Facility and the Second Lien Facility. The High Yield Notes were issued in the initial principal amount of $205 million, which will accrete to $230 million at maturity in seven years. Unsecured Notes in a principal amount of $4 million were issued on the effective date of the Reorganization Plan, and the Company expects to issue additional Unsecured Notes in a principal amount of between $30 and $35 million including additional Unsecured Notes that may be issued to holders of allowed claims against the Remaining Debtors if and when they emerge from bankruptcy. The final principal amount of all Unsecured Notes will be equal to the amount of allowed unsecured claims against the Company's operating subsidiaries which were reorganizing Debtors, and such amount will be determined when such claims are resolved through settlement or further proceedings in the Bankruptcy Court. Notwithstanding the date on which Unsecured Notes are issued, interest on the Unsecured Notes accrues from March 10, 2004. Covanta may issue Tax Notes in an aggregate principal amount equal to the aggregate amount of allowed priority tax claims with a maturity six years after the date of assessment. Interest will be payable semi-annually at the rate of four percent. Under the Reorganization Plan, the Company may pay the amount of such claims in cash. Also, CPIH and each of its subsidiaries, which hold all of the assets and operations of the Company's international businesses (the "CPIH Borrowers") entered into two secured credit facilities: o a revolving credit facility, secured by a first priority lien on the CPIH stock and substantially all of the CPIH Borrowers' assets not otherwise pledged, consisting of commitments for cash borrowings of up to $10 million for purposes of supporting the international businesses and o a term loan facility of up to $95 million, secured by a second priority lien on the same collateral. Both facilities will mature in three years. The debt of the CPIH Borrowers is non-recourse to Covanta and its other domestic subsidiaries. Danielson expects, based on the Danielson Form 10-K for the fiscal year ended December 31, 2003 filed with the SEC, to have NOLs estimated to be approximately $652 million for federal income tax purposes as of the end of 2003. The NOLs will expire in various amounts beginning on December 31, 2004 through December 31, 2023, if not used. The amount of NOLs available to Covanta will be reduced by any taxable income generated by current members of Danielson's tax consolidated group. The existence and availability of Danielson's NOLs is dependent on factual and substantive tax issues, including issues in connection with a 1990 restructuring by Danielson. The Internal Revenue Service ("IRS") has not audited any of Danielson's tax returns for the years in which the losses giving rise to the NOLs were reported, and it could challenge any past and future use of the NOLs. There can be no assurance that Danielson would prevail if the IRS were to challenge the use of the NOLs and therefore, there is uncertainty regarding the availability of the NOLs. If the IRS were successful in challenging Danielson's NOLs, the NOLs would not be available to offset future income of the Company. The Company has neither requested nor received a ruling from the IRS or an opinion of tax counsel with respect to the use and availability of the NOLs. If Danielson were to undergo, an "ownership change" as such term is used in Section 382 of the Internal Revenue Code, the use of its NOLs would be limited. Danielson will be treated as having had an "ownership change" if there is a more than 50% increase in stock ownership during a 3-year "testing period" by "5% stockholders". For this purpose, stock ownership is measured by value, and does not include so-called "straight preferred" stock. Danielson's Certificate of Incorporation contains stock transfer restrictions that were designed to help preserve Danielson's NOLs by avoiding an ownership change. The transfer restrictions were implemented in 1990, and Danielson expects that they will remain in-force as long as Danielson has NOLs. Danielson cannot be certain, however, that these restrictions will prevent an ownership change. If Danielson's NOLs cannot be used to offset the consolidated group's taxable income and Danielson does not have the ability to pay the consolidated group's tax liability, the Company does not expect to have sufficient cash flows available to pay debt service on the Domestic Borrowers obligations. Also in connection with the Chapter 11 Cases, in September 2003, Covanta and certain of its debtor and non-debtor subsidiaries (collectively, the "Sellers") executed an ownership interest purchase agreement (as amended, the "Original Agreement") with certain affiliates of ArcLight Energy Partners Fund I, L.P. and Caithness Energy, L.L.C. (collectively, the "Original Geothermal Buyers") providing for the sale of the Sellers' interests in the Geothermal Business, subject to higher or better offers. The Original Agreement entitled the Original Geothermal Buyers to a 82 break-up fee of $5,375,000 (the "Break-Up Fee") in the event that a higher or better offer was chosen in an auction held in the Bankruptcy Court. The purchase price under the Original Agreement was $170,000,000, subject to adjustment. On September 8, 2003, certain of the Debtors (the "Heber Debtors") filed a reorganization plan and relating disclosure statement in connection with the proposed sale (as amended, the "Heber Plan"). On September 29, 2003, the Court entered an order approving the competitive bidding and auction procedures, including the Break-Up Fee (the "Break-Up Fee"), for the purpose of obtaining the highest or best offer for the Geothermal Business (the "Bidding Procedures Order"). On November 19, 2003, the Bankruptcy Court held an auction to consider bids for the Geothermal Business pursuant to the Bidding Procedures Order. Following the auction, Covanta, with the consent of its creditor representatives, determined that the bid submitted by certain affiliates of Ormat Nevada, Inc. ("Ormat"), which offered a purchase price of $214,000,000, subject to adjustment, represented the highest or best offer for the Geothermal Business. On November 21, 2003, the Court entered an order confirming the Heber Plan and approving the sale of the Geothermal Business to Ormat pursuant to a purchase agreement that was executed on November 21, 2003. On December 18, 2003 Covanta sold the Geothermal Business to Ormat for cash consideration of $214,000,000, subject to a working capital adjustment. The Company paid the Original Geothermal Buyers the Break-Up Fee. In addition, as debtors-in-possession, Covanta had the right during the Chapter 11 Cases, subject to Bankruptcy Court approval and certain other limitations, to assume or reject executory contracts and unexpired leases. The Company completed a review of their executory contracts and unexpired leases and have determined, with limited exceptions, which executory contracts and unexpired leases they will assume or reject. As a condition to assuming a contract, the Company must cure all existing defaults (including payment defaults). The Company has paid or expects to pay approximately $9 million in cure amounts associated with assumed executory contracts and unexpired leases. Several counterparties have indicated that they believe that actual cure amounts are greater than the amounts specified in the Company's notices, and there can be no assurance that the cure amounts ultimately associated with assumed executory contracts and unexpired leases will not be materially higher than the amounts estimated by the Company. On June 14, 2002, the Debtors filed with the Bankruptcy Court their schedules and statements of financial affairs setting forth, among other things, their assets and liabilities, including a schedule of claims against the Debtors (the "Schedules"). Since that time, the Debtors have filed an amendment to the schedules and may file additional amendments in the future. The Bankruptcy Court established in a series of orders the following deadlines for filing claims against the Debtors: o August 9, 2002 as the last day to file proofs of claim against the Debtors, subject to exceptions stated in the order and the other dates listed below. o September 30, 2002 as the last date to file proofs of claims by governmental units. o November 15, 2002 as the last date to file certain proofs of claims by current or former company employees. o June 27, 2003 as the last date for filing proofs of claims against Covanta Concerts Holdings, Inc. and for holders of Covanta's Convertible Subordinated Debentures to file proofs of claim against Covanta. o August 18, 2003 as the last date for filing proofs of claim against certain Debtors whose Petition Date was after the First Petition Date. o December 5, 2003 as the last date by which governmental units may file proofs of claim against the Debtors whose Petition Date was after the First Petition Date. o December 15, 2003 as the last date for filing proofs of claims other than governmental claims against Covanta Tampa Construction, Inc. o April 1, 2004 as the last date for filing proofs of claims by governmental agencies against Covanta Tampa Construction, Inc. 83 In addition, pursuant to the Bankruptcy Court's order, the last date to file proofs of claims in respect of amended schedules is 30 days after the Debtors served notice of such amended schedule to the affected creditor. The Company is continuing the process of reconciling recorded pre-petition liabilities with proofs of claim filed by creditors with the Bankruptcy Court. Differences resulting from that reconciliation process are recorded as adjustments to pre-petition liabilities. The Company has not yet determined the reorganization adjustments. In total, approximately 4,550 proofs of claim in aggregate amount of approximately $13.3 billion have been filed to date. The Company believes that many of the proofs of claim are invalid, duplicative, untimely, inaccurate or otherwise objectionable. During the course of the bankruptcy proceedings, the Company has filed procedural objections to more than 3,000 claims, primarily seeking to reclassify as general unsecured claims certain claims that were filed as secured or priority claims. The Company is continuing the process of reviewing all claims, and are preparing to object to claims on substantive grounds. The Company intends to contest claims to the extent they materially exceed the amounts the Company believes may be due. The Company believes that the Reorganization Plan will not be followed by a need for further financial reorganization and that non-accepting holders within each class under the Reorganization Plan will receive distributions at least as great as would be received following a liquidation pursuant to Chapter 7 of the Bankruptcy Code when taking into consideration all administrative claims and costs associated with any such Chapter 7 case. REORGANIZATION DISCLOSURE On October 30, 2003, the Bankruptcy Court authorized Covanta to enter into an agreement (the "Mackin Agreement") between the Company and Scott G. Mackin, the then President/Chief Executive Officer of Covanta . Pursuant to the Mackin Agreement, Mr. Mackin resigned as President/CEO of Covanta on November 5, 2003. In order to retain the critical knowledge and insight of the waste-to-energy business which Mr. Mackin possesses and to further strengthen Covanta, the Mackin Agreement provides that Covanta shall engage Mr. Mackin as a consultant to the Company immediately upon his resignation date for a term ending on the second anniversary of his resignation. Also, Mr. Mackin remained a member of the Board of Directors of Covanta until the effective date of the Reorganization Plan. Additionally, pursuant to the Mackin Agreement, Mr. Mackin has agreed to a three-year non-compete with the Company's waste-to-energy business and has agreed not to work directly or indirectly for a competitor or Client Communities of the Company's waste-to-energy business for three years following his resignation date. Pursuant to the terms of the Mackin Agreement, Mr. Mackin was paid in 2003 the amounts due in respect of the Bankruptcy Court-approved Retention and, Severance Plans and $1.0 million in consulting fees. In 2004 he was paid the balance due under the Retention Plan, approximately $2.1 million due under the Bankruptcy Court-approved Long Term Incentive Plan and his bonus for year 2003. Mr. Mackin was paid an additional $750,000 in consulting fees and vested retirement benefits in accordance with the Mackin Agreement following his resignation. An expense of $3.6 million was recorded in 2003 for Mr. Mackin's severance costs. In accordance with SOP 90-7, the Company has segregated and classified certain income and expenses as reorganization items. The following reorganization items were incurred during the periods ended December 31, 2003 and 2002, (in Thousands of Dollars):
For the Period For the Year Ended April 1, 2002 through DECEMBER 31, 2003 DECEMBER 31, 2002 ------------------ ----------------- Legal and professional fees $48,246 $31,561 Severance, retention and office closure costs 2,536 7,380 Bank fees related to DIP Credit Facility 1,833 7,487 Hennepin restructuring 15,436 -- Worker's compensation insurance 6,963 -- Babylon Settlement 2,700 -- Other 5,632 2,678 ------- ------- Total $83,346 $49,106 ======= =======
Legal and professional fees consist primarily of fees paid to professionals for work associated with the bankruptcy of the Company. 84 Severance, retention and office closure costs include costs related to the restructurings discussed in Note 25 and other severance charges. It also includes a charge of $0.3 million for the announced closing of the Company's Fairfax office facility. See Note 25 for further discussion. Hennepin restructuring charges of $15.4 million related primarily to the reduction in the fixed monthly service fee for the remainder of the operating agreement and the termination of the Company's lease obligations at the Hennepin waste-to-energy facility (see further discussion above). Worker's compensation insurance charge of $7.0 million primarily relates to the unanticipated funding of a letter of credit related to casualty insurance obligations, which were previously carried as a liability at its net present value on the Company's financial statements. The Babylon settlement charge of $2.7 million is discussed in Developments in Project Restructurings above. Lease rejection expenses of $0.6 million in other in 2002, primarily relates to the lease of office space in New York City that was rejected pursuant to an order entered by the Bankruptcy Court on July 26, 2002. The lease rejection claim was treated as a general unsecured claim in the Company's bankruptcy proceedings. The write-off of deferred financing costs of $2.1 million included in other in 2002, relate almost equally to unamortized costs incurred in connection with the issuance of the Company's (i) adjustable rate revenue bonds and (ii) subordinated convertible debentures. The adjustable rate revenue bonds were secured by letters of credit. Beginning in April 2002, as a result of the Company's failure to renew these letters of credit, the trustees for those 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. The bonds were redeemed and the proceeds of the letters of credit were used to repay the bonds. Covanta's Convertible Subordinated Debentures were cancelled under the Reorganization Plan and their holders received no distribution. Also in accordance with SOP 90-7, interest expense of $1.0 and $3.6 million for the year ended December 31, 2003 and 2002, respectively, has not been recognized on the Company's Convertible Subordinated Debentures that matured in 2002 and approximately $10.2 million of other unsecured debt due to the seller of certain independent power projects because the Company currently believes this interest will not ultimately be paid. Pursuant to SOP 90-7, the Company has segregated and classified certain pre-petition obligations as Liabilities subject to compromise. Liabilities subject to compromise have been recorded at the likely allowed claim amount. The following table sets forth the estimated liabilities of the Company subject to compromise as of December 31, 2003 and 2002, (in Thousands):
DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Debt (See Note 15) $110,485 $138,908 Debt under credit arrangement (See Notes 4 and 17) 125,091 125,091 Accounts payable 66,117 44,030 Other liabilities 232,691 184,135 Obligations related to the Centre and the Team 182,517 146,000 Obligations related to Arrowhead Pond (See Note 3) 90,544 105,198 Convertible Subordinated Debentures (See Note 12) 148,650 148,650 -------- -------- Total $956,095 $892,012 ======== ========
As also required by SOP 90-7, below are the condensed combined financial statements of the Debtors since the date of the bankruptcy filing ("the Debtors' Statements") to the end of the 2003 fiscal year. The Debtors' Statements have been prepared on the same basis as the Company's Financial Statements. 85 DEBTORS' CONDENSED COMBINED STATEMENTS OF OPERATIONS (In Thousands of Dollars)
For the period For the year ended April 1, 2002 through DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Total revenues $ 475,744 $ 351,370 Operating costs and expenses 406,137 284,471 Cost allocation (to) from non-Debtor subsidiaries (23,724) 7,382 Write down of assets held for use -- 153 Obligations related to assets held for use -- (6,000) Equity in earnings of non-Debtor Subsidiaries (net of tax benefit of $17,821 and $11,142, in 2003 and 2002, respectively (5,476) (63,416) --------- --------- Operating income (loss) 87,855 (9,746) Reorganization items (83,346) (49,106) Interest expense, net (33,272) (23,495) --------- --------- Loss before income taxes (excluding taxes applicable to non-Debtor subsidiaries), minority interests, discontinued operations and cumulative effect of changes in accounting principles (28,763) (82,347) Income tax expense (1,098) (1,676) Minority interests (3,378) (2,768) Loss before discontinued operations and cumulative effect of changes in accounting principles (33,239) (86,791) Discontinued operations (net of income tax (expense) benefit of ($16,147) and $3,966) 78,814 (33,310) Cumulative effect of change in accounting principles (net of tax benefit of $1,364 and zero) (2,063) -- --------- --------- Net income (loss) $ 43,512 $(120,101) ========= =========
DEBTORS' CONDENSED COMBINED BALANCE SHEETS (In Thousands of Dollars)
DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Assets: Current assets $ 533,638 $ 414,907 Property, plant and equipment-net 1,014,476 1,173,222 Investments in and advances to investees and joint ventures 6,533 3,815 Other assets 288,453 358,753 Investments in and advances to non-debtor subsidiaries, net 201,924 84,678 ----------- ----------- Total Assets $ 2,045,024 $ 2,035,375 =========== =========== Liabilities: Current liabilities $ 216,962 $ 201,725 Long-term debt -- 34,969 Project debt 752,228 931,568 Deferred income taxes 146,179 96,681 Other liabilities 70,793 49,474 Liabilities subject to compromise 956,095 892,012 ----------- ----------- Total liabilities 2,142,257 2,206,429 Minority interests 30,801 1,259 ----------- ----------- Shareholders' Deficit (128,034) (172,313) ----------- ----------- Total Liabilities and Shareholders' Deficit $ 2,045,024 $ 2,035,375 =========== ===========
DEBTORS' CONDENSED COMBINED STATEMENTS OF CASH FLOWS (In Thousands of Dollars)
For the period April 1, For the year ended 2002 through DECEMBER 31, 2003 DECEMBER 31, 2002 ----------------- ----------------- Net cash provided by operating activities $ 38,086 $ 59,649 Net cash used in investing activities (7,030) (14,728) Net cash used in financing activities (80,840) (54,576) Net cash provided by discontinued operations 217,783 24,677 --------- --------- Net increase in Cash and Cash Equivalents 167,999 15,022 Cash and Cash Equivalents at Beginning of Period 80,813 65,791 --------- --------- Cash and Cash Equivalents at End of Period $ 248,812 $ 80,813 ========= =========
86 The Debtors' Statements present the non-Debtor subsidiaries on the equity method. Under this method, the net investments in and advances to non-Debtor subsidiaries are recorded at cost and adjusted for the Debtors' share of the subsidiaries' cumulative results of operations, capital contributions, distributions and other equity changes. The Debtors' Statements include an allocation of $7.4 million of costs incurred by the non-Debtor subsidiaries that provide significant support to the Debtors for the period ended December 31, 2002. The Debtor's Statements also include an allocation of $23.7 million of costs incurred by the Debtors that provide significant support to the non-Debtor subsidiaries for the year ended December 31, 2003. All the assets and liabilities of the Debtors and non-Debtors are subject to revaluation upon emergence from bankruptcy. 3. DISCONTINUED OPERATIONS Revenues and income (loss) from discontinued operations (expressed in thousands of dollars) for the years ended December 31, 2003, 2002 and 2001 were as follows: 2003 2002 2001 --------- --------- --------- Revenues $ 90,812 $ 105,462 $ 150,224 --------- --------- --------- Gain (loss) on sale of businesses 109,776 (17,110) -- Operating income (loss) (10,813) (34,489) (29,923) Interest expense - net (4,002) (5,134) (4,965) --------- --------- --------- Income (loss) before income taxes and minority interests 94,961 (56,733) (34,888) Income tax (expense) benefit (16,147) 13,165 11,071 Minority interests -- 213 (1,524) --------- --------- --------- Income (loss) from discontinued operations $ 78,814 $ (43,355) $ (25,341) ========= ========= ========= On December 18, 2003, following the approval of the Bankruptcy Court, the Company sold its Geothermal Business to Ormat. The total price for three of the Geothermal Businesses was $184.8 million, and the Company realized a net gain of $92.8 million on this sale after deducting costs relating to the sale. In addition, the subsidiary holding companies which owned the subsidiaries conducting the Geothermal Business and three related operations and maintenance companies no longer have operations as a result of the sale, and therefore are included in discontinued operations Prior to October 2003, Covanta Tulsa operated the waste-to-energy Tulsa Facility. The facility was leased from CIT under a long-term lease. Covanta Tulsa was unable to restructure its arrangement with CIT on a more profitable basis. As a result, in October 2003 the Company terminated operations at the Tulsa Facility. Therefore, its results of operations have been reclassified as discontinued operations. A net loss of $38.6 million was recorded on the disposal of Covanta Tulsa. In 2002, the Company reviewed the recoverability of its long-lived assets. As a result of the review based on future cash flows, an impairment was recorded for the Tulsa waste-to-energy project resulting from the Company's inability as determined at that time, to improve the operations of, or restructure, the project in order to meet substantial future lease payments. This impairment charge was $22.3 million and resulted in a tax benefit of $7.7 million. On December 16, 2003 the Company and Ogden Facility Management Corporation of Anaheim ("OFM") closed a transaction with the City of Anaheim (the "City") pursuant to which they have been released from their management obligations and the Company and OFM have realized and compromised their financial obligations, in connection with the Arrowhead Pond Arena in Anaheim, California ("Arrowhead Pond"). As a result of the transaction, OFM no longer has continuing operations and therefore its results of operations have been reclassified as discontinued operations. A net gain of $17.0 million was recorded on the disposal of OFM as a result of impairment charges of $98.0 million previously recorded and payments made to settle the transaction of $46.9 million offset by draw-downs on a letter of credit of $115.8 million, a charge of $10.6 million related to an interest rate swap, and the net settlement of a lease-in/lease-out transaction of $1.6 million. See below for further discussion. The income (loss) from discontinued operations includes impairment charges related to the Arrowhead Pond of $40.0 million in 2002 and $74.4 million in 2001. During 2003, the Company's limited ability to fund short-term working 87 capital needs at the Arrowhead Pond under the DIP credit facility and the need to resolve its bankruptcy case created the need to dispose of the management contract for the Arrowhead Pond at a time when building revenues were not at levels consistent with past experience. Based upon all the then currently available information, including a valuation and certain assumptions as to the future use, 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 (before tax benefit of $20.9 million) 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. OFM was the manager of the Arrowhead Pond under a long-term management agreement. Covanta and the City of Anaheim were parties to a reimbursement agreement to the financial institution, which issued a letter of credit in the amount of approximately $117.2 million which provided credit support for Certificates of Participation issued to finance the Arrowhead Pond project. As part of its management agreement, the manager was responsible for providing working capital to pay operating expenses and debt service (including interest rate swap exposure of $10.4 million at December 31, 2002 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 were insufficient to cover these costs. Covanta had guaranteed the obligations of the manager. The City of Anaheim had 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 and was stayed from doing so as a result of the Company's Chapter 11 filing. Covanta was 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 was security for the lease investor, could be drawn upon the occurrence of an event of default. The $1.5 million letter of credit was security for certain indemnification payments under the lease transaction documents, the amount of which could not be determined at that time. The lease transaction documents required Covanta to provide additional letter of credit coverage from time to time. The additional amount required for 2002 was estimated to be approximately $6.7 million. Notices of default were delivered in 2002 under the lease transaction documents. As a result of the default, Covanta's counterparties could have exercised remedies, including drawing on letters of credit related to lease transactions and recovering fees to which the manager was entitled for managing the Arrowhead Pond. The Company recorded in 2002 a $40.0 million charge (before tax benefit of $14.0 million) which is included in Liabilities subject to compromise in the December 31, 2003 Consolidated Balance Sheet, in order to reflect its estimated total exposure with respect to the Arrowhead Pond, including exercise of remedies by the parties to the lease transaction as a result of the occurrence of an event of default. In March 2003, the underlying swap agreement related to the Company's interest rate swap exposure was terminated resulting in a fixed obligation of $10.6 million. On December 16, 2003 the Company made a payment of $45.4 million to Credit Suisse First Boston ("CSFB") which offset the CSFB claim of $115.8 million. At that time, as described above, the agreement to terminate the management agreement and the release of the Company and OFM from all obligations relating to the management of the Arrowhead Pond (except for the residual secured reimbursement claim of CSFB against the Company of $70.4 million) was completed. The termination of the lease-in/lease-out transaction (after a net payment of $1.6 million) and a municipal bond financing transaction was also completed. The results of operations and cash flows of the Geothermal Business, OFM and Covanta Tulsa for 2002 and 2001 have been reclassified in the Statements of Consolidated Operations and Comprehensive Income (Loss) and Statements of Consolidated Cash Flows, respectively, to conform with the 2003 presentation. On March 28, 2002, two of the Company's subsidiaries sold their interests in a power plant and an operating and maintenance contractor based in Thailand. The total sale price for both interests was approximately $27.8 million, and the Company realized a net loss of approximately $17.1 million on this sale after deducting costs relating to the sale. 88 4. GAIN (LOSS) ON SALE OF BUSINESSES AND WRITE-DOWNS AND OBLIGATIONS The following is a list of assets sold or impaired during the years ended December 31, 2003, 2002, and 2001 the gross proceeds from those sales, the realized gain or (loss) on those sales and the write-down of or recognition of liabilities related to those assets (in thousands of dollars).
WRITEDOWN OR RECOGNITION OF DESCRIPTION OF BUSINESS PROCEEDS GAIN (LOSS) OBLIGATIONS - ----------------------- --------- ----------- ------------- 2003 Equity investment in Mammoth Pacific Plant $ 30,404 $ (10,983) $ -- Metropolitan 254 254 -- Aeropuertos Argentina 2000 S.A 2,601 2,601 -- Transair 417 417 -- The Centre and The Team -- -- (16,704) Asia Pacific Australia 465 465 -- --------- --------- --------- Total $ 34,141 $ (7,246) $ (16,704) ========= ========= ========= 2002 Port Authority of New York and New Jersey Fueling $ 5,700 $ 3,510 $ -- Non Port Authority Fueling 1,000 1,000 -- Metropolitan 2,308 248 -- Casino Iguazu 3,439 -- -- La Rural 500 500 -- Rojana Power Plant 7,100 (6,500) -- Empressa Valle Hermoso Project 900 600 -- Magellan Cogeneration, Inc. (Note 9) -- -- (41,651) Edison Bataan Cogeneration Corp. (Note 9) -- -- (37,212) Compania General De Sondeos -- (1,708) -- The Centre and The Team -- -- (6,000) Other 407 407 -- --------- --------- --------- Total $ 21,354 $ (1,943) $ (84,863) ========= ========= ========= 2001 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 -- Metropolitan -- -- (5,369) Casino Iguazu -- -- (4,491) La Rural -- -- (16,616) Compania General De Sondeos -- -- (358) IFC Australia -- -- (1,978) The Centre and The Team -- -- (140,000) Datacom -- -- (16,810) Other 197 (2,517) (891) --------- --------- --------- Total $ 38,855 $ (2,768) $(186,513) ========= ========= =========
The Company's interests in the Corel in Ottawa, Canada (the "Centre") and the Ottawa Senators Hockey Club Corporation (the "Team") were materially adversely affected by events occurring at the end of 2001 and beginning of 2002. 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 Revolving Credit and Participation Agreement (the "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 ratings were reduced by Moody's and Standard & 89 Poor's, respectively. The 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 no longer had available in commitments under its Master Credit Facility. The Company required further waivers from its cash flows 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 (the "9.25% Debentures"). In addition, the restrictions prevented contributions to the working capital needs of the Team, the prime tenant of the Centre. These events resulted in draws during March 2002 on 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. As a result of 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 2.) The events leading up to the bankruptcy filing and the filing itself 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 and the Team as described below. With respect to the Centre and the Team, these events led to the termination, in early 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 Centre and the Team for a considerable period. Given the Company's inability to fund short-term working capital needs of the Team, and given the events described above, the Company was not in a position to manage the timing and terms of disposition of the Centre and the Team in a manner most advantageous to the Company. Based upon all 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. As a result of the Team filing for protection under the Canadian Company's Creditor Arrangement Act ("CCAA") on January 9, 2003 and the status of the Company's current negotiations to dispose of these interests, an additional $6.0 million pre-tax charge was recorded as of December 31, 2002 in the write-down of and obligations related to assets held for use. The 2002 charges represented the Company's estimate of the additional net cost to sell its interests in the Centre and Team and to be discharged of all related obligations and guarantees that are included in Liabilities subject to compromise in the December 31, 2002 Consolidated Balance Sheet. The resulting tax benefit of $22.8 million has been included in the deferred income taxes liability at December 31, 2002. The Company's guarantees at December 31, 2001 were comprised of 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) $45.8 million guarantee of the senior subordinated debt of the Centre for which $6.3 million in cash collateral had 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 $45.8 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 90 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. In March 2002, the holders of the 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 and were paid that amount under a letter of credit for which the Company was the reimbursement party. In addition, in March, as the result of defaults occurring in 2002, the holders of the senior debt relating to the Centre required the Company to purchase such debt in the total amount (together with accrued and unpaid dividends) of $86.2 million and were paid that amount under a letter of credit for which the Company was the reimbursement party. The subordinated secured debt of the Centre in the amount of $45.8 million is also subject to a put right pursuant to the terms of the underlying agreements. 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 above charges, and following the termination of the pending sale of limited partnership interests, 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 was included in Other Operating Costs and Expenses in the 2001 Statement of Consolidated Operations and Comprehensive Income (Loss). On January 9, 2003, the Team filed for protection with the Ontario Superior Court of Justice ("Canadian Court"), and was granted protection under Canada's CCAA. A monitor was appointed under the CCAA to supervise the selling of the Team's franchise. On April 25, 2003, the monitor entered into an asset purchase agreement for the purchase of the Team's franchise and certain related assets, which the Canadian Court approved on May 9, 2003. On May 27, 2003, the Canadian Court appointed an interim receiver of the owner of the Corel Centre. On June 4, 2003, the interim receiver entered into an asset purchase agreement for the purchase of the Corel Centre and certain related assets, which was approved on June 20, 2003. The transactions to purchase the team and the Corel Centre were consummated on August 26, 2003. Upon closing, Covanta received $19.7 million and obtained releases from certain guarantees provided to lenders of the Team. An additional charge of $16.8 million was recorded in 2003 in write-down and obligations related to assets held for use. 5. 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. 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). In 2000, the Company acquired an ownership interest in a 106 MW low sulfur heavy fuel oil based diesel engine power plant located in 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 a heavy fuel oil based diesel engine power plant also 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, 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. This project commenced commercial operations in 2000. Manila Electric Company ("Meralco"), the power purchaser for the Company's Quezon Joint Venture is engaged in discussions and legal proceedings with the government of The Philippines relating to Meralco's financial condition. The Quezon Joint Venture is currently in negotiations with Meralco to amend the Power Purchase Agreement to address concerns about Meralco's ability to meet its off-take obligations under that Agreement. Lenders to the Quezon Joint Venture have expressed concern about the resolution of those matters, as well as compliance with the Quezon Joint Venture operational parameters and the Quezon Joint Venture's failure to obtain required insurance coverage, as these matters relate to requirements under the applicable debt documents and have limited distributions from the project pending resolution of these matters. Although the Company believes that the facility is operated in accordance with applicable requirements, it has implemented certain operational changes and is discussing amendments to the Quezon 91 Joint Venture documents with the Quezon Joint Venture participants to address those concerns. The Quezon Joint Venture is also seeking the extension of an existing waiver permitting it to continue to forego obtaining the insurance coverage in question on the grounds that this coverage is not commercially available. The Company and the Quezon Joint Venture lenders have reached a tentative agreement on amendments to the Quezon Joint Venture documents that address the issues relating to operational matters and insurance coverage. The agreement is subject to definitive documentation. Adverse developments in Meralco's financial condition and with respect to finalization of the tentative agreement with the project participants is not expected to adversely affect Covanta's liquidity, although it may have a material affect on CPIH's ability to repay its debt described above. In March of 2002, the Company sold its equity interest in the Rojana Power Plant in Thailand contemporaneously with the sale of the Saha Cogeneration Plant. The gross proceeds from this sale were $7.1 million, which resulted in a loss of $6.5 million after selling expenses which were recorded in net loss on sale of businesses. On December 18, 2003, following approval of the Heber Plan by the Bankruptcy Court, the Company sold its equity interests in the Geothermal Business as part of the Heber Plan for gross proceeds of $215.2 million of which $29.4 million is allocated to the equity investment and the Company realized a net loss of approximately $11.0 million on this sale after deducting costs relating to the sale of $1.0 million. The total equity investment included in the sale was $40.4 million. In addition, the Company owns interests of up to 50% in 11 other affiliates which principally own and operate, or are developing, energy facilities. The December 31, 2003 aggregate carrying value of the investments in and advances to investees and joint ventures of $137.4 million is less than the Company's equity in the underlying net assets of these investees by approximately $9.4 million. The carrying value of $166.5 million at December 31, 2002 was $1.7 million less than the Company's equity in the underlying net assets. These differences of cost over acquired net assets are mainly related to property, plant, and equipment and power purchase agreements of several investees. At December 31, 2003 and 2002, investments in and advances to investees and joint ventures accounted for under the equity and cost method were comprised as follows (expressed in thousands of dollars): Ownership Interest at December 31, December 31, 2003 2003 2002 - ---------------------------------------------------------------------------- Mammoth Pacific Plant (U.S.) 50%(A) $ -- $ 41,796 Ultrapower Chinese Station Plant (U.S.) 50% 8,137 8,756 South Fork Plant (U.S.) 50% 1,027 1,041 Koma Kulshan Plant (U.S.) 50% 4,524 4,161 Linasa Plant (Spain) 50% 2,714 2,511 Haripur Barge Plant (Bangladesh) 45% 22,153 18,870 Quezon Power (Philippines) 26% 92,492 82,935 Trezzo Power Plant (Italy) 13%(B) 3,819 3,815 Other various 2,508 2,580 -------- -------- Total Investments in Power Plants $137,374 $166,465 ======== ======== (A) Sold in December 2003 (B) Carried on the cost method The combined results of operations and financial position of the Company's equity method affiliates excluding companies using the cost method are summarized below (expressed in thousands of dollars). 2003 2002 2001 - ------------------------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31: Revenues $ 299,214 $ 305,835 $ 333,277 Gross profit 149,589 169,954 158,487 Net income 93,211 82,892 56,172 Company's share of net income 29,941 25,076 17,665 CONDENSED BALANCE SHEETS AT DECEMBER 31: Current assets $ 183,080 $ 171,069 Non-current assets 893,477 1,082,948 Total assets 1,076,557 1,254,017 Current liabilities 81,438 86,345 Non-current liabilities 576,769 695,789 Total liabilities 658,207 782,134 92 6. INVESTMENTS IN MARKETABLE SECURITIES AVAILABLE FOR SALE At December 31, 2003 and 2002, marketable equity and debt securities held for noncurrent uses, such as nonqualified pension liabilities and a deferred compensation plan, are classified as long-term assets (see Note 10). Marketable securities at December 31, 2003 and 2002 (expressed in thousands of dollars), include the following:
2003 2002 Market Value Carrying Value Market Value Carrying Value - ------------------------------------------------------------------------------------------------ Classified as Noncurrent Assets: Mutual and bond funds $ 2,460 $ 2,460 $ 2,353 $ 2,353 ======= ======= ======= ======= - ------------------------------------------------------------------------------------------------
Proceeds, realized gains and realized losses from the sales of securities classified as available for sale for the years ended December 31, 2003, 2002 and 2001, were $0.6 million, $0.1 million, and $0.2 million; $0.6 million, zero, and $0.3 million; and $0.6 million, zero, and $0.1 million, respectively. For the purpose of determining realized gains and losses, the cost of securities sold was based on specific identification. 7. UNBILLED SERVICE AND OTHER RECEIVABLES Unbilled service and other receivables (expressed in thousands of dollars) consisted of the following: 2003 2002 - -------------------------------------------------- Unbilled service receivables $121,803 $139,378 Notes receivable 1,097 4,335 Other 2,463 3,927 -------- -------- Total $125,363 $147,640 ======== ======== Long-term unbilled service receivables are for services that have been performed for municipalities and payment is 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 $63.3 million and $65.9 million at December 31, 2003 and 2002, respectively. 8. RESTRICTED FUNDS HELD IN TRUST Restricted funds held in trust are primarily amounts received and held by third party trustees relating to projects owned by the Company, and which may be used only for specified purposes. The Company generally does not control these accounts. They include debt service reserves for payment of principal and interest on project debt, deposits of revenues received with respect to projects prior to their disbursement as provided in the relevant indenture or other agreements, 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. 93 Fund balances (expressed in thousands of dollars) were as follows: 2003 2002 - ----------------------------------------------------------------- CURRENT NON-CURRENT CURRENT NON-CURRENT ------------------------------------------- Debt service funds $ 45,352 $113,441 $ 53,948 $133,300 Revenue funds 13,636 -- 12,382 -- Lease reserve funds 3,771 -- 3,548 15,731 Construction funds 159 -- 187 -- Other funds 16,486 6,039 21,974 20,964 -------- -------- -------- -------- Total $ 79,404 $119,480 $ 92,039 $169,995 ======== ======== ======== ======== 9. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (expressed in thousands of dollars) consisted of the following: 2003 2002 - --------------------------------------------------------------------------- Land $ 5,270 $ 5,323 Energy facilities 1,804,895 2,075,949 Buildings and improvements 188,942 194,395 Machinery and equipment 79,776 79,541 Landfills 16,543 13,842 Construction in progress 6,689 9,622 ----------- ----------- Total 2,102,115 2,378,672 Less accumulated depreciation and amortization (648,761) (716,809) ----------- ----------- Property, plant, and equipment - net $ 1,453,354 $ 1,661,863 =========== =========== Depreciation and amortization for continuing operations related to property, plant and equipment amounted to $68.0 million, $72.7 million and $71.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. In light of its Chapter 11 bankruptcy filing and proceedings, the Company reviewed the recoverability of its long-lived assets as of June 30, 2002. As a result of the review based upon the future cash flows, the Company recorded, in write-down of assets held for use in the 2002 Consolidated Statement of Operations and Comprehensive Loss, a pre-tax impairment charge totaling $78.9 million. The charge related to two international projects, the Magellan Cogeneration Energy project and the Bataan Cogeneration Energy project which are both located in The Philippines. The impairment related to the Magellan Cogeneration Energy project was due to a substantial 2002 second quarter governmental imposed reduction of national electricity tariffs, the duration of which is impossible to estimate then and at this time. The Company recorded a pre-tax impairment charge of $41.7 million related to the net book value of the assets of this project at June 30, 2002. Although this project had $32.1 million of non-recourse debt at June 30 2002, in accordance with SFAS No.144, the Company based the impairment loss upon the measurement of the assets at their fair market value. Accordingly, in the future if there were a foreclosure on or sale of the project, a significant book gain could be recognized on the extinguishment of the remaining non-recourse debt of $28.4 and $30.3 million at December 31, 2003 and 2002, respectively. The impairment related to the Bataan Cogeneration Energy project results from the fact that the plant sells a portion of its power at a discount to the regional grid tariff. Based on the current operating environment, including the tariff reduction described above, the Company no longer expects the contract for the Bataan project to be extended beyond its current term or to be able to recover the project's current carrying value. Therefore, a pre-tax impairment charge of $37.2 million related to the net book value of the assets of this project was recorded. The Company will continue to consider alternatives to maximize the value of these projects. 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 the power plant and maintenance contractor was approximately $27.8 million, and the Company realized a net loss of approximately $17.1 million on this sale after deducting costs relating to the sale (see Note 3). The total fixed assets included in the sale was $82.5 million. On December 18, 2003, following approval of the Heber Plan by the Bankruptcy Court, the Company sold the Geothermal Business for gross proceeds of $184.8 million excluding it's equity investments (see Note 5), subject to a 94 working capital adjustment, and the Company realized a net gain of approximately $92.8 million on this sale (see Note 3). The total net fixed assets included in the sale was $69.7 million. 10. OTHER ASSETS Other assets (expressed in thousands of dollars) consisted of the following: 2003 2002 - -------------------------------------------------------------------------- Unamortized bond issuance costs $25,559 $31,389 Deferred financing costs 7,011 7,980 Non-current securities available for sale (see Note 6) 2,460 2,353 Interest rate swap 16,728 19,137 Other 1,306 1,068 ------- ------- Total $53,064 $61,927 ======= ======= 11. GOODWILL AND INTANGIBLES ASSETS The following tables present the Company's intangible assets (excluding goodwill) as of December 31, 2003 and 2002 (in thousands of dollars): Accumulated December 31, 2003 Gross Amortization Net - ------------------------------------------------------------------------------ Land rights and other intangibles $ 3,062 $ (862) $ 2,200 Deferred development costs 5,921 (1,048) 4,873 -------- -------- -------- Sub-total 8,983 (1,910) 7,073 Contract acquisition costs 71,804 (44,731) 27,073 -------- -------- -------- Total $ 80,787 $(46,641) $ 34,146 ======== ======== ======== Accumulated December 31, 2002 Gross Amortization Net - ------------------------------------------------------------------------------ Land rights and other intangibles $ 3,062 $ (698) $ 2,364 Deferred development costs 5,921 (654) 5,267 -------- -------- -------- Sub-total 8,983 (1,352) 7,631 Contract acquisition costs 115,516 (55,063) 60,453 -------- -------- -------- Total $124,499 $(56,415) $ 68,084 ======== ======== ======== Amortization expense related to intangibles amounted to $5.9 million, $6.7 million and $7.2 million for the years ended December 31, 2003, 2002 and 2001, respectively. In December, 2003, the Company wrote-off $27.4 million in contract acquisition costs associated with the sale of the Geothermal Business. The estimated future amortization expense of intangible assets as of December 31, 2003 is as follows (in thousands of dollars) FOR THE YEAR ENDED AMOUNT 2004 4,056 2005 4,056 2006 4,056 2007 4,056 2008 3,891 Thereafter 14,031 -------- Total $ 34,146 ======== 95 The following table presents the changes in goodwill allocated to the company's reportable segments during fiscal 2002 and 2003 (in thousands of dollars):
Balance at Impairment Balance at Balance at December 31,2001 Sold Adjustments December 31,2002 December 31,2003 - --------------------------------------------------------------------------------------------------------------- Domestic energy and water $ 4,517 $ -- $(4,517) $ -- $ -- International energy 5,361 (2,264) (3,097) -- -- Other 228 -- (228) -- -- ------- ------- ------- ----- ----- Total $10,106 $(2,264) $(7,842) $ -- $ -- ======= ======= ======= ===== =====
On June 30, 2002, the Company completed the required impairment evaluation of goodwill in conjunction with its adoption of SFAS No. 142. As a result of current risks and other conditions in its energy business and based upon the expected present value of future cash flows, the Company determined that $7.8 million of goodwill related to its energy business was impaired and was therefore written-off. As required by SFAS No. 142, this adjustment has been accounted for as a cumulative effect of a change in accounting principle as of January 1, 2002, which had no tax impact.
FOR THE YEAR ENDED DECEMBER 31, (In thousands of dollars, except per share amounts) 2003 2002 2001 ----------- ----------- ----------- Net income (loss) $ 43,512 $ (178,895) $ (231,027) Add back: goodwill amortization, net of tax -- -- 542 ----------- ----------- ----------- Adjusted net income (loss) $ 43,512 $ (178,895) $ (230,485) ----------- ----------- ----------- BASIC EARNINGS (LOSS) PER COMMON SHARE: Reported net income (loss) $ 0.87 $ (3.60) $ (4.65) Goodwill amortization -- -- 0.01 ----------- ----------- ----------- Adjusted net income (loss) $ 0.87 $ (3.60) $ (4.64) =========== =========== =========== DILUTED EARNINGS (LOSS) PER COMMON SHARE: Reported net income (loss) $ 0.87 $ (3.60) $ (4.65) Goodwill amortization -- -- 0.01 ----------- ----------- ----------- Adjusted net income (loss) $ 0.87 $ (3.60) $ (4.64) =========== =========== ===========
12. CONVERTIBLE SUBORDINATED DEBENTURES Convertible subordinated debentures (expressed in thousands of dollars) consisted of the following: 2003 2002 - ---------------------------------------------------------------- 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 Less: Liabilities subject to compromise (148,650) (148,650) --------- --------- Total $ -- $ -- ========= ========= The 6% convertible subordinated debentures were convertible into Covanta common stock at the rate of one share for each $39.077 principal amount of debentures. These debentures were redeemable at Covanta's option at 100% face value. The 5.75% convertible subordinated debentures were convertible into Covanta common stock at the rate of one share for each $41.772 principal amount of debentures. These debentures were redeemable at Covanta's option at 100% of face value. By their terms, both series of bonds were subordinated in right of payment to the prior payment in full of the indebtedness of Covanta. Indebtedness was defined to include all obligations, contingent or otherwise, which in accordance with generally accepted accounting principles should be classified as liabilities and in any event all obligations secured by liens on the issuer's property and guarantees and other contingent obligations of the issuer in respect of the indebtedness of others. In accordance with SOP 90-7, since April 1, 2002 interest expense has not been accrued on the subordinated debentures as it is not likely to be paid. As of December 31, 2003 and December 31, 2002 both of these debentures have been included in Liabilities subject to compromise. The holders of these debentures did not participate in the new capital structure or receive any value following under the Reorganization Plan. 13. ACCRUED EXPENSES 96 Accrued expenses (expressed in thousands of dollars) consisted of the following: 2003 2002 - -------------------------------------------------------------- Operating expenses $ 40,418 $ 58,886 Severance 2,305 13,797 Insurance 14,954 9,205 Debt service charges and interest 15,257 31,047 Municipalities' share of energy revenues 29,737 35,166 Payroll 21,589 29,459 Payroll and other taxes 51,867 59,544 Lease payments 67 13,898 Pension and profit sharing 16,839 15,837 Other 15,309 27,942 -------- -------- Total $208,342 $294,781 ======== ======== 14. DEFERRED INCOME Deferred income (expressed in thousands of dollars) consisted of the following:
2003 2002 CURRENT NON-CURRENT CURRENT NON-CURRENT -------- ----------- -------- ----------- Power sales agreement prepayment $ 9,001 $129,304 $ 9,001 $138,305 Sale and leaseback arrangements -- -- 1,524 12,695 Advance billings to municipalities 10,555 -- 13,262 -- Other 17,875 -- 17,615 -- -------- -------- -------- -------- Total $ 37,431 $129,304 $ 41,402 $151,000 ======== ======== ======== ========
In 1998, the Company received a payment for future energy deliveries required under a power sales agreement. This prepayment is being amortized straight-line over the life of the agreement, which expires in 2019. The gains from sale and leaseback transactions consummated in 1986 and 1987 were deferred and were being amortized as a reduction of rental expense over the respective lease terms. The leases which resulted in these gains were terminated in 2003. (See Note 2 for further discussion.) 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. 15. LONG-TERM DEBT Long-term debt (expressed in thousands of dollars) consisted of the following: 2003 2002 - --------------------------------------------------------------- 9.25% debentures due 2022 $ 100,000 $ 100,000 Other long-term debt 22,127 79,137 --------- --------- Total 122,127 179,137 Less amounts subject to compromise (110,485) (138,908) Less current portion of long term debt (9,492) (16,450) --------- --------- Total $ 2,150 $ 23,779 ========= ========= The Company's 9.25% Debentures, were prior to the effective date of the Reorganization Plan, 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 17). 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 on March 1, 2002 at that time. Following the commencement of the Chapter 11 Cases in April 2002, the Company did not make interest payments on the 9.25% Debentures. As of December 31, 2003 and 2002 the 9.25% Debentures have been included in Liabilities subject to compromise. See note 2 for a description of the treatment of the 9.25% Debentures under the Reorganization Plan. 97 Other long-term debt included the following obligations at December 31, 2003 and 2002: $0.9 million at December 31, 2003, due to a financial institution, which relates to the construction of a second heavy fuel oil fired diesel engine power plant in India. The U.S. dollar denominated amount bears interest at an adjustable rate that is the three-month LIBOR rate plus 4.0% (5.64% at December 31, 2003). The debt extends through 2005. $1.2 and $1.8 million at December 31, 2003 and 2002, respectively due to a financial institution, which relates to the construction of a coal fired power plant in China. The U.S. dollar denominated amount bears interest at an adjustable rate 5.49% and 5.49% at December 31, 2003 and 2002, respectively. The debt extends through 2006. $22.5 million resulting from the sale of limited partnership interests in and related tax benefits of the Onondaga facility, which has been accounted for as a financing for accounting purposes. This obligation had an effective interest rate of 10% and extended through 2015. This waste-to-energy project was restructured in October, 2003, as part of the restructuring this financing was converted to Minority interest on the Consolidated Balance Sheet as of December 31, 2003. (See Note 2 for further discussion). $28.4 million, related to a sale and leaseback arrangement relating to an energy facility in Hennepin, Minnesota. This arrangement was accounted for as a financing, had an effective interest rate of approximately 5%, and extended through 2017. As of December 31, 2002, this obligation was included in Liabilities subject to compromise. This waste-to-energy project was restructured in July, 2003, as part of the restructuring this financing was reclassified as an Other liability on the Consolidated Balance Sheet as of December 31, 2003. (See Note 2 for further discussion.) $12.5 million relating to the buyout of operating leases at a geothermal plant and a fluid field. On February 11, 2002 the Company restructured these notes extending their maturity from April 2002 to July 2003, and, therefore, these notes were classified as current maturities of long-term debt in the December 31, 2002 Consolidated Balance Sheet. These notes bore interest at the three-month Eurodollar rate plus 4.75% (6.15% at December 31, 2002). These notes were to be paid from substantially all available cash generated by the related plant and the fluid field. This debt was secured by all the Company's assets relating to the geothermal plant and fluid field. This liability was paid off with the completion of the sale of the Geothermal Business on December 18, 2003. (See Note 3 for further discussion). $1.5 million note associated with the acquisition of energy assets. The note bears interest at 6.0% and matures in 2009. As of December 31, 2003 and 2002, this note is included in Liabilities subject to compromise. The maturities on long-term debt including capital lease obligations, net of liabilities subject to compromise, (expressed in thousands of dollars) at December 31, 2003 were as follows: 2004 $ 9,492 2005 909 2006 1,235 2007 6 ----------- Total 11,642 Less current portion (9,492) ----------- Total long-term debt $ 2,150 ========== See Note 17 for a description of the credit arrangements of the Company. 16. PROJECT DEBT 98 Project debt (expressed in thousands of dollars) consisted of the following:
2003 2002 - ----------------------------------------------------------------------------------------------------- Revenue Bonds Issued by and Prime Responsibility of Municipalities: 3.625-6.75% serial revenue bonds due 2005 through 2011 $ 287,320 $ 334,965 5.0-7.0% term revenue bonds due 2005 through 2015 221,644 302,230 Adjustable-rate revenue bonds due 2006 through 2013 126,665 130,330 ---------- ---------- Total 635,629 767,525 ---------- ---------- Revenue Bonds Issued by Municipal Agencies with Sufficient Service Revenues Guaranteed by Third Parties: 5.25-8.9% serial revenue bonds due 2005 through 2008 47,260 58,620 ---------- ---------- Other Revenue Bonds: 4.7-5.5% serial revenue bonds due 2005 through 2015 71,820 79,390 5.5-6.7% term revenue bonds due 2014 through 2019 68,020 68,020 ---------- ---------- Total 139,840 147,410 ---------- ---------- Other project debt 110,456 154,662 ---------- ---------- Total long-term project debt $ 933,185 $1,128,217 ========== ==========
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 projects owned by the Company for 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 municipal 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 owned by the Company 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, 2003, such revenue bonds were collateralized by property, plant and equipment with a net carrying value of $1,180.8 million and restricted funds held in trust of approximately $198.9 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 1.16% and 1.54% at December 31, 2003 and 2002, respectively, and the average adjustable rate for such revenue bonds was 1.05% and 1.35% during 2003 and 2002, respectively. Other project debt includes the following obligations for 2003 and 2002: $0.5 and $4.0 million at December 31, 2003 and 2002, respectively, 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 Client Community each month to cover the Client Community's monthly service fees. The Company's repayment for the other part of the loan is limited to the 99 extent repayment is received from the Client Community. This obligation has an effective interest rate of 7.06% at December 31, 2003 and 2002 and extends through 2005. $8.4 million due to financial institutions which amount bears interest at an adjustable rate that was the three-month LIBOR rate plus 1.4% (2.83% at December 31, 2002). The debt did extend through 2005 and was 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 $86.0 million at December 31, 2002, and $5.0 million funded into an escrow account. This liability was paid off with the sale of the Geothermal Business on December 18, 2003. (See Note 3 for further discussion). $19.8 and $25.8 million at December 31, 2003 and 2002, respectively, 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 plus spreads that increase from plus 4.5% until June 2005, to plus 4.875% from June 2005 to June 2007. The rate all in was 5.68% and 5.92% at December 31, 2003 and 2002, respectively. This debt is non-recourse to Covanta and is secured by all assets of the project, which had no net carrying value at December 31, 2003, and all revenues and contracts of the project and by a pledge of the Company's ownership in the project. $46.0 and $48.0 million due to financial institutions, of which $27.2 and $28.7 million is denominated in U.S. dollars and $18.8 and $19.3 million is denominated in Indian, rupees at December 31, 2003 and 2002, respectively. During 2003, an additional $3.6 million was drawn representing the final disbursement on the debt. This debt relates to the construction of a heavy fuel oil fired diesel engine power plant in India. The U.S. dollar debt bears interest at the three-month LIBOR, plus 4.5% (5.65% and 6.31% at December 31, 2003 and 2002, respectively). The Indian rupee debt bears interest at rates ranging from 16.0% to 16.5% at December 31, 2003 and 2002. The debt extends through 2011, is non-recourse to Covanta, and is secured by the project assets, which had a net carrying value of approximately $94.2 and $86.4 million at December 31, 2003 and 2002, respectively. $44.1 and $48.7 million at December 31, 2003 and 2002, respectively due to a financial institution which relates to the construction of a second heavy fuel oil fired diesel engine power plant in India. It is denominated in Indian rupees and bears interest at rates ranging from 11.75% to 16.15%. 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, 2003 and 2002, of approximately $79.3 and $75.8 million, respectively. $19.7 million obligation, at December 31, 2002, of a limited partnership acquired by subsidiaries of Covanta and represents the lease of a geothermal power plant, which had been accounted for as a financing, had an effective interest rate of 5.3% and extended into 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 were limited to assets of the limited partnership and revenues derived from a power sales agreement with a third party, which were expected to provide sufficient revenues to make rental payments. Such payment obligations were secured by all the assets, revenues, and other benefits derived from the geothermal power plant, which had a net carrying value of approximately $59.7 million at December 31, 2002. Revenues of the limited partnership were 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 assumed the lease. If the limited partnership rejected the lease the escrowed funds and interest would be returned to the limited partnership. Pursuant to the Final Order, the limited partnership was 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, 100 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 Inter-company Agreements authorizing the limited partnership to assume executory contracts and agreements with related parties. This liability was paid off with the completion of the sale of the Geothermal Business on December 18, 2003. (See Note 3 for further discussion). At December 31, 2003, 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, (see 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, 2003, 2002 and 2001, the floating rate on the swap averaged 1.09%, 1.41% and 2.46%, respectively. The notional amount of the swap at December 31, 2003 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 $3.7 million, $3.4 million and $2.2 million for 2003, 2002 and 2001, respectively. The effect on Covanta's weighted-average borrowing rate of the project debt was an increase of 0.32%, 0.25% and 0.17%, for 2003, 2002 and 2001, respectively. The maturities on long-term project debt (expressed in thousands of dollars) at December 31, 2003 were as follows: 2004 $ 99,216 2005 101,058 2006 110,895 2007 108,219 2008 98,992 Later years 514,021 ---------- Total $1,032,401 Less current portion (99,216) ---------- Total long-term project debt $ 933,185 =========== See Note 17 for a description of the credit arrangements of the Company. 17. CREDIT ARRANGEMENTS The Company entered into the Master Credit Facility as of March 14, 2001. The Master Credit Facility was secured by substantially all of the Company's assets and was scheduled to mature on May 31, 2002 but was not fully discharged by the Debtor In Possession Credit Agreement (as amended, the "DIP Credit Facility") discussed below. This, as well as the non-compliance with required financial ratios and possible other items, has caused the Company to be in default under its Master Credit Facility. However, as previously discussed, on April 1, 2002, the Company and 123 of its subsidiaries filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code that, among other things, act as a stay of enforcement of any remedies under the Master Credit Facility against any debtor company. For 2002, bank fees of $24.0 million relate to the Company's Master Credit Facility. These fees were recognized as Other expenses-net and were payable in March 2002 but remain unpaid and were resolved through the Company's bankruptcy proceedings. The Master Credit Facility was discharged upon the effectiveness of the Reorganization Plan (see Note 2). 101 In connection with the bankruptcy petition, Covanta and most of its subsidiaries entered into the DIP Credit Facility with the DIP Lenders. On April 5, 2002, the Bankruptcy Court issued its interim order approving the DIP Credit Facility and on May 15, 2002, a final order approving the DIP Credit Facility. On August 2, 2002, the Bankruptcy Court issued an order that overruled objections by holders of minority interests in two limited partnerships who disputed the inclusion of the limited partnerships in the DIP Credit Facility. Although the holders of such interests at one of the limited partnerships have appealed the order, they have reached an agreement with the Company that in effect deferred the appeal. The DIP Credit Facility's terms are described below. The DIP Credit Facility was largely for the continuation of existing letters of credit and was secured by all of the Company's domestic assets not subject to liens of others and generally 65% of the stock of its foreign subsidiaries held by domestic subsidiaries. Obligations under the DIP Credit Facility were senior in status to other pre-petition secured claims, and the DIP Credit Facility was the operative debt agreement with the Company's banks. The Master Credit Facility remained in effect during the Chapter 11 Cases 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 was discharged upon the effectiveness of the Reorganization Plan (see Note 2). As of March 31, 2002, letters of credit had been issued under the Master Credit Facility for the Company's benefit to secure performance under certain energy contracts (totaling $203.6 million); to secure obligations relating to the entertainment businesses (totaling $153.0 million) largely with respect to the Anaheim and Ottawa projects described in Notes 3 and 4, in connection with the Company's insurance program (totaling $38.4 million); and for credit support of the Company's adjustable rate revenue bonds (totaling $127.0 million). Of these letters of credit issued under the Master Credit Facility, only $240.8 million of the outstanding letters of credit, principally in connection with energy facilities and the Company's insurance program, were replaced with letters of credit issued under the DIP Credit Facility. As of December 31, 2003, the Master Credit Facility had $3.0 million in letters of credit that had previously been issued and are still outstanding. Beginning in April 2002 and as a result of 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. In addition, letters of credit in the amounts of $2.1 million, relating to the entertainment businesses, were drawn in December 2002. In December 2003 $113.7 million in letters of credit were drawn and a payment of $45.4 million was made against the drawn amount from a third party. The balance of $68.9 million was already accrued on the Company's books as a liability subject to compromise. An additional letter of credit in the amount of $27.5 million was released as part of the settlement of Arrowhead Pond (see Note 3 - Discontinued Operations for further discussion). The DIP Credit Facility when originally issued provided for approximately $289.1 million in financing and comprised of is two tranches. The Tranche A Facility (the "Tranche A Facility"), originally provided the Company with a credit line of approximately $48.2 million in commitments for the issuance of letters of credit and for cash borrowings under a revolving credit line. The Tranche A Facility was reduced by amendment over time as the need for additional letters of credit were reduced. At December 31, 2003, the Tranche A Facility was $7.2 million all of which was outstanding in letters of credit. The Tranche A Facility was thereafter reduced by an additional $0.2 million each month, in commitments for letters of credit as a result of the reduced need for a letter of credit in connection with the Company's Hennepin project The Tranche B Facility (the "Tranche B Facility"), originally provided the Company with a credit line of approximately $240.8 million in commitments for the continuation of existing letters of credit, which were previously issued under the Master Credit Facility as discussed above. The Tranche B Facility was reduced to approximately $183.6 million in commitments at December 31, 2003 as the need for letters of credit was reduced. The reductions in the Tranche B Facility are as follows: in December, 2002, a $3.0 million reduction when the Company sold its remaining interest in the aviation business, in October and November, 2003, a $30.0 million reduction when the Company closed its relationship with the prior workers' compensation carrier and issued $5.6 million in new letters of credit under the Tranche A Facility for a new carrier, and a $24.3 million reduction in the letter of credit issued in support of lease payments made by the lessee at a waste-to-energy facility over the period of the DIP Credit Facility. Of the outstanding letters of credit at December 31, 2003, approximately $38.0 million secures indebtedness that is included in the Condensed Consolidated Balance Sheet and approximately $155.6 million principally secured the Company's obligations under energy contracts to pay damages in the event of non-performance by the Company which 102 the Company believes to be unlikely. These letters of credit were generally available for drawing upon if the Company defaulted on the obligations secured by the letters of credit or failed to provide replacement letters of credit as the current ones expire. Borrowings under the Tranche A Facility were subject to compliance with monthly and budget limits. The Company could 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 were drawn. The Company could also utilize the Tranche A Facility to fund working capital requirements and for 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 of a Chapter 11 debtor in possession financing. On April 8, 2002, under its DIP Credit Facility, the Company paid a facility fee of approximately $1.0 million, equal to 2% of the amount of the Tranche A commitments, $2.5 million of agent fees and $0.5 million of lender advisor fees. During 2002 the Company paid additional amendment fees and agent fees of $1.1 million and $0.8 million, respectively. In addition, the Company paid a commitment fee based on utilization of the facility of .75% of the unused Tranche A commitments. The Company also paid 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, calculated over the daily amount available for drawings thereunder. Outstanding loans under the Tranche A Facility and the Tranche B Facility bore 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 contained covenants which restrict (1) the incurrence of additional debt, (2) the creation of liens, (3) investments and acquisitions, (4) incurrence of contingent obligations and performance guarantees, and (5) disposition of assets. In addition, the DIP Credit Facility, as amended, included the following reporting covenants: (1) Cash flow: (a) provide biweekly operating and variance reports and monthly compliance reports for total and specific expenditures and (b) provide monthly budget and 13-week forecast updates; (2) Financial statements: (a) provide quarterly financial statements within 60 days of the end of each of the Company's first three fiscal quarters, or in lieu thereof, a copy of its Quarterly Report on Form 10-Q, (b) provide annual audited financial statements within 120 days of the end of the Company's fiscal year or in lieu thereof, a copy of its Annual Report on Form 10-K, and (c) achieve quarterly minimum cumulative consolidated operating income targets for April 1, 2003 through March 31, 2004. (3) Other: (a) deliver, when available, the Chapter 11 restructuring plan and (b) provide other information as reasonably requested by the DIP Lenders. As of December 31, 2003 and the effective date of the Reorganization Plan the Company was in material compliance with all of the covenants of the DIP Credit Facility, as amended. The Company did not make any cash borrowings under its DIP Credit Facility, as amended, but approximately $7.2 million in new letters of credit were issued under Tranche A of the DIP Credit facility as of December 31, 2003. The DIP Credit Facility initially was scheduled to mature on April 1, 2003. On March 28, 2003 the DIP Credit Facility was extended through October 1, 2003 and on September 15, 2003 was extended through April 1, 2004. On March 25, 2003, an extension fee of $0.1 million was paid by the Company to the DIP Lenders. In addition, on April 1, 2003, the Company paid an annual administrative fee of $0.4 million. 18. OTHER LIABILITIES 103 Other liabilities (expressed in thousands of dollars) consisted of the following: 2003 2002 - ----------------------------------------------- Interest rate swap $16,728 $19,137 Accrued interest -- 7,270 Project lease reserves -- 30,071 Post-retirement reserves -- 12,190 Deferred revenue 24,670 -- Asset retirement obligation 18,387 -- Other 18,573 11,701 ------- ------- Total $78,358 $80,369 ======= ======= The project lease reserves of $30.1 million in 2002 were associated with a hydro-project lease which expired in 2003 and a waste-to-energy lease which was rejected in 2003. Deferred revenue of $24.7 million in 2003 is a result of the Hennepin restructuring (see Notes 2 and 15). 19. PREFERRED STOCK The outstanding Series A $1.875 Cumulative Convertible Preferred Stock was convertible at any time at the rate of 5.97626 common shares for each preferred share. Covanta could redeem the outstanding shares of preferred stock at $50 per share, plus all accrued dividends. These preferred shares were 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 did not participate in the new capital structure of Covanta or receive any value under the Reorganization Plan. 20. COMMON STOCK AND STOCK OPTIONS The plans described in this note were terminated, together with all options and rights there-under with the Reorganization Plan. 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 could 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 were 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 could 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 were exercisable for a period of ten years after the date of grant. In addition, performance-based cash awards could also be granted to employees and outside directors. As adopted, the 1999 Plan called 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 could be granted over a ten-year period ending May 19, 2009. At December 31, 2003, 2,042,032 shares were available for grant. 104 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. Under the foregoing plans, Covanta issued 3,952,900 LSAR's between 1990 and 2001 in conjunction with the stock options granted. These LSAR's were 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 Company's Board of Directors. The exercise of these limited rights entitled 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, called 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 were to be made from treasury shares of Covanta common stock, par value $.50 per share. The Company accounted for restricted shares at their market value on their respective dates of grant. Restricted shares awarded under the Directors Plan vested 100% at the end of three months from the date of award. Shares of restricted stock awarded under the Key Employees Plan were 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, 2003, 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 2003, 2002 and 2001 relating to the restricted stock plans was zero, zero and $2.2 million, respectively. Information regarding the Company's stock option plans is summarized as follows:
Option Price Weighted-Average Per Share Outstanding Exercisable Exercise Price - ------------------------------------------------------------------------------------------ 1986 Plan: 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 December 31, 2002, balance $ 22.50 10,000 10,000 $ 22.50 December 31, 2003, balance $ 22.50 10,000 10,000 $ 22.50 ------------- --------- --------- ---------- 1990 Plan: 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 Became exercisable $9.97-$29.38 200,000 Cancelled $20.06-$26.78 (272,000) (235,000) $ 23.03 ------------- --------- --------- ---------- December 31, 2002, balance $9.97-$29.38 1,537,000 1,308,000 $ 23.43 Became exercisable $9.97-$29.38 152,000 Cancelled $20.06-$26.78 (133,500) (130,500) $ 23.45 ------------- --------- --------- ---------- December 31, 2003, balance $9.97-$29.38 1,403,500 1,329,500 $ 23.63 ------------- --------- --------- ---------- 1999 Plan: 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 Became exercisable $8.66-$26.59 613,280 Cancelled $11.28-$20.23 (181,633) (52,399) $ 14.23 ------------- --------- --------- ---------- December 31, 2002, balance $8.66-$26.59 1,776,335 1,392,560 $ 13.76 Became exercisable $9.97-$17.93 205,880 Cancelled $11.78-$17.93 (99,467) (65,338) $ 16.00 ------------- --------- --------- ---------- December 31, 2003, balance $8.66-$26.59 1,676,868 1,533,102 $ 14.14 Total December 31, 2003 $8.66-$29.38 3,090,368 2,872,602 $ 18.56 ============= ========== ========== ==========
105 The following table summarizes information about stock options outstanding at December 31, 2003:
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-$12.98 792,800 5.9 Years $11.51 773,633 $11.55 $14.10-$20.19 1,175,568 5.5 Years $17.25 1,030,969 $17.20 $21.50-$29.38 1,122,000 3.0 Years $25.04 1,068,000 $24.95 $8.66-$29.38 3,090,368 4.7 Years $18.60 2,872,602 $18.56
The weighted-average exercise prices for all exercisable options at December 31, 2003, 2002 and 2001 were $18.56, $18.46, and $19.34, respectively. At December 31, 2003, there were 5,865,576 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 February 22, 1999, 2,223,000 shares of common stock were purchased at a total cost of $58.9 million. No shares were purchased during 2003, 2002 and 2001. Existing common stock and stock option holders did not participate in the new capital structure or receive any value under the Reorganization Plan (see Note 2). 21. 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 could 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 could 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 did not have voting rights, would have expired on October 2, 2010, and could 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 would 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, 2003, 49,824,251 Rights were outstanding. The Rights Agreement and the rights issued under it were terminated under the Reorganization Plan. Holders of the Rights did not participate in the new capital structure or receive any value under the Reorganization Plan. 22. FOREIGN EXCHANGE Foreign exchange translation adjustments net of tax for 2003, 2002 and 2001, amounting to $2.7 million, $(1.5) million, and $(4.0) million, respectively, have been charged directly to Other Comprehensive Income (Loss). In 2003, $2.8 million was reclassified to income from continuing operations, in 2002, $1.2 million was reclassified to loss on sale of businesses and $0.3 million was reclassified to loss from discontinued operations. Foreign exchange transaction adjustments, amounting to zero, $0.3 million, and $0.7 million, have been charged directly to net income (loss) for 2003, 2002 and 2001, respectively. 106 23. DEBT SERVICE CHARGES Debt service charges for Covanta's Project Debt (expressed in thousands of dollars) consisted of the following:
2003 2002 2001 - ---------------------------------------------------------------------------------------------- Interest incurred on taxable and tax-exempt borrowings $ 77,046 $ 86,954 $ 93,460 Interest earned on temporary investment of certain restricted funds (276) (589) (1,551) -------- -------- -------- Net interest incurred 76,770 86,365 91,909 Interest capitalized during construction in property, plant and equipment -- -- (5,985) -------- -------- -------- Debt service charges--net $ 76,770 $ 86,365 $ 85,924 ======== ======== ========
24. PENSIONS AND OTHER POSTRETIREMENT BENEFITS Covanta has defined benefit and defined contribution retirement plans that cover substantially all of its employees. 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. The Company expects to make contributions to its defined benefit plans of $7.8 million during 2004. As of January 1, 2002, a defined contribution plan for approximately 1,200 employees was frozen and the employees were transferred to the Company's qualified defined benefit plan. The following table sets forth the details of Covanta's defined benefit plans' and other postretirement benefit plans' funded status (using a December 31 measurement date) and related amounts recognized in Covanta's Consolidated Balance Sheets (expressed in thousands of dollars):
PENSION BENEFITS OTHER BENEFITS -------------------- --------------------- 2003 2002 2003 2002 -------- -------- -------- -------- CHANGE IN BENEFIT OBLIGATION: Benefit obligation at beginning of year $ 38,907 $ 36,600 $ 21,125 $ 10,869 Service cost 5,986 4,187 -- 53 Interest cost 2,717 2,111 1,389 1,409 Amendments -- (2,143) -- 2,143 Actuarial loss 8,120 5,325 1,370 8,061 Benefits paid (621) (285) (1,367) (634) Aviation fueling sale (see Note 4) -- (6,888) (180) (776) -------- -------- -------- -------- Benefit obligation at end of year 55,109 38,907 22,337 21,125 -------- -------- -------- -------- CHANGE IN PLAN ASSETS: Plan assets at fair value at beginning of year 14,879 26,211 -- -- Actual return on plan assets 5,251 (2,741) -- -- Company contributions 6,534 1,367 634 Benefits paid (621) (285) (1,367) (634) Aviation fueling sale -- (8,306) -- -- -------- -------- -------- -------- Plan assets at fair value at end of year 26,043 14,879 -- -- -------- -------- -------- -------- RECONCILIATION OF ACCRUED BENEFIT LIABILITY AND NET AMOUNT RECOGNIZED: Funded status of the plan (29,066) (24,028) (22,337) (21,125) Unrecognized: Prior service cost (1,712) (1,897) Net loss 14,605 12,020 9,729 8,935 -------- -------- -------- -------- Net amount recognized $(16,173) $(13,905) $(12,608) $(12,190) ======== ======== -------- -------- ACCUMULATED BENEFIT OBLIGATION $ 38,060 $ 25,959 $ 22,337 $ 21,125 -------- -------- -------- -------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS CONSIST OF: Accrued benefit liability $(16,173) $(13,905) $(12,608) $(12,190) -------- -------- -------- -------- Net amount recognized $(16,173) $(13,905) $(12,608) $(12,190) -------- -------- -------- -------- NET PERIODIC BENEFIT EXPENSE WEIGHTED AVERAGE ASSUMPTIONS AS OF PRIOR DECEMBER 31: Discount rate 6.75% 7.25% 6.75% 7.25% Expected return on plan assets 8.00% 8.00% -- -- Rate of compensation increase 4.50% 4.50% -- -- PROJECTED BENEFIT OBLIGATIONS WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31: Discount rate 6.25% 6.75% 6.25% 6.75% Rate of compensation increase 4.50% 4.50% -- --
107 Plan assets had a fair value of $26.0 million and $14.9 million at December 31, 2003 and 2002. The allocation of plan assets at December 31 was as follows: 2003 2002 --- --- Equities 75% 74% U.S. Debt Securities 24% 26% Other 1% -- --- --- Total 100% 100% === === The Company's expected return on plan assets assumption is based on historical experience and by evaluating input from the trustee managing the plan's assets. The expected return on the plan assets is also impacted by the target allocation of assets, which is based on the company's goal of earning the highest rate of return while maintaining risk at acceptable levels. The plan strives to have assets sufficiently diversified so that adverse or unexpected results from one security class will not have an unduly detrimental impact on the entire portfolio. The target ranges of allocation of assets are as follows: Equities 40 - 95% U.S. Debt Securities 25 - 70% Other 0 - 50% The Company anticipates that the long-term asset allocation on average will approximate the targeted allocation. Actual asset allocations are reviewed and the pension plans' investments are rebalanced to reflect the targeted allocation when considered appropriate. For management purposes, an annual rate of increase of 12.0% in the per capita cost of health care benefits was assumed for 2003 for covered employees. The rate was assumed to decrease gradually to 5.5% in 2010 and remain at that level. For the pension plans with accumulated benefit obligations in excess of plan assets the projected benefit obligation, accumulated benefit obligation, and fair value of plan assets were $55.1 million, $38.1 million, and $26.0 million, respectively as of December 31, 2003 and $38.9 million, $26.0 million and $14.9 million, respectively as of December 31, 2002. Contributions and costs for defined contribution plans are determined by benefit formulas based on percentage of compensation as well as discretionary contributions and totaled $3.2 million, $3.3 million and $1.5 million, in 2003, 2002, and 2001, respectively. Plan assets at December 31, 2003, 2002 and 2001, 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 retirement, health and welfare benefits, generally based on hours worked. These multi-employer defined contribution plans are not controlled or administered by the Company and primarily related to businesses sold by the Company in 2002. The 108 amount charged to expense for such plans during 2003, 2002 and 2001 was zero, $1.7 million and $3.0 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 - ----------------------------------------------------------------------------------------------------------- 2003 2002 2001 2003 2002 2001 - ----------------------------------------------------------------------------------------------------------- COMPONENTS OF NET PERIODIC BENEFIT COST: Service Cost $ 5,986 $ 4,187 $ 2,275 $ -- $ 53 $ 64 Interest Cost 2,717 2,111 2,270 1,389 1,409 713 Expected return on plan assets (1,360) (1,421) (2,027) -- -- -- Amortization of unrecognized: Net transition (asset) obligation -- -- (53) -- -- -- Prior service cost (185) (185) 37 -- -- -- Net (gain) loss 1,644 195 (102) 591* 527* (117) ------- ------- ------- ------- ------- ------- Net periodic benefit cost $ 8,802 $ 4,887 $ 2,400 $ 1,980 $ 1,989 $ 660 ======= ======= ======= ======= ======= =======
* Excludes gains of $196 and $842 in 2003 and 2002 respectively, related to the sale of non-core businesses. 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 $ 102 $ (90) Effect on postretirement benefit obligation $ 1,518 $(1,328)
On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into Law. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a prescription drug benefit that is at least actuarially equivalent to Medicare Part D. In accordance with FASB Staff Position 106-1, the accumulated post-retirement benefit obligation and net periodic post-retirement benefit cost in the Company's Consolidated Financial Statements and this note do not reflect the effects of the Act on the plans. Specific authoritative guidance on the accounting for federal subsidy is pending, and the guidance, when issued, could require the Company to change previously reported information. 25. SPECIAL CHARGES As a result of the decisions discussed below, the Company has incurred various expenses, described as special charges, which have been recognized in its continuing and discontinued operations. 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-energy businesses so that the Company could focus its resources on its core energy business. Of the New York employees, 24, 139, 29, 14, and 6 employees were terminated in 1999, 2000, 2001, 2002 and 2003, respectively. As of December 31, 2003, 4 such employees remained and the Company intends to terminate them at various dates throughout 2004. 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 and consolidation of its waste to energy regional organizational structure. The plan was completed as of December 31, 2001. However certain remaining termination claims will be resolved through the Company's bankruptcy proceeding. In December 2003, the Company announced a reduction in force of approximately 13 domestic energy non-plant employees and closure of the Fairfax office, which is expected to be completed in the second quarter of 2004. The 109 reduction in force was primarily a result of the sale of the geothermal business in December 2003. These employees are entitled to aggregate severance and employee benefit payments of $0.7 million in accordance with the severance and retention plan approved by the Bankruptcy Court on September 20, 2002. In the fourth quarter of 2003, $0.3 million of the $0.7 million in one-time termination benefits was recorded as reorganization items in the Statement of Consolidated Operations and Comprehensive Income (Loss), in accordance with SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities". No costs were paid or otherwise settled during 2003. On September 23, 2002, the Company announced a reduction in force of approximately 60 energy non-plant employees and closure of various satellite offices (see Note 2). In accordance with the severance and retention plan approved by the Bankruptcy Court on September 20, 2002, these employees and the remaining New York City employees may be entitled to aggregate severance payments of approximately $5.0 million. In the third quarter of 2002 and in accordance with EITF 94-3, this amount was recognized as reorganization items in the 2002 Statement of Consolidated Operations and Comprehensive Income (Loss) and the prior severance accrual was reduced by $13.4 million as a credit to operating expense. In addition, the Company accrued office closure and outplacement costs of $0.7 million that were recognized as Reorganization items. Pursuant to the key employee retention plan approved by the Bankruptcy Court on September 20, 2002, retention payments of approximately $3.6 million in the aggregate for approximately 72 key employees began to be recognized during the third quarter of 2002 and were recognized as Reorganization items. The first payment of $1.1 million was made on September 30, 2002. The second payment of $1.1 million was made on September 30, 2003. Payments in the aggregate of approximately $1.4 million were paid to eligible key employees remaining with the Company upon emergence of the Company from bankruptcy. 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. The following is a summary of the principal special charges (both cash and non-cash charges) recognized in the years ended December 31, 2003, 2002 and 2001 (expressed in thousands of dollars):
Transferred to Balance at Amounts Liabilities Balance at January Charges for Paid In subject to December 1, 2003 Operations 2003 compromise 31, 2003 ---------------------------------------------------------------------------- 2003 Severance for approximately 216 New York city employees $ 1,600 $ -- $ (130) $ -- $ 1,470 Severance for approximately 80 energy employees 2,500 -- (704) (1,796) -- Severance for approximately 60 Employees terminated post petition 4,350 (316) (3,200) -- 834 Key employee retention plan 700 1,800 (1,075) -- 1,425 Contract termination settlement 400 (400) -- -- -- Office closure costs 1,200 (317) (365) -- 518 ------- ------- ------- ------- ------- Total $10,750 $ 767 $(5,474) $(1,796) $ 4,247 ======= ======= ======= ======= =======
Balance at Amounts Balance at January Charges for Paid In December 1, 2002 Operations 2002 31, 2002 -------------------------------------------------------- 2002 Severance for approximately $ 17,500 $(15,100) $ (800) $ 1,600 216 New York city employees Severance for approximately 80 energy employees 3,800 -- (1,300) 2,500 Severance for approximately 60 Employees terminated post petition -- 5,000 (650) 4,350 Key employee retention plan -- 1,800 (1,100) 700 Contract termination settlement 400 -- -- 400 Office closure costs 600 730 (130) 1,200 -------- -------- -------- -------- Total $ 22,300 $ (7,570) $ (3,980) $ 10,750 ======== ======== ======== ========
110
Balance at Amounts Balance at January Charges for Paid In December 1, 2001 Operations 2001 31, 2001 -------------------------------------------------------- 2001 Severance for approximately 216 New York city employees $ 27,500 $ -- $(10,000) $ 17,500 Severance for approximately 80 energy employees 10,300 1,700 (8,200) 3,800 Contract termination settlement 400 -- 400 Office closure costs 4,000 (2,100) (1,300) 600 Professional services relating to energy reorganization 1,500 -- (1,500) -- -------- -------- -------- -------- Total $ 43,700 $ (400) $(21,000) $ 22,300 ======== ======== ======== ========
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. 26. INCOME TAXES The components of the benefit for income taxes for continuing operations (expressed in thousands of dollars) were as follows: 2003 2002 2001 - ---------------------------------------------------- Current: Federal $ -- $(10,488) $ -- State 1,926 1,469 8,358 Foreign 4,835 5,377 6,432 -------- -------- -------- Total current expense (benefit) 6,761 (3,642) 14,790 -------- -------- -------- Deferred: Federal (22,701) 5,283 (12,692) State (779) (888) (7,059) Foreign 4,164 (1,019) (998) -------- -------- -------- Total deferred (19,316) 3,376 (20,749) -------- -------- -------- Total expense (benefit) for income taxes $(12,555) $ (266) $ (5,959) ======== ======== ======== The benefit for income taxes (expressed in thousands of dollars) varied from the Federal statutory income tax rate due to the following:
2003 2002 2001 - -------------------------------------------------------------------------------------------------------------------------- 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 $(10,645) 35.0% $(41,601) 35.0% $(71,950) 35.0% State income taxes, net of Federal tax benefit 746 (2.4) 381 (0.3) (1,945) 1.0 Taxes on foreign earnings (4,389) 14.4 24,323 (20.5) 2,576 (1.3) Subpart F income and foreign dividends 1,732 (5.7) 350 (0.3) 3,755 (1.8) Amortization of goodwill -- -- 47 -- 56 -- Write-down of goodwill 767 (0.4) Reorganization items 6,300 (20.7) 5,600 (4.7) Valuation allowance (3,449) 11.3 11,648 (9.8) 59,210 (28.8) Other--net (2,850) 9.3 (1,014) 0.8 1,572 (0.8) -------- -------- -------- -------- -------- -------- Benefit for income taxes $(12,555) 41.2% $ (266) 0.2% $ (5,959) 2.9% ======== ======== ======== ======== ======== ========
111 The components of the net deferred income tax liability (expressed in thousands of dollars) as of December 31, 2003 and 2002, were as follows: 2003 2002 - ------------------------------------------------------------------ Deferred Tax Assets: Accrued expenses $ 68,066 $ 61,828 Other liabilities 33,725 17,807 Non energy assets and related obligations 51,626 138,965 Net operating losses 45,239 64,068 Valuation allowance (79,492) (101,571) Investment tax credits 26,073 26,073 Alternative minimum tax credits 18,624 18,257 --------- --------- Total deferred tax assets 163,861 225,427 --------- --------- Deferred Tax Liabilities: Unbilled accounts receivable 75,886 79,924 Property, plant, and equipment 272,745 343,561 Other 526 526 --------- --------- Total deferred tax liabilities 349,157 424,011 --------- --------- Net deferred tax liability $ 185,296 $ 198,584 ========= ========= Deferred tax assets and liabilities (expressed in thousands of dollars) are presented as follows in the balance sheets: 2003 2002 - --------------------------------------------------------------- Net deferred tax liability--noncurrent $ 195,059 $ 209,783 Less net deferred tax asset--current (9,763) (11,200) --------- --------- Net deferred tax liability $ 185,296 $ 198,583 ========= ========= A valuation allowance of $53.4 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 write-downs of and obligations related to discontinued operations and assets held for sale will be realized for tax purposes. At December 31, 2003, for Federal income tax purposes, the Company had net operating loss carry-forwards of approximately $120.9 million, which will expire between 2021 and 2023, investment and energy tax credit carry-forwards of approximately $26.1 million, which will expire in 2004 through 2009, and alternative minimum tax credit carry-forwards of approximately $18.6 million, which have no expiration date. A valuation allowance of $26.1 million was recorded against the investment and energy tax credit carry-forwards because the Company does not believe it is more likely than not that those credits will be realized for tax purposes. The Company is currently under an IRS audit for the periods 1983 through 2001. An agreement has been reached with the IRS related to this period and is currently being reviewed by the Joint Committee of Congress. The Company believes they have adequately provided tax reserves related to this examination. 27. LEASES Total rental expense amounted to $24.8 million, $30.2 million, and $30.1 million (net of sublease income of $2.7 million, $3.5 million, and $1.9 million) for 2003, 2002 and 2001, respectively. Principal leases are for leaseholds, sale and leaseback arrangements on waste-to-energy facilities and independent power projects, trucks and automobiles, and machinery and equipment. Some of these operating leases have renewal options. Some leases relating to sale and leaseback transactions were terminated during 2003 (see Note 2 for further discussion). 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, 2003: 112 2004 $ 19,045 2005 18,667 2006 18,671 2007 17,575 2008 21,013 Later years 260,166 --------- Total $ 355,137 ========= These future minimum rental payment obligations include $317.3 million of future non-recourse rental payments that relate to energy facilities. Of this amount $182.0 million is supported by third-party commitments to provide sufficient service revenues to meet such obligations. The remaining $135.3 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-, medium-, and long-term contracts to meet rental payments. The Company anticipates renewing the contracts or entering into new contracts to generate sufficient revenues to meet remaining future rental payments. These non-recourse rental payments (in thousands of dollars) are due as follows: 2004 $ 15,207 2005 15,325 2006 15,487 2007 15,619 2008 19,349 Later years 236,358 --------- Total $ 317,345 ========= 28. INCOME (LOSS) PER SHARE Basic income (loss) per share was computed by dividing net income (loss) reduced by preferred stock dividend requirements, by the weighted average of the number of shares of common stock outstanding during each year. Diluted income (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 income (loss) from continuing operations 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, 2003, 2002 and 2001, is as follows (in thousands, except per share amounts):
2003 2002 - ------------------------------------------------------------------------------------------------------------------------- Income (Loss) Shares Per-Share Income (Loss) Shares Per-Share Income (Loss) (NUMERATOR) (DENOMINATOR) AMOUNt (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) BASIC EARNINGS (LOSS) PER SHARE: Loss from continuing operations $ (26,764) $ (127,698) $(205,686) Less: Preferred stock Dividend 16 64 Loss to common stockholders $ (26,764) 49,819 $(0,54) $ (127,714) 49,794 $(2.56) $ (205,750) Income (loss) from discontinued operations $ 78,814 49,819 $ 1.58 $ (43,355) 49,794 $(0.88) $ (25,341) Loss from cumulative effect of change in accounting principle $ (8,538) 49,819 $(0.17) $ (7,842) 49,794 $(0,16) DILUTED LOSS PER SHARE: Loss to common stockholders $ (26,764) 49,819 $(0.54) $ (127,714) 49,794 $(2.56) $ (205,750) Income (loss) from discontinued operations $ 78,814 49,819 $ 1.58 $ (43,355) 49,794 $(0.88) $ (25,341) Loss from cumulative effect of change in accounting principle $ (8,538) 49,819 $(0.17) $ (7,842) 49,794 $(0.16)
2001 - ------------------------------------------------------- Shares Per-Share (DENOMINATOR) AMOUNT BASIC EARNINGS (LOSS) PER SHARE: Loss from continuing operations Less: Preferred stock Dividend Loss to common stockholders 49,674 $ (4.14) Income (loss) from discontinued operations 49,674 $ (0.51) Loss from cumulative effect of change in accounting principle DILUTED LOSS PER SHARE: Loss to common stockholders 49,674 $ (4.14) Income (loss) from discontinued operations 49,674 $ (0.51) Loss from cumulative effect of change in accounting principle
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 3,121,000 in 2003, 3,609,000 in 2002, and 2,466,000 in 2001. 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 as to do 113 so would have been antidilutive. The common shares excluded from the calculation were zero, 908,000 and 2,175,000 in 2003, 2002 and 2001 for the 6% convertible debentures; zero, 1,228,000 and 1,524,000 in 2003, 2002 and 2001 for the 5.75% convertible debentures; 198,000, 198,000 and 209,000 in 2003, 2002 and 2001, respectively for convertible preferred stock and 5,600, 25,000 and 110,000 in 2003, 2002 and 2001 for unvested restricted stock issued to employees, respectively. 29. COMMITMENTS AND CONTINGENT LIABILITIES At December 31, 2003, capital commitments for continuing operations amounted to $11.0 million for normal replacement and growth in Domestic energy and water. Other capital commitments for Domestic energy and water and International energy as of December 31, 2003 amounted to approximately $11.9 million. This amount includes a commitment to pay $10.6 million in 2009 for a service contract extension at an energy facility. In addition, this amount includes a commitment to contribute an additional $1.3 million in capital to an investment in a waste-to-energy facility in Italy, of which $0.3 million was contributed in January 2004 and the remainder is expected to be contributed in late 2004. 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 facilities. Surety bonds relate to the Company's Tampa Bay desalination construction contract ($29.6 million), performance under its waste water treatment operating contracts ($12.7 million), possible closure costs for various energy projects when such projects cease operating in the future ($10.8 million) and performance of contracts related to non-energy businesses ($23.7 million). The Company is party to a number of other claims, lawsuits and pending actions, most of which are routine and all of which are incidental to its business. The Company assesses the likelihood of potential losses on an ongoing basis and when losses are considered probable and reasonably estimable, records as a loss an estimate of the ultimate outcome. If the Company can only estimate the range of a possible loss, an amount representing the low end of the range of possible outcomes is recorded. The final consequences of these proceedings are not presently determinable with certainty. Generally claims and lawsuits against the Debtors emerging from bankruptcy upon consummation of the DHC Transaction arising from events occurring prior to its respective Petition Date will be resolved pursuant to the Reorganization Plan. However, to the extent that claims are not dischargeable in bankruptcy, claims arising from events prior to the Petition Date may not be so resolved. For example, persons who were personally injured prior to the Petition Date but whose injury only became manifest thereafter will not be resolved pursuant to the Reorganization Plan. ENVIRONMENTAL MATTERS The Company's operations are subject to the Environmental Regulatory Laws and the Environmental Remediation Laws. Although the Company's operations are occasionally subject to proceedings and orders pertaining to emissions into the environment and other environmental violations, which may result in fines, penalties, damages or other sanctions, 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 parties potentially responsible for contribution to 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. Generally such claims arising prior to the Petition Date will be resolved in and discharged by the Chapter 11 Cases. On December 31, 2002, the Company divested its remaining aviation assets, consisting of fueling operations at three airports. Ogden New York Services, Inc., a subsidiary of Covanta, retained certain environmental liabilities relating to the John F. Kennedy International Airport, as described below. In addition, the Company agreed to indemnify the buyer for various other liabilities, including certain environmental matters; however, the buyer's sole recourse is an offset right against payments it owes the Company under a $2.6 million promissory note delivered as part of the consideration 114 for this sale. Because this indemnity arose after the Petition Date, it is not affected by the Debtors' discharge in bankruptcy. Prior to the First Petition Date, the Company agreed to indemnify various other 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. To date, such indemnification has been sought with respect to alleged environmental damages at the Miami Dade International Airport, as described below. 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 believes that these indemnities are pre-petition unsecured liabilities of a liquidating Debtor treated under the Liquidation Plan, and that therefore the Company would have no further financial responsibility regarding these matters. The Martin County Coal Corporation and others have as third party plaintiffs joined Ogden Environmental and Energy Services Co., Inc. ("Ogden Environmental"), a liquidating Debtor subsidiary of the Company, as a third party defendant to several pending litigations in the Circuit Court in Martin County, Kentucky arising from an October 2000 failure of a mine waste impoundment that resulted in the release of approximately 250 million gallons of coal slurry. The third party plaintiffs allege that Ogden Environmental is liable in an unspecified amount for contribution and/or indemnification arising from an independent contractor agreement to perform engineering and technological services with respect to the impoundment from 1994 to 1996. Prior to being joined, Ogden Environmental had not been a party to the underlying litigation, some of which had been pending for two years. Plaintiffs in the underlying action, have also indicated that they will seek to join Ogden Environmental to the litigation. On April 30, 2003, the Bankruptcy Court entered an agreed-upon order by which Third Party Plaintiffs may liquidate their claims (if any) against Ogden Environmental, but may not recover or execute judgment against Ogden Environmental. To date, First Party Plaintiffs have not sought similar relief from the Bankruptcy Court and thus the automatic stay continues to bar joinder of Ogden Environmental as a direct defendant. Because the Reorganization Plan does not contemplate that creditors of liquidated entities will receive any distribution and the Company should have no further financial responsibility regarding these matters, Ogden Environmental has informed counsel to the other parties to these actions that Ogden Environmental does not intend to participate in the litigation or otherwise defend against the claims against it. Because the extent to which Ogden Environmental is responsible for the impoundment failure will be a determinate of the amount that other defendants are ultimately responsible for damages due to injured parties, Ogden Environmental's liability is likely to be contested by the other parties to the case, regardless of Ogden Environmental's non-participation. On September 15, 2003, the Environmental Protection Agency (the "EPA") issued a "General Notice Letter" identifying Covanta as among 41 potentially responsible parties ("PRPs") with respect to the Diamond Alkali Superfund Site/"Lower Passaic River Project." The EPA alleges that the PRPs are liable for releases or potential releases of hazardous substances to a 17 mile segment of the Passaic River, located in northern New Jersey, and requests the PRPs' participation as "cooperating parties" with respect to the funding of a five to seven year study to determine an environmental remedial and restoration program. The EPA currently estimates the cost of this study at $20 million. The study also will be used in determining the PRPs' respective shares of liability for costs associated with implementation of the selected cleanup program, as well as potential damages for injury to, destruction of, or loss of natural resources. As a result of uncertainties regarding the source and scope of contamination, the number of PRPs that ultimately may be named in this matter, and the varying degrees of responsibility among classes of PRPs, the Company's share of liability, if any, cannot be determined at this time. Covanta was a Debtor and consequently its liability, if any, should be discharged in accordance with the Chapter 11 process. On March 5, 2004, one PRP filed a motion in the Bankruptcy Court for leave to file a late proof of claim; no other proofs of claim have been filed relating to this matter. The allegations as to Covanta relate to discontinued, non-energy operations. In 1985, Covanta sold its interests in several manufacturing subsidiaries, some of which allegedly used asbestos in their manufacturing processes, and one of which was Avondale Shipyards, now a subsidiary of Northrop Grumman Corporation. Some of these former subsidiaries have been and continue to be parties to asbestos-related litigation. In 2001, Covanta was named a party, with 45 other defendants, to one such case. Before the First Petition Date, Covanta had filed for its dismissal from the case. Also, eleven proofs of claim seeking unliquidated amounts have been filed against Covanta in the Chapter 11 Cases based on what appears to be purported asbestos-related injuries that may relate to the operations of former Covanta subsidiaries. Covanta believes that these claims lack merit and has filed objections to them, and plans to object vigorously to such claims if necessary to resolve them. 115 The potential costs related to all of the following 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. 1. On June 8, 2001, the EPA named the Company's wholly-owned subsidiary, Ogden Martin Systems of Haverhill, Inc., now known as Covanta Haverhill, Inc., as one of 2,000 PRPs at the Beede Waste Oil Superfund Site, Plaistow, New Hampshire in connection with alleged waste disposal by PRPs on this site. On January 9, 2004, the EPA signed its Record of Decision with respect to the cleanup of the site. According to the EPA, the costs of response actions incurred as of January 2004 by the EPA and the State of New Hampshire total approximately $19 million, and the estimated cost to implement the remedial alternative selected in the Record of Decision is an additional $48 million. Covanta Haverhill, Inc. is participating in PRP group discussions towards settlement of the EPA's claims and will continue to seek a negotiated resolution of this matter. Although Covanta Haverhill, Inc.'s share of liability, if any, cannot be determined at this time 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 PRPs, the Company believes that based on the amount of materials Covanta Haverhill, Inc. sent to the site, any liability will not be material. Covanta Haverhill, Inc. was not a Debtor. 2. On April 9, 2001, Ogden Ground Services, Inc. and Ogden Aviation, Inc., together with approximately 250 other parties, were named by Metropolitan Dade County, Florida as PRPs, pursuant to the Environmental Remediation Laws, with respect to an environmental cleanup at the Miami Dade International Airport. Dade County alleges that it has expended over $200 million in response and investigation costs and expects to spend an additional $250 million to complete necessary response actions. The lawsuit is currently subject to a tolling agreement between PRPs and Dade County. The Company's liability, if any, arose from its pre-petition unsecured obligation to indemnify the transferee of Ogden Ground Services, which obligation has been extinguished by means of the mutual settlement, waiver and release agreement between Covanta and the transferee approved by the Bankruptcy Court on December 23, 2003. Ogden Aviation, Inc. is a liquidating Debtor and the above matter is expected to have no impact on the Company. 3. On May 25, 2000 the California Regional Water Quality Control Board, Central Valley Region, issued a cleanup and abatement order to Pacific-Ultrapower Chinese Station, a general partnership in which one of Covanta's subsidiaries owns 50% and which owns and operates an independent power project in Jamestown, California which uses waste wood as a fuel. The order is in connection with the partnership's neighboring property owner's use of ash generated by Chinese Station's plant. Chinese Station completed the cleanup in mid-2001 and submitted its Clean Closure Report to the Water Quality Control Board on November 2, 2001. The Board and other state agencies continue to investigate alleged civil and criminal violations associated with the management of the material. The partnership believes it has valid defenses, and a petition for review of the order is pending. Settlement discussions in this matter are underway. Based on penalties proposed by the Board, the Company believes that this matter can be resolved in amounts that will not be material to the Company taken as a whole. Chinese Station and Covanta's subsidiary that owns a partnership interest in Chinese station were not Debtors. 4. On January 4, 2000 and January 21, 2000, United Air Lines, Inc. and American Airlines, Inc., respectively, named Ogden New York Services, Inc., in two separate lawsuits (collectively, the "Airlines Lawsuits") filed in the Supreme Court of the State of New York, which have been consolidated for joint trial. The lawsuits seek a judgment declaring that Ogden New York Services is responsible for petroleum contamination at airport terminals formerly or currently leased by United and American at John F. Kennedy International Airport in New York City. United seeks approximately $1.9 million in remediation costs and legal expenses, as well as certain declaratory relief, against Ogden New York Services and four airlines, including American Airlines. American seeks approximately $74.5 million in remediation costs and legal fees from Ogden New York Services and United Air Lines. Ogden New York Services has filed counter-claims and cross-claims against United and American for contribution. American filed a proof of claim against Ogden New York Services in the Chapter 11 Case, alleging an unsecured claim of approximately $74 million. Ogden New York Services disputes the allegations and believes that the damages sought are overstated in view of the airlines' 116 responsibility for the alleged contamination and that Ogden New York Services has defenses under its respective leases and its permits with the Port Authority of New York and New Jersey which operates the airport. This litigation was stayed as to Ogden New York as a result of the Chapter 11 Cases. Ogden New York Services believes that the claims asserted by United and American are prepetition unsecured obligations of Ogden New York (a liquidating Debtor) under the Liquidation Plan, and that therefore the Company should have no further financial responsibility regarding those matters beyond the assets of Ogden New York Services, which may include its rights as an insured under the Company. In connection with this litigation, prior to the Petition Date, Ogden New York Services commenced an action against Zurich Insurance Company. This litigation sought, among other things, a declaratory judgment that Zurich was obligated to defend and indemnify Ogden New York Services in the litigation under certain environmental impairment liability policies. In April 2003, in order to avoid the uncertainty and continued costs of the litigation, Ogden New York Services and Zurich reached a settlement whereby Zurich agreed to pay to Ogden New York $1.8 million for environmental impairments allegedly resulting from the Ogden New York's fueling operations at JFK Airport. American Airlines maintains it is entitled to a portion of the insurance proceeds and in connection with obtaining Bankruptcy Court approval of the settlement with Zurich, American and Ogden New York Services agreed that the Bankruptcy Court's approval would provide that (i) Ogden New York Services preserved its rights to argue that American was not entitled to any amount of the settlement proceeds, (ii) American preserved its rights to assert a claim for the amount received by Ogden New York Services in the settlement, and (iii) Ogden New York Services agreed not to distribute this amount to any other party interest on account of any purported interests in such proceeds without prior Bankruptcy Court order and without prior notice to American's counsel. Although American has asserted its rights to the settlement proceeds in its objections to the settlement with Zurich, it has not to date filed an adversary proceeding in Ogden New York Services' bankruptcy case or taken any other action seeking a determination of its rights to the settlement proceeds. Under the Reorganization Plan, the settlement proceeds, as will be transferred to the Company and will not be available for distribution to any of Ogden New York's unsecured creditors, including American. The Company and American Airlines have reached a tentative agreement pursuant to which the Company would pay American Airlines $500,000 with respect to the Company's recovery from Zurich, American Airlines would be allowed a $15 million claim against Ogden New York Services, Inc, a liquidating Debtor, and American Airlines would be assigned the Company's rights against its insurers with respect to American Airlines' claims. The settlement is subject to definitive documentation and Bankruptcy Court approval. 5. On December 23, 1999, an aviation subsidiary of Covanta was named as a third-party defendant in an action filed in the Superior Court of the State of New Jersey alleging that the aviation subsidiary generated hazardous substances at a reclamation facility known as the Swope Oil and Chemical Company Site. Third-party plaintiffs seek contribution and indemnification from the aviation subsidiary and over 90 other third parties, as PRPs, for costs incurred and to be incurred in the cleanup. This action was stayed pending the outcome of first- and second-party claims. The aviation subsidiary's share of liability, if any, cannot be determined at this time because of uncertainties regarding the source and scope of contamination, the large number of PRPs and the varying degrees of responsibility among various classes of PRPs. The aviation subsidiary is a liquidating Debtor and this matter is expected to have no impact on the Company. OTHER MATTERS 1. As discussed in "Developments in Project Restructurings", prior to the Petition Date, Covanta Onondaga commenced litigation challenging an effort by OCRRA to terminate its service agreement with Covanta Onondaga. All of this litigation, including the above mentioned appeals, has been resolved pursuant to the settlement between OCRRA and the Debtors, and is in the process of being dismissed following the effective date of the Reorganization Plan. 2. As discussed above in "Developments in Project Restructurings", the Town of Babylon, New York filed a proof of claim against Covanta Babylon for approximately $13.4 million in pre-petition damages and $5.5 million in post-petition damages, alleging that Covanta Babylon has accepted less waste than required under the service agreement between the Babylon and Covanta Babylon at the waste to energy facility in Babylon. The Company and the Town have reached a settlement of their disputes and associated litigation in Bankruptcy Court has been dismissed. See Item 1. 117 3. In late 2000, Lake County, Florida commenced a lawsuit in Florida state court against Covanta Lake, Inc. which also refers to its merged successor, as defined below) relating to the waste-to-energy facility operated by Covanta in Lake County, Florida (the "Lake Facility"). In the lawsuit, Lake County sought to have its Service Agreement with Covanta Lake declared void and in violation of the Florida Constitution. That lawsuit was stayed by the commencement of the Chapter 11 Cases. Lake County subsequently filed a proof of claim seeking in excess of $70 million from Covanta Lake and Covanta. On June, 20, 2003, Covanta Lake filed a motion with the Bankruptcy Court seeking entry of an order (i) authorizing Covanta Lake to assume, effective upon confirmation of a plan of reorganization for Covanta Lake, its Service Agreement with Lake County, (ii) finding no cure amounts due under the Service Agreement, and (iii) seeking a declaration that the Service Agreement is valid, enforceable and constitutional, and remains in full force and effect. Contemporaneously with the filing of the assumption motion, Covanta Lake filed an adversary complaint asserting that Lake County is in arrears to Covanta Lake in the amount of more than $8.5 million. Shortly before trial commenced in these matters, the Company and Lake County reached a tentative settlement calling for a new agreement specifying the parties' obligations and restructuring of the project. That tentative settlement and the proposed restructuring will involve, among other things, termination of the existing Service Agreement and the execution of a new waste disposal agreement which shall provide for a put-or-pay obligation on Lake County's part to deliver 163,000 tons per year of acceptable waste to the Lake Facility and a different fee structure; a replacement guarantee from Covanta in a reduced amount; the payment by Lake County of all amounts due as "pass through" costs with respect to Covanta Lake's payment of property taxes; the payment by Lake County of a specified amount in each of 2004, 2005 and 2006 in reimbursement of certain capital costs; the settlement of all pending litigation; and a refinancing of the existing bonds. The Lake settlement is contingent upon, among other things, receipt of all necessary approvals, as well as a favorable outcome to the Company's pending objection to the proof of claims filed by F. Browne Gregg, a third-party claiming an interest in the existing Service Agreement that would be terminated under the proposed settlement. On November 3-5, 2003, the Bankruptcy Court conducted a trial on Mr. Gregg's proofs of claim. At issue in the trial was whether Mr. Gregg is entitled to damages as a result of Covanta Lake's proposed termination of the existing Service Agreement and entry into a waste disposal agreement with Lake County. As of March 22, 2004, the Bankruptcy Court had not ruled on the Company's claims objections. Based on the foregoing, the Company has determined not to propose a plan of reorganization or plan of liquidation for Covanta Lake at this time, and instead that Covanta Lake should remain a debtor-in-possession after the effective date of the Reorganization Plan. To emerge from bankruptcy without uncertainty concerning potential claims against Covanta related to the Lake Facility, Covanta has rejected its guarantees of Covanta's obligations relating to the operation and maintenance of the Lake Facility. The Company anticipates that if a restructuring is consummated, Covanta may at that time issue new parent guarantees in connection with that restructuring and emergence from bankruptcy. Depending upon the ultimate resolution of these matters with Mr. Gregg and the County, Covanta Lake may determine to assume or reject one or more executory contracts related to the Lake Facility, terminate the Service Agreement with Lake County for its breaches and default and pursue litigation against Lake County and/or Mr. Gregg. Based on this determination, the Company may reorganize or liquidate Covanta Lake. Depending on how Covanta Lake determines to proceed, creditors of Covanta Lake may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not affect its ability to implement its plan of reorganization. 4. During 2003 Covanta Tampa Construction, Inc. completed construction of a 25 million gallon per day desalination-to-drinking water facility under a contract with TBW near Tampa, Florida. Covanta Energy Group, Inc., guaranteed CTC's performance under its construction contract with TBW. A separate subsidiary, Covanta Tampa Bay, Inc entered into a contract with TBW to operate the Tampa Water Facility after construction and testing is completed by CTC. As construction of the Tampa Water Facility neared completion, the parties had material disputes between them, primarily relating to (i) whether CTC has satisfied acceptance criteria for the Tampa Water Facility; (ii) 118 whether TBW has obtained certain permits necessary for CTC to complete start-up and testing, and for CTB to subsequently operate the Tampa Water Facility; (iii) whether influent water provided by TBW for the Tampa Water Facility is of sufficient quality to permit CTC to complete start-up and testing, or to permit CTB to operate the Tampa Water Facility as contemplated and (iv) if and to the extent that the Tampa Water Facility cannot be optimally operated, whether such shortcomings constitute defaults under CTC's agreements with TBW. In October 2003, TBW issued a default notice to CTC, indicated that it intended to commence arbitration proceedings against CTC, and further indicated that it intended to terminate CTC's construction agreement. As a result, on October 29, 2003, CTC filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code in order to, among other things, prevent attempts by TBW to terminate the construction agreement between CTC and TBW. On November 14, 2003, TBW commenced an adversary proceeding against CTC and filed a motion seeking a temporary restraining order and preliminary injunction directing that possession of the Tampa Water Facility be turned to TBW. On November 25, 2003, the Bankruptcy Court denied the motion for a temporary restraining order and preliminary injunction and ordered, among other things, that the parties attempt to resolve their disputes in a non-binding mediation. In February 2004 the Company and TBW reached a tentative compromise of their disputes which has been approved by the Bankruptcy Court, subject to definitive documentation, and confirmation of an acceptable plan of reorganization for CTC and CTB, which were not included in the Reorganization Plan. Under that tentative compromise, all contractual relationships between the Company and TBW will be terminated, CTC will operate the facility in "hot stand-by" for a limited period of time, and the responsibility for optimization and operation of the Tampa Water Facility will be transitioned to a new, non-affiliated operator. In addition, TBW will pay $4.95 million to or for the benefit of CTC, of which up to $550,000 is earmarked for the payment of claims under the subcontracts previously assigned by the Company to TBW. The settlement funds ultimately would be distributed to creditors and equity holders of CTC and CTB pursuant to a plan of reorganization for CTC. If the parties are unable to resolve their differences consensually, and depending upon, among other things, whether the parties are able to successfully effect the settlement described above, the Company may, among other things, commence additional litigation against TBW, assume or reject one or more executory contracts related to the Tampa Water Facility, or propose liquidating plans and/or file separate plans of reorganization for CTB and/or CTC. In such an event, creditors of CTC and CTB may not receive any recovery on account of their claims. In such an event, creditors of CTC and CTB may not receive any recovery on account of their claims. The Company expects that the outcome of these disputes will not negatively affect its ability to implement its plan of reorganization. See Notes 2, 17 and 33 for additional information regarding commitments and contingent liabilities. 30. BUSINESS SEGMENTS As a result of the management restructuring and overhead reduction (see Note 2) effective October 1, 2002 the Company's three reportable segments are: Domestic energy and water, International energy and Other. Covanta's two energy segments develop, operate and in some cases own, domestic and international energy generating facilities that utilize a variety of fuels, as well as water and wastewater facilities that will serve communities on a long-term basis. For the years ended December 31, 2003, 2002 and 2001 segment and corporate results were as follows (expressed in thousands of dollars): 119
2003 2002 2001 - ----------------------------------------------------------------------------------------------- Revenues: Domestic energy and water $ 619,097 $ 628,165 $ 658,565 International energy 171,367 185,363 132,575 Other 4 12,253 126,506 --------- --------- --------- Total revenue 790,468 825,781 917,646 --------- --------- --------- Income (Loss) from Operations: Domestic energy and water 61,333 53,725 90,517 International energy 50,031 34,881 26,834 Other, including writedown of assets held for sale 11,040 (9,779) (248,230) Writedown of assets held for use International energy -- (78,863) -- Other (16,704) (6,000) -- Corporate unallocated income and expenses-net (15,778) (22,131) (35,386) --------- --------- --------- Operating income (loss) 89,922 (28,167) (166,265) Interest expense - net (36,990) (41,587) (39,306) Reorganization items (83,346) (49,106) -- --------- --------- --------- Loss from continuing operations before income taxes, minority interests, discontinued operations and the cumulative effect of changes in accounting principles $ (30,414) $(118,860) $(205,571) ========= ========= =========
Covanta's revenues include $0.5 million, $1.2 million, and $0.9 million from United States government contracts for the years ended December 31, 2003, 2002 and 2001, respectively. Total revenues by segment reflect sales to unaffiliated customers. In computing income (loss) from operations, none of the following have been added or deducted: unallocated corporate expenses, non-operating interest expense, interest income and income taxes. For the years ended December 31, 2003 and 2002 segment and corporate assets and results are as follows (expressed in thousands of dollars): Identifiable Depreciation and Capital Assets Amortization Additions - ------------------------------------------------------------------------- 2003 Domestic energy and water $1,890,321 $ 54,279 $ 15,068 International energy 400,930 16,601 6,852 Other 322,329 1,052 234 ---------- ---------- ---------- Consolidated $2,613,580 71,932 $ 22,154 ========== ========== ========== 2002 Domestic energy and water $2,307,159 $ 57,939 $ 18,884 International energy 412,713 18,410 1,941 Other 120,235 1,019 442 ---------- ---------- ---------- Consolidated $2,840,107 $ 77,368 $ 21,267 ========== ========== ========== 2001 Domestic energy and water $ 58,711 $ 46,497 International energy 15,713 14,098 Other 4,063 798 ----------- ---------- Consolidated $ 78,487 $ 61,393 =========== ========== 120 Covanta's areas of operations are principally in the United States. Operations outside of the United States are primarily in Asia, with some projects in Latin America and Europe. No single foreign country or geographic area is significant to the consolidated operations. A summary of revenues by geographic area for the years ended December 31, 2003, 2002 and 2001 (expressed in thousands of dollars) is as follows: 2003 2002 2001 - ---------------------------------------------- Revenues: United States $619,101 $640,045 $767,919 Asia 170,357 184,130 107,595 Latin America 692 553 29,215 Europe 318 146 9,155 Other -- 907 3,762 -------- -------- -------- Total $790,468 $825,781 $917,646 ======== ======== ======== A summary of identifiable assets by geographic area for the years ended December 31, 2003 and 2002 (expressed in thousands of dollars) is as follows: - ---------------------------------------------- 2003 2002 - ---------------------------------------------- Identifiable Assets: United States $2,205,702 $2,458,758 Asia 280,242 272,556 Latin America 537 394 Europe 28,260 24,309 Other 98,839 84,090 ---------- ---------- Total $2,613,580 $2,840,107 ========== ========== 31. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(Expressed in thousands of dollars) 2003 2002 2001 - ------------------------------------------------------------------------------------ Cash Paid for Interest and Income Taxes: Interest (net of amounts capitalized) $ 91,718 $ 93,139 $ 123,052 Income taxes paid (refunded) 11,112 11,485 (4,929) Noncash Investing and Financing Activities: Conversion of preferred shares for common shares -- 1 2 Reduction of notes receivable from key employees 419 -- 179
32. 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 loans of the former Chairman of the Company were forgiven as part of the settlement of litigation brought by him to enforce payment of his severance. 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, from time to time, 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 $0.9 million market value of the Company's common shares underlying those notes. 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, 2003 Notes receivable from key employees for common stock issuance were ,as a result of the resignation of one of the officers reduced by $0.4 million, the original amount recorded on such note.. The notes remaining are due upon the sale of the stock. Through December 31, 2003, none of the stock has been sold. 121 In addition, one member of the Company's previous Board of Directors was a partner in a major law firm, and another member is an employee of another major law firm. From time to time, the Company sought legal services and advice from those two law firms. During 2003, 2002 and 2001, the Company paid those two law firms approximately $0.5 million, $1.4 million and $1.0 million, and zero, $2.7 million and $2.7 million, respectively, for services rendered. 33. 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. 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 estimates presented herein are based on pertinent information available to management as of December 31, 2003 and 2002. However, such amounts have not been comprehensively revalued for purposes of these financial statements since December 31, 2003 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, 2003 and 2002, is summarized as follows:
2003 2002 - -------------------------------------------------------------------------------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value - -------------------------------------------------------------------------------------------------- ASSETS: Cash and cash equivalents $ 289,424 $ 289,424 $ 115,815 $ 115,815 Marketable securities 2,460 2,460 2,353 2,353 Receivables 355,456 356,549 406,722 419,862 Restricted funds 198,884 198,904 262,034 262,400 Interest rate swap receivable 16,728 16,728 19,137 19,137 LIABILITIES: Debt 11,642 11,642 40,229 40,789 Project debt 1,032,401 1,068,565 1,243,382 1,260,948 Interest rate swap payable 16,728 16,728 19,137 19,137 Liabilities subject to compromise 956,095 (b) 892,012 (b)
122 OFF BALANCE-SHEET FINANCIAL INSTRUMENTS: Guarantees (a) - ------------------------- (a) additionally guarantees include approximately $16.9 million primarily of guarantees related to international energy projects. (b) see Note 2 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 Consolidated Balance Sheets (see Note 1). 34. FRESH START ACCOUNTING (UNAUDITED) The Company's emergence from Chapter 11 proceedings on March 10, 2004 will result in a new reporting entity and adoption of fresh start accounting as of that date, in accordance with SOP 90-7. The consolidated financial statements as of December 31, 2003 do not give effect to any adjustments in the carrying values of assets or liabilities that will be recorded upon implementation of the Company's plan of reorganization. The following unaudited pro forma financial information reflects the implementation of the Plan as if the Plan had been effective on December 31, 2003. Reorganization adjustments have been estimated in the pro forma financial information to reflect the discharge of debt and the adoption of fresh start reporting in accordance with SOP 90-7. The pro forma value allocated to the assets and liabilities of the Company in proportion to their relative fair values is in conformity with SFAS No. 141 "Business Combinations". Estimated reorganization adjustments in the Pro Forma Balance Sheet result primarily from the: (i) reduction of property, plant and equipment carrying values; (ii) increase in the carrying value of the Company's various operation and maintenance agreements and power purchase agreements; (iii) forgiveness of the Company's pre-petition debt; (iv) issuance of New Common Stock and Notes pursuant to the Plan; (v) payment of various administrative and other claims associated with the Company's emergence from Chapter 11; and (vi) distribution of cash of $235.5 million to the Company's pre-petition secured lenders. These adjustments were based upon the preliminary work of the Company and financial consultants, as well as other valuation estimates to determine the relative fair values of the Company's assets and liabilities. The allocation of the reorganization value to individual assets and liabilities will change based upon facts present at the actual effective date of the Company's plan of reorganization and will result in differences to the fresh start adjustments and allocated values estimated in this pro forma information. 123
UNAUDITED PROFORMA BALANCE SHEET - ------------------------------------------------------------------------------------------------------------------- DECEMBER 31, LIQUIDATING DISCHARGE OF ISSUANCE OF 2003 ENTITIES (A) INDEBTEDNESS NOTES - ------------------------------------------------------------------------------------------------------------------- (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 289,424 $ (1,097) $ (235,473)(b) $ 30,000(d) Restricted funds held in trust 79,404 -- 98,000(b) -- Receivables 230,093 (2,828) -- -- Deferred income taxes 9,763 (21) -- -- Prepaid expenses and other current assets 82,115 -- -- -- ----------- ----------- ----------- ----------- TOTAL CURRENT ASSETS 690,799 (3,946) (137,473) 30,000 Property, plant and equipment-net 1,453,354 -- -- -- Restricted funds held in trust 119,480 -- -- -- Unbilled service and other receivables 125,363 -- -- -- Unamortized contract acquisition costs-net 27,073 -- -- -- Other intangible assets-net 7,073 -- -- -- Service contracts -- -- -- -- Energy contracts -- -- -- -- Investments in and advances to investees and joint ventures 137,374 (23) -- -- Other assets 53,064 (2,056) -- -- Reorganization value in excess of net assets -- -- (647,924)(l) 353,800(l) ----------- ----------- ----------- ----------- TOTAL ASSETS $ 2,613,580 $ (6,025) $ (785,397) $ 383,800 =========== =========== =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES: CURRENT LIABILITIES: Current portion of long-term debt $ 9,492 $ (147) $ -- $ -- Current portion of project debt 99,216 -- -- -- Accounts payable 23,584 (3,100) -- -- Accrued expenses 208,342 (13,313) 51,674(b) -- Deferred income 37,431 -- -- -- ----------- ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 378,065 (16,560) 51,674 -- Long-term debt 2,150 -- -- 336,500(e) Project debt 933,185 -- -- -- Deferred income taxes 195,059 (2,185) -- -- Deferred income 129,304 -- -- -- Other liabilities 78,358 -- -- -- Liabilities subject to compromise 956,095 (128,024) (824,361)(c) -- ----------- ----------- ----------- ----------- TOTAL LIABILITIES 2,672,216 (146,769) (772,687) 336,500 ----------- ----------- ----------- ----------- MINORITY INTERESTS 69,398 -- -- 175(d) ----------- ----------- ----------- ----------- SHAREHOLDERS' DEFICIT: Serial cumulative convertible preferred stock 33 -- (33)(c) -- Common stock 24,912 -- (24,912)(c) -(d) Capital surplus 188,156 (132,096) (56,060)(c) 47,125(d) Notes receivable from key employees for common stock issuance (451) -- 451 (c) -- Deficit (340,661) 272,718 67,943(c) -- Accumulated other comprehensive income (loss) (23) 122 (99)(c) -- ----------- ----------- ----------- ----------- TOTAL SHAREHOLDERS' DEFICIT (128,034) 140,744 (12,710) 47,125 ----------- ----------- ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,613,580 $ (6,025) $ (785,397) $ 383,800 =========== =========== =========== ===========
UNAUDITED PROFORMA BALANCE SHEET - ---------------------------------------------------------------------------------- FRESH START PRO-FORMA DECEMBER ADJUSTMENTS 31, 2003 - ---------------------------------------------------------------------------------- (In Thousands of Dollars) ASSETS CURRENT ASSETS: Cash and cash equivalents $ -- $ 82,854(k) Restricted funds held in trust -- 177,404 Receivables -- 227,265 Deferred income taxes (9,742)(j) -- Prepaid expenses and other current assets -- 82,115 ----------- ----------- TOTAL CURRENT ASSETS (9,742) 569,638 Property, plant and equipment-net (214,819)(f) 1,238,535 Restricted funds held in trust -- 119,480 Unbilled service and other receivables -- 125,363 Unamortized contract acquisition costs-net (27,073)(g) -- Other intangible assets-net (7,073)(g) -- Service contracts 407,222(f) 407,222 Energy contracts 36,586(f) 36,586 Investments in and advances to investees and joint ventures (37,724)(f) 99,627 Other assets (26,491)(g) 24,517 Reorganization value in excess of net assets 294,124(l) -- ----------- ----------- TOTAL ASSETS $ 415,010 $ 2,620,968 =========== =========== LIABILITIES AND SHAREHOLDERS' DEFICIT LIABILITIES: CURRENT LIABILITIES: Current portion of long-term debt $ -- $ 9,345 Current portion of project debt -- 99,216 Accounts payable 20,484 Accrued expenses 30,759(j) 277,462 Deferred income -- 37,431 ----------- ----------- TOTAL CURRENT LIABILITIES 30,759 443,938 Long-term debt -- 338,650 Project debt 38,870(h) 972,055 Deferred income taxes 320,956(j) 513,830 Deferred income -- 129,304 Other liabilities 51,403(i) 129,761 Liabilities subject to compromise 3,710 ----------- ----------- TOTAL LIABILITIES 441,988 2,531,248 ----------- ----------- MINORITY INTERESTS (26,978)(f) 42,595 ----------- ----------- SHAREHOLDERS' DEFICIT: Serial cumulative convertible preferred stock -- -- Common stock -- -- Capital surplus -- 47,125 Notes receivable from key employees for common stock issuance -- -- Deficit -- Accumulated other comprehensive income (loss) -- -- ----------- ----------- TOTAL SHAREHOLDERS' DEFICIT -- 47,125 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 415,010 $ 2,620,968 =========== ===========
(a) Pro Forma Balance Sheet excludes entities not purchased by Danielson. These entities will be liquidated as part of the bankruptcy process. (b) Reflects the reclassification of $98,000 in cash to Restricted Cash to pay for accrued exit costs; $46,326 was already accrued for in the December 31, 2003 consolidated balance sheet and an additional $51,674 is accrued for in the Pro Forma Balance Sheet. (c) Reflects the payment of $137,473 in payments for exit costs and payments to the Company's pre-petition secured creditors. Reflects the discharge of pre-petition indebtedness, except for those related to the Warren, Lake, and Tampa Bay facilities which remain in bankruptcy but are part of the emerging entity purchased, 124 by Danielson. Additional reflects the cancellation of all outstanding shares of Old Common Stock, Old Preferred Stock, additional paid-in capital, and accumulated other comprehensive loss. (d) Reflects the issuance of 200 shares of $1 par value Common Stock to Danielson for $30,000 in cash. In addition, Danielson's purchase price includes $6,000 in closing costs and a fair value of $11,300 for the right of certain pre-petition creditors to participate in Danielson Rights offering expected to occur later in 2004. Danielson had purchased 25% of the Lake facility prior to emergence and it is accounted for as a minority interest. (e) Reflects the issuance of $205,000 principal amount of New High Yield Secured Notes, $36,500 principal amount of New Reorganization Plan Unsecured Notes, and $95,000 in new CPIH Funded Debt. (f) Reflects the adjustment of property, plant and equipment to an estimated fair value of $1,238,535, investments in joint ventures to an estimated fair value of $99,627, and minority interests to an estimated fair value of $42,595. In addition, two new asset classes were allocated estimated fair values: $407,222 for services contracts, which the reflects the value of the operating services provided to municipally-owned waste-to-energy facilities, and $36,586 for energy contracts in excess of market. (g) Reflects the write down to an estimated fair value of $0 for unamortized contract acquisition costs, prepaid financing costs, and goodwill. (h) Reflects the adjustment of project debt to a fair value of $972,055. (i) Reflects additional accrued pension liabilities of $29,066 and accrued post-retirement benefits of $22,337. (j) Reflects an adjustment to deferred tax liabilities to reflect the new fair value of the Company's fixed and intangible assets. (k) Pro Forma cash and cash equivalents consists of $40 million in domestic cash, $5 million in CPIH cash, and $37.9 million in cash held at international project companies. (l) Reorganization value in excess of net assets represents goodwill. Negative goodwill has been allocated, after all the fresh start adjustments as a reduction to property, plant and equipment and to intangible assets. 125 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Covanta Energy Corporation (Debtor in Possession) We have audited the accompanying Consolidated Balance Sheets of Covanta Energy Corporation (Debtor in Possession) and its subsidiaries (the "Company") as of December 31, 2003 and 2002, and the related Statements of Consolidated Operations and Comprehensive Income (Loss), Shareholders' Equity (Deficit) and Consolidated Cash Flows for each of the three years in the period ended December 31, 2003. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We did not audit the financial statements of Quezon Power, Inc. ("Quezon") for the year ended December 31, 2003, the Company's investment in which is accounted for by use of the equity method. The Company's equity of $92,492,179 in Quezon's net assets at December 31, 2003 and of $20,880,840 in that company's net income for the year then ended is included in the accompanying financial statements. The financial statements of Quezon were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such company, is based solely on the report of such other auditors. 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 and the report of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2003 and 2002, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2003 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 1 and 2, the Company and various domestic subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Federal 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 their businesses. On March 3, 2004, the Bankruptcy Court entered an order confirming the Company's plan of reorganization which became effective after the close of business on March 10, 2004. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Notes 1 and 2, the Company's dependence upon, among other things, the Company's ability to utilize the net operating loss carry forwards of Danielson Holding Corporation 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 2. The financial statements do not include adjustments that might result from the outcome of this uncertainty. 126 As discussed in Note 1, on January 1, 2003 the Company adopted Statement of Financial Accounting Standards No. 143, "Accounting for Asset Retirement Obligations", on January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" and Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived-Assets" and on January 1, 2001 the Company adopted Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. /s/ DELOITTE & TOUCHE LLP Parsippany, New Jersey March 26, 2004 127 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. On April 1, 2002, Covanta Energy Corporation and various 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. The Company's ability to continue as a "going concern" is subject to substantial doubt and is dependent upon, among other things, the Company's ability to utilize the net operating loss carry forwards of Danielson Holding Corporation 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 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 have also been prepared 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"). Substantially all unsecured liabilities as of the Petition Date were subject to compromise or other treatment under the Reorganization Plan. For financial reporting purposes, those liabilities and obligations whose treatment and satisfaction is dependent on the outcome of the Chapter 11 Cases are segregated and classified as Liabilities Subject to Compromise in the Consolidated Balance Sheet. 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. Through the Company's emergence from bankruptcy, its Board of Directors pursued its oversight role for these financial statements through its Audit Committee, which is composed solely of nonaffiliated directors. The Audit Committee, in this oversight role, met periodically with management to monitor their responsibilities. The Audit Committee also met periodically with the independent auditors and the internal auditors, both of whom have free access to the Audit Committee without management present. Upon the Effective Date of the Company's Reorganization Plan, the Audit Committee of the Company's parent, Danielson Holding Corporation, functions as the Company's Audit Committee. The independent auditors 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. Anthony J. Orlando President and Chief Executive Officer 128 COVANTA ENERGY CORPORATION (DEBTOR IN POSSESSION) AND SUBSIDIARIES QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS OF DOLLARS, EXCEPT PER-SHARE AMOUNTS) The 2003 and 2002 quarterly results of operations have been reclassified to reflect discontinued operations (see Note 3 for further discussion). The following table summarizes the 2003 quarterly results of operations:
2003 QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ------------------------------------------------------------------------------------------------------ Total revenues from continuing operations $ 196,411 $ 211,596 $ 192,055 $ 190,406 ----------- ----------- ----------- ----------- Operating income from continuing operations $ 21,801 $ 37,872 $ 13,935 $ 16,314 ----------- ----------- ----------- ----------- Loss from continuing operations $ (2,781) $ 6,588 $ (18,328) $ (12,243) ----------- ----------- ----------- ----------- Income from discontinued operations 1,789 4,902 8,068 64,055 ----------- ----------- ----------- ----------- Loss from cumulative effect of change in accounting principle (8,538) -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (9,530) $ 11,490 $ (10,260) $ 51,812 =========== =========== =========== =========== Basic earnings (loss) per common share: Loss from continuing operations $ (0.06) $ 0.13 $ (0.37) $ (0.25) Income from discontinued operations 0.04 0.10 0.16 1.29 Loss from cumulative effect of change -- -- -- In accounting principles (0.17) ----------- ----------- ----------- ----------- Total $ (0.19) $ 0.23 $ (0.21) $ 1.04 =========== =========== =========== =========== Diluted earnings (loss) per common share Loss from continuing operations $ (0.06) $ 0.13 $ (0.37) $ (0.25) Income from discontinued operations 0.04 0.10 0.16 1.29 Loss from cumulative effect of change in accounting principle (0.17) -- -- -- ----------- ----------- ----------- ----------- Total $ (0.19) $ 0.23 $ (0.21) $ 1.04 =========== =========== =========== ===========
The following table summarizes the 2002 quarterly results of operations:
2002 QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - ------------------------------------------------------------------------------------------------------ Total revenues from continuing operations $ 203,203 $ 213,893 $ 205,312 $ 203,373 ----------- ----------- ----------- ----------- Operating income (loss) from continuing operations $ (27,771) $ (53,732) $ 35,571 $ 17,765 ----------- ----------- ----------- ----------- Income (loss) from continuing operations $ (40,906) $ (78,892) $ 4,388 $ (12,288) ----------- ----------- ----------- ----------- Income (loss) from discontinued operations (10,046) (62,675) 13,071 16,295 ----------- ----------- ----------- ----------- Loss from cumulative effect of change in accounting principle (7,842) -- -- -- ----------- ----------- ----------- ----------- Net income (loss) $ (58,794) $ (141,567) $ 17,459 $ 4,007 =========== =========== =========== =========== Basic earnings (loss) per common share: Income (loss) from continuing operations $ (0.82) $ (1.58) $ 0.09 $ (0.25) Loss from discontinued operations (0.20) (1.26) 0.26 0.33 Loss from cumulative effect of change in accounting principle (0.16) -- -- -- ----------- ----------- ----------- ----------- Total $ (1.18) $ (2.84) $ 0.35 $ 0.08 =========== =========== =========== =========== Diluted earnings (loss) per common share Income (loss) from continuing operations $ (0.82) $ (1.58) $ 0.09 $ (0.25) Loss from discontinued operations (0.20) (1.26) 0.26 0.33 Loss from cumulative effect of change -- -- in accounting principles (0.16) -- -- -- ----------- ----------- ----------- ----------- Total $ (1.18) $ (2.84) $ 0.35 $ 0.08 =========== =========== =========== ===========
See Note 2, 3, 4, 5, 9, 11, 17 and 25 to the Consolidated Financial Statements for information regarding reorganization items, write-offs and special charges during the years ended December 31, 2003 and 2002. 129 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. ITEM 9A. CONTROLS AND PROCEDURES The Company has carried out an evaluation under the supervision and with the participation of the Company's management, including the Chief Executive Officer, who also presently performs the functions of principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the Company's evaluation, the Chief Executive Officer, who also presently performs the functions of principal financial officer, has concluded that, as of December 31, 2003, the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required. There has been no change in the Company's internal control over financial reporting during the Company's three month period ended December 31, 2003 that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 130 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF COVANTA DIRECTORS OF COVANTA
NAME AND AGE(1) PRINCIPAL FIRST BECAME OCCUPATION A DIRECTOR TERM EXPIRES - --------------------------------------------------------------------------------------------------------------------------- Anthony J. Orlando, 44 President and Chief Executive 2004 2005 Officer of Covanta Philip Tinkler, 39 Chief Financial Officer of Danielson 2004 2005 Joseph P. Sullivan, 70 Retired Chairman of IMC Global; Director of Danielson 2004 2005
(1) All information is as of March 18, 2004. Mr. Orlando was named President and Chief Executive Officer of Covanta in November 2003. From March 2003 to November 2003 he served as Senior Vice President, Business and Financial Management of Covanta. From January 2001 until March 2003, Mr. Orlando served as Covanta's Senior Vice President, Waste to Energy. Previously he served as Executive Vice President of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Orlando joined Covanta in 1987. Mr. Tinkler was named Chief Financial Officer of Danielson on January 27, 2003. Mr. Tinkler is also Chief Financial Officer of Equity Group Investments, L.L.C. ("EGI") and has served in various other capacities for EGI or its predecessors since 1990. Mr. Tinkler has been Vice President--Finance and Treasurer of First Capital Financial, LLC a sponsor of public limited real estate partnerships, since April 2001. Mr. Sullivan has been a Director of Danielson since July 2002. Mr. Sullivan is a private investor and is currently retired after serving as the Chairman of the Board of IMC Global from July 1999 to November 2000, and as a Member of its Board of Directors and Executive Committee from March 1996 through December 2000. EXECUTIVE OFFICERS OF COVANTA Set forth below are the names, ages, current positions and terms of office of Covanta's current executive officers. With the exception of Messrs. Myones, Sarkar and Whitney, each executive officer listed below was an executive officer of Covanta at the time it filed for relief under Chapter 11 of the United States Bankruptcy Code. 131
CONTINUALLY POSITION AND AGE AS OF AN EXECUTIVE NAME OFFICE HELD March 10, 2004 OFFICER SINCE - -------------------------------------------------------------------------------------------------------------------------- Anthony J. Orlando President and Chief 44 2001(1) Executive Officer John M. Klett Senior Vice President, 57 1987(1) Operations Timothy J. Simpson Senior Vice President, General Counsel and Secretary 45 2001(1) Seth Myones Senior Vice President, Business Management 45 2004(1) Scott Whitney Senior Vice President, Business Development 46 2004(1) Stephen M. Gansler Senior Vice President, 49 2001(2) Human Resources Jeffrey R. Horowitz Senior Vice President 54 2001(2) Paul B. Clements Senior Vice President 47 2001(2) Louis M. Walters Vice President 51 2001(1) and Treasurer Ashish Sarkar Chief Executive Officer of CPIH 55 2004(3)
(1) Except as described below, the term of office of each of these officers shall continue at the discretion of Covanta's Board of Directors. (2) Covanta and Messrs. Horowitz and Clements have agreed that these executive's employment with Covanta will terminate effective April 30, 2004 and April 9, 2004, respectively. Covanta and Mr. Gansler have agreed that Mr. Gansler's employment with Covanta will terminate effective sixty (60) days following the date on which his successor is retained, but in no event later than August 1, 2004. (3) Mr. Sarkar serves as Chief Executive Officer of CPIH, a Covanta subsidiary, pursuant to a contract that provides for an employment term of two years, subject to extension. Mr. Sarkar's employment may be terminated prior to the end of the term of his agreement by the unanimous vote of CPIH's Board of Directors, of which two directors are elected by Covanta and one by the holder of CPIH's preferred stock. The following briefly describes the business experience, principal occupation and employment of the foregoing executive officers during the past five years: Anthony J. Orlando was named President and Chief Executive Officer of Covanta in November 2003. From March 2003 to November 2003, he served as Senior Vice President, Business and Financial Management of Covanta. From January 2001 until March 2003, Mr. Orlando served as Covanta's Senior Vice President, Waste to Energy. Previously he served as Executive Vice President of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Orlando joined the Company in 1987. 132 John M. Klett was named Senior Vice President, Operations of Covanta in March 2003. Prior thereto he served as Executive Vice President of Covanta Waste to Energy, Inc. for more than five years. Mr. Klett joined the Company in 1986. Timothy J. Simpson was named Senior Vice President, General Counsel and Secretary of Covanta in March 2004. From June 2001 to March 2004, Mr. Simpson served as Vice President, Associate General Counsel and Assistant Secretary of Covanta. Prior thereto he served as Senior Vice President, Associate General Counsel and Assistant Secretary of Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Simpson joined the Company in 1992. Seth Myones was named Senior Vice President, Business Management of Covanta in January 2004. From September 2001 until January 2004, Mr. Myones served as Vice President, Waste-to-Energy Business Management for Covanta Projects, Inc., a Covanta subsidiary. Previously he served as Regional Vice President, Business Management. Mr. Myones joined the Company in 1989. Scott Whitney was named Senior Vice President, Business Development of Covanta in February 2004. Previously he served as Vice President, Business Development for Covanta Energy Group, Inc., a Covanta subsidiary. Mr. Whitney joined the Company in 1987. Stephen M. Gansler was named Senior Vice President, Human Resources of Covanta in March 2003. From March 2001 to March 2003, Mr. Gansler served as Vice President, Human Resources of Covanta. From 1998 to March 2001, Mr. Gansler was Worldwide Vice President, Human Resources, at a Johnson & Johnson affiliate. Prior to that time, Mr. Gansler held various positions in Human Resources with Johnson & Johnson for more than 20 years. Jeffrey R. Horowitz was named Senior Vice President of Covanta in March 2004. From August 2001 to March 2004, Mr. Horowitz served as Senior Vice President, General Counsel and Secretary of Covanta. From June 2001 to August 2001, Mr. Horowitz served as Senior Vice President for Legal Affairs and Secretary and prior to that time as Executive Vice President, General Counsel and Secretary of Covanta Energy Group, Inc, a Covanta subsidiary. Mr. Horowitz joined the Company in 1991. Paul B. Clements was named Senior Vice President of Covanta in March 2004. From March 2003 to March 2004, Mr. Clements served as Senior Vice President, International Business Management and Operations of Covanta. From January 2001 until March 2003, Mr. Clements served as Covanta's Senior Vice President, Independent Power Operations. 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. Louis M. Walters was named Vice President and Treasurer of Covanta in 2001. Prior to that time and since January 2000, Mr. Walters served as Treasurer of Covanta Energy Group, Inc. Prior to joining Covanta, Mr. Walters was Treasurer at Conectiv from 1998 to January 2000 and prior thereto was Treasurer at Atlantic Energy for more than five years Ashish Sarkar was named Chief Executive Officer of CPIH in March 2004. From January 2002 until February 2004, Mr. Sarkar was President and Chief Executive Officer of Global Infrastructure Company, a consulting firm. He was President of Ogden Energy Asia Pacific Limited, a subsidiary of Covanta, from March 1995 until April 2001. AUDIT COMMITTEE FINANCIAL EXPERT Covanta, a wholly owned subsidiary of Danielson, is not subject to the listing requirements of a national exchange. As a result, Covanta is not required to have a separately-designated audit committee. Rather, the mandate of the Audit Committee of the Board of Directors of Danielson, which is an American Stock Exchange listed company, extends to Danielson's consolidated subsidiaries. Therefore, the Audit Committee of Danielson serves as Covanta's audit committee. Danielson has advised Covanta that Joseph P. Sullivan qualifies as an audit committee financial expert and is independent within the meaning of applicable SEC and American Stock Exchange rules and regulations. 133 CODE OF ETHICS The Company has adopted its Senior Executive Code of Ethics which applies to Covanta's chief executive officer, chief financial officer or controller and other executive officers that may be designated by the Board of Directors. The Senior Executive Code of Ethics, is available on Covanta's website at WWW.COVANTAENERGY.COM or free of charge by writing to Louis M. Walters at 40 Lane Road, Fairfield, N.J. 07004. Covanta will also post on its website any waiver under the Senior Executive Code of Ethics granted to any of its executive officers. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") requires Covanta's directors, officers and persons who beneficially own more than 10% of any class of Covanta's equity securities registered under Section 12 of the Exchange Act to file certain reports concerning their beneficial ownership and changes in their beneficial ownership of Covanta's equity securities. As a result of the cancellation of the then outstanding equity securities of Covanta on March 10, 2004 and the issuance of new equity securities to Danielson pursuant to the Reorganization Plan Covanta's equity securities are no longer required to be registered under Section 12 of the Exchange Act.. Covanta believes that during fiscal year 2003 all persons who were required to file reports did so on a timely basis. ELECTION OF DIRECTORS As a result of the consummation of the Reorganization Plan all of the common stock of Covanta, the sole class of securities entitled to vote in the election of directors, is held by Danielson. 134 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 paid to each individual who served as CEO of Covanta during fiscal year 2003 and each of Covanta's four other most highly compensated executive officers whose salary and bonus exceeded $100,000 for fiscal year 2003:
SUMMARY COMPENSATION TABLE(1) ANNUAL COMPENSATION LONG TERM COMPENSATION ALL OTHER COMPENSATION OTHER ANNUAL DISPUTE NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(6) COMPENSATION(7) RESOLUTION (7) OTHER - -------------------------------------------------------------------------------------------------------------------- Anthony J. Orlando 2003 $ 375,000 $ 408,750 $ 0 $ 0 $ 75,348(4) President and Chief Executive Officer(2) 2002 245,000 337,345 0 0 75,348 2001 245,000 260,000 0 0 23,110 Bruce W. Stone 2003 $ 325,000 $ 245,131 $ 0 $ 0 $ 95,800(4) Senior Vice President, 2002 325,000 379,935 0 0 95,800 Business Development and Construction 2001 325,000 240,000 212,626 184,657 28,610 Jeffrey R. Horowitz 2003 $ 267,800 $ 192,836 $ 0 $ 0 $ 78,867(4) Senior Vice President, General Counsel 2002 260,000 290,525 0 0 78,867 and Secretary 2001 260,000 250,000 0 0 24,360 Paul B. Clements 2003 $ 257,500 $ 198,314 0 0 $ 75,688(4) Senior Vice President, 2002 250,000 291,165 0 0 75,880 International Business Management and Operations 2001 250,000 235,000 0 0 24,434 John M. Klett 2003 $ 268,290 $ 225,000 $ 0 $ 0 $ 53,333(4) Senior Vice President, Operations 2002 260,479 262,740 0 0 55,884 2001 260,479 244,500 0 0 19,739 Scott G. Mackin 2003 $ 643,750 $ 675,938 $ 0 $ 0 $2,496,635(5) Former President and Chief Executive Officer(3) 2002 625,000 973,755 0 0 209,135 2001 625,000 650,000 254,146 212,212 62,860
135 (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 was employed by Covanta. The preceding table indicates the principal position in which the named executive officer served during fiscal year 2003, except as noted below. (2) Mr. Orlando was promoted from the position of Senior Vice President, Business and Financial Manager of Covanta to President and Chief Executive Officer of Covanta effective November 6, 2003. (3) Mr. Mackin resigned from the office of President and Chief Executive Officer of Covanta effective November 6, 2003. (4) Includes, for the fiscal year ending December 31, 2003: (i) contributions in the amount of $8,000 credited to the account balances of each of Messrs. Orlando, Stone, Horowitz, Clements and Klett under the Company's 401(k) Savings Plan; (ii) a cash payment to Messrs. Orlando, Stone, Horowitz, Clements and Klett in the amount of $12,681, $15,133, $12,867, $11,688 and $12,665, respectively, representing the excess of the contribution that could have been made to each such individual's Covanta 401(k) Savings Plan account pursuant to the formula applicable to all employees over the maximum contribution to such plan permitted by the Internal Revenue Code of 1976, as amended, and (iii) amounts paid pursuant to the Retention Bonus Plan (as described below) to Messrs. Orlando, Stone, Horowitz, Clements and Klett of $54,667, $72,667, $58,000, $56,000 and $32,667, respectively. (5) Includes, for the fiscal year ending December 31, 2003: (i) a contribution in the amount of $8,000 credited to the account balance of Mr. Mackin under the Company's 401(k) Savings Plan; (ii) a cash payment to Mr. Mackin in the amount of $44,802, representing the excess of the contribution that could have been made to Mr. Mackin's Covanta 401(k) Savings Plan account pursuant to the formula applicable to all employees over the maximum contribution to such plan permitted by the Internal Revenue Code, (iii) an amount of $156,333 paid to Mr. Mackin pursuant to the Retention Bonus Plan; (iv) an amount of $1,000,000, representing a partial consulting fee, paid to Mr. Mackin pursuant to the terms and conditions of the Mackin Agreement described below; and (v) a severance payment of $1,287,500 paid to Mr. Mackin pursuant to the terms and conditions of the Mackin Agreement. (6) The amounts shown represent the full amount of the annual bonuses attributable to each year, which were generally paid in the first fiscal quarter of the following year. (7) For fiscal year ending December 31, 2001, the amounts set forth under Dispute Resolution for Messrs. Mackin and Stone represent loan forgiveness in settlement of a dispute. On August 6, 1999, Covanta made loans to Messrs. Mackin and Stone 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. Both 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, Covanta forgave a portion of the loan and reduced the amount of the loan to the then fair market value of the stock. The settlement of the dispute provides that from the date of the settlement, the balance of each note would fluctuate with the fair market value of the stock and no interest would be payable. Upon any sale of the stock, the executive would be required to pay the net proceeds to Covanta. Also as part of the settlement, Covanta agreed to reimburse the executives for taxes resulting from the debt forgiveness on a grossed up basis. Amounts under Other Annual Compensation represent for fiscal year ending December 31, 2001 the reimbursement of such taxes. 136 AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTIONS VALUES
Number of Securities Underlying Value of Unexercised In-the- Money Unexercised Options at FY-End(1) Options at FY-End(1) SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/ NAME ON EXERCISE (#) VALUE REALIZED UNEXERCISABLE (#) UNEXERCISABLE ---- --------------- -------------- ----------------- ------------- Anthony J. Orlando 0 $0 130,000/0 $0/$0 Bruce W. Stone 0 $0 95,000/0 $0/$0 Jeffrey R. Horowitz 0 $0 120,000/0 $0/$0 Paul B. Clements 0 $0 165,000/0 $0/$0 John M. Klett 0 $0 75,000/0 $0/$0 Scott G. Mackin 0 $0 772,000/0 $0/$0
1. All options were cancelled as of March 10, 2004 pursuant to the Reorganization Plan COVANTA ENERGY GROUP PENSION PLAN Messrs. Orlando, Stone, Horowitz, Clements, Klett and Mackin participate in Covanta's Energy Group Pension Plan, a tax-qualified defined benefit plan subject to the provisions of ERISA. 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 prior to January 1, 2002. For years of service after December 31, 2001, the benefit formula has been reduced to coordinate with Social Security. The reduced benefit is equal to 0.95% of the participant's average compensation, up to the average of the Social Security annual wage bases in effect during the 35 year period ending on the last day of the calendar year in which the participant's Social Security Normal Retirement age is reached, plus 1.5% of the participant's average compensation in excess of such 35 year average for each year of service completed after December 31, 2001, not to exceed 35 years of service. For each year of service exceeding 35 years completed after December 31, 2001, an additional benefit of 0.95% of Final Average Compensation will be provided. 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. 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. Orlando, Horowitz, Stone, Clements, Klett and Mackin also participate in Covanta'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 Internal Revenue Code, the amount by 137 which such benefit must be reduced represents an unfunded liability and will be paid to the participant from the general assets of Covanta. 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, without reduction for Social Security benefits with respect to credited service after December 31, 2001. Benefits payable under the Energy Group Supplemental Benefit Plan are paid in the form of a lump sum. Mr. Orlando has 16.7 years, Mr. Horowitz has 12.5 years, Mr. Stone has 27.8 years, Mr. Clements has 15.8 years, Mr. Klett has 17.7 years and Mr. Mackin has 16.5 years of credited service- under the Energy Group Pension Plan as of December 31, 2003 and had annual average earnings for the last five years of $416,772, $406,705, $530,524, $420,547, $445,504 and $1,149,994 respectively. Pursuant to the Mackin Agreement described below, Covanta has agreed to pay to Mr. Mackin an amount equal to $594,470, on November 6, 2005, the second anniversary of the date of his resignation, in full settlement of Mr. Mackin's accrued benefit under the SERP. In February 2004 the Company paid to Mr. Stone an amount equal to $510,370 in full settlement of his accrued benefit under the SERP.
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 35 40 410,000 30,750 61,500 92,250 123,000 153,750 184,500 215,250 246,000 420,000 31,500 63,000 94,500 126,000 157,500 189,000 220,500 252,000 430,000 32,250 64,500 96,750 129,000 161,250 193,500 225,750 258,000 440,000 33,000 66,000 99,000 132,000 165,000 198,000 231,000 264,000 450,000 33,750 67,500 101,250 135,000 168,750 202,500 236,250 270,000 475,000 35,625 71,250 106,875 142,500 178,125 213,750 249,375 285,000 500,000 37,500 75,000 112,500 150,000 187,500 225,000 262,500 300,000 530,000 39,750 79,500 119,250 159,000 198,750 238,500 278,250 318,000 600,000 45,000 90,000 135,000 180,000 225,000 270,000 315,000 360,000 650,000 48,750 97,500 146,250 195,000 243,750 292,500 341,250 390,000 700,000 52,500 105,000 157,500 210,000 262,500 315,000 367,500 420,000 750,000 56,250 112,500 168,750 225,000 281,250 337,500 393,750 450,000 800,000 60,000 120,000 180,000 240,000 300,000 360,000 420,000 480,000 850,000 63,750 127,500 191,250 255,000 318,750 382,500 446,250 510,000 900,000 67,500 135,000 202,500 270,000 337,500 405,000 472,500 540,000 950,000 71,250 142,500 213,750 285,000 356,250 427,500 498,750 570,000 1,000,000 75,000 150,000 225,000 300,000 375,000 450,000 525,000 600,000 1,050,000 78,750 157,500 236,250 315,000 393,750 472,500 551,250 630,000 1,100,000 82,500 165,000 247,500 330,000 412,500 495,000 577,500 660,000 1,150,000 86,250 172,500 258,750 345,000 431,250 517,500 603,750 690,000 1,200,000 90,000 180,000 270,000 360,000 450,000 540,000 630,000 720,000 1,250,000 93,750 187,500 281,250 375,000 468,750 562,500 656,250 750,000 1,300,000 97,500 195,000 292,500 390,000 487,500 585,000 682,500 780,000 1,350,000 101,250 202,500 303,750 405,000 506,250 607,500 708,750 810,000 1,400,000 105,000 210,000 315,000 420,000 525,000 630,000 735,000 840,000
138 DIRECTOR COMPENSATION (a) Director's Fees The current members of Covanta's Board of Directors will not be compensated for their service as directors. EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENTS EMPLOYMENT CONTRACTS Prior to the Company's emergence from the Chapter 11 cases, it formally rejected all of the prepetition employment contracts covering the executive officers named in the compensation table. Such rejection was authorized by the Compensation Committee of Covanta's Board of Directors during the Chapter 11 cases. TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS RETENTION PROGRAM. Effective September 18, 2002, Covanta adopted a Key Employee Retention Program (the "Key Employee Retention Program") in the form approved by the Bankruptcy Court on that date. The Key Employee Retention Program consists of three components: the Key Employee Severance Plan (the "Severance Plan"), the Key Employee Retention Bonus Plan (the "Retention Bonus Plan") and the Long-Term Incentive Plan (the "LTIP"). Each of the named executive officers participates or participated in the Key Employee Retention Program. SEVERANCE PLAN. In general, under the terms of the Severance Plan, in the event of a participant's termination by Covanta without cause or resignation for mutual benefit, such participant is eligible to receive cash severance benefits, payable in a lump sum, equal to 200%, in the case of the Chief Executive Officer as of September 18, 2002, and 150%, in the case of the other four named executive officers, of such individual's base salary and continued coverage under Covanta's medical and dental plans for eighteen months following termination. Severance benefits are reduced, however, to the extent that any portion would not be deductible under the provisions of the Code relating to excess parachute payments. A participant is required to provide a general release of claims to Covanta and to comply with certain other covenants as a condition to receipt of any severance benefits under the Severance Plan. RETENTION BONUS PLAN. Under the Retention Bonus Plan, a participant, including each of the named executive officers, was eligible to receive a cash retention bonus equal to a percentage of such participant's base salary, payable in three equal installments, generally provided the participant was continuously employed until the applicable payment date for each such installment. Upon approval of the Retention Bonus Plan by the Bankruptcy Court, Mr. Mackin became eligible to receive a cash retention bonus equal to 75% of his base salary, in the aggregate, and Messrs. Orlando, Stone, Horowitz, Clements were each eligible to receive a cash retention bonus equal to 67% of such officer's base salary, in the aggregate and Mr. Klett was eligible to receive a cash retention bonus equal to 37.6% of his base salary. The first installment amount vested and was paid to eligible participants, including each of the named executive officers, in September, 2002. The second installment vested and was paid to eligible participants, including the named executive officers, in September 2003 and the third installment became vested and was paid to eligible participants, including the named executive officers, in March 2004. 139 LTIP. A participant in the LTIP will generally be eligible to receive a lump sum cash incentive bonus award in the event that, prior to the first anniversary of the date on which the Bankruptcy Court confirmed a plan of reorganization for Covanta, such participant's employment is terminated by Covanta without cause or such participant resigns for mutual benefit. Any incentive bonus award that becomes payable to an eligible participant will equal a specified percentage of an LTIP bonus pool established under the LTIP. Amounts will be credited to the LTIP Pool based on the Value Realized (as defined in the LTIP) by Covanta and its affiliates in connection with any asset sales or eliminations of pre-petition letters of credit during the bankruptcy proceedings and the enterprise value of Covanta and its affiliates upon emergence from bankruptcy. Upon the consummation of the Reorganization Plan, the LTIP Pool was equal to approximately $7,500,000. Prior to the Company's reorganization, each participant's percentage interest in the LTIP pool was established by the Compensation Committee of Covanta's Board of Directors, in consultation with the Chief Executive Officer, within a range provided under the LTIP. Such percentage interests as stated in the LTIP for each of Messrs. Orlando, Horowitz, Stone, Clements, Klett and Mackin are 13%, 12%, 12%, 9.5%, 9% and 35%, respectively. THE MACKIN AGREEMENT. On October 30, 2003, the Bankruptcy Court issued an order authorizing and approving an agreement between Covanta and Mr. Mackin providing for the payments described below upon Mr. Mackin's resignation from the Company, effective November 5, 2003 (the "Mackin Agreement"). In addition, in order to retain the critical knowledge and insight of the waste-to-energy business that Mr. Mackin possesses, the Mackin Agreement provides that Mr. Mackin will serve as a consultant to Covanta for a term ending on November 6, 2005. Pursuant to the Mackin Agreement, Mr. Mackin continued to serve as a member of the Board of Directors of Covanta until the effective date of the Reorganization Plan. Pursuant to the Mackin Agreement, the following payments have been paid to Mr. Mackin: (i) $1,287,500 on November 6, 2003 under the Severance Plan; (ii) $675,938 on February 13, 2004 representing the annual bonus to which he would have been entitled had he continued to serve as Chief Executive Officer of the Company until December 31, 2003 at 100% of his target bonus; (iii) $156,646 on the effective date of the Reorganization Plan under the Retention Bonus Plan; and (iv) $2,055,000 on the effective date of the Reorganization Plan under the LTIP. The last amount was calculated on the basis of the LTIP pool that would have been created under a prior plan of reorganization. As a consequence, Mr. Mackin received a payment on account of the LTIP that was less than he would have received with respect to the LTIP pool created pursuant to the Reorganization Plan. In addition, pursuant to Mr. Mackin's consulting arrangement he is entitled to a consulting fee of $1,750,000, $1,000,000 of which was paid to him on November 6, 2003 and the balance of which was paid to him on the effective date of the Reorganization Plan. The Company must also pay to Mr. Mackin, on November 6, 2005, an amount equal to $594,470 which represents his vested benefit under the Supplementary Benefit Plan. Until the fourth anniversary of his date of resignation, Mr. Mackin will also be entitled to receive family coverage pursuant to Covanta's medical, dental and life insurance programs at the Company's expense. In the event the Company terminates Mr. Mackin's engagement as a consultant prior to the expiration of its stated term without cause (including as a result of Mr. Mackin's death or disability), Mr. Mackin (or his estate in the event of his death) will still be entitled to all of the benefits and compensation set forth in the Mackin Agreement, on the same terms and conditions, as if such termination had not occurred. Additionally, pursuant to the Mackin Agreement, Mr. Mackin and the Company executed a mutual release of claims and Mr. Mackin agreed to a three-year non-compete with Covanta's waste-to-energy business and has also agreed not to work directly or indirectly for client communities of Covanta's waste-to-energy business for the three year period following November 6, 2003. PAYMENTS UNDER THE PLANS DESCRIBED ABOVE. Messrs. Stone, Horowitz and Clements have been or will be paid $487,500, $413,745 and $392,039, respectively, under the Severance Plan as a result of the termination of their employment with Covanta. In addition, Messrs. Stone, Horowitz and Clements have been or will be paid $904,000, $904,000 and $716,000, respectively, under the LTIP. Generally, the Severance Plan provides that coverage under the welfare plans maintained by the Company shall cease as of each executive's termination date, provided that each executive shall have the right to receive continued medical coverage under COBRA, the cost of which shall be subsidized by Covanta for a period of eighteen months 140 or, if earlier, until the end of the month in which such executive becomes eligible for the medical coverage of another employer. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Because Covanta is a wholly-owned subsidiary of Danielson, since the effective date of the Reorganization Plan, the Compensation Committee of Danielson serves as Covanta's compensation committee. Danielson has advised Covanta that, with respect to Covanta, all members of its Compensation Committee are "non-employee directors" within the meaning of revised Rule 16b-3 promulgated under Section 16(b) of the Exchange Act and "outside directors" within the meaning of Section 162(m) of the Code who are not employees or members of management of Covanta or any of its subsidiaries. During the last fiscal year, the Compensation Committee of Covanta's pre-emergence Board of Directors consisted of Norman G. Einspruch, Jeffrey F. Friedman, Veronica M. Hagen, Homer A. Neal and Robert R. Womack. None of these directors were past or present officers or employees of the Company, nor did they have any relationships with the Company disclosure under Item 13 of this Report. Covanta's pre-emergence Compensation Committee did not prepare a compensation committee report with respect to its last fiscal year in view of its limited discretion in making compensation decisions during the Chapter 11 proceeding pursuant to the Bankruptcy Code and the orders of the Bankruptcy Court. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As a result of the consummation of the Reorganization Plan, on March 10, 2004, all of the then outstanding common stock and preferred stock of Covanta was cancelled and Danielson became the sole shareholder of Covanta. As of such date, all of the equity compensation plans discussed below terminated. SECURITY OWNERSHIP BY MANAGEMENT Information about the Common Stock of Covanta beneficially owned as of March 18, 2004, by each director, each executive officer named in the summary compensation table and all directors and executive officers of Covanta as a group is set forth as follows: 141 NAME OF BENEFICIAL OWNER AMOUNT AND NATURE OF - ------------------------ BENEFICIAL OWNERSHIP Paul B. Clements 0 Jeffrey R. Horowitz 0 John M. Klett 0 Scott G. Mackin 0 Anthony J. Orlando 0(1) Philip Tinkler 0(1) Joseph Sullivan 0(1) Bruce W. Stone 0 All executive officers and directors as a group (16 persons) including those named above 0(1) - --------------------------------------- (1) Messrs. Tinkler and Orlando are executive officers and Mr. Sullivan is a Director of Danielson, the owner of all the common stock of Covanta. EQUITY COMPENSATION PLAN INFORMATION The following table includes information as of December 31, 2003 with respect to Covanta's equity compensation plans. These plans include the Ogden Corporation 1990 Stock Option Plan, as Amended and Restated September 18, 1997 (the "Ogden Stock Option Plan"), the Ogden Corporation 1999 Stock Incentive Plan, as Amended and Restated January 1, 2000 (the "Ogden Stock Incentive Plan"), the Covanta Energy Corporation Restricted Stock Unit Plan for Non-Employee Directors, as Amended and Restated May 23, 2001 (the "Non-Employee Director Restricted Stock Unit Plan"), and the Ogden Corporation Restricted Stock Plan adopted February 10, 2000 (the "Restricted Stock Plan").
- ---------------------------------------------------------------------------------------------------------------------------------- Plan Category Number of securities then Weighted-average exercise Number of securities then subject to issuance upon price of outstanding remaining available for exercise of outstanding options, warrants and future issuance under options, warrants and rights rights (b) equity compensation plans (a) (excluding securities reflected in column (a)) (c) - ---------------------------------------------------------------------------------------------------------------------------------- Equity compensation plans APPROVED by 2,923,699 18.60 5,016,001 stockholders(1) - ---------------------------------------------------------------------------------------------------------------------------------- Equity compensation plans NOT APPROVED by 0 0 528,633(3) stockholders(2) - ---------------------------------------------------------------------------------------------------------------------------------- Total 2,923,699 18.60 5,544,634 - ----------------------------------------------------------------------------------------------------------------------------------
- ------------------- (1) Consisted of the Ogden Stock Option Plan and the Ogden Stock Incentive Plan. (2) Consisted of the Non-Employee Director Restricted Stock Unit Plan and the Restricted Stock Plan. (3) Up to 160,000 shares under the Non-Employee Director Restricted Stock Unit Plan were subject to issuance in connection with restricted stock units or pursuant to unrestricted stock grants. Up to 500,000 shares were subject to issuance in connection with restricted stock awards under the Restricted Stock Plan. The following two equity compensation plans had not been approved by Covanta's stockholders. 142 THE NON-EMPLOYEE DIRECTOR RESTRICTED STOCK UNIT PLAN The Non-Employee Director Restricted Stock Unit Plan is an amendment and restatement of the Ogden Corporation Restricted Stock Plan for Non-Employee Directors. The Plan provides for (i) the automatic grant of restricted stock units to non-employee directors of Covanta with respect to fifty percent of their annual retainer fees, (ii) the automatic grant of common stock to non-employee directors with respect to fifty percent 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. 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. Retainer Fees. The restricted stock units respecting fifty percent of the non-employee director's annual retainer fees were granted on the first Board meeting of Covanta's fiscal year. These restricted stock units vested on the earliest to occur of the first anniversary of the grant date, the non-employee director's attainment of age 72, the non-employee director's disability, or the non-employee director's death. Prior to vesting, non-employee directors had no rights as shareholders with respect to their restricted stock units. Upon vesting, shares of Covanta common stock were issued to the non-employee directors, unless the non-employee director elected to defer receipt of the shares. The remaining fifty percent of a non-employee director's retainer was paid in cash or, if a deferral election was made by the non-employee director, in restricted stock units payable in shares of common stock upon the director's termination of service on the Board or on the date or dates elected by the non-employee director. Notwithstanding the foregoing, the Chairman of the Board received his retainer fee in four equal quarterly installments. Fifty percent of the Chairman's retainer fee was paid in common stock or, in the case of a deferral election, in restricted stock units, and the remaining fifty percent was paid in cash or, in the case of a deferral election, in restricted stock units. Meeting Fees. Fifty percent of each non-employee director's meeting fees, which were paid quarterly, were paid in the form of Covanta common stock or, in the case of a deferral election, in restricted stock units. Unless otherwise determined by the Board, the Chairman was not entitled to meeting fees. In the event of a change in control as defined in the Non-Employee Director Restricted Stock Unit Plan of Covanta, unvested restricted stock units would have become immediately vested, deferred amounts would have been paid, and fees that otherwise would be paid for the quarter in which the change in control occurs would have been paid at the time of the change in control. Only shares of common stock reacquired by Covanta and held in treasury could be issued under the Plan. The aggregate number of shares of common stock which could be issued under the plan could not exceed 160,000 shares, subject to antidilution adjustments in the event of certain recapitalizations, reorganizations, of other changes in Covanta's capital structure. Covanta had no obligation to issue shares under the plan unless and until Covanta's shares were listed on a national securities exchange or system sponsored by a national securities association. As of December 31, 2003, 0 restricted stock unit awards were outstanding and 107,533 shares of Covanta common stock had been issued under the plan pursuant to vested restricted unit awards and common stock grants. The Board could amend, suspend, or terminate the plan at any time, provided such action did not impair the rights of plan participants without their consent. THE RESTRICTED STOCK PLAN The Restricted Stock Plan was adopted by Covanta effective February 10, 2000. The plan provided for the issuance of restricted stock awards to key employees of the Company and its affiliates. The Plan was administered by a committee (the "Committee") comprised of members of Covanta's Board of Directors. The Committee determined the terms and conditions of restricted stock awards made under the plan, including which key employees were eligible to receive awards, the number of restricted shares subject to the awards, vesting schedules and acceleration thereof. The Committee had authority to amend the terms restricted stock awards prospectively or retroactively, provided such amendment did not impair the rights of any holder without his or her consent. No more than 500,000 shares could be issued pursuant to restricted stock awards under the plan, subject to antidilution adjustments in the event of certain recapitalizations, reorganizations, of other changes in Covanta's capital structure. Restricted shares were subject to forfeiture and transfer limitations. Upon vesting, shares of unrestricted common stock were issued to the participant. During the restricted period, unless otherwise determined by the Committee, holders of restricted 143 shares had all of the rights of a holder of shares of Covanta common stock including the right to receive dividends and the right to vote such shares. Upon a change in control of Covanta, all restricted stock awards would have become immediately vested and shares of unrestricted common stock would have been issued to the participant. The Board or the Committee could amend, suspend, or terminate the plan at any time, provided such action did not impair the rights of plan participants without their consent. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS A loan was made by Covanta in 1989 to Lynde H. Coit, a former executive officer of Covanta, to assist Mr. Coit in the purchase of a home in connection with his relocation. Mr. Coit's employment with the Company terminated as of March 12, 2004. 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 2003 was $168,200. As of December 31, 2003, the outstanding balance was $11,300. 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. The loan is evidenced by a demand note bearing interest at the rate 8% per annum. As of December 31, 2003, there was no outstanding balance. The maximum amount outstanding during 2003 was $95,999. This loan was repaid in full on February 27, 2003. Robert E. Smith, a Covanta director prior to emergence, is counsel to the law firm of Katten Muchin Zavis Rosenman which during 2003 rendered legal services to Covanta principally in the area of litigation management. Joseph A. Tato, a Covanta director prior to emergence, is a partner of the law firm of LeBoeuf, Lamb, Greene & MacRae, LLP which rendered legal services during 2003 to Covanta Energy Group, Inc., a Covanta subsidiary. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following information presents the fees for services rendered by Deloitte & Touche LLP for the years ended December 31, 2003 and 2002. The Company's Audit Committee approved all of the services related to the fees set forth below. AUDIT FEES The aggregate fees of Deloitte & Touche LLP for professional services rendered for each of the years ended December 31, 2003 and 2002 for the audits of the consolidated financial statements of the Company and review of financial statements included in the Company's Form 10-Qs or for services that are normally provided by the independent auditor in connection with statutory and regulatory filings or engagements for each of the referenced years were $1,879,405 and $2,297,467, respectively. AUDIT-RELATED FEES The aggregate fees of Deloitte & Touche LLP for each of the years ended December 31, 2003 and 2002 for assurance and related services that are reasonably related to the performance of the audit or review of the Company's financial statements and are not included in the audit fees listed above were $79,219 and $558,416, respectively. These fees were primarily related to employee benefit plan reports, tip fee reports, reports related to dispositions, consultations on financial accounting matters and Sarbanes-Oxley Section 404 assistance. TAX FEES The aggregate fees billed by Deloitte & Touche LLP for each of the years ended December 31, 2003 and 2002 for tax compliance, tax advice and tax planning were $1,977,083 and $3,230,253, respectively. These fees were primarily related to general advisory services, and assistance with the federal, state, local and benefit plan tax returns. ALL OTHER FEES 144 The aggregate fees of Deloitte & Touche LLP for the years ended December 31, 2003 and 2002 for products and services other than services described in the sections captioned "Audit Fees," "Audit-Related Fees," and "Tax Fees" were $39,453 and $343,609, respectively. These fees were primarily related to business insurance advisory services. POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT SERVICES OF INDEPENDENT AUDITOR As a member of the Danielson consolidated reporting group, Danielson's Audit Committee will retain Covanta's independent accountants for 2004, pursuant to Danielson's policies. Under Covanta's and Danielson's policies Covanta may not retain its independent accountants to provide non-audit services unless such services are approved in advance by Danielson's Audit Committee. During 2003, Covanta's Audit Committee approved all audit and non-audit services performed by Deloitte & Touche LLP in accordance with such policies. 145 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are 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. (b) The Company filed the following current reports on Form 8-K during the fourth quarter of 2003: The Company filed a Current Report on Form 8-K on October 23, 2003, announcing that on October 17, 2003 the Debtors mailed solicitation packages to claimholders and other parties in interest which included the Debtors' First Amended Joint Plan of Reorganization, the Debtors' First Amended Joint Plan of Liquidation, the Heber Debtors' Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and a related Disclosure Statement and a Short-Form Disclosure Statement. The Company filed a Current Report on Form 8-K on November 26, 2003 to report that the Bankruptcy Court confirmed the Heber Debtors' Third Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and approved the sale of the Geothermal Assets to Ormat pursuant to a purchase agreement executed on November 21, 2003. The Company filed a Current Report on Form 8-K on December 3, 2003 to report that the Company issued a press release on December 2, 2003 announcing that the Company signed a definitive agreement with Danielson Holding Corporation under which Danielson Holding Corporation will acquire the Company's energy and water businesses in connection with the Company's emergence from bankruptcy. The Company filed a Current Report on Form 8-K on December 23, 2003 to report that on December 18, 2003 the Company sold the Geothermal Business to Ormat for cash consideration of $214,000,000, subject to a working capital adjustment. (c) Those exhibits required to be filed by Item 601 of Regulation S-K are listed in the Exhibit Index included on this Form 10-K. (d) Separate financial statements of fifty percent or less owned persons. See Appendix F-1 through F-32. 146 SCHEDULE II ITEM 15. (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, 2003
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 $ 20,476 $ 5,241 $ 8,368 $ 6,192(A) $ 27,893 RETENTION RECEIVABLES -CURRENT 5,000 5,000 DOUBTFUL RECEIVABLES - NON-CURRENT 2,957 3,270 1,201(B) 5,026 ---------- ---------- --------- -------- --------- TOTAL $ 23,433 $ 10,241 $ 11,638 $ 7,393 $ 37,919 ========== ========== ========= ======== ========= 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) SETTLEMENT OF RECEIVABLE ON COMPANY SOLD 147 SCHEDULE II ITEM 15. (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, 2002
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 $ 16,444 $ 17,056 $ 12,789(A) $ 20,476 235(B) DOUBTFUL RECEIVABLES - NON-CURRENT 2,957 2,957 -------- -------- -------- -------- -------- TOTAL $ 16,444 $ 20,013 $ 13,024 $ 23,433 ======== ======== ======== ======== ======== 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) COMPANY SOLD 148 SCHEDULE II ITEM 15. (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 ASSETS HELD FOR SALE 149 COVANTA 2003 FORM 10-K EXHIBIT INDEX
Exhibit Number Exhibit Description - ------ ------------------- Plan of acquisition, reorganization, arrangement, liquidation or succession. 2.1 Debtors' First Amended Joint Plan of Reorganization (previously filed as Exhibit 2.1 to Covanta's Current Report on Form 8-K dated October 22, 2003 and incorporated herein by reference) 2.2 Debtors' First Amended Joint Plan of Liquidation (previously filed as Exhibit 2.2 to Covanta's Current Report on Form 8-K dated October 22, 2003 and incorporated herein by reference) 2.3 Heber Debtors' Second Amended Joint Plan of Reorganization (previously filed as Exhibit 2.3 to Covanta's Current Report on Form 8-K dated October 22, 2003 and incorporated herein by reference) 2.4 Disclosure Statement with Respect to Reorganizing Debtors' Joint Plan of Reorganization, Heber Debtors' Joint Plan of Reorganization and Liquidating Debtors' Joint Plan of Liquidation (previously filed as Exhibit 2.4 to Covanta's Current Report on Form 8-K dated October 22, 2003 and incorporated herein by reference) 2.5 Short-Form Disclosure Statement with Respect to Reorganizing Debtors' Joint Plan of Reorganization, Heber Debtors' Joint Plan of Reorganization and Liquidating Debtors' Joint Plan of Liquidation (previously filed as Exhibit 2.5 to Covanta's Current Report on Form 8-K dated October 22, 2003 and incorporated herein by reference) 2.6 Reorganizing Debtors' Second Joint Plan of Reorganization (previously filed as Exhibit T3E-1 to the Company's Form T-3/A (Amendment No. 3) dated January 26, 2004 and incorporated herein by reference). 2.7 Liquidating Debtors' Second Joint Plan of Liquidation (previously filed as Exhibit T3E-2 to the Company's Form T-3/A (Amendment No. 3) dated January 26, 2004 and incorporated herein by reference). 2.8 Second Disclosure Statement with Respect to the Second Joint Plan of Reorganization and Second Joint Plan of Liquidation (previously filed as Exhibit T3E-3 to the Company's Form T-3/A (Amendment No. 3) dated January 26, 2004 and incorporated herein by reference). 2.9 Investment and Purchase Agreement between Danielson Holding Corporation and Covanta Energy Corporation, dated December 2, 2003.* *All schedules (or similar attachments) to this Exhibit 2.9 have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A list of the omitted schedules appears at the end of this Exhibit 2.9. The Company will supplementally furnish a copy of any omitted schedule to the Commission upon request. Articles of Incorporation and By-Laws 3.1 The Company's Restated Certificate of Incorporation as amended (previously filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the
150 fiscal year ended December 31, 1988 and incorporated herein by reference). 3.2 Certificate of Ownership and Merger, merging Ogden-Covanta, Inc. into Ogden Corporation, dated March 7, 2001 (previously filed as Exhibit 3.1(b) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2000 and incorporated herein by reference). 3.3 The Company's By-Laws, as amended through April 8, 1998 (previously filed as Exhibit 3.2 to Ogden's 10-Q for the Quarterly Period ended March 31, 1998 and incorporated herein by reference). 3.4 The Company's By-Laws, as amended through March 10, 2004. Instruments Defining Rights of Security Holders, including Indentures 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 (previously filed as Exhibits (C)(3) and (C)(4) to the Company's Form 8-K dated July 7, 1987 and incorporated herein by reference) 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 (previously filed on December 4, 1987 as Exhibit 4 to the Company's Registration Statement on Form S-3 Registration No. 33-18875 and incorporated herein by reference) 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 (previously filed as Exhibit 4(c) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference) 4.4 Form of Indenture for 8.25% Senior Secured Notes due 2011 between Covanta and the Trustee (previously filed as Exhibit T3C-1 to the Company's Form T-3/A (Amendment No. 3) dated January 26, 2004 and incorporated herein by reference). 4.4(i) Cross-reference sheet showing the location in the Indenture for 8.25% Senior Secured Notes due 2011 of the provisions inserted therein pursuant to Sections 310 through 318(a), inclusive, of the Trust Indenture Act of 1939 (previously filed as Exhibit T3F-1 to the Company's Form T-3/A (Amendment No. 3) dated January 26, 2004 and incorporated herein by reference). 4.5 Form of Indenture for 7.5% Unsecured Subordinated Notes due 2012 between Covanta and the Trustee (previously filed as Exhibit T3C-2 to the Company's Form T-3/A (Amendment No. 6) dated March 9, 2004 and incorporated herein by reference).
151 4.5(i) Cross-reference sheet showing the location in the Indenture for 7.5% Senior Secured Notes due 2012 of the provisions inserted therein pursuant to Sections 310 through 318(a), inclusive, of the Trust Indenture Act of 1939 (previously filed as Exhibit T3F-2 to the Company's Form T-3/A (Amendment No. 6) dated March 9, 2004 and incorporated herein by reference). Material Contracts
152 10.1(a) Termination Agreement by and between Ogden Facility Management Corporation of Anaheim, Covanta Energy Corporation and the City of Anaheim, California dated November 5, 2003. 10.1(b) Ownership Interest Purchase Agreement by and among Covanta Heber Field Energy, Inc., Heber Field Energy II, Inc., ERC Energy, Inc., ERC Energy II, Inc., Heber Loan Partners, Covanta Power Pacific, Inc., Pacific Geothermal Co., Mammoth Geothermal Co., AMOR 14 Corporation, Covanta SIGC Energy II, Inc. and Covanta Energy Americas, Inc. (the Sellers) and Covanta Energy Corporation and Or Heber 1 Inc., Or Heber 2 Inc., Or Heber 3 Inc. and Or Mammoth Inc. (the Buyers) dated as of November 21, 2003 10.1(c) 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 (previously filed as Exhibit 10.1(j) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.1(d) 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 (previously filed as Exhibit 10.1(k) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.1(e) First Amendment to Debtor In Possession Credit Agreement and Security
153 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 (previously filed as Exhibit 10.1(l) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.1(f) Second Amendment to Debtor in Possession Credit Agreement, dated as of May 10, 2002, among the Company, the Subsidiaries listed on the signature pages thereof as Borrowers, the Subsidiaries listed on the signature pages thereof as Subsidiary Guarantors, the Lenders listed therein, Bank of America, N.A., as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent (previously filed as Exhibit 10.1(a) to Covanta's Quarterly Report on Form 10-Q dated November 13, 2002 and incorporated herein by reference) 10.1(g) Third Amendment and Limited Waiver to Debtor in Possession Credit Agreement, dated as of October 4, 2002, among the Company, the Subsidiaries listed on the signature pages thereof as Borrowers, the Subsidiaries listed on the signatures pages thereof as Subsidiary Guarantors, the Lenders listed therein, Bank of America, N.A., as Administrative Agent, and Deutsche Bank AG, New York Branch as Documentation Agent (previously filed as Exhibit 10.1(b) to Covanta's Quarterly Report on Form 10-Q dated November 13, 2002 and incorporated herein by reference) 10.1(h) Fourth Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent, dated as of December 10, 2002, by and among the Company, the Subsidiaries of the Company listed on the signature page thereof as Borrowers, the Subsidiaries of the Company listed on the signature page 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 (previously filed as Exhibit 10.1(o) to Covanta's Annual Report on Form 10-K dated March 31, 2003 and incorporated herein by reference) 10.1(i) Fifth Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent, dated as of December 18, 2002, by and among the Company, the Subsidiaries of the Company listed on the signature page thereof as Borrowers, the Subsidiaries of the Company listed on the signature page 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 (previously filed as Exhibit 10.1(p) to Covanta's Annual Report on Form 10-K dated March 31, 2003 and incorporated herein by reference) 10.1(j) Sixth Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent and Amendment to Security Agreement, dated as of March 25, 2003, by and among the Company, the Subsidiaries of the Company listed on the signature page thereof as Borrowers, the Subsidiaries of the Company listed on the signature page thereof as Subsidiary Guarantors, the
154 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 (previously filed as Exhibit 10.1(q) to Covanta's Annual Report on Form 10-K dated March 31, 2003 and incorporated herein by reference) 10.1(k) Seventh Amendment to Debtor-in-Possession Credit Agreement and Limited Consent, dated as of May 23, 2002, among the Company, the Subsidiaries listed on the signature pages thereof as Borrowers, the Subsidiaries listed on the signatures pages thereof as Subsidiary Guarantors, the Lenders party thereto, Bank of America, N.A., as Administrative Agent, and Deutsche Bank AG, New York Branch as Documentation Agent (previously filed as Exhibit 10.1(t) to Covanta's Quarterly Report on Form 10-Q dated August 7, 2003 and incorporated herein by reference) 10.1(l) Eighth Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent, dated as of August 22, 2003, by and among the Company, the Subsidiaries of the Company listed on the signature page 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 (previously filed as Exhibit 10.1 to Covanta's Quarterly Report on Form 10-Q dated November 14, 2003 and incorporated herein by reference) 10.1(m) Ninth Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent, dated as of September 15, 2003, by and among the Company, the Subsidiaries of the Company listed on the signature page 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 (previously filed as Exhibit 10.2 to Covanta's Quarterly Report on Form 10-Q dated November 14, 2003 and incorporated herein by reference) 10.1(n) Tenth Amendment to the Debtor-in-Possession Credit Agreement dated as of November 3, 2003 and entered into by and among the Company, the Subsidiaries of the Company listed on the signature page thereof as Borrowers, the Subsidiaries of the Company listed on the signature page 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. 10.1(o) Eleventh Amendment to the Debtor-in-Possession Credit Agreement and Limited Consent dated as of December 15, 2003 and entered into by and among the Company, the Subsidiaries of the Company listed on the signature page thereof as Borrowers, the Subsidiaries of the Company listed on the signature page 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. 10.1(p) 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
155 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 (previously filed as Exhibit 10.1(m) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.1(q) 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 (previously filed as Exhibit 10.1(n) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.1(r) Credit Agreement dated as of March 10, 2004 among Covanta Energy Corporation, certain of its subsidiaries, certain lenders, Bank of America, N.A., as Administrative Agent, Deutsche Bank Securities, Inc. as Documentation Agent and Bank of America, N.A. and Deutsche Bank Securities, Inc. as Co-Lead Arrangers 10.11(s) Credit Agreement dated as of March 10, 2004 among Covanta Energy Corporation, certain of its subsidiaries, certain lenders and Bank One, N.A. as Administrative Agent 10.1(t) Credit Agreement dated as of March 10, 2004 among Covanta Power International Holdings, Inc. and certain of its subsidiaries, certain lenders, Bank of America, N.A., as Administrative Agent, and Deutsche Bank Securities, Inc. as Documentation Agent and Bank of America, N.A. and Deutsche Bank Securities, Inc. as Co-Lead Arrangers 10.11(u) Credit Agreement dated as of March 10, 2004 among Covanta Power International Holdings, Inc. and certain of its subsidiaries and certain lenders and Deutsche Bank AG, New York Branch as Administrative Agent 10.1(v) Intercreditor Agreement dated as of March 10, 2004 among Covanta Energy Corporation and certain of its subsidiaries and certain lenders and Bank of America, N.A. as Administrative Agent, Bank One, NA as Adminstrative Agent, Deutsche Bank Securities, Inc. as Documentation Agent, and Danielson Holding Corporation. 10.1(w) Intercreditor Agreement dated as of March 10, 2004 among Covanta Power International Holdings Inc. and certain of its subsidiaries and certain affiliates and certain lenders and Covanta Energy Americas, Inc., Bank of America, N.A. as Adminstrative Agent, and Deutsche Bank Securities, Inc. as Documentation Agent. Management Contracts 10.3(a) Ogden Corporation 1990 Stock Option Plan as Amended and Restated as of January 19, 1994 (previously filed as Exhibit 10.6(b)(i) to the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1994 and incorporated herein by reference) 10.3(a)(i) Amendment to Ogden Corporation 1990 Stock Option Plan adopted and effective as of September 18, 1997 (previously filed as Exhibit 10.7(a)(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference) 10.3(b) Ogden Corporation 1999 Stock Incentive Plan Amended and Restated as of January 1, 2000 (previously filed as Exhibit 10.3(b)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference) 10.3(c) Ogden Energy Select Plan, dated January 1, 2000 (previously filed as Exhibit 10.3(c) to the Company's Quarterly Report on Form 10-Q for the quarter
156 ended September 30, 1999 and incorporated herein by reference) 10.3(d)(i) Ogden Corporation Restricted Stock Plan and Restricted Stock Agreement (previously filed as Exhibit 10.3(e)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference) 10.3(d)(ii) Ogden Corporation Restricted Stock Plan for Non-Employee Directors and Restricted Stock Agreement (previously filed as Exhibit 10.3(e)(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference) 10.3(d)(iii) Covanta Energy Corporation Restricted Stock Unit Plan for Non-Employee Directors, as Amended and Restated on May 23, 2001 (previously filed as Exhibit 10.3(d)(iii) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.3(e) Ogden Corporation Profit Sharing Plan as Amended and Restated effective as of January 1, 1995 (previously filed as Exhibit 10.7(p)(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference) 10.3(f) Ogden Corporation Core Executive Benefit Program (previously filed as Exhibit 10.8(q) to the Company's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference) 10.3(g) Ogden Projects Pension Plan (previously filed as Exhibit 10.8(r) to the Company's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference) 10.3(g)(i) Covanta Energy Pension Plan, as amended and restated and effective January 1, 2001 (previously filed as Exhibit 10.3(g)(i) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.3(h) Ogden Projects Profit Sharing Plan (previously filed as Exhibit 10.8(s) to the Company's Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference) 10.3(h)(i) Covanta Energy Profit Sharing Plan, as amended and restated December 18, 2001 and effective January 1, 1998 (previously filed as Exhibit 10.3(h)(i) to Covanta's Annual Report on Form 10-K dated July 17, 2002 and incorporated herein by reference) 10.3(i) The Supplementary Benefit Plan of Ogden Projects Inc. (previously filed as Exhibit 10.8(t) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference) 10.3(j) Ogden Projects Core Executive Benefit Program (previously filed as Exhibit 10.8(v) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1992 and incorporated herein by reference) 10.3(k)(i) Form of Amended Ogden Projects, Inc. Profit Sharing Plan, effective as of January 1, 1994 (previously filed as Exhibit 10.7(w)(i) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference) 10.3(k)(ii) Form of Amended Ogden Projects, Inc. Pension Plan, effective as of January 1, 1994 (previously filed as Exhibit 10.7(w)(ii) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and
157 incorporated herein by reference) 10.3(l) Ogden Executive Performance Incentive Plan (previously filed as Exhibit 10.3(m) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999 and incorporated herein by reference) 10.3(m) Ogden Key Management Incentive Plan (previously filed as Exhibit 10.7(p) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1997 and incorporated herein by reference) 10.3(n) Covanta Energy Corporation Key Employee Severance Plan (previously filed as Exhibit 10.3(n) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference) 10.3(o) Covanta Energy Corporation Key Employee Retention Bonus Plan (previously filed as Exhibit 10.3(o) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference) 10.3(p) Covanta Energy Corporation Long-Term Incentive Plan (previously filed as Exhibit 10.3(p) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference) Employment Agreements
158 10.4(a) Employment Status and Consulting Agreement, effective November 5, 2003, by and between Covanta Energy Corporation and Scott Mackin 10.4(b) Agreement between Covanta Energy Corporation and Bruce W. Stone dated January 8, 2004. Agreements with Affiliates 10.5(a) Tax Sharing Agreement between Danielson Holding Corporation and Covanta Energy Corporation dated March 8, 2004. Subsidiaries 21. Subsidiaries of Covanta, transmitted herewith as Exhibit 21.
159 Rule 13a-14(a)/15d-14(a) Certifications 31.1 Rule 13a-14(a)/15d-14(a) Certifications - Chief Executive Officer 31.2 Rule 13a-14(a)/15d-14(a) Certifications - Principal Financial Officer Section 1350 Certifications 32.1 Section 1350 Certifications - Chief Executive Officer 32.2 Section 1350 Certifications - Principal Financial Officer
160 SIGNATURES [UPDATE] Pursuant to the requirements of Section 13 or 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: March 29, 2004 /s/ Anthony J. Orlando ----------------------------------------- Anthony J. Orlando President and Chief Executive Officer 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/ ANTHONY J. ORLANDO - ------------------------ ANTHONY J. ORLANDO President, Chief Executive Officer, March 29, 2004 Principal Financial Officer & Director /s/ JAMES A. REDDINGTON - ----------------------- JAMES A. REDDINGTON Controller March 29, 2004 /s/ PHILIP TINKLER - ----------------------- PHILIP TINKLER Director March 29, 2004 /s/ JOSEPH P. SULLIVAN - ----------------------- JOSEPH P. SULLIVAN Director March 29, 2004
161 REPORT OF INDEPENDENT AUDITORS To the Management Committee of Quezon Power, Inc. We have audited the accompanying consolidated balance sheets of Quezon Power, Inc. (incorporated in the Cayman Islands, British West Indies) and subsidiary as of December 31, 2003 and 2002, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated statements of operations, changes in stockholders' equity and cash flows of Quezon Power, Inc. for the year ended December 31, 2001 were audited by other auditors whose report dated February 4, 2002 expressed an unqualified opinion on those statements. Those auditors have ceased operations. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, the financial statements referred to above present fairly, in all material respects, the financial position of Quezon Power, Inc. and subsidiary as of December 31, 2003 and 2002, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Sycip Gorres Velayo & Co. A Member Practice of Ernst & Young Global Makati City, Philippines February 14, 2004 F-1 QUEZON POWER, INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31 ------------------------------- 2003 2002 ---- ---- ASSETS CURRENT ASSETS Cash $ 92,034,651 $ 64,312,475 Accounts receivable - net of allowance for bad debts of $7,908,586 in 2003 and 2002 (Note 8) 30,219,419 26,080,654 Fuel inventories 2,813,418 6,674,073 Spare parts 7,862,712 7,246,918 Due from affiliated companies (Note 6) 671,632 560,923 Prepaid expenses and other current assets 5,993,842 6,283,984 -------------- -------------- Total Current Assets 139,595,674 111,159,027 PROPERTY, PLANT AND EQUIPMENT - net (Notes 3, 6 and 8) 701,661,466 716,702,967 DEFERRED FINANCING COSTS - net (Note 5) 33,739,900 40,734,901 DEFERRED INCOME TAX (Note 4) 9,805,585 7,633,244 PREPAID INPUT VALUE-ADDED TAXES - net (Note 12) 6,025,658 3,447,669 -------------- -------------- $ 890,828,283 $ 879,677,808 ============== ============== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses (Note 8) $ 27,866,072 $ 25,540,941 Due to affiliated companies (Note 6) 2,315,331 915,363 Current portion of (Note 5): Long-term loans payable 38,598,480 37,595,744 Bonds payable 6,450,000 5,375,000 Income taxes payable 54,465 - -------------- -------------- Total Current Liabilities 75,284,348 69,427,048 LONG-TERM LOANS PAYABLE - net of current portion (Note 5) 296,755,016 335,353,496 BONDS PAYABLE - net of current portion (Note 5) 196,725,000 203,175,000 ASSET RETIREMENT OBLIGATION (Note 2) 3,298,498 - MINORITY INTEREST 6,626,965 5,523,919 STOCKHOLDERS' EQUITY (Note 7) 312,138,456 266,198,345 -------------- -------------- $ 890,828,283 $ 879,677,808 ============== ==============
See accompanying Notes to Consolidated Financial Statements. F-2 QUEZON POWER, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (WITH COMPARATIVE FIGURES FOR 2001)
2003 2002 2001 ---- ---- ---- OPERATING REVENUES (Note 8) $ 217,869,232 $ 208,132,957 $ 189,014,327 -------------- -------------- -------------- OPERATING EXPENSES Fuel costs 36,002,310 35,800,748 31,014,067 Operations and maintenance 29,479,164 35,559,352 25,790,733 Depreciation and amortization 18,776,557 18,750,151 18,830,694 General and administrative 18,095,761 15,414,227 19,690,910 -------------- -------------- -------------- 102,353,792 105,524,478 95,326,404 -------------- -------------- -------------- INCOME FROM OPERATIONS 115,515,440 102,608,479 93,687,923 -------------- -------------- -------------- OTHER INCOME (CHARGES) Interest income 702,954 937,337 917,357 Foreign exchange gain - net 94,789 384,772 316,734 Interest expense (Note 5) (42,321,405) (45,180,633) (48,577,213) Amortization of deferred financing costs (6,995,001) (7,705,161) (9,960,712) Other income (charges) - net (Note 5) (281,928) 3,903,685 3,919,998 -------------- -------------- -------------- (48,800,591) (47,660,000) (53,383,836) -------------- -------------- -------------- INCOME BEFORE INCOME TAX, MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 66,714,849 54,948,479 40,304,087 -------------- -------------- -------------- BENEFIT FROM (PROVISION FOR) INCOME TAX Current (220,889) - - Deferred 2,005,684 2,864,359 2,790,160 -------------- -------------- -------------- 1,784,795 2,864,359 2,790,160 -------------- -------------- -------------- INCOME BEFORE MINORITY INTEREST AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 68,499,644 57,812,838 43,094,247 MINORITY INTEREST (1,606,129) (1,355,518) (1,010,416) -------------- -------------- -------------- INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 66,893,515 56,457,320 42,083,831 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - net of benefit from income tax - deferred, branch profits remittance tax and minority interest amounting to $166,657, $52,060, and $7,083 respectively (Note 2) (295,004) - - -------------- -------------- -------------- NET INCOME $ 66,598,511 $ 56,457,320 $ 42,083,831 ============== ============== ==============
See accompanying Notes to Consolidated Financial Statements. F-3 QUEZON POWER, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (WITH COMPARATIVE FIGURES FOR 2001)
2003 2002 2001 ---- ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 66,598,511 $ 56,457,320 $ 42,083,831 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,776,557 18,750,151 18,830,694 Amortization of deferred financing costs 6,995,001 7,705,161 9,960,712 Minority interest 1,606,129 1,355,518 1,010,416 Cumulative effect of change in accounting principle 295,004 - - Accretion on asset retirement obligation 167,508 - - Unrealized foreign exchange loss (gain) - net 88,480 (317,254) (384,480) Deferred income taxes (2,005,684) (2,864,359) (2,790,160) Gain on sale of property, plant and equipment (16,793) - - Noncash gain from: Reversal of inventory allowance - (1,130,000) - Reversal of deferred financing cost and the related liability - - (3,254,857) Provisions for: Bad debts - - 7,908,586 Inventory losses - - 1,130,000 Changes in operating assets and liabilities: Decrease (increase) in: Accounts receivable (4,319,426) (4,549,548) (9,745,075) Fuel inventories 3,860,655 3,858,559 567,006 Spare parts (615,794) (836,189) (1,596,513) Prepaid expenses and other current assets 2,230 (281,766) (4,449,379) Prepaid input value-added taxes (2,577,989) (2,506,902) 7,884,190 Increase (decrease) in: Accounts payable and accrued expenses 2,716,764 13,214,673 (26,612,711) Income taxes payable 54,465 - - -------------- -------------- ------------- Net cash from operating activities 91,625,618 88,855,364 40,542,260 -------------- -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment 16,806 - - Additions to property, plant and equipment (1,124,883) (933,912) (3,861,421) -------------- -------------- ------------- Net cash used in investing activities (1,108,077) (933,912) (3,861,421) -------------- -------------- -------------
(Forward) F-4
2003 2002 2001 ---- ---- ---- CASH FLOWS FROM FINANCING ACTIVITIES Net changes in accounts with affiliated companies $ 1,298,863 $ 1,459,967 ($ 6,545,303) Payments of: Term loan (35,389,726) (35,389,726) (35,389,726) Bonds payable (5,375,000) (4,300,000) (2,150,000) Long-term loans payable (2,206,018) (601,642) (358,278,775) Dividends paid (20,658,400) (26,789,000) (35,069,000) Minority interest (496,000) (660,000) (650,612) Proceeds from term loan - - 424,676,712 Additional contributions from stockholders - - 10,469,412 Financing costs - - (41,955,095) -------------- -------------- ------------- Net cash used in financing activities (62,826,281) (66,280,401) (44,892,387) -------------- -------------- ------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH 30,916 71,672 (9,141) -------------- -------------- ------------- NET INCREASE (DECREASE) IN CASH 27,722,176 21,712,723 (8,220,689) CASH AT BEGINNING OF YEAR 64,312,475 42,599,752 50,820,441 -------------- -------------- ------------- CASH AT END OF YEAR $ 92,034,651 $ 64,312,475 $ 42,599,752 ============== ============== ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the year for: Interest $ 40,819,139 $ 43,585,195 $ 46,132,283 Income taxes 166,424 - 84,475 Noncash investing and financing activity: Recognition of asset retirement obligation 2,747,564 - - ============== ============== =============
See accompanying Notes to Consolidated Financial Statements. F-5 QUEZON POWER, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002 (WITH COMPARATIVE FIGURES FOR 2001)
Additional Capital Stock Paid-in Retained (Note 7) Capital Earnings Total ------------- ---------- -------- ----- Balance at December 31, 2000 $ 1,001 $ 197,171,854 $ 21,872,927 $ 219,045,782 Additional contribution - 10,469,412 - 10,469,412 Cash dividends - - (35,069,000) (35,069,000) Net income for the year - - 42,083,831 42,083,831 ----------- -------------- -------------- -------------- Balance at December 31, 2001 1,001 207,641,266 28,887,758 236,530,025 Cash dividends - - (26,789,000) (26,789,000) Net income for the year - - 56,457,320 56,457,320 ----------- -------------- -------------- -------------- Balance at December 31, 2002 1,001 207,641,266 58,556,078 266,198,345 Cash dividends - - (20,658,400) (20,658,400) Net income for the year - - 66,598,511 66,598,511 ----------- -------------- -------------- -------------- Balance at December 31, 2003 $ 1,001 $ 207,641,266 $ 104,496,189 $ 312,138,456 =========== ============== ============== ==============
See accompanying Notes to Consolidated Financial Statements. F-6 QUEZON POWER, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND BUSINESS (a) Organization Quezon Power, Inc. (the Company; formerly Ogden Quezon Power, Inc.), an exempted company with limited liability, was incorporated in the Cayman Islands, British West Indies on August 4, 1995 primarily: (i) to be a promoter, a general or limited partner, member, associate, or manager of any general or limited partnership, joint venture, trust or other entity, whether established in the Republic of the Philippines or elsewhere and (ii) to engage in the business of power generation and transmission and in any development or other activity related thereto; provided that the Company shall only carry on the business for which a license is required under the laws of the Cayman Islands when so licensed under the terms of such laws. The Philippine Branch (the Branch) was registered with the Philippine Securities and Exchange Commission on March 15, 1996 to carry out the Company's business in the Republic of the Philippines to the extent allowed by law including, but not limited to, developing, designing and arranging financing for a 447-megawatt (net) base load pulverized coal-fired power plant and related electricity transmission line (the Project) located in Quezon Province, Republic of the Philippines. In addition, the Branch is responsible for the organization and is the sole general partner of Quezon Power (Philippines), Limited Co. (the Partnership), a limited partnership in the Philippines. The Partnership is responsible for financing, constructing, owning and operating the Project. The Branch is the legal and beneficial owner of (i) the entire general partnership interest in the Partnership representing 21% of the economic interest in the Partnership and (ii) a limited partnership interest representing 77% of the economic interest in the Partnership. The remaining 2% economic interest in the Partnership is in the form of a limited partnership interest held by PMR Limited Co. (PMRL). The accompanying financial statements include the consolidated results of the Company and the Partnership. Ultimately, 100% of the aggregate capital contributions of the Company to the Partnership were indirectly made by Quezon Generating Company, Ltd. (QGC), a Cayman Islands limited liability company, and Covanta Power Development - Cayman, Inc. (CPD; formerly Ogden Power Development - Cayman, Inc.), an indirect wholly owned subsidiary of Covanta Energy Group, Inc. (formerly Ogden Energy Group, Inc.), a Delaware corporation. The shareholders of QGC are QGC Holdings, Ltd. and Global Power Investment, L.P. (GPI), both Cayman Islands companies. QGC Holdings, Ltd. is a wholly owned subsidiary of InterGen N.V. (formerly InterGen), a joint venture between Bechtel Enterprises, Inc. (Bechtel) and Shell Generating Limited (Shell). The ultimate economic ownership percentages among QGC, CPD and PMRL in the Partnership are 71.875%, 26.125% and 2%, respectively. The equity commitment of the Company, up to $207.7 million, was made pursuant to an equity contribution agreement and is supported by letters of credit provided by ABN AMRO. These letters of credit were obtained with the financial backing of InterGen N.V. and Covanta Corporation (formerly Ogden Corporation). PMRL does not have any equity funding obligation. F-7 (b) Allocation of Earnings Each item of income and loss of the Partnership for each fiscal year (or portion thereof) shall be allocated 21% to the Company, as general partner; 77% to the Company, as a limited partner; and 2% to PMRL, as a limited partner. (c) The Project The Project is a 470-megawatt (net) base load pulverized coal-fired electricity generation facility and related transmission line. The Project receives substantially all of its revenue from a 25-year take-or-pay Power Purchase Agreement (PPA) and a Transmission Line Agreement with the Manila Electric Company (Meralco). Construction on the Project commenced in December 1996 and the Project started commercial operations on May 30, 2000. The total cost of the Project was $895.4 million. (d) Principal Business Risks The principal risks associated with the Project include operating risks, dependence on one customer (Meralco), environmental matters, permits, political and economic factors and fluctuations in currency. The risks associated with operating the Project include the breakdown or failure of equipment or processes and the performance of the Project below expected levels of output or efficiency due to operator fault and/or equipment failure. Meralco is subject to regulation by the Energy Regulatory Board of the Philippines [ERB; now known as the Energy Regulatory Commission (ERC) created under the Electric Power Industry Reform Act of 2001 (EPIRA); see Note 11(a)] with respect to sales charged to consumers. In addition, pursuant to the Philippine Constitution, the Philippine government at any time may purchase Meralco's property upon payment of just compensation. If the Philippine government were to purchase Meralco's property or the ERC ordered any substantial disallowance of costs, Meralco would remain obligated under the PPA to make the firm payments to the Partnership. Such purchase or disallowance, however, could result in Meralco being unable to fulfill its obligations under the PPA, which would have material adverse effect on the ability of the Partnership to meet its obligations under the credit facilities [see Notes 5, 8(a), 8(c) and 11(f)]. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The financial statements of the Company include the financial position and results of operations of the Partnership and have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). F-8 Principles of Consolidation The consolidated financial statements include the accounts of the Company and the Partnership, a 98%-owned and controlled limited partnership. All significant intercompany transactions have been eliminated. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Inventories Fuel inventories and spare parts are valued at the lower of cost or market value, net of provision for inventory losses. Cost is determined using the moving average cost method. Property, Plant and Equipment Property, plant and equipment are carried at cost less accumulated depreciation and amortization. Cost includes the fair value of asset retirement obligation, capitalized interest and amortized deferred financing costs incurred in connection with the construction of the Project. Capitalization of interest and amortization of deferred financing costs ceased upon completion of the Project. Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of the assets are as follows:
Category Number of years -------- --------------- Power plant 50 Transmission lines 25 Others 3 to 5
The cost of routine maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized. When assets are retired or otherwise disposed of, both the cost and related accumulated depreciation and amortization are removed from the accounts; and any resulting gain or loss is credited or charged to current operations. Deferred Financing Costs Deferred financing costs represent the costs incurred to obtain project financing and are amortized, using the effective interest rate method, over the lives of the related loans. F-9 Derivative Instruments and Hedging Activities The Company adopted Statement of Financial Accounting Standards (SFAS) No. 133 (subsequently amended by SFAS No. 138 and No. 149), Accounting for Derivative Instruments and Hedging Activities. This statement, as amended, establishes certain accounting and reporting standards requiring all derivative instruments to be recorded as either assets or liabilities measured at fair value. Changes in derivative fair values are recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting treatment for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statement of operations, and requires the Company to formally document, designate and assess the effectiveness of transactions that receive hedge accounting. The Company adopted SFAS No. 133 effective January 1, 2001. The Company periodically reviews its existing contracts to determine the existence of any embedded derivatives. As of December 31, 2003, there are no significant embedded derivatives that exist. Prepaid Input Value Added-Taxes Prepaid input value-added taxes (VAT) represent VAT imposed on the Partnership by its suppliers for the acquisition of goods and services required under Philippine taxation laws and regulations. The input VAT is recognized as an asset and will be used to offset the Partnership's current VAT liabilities [see Notes 11(a) and 12] and any excess will be claimed as tax credits. Input taxes are stated at their estimated net realizable values. Revenue Recognition Revenue is recognized when electric capacity and energy is delivered to Meralco [see Note 8(a)]. Commencing on the Commercial Operations Date and continuing throughout the term of the PPA, the Partnership receives payment net of penalty obligation for each kilowatt hour (kWh) of shortfall deliveries consisting of a Monthly Capacity Payment, Monthly Operating Payment and Monthly Energy Payment as defined in the PPA. Revenue from transmission lines consists of Capital Cost Recovery Payment and the Transmission Line Monthly Operating Payment as defined in the Transmission Line Agreement. Transmission Line Monthly Operating Payment is recognized as revenue in the period it is intended for. Income Taxes The Partnership is registered with the Philippine Board of Investments as a pioneer enterprise under a statutory scheme designed to promote investments in certain industries (including power generation). As such, the Partnership benefits from a six-year income tax holiday starting on January 1, 2000. Under Philippine taxation laws, a corporate tax rate of 32% is levied against Philippine taxable income. Net operating losses, on the other hand, can be carried forward for three immediately succeeding years. The Partnership accounts for corporate income taxes in accordance with SFAS No. 109, Accounting for Income Taxes, which requires an asset and liability approach in determining income tax liabilities. The standard recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial reporting bases of assets and liabilities and their related tax bases. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets and deferred tax liabilities that will reverse during the income tax holiday period are not recognized. F-10 The Company is not subject to income taxes as a result of the Company's being incorporated in the Cayman Islands. However, the Philippine branch profit remittance tax of 15% will be levied against the total profit applied or earmarked for remittance by the Branch to the Company. Functional Currency The functional currency of the Company and the Partnership has been designated the U.S. dollar because borrowings under the credit facilities are made and repaid in U.S. dollars. In addition, all major agreements are primarily denominated in U.S. dollars or are U.S. dollar linked. Consequently, the consolidated financial statements and transactions of the Company and the Partnership have been recorded in U.S. dollars. Valuation of Long-lived Assets Effective January 1, 2002, long-lived assets are accounted for in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-lived Assets. The statement supersedes, among others, SFAS No. 121, Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of. The Partnership periodically evaluates its long-lived assets for events or changes in circumstances that might indicate that the carrying amount of the assets may not be recoverable. The Partnership assesses the recoverability of the assets by determining whether the amortization of such long-lived assets over their estimated lives can be recovered through projected undiscounted future cash flows. The amount of impairment, if any, is measured based on the fair value of the assets. As of December 31, 2003, 2002 and 2001, no such impairment was recorded in the accompanying consolidated statements of operations. Asset Retirement Obligation Effective January 1, 2003, the Partnership adopted SFAS No. 143, Accounting for Asset Retirement Obligations. Previously, the Partnership had not been recognizing amounts related to asset retirement obligations. Under the new accounting method, the Partnership now recognizes asset retirement obligations in the period in which they are incurred if a reasonable estimate of a fair value can be made. In estimating fair value, the Partnership did not use a market risk premium since a reliable estimate of the premium is not obtainable given that the retirement activities will be performed many years into the future and the Partnership has insufficient information on how much a third party contractor would charge to assume the risk that the actual costs will change in the future. The associated asset retirement costs are capitalized as part of the carrying amount of the Power Plant. The cumulative effect of the change in prior years resulted in a charge to income of $295,004 (net of benefit from income tax - deferred, branch profits remittance tax and minority interest amounting to $166,657, $52,060 and $7,083 respectively), which is included in net income for the year ended December 31, 2003. The effect of the accounting change on the year ended December 31, 2003 was to decrease income before cumulative effect of a change in accounting principle by $126,010. The pro forma effects of the application of SFAS No. 143 as if the statement has been adopted on January 1, 2001 (rather than January 1, 2003) follow:
2003 2002 2001 ---- ---- ---- Pro forma amounts assuming the accounting change is applied retroactively net of tax Net income $ 66,893,515 $ 56,336,129 $ 41,967,213
F-11 On May 30, 2000, the Project started commercial operations. The Partnership recognized the fair value of decommissioning and dismantlement cost of the Power Plant and the corresponding liability for asset retirement in 2003. The cost was capitalized as part of the cost basis of the Power Plant and the Partnership depreciates it on a straight-line basis over 50 years. The following table describes all changes to the Partnership's asset retirement obligation liability as of December 31, 2003: Asset retirement obligation at beginning of year $ - Liability recognized in transition 3,130,990 Accretion expense for the year 167,508 ----------- Asset retirement obligation at end of year $ 3,298,498 ===========
No payments of asset retirement obligation were made in 2003 and 2002. The pro forma asset retirement obligation liability balances as if SFAS No. 143 had been adopted on January 1, 2001 (rather than January 1, 2003) follow:
2003 2002 ---- ---- Pro forma amounts of liability for asset retirement obligation at beginning of year $ 3,130,990 $ 2,971,989 Pro forma amounts of liability for asset retirement obligation at end of year 3,298,498 3,130,990
3. PROPERTY, PLANT AND EQUIPMENT
2003 2002 ---- ---- Power plant $ 676,929,577 $ 673,212,895 Transmission lines 86,593,717 86,593,717 Furniture and fixtures 4,035,677 3,991,923 Transportation equipment 336,602 246,143 Leasehold improvements 184,033 184,033 -------------- -------------- 768,079,606 764,228,711 Less accumulated depreciation and amortization 66,418,140 47,525,744 -------------- -------------- $ 701,661,466 $ 716,702,967 ============== ==============
Approximately $99.0 million of interest on borrowings and $11.8 million of amortization of deferred financing costs have been capitalized as part of the cost of property, plant and equipment and depreciated over the estimated useful life of the Power Plant. No interest on borrowings and amortization of deferred financing costs were capitalized to property, plant and equipment in 2003 and 2002 since the Project started commercial operations on May 30, 2000. Total depreciation and amortization related to property, plant and equipment charged to operations amounted to $18,776,557, $18,750,151 and $18,830,694 in 2003, 2002 and 2001, respectively. F-12 4. INCOME TAXES The significant components of the Company' s deferred tax assets at December 31, 2003 and 2002 are as follows:
2003 2002 ---- ---- Noncurrent: Deferred financing costs $ 7,376,376 $ 5,506,559 Unrealized foreign exchange losses 2,191,365 2,126,685 Asset retirement obligation 237,844 - ------------ ------------ $ 9,805,585 $ 7,633,244 ============ ============
Deferred income tax provision is provided for the temporary differences of financial reporting between Philippine GAAP and U.S. GAAP on deferred financing costs, capitalized unrealized foreign exchange losses and accretion and depreciation expenses related to asset retirement obligation. Under Philippine GAAP, deferred financing costs and foreign exchange losses were capitalized and depreciated as part of the cost of property, plant and equipment. Under U.S. GAAP, the deferred financing costs were treated as a deferred asset and amortized, using the effective interest rate method, over the lives of the related loans whereas the foreign exchange losses were charged to current operations. Income from nonregistered operations of the Partnership is not covered by its income tax holiday incentives. The current provision for income tax in 2003 pertains to income tax due on interest income from offshore bank deposits and certain miscellaneous income. There was no current provision for income tax in 2002 and 2001 because of the Partnership' s net taxable loss position from its unregistered activities. As of December 31, 2003, the Partnership has available net operating loss carryover (NOLCO) amounting to $3,453,743, of which $641,951 and $2,811,792 will expire in 2004 and 2005, respectively. The carryforward benefit of NOLCO will expire during the income tax holiday period; accordingly, the corresponding deferred tax assets were not recognized. There was no valuation allowance as of December 31, 2003 and 2002. A reconciliation of the statutory income tax rate to the effective income tax rates as a percentage of income before income taxes is as follows:
2003 2002 2001 ---- ---- ---- Statutory income tax rate 32% 32% 32% Tax effects of: The Company's operations 5 6 6 Partnership's operations under income tax holiday (40) (44) (53) Others - 1 8 -- -- -- Effective tax rates (3%) (5%) (7%) == == ==
F-13 5. DEBT FINANCING AGREEMENTS The Partnership was financed through the collective arrangement of the Common Agreement, Eximbank-Supported Construction Credit Facility, Trust Agreement, Uninsured Alternative Credit Agreement, Indenture, Bank Notes, Bank Letters of Credit, Bonds, Interest Hedge Contracts, Eximbank Political Risk Guarantee, OPIC Political Risk Insurance Policy, Eximbank Term Loan Agreement, Intercreditor Agreement, Side Letter Agreements, Security Documents and Equity Documents. The Common Agreement contains affirmative and negative covenants including, among other items, restrictions on the sale of assets, modifications to agreements, certain transactions with affiliates, incurrence of additional indebtedness, capital expenditures and distributions and collateralization of Project assets. The debt is collateralized by substantially all of the assets of the Partnership and a pledge of the Company's and certain affiliated companies' shares of stock. The Partnership has complied with the provisions of the debt financing agreements, in all material respects, or has obtained a waiver for noncompliance from the lenders [see Notes 11(d), 11(e) and 13(a)]. (a) Eximbank-Supported Construction Credit Facility The Eximbank-Supported Construction Credit Facility provided for up to $405 million of construction loans commitment guaranteed against political risk by Eximbank with a term of up to 60 months. The proceeds of the facility were used to finance a portion of the costs of goods and services meeting certain U.S. content requirements, the guarantee fees payable to Eximbank in respect of the Eximbank Political Risk Guarantee and interest during construction applicable to the eligible costs. The Partnership paid interest on the unpaid principal amount of the Eximbank-Supported Construction Loans (i) with respect to base rate advances, at a rate per annum equal to the base rate plus 0.375% and (ii) with respect to Eurodollar rate advances, at a rate equal to LIBOR plus 1.375%. The Eximbank-Supported Construction Credit Facility incorporates by reference the conditions precedent, representations and warranties, covenants, events of default and remedies set forth in the Common Agreement. In addition, as a condition precedent to all disbursements by the Eximbank-Supported Construction Lenders, the Partnership must comply with the Eximbank utilization procedures. In April 2001, the Partnership repaid the outstanding principal amount of the Eximbank-Supported Construction Loans with the proceeds of the Private Export Funding Corporation (PEFCO) Term Loan [see Note 5(b)]. F-14 (b) Term Loan Agreement The debt financing agreements contemplated that the outstanding principal amount of the Eximbank-Supported Construction Loans will be repaid on the Eximbank Conversion Date with the proceeds of a loan from Eximbank under the Eximbank Term Loan. Under the Eximbank Term Loan Agreement, Eximbank was to provide for a $442.1 million direct term loan, the proceeds of which could only be used to refinance the outstanding Eximbank-Supported Construction Credit Facility and to pay the Eximbank Construction Exposure Fee to Eximbank. This term loan, which would have had interest at a fixed rate of 7.10% per annum, would have had a 12-year term and would have been amortized in 24 approximately equal semi-annual payments during such term. In April 2001, in lieu of the Eximbank Term Loan, the Partnership availed the alternative refinancing of the Eximbank-Supported Construction Loans allowed under the Eximbank Option Agreement through an Export Credit Facility guaranteed by Eximbank and financed by PEFCO. Under the terms of the agreement, PEFCO established credit in an aggregate amount of $424.7 million which bears interest at a fixed rate of 6.20% per annum and payable under the payment terms identical with the Eximbank Term Loan. Upon compliance of the conditions precedent as set forth in the Term Loan Agreement, the PEFCO Term Loan was drawn and the proceeds were applied to the Eximbank-Supported Construction Loans. As a consequence of the replacement of the term loan, deferred financing costs relating to the Eximbank Term Loan amounting to $32.8 million were charged to Other charges account in the 2001 consolidated statement of operations whereas the related accrual amounting to $36.0 million was written-off. Amendments to the Omnibus Agreement were made to include, among other things, PEFCO as a party to the Agreement in the capacity of a lender. Annual future amortization payments for the next five years ending December 31 are as follows: 2004 $ 35,389,726 2005 35,389,726 2006 35,389,726 2007 35,389,726 2008 and thereafter 176,948,630
(c) Uninsured Alternative Credit Agreement The Uninsured Alternative Credit Agreement provides for the arrangement of Construction Loans, Refunding Loans and Cost Overrun Loans (collectively, the Uninsured Alternative Credit Facility Loans) as well as the issuance of the PPA Letter of Credit and the Coal Supply Letter of Credit. In July 1997, the Partnership terminated commitments in excess of $30 million in respect of the Construction Loans in connection with the issuance of the bonds. Interest will accrue on (i) the Construction Loans at a rate equal to LIBOR plus a margin of 2.75% to 3.25%; (ii) the Refunding Loans at a rate equal to LIBOR plus 2.50%; and (iii) the Cost Overrun Loans at a rate equal to LIBOR plus a margin of 2.75% to 3.25%. F-15 The Construction Loans will have a seven-year term and will be amortized in 14 semi-annual payments during such term commencing on January 15, 2001. Repayment of principal in respect of each Refunding Loan will be made in four equal semi-annual installments. Repayment of the Cost Overrun Loans will be made in ten equal semi-annual installments. There were no outstanding balances at December 31, 2003 and 2002 for the Refunding Loans and Cost Overrun Loans. As of December 31, 2003 and 2002, approximately $16.8 million and $19.1 million, respectively, were outstanding with respect to the Construction Loans. Annual future amortization payments of the Construction Loans for the next four years ending December 31 are as follows: 2004 $ 3,208,754 2005 4,612,584 2006 5,615,320 2007 3,409,304
(d) Trust and Retention Agreement The Trust and Retention Agreement provides, among others, for (i) the establishment, maintenance and operation of one or more U.S. dollar and Philippine peso accounts into which power sales revenues and other project-related cash receipts of the Partnership will be deposited and from which all operating and maintenance disbursements, debt service payments and equity distributions will be made; and (ii) the sharing by the Lenders on a pari passu basis of the benefit of certain security. (e) Bonds Payable Bonds payable represents the proceeds from the issuance of the $215.0 million in aggregate principal amount of the Partnership's 8.86% Senior Secured Bonds Due 2017 (the Series 1997 Bonds). The interest rate is 8.86% per annum and is payable quarterly on March 15, June 15, September 15 and December 15 of each year (each, a Bond Payment Date), with the first Bond Payment Date being September 15, 1997. The principal amount of the Series 1997 Bonds is payable in quarterly installments on each Bond Payment Date occurring on or after September 15, 2001 with the Final Maturity Date on June 15, 2017. The proceeds of the Series 1997 Bonds were applied primarily by the Partnership to the payment of a portion of the development, construction and certain initial operating costs of the Project. F-16 The Series 1997 Bonds are treated as senior secured obligations of the Partnership and rank pari passu in right of payment with all other credit facilities, as well as all other existing and future senior indebtedness of the Partnership (other than a working capital facility of up to $15.0 million), and senior in right of payment to all existing and future indebtedness of the Partnership that is designated as subordinate or junior in right of payment to the Series 1997 Bonds. The Series 1997 Bonds are subject to redemption by the Partnership in whole or in part, beginning five years from the date of issuance, at par plus a make-whole premium, calculated using a discount rate equal to the applicable U.S. Treasury rate plus 0.75%. Annual future amortization payments for the next five years ending December 31 are as follows: 2004 6,450,000 2005 6,450,000 2006 7,525,000 2007 10,750,000 2008 and thereafter 172,000,000
6. RELATED PARTY TRANSACTIONS Due to the nature of the ownership structure, the majority of the transactions were among the Company, the Partnership and the Partners, their affiliates or related entities. The following approximate amounts were paid to affiliates of the Partners for the development and construction, operation and maintenance and management of the Project under the agreements discussed in Note 8:
2003 2002 2001 ---- ---- ---- Covanta $ 18,483,011 $ 20,266,893 $ 21,444,929 InterGen 1,731,011 3,216,152 3,761,995 Bechtel - - 11,213,600
In 1996, QGC, CPD and Bechtel provided services to the Company, the costs of which were capitalized as construction-in-progress. On December 1, 1996, the Partnership assumed virtually all assets and liabilities of the Company, including construction-in-progress. Certain indirect controlled subsidiaries of the ultimate owners are currently engaged by the Partnership to provide operation and maintenance and management services to the Project (see Note 8). As of December 31, 2003 and 2002, the net amounts due to affiliated companies related to costs and expenses incurred by and cash advanced to affiliated companies pertaining to the Project were $1,643,699 and $354,440, respectively. F-17 7. CAPITAL STOCK Capital stock consists of:
Number of Shares Amount --------- ------ Class A, $0.01 par value: Authorized 1,000,000 Issued 26,151 $ 262 Class B, $0.01 par value: Authorized 1,000,000 Issued 2,002 20 Class C, $0.01 par value: Authorized 1,000,000 Issued 71,947 719 ------- $ 1,001 =======
Class A and Class C shares have an aggregate 100% beneficial economic interest and 98% voting interest in the Company divided among the holders of the Class A and Class C shares. Class B shares have a 2% voting interest in the Company. 8. COMMITMENTS AND CONTINGENCIES The Partnership has entered into separate site lease, construction, energy sales, electric transmission, coal supply and transportation, operations and maintenance and project management agreements. In connection with the construction and operation of the Project, the Partnership is obligated under the following agreements: (a) PPA The Partnership and Meralco are parties to the PPA, as amended on December 1, 1996. The PPA provides for the sale of electricity from the Project to Meralco. The term extends 25 years from the Commercial Operations Date, defined in the PPA as the date designated in writing by the Partnership to Meralco as the date on which the Project has been completed, inspected, tested and is ready to commence operations. The PPA provides that commencing on the Commercial Operations Date, the Partnership is required to deliver to Meralco, and Meralco is required to take and pay for, in each year commencing on the Commercial Operations Date and ending on each anniversary thereof (each such year, a Contract Year), a minimum number of kWhs of net electric output. F-18 The PPA provides that commencing on the Commercial Operations Date and continuing throughout the term of the PPA, Meralco will pay to the Partnership on each calendar month a monthly payment consisting of the following: (i) a Monthly Capacity Payment, (ii) a fixed Monthly Operating Payment, (iii) a variable Monthly Operating Payment and (iv) a Monthly Energy Payment. Under the PPA, Meralco is allowed to make all of its payments to the Partnership in Philippine pesos. However, the Monthly Capacity Payment, the Monthly Energy Payment and portions of the Monthly Operating Payments are denominated in U.S. dollars and the Philippine peso amounts are adjusted to reflect changes in the foreign exchange rates. Under the terms of the PPA, the Partnership is obligated to provide Meralco with the PPA Letter of Credit for $6.5 million. The PPA Letter of Credit serves as security for the performance of the Partnership's obligation to Meralco pursuant to the PPA. The Plant failed to meet its monthly delivery obligations to Meralco from May 2000 through the third quarter of 2001. Under the existing PPA, Meralco is obligated to make full Monthly Capacity Payments and Monthly Fixed Operating Payments, notwithstanding plant availability. However, in the event of a shortfall, the Partnership is required to make a payment to Meralco for each kWh of shortfall that is less than the per kWh tariff of the Monthly Capacity Payment and Monthly Fixed Operating Payment. In mid-2001, Meralco requested that the Partnership renegotiate certain terms of the PPA and increase the amount of shortfall payments made to Meralco when the Project is unable to meet certain performance standards. Meralco was also seeking compensation for prior Project performance shortfalls. The Partnership rejected the payment of any compensation related to past performance. However, the Partnership agreed to give Meralco a rebate over the next six years. Meralco withheld payments of approximately $10.7 million during 2001 ($2.2 million of which was withheld in accordance with the terms of the PPA as shortfall penalties). A provision had already been provided in the December 31, 2001 financial statements for $7.9 million representing the amount management believes is adequate to cover any possible losses while the negotiations were ongoing. On February 22, 2002, the Partnership and Meralco signed Amendment No. 3 to the PPA (Original Amendment) that was to become effective following approval of the ERC and the Partnership's Lenders but with retroactive effect. The Original Amendment primarily relates to the reallocation of risks relating to the performance and dispatch of the Plant. Under the amended terms of the PPA, Meralco would, in general, bear risks relating to the dispatch of the Plant while the Partnership, in general, would bear risks relating to the technical performance of the Plant. To accomplish this risk reallocation, the Original Amendment provided for, among other things, the following: (i) Payment by the Partnership of higher shortfall penalties in the event the Partnership fails to meet the minimum guaranteed electrical quantity (MGEQ) due to the fault or negligence of the Partnership; (ii) Recovery from and payment by Meralco to the Partnership of certain variable operating, maintenance and fuel costs incurred by the Partnership due to the Plant being dispatched at partial load; F-19 (iii) Payment of rebates by the Partnership to Meralco subject to the satisfaction of certain conditions; (iv) Sharing with Meralco revenues earned for deliveries in excess of the MGEQ; (v) Payment by Meralco of U.S. dollar-denominated portions of fixed and variable payments in U.S. dollars; and (vi) The Partnership will be deemed to have delivered electricity under circumstances where the Plant is declared available but is not dispatched at the load declared as available. In addition to the Original Amendment, on February 22, 2002, Meralco and the Partnership signed a Settlement and Release Agreement (SRA) to become effective at the same time as the Original Amendment. The SRA was to cover, among others, the payment to Meralco of an amount equal to $8.5 million in consideration of Meralco's agreement to execute and perform the SRA. Such amount was to be offset against the payments which have been withheld by Meralco. As a result, the Partnership recorded the lower of the income that would have been recognized under the existing PPA, and the Original Amendment together with the SRA for the year ended December 31, 2002. The net effect of the provisions of the Original Amendment and the SRA was to decrease the revenues that would have been recognized under the existing PPA by $3.2 million in 2002. In 2003, Meralco indicated to the Partnership that Meralco intended to negotiate certain "refinements" to the terms of the Original Amendment. Meralco formally withdrew its petition for the approval of the Original Amendment from the ERC on March 5, 2003. The Partnership and Meralco have agreed in principle on the major terms of the refinements to the 3rd PPA Amendment (Refined Amendment) and continue to negotiate minor points. The Refined Amendment provides for changes in the Original Amendment on the following areas: (i) Deemed generation revenue; (ii) Excess generation; (iii) Rebate program; (iv) MGEQ credits against excess generation; (v) Local business taxes; (vi) Community development; (vii) Variable operating payments; (viii) Generation shortfall recovery mechanisms; (ix) Start-up and stand-by compensation; and (x) Effectivity date of the amendment. F-20 The Partnership has prepared and submitted a draft of the Refined Amendment to Meralco for Meralco's review and comments. However, the Partnership and Meralco agreed to defer the approval of the Refined Amendment pending the ERC's decision on the Transmission Line issue [See Note 8(c)]. The Partnership expects to reach an agreement with Meralco on the Refined Amendment by the first quarter of 2004. The Partnership does not currently intend to agree to any terms in the Refined Third Amendment that would give it retroactive effect and it will therefore become effective on a date following approval by the ERC and the Partnership's Lenders. The Partnership also does not intend to become bound by the Original Amendment and will, if necessary, exercise its rights to termination for convenience. A term of the Refined Third Amendment is that the Original Amendment will be formally terminated by the parties on the date that the Refined Amendment becomes effective. The Refined Amendment will not have a retroactive date of effectiveness that is earlier than January 1, 2004. As a result, the liability recognized as of December 31, 2002 amounting to about $4.7 million to recognize the lower income in accordance with the Original Amendment was reversed during 2003. The effectiveness of the Refined Amendment is subject to the approval of the lenders, the Board of Directors (BOD) of the respective parties and the ERC. In the event that these approvals are not obtained, the Refined Amendment will not become effective. Consequently, the existing PPA would remain effective. (b) Engineering, Procurement and Construction Management (EPCM) Agreements The Partnership has entered into an Engineering and Procurement Contract, dated as of August 1, 1996 (as amended, the Engineering and Procurement Contract) with Overseas Bechtel, Incorporated (OBI), an affiliate of an ultimate shareholder, and a Project Management Agreement, dated as of August 1, 1996 (as amended, the Construction Management Agreement) with Bechtel Overseas Corporation (BOC; and together with OBI, the EPCM Contractors), another affiliate of an ultimate shareholder, for the design, engineering, procurement, installation, construction, start-up, testing and warranty of the Project. The total amount of the Project, under the EPCM Contracts, is $447.2 million, subject to certain adjustments. In general, under the Engineering and Procurement Contract, OBI is primarily responsible for the engineering, equipment procurement and performance guarantees for the Project and under the Construction Management Agreement, BOC is primarily responsible for, among others, the direct management of construction and testing of the Project. The Partnership, Bechtel Power Corporation (BPC), BOC and OBI have also entered into the EPCM Contract Guarantee Agreement and Amendment, dated as of August 1, 1996 (the EPCM Contract Guarantee and Amendment, and together with the Engineering and Procurement Contract and the Construction Management Agreement, the EPCM Contracts), in order to, among other things, facilitate, coordinate and administer the Engineering and Procurement Contract and the Construction Management Agreement. In addition, under the EPCM Contract Guarantee and Amendment, BPC has guaranteed the payment and performance of all obligations and liabilities of the EPCM Contractors under the EPCM Contracts. F-21 (c) Transmission Line Agreement Pursuant to the PPA and the Transmission Line Agreement dated as of June 13, 1996 (as amended on December 1, 1996; the Transmission Line Agreement) between the Partnership and Meralco, the Partnership accepted responsibility for obtaining all necessary rights-of-way for, and the siting, design, construction, operation and maintenance of, the Transmission Line. The construction of the Transmission Line was part of the EPCM Contractor's scope of work under the EPCM Contracts. Meralco is obligated to pay all costs and expenses incurred by the Partnership in connection with the siting, design, construction, operation and maintenance of the Transmission Line (including unforeseen cost increases, such as those due to new regulations or taxes) through the payment of periodic transmission charges. The term of the Transmission Line Agreement will extend for the duration of the term of the PPA, commencing on the date of execution of the Transmission Line Agreement and expiring on the 25th anniversary of the Commercial Operations Date. The term of the Transmission Line Agreement is subject to renewal on mutually acceptable terms in conjunction with the renewal of the term of the PPA. Under the Transmission Line Agreement, Meralco is obligated to make a Monthly Capital Cost Recovery Payment (CCRP) and a Monthly Operating Payment to the Partnership. In its decision dated March 20, 2003, the ERC disallowed Meralco from collecting from its consumers a portion of the Partnership's CCRP amounting to about $646,000 per month pending the ERC's thorough review of these charges. Consequently, at Meralco's request, the Partnership agreed to defer the collection of this portion until ERC resolves the issue or until the Partnership notifies Meralco otherwise. As of December 31, 2003, the portion of CCRP deferred for collection amounted to $5.8 million. As of February 14, 2004, ERC has not reached a decision on this issue. The Partnership believes that any amount being deferred collection will be fully recoverable. Accordingly, the Partnership has made no provision for these deferred amounts. (d) Coal Supply Agreements In order to ensure that there is an adequate supply of coal to operate the Generation Facility, the Partnership has entered into two coal supply agreements (CSA) with the intent to purchase approximately 67% of its coal requirements from PT Adaro Indonesia (Adaro) and the remainder of its coal requirements from PT Kaltim Prima Coal (Kaltim Prima, and together with Adaro, the Coal Suppliers). The agreement with Adaro (the Adaro CSA) will continue to be in effect until October 1, 2022. If the term of the Coal Cooperation Agreement between Adaro and the Ministry of Mines and Energy of the Government of the Republic of Indonesia is extended beyond October 1, 2022, the Partnership may elect to extend the Adaro CSA until the earlier of the expiration of the PPA or the expiration of the extended Coal Cooperation Agreement, subject to certain conditions. The agreement with Kaltim Prima (the Kaltim Prima CSA) has a scheduled termination date 15 years after the Commercial Operations Date. The Partnership may renew the Kaltim Prima CSA for two additional five-year periods by giving not less than one year prior written notice. The second renewal period will be subject to the parties agreeing to the total base price to be applied during that period. F-22 Under the Coal Supply Agreements, the Partnership is subject to minimum take obligations of 900,000 Metric Tonnes (MT) for Adaro and 360,000 MT for Kaltim Prima. The Partnership was not able to meet the minimum take obligations for Kaltim Prima by 80,000MT in 2002 and for Adaro by 335,000MT and 267,000MT in 2003 and 2002, respectively. However, the Partnership was able to secure waivers from both Kaltim Prima and Adaro for these shortfalls. In 2003, the Partnership and its coal suppliers started discussions on the use of an alternative to the Australian-Japanese benchmark price, which is the basis for adjusting the energy-base price under the Partnership's CSA. The Partnership and Adaro agreed in principle to use the six-month rolling average of the ACR Asia Index with a certain discount applied retroactively to April 1, 2003. The Partnership has started a similar discussion with Kaltim Prima. As of February 14, 2004, discussions with Kaltim Prima are still ongoing. (e) Operations and Maintenance Agreement The Partnership and Covanta Philippines Operating, Inc. (the Operator; formerly Ogden Philippines Operating, Inc.), a Cayman Islands corporation and a wholly owned subsidiary of Covanta Projects, Inc. (CPI; formerly Ogden Projects, Inc.), a subsidiary of Covanta Energy Group, Inc. (formerly Ogden Energy Group, Inc.), have entered into the Plant Operation and Maintenance Agreement dated December 1, 1995 (as amended, the O&M Agreement) under which the Operator has assumed responsibility for the operation and maintenance of the Project pursuant to a cost-reimbursable contract. The obligations of the Operator are guaranteed by CPI pursuant to an O&M Agreement Guarantee. The initial term of the O&M Agreement extends 25 years from the Commercial Operations Date. Two automatic renewals for successive five year periods are available to the Operator, provided that (i) the PPA has been extended; (ii) no default by the Operator exists; and (iii) the O&M Agreement has not been previously terminated by either party. The Partnership is obligated to compensate the Operator for services under the O&M Agreement, to reimburse the Operator for all reimbursable costs one month in advance of the incurrence of such costs and to pay the Operator a base fee and certain bonuses. In certain circumstances, the Operator could be required to pay liquidated damages depending on the operating performance of the Project, subject to contractual limitations. Beginning on Provisional Acceptance, as defined, the Partnership is obligated to pay the Operator a monthly fee of $160,000, subject to escalation. Under the O&M Agreement, the Operator may earn a bonus as a result of: (i) higher than expected net electrical output (NEO) generated during the year, (ii) the Operator's contributions to the community, and (iii) reductions in operating costs below budget. The target NEO is defined as the lesser of (a) MGEQ and (b) the average NEO achieved over the immediately preceding two contract years and adjusted to consider significant non-recurring events and significant maintenance activities undertaken other than the annual major maintenance. F-23 A claim for bonuses was submitted by the operator amounting to $4.1 million for the Third Contract Year as defined under the O&M Agreement. However, the Partnership's management is not fully in agreement with the interpretations of the Operator in defining "target NEO" used in the calculation of their claim due to the existence of significant nonrecurring events in prior years. As a result, no provisions have been recorded in the Partnership's books for the O&M bonuses. Deficiencies were also noted by management in certain internal control processes of the Operator that could expose the Project to potential losses. To mitigate the exposure, Operator's fees amounting to $1.3 million had been withheld by the Partnership as of December 31, 2003 to compensate for the potential losses that could have occurred from these issues. In 2003, other operational issues were likewise noted in an operations and maintenance audit commissioned by Eximbank. Eximbank asked that these issues be addressed and that certain adjustments be made to the Shareholders Agreement and O&M Agreement. Failure of the Project to address any of these items could have caused a declaration of default by Eximbank. The Partnership and its shareholders have taken proactive steps to address the issues raised by Eximbank and as a result, remedial efforts to address these issues have been applied and are currently being applied by the Operator. The most recent audit by the Bank engineers, R.W. Beck, has indicated that most of the operating issues have been resolved. The BOD likewise agreed in an Omnibus Settlement Agreement to take into consideration the issues noted by Eximbank and to settle the claims mentioned above. Discussions among the BOD are concluding and the final terms of the Omnibus Settlement Agreement have essentially been agreed. As of February 14, 2004, the Partnership, in an agreement in principle that has been reached, has agreed that the $1.3 million in withheld fees will be paid and that a payment in lieu of a bonus, negotiated to $1.8 million, is expected to be paid out upon signing of the Terms of Reference of the Omnibus Agreement. (f) Management Services Agreement The Partnership has entered into the Project Management Services Agreement, dated as of September 20, 1996 (as amended, the Management Services Agreement), with InterGen Management Services (Philippines), Ltd. (as assignee of International Generating Company, Inc.), an affiliate of InterGen N.V., (the General Manager), pursuant to which, the General Manager is providing management services for the Project. Pursuant to the Management Services Agreement, the General Manager, acting on behalf of the Partnership, is responsible for the day-to-day management of the Project. The initial term of the Management Services Agreement extends for a period ending 25 years after the Commercial Operations Date, unless terminated earlier, with provisions for extension upon mutually acceptable terms and conditions. The obligations of the General Manager are guaranteed by InterGen N.V. pursuant to a Project Management Services Agreement Guarantee dated as of December 10, 1996 (the Management Services Agreement Guarantee). The Partnership is obligated to pay the General Manager an annual fee equal to $400,000 subject to escalation after the first year relative to an agreed-upon index payable in 12 equal monthly installments. F-24 (g) Project Site Lease and Foreshore Agreements Due to Philippine legal requirements that limit the ownership interests in real properties and foreshore piers and utilities to Philippine nationals and in order to facilitate the exercise by Meralco of its power of condemnation should it be obligated to exercise such powers on the Partnership's behalf, Meralco owns the Project Site and leases the Project Site to the Partnership. Meralco has also agreed in the Foreshore Lease Agreement dated January 1, 1997, as amended, to lease from the Philippine government the foreshore property on which the Project piers were constructed, to apply for and maintain in effect the permits necessary for the construction and operation of the Project piers and to accept ownership of the piers. The Company has obtained rights-of-way for the Transmission line for a majority of the sites necessary to build, operate and maintain the Transmission line. Meralco has agreed, pursuant to a letter agreement dated December 19, 1996, that notwithstanding the provisions of the Transmission Line Agreement which anticipate that Meralco would be the lessor of the entire Transmission Line Site, Meralco will only be the Transmission Line Site Lessor with respect to rights-of-way acquired through the exercise of its condemnation powers. The Company, as lessor, and the Partnership, as lessee, have entered into the Transmission Line Site Leases, dated as of December 20, 1996, with respect to real property required for the construction, operation and maintenance of the Transmission line other than rights-of-way to be acquired through the exercise of Meralco's condemnation powers. The initial term of each of the Project Site Leases and each of the Transmission Line Site Leases (collectively, the Site Leases) extends for the duration of the PPA, commencing on the date of execution of such Site Lease and expiring 25 years following the Commercial Operations Date. The Partnership has the right to extend the term of any Site Lease for consecutive periods of five years each, provided that the extended term of such Site Lease may not exceed 50 years in the aggregate. (h) Community Memorandum of Agreement The Partnership has entered into a Community Memorandum of Agreement (MOA) with the Province of Quezon, the Municipality of Mauban, the Barangay of Cagsiay and the Department of Environmental and Natural Resources (DENR) of the Philippines. Under the MOA, the Partnership is obligated to consult with local officials and residents of the Municipality and Barangay and other affected parties about Project related matters and to provide for relocation and compensation of affected families, employment and community assistance funds. The funds include an electrification fund, development and livelihood fund and reforestation, watershed, management health and/or environmental enhancement fund. Total estimated amount to be contributed by the Partnership over the 25-year life is approximately $16 million. In accordance with the MOA, a certain portion of this amount will be in the form of advance financial assistance to be given during the construction period. F-25 In addition, the Partnership is obligated to design, construct, maintain and decommission the Project in accordance with existing rules and regulations. The Partnership will make contributions in the amount of approximately $130,000 to an Environmental Guarantee Fund for rehabilitation of areas affected by damage in the environment, monitoring compensation for parties affected and education activities. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The required disclosures under SFAS No. 107, Disclosure about Fair Value of Financial Instruments, follow: The financial instruments recorded in the consolidated balance sheets include cash, accounts receivable, accounts payable and accrued expenses, due from (to) affiliated companies and debt. Because of their short maturity, the carrying amounts of cash, accounts receivable and accounts payable and accrued expenses approximate fair value. It is not practical to determine the fair value of the amounts due from (to) affiliated companies. Long-term debt - Fair value was based on the following:
Debt Type Fair Value Assumptions --------- ---------------------- Term loan Estimated fair value is based on the discounted value of future cash flows using the applicable risk free rates for similar types of loans plus a certain margin. Bonds payable Estimated fair value is based on the discounted value of future cash flows using the latest available yield percentage of the Partnership's bonds prior to balance sheet dates. Other variable rate loans The carrying value approximates fair value because of recent and frequent repricing based on market conditions.
Following is a summary of the estimated fair value (in millions) as of December 31, 2003 and 2002 of the Partnership's financial instruments other than those whose carrying amounts approximate their fair values:
2003 2002 ---- ---- Term loan - $318.5 million in 2003 and $353.9 million in 2002 $ 274.8 $ 291.1 Bonds payable - $203.2 million in 2003 and $208.6 million in 2002 170.2 172.5
F-26 10. NEW ACCOUNTING PRONOUNCEMENTS (a) In June 2001, the American Institute of Certified Public Accountants released an exposure draft on the proposed Statement of Position (SOP) entitled, Accounting for Certain Costs and Activities Related to Property, Plant and Equipment, which discussed, among others, component accounting for property, plant and equipment. Under the SOP, a component with an expected useful life that differs from the expected useful life of the property, plant and equipment asset to which it relates should be accounted for separately and depreciated or amortized over its separate expected useful life. The Accounting Standards Executive Committee has continued deliberation of certain aspects of the SOP and expects to have a final draft of the SOP in the second quarter of 2004. The Partnership's practice is to depreciate its entire Power Plant over 50 years. The Partnership believes the adoption of the proposed SOP would increase depreciation expense, and thereby decrease operating income, by approximately $1.5 million per annum. (b) In January 2003 the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, Consolidation of Variable Interest Entities. The interpretation defines variable interest entities as those in which equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support from other parties, or entities in which equity investors lack certain essential characteristics of a controlling financial interest. The primary beneficiary of a variable interest entity is the party that absorbs a majority of the entity's expected losses, receives a majority of its expected residual returns, or both, as a result of holding variable interests, which are the ownership, contractual, or other pecuniary interests in an entity. The primary beneficiary is required to consolidate the financial position and results of operations of the variable interest entity. In December 2003, the FASB, issued revisions to FASB Interpretation No. 46, resulting in multiple effective dates based on the characteristics as well as the creation dates of the variable interest entities, however with no effective date later than the Company's first quarter of 2004. The Company does not believe that adoption of this statement will have a material effect on its consolidated financial statements. 11. OTHER MATTERS (a) EPIRA Republic Act No. 9136, the EPIRA was signed into law on June 8, 2001 and became effective on June 26, 2001. The covering Implementing Rules and Regulations (IRR) were promulgated by the Joint Congressional Power Commission (JCPC) on February 27, 2002 and became effective on March 22, 2002. The EPIRA provides for significant changes in the power sector, such as: (i) The unbundling of the generation, transmission, distribution and supply and other disposable assets of the Partnership, including its contracts with independent power producers (IPP) and electricity rates; (ii) Creation of the ERC to regulate the electric power industry; (iii) Creation of Power Sector Assets and Liabilities Management Corporation (PSALM) to take over the ownership of assets and liabilities of the National Power Corporation (NPC) and to manage the optimal and orderly sale, disposal/settlement and privatization of these assets and liabilities; F-27 (iv) Creation of the National Transmission Corporation (TRANSCO) where NPC's transmission and sub-transmission assets have been transferred, including the nationwide franchise to operate the transmission and grid system; (v) Creation of a Wholesale Electricity Spot Market (WESM) within one year; (vi) Open and non-discriminatory access to transmission and distribution systems; (vii) Mandated rate reduction; (viii) Lifeline rate for marginalized end-users; and (ix) Reorganization of the Department of Energy (DOE) to ensure the continuity of policy reforms required for the industry and additional mandates for the National Electrification Administration (NEA) under the EPIRA. The law also requires public listing of not less than 15% of common shares of generation and distribution companies within 5 years from the effectivity of the EPIRA. It provides cross ownership restrictions between transmission and generation companies and between transmission and distribution companies, and a cap of 50% of its demand that a distribution utility is allowed to source from an associated company engaged in generation except for contracts entered into prior to the effectivity of the EPIRA. The electricity rates will have regulated elements for transmission and distribution, and competitive components for the generation and retail, and for ancillary or support services. Accordingly on June 26, 2002, the ERC issued its decision in setting the unbundled NPC generation rates and the transmission rates of the TRANSCO. The unbundling of rates is intended to make these components of electricity rates more transparent and understandable to electricity consumers. The Philippine Grid Code and Distribution Code were promulgated in December 2001 to provide the basic rules, procedures and standards that govern the operation, maintenance and development of the high-voltage backbone Transmission System and Distribution System, respectively. These codes are to be used with the Market Rules of the WESM to ensure the safe, reliable and efficient operation of the grid. The WESM rules were promulgated on June 28, 2002. The rules will govern the operation of the electricity market to ensure sustainable and economical electricity supply. The Philippine Electricity Market Corporation was incorporated in November 2003 with equitable representation from electric power industry participants and will undertake the preparatory work and initial operation of the WESM. It will eventually act as the WESM governing body. In December 2003, the financing of the WESM was approved by a foreign bank. TRANSCO expects to put in place the Market Management System Software and Hardware that will operationalize the trading of electricity as envisioned by the EPIRA with trial operation targeted to commence by the middle of 2004. There are also certain sections of the EPIRA, specifically relating to generation companies, which provide for: (i) A cap on the concentration of ownership to only 30% of the installed capacity of the grid and/or 25% of the national installed generating capacity; (ii) VAT zero-rating of sale of generated power; and (iii) Review of IPP contracts with NPC by a designated Inter-Agency Committee for any provision onerous or disadvantageous to the Philippine Government. F-28 The privatization of IPP contracts shall be assumed from NPC by the newly created PSALM, taking into consideration buy out provisions, Philippine Government performance undertakings and, with the consent of both contracting parties, possible bilateral renegotiations. These are intended to assure NPC's compliance with its long-term financial commitments to the IPPs under its various project agreements. The review of the IPP contracts with NPC was completed on July 3, 2002 and has been submitted to PSALM for appropriate action. PSALM has renegotiated most of these IPP contracts, with a few remaining contracts in the final stages of renegotiation. The privatization of the transmission assets shall be realized by an award of a concession contract through international competitive bidding. The JCPC endorsed the privatization of TRANSCO on March 13, 2002 for presidential approval. Bidding was conducted in July and August 2003 with only one party submitting a letter of interest to TRANSCO due to the need to legislate the transfer of the transmission franchise to the concessionaire. Todate, the Senate has not passed the bill on the transmission franchise. Although the original intention was to identify a concessionaire for the transmission assets before the sale of the generating assets, PSALM is now pursuing the privatization of generation assets due to difficulties encountered in the privatization process of the transmission assets. TRANSCO has also started to initiate the sale of sub-transmission assets beginning 2004. Based on the assessment of the Partnership, it has complied, or is in the process of complying, with the applicable provisions of the EPIRA and its IRR. (b) Clean Air Act On November 25, 2000, the IRR of the Clean Air Act took effect. The IRR contain provisions that have an impact on the industry as a whole, and on the Project in particular, that need to be complied with within 44 months from the effectivity date or by July 2004, subject to approval by the DENR. Based on the initial assessment made on the Project's existing facilities, the Partnership believes it complies with the provisions of this IRR of the Clean Air Act. (c) Claims and Litigation The Partnership had a dispute with the Province of Mauban regarding the start of the commercial operations, the correct valuation of the fair market value of the Plant and the amount of property tax it owed for years 2000 and 2001. Management and the Partnership's legal and tax counsels believe that the assessment had no legal basis. Consequently, the Partnership had initiated legal action against the relevant provincial and municipal government departments and officers challenging the validity of the assessment, and had elevated the dispute to the Department of Finance (DOF) and the Regional Trial Court (RTC) for resolution. The DOF, which agreed to arbitrate the dispute between the Partnership and the Province of Quezon, issued two resolutions that are favorable to the Partnership in all material respects. However, the RTC examining the suit for consignation filed by the Partnership against the provincial government related to the real property tax dispute dismissed the suit citing the trial court's alleged lack of jurisdiction over the issue. F-29 The Partnership's real property tax payments for the third and fourth quarters of 2002 were accepted by the Provincial Government of Quezon. However, prior to the third quarter of 2002, the Partnership had been paying real property taxes it believed to be the correct tax by way of consignation with a local court. With the RTC's dismissal of the suit for consignation, the RTC ordered the consigned payments to be remitted to the Provincial Government. During 2003, the Provincial Government eventually accepted the consigned payment, and the Partnership received the revised Tax Declaration and Notice of Assessment from the Provincial Assessor and Municipal Treasurer, which are consistent with the DOF's resolution and did not include surcharge or interest on late payments. In accordance with the revised assessment, the Partnership paid the Provincial Government of Quezon an additional $0.5 million (P26.0 million) in taxes in 2003. (d) Insurance Coverage The Partnership has been unable to obtain insurance coverage in amounts required by the lenders in the financing agreements. The Partnership is taking the necessary steps to obtain a waiver from the lenders for insurance coverage shortfalls for 2003 [see Note 13(a)]. (e) Technical Default Under the Existing PPA Section 5.1(d) of the Common Agreement provides for, among others, the prompt billing and collection from Meralco for energy sold and services rendered by the Project pursuant to the PPA and the Transmission Line Agreement. In this regard, the Partnership was in technical default under the financing documents as a result of the withholding by Meralco of its payment obligations under the PPA amounting to $8.5 million. In the light of the delay of the ERC's approval on the Amendment [See Note 8(a)], the Partnership sought a waiver from its lenders to permit the Partnership to waive, on an interim basis, the timely payment by Meralco of the withheld amount pursuant to the terms of the Common Agreement. The waiver was granted by the lenders and the Partnership issued an interim waiver to Meralco in November 2002. The waiver is in effect until the amendment to the PPA becomes effective. (f) Impact of the Decision of the Supreme Court (SC) of the Philippines On November 15, 2002, the Third Division of the SC rendered a decision ordering Meralco, the largest power distribution company in the country, to refund to its customers $0.003/kWh (P0.167/kWh) starting with Meralco's billing cycles beginning February 1994 or correspondingly credit this in their favor for future consumption. The SC sustained the then ERB's disallowance of income tax as an operating expense, which results in Meralco's rate of return exceeding 12%, the maximum allowed. F-30 On December 5, 2002, Meralco filed a Motion for Reconsideration with the SC. The motion is based mainly on the following grounds: (i) the disallowance of income tax is contrary to jurisprudence; (ii) the decision modifies SC decisions recognizing 12% as the reasonable return a utility is entitled to (if income tax is disallowed for rate making, the return is reduced to about 8%); and (iii) even the successor of the then ERB, the ERC, adheres to the principle that income tax is part of operating expenses as set forth in the Uniform Rate Filing Requirements, which embody the detailed guidelines to be followed with respect to the rate unbundling applications of distribution companies. On January 27, 2003, Meralco filed with the SC a motion seeking the referral of the case to the SC en banc. The motion was denied by the SC in a resolution which Meralco received on March 17, 2003. On April 1, 2003, Meralco filed a Motion for Reconsideration of this resolution. On April 9, 2003, the SC denied with finality the Motion for Reconsideration filed by Meralco with the SC ordering Meralco to refund to its consumers the excess charges in electricity billings from 1994 to 1998 amounting to about $542.7 million (P30 billion). Meralco is completing the first two phases of its refund scheme totaling to about $121.7 million (P6.6 billion). The ERC approved on November 19, 2003 the third phase of the Meralco refund scheme totaling to about $88.2 million (P4.9 billion) to be finished within six months starting January 2004. If Meralco is unable to generate resources to satisfy its refund obligations, it may not meet its obligations under the PPA [See Note 1 (d)]. 12. RECLASSIFICATIONS As mentioned in Note 11(a), the sale of generated power is subject to zero-rated VAT under the EPIRA. As a result, the Partnership has no VAT liabilities arising from the sale of generated power to offset against prepaid input VAT. The balance of the prepaid input VAT will be converted to tax credits through a tax refund process which management estimates to be greater than one year. Accordingly, prepaid input VAT for 2003 was reclassified as noncurrent since management estimates that the tax credits will not be realized within one year of the balance sheet date. The prepaid input VAT for 2002 has been reclassified as noncurrent to conform with the 2003 presentation. 13. SUBSEQUENT EVENTS (a) In February 12, 2004, the lenders issued a temporary waiver effective up to March 1, 2004. Management is continuing its efforts to obtain an extension of the temporary waiver and obtain the required insurance coverage for the succeeding period beginning November 2004. In the event that additional insurance coverage is not available, the Partnership will take the necessary steps to obtain a new waiver that reflects insurance coverage shortfalls at that time. The Partnership has successfully obtained insurance waivers many times in the past and does not reasonably expect that the level of insurance coverage currently maintained will trigger materially adverse actions by the Partnership's Lenders. (b) On February 13, 2004, the Company distributed dividends amounting to $24.0 million. F-31 [ANDERSEN LOGO] REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Management Committee of Quezon Power (Philippines), Limited Co.: We have audited the accompanying balance sheets of Quezon Power (Philippines), Limited Co. (a Philippine limited partnership) as of December 31, 2001 and 2000, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. 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. As discussed in Note 1 to the financial statements, construction on the Project commenced in December 1996 and the Project started commercial operations on May 30, 2000. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quezon Power (Philippines), Limited Co. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Boston, Massachusetts February 4, 2002 (except for the matters discussed in Note 10, as to which the date is February 22, 2002) Readers of these consolidated financial statements should be aware that this report is a copy of a previously issued Arthur Andersen LLP and that this report has not been reissued by Arthur Andersen LLP. Furthermore, this report has not been updated since February 22, 2002. F-32 EX-2.9 3 y95330exv2w9.txt INVESTMENT AND PURCHASE AGREEMENT Exhibit 2.9 INVESTMENT AND PURCHASE AGREEMENT by and between DANIELSON HOLDING CORPORATION and COVANTA ENERGY CORPORATION Dated as of December 2, 2003 TABLE OF CONTENTS 1. Defined Terms............................................... 6 2. Actions Upon Signing; Deposit............................... 19 2.1. Approval Order..................................... 19 2.2. Payment of Deposit................................. 19 3. Closing; Closing Date; Expense Reimbursement................ 19 3.1. Issuance and Purchase of New Common Stock.......... 19 3.2. Funding............................................ 20 3.3. Payment of Expense Reimbursement................... 20 3.4. Company Deliverables............................... 20 3.5. Purchaser Deliverables............................. 20 4. Representations and Warranties of Company................... 21 4.1. Due Incorporation and Authority.................... 21 4.2. Subsidiaries and Investment Entities............... 21 4.3. Foreign Qualification.............................. 22 4.4. Outstanding Capital Stock.......................... 22 4.5. Options or Other Rights............................ 22 4.6. Authority Relative to this Agreement............... 22 4.7. Financial Statements............................... 23 4.8. No Material Adverse Change......................... 24 4.9. Compliance with Governmental Rules................. 25 4.10. Governmental Approvals............................. 25 4.11. No Breach.......................................... 25 4.12. Environmental Matters.............................. 26 4.13. Claims and Proceedings............................. 27 4.14. Contracts.......................................... 28 4.15. Tangible Property.................................. 29 4.16. Intellectual Property.............................. 29 4.17. Title to Properties................................ 29 4.18. Employee Benefit Plans............................. 30 4.19. Employee Matters................................... 31 4.20. Insurance.......................................... 32 4.21. No Brokers......................................... 32 4.22. SEC Documents and Other Documents.................. 32 4.23. Projects........................................... 33 4.24. Qualifying Facility Status; Nature of Business..... 33 4.25. Certain Regulatory Matters......................... 34 4.26. Agreements with Regulatory Agencies................ 34 4.27. Taxes.............................................. 34 Page 2 5. Representations and Warranties of Purchaser................. 36 5.1. Due Incorporation and Authority.................... 36 5.2. Authority to Execute and Perform Agreement......... 37 5.3. Purchase for Investment............................ 37 5.4. Plan Acknowledgment................................ 37 5.5. Financing.......................................... 37 5.6. Certain Tax Matters................................ 37 5.7. SEC Documents and Other Documents.................. 37 5.8. Insurance Matters.................................. 38 5.9. No Material Adverse Change......................... 39 5.10. Utility Regulatory Status.......................... 39 5.11. Marine Services Affiliates......................... 39 6. Covenants and Agreements.................................... 39 6.1. Conduct of Business................................ 39 6.2. Corporate Examinations and Investigations.......... 41 6.3. Publicity.......................................... 42 6.4. Efforts and Actions to Cause Closing to Occur...... 42 6.5. Governmental Approvals............................. 42 6.6. No Inconsistent Action............................. 43 6.7. Bankruptcy Covenants............................... 43 6.8. ISRA............................................... 44 6.9. Connecticut Property Transfer Act.................. 44 6.10. Exclusivity........................................ 45 6.11. Tax Matters........................................ 45 6.12. Pro Forma Taxes.................................... 46 6.13. D&O Insurance...................................... 46 6.14. Financial Statements............................... 46 6.15. Benefit Plans...................................... 46 7. Conditions Precedent to the Obligation of Purchaser......... 46 7.1. Representations and Covenants...................... 46 7.2. Required Consents and Required Governmental Approvals.......................................... 47 7.3. No Claims.......................................... 47 7.4. Disclosure Statement Order......................... 47 7.5. Liquidation Plan................................... 47 7.6. Confirmation Orders................................ 47 7.7. Approval Orders.................................... 47 7.8. Exit Financing..................................... 47 7.9. International Reorganization and Arrangements...... 47 7.10. Tax Sharing Agreement.............................. 48 7.11. Cash Reserve....................................... 48 Page 3 7.12. ISRA............................................... 48 7.13. Qualifying Facility Recertifications............... 48 7.14. Tax Liability...................................... 48 7.15. Opinion............................................ 48 7.16. Geothermal Sale.................................... 48 7.17. Treatment of Certain Projects...................... 48 8. Conditions Precedent to the Obligation of Company........... 48 8.1. Representations and Covenants...................... 49 8.2. Required Consents and Required Governmental Approvals.......................................... 49 8.3. Confirmation Orders................................ 49 8.4. Exit Financing..................................... 49 8.5. New Securities Issued.............................. 49 8.6. Execution of Tax Sharing Agreement................. 49 8.7. Geothermal Sale.................................... 49 8.8. Non-Operating Loss Carryforwards................... 49 9. Designation of Executory Contracts.......................... 49 10. Representations and Warranties of Company................... 50 11. Termination of Agreement.................................... 50 11.1. Termination........................................ 50 11.2. Survival After Termination; Termination Fee........ 51 12. Miscellaneous............................................... 53 12.1. Consent to Jurisdiction and Service of Process..... 53 12.2. Notices............................................ 53 12.3. Entire Agreement................................... 54 12.4. Waivers and Amendments; Non-Contractual Remedies; Preservation of.................................... 54 12.5. Availability of Equitable Relief................... 54 12.6. Governing Law...................................... 54 12.7. Binding Effect; Assignment......................... 54 12.8. Usage.............................................. 55 12.9. Counterparts....................................... 55 12.10. Exhibits, Appendices and Disclosure Schedules; Cross References................................... 55 12.11. Headings........................................... 55 12.12. Interpretation..................................... 55 12.13. Severability of Provisions......................... 55 12.14. Exclusivity of Representations..................... 55 12.15. Company's Knowledge................................ 55 12.16. No Third Party Beneficiaries....................... 55 Page 4 EXHIBITS, APPENDICES AND DISCLOSURE SCHEDULES - --------------------------------------------- Exhibit A: Debtors Exhibit B: Form of Deposit Escrow Agreement Exhibit C-1: Form of First Lien L/C Credit Facility Credit Agreement Exhibit C-2: Form of Second Lien L/C Credit Facility Credit Agreement Exhibit C-3: Form of International Term Loan Credit Facility Credit Agreement Exhibit C-4: Form of International Revolver Credit Facility Credit Agreement Exhibit C-5: Form of Domestic Intercreditor Agreement Exhibit C-6: Form of International Intercreditor Agreement Exhibit D: Form of Senior Secured Notes Indenture Exhibit E-l: Plan Exhibit E-2: Liquidation Plan Exhibit F: Form of Tax Sharing Agreement Exhibit G: Terms of International Reorganization and Arrangements Exhibit H: Form of CPIH Management Services & Reimbursement Agreement Appendix 1: Net Operating Loss Carryforwards Appendix 2: Methodology for Pro Forma Tax Company Disclosure Schedule - --------------------------- Section 4.2(i) Subsidiaries Section 4.2(ii) Investment Entities Section 4.2(iii) Organizational Chart Section 4.4(i) Outstanding Capital Stock Section 4.4(ii) Outstanding Liens on Capital Stock Section 4.5 Options or Other Rights Section 4.7 Financial Statements Section 4.8 Material Adverse Change Section 4.9 Compliance with Laws Section 4.10 Required Governmental Approvals Section 4.11(b) Required Consents Section 4.11(c) Restrictions on Indebtedness Section 4.12 Environmental Matters Section 4.13 Claims and Proceedings Section 4.14 Material Contracts Section 4.16 Intellectual Property Section 4.17(a) Real Property Section 4.17(b) Real Property Agreement Defaults Section 4.18 Employee Benefits Section 4.19 Employee Matters Section 4.20 Insurance Section 4.22 SEC Documents and Other Documents Section 4.23 Projects Section 4.24(a) Qualifying Small Power Production Facilities and Qualifying Cogeneration Facilities Section 4.24(b) Non-Exempt Qualifying Facility Projects Section 4.27 Taxes Section 6.1 Conduct of Business Section 6.11 Tax Matters Section 7.17 Treatment of Certain Projects Purchaser Disclosure Schedule - ----------------------------- Section 5.7(a) SEC Documents and Other Documents Section 5.8(d) Insurance Laws Page 5 THIS INVESTMENT AND PURCHASE AGREEMENT (this "Agreement"), dated as of December 2, 2003, by and between DANIELSON HOLDING CORPORATION, a Delaware corporation ("Purchaser"), and COVANTA ENERGY CORPORATION, a Delaware corporation ("Company"), as debtor and debtor-in-possession under Chapter 11 of the Bankruptcy Code. WHEREAS, Company and certain of its Affiliates (as indicated on Exhibit A hereto) are debtors and debtors-in-possession (collectively, the "Debtors" and each, a "Debtor") in Chapter 11 case numbers 02-40826 through 02-40949, 02-16322 et al (the "Case") pending before the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court"); and WHEREAS, subject to the terms and conditions set forth herein, and pursuant to the Plan, Purchaser desires to purchase from Company, and Company desires to sell to Purchaser, for $30,000,000, all shares of common stock (the "New Common Stock") of Company as reorganized under the Plan (Company as so reorganized, "Reorganized Covanta"), representing 100% of the equity of Reorganized Covanta immediately following the Closing. NOW, THEREFORE, in consideration of the premises and of the mutual covenants, agreements, representations and warranties of the parties hereto as set forth herein, intending to be legally bound hereby the parties hereby agree as follows: 1. Defined Terms. Capitalized terms used herein but not otherwise defined herein shall have the meaning assigned thereto in the Bankruptcy Code or in the Plan, as applicable. In addition, as used in this Agreement, the following terms have the following meanings: "Affiliate" means, with respect to any Person, any other Person Controlling, Controlled by or under common Control with such Person. "Agreement" shall have the meaning set forth in the Preamble. "Alternative Transaction" shall have the meaning set forth in Section Page 6 6.10(a). "Approval Order" means an Order of the Bankruptcy Court approving Sections 3.3, 6.10, 11.2(b) and 11.2(d) of this Agreement. "Assumptions" shall have the meaning set forth in Section 4.18. "Audited Financials" shall have the meaning set forth in Section 4.7(a). "Balance Sheet" shall have the meaning set forth in Section 4.7(a). "Balance Sheet Date" shall have the meaning set forth in Section 4.7(a). "Bankruptcy Code" means title 11 of the United States Code, as amended from time to time, as applicable to the Case. "Bankruptcy Court" shall have the meaning set forth in the Recitals. "Bankruptcy-Related Requirements" shall have the meaning set forth in Section 6.10(b). "Bankruptcy Rules" means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under section 2075 of title 28 of the United States Code, as applicable to the Case. "Benefit Plans" shall have the meaning set forth in Section 4.18. "Business Day" means any day other than a Saturday, Sunday or "legal holiday" as defined in Bankruptcy Rule 9006(a). "Case" shall have the meaning set forth in the Recitals. "Cash Tax Reserve" shall have the meaning set forth in Section 6.12(b). "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. ss. 9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Claims" means any actions, causes of action, suits, claims, complaints, demands, litigations or legal, administrative or arbitral proceedings or investigations. "Closing" shall have the meaning set forth in Section 3. "Closing Cash Balance" means $40,000,000 plus the cumulative Operational Cash Flow Adjustment for the period from January 3, 2004 through the Closing Date. "Closing Date" shall have the meaning set forth in Section 3. "Code" means the Internal Revenue Code of 1986, as amended. "Company" shall have the meaning set forth in the Preamble. "Company Disclosure Schedule" means the Company Disclosure Schedule attached hereto. "Company Failure" means a failure to consummate the closing of the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement as a result of (a) Company or any of its Affiliates failing to fulfill a condition precedent to such consummation that is Page 7 solely within the control of Company or its Affiliates, (b) Company or any of its Affiliates failing to execute and deliver either of such Credit Agreements or any of the instruments contemplated by such Credit Agreements to be delivered by Company or any of its Affiliates or (c) any other reason within the sole control of Company or any of its Affiliates. "Confidentiality Agreement" shall have the meaning set forth in Section 6.2. "Confirmation Date" means the date that the Confirmation Orders are entered by the Bankruptcy Court. "Confirmation Hearing" means the hearing held by the Bankruptcy Court pursuant to section 1128 of the Bankruptcy Code on confirmation of the Plan, as such hearing may be adjourned or continued from time to time. "Confirmation Orders" shall have the meaning set forth in Section 7.6. "Consideration" shall have the meaning set forth in Section 3.1. "Contemplated Transactions" means the transactions contemplated hereby, including without limitation, the transactions contemplated under the Plan. "Contingent Obligations" shall have the meaning set forth in the DIP Agreement. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. "Copyrights" means any foreign or United States copyright registrations and applications for registration thereof and any non-registered copyrights. "CPIH" means Covanta Power International Holdings, Inc. "CPIH Management Services & Reimbursement Agreement" means the Management Services & Reimbursement Agreement to be entered into by Reorganized Covanta, the other Company Entities party thereto and CPIH on the Closing Date, substantially in the form attached as Exhibit H hereto. "Covanta Tax Affiliate" shall mean any entity in respect of which Covanta or any Subsidiary is or has been or will be liable for Taxes. "Credit Agreements" means, collectively, the First Lien L/C Credit Facility Credit Agreement, the Second Lien L/C Credit Facility Credit Agreement, the International Term Loan Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement. "CTA" shall have the meaning set forth in Section 6.9. "Debtor" and "Debtors" shall have the meanings set forth in the Recitals. "Definitive Documents" means the following agreements and documents: this Agreement, the CPIH Management Services & Reimbursement Agreement, the Disclosure Statement, the Domestic Intercreditor Agreement, the First Lien L/C Credit Facility Credit Agreement, the International Intercreditor Agreement, the International Revolver Credit Facility Credit Agreement, the International Term Loan Credit Facility Credit Agreement, the Plan, the Liquidation Plan, the Second Lien L/C Credit Facility Credit Agreement, the Senior Secured Notes Indenture, the Tax Note, the Tax Sharing Agreement and the Unsecured Notes Indenture. Page 8 "Deposit" shall have the meaning set forth in Section 2.2. "Deposit Escrow Agreement" shall have the meaning set forth in Section 2.2. "Disclosure Schedules" means the Company Disclosure Schedule and the Purchaser Disclosure Schedule. "Disclosure Statement" means the disclosure statement, including all exhibits, appendices and attachments thereto (each in form and substance reasonably acceptable to Purchaser), filed in connection with the Plan approved by Order of the Bankruptcy Court in accordance with section 1125 of the Bankruptcy Code, as amended or supplemented. "Disclosure Statement Order" shall have the meaning set forth in Section 7.4. "DIP Agreement" means the Debtor-In-Possession Credit Agreement, dated as of April 1, 2002, among Company and each of its subsidiaries party thereto, the financial institutions listed therein as lenders, Bank of America, N.A., as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, as amended, supplemented or otherwise modified through the date hereof. "Distributable Cash" shall have the meaning set forth in the Plan. "Domestic Intercreditor Agreement" means the Intercreditor Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto and each of the financial institutions listed therein as lenders, agents and/or trustees on the Closing Date, substantially in the form attached as Exhibit C-5 hereto. "Domestic Power Project" means a Project located in the United States which generates electricity for sale. "Domestic Project" shall have the meaning set forth in Section 4.23. "D&O Insurance" means tail coverage for a period of three to six years under Company's existing or other directors and officers insurance policy covering Company's and its subsidiaries' current directors and officers. "D&O Insurance Cost" means the cost of the D&O Insurance. "Effective Date" means the date of effectiveness of the Plan specified in Section 10.2 of the Plan (subject to the terms and conditions of this Agreement), unless otherwise waived as provided in Section 10.3 of the Plan (subject to the terms and conditions of this Agreement), or such other date fixed by Company and Purchaser upon notice to the Bankruptcy Court. "Employer" means any former or current employee of Company or any of its subsidiaries. "Environment" means navigable waters, waters of the contiguous zone, ocean waters, natural resources, surface waters, ground water, drinking water supply, land surface, subsurface strata, ambient air, both inside and outside of buildings and structures, man-made buildings and structures, and plant and animal life on earth. "Environmental Claim" means any investigation, notice, notice of violation, claim, action, suit, proceeding, demand, abatement order or other order or directive (conditional or otherwise), by any Governmental Authority or any other Person, arising (a) pursuant to or in connection with any actual or alleged violation of any Environmental Law or (b) in connection with any actual Page 9 or alleged damage, injury, threat or harm to health, safety, natural resources or the environment. "Environmental Laws" means any and all current or future statutes, ordinances, orders, rules, regulations, guidance documents, judgments, Governmental Approvals, or any other requirements of any Governmental Authority relating to (a) environmental matters, including those relating to any Hazardous Materials Activity; (b) the generation, use, storage, transportation or disposal of Hazardous Materials; or (c) occupational safety and health, industrial hygiene, land use or the protection of human, plant or animal health or welfare, in any manner applicable to Company, any of the Subsidiaries or any Facility. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA Affiliate" means, as applied to any Person, (i) any corporation that is a member of a controlled group of corporations within the meaning of Section 414(b) of the Code of which that Person is a member; (ii) any trade or business (whether or not incorporated) that is a member of a group of trades or businesses under common control within the meaning of Section 414(c) of the Code of which that Person is a member; and (iii) any member of an affiliated service group within the meaning of Section 414(m) or (o) of the Code of which that Person, any corporation described in clause (i) above or any trade or business described in clause (ii) above is a member. "ERISA Event" means (a) a "reportable event" within the meaning of Section 4043 of ERISA and the regulations issued thereunder with respect to any Pension Plan (excluding those for which the provision for 30-day notice to the PBGC has been waived by regulation) that would reasonably be expected to result in a Material Adverse Effect on Company; (b) the failure to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (c) the provision by the administrator of any Pension Plan pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such plan in a distress termination described in Section 4041(c) of ERISA; (d) the withdrawal by Company, any of its Subsidiaries or any of their respective ERISA Affiliates from any Pension Plan with two or more contributing sponsors or the termination of any such Pension Plan resulting in material current liability of Company or any of its Subsidiaries pursuant to Section 4063 or 4064 of ERISA; (e) the institution by the PBGC of proceedings to terminate any Pension Plan, or the occurrence of any event or condition that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (f) the imposition of material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA where such reorganization, insolvency or termination would reasonably be expected to result in a Material Adverse Effect on Company; (g) the withdrawal of Company, any of its Subsidiaries or any of their respective ERISA Affiliates in a complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of ERISA) from any Multiemployer Plan if it would reasonably be expected that Company or any of its Subsidiaries will incur material liability therefor (in excess of the contribution that would otherwise have been due absent such withdrawal), or the Page 10 receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (h) the assertion of a material claim (other than routine claims for benefits) against any Benefit Plan other than a Multiemployer Plan or the assets thereof, or against Company, any of its Subsidiaries or any of their respective ERISA Affiliates in connection with any Benefit Plan, if such assertion or the liability with respect thereto would reasonably be expected to result in a Material Adverse Effect on Company; (i) receipt from the Internal Revenue Service of notice of the failure of any Pension Plan (or any other Benefit Plan intended to be qualified under Section 401(a) of the Internal Revenue Code) to qualify under Section 401(a) of the Internal Revenue Code, or of the failure of any trust forming part of any Pension Plan to qualify for exemption from taxation under Section 501(a) of the Internal Revenue Code, in either case if such failure would reasonably be expected to result in a Material Adverse Effect on Company; or (j) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "Escrow Agent" shall have the meaning set forth in Section 2.2. "EWG" means an exempt wholesale generator within the meaning of 15 U.S.C. Section 79z-5a of PUHCA. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exclusivity Provisions" shall have the meaning set forth in Section 6.10(a). "Exit Costs" shall have the meaning set forth in the Plan. "Exit Financing" means (a) the credit facilities for post-Effective Date operations, substantially on the terms set forth in the Credit Agreements and (b) the Senior Secured Notes issuance, substantially on the terms set forth in the Senior Secured Notes Indenture. "Expense Reimbursement" means the payments by Company to Purchaser and Laminar, in accordance with the provisions of Section 3.3 and Section 11.2(d) hereof, on account of Purchaser's and Laminar's actual, documented out-of-pocket costs, fees and expenses (including, without limitation, the fees and expenses of consultants, financial advisors, accountants and counsel and the costs, fees and expenses relating to Purchaser's and Laminar's due diligence) incurred in connection with the negotiation and documentation of this Agreement, the other Definitive Documents, the consummation of the Contemplated Transactions, any of the costs, fees and expenses associated with the financing sources of Purchaser (other than any arrangement, transaction, commitment or other fees under the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement) and any and all related matters. "Facilities" means any and all real property (including all buildings, fixtures or other improvements located thereon) now, hereafter or heretofore owned, leased, operated or used by Company or any of the Subsidiaries or any of their respective predecessors. "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. "FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. ss. 136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Final Deposit" shall have the meaning set forth in Section 2.2. Page 11 "Final Order" means an Order of the Bankruptcy Court that has not been reversed, stayed or modified and as to which the time to appeal or seek review, rehearing, reargument or certiorari has expired and as to which no appeal or petition for review, rehearing, reargument, stay or certiorari is pending, or as to which any right to appeal or to seek certiorari, review, or rehearing has been waived, or, if an appeal, reargument, petition for review, certiorari or rehearing has been sought, the order or judgment of the Bankruptcy Court that has been affirmed by the highest court to which the order was appealed or from which the reargument, review or rehearing was sought, or certiorari has been denied, and as to which the time to take any further appeal or seek further reargument, review or rehearing has expired. "First Lien Failure" means the failure of any of the following to be true at the Closing: (a) each of the First Lien L/C Credit Facility Credit Agreement and the International Term Loan Credit Facility Credit Agreement shall be executed and delivered by the parties thereto and in effect, and (b) all conditions precedent to consummation of the closings under such Credit Agreements shall have been satisfied or waived, other than the closing of the Second Lien L/C Credit Facility Credit Agreement, the International Revolver Credit Facility Credit Agreement or the delivery of the Tax Sharing Agreement by Purchaser. "First Lien L/C Credit Facility Credit Agreement" means the Credit Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers, the financial institutions listed therein as lenders, Deutsche Bank AG, New York Branch, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, on the Closing Date, substantially in the form attached as Exhibit C-l hereto. "Foreign Utility Company" means a foreign utility company within the meaning of 15 U.S.C. Section 79z-5b(a)(3). "FPA" means the Federal Power Act, as amended. "FUCO" shall have the meaning set forth in Section 4.24(c). "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time. "Geothermal Sale" shall have the meaning set forth in the Plan. "Governmental Approval" means (a) any authorization, consent, approval, license, lease, ruling, permit, tariff, rate, certification, waiver, exemption, filing, variance, claim, Order of, by or with, (b) any required notice to, (c) any declaration of or with or (d) any registration by or with any Governmental Authority. "Governmental Authority" means any foreign, United States federal, state, municipal, local, territorial or other governmental department, commission, board, bureau, agency, regulatory authority, instrumentality or judicial or administrative body. "Governmental Rule" means any statute, law, regulation, ordinance, rule, Order, Governmental Approval, concession, grant, franchise, agreement, directive, requirement of, or other governmental restriction or any similar binding form of decision of or determination by, or any binding interpretation or administration of any of the foregoing by, any Governmental Authority, now in effect. "Hazardous Materials" means (a) any chemical, material or substance at any time defined as or included in the definition of (i) "hazardous wastes" or "mixed wastes" as defined in RCRA or in any other Environmental Law; (ii) Page 12 "hazardous substances", "pollutants" or "contaminants" as defined in CERCLA or in any other Environmental Law; (iii) "chemical substances" or "mixtures" as defined in TSCA or any other substance which is tested pursuant to TSCA or any other Environmental Law, or the manufacture, processing, distribution, use or disposal of which is regulated or prohibited pursuant to TSCA or any other Environmental Law, including without limitation polychlorinated biphenyls and electrical equipment which contains any oil or dielectric fluid containing regulated concentrations of polychlorinated biphenyls; (iv) "insecticides", "fungicides", "pesticides" or "rodenticides" as defined in FIFRA or any other Environmental Law; or (v) "infectious waste" or "biohazardous waste" as defined in any Environmental Law; (b) asbestos or any asbestos-containing materials; (c) urea formaldehyde foam insulation; (d) any oil, petroleum, petroleum fraction or petroleum derived substance; (e) any drilling fluids, produced waters and other wastes associated with the exploration, development or production of crude oil, natural gas or geothermal resources; (f) any flammable substances or explosives; (g) any radioactive materials; and (h) any other chemical, material or substance, exposure to which is prohibited, limited or regulated by any Governmental Authority or which may or could pose a hazard to the health and safety of the owners, occupants or any Persons in the vicinity of any Facility or to the indoor or outdoor environment. "Hazardous Materials Activity" means any past, current, proposed or threatened activity, event or occurrence involving any Hazardous Materials, including the use, manufacture, possession, storage, holding, presence, existence, location, Release, threatened Release, discharge, placement, generation, transportation, processing, construction, treatment, abatement, removal, remediation, disposal, disposition or handling of any Hazardous Materials, and any corrective action or response action with respect to any of the foregoing. "Heber Reorganization Plan" shall have the meaning set forth in the Plan. "Indebtedness" shall mean (a) all indebtedness for borrowed money or for the deferred purchase price of property or services (other than current trade liabilities incurred in the ordinary course of business and payable in accordance with customary practices); (b) any other indebtedness that is evidenced by a note, bond, debenture or similar instrument; (c) all obligations under financing leases; (d) all obligations in respect of acceptances issued or created; (e) all liabilities secured by any lien on any property; and (f) all guarantee obligations. "Intellectual Property" means all Patents, Trademarks, Copyrights, Software and Trade Secrets used in or necessary for the conduct of the business of Company and the Subsidiaries as currently conducted that are material to the condition (financial or otherwise), business or operations of Company and the Subsidiaries, taken as a whole. "Initial Deposit" shall have the meaning set forth in Section 2.2. "Insurance Regulator" means any Governmental Authority that regulates the insurance operations and business of an Insurer or an insurance holding company. "Insurer" means each of the insurance subsidiaries or Affiliates of Purchaser engaged in the business of insurance. "Interim Financials" shall have the meaning set forth in Section 4.7(a). "International Intercreditor Agreement" means the Intercreditor Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers and the financial institutions listed therein as Page 13 lenders, agents and/or trustees on the Closing Date, substantially in the form attached as Exhibit C-6 hereto. "International Project" shall have the meaning set forth in Section 4.23. "International Power Project" means a Project located outside of the United States which generates electricity for sale. "International Revolver Credit Facility Credit Agreement" means the Credit Agreement to be entered into by reorganized CPIH, each of its subsidiaries party thereto as borrowers and the financial institutions listed therein or other financial institutions of sound reputation as lenders and/or agents on the Closing Date, substantially in the form attached as Exhibit C-4 hereto. "International Term Loan Credit Facility Credit Agreement" means the Credit Agreement to be entered into by reorganized CPIH, each of its subsidiaries party thereto as borrowers, the financial institutions listed therein as lenders, Deutsche Bank AG, New York Branch, as Documentation Agent, and Bank of America, N.A., as Administrative Agent, on the Closing Date, substantially in the form attached as Exhibit C-3 hereto. "Investment Entity" shall mean any corporation or other organization, whether incorporated or unincorporated, of which on the Effective Date and after giving effect to the Contemplated Transactions, Reorganized Covanta shall own any equity interest, directly or indirectly, which is not a direct or indirect Subsidiary, including but not limited to any foreign Investment Entity. "Investment Motion" shall have the meaning set forth in Section 6.7(c). "Investors" means SZ Investments, L.L.C., Laminar and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series. "IRS" means the Internal Revenue Service. "ISRA" shall have the meaning set forth in Section 6.8. "Laminar" means D. E. Shaw Laminar Portfolios, L.L.C. "Legal Proceeding" means any action, suit, proceeding, hearing or investigation of, in or before any court or quasi-judicial or administrative agency of any federal, state, local or foreign jurisdiction or before any arbitrator. "Liabilities" shall have the meaning set forth in Section 4.7(a). "Lien" means any lien, pledge, mortgage, deed of trust, security interest, claim, lease, license, charge, option, right of first refusal, easement, servitude, transfer restriction, encumbrance or any other restriction or limitation whatsoever. "Liquidation Plan" means the Amended Joint Plan of Liquidation in the form attached as Exhibit E-2 hereto. "Marine Services Affiliate" means each of the Affiliates of Purchaser engaged in integrated marine transportation services or the vessel leasing business. "Material Adverse Effect on Company" means, in each case after giving effect to the provisions of the Plan, (a) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Reorganized Covanta and the Subsidiaries, considered as a whole, or (b) the Page 14 effect of preventing or materially interfering with Company's or Reorganized Covanta's ability to consummate the Contemplated Transactions; provided that no effect resulting, individually or in the aggregate, from macro-economic events or general market- related changes shall be a Material Adverse Effect on Company unless Company is affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses. "Material Adverse Effect on Purchaser" means (a) a material adverse effect upon the business, operations, properties, assets or condition (financial or otherwise) of Purchaser and its subsidiaries, considered as a whole, or (b) the effect of preventing or materially interfering with Purchaser's ability to consummate the Contemplated Transactions; provided that no effect resulting, individually or in the aggregate, from macro-economic events or general market-related changes shall be a Material Adverse Effect on Purchaser unless Purchaser is affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses. "Material Contract" means (a) the principal lease agreement, if any, the principal service agreement, if any, and the principal operating agreement, if any, with respect to each Project that will be part of Reorganized Covanta to which Reorganized Covanta or any of the Subsidiaries will be a party on or after the Effective Date (after giving effect to the provisions of the Plan), and (b) any other material contract or other material arrangement with respect to each Project that will be part of Reorganized Covanta to which Reorganized Covanta or any Subsidiary will be a party on or after the Effective Date (after giving effect to the provisions of the Plan). "Monthly Management Reports" shall have the meaning set forth in Section 6.14(a). "Multiemployer Plan" means any Company Employee Benefit Plan that is a "multiemployer plan" as defined in Section 3(37) of ERISA. "New Common Stock" shall have the meaning set forth in the Recitals. "NJDEP" shall have the meaning set forth in Section 6.8. "Non-Exempt Qualifying Facility Project" shall have the meaning set forth in Section 4.24(b). "Operational Cash Flow Adjustment" means, for each completed calendar week from January 3, 2004 through the Closing Date, the difference between (A) operational cash flow for that week pertaining solely to the domestic operational cash flow of businesses of the Company and its subsidiaries (other than CPIH and its subsidiaries and the subsidiaries included in the Geothermal Sale (the "Geothermal Operations")) and (B) $500,000, with excess operational cash flows being reflected as a positive number and operational cash flow shortfalls being reflected as a negative number; provided that, all overhead expenditures of the Geothermal Operations shall be included in the determination of domestic operational cash flow. For the avoidance of doubt, international overhead incurred by the domestic operations, reorganization costs and other non-operational expenses shall not be included in domestic operational cash flow. "Order" means an order, judgment, injunction, award, decree or writ. "Patents" means any foreign or United States patents and patent applications, including any divisions, continuations, continuations-in-part, substitutions or reissues thereof, whether or not patents are issued on such applications and whether or not such applications are modified, withdrawn or resubmitted. "PBGC" means the Pension Benefit Guaranty Corporation or any successor Page 15 thereto. "Pension Plan" means any Benefit Plan, other than a Multiemployer Plan, which is subject to section 412 of the Internal Revenue Code or section 302 of ERISA. "Performance Guarantees" shall have the meaning set forth in the DIP Agreement. "Permitted Liens" means "Permitted Encumbrances" as defined in the DIP Agreement. "Person" means any individual, corporation, partnership, limited liability company, firm, joint venture, association, joint-stock company, trust, unincorporated organization, Governmental Authority or other entity. "Petition Date" means each of April 1, 2002 and June 6, 2003. "Plan" means the Second Joint Plan of Reorganization (in form and substance reasonably acceptable to Purchaser) for Company and certain of the Debtors, and all exhibits and supplements thereto (each in form and substance reasonably acceptable to Purchaser), as amended, modified or supplemented by Company in accordance with the Bankruptcy Code, the Bankruptcy Rules and the terms of this Agreement (all such amendments, modifications or supplements in form and substance reasonably acceptable to Purchaser), pursuant to which the Contemplated Transactions will be authorized and approved in accordance with the terms of this Agreement, substantially in the form attached hereto as Exhibit E-l. "Pro Forma Income Tax Calculations" shall have the meaning set forth in Section 6.12(a). "Proceedings" shall have the meaning set forth in Section 4.13. "Project" means each Domestic Project and International Project. "PUHCA" means the Public Utility Holding Company Act of 1935, as amended. "Purchased Shares" shall have the meaning set forth in Section 3.1. "Purchaser" shall have the meaning set forth in the Preamble. "Purchaser Disclosure Schedule" means the Purchaser Disclosure Schedule attached hereto. "PURPA" means the Public Utility Regulatory Policies Act of 1978, as amended. "Qualifying Cogeneration Facility" means a cogeneration facility that satisfies the requirements of a "qualifying facility" set forth in 18 C.F.R. ss.292.203(b), as amended from time to time. "Qualifying Small Power Production Facility" means a small power production facility that satisfies the requirements of a "qualifying facility" set forth in 18 C.F.R. ss.292.203(a), as amended from time to time. "Qualifying Facility" means either a Qualifying Small Power Production Facility or a Qualifying Cogeneration Facility. "Qualifying Facility Self Recertification" shall have the meaning set forth in Section 7.13. Page 16 "RCRA" means the Resource Conservation and Recovery Act, as amended (42 U.S.C. ss. 6901 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Real Property" means all real property that is owned, leased or used by Company, any Subsidiary or that is reflected as an asset of Company or any Subsidiary on the Balance Sheet. "Regulatory Agreement" shall have the meaning set forth in Section 4.26. "Release" means any releasing, spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing or migrating of Hazardous Materials into the indoor or outdoor environment (including the abandonment, discarding or disposal of any barrels, containers or other closed receptacles containing any Hazardous Materials), including the movement of any Hazardous Materials through the air, soil, surface water or groundwater. "Reorganized Covanta" shall have the meaning set forth in the Recitals. "Required Consent" means a consent required so that the execution, delivery or performance by Company of this Agreement, the consummation of the Contemplated Transactions and the assumption or continued enforcement thereof by Reorganized Covanta or any Subsidiary will not (a) result in any breach of or constitute a default (or an event which with or without notice or lapse of time or both would become a default) under, or give to others any right of termination, amendment, acceleration or cancellation of, a Material Contract or (b) result in the creation of any Lien, other than a Permitted Lien, on any property or asset of Company, Reorganized Covanta or any Subsidiary, with an individual value in excess of $1,000,000 or an aggregate value in excess of $5,000,000. "Required Governmental Approvals" shall have the meaning set forth in Section 4.10(a). "Restated Bylaws" means the bylaws of Reorganized Covanta, as amended and restated in connection with the Plan. "Restated Certificate of Incorporation" means the certificate of incorporation of Reorganized Covanta, as amended and restated in connection with the Plan. "Retained Cash" means, if Additional Distributable Cash (as defined in the Plan) is equal to $7.2 million, an amount of cash equal to twenty-five percent (25%) of Post-Closing Cash (as defined in the Plan) in excess of the total of Distributable Cash (as defined in the Plan) plus Additional Distributable Cash. "SEC" means the Securities and Exchange Commission or successor agency thereto. "SEC Documents" shall have the meaning set forth in Section 4.22. "Second Lien L/C Credit Facility Credit Agreement" means the Credit Agreement to be entered into by Reorganized Covanta, each of its Subsidiaries party thereto as borrowers and the financial institutions listed therein as lenders and/or agents on the Closing Date, substantially in the form attached as Exhibit C-2 hereto; provided that there shall be an Issuing Lender (as defined therein) capable of issuing the $50 million letter of credit required by Company's Montgomery Project, that has a credit rating of at least Aa from Moody's or AA from Standard & Poor's, provided further that the Commitment Letter and related term sheet of Bank One, NA dated December 2, 2003, shall not Page 17 be considered in determining whether conditions or covenants hereunder referencing the Second Lien L/C Credit Facility Credit Agreement are fulfilled or performed. "Senior Secured Notes" means, collectively, the notes to be issued on the Effective Date by Reorganized Covanta pursuant to the Senior Secured Notes Indenture in the face amount of $230 million and an initial accreted amount of $205 million. "Senior Secured Notes Indenture" means the Indenture to be entered into by Reorganized Covanta and each of its Subsidiaries party thereto and the trustee named therein, substantially in the form attached as Exhibit D hereto. "Software" means any computer software programs, source code, object code, data and documentation (other than commercially available "shrink wrap" software). "Subsidiary" means, any corporation or other organization, whether incorporated or unincorporated, of which, as of the Effective Date and after giving effect to the Contemplated Transactions, (a) at least a majority of the securities or other interests having by their terms ordinary voting power to elect a majority of the board of directors or others performing similar functions with respect to such corporation or other organization will be held directly or indirectly, owned or controlled by Reorganized Covanta or (b) Reorganized Covanta or any Subsidiary will be a general partner or managing member, including but not limited to any foreign Subsidiaries. "Superior Proposal" shall have the meaning set forth in Section 6.10(b). "Tangible Property" shall have the meaning set forth in Section 4.15. "Tax Note" means the note(s) to be issued on the Effective Date by Reorganized Covanta in respect of certain tax claims pursuant to Section 2.4 of the Plan, which shall be in form and substance reasonably acceptable to Purchaser and Company. "Tax Sharing Agreement" means that certain Tax Sharing Agreement to be entered into among Purchaser, Company and CPIH on the Closing Date, substantially in the form attached as Exhibit F hereto. "Taxes" means all taxes, however denominated, including any interest or penalties that may become payable in respect thereof, imposed by any federal, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income taxes (including, but not limited to, United States federal income taxes and state income Taxes), payroll and employee withholding taxes, unemployment insurance, social security, sales and use taxes, excise taxes, environmental, franchise taxes, gross receipts taxes, occupation taxes, real and personal property taxes, stamp taxes, transfer taxes, withholding taxes, workers' compensation, and other obligations of the same or of a similar nature, whether arising before, on or after the Closing Date. "Termination Fee" shall have the meaning set forth in the Section 11.2(b). "Trade Secrets" means any trade secrets, research records, processes, procedures, manufacturing formulae, technical know-how, technology, blue prints, designs, plans, inventions (whether patentable and whether reduced to practice), invention disclosures and improvements thereto. "Trademarks" means any foreign or United States trademarks, service marks, trade dress, trade names, brand names, designs and logos, corporate Page 18 names, product or service identifiers, whether registered or unregistered, and all registrations and applications for registration thereof. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C. ss. 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "Unpaid Pro Forma Tax Liability" shall have the meaning set forth in Section 6.12(b). "Unsecured Notes" means the notes to be issued on or after the Effective Date pursuant to the Unsecured Notes Indenture by Reorganized Covanta in the amount of the Allowed Class 4 Claims (as defined in the Plan) plus $4 million. "Unsecured Notes Indenture" means the indenture to be entered into by Reorganized Covanta and the trustee named therein on the Closing Date in accordance with the Plan, which shall be in form and substance reasonably acceptable to Purchaser and Company. 2. Actions Upon Signing; Deposit. 2.1. Approval Order. Promptly following the execution and delivery of this Agreement, and in accordance with the provisions of Section 6.7, Company shall use commercially reasonable efforts to obtain the Approval Order. 2.2. Payment of Deposit. Concurrent with the execution and delivery of this Agreement, Purchaser shall pay or cause to be paid by wire transfer of immediately available funds, $15,000,000 (the "Initial Deposit"), to a bank selected by Company and reasonably acceptable to Purchaser (the "Escrow Agent") to be held pursuant to an escrow agreement substantially in the form of Exhibit B hereto (the "Deposit Escrow Agreement"). Within two (2) Business Days following the entry of the Approval Order, Purchaser shall pay or cause to be paid by wire transfer of immediately available funds, $15,000,000 (the "Final Deposit" and, together with the Initial Deposit, the "Deposit"), to the Escrow Agent to be held pursuant to the Deposit Escrow Agreement. Upon receipt of each of the Initial Deposit and the Final Deposit, the Escrow Agent shall immediately deposit such Deposit into an interest-bearing account. The Escrow Agent shall hold the Deposit until the earlier of (a) the Closing Date, at which time the Deposit shall be applied to the payment of the Consideration in accordance with Section 3.2 and (b) the termination of this Agreement, at which time the Deposit shall be applied in accordance with Section 11.2(c). The Escrow Agent's escrow fees and charges shall be paid one-half by Company and one-half by Purchaser. Purchaser and Company agree to provide written instructions to the Escrow Agent providing for the release of the Deposit in accordance with the terms of this Section 2.2. 3. Closing; Closing Date; Expense Reimbursement. The closing of the issuance and purchase of the Purchased Shares contemplated hereby (the "Closing") shall take place, on the terms and subject to the conditions set forth herein, at the offices of Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006 (or such other place as Purchaser and Company may agree), at 9:30 a.m., New York City time, on the Effective Date, provided that all of the conditions to the Closing set forth in Sections 7 and 8 shall have been satisfied or waived by the party entitled to waive the same. The time and date upon which the Closing occurs is herein called the "Closing Date." 3.1. Issuance and Purchase of New Common Stock. At the Closing, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements contained herein, Reorganized Covanta shall issue, sell, convey, assign, transfer and deliver to Purchaser, and Purchaser shall purchase and acquire from Reorganized Covanta, Page 19 all the shares of New Common Stock (the "Purchased Shares"), representing 100% of the equity of Reorganized Covanta immediately following the Closing, for an aggregate purchase price of $30,000,000 (the "Consideration"), free and clear of any and all Liens. 3.2. Funding. At the Closing, the Escrow Agent shall release the Deposit to Company in accordance with the written instructions of Purchaser and Company pursuant to Section 2.2, and Company shall apply the Deposit to the Consideration. At the Closing, the Escrow Agent shall release the interest earned on the Deposit to Purchaser. 3.3. Payment of Expense Reimbursement. (a) As soon as commercially practicable (but in no event later than two (2) Business Days following the entry of the Approval Order), Company shall pay or cause to be paid to Purchaser up to a maximum of $3,000,000 of actual, documented costs, fees and expenses incurred by Purchaser and covered by the Approval Order, by wire transfer of immediately available funds to an account designated in writing by Purchaser. (b) From and after the entry of the Approval Order, Laminar may send periodic invoices to Company for out-of-pocket fees and expenses incurred by Laminar that are covered by the Approval Order, and Company shall promptly reimburse Laminar (by payment in such manner as Laminar may reasonably direct) for such expenses, up to a maximum of $350,000. The $350,000 of Laminar Expense Reimbursement shall be incremental to any expense reimbursements to which Laminar may otherwise be contractually or otherwise entitled pursuant to an order of the Bankruptcy Court, except that Laminar shall not be entitled to any duplicative recovery of fees and expenses. Laminar shall be a third party beneficiary of this Section 3.3 with the full right to enforce it. (c) At Closing (or termination of this Agreement, if applicable, and so long as Company shall not have terminated, or shall not have the right to terminate, this Agreement pursuant to (i) Section 11.1(b) (solely in connection with a failure of the condition set forth in Section 8.1(a) or 8.4 (if such failure is not the result of a Company Failure and there has not been a First Lien Failure) or (ii) Section 11.1(d)), Company shall pay or cause to be paid to Purchaser by wire transfer of immediately available funds to an account designated in writing by Purchaser an amount equal to the actual, documented costs, fees and expenses incurred by Purchaser and covered by the Approval Order outstanding on the Closing Date or the date of such termination, in each case as set forth in an invoice from Purchaser, such amount not to exceed $1 million (in addition to any other amounts payable pursuant to this Agreement). 3.4. Company Deliverables. (a) At the Closing, upon delivery of the Consideration, Company agrees to deliver to Purchaser and/or its designees and assigns stock certificates representing the Purchased Shares, each such certificate to be duly and validly endorsed in favor of Purchaser and/or its designees and assigns sufficient to vest in Purchaser and/or its designees and assigns good and valid title to such Purchased Shares, free and clear of any and all Liens. (b) At the Closing, Company agrees to, and agrees to cause the Subsidiaries to, deliver to Purchaser (i) the certificate referred to in Section 7.1(c), (ii) evidence of the Required Consents and Required Governmental Approvals referred to in Section 7.2, (iii) the Qualifying Facility Self Recertifications referred to in Section 7.13, (iv) all other previously undelivered documents required to be delivered by Company (including Reorganized Covanta) or any Subsidiary to Purchaser at or prior to the Closing pursuant to the terms hereof, (v) executed copies of the forms referred to in Section 7.17 and (vi) any and all other documents reasonably requested by Purchaser. 3.5. Purchaser Deliverables. (a) At the Closing, upon delivery of the Purchased Shares, Purchaser agrees to pay, or cause to be paid pursuant Page 20 to Section 3.2 of this Agreement, the Consideration to Company. (b) At the Closing, Purchaser agrees to (i) deliver to Company the certificate referred to in Section 8.1(c), (ii) (A) subject only to the conditions to Purchaser's obligations set forth in Section 7 of this Agreement, arrange for execution and delivery of (x) the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement by the lenders and/or agents thereunder and (y) the Tax Sharing Agreement by Purchaser and (B) if there has been no Company Failure and there has not been a First Lien Failure, cause the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement to be available at the Closing for issuance of letters of credit and loans, (iii) deliver to Company all other previously undelivered documents required to be delivered by Purchaser to Company at or prior to the Closing pursuant to the terms hereof and (iv) deliver to Company any and all other documents reasonably requested by Company. 4. Representations and Warranties of Company. In the event of any inconsistency between statements in the body of this Agreement and statements in the Company Disclosure Schedule (excluding exceptions expressly set forth in the Company Disclosure Schedule), the statements in the body of this Agreement shall control. Matters disclosed in one section of the Company Disclosure Schedule shall be deemed disclosed for purposes of other representations and warranties (including, without limitation, the representations and warranties set forth in Section 4.8) of Company (and Reorganized Covanta) to the extent the applicability of such disclosure to such other representations and warranties is reasonably apparent. Company (including Reorganized Covanta) hereby represents and warrants, on behalf of itself and its Subsidiaries as follows: 4.1. Due Incorporation and Authority. Company is on the date hereof, and Reorganized Covanta will be on the Effective Date, a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Company has on the date hereof, and Reorganized Covanta will have on the Effective Date, all requisite corporate power and authority to own, lease and operate its properties and to carry on its business as currently conducted by Company. 4.2. Subsidiaries and Investment Entities. Section 4.2(i) of the Company Disclosure Schedule is a true and complete list of all Subsidiaries and Section 4.2(ii) of the Company Disclosure Schedule is a true and complete list of all Investment Entities (noting, (a) the jurisdiction of organization of each such Subsidiary and Investment Entity, (b) all domestic and foreign jurisdictions in which Reorganized Covanta, such Subsidiaries and, to the knowledge of Company, such Investment Entities are qualified to transact business, (c) the ownership interest therein of Reorganized Covanta, each Subsidiary and each Investment Entity, in each case as of the Effective Date and after giving effect to the Contemplated Transactions, (d) if not to be wholly-owned by Reorganized Covanta or the Subsidiaries, to the knowledge of Company, the identity and ownership interest of each of the other owners of such Subsidiary and each Investment Entity, and (e) the federal tax status of Reorganized Covanta, each Subsidiary and, to the knowledge of Company, each Investment Entity as a corporation, partnership or disregarded entity). Section 4.2(iii) of the Company Disclosure Schedule contains a complete and accurate organizational chart, as of the Effective Date and after giving effect to the Contemplated Transactions, of Reorganized Covanta, the Subsidiaries and the Investment Entities. Each of the Subsidiaries and, to the knowledge of Company, each of the Investment Entities is an entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization and has all requisite corporate or equivalent power and authority to own, lease and operate its properties and carry on its business as currently conducted, except where failure to be in good standing, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. Page 21 4.3. Foreign Qualification. Company and each of the Subsidiaries is, Reorganized Covanta will be and, to the knowledge of Company, each of the Investment Entities is, duly qualified or otherwise authorized as a foreign entity to transact business and is in good standing in each jurisdiction in which such qualification or authorization is required by Governmental Rule, except where failure to be so qualified, authorized or in good standing, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. 4.4. Outstanding Capital Stock. The authorized and issued shares of capital stock or other ownership interests of Reorganized Covanta and each Subsidiary and, to the knowledge of Company, each Investment Entity are set forth in Section 4.4(i) of the Company Disclosure Schedule. Except as set forth in Section 4.4(ii) of the Company Disclosure Schedule, as of the Effective Date and after giving effect to the Contemplated Transactions, Reorganized Covanta's or any of the Subsidiaries' equity interest in any Subsidiary or, to the knowledge of Company, any Investment Entity will be owned by Reorganized Covanta or such Subsidiary free and clear of any Liens, other than Liens under the Exit Financing and Liens set forth in Section 4.4(ii) of the Company Disclosure Schedule. At the Closing, after giving effect to the Contemplated Transactions, all of the outstanding shares of capital stock of Reorganized Covanta and the Subsidiaries will be, and Reorganized Covanta's or any of the Subsidiaries' equity interests in any Investment Entity will be, duly authorized and validly issued, fully paid and nonassessable. Except as set forth in Section 4.4(i) of the Company Disclosure Schedule, at the Closing, no other shares of capital stock or other ownership interests of Reorganized Covanta or any of the Subsidiaries will be authorized or outstanding. On the Closing Date, Reorganized Covanta will have full power and authority to issue and deliver free and clear of any Lien, the Purchased Shares, and, upon delivery of and payment for the Purchased Shares at the Closing as herein provided, Reorganized Covanta will convey to Purchaser good and valid title thereto, free and clear of any Liens. 4.5. Options or Other Rights. Except as set forth in Section 4.5 of the Company Disclosure Schedule, as of the Effective Date and after giving effect to the provisions of the Plan, there will be no outstanding right, subscription, warrant, call, preemptive right, option or other agreement of any kind to purchase or otherwise receive from Reorganized Covanta or any Subsidiary any of the outstanding, authorized but unissued, unauthorized or treasury shares of the capital stock or any other ownership interest of Reorganized Covanta or any Subsidiary, and there will be no outstanding security of any kind of Reorganized Covanta or any Subsidiary convertible into any such capital stock or other ownership interest. 4.6. Authority Relative to this Agreement. Except for any required approvals of the Bankruptcy Court, Company has all necessary corporate power and authority to execute and deliver this Agreement and, upon receipt of any required approval of the Bankruptcy Court, to perform its obligations hereunder. The execution and delivery of this Agreement by Company, the performance by Company (including Reorganized Covanta) of its obligations hereunder and the consummation by Company (including Reorganized Covanta) of the Contemplated Transactions have been duly authorized by all requisite corporate action on the part of Company. This Agreement has been duly and validly executed and delivered by Company and (assuming due authorization, execution and delivery hereof by Purchaser and upon receipt of any required approval of the Bankruptcy Court) will constitute the legal, valid and binding obligation of Company (including Reorganized Covanta) enforceable against Company (including Reorganized Covanta) in accordance with its terms, subject to the effect of any applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally and subject, as to enforceability, to the effect of general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Page 22 4.7. Financial Statements. (a) The consolidated balance sheets of Company as of December 31, 2000, 2001 and 2002 and the related consolidated statements of income, shareholders' equity and changes in financial position for the years then ended, including the notes thereto, audited by Deloitte & Touche LLP, independent certified public accountants, which have been delivered to Purchaser, set forth the consolidated financial position of Company and its consolidated subsidiaries as at such dates and the consolidated results of operations of Company and such subsidiaries for such periods, in each case in accordance with GAAP consistently applied for the periods covered thereby. The foregoing consolidated financial statements of Company as of December 31, 2000, 2001 and 2002 and for the years then ended are sometimes herein called the "Audited Financials." The unaudited consolidated balance sheet of Company as of September 30, 2003, and the related consolidated statements of income, shareholders' equity and changes in financial position for the quarter than ended, including the notes thereto, which have been delivered to Purchaser, set forth the consolidated financial position of Company and its consolidated subsidiaries as at such dates and the consolidated results of operations of Company and such subsidiaries for the quarter ended September 30, 2003, in each case in accordance with GAAP applied on a basis consistent with that of the Audited Financials (subject to normal year-end adjustments consistent with past practice). The foregoing unaudited consolidated financial statements of Company and its consolidated subsidiaries as of and for the quarter ended September 30, 2003 are sometimes herein called the "Interim Financials," the consolidated balance sheet included in the Interim Financials is sometimes herein called the "Balance Sheet," and September 30, 2003 is sometimes herein called the "Balance Sheet Date." Each of the financial statements referenced above have been prepared from, are in accordance with and accurately reflect the books and records of Company and its consolidated subsidiaries, comply in all material respects with applicable accounting requirements (including GAAP and fairly present the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of Company and its consolidated subsidiaries as of the times and for the periods referred to therein (subject, in the case of unaudited statements, to normally recurring year-end audit adjustments which are not material either individually or in the aggregate, consistent with past practice and in accordance with GAAP). Except as reflected in the Interim Financials or as set forth in Section 4.7 of the Company Disclosure Schedule, neither Company nor any consolidated subsidiary has any direct or indirect indebtedness, liability, Claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise ("Liabilities") except for (i) Liabilities that will be fully discharged in the Case at the Effective Date, (ii) Liabilities that have arisen since the Balance Sheet Date in the ordinary course of business of Company and its consolidated subsidiaries, (iii) Contingent Obligations and Performance Guarantees that are permitted under the DIP Agreement and (iv) unclaimed contingent liabilities that exist under the primary operating agreements with respect to Projects or insurance policies of Company. (b) The Monthly Management Reports which are to be delivered to Purchaser pursuant to Section 6.14(a), will (i) be prepared in good faith from and consistent with the books and records of Company and its subsidiaries and (ii) fairly present the consolidated financial position and the consolidated results of operations and cash flows (and changes in financial position, if any) of Company and its consolidated subsidiaries as of the times and for the periods referred to therein (subject to normally recurring year end adjustments which are not material either individually or in the aggregate, consistent with past practice). (c) All accounts receivable of Company and each Subsidiary, whether reflected in the Balance Sheet or otherwise, represent sales actually made in the ordinary course of business and are valid and collectible net of any reserves shown on the Balance Sheet. Page 23 4.8. No Material Adverse Change. (a) Except as set forth in Section 4.8 of the Company Disclosure Schedule, as disclosed in Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003 or as disclosed in materials filed with the Bankruptcy Court, since December 31, 2002, there has been no change, event or occurrence which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Company, and none of Company or any of the Subsidiaries knows of any such change, event or occurrence which is threatened, nor has there been any damage, destruction or loss which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Company, whether or not covered by insurance. (b) Except as set forth in Section 4.8 of the Company Disclosure Schedule, as disclosed in Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, as disclosed in materials filed with the Bankruptcy Court or as specifically contemplated herein or in the Plan, (x) since December 31, 2002, Company and each Subsidiary has conducted its respective business only in the ordinary and usual course consistent with past practice, and (y) neither Company nor any Subsidiary has: (i) paid, discharged or satisfied any Claim, liability or obligation (whether absolute, accrued, contingent or otherwise) with a value in excess of $1,000,000 in the aggregate, other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice of Claims, liabilities and obligations reflected or reserved against in the Balance Sheet or incurred in the ordinary course of business and consistent with past practice since the Balance Sheet Date; (ii) permitted or allowed any of its property or assets (real, personal or mixed, tangible or intangible) to be subjected to any Lien (other than Permitted Liens); (iii) cancelled any debts or waived any claims or rights with a value in excess of $1,000,000 in the aggregate; (iv) sold, transferred or otherwise disposed of any of its properties or assets (real, personal or mixed, tangible or intangible) with a value in excess of $1,000,000 in the aggregate, except in the ordinary course of business and consistent with past practice; (v) disposed of or permitted to lapse any rights to the use of any material Intellectual Property, or, to the knowledge of Company, disclosed to any Person other than representatives of Purchaser any trade secret, formula, process, know-how or other Intellectual Property material to its business not theretofore a matter of public knowledge; (vi) made any capital expenditure or commitment that was not permitted under the DIP Agreement; (vii) except as required by FASB 143, made any change in any method of accounting or accounting practice; (viii) paid, loaned or advanced any amount to, or sold, transferred or leased any individual property or asset (real, personal or mixed, tangible or intangible) with an aggregate value in excess of $1,000,000 to, or entered into any agreement or arrangement with, any of its officers or directors or any Affiliate or associate of any of its officers or directors; or (ix) agreed, whether in writing or otherwise, to take any action described in this section. Page 24 4.9. Compliance with Governmental Rules. Except as set forth in Section 4.9 of the Company Disclosure Schedule, none of Company, any Subsidiary, nor, to the knowledge of Company, any Investment Entity, is in material violation of any material applicable Governmental Rule (other than Governmental Rules relating to the environment, which are addressed in Section 4.12, Governmental Rules relating to Taxes, which are addressed in Section 4.27, and Governmental Rules relating to Benefit Plans, which are addressed in Section 4.18) and none of Company, any Subsidiary, and to the knowledge of Company, any Investment Entity, has received notice that any such violation is being or may be alleged. 4.10. Governmental Approvals. (a) Except for Governmental Approvals set forth in Section 4.10 of the Company Disclosure Schedule (the "Required Governmental Approvals"), (i) no action by Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, is required under any Governmental Rule for the execution, delivery or performance of this Agreement by Company, Reorganized Covanta, any Subsidiary or any Investment Entity and consummation of the Contemplated Transactions and (ii) no action by Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, or Purchaser is required in order that all Governmental Approvals will remain in full force and effect following the consummation of the Contemplated Transactions. (b) All Governmental Approvals that are required for the conduct of the business of, or the use of any property of, Company (including Reorganized Covanta), any of the Subsidiaries or, to the knowledge of Company, any Investment Entity (i) have been duly obtained, (ii) are in full force and effect, (iii) are not subject to appeal or all applicable appeal periods have expired (except Governmental Approvals that do not have limits on appeal periods under Governmental Rules), (iv) have not been suspended or cancelled and, to the knowledge of Company, no suspension or cancellation has been threatened, (v) are held in the name of Company (including Reorganized Covanta) or any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities, as applicable, and (vi) are free from conditions or requirements that would materially limit the conduct of the business of, or the use, consistent with past practice, of any property of, Company (including Reorganized Covanta) or any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities except for such matters that, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Company. (c) Company and each of the Subsidiaries are in compliance in all material respects with, all applicable material Governmental Approvals. 4.11. No Breach. (a) The execution and delivery of this Agreement by Company does not, and, assuming approval of this Agreement and confirmation of the Plan by the Bankruptcy Court, the performance of this Agreement by Company (including Reorganized Covanta) and the consummation of the Contemplated Transactions will not: (i) conflict with or violate any provision of any certificate of incorporation or by-laws of Company or Reorganized Covanta (to the extent that such document is then governing such entity) or any equivalent organizational documents of any Subsidiary or, to the knowledge of Company, Investment Entity; (ii) conflict with or violate any material Governmental Rule or Governmental Approval applicable to Company, Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity, or by which any property or asset of Company, Reorganized Covanta, any Subsidiary with an aggregate value in excess of $1,000,000 is or may be bound or affected; or Page 25 (iii) assuming that all Required Consents have been obtained or deemed by operation of the Plan or the Confirmation Orders to be given, result in any breach of or constitute a default (or an event which with or without notice or lapse of time or both would become a default) under, result in the acceleration of, or give to others any right of termination, amendment, modification, acceleration or cancellation of, or result in the creation of an Lien, other than Liens under the Credit Agreements and Senior Secured Notes Indenture and any Liens permitted under the Credit Agreements, or require any notice, consent or waiver under any Material Contract. (b) Section 4.11(b) of the Company Disclosure Schedule identifies each Material Contract in respect of which a Required Consent must be obtained. (c) Except as noted in Section 4.11(c) of the Company Disclosure Schedule, no Material Contract contains any restriction upon (i) the prepayment of any Exit Financing, (ii) the incurrence of Indebtedness by Company or any Subsidiary or (iii) the ability of Company or any Subsidiary to grant any Lien on the properties or assets of Company or any Subsidiary. Section 4.11(c) of the Company Disclosure Schedule sets forth the amount of principal and unpaid interest outstanding under each instrument evidencing Indebtedness of Company and any Subsidiary, if any, that will accelerate or become due or result in a right on the part of the holder of such Indebtedness (with or without due notice or lapse of time) to require prepayment, redemption or repurchase as a result of the execution of this Agreement or the consummation of any of the Contemplated Transactions. 4.12. Environmental Matters. (a) Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have obtained all Governmental Approvals which are required under the Environmental Laws for the operation of their respective businesses and the ownership, use and operation of each of their current Facilities, all such Governmental Approvals are in effect, no appeal nor any other action is pending to revoke any such Governmental Authorization; and Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities are in full compliance with all terms and conditions of all such Governmental Approvals. Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, to the extent required by applicable Environmental Laws, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have filed (or will have filed by the Closing Date) all applications necessary to renew or obtain any necessary Governmental Approvals in a timely fashion so as to allow Company, the Subsidiaries and the Investment Entities to continue to operate their businesses in compliance with applicable Environmental Laws, and Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities know of no reason to expect that any such new, transferred or renewed Governmental Approval (i) will not be obtained or approved in a timely fashion, and (ii) will include any terms or conditions that would reasonably be expected to result in a Material Adverse Effect on Company. (b) Except as set forth in Section 4.12 of the Company Disclosure Schedule and except as would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company, Company, the Subsidiaries and, to the knowledge of Company, the Investment Entities have been and are in compliance with all applicable Environmental Laws. (c) Except as set forth in Section 4.12 of the Company Disclosure Schedule, neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities nor any of their respective Page 26 Facilities or operations are subject to any outstanding written order, consent decree or settlement agreement with any Person relating to (a) any Environmental Law, (b) any Environmental Claim or (c) any Hazardous Materials Activity, in the case of each of the foregoing, that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; (d) Except as set forth in Section 4.12 of the Company Disclosure Schedule, neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities has received any letter or request for information under Section 104 of CERCLA or any comparable state law regarding any condition, occurrence or activity that could reasonably be expected to form the basis of an Environmental Claim against Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose material liability on Purchaser; (e) Except as set forth in Section 4.12 of the Company Disclosure Schedule, there are and, to Company's knowledge, have been no conditions, occurrences, or Hazardous Materials Activities that could reasonably be expected to form the basis of an Environmental Claim against Company or any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; (f) Except as set forth in Section 4.12 of the Company Disclosure Schedule, (i) neither Company, any of its Subsidiaries nor, to the knowledge of Company, any of the Investment Entities nor, to the knowledge of Company, any predecessor of Company, any of the Subsidiaries or any of the Investment Entities has filed any notice under any Environmental Law indicating past or present treatment of Hazardous Materials at any Facility, (ii) none of Company's or any of its Subsidiaries' Facilities constitute facilities for the treatment, storage or disposal of Hazardous Materials under RCRA or any state equivalent, and (iii) none of Company's or any of its Subsidiaries' operations involves the generation, transportation, treatment, storage or disposal of hazardous waste in violation of RCRA or any state equivalent that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser; and (g) Compliance with all current requirements pursuant to or under Environmental Laws would not, individually or in the aggregate, reasonably be expected to result in a Material Adverse Effect on Company or impose liability on Purchaser. 4.13. Claims and Proceedings. Except as set forth in Section 4.13 of the Company Disclosure Schedule and except as to claims arising prior to the Petition Date that are within the jurisdiction of the Bankruptcy Court and are to be resolved in the Case or by force of the discharge granted to Company in connection with the Case, there are no actions, suits, proceedings (whether administrative, judicial or otherwise), governmental investigations or arbitrations ("Proceedings") (whether or not purportedly on behalf of Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities) at law or in equity, or before or by any court or other Government Authority (including any Environmental Claims) that are pending or, to the knowledge of Company, threatened against or affecting Company, any of the Subsidiaries or, to the knowledge of Company, any of the investment Entities or any property of Company, any of the Subsidiaries or, to the knowledge of Company, any of the investment Entities and that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. Neither Company, any of the Subsidiaries nor, to the knowledge of Company, any of the Investment Entities is subject to or in default with respect to any final judgments, writs, injunctions, decrees, rules or regulations of any Page 27 court or other Government Authority that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. 4.14. Contracts. (a) Section 4.14(a) of the Company Disclosure Schedule sets forth all of the Material Contracts as of the date hereof. (b) All of the Material Contracts (i) to which Company or any Subsidiary which is a Debtor is a party, upon the assumption thereof by Company or such Subsidiary pursuant to section 365 of the Bankruptcy Code, will be valid and binding upon Company or such Subsidiary and, to the knowledge of Company, the other party or parties thereto in accordance with their terms and (ii) to which any other Subsidiary is a party are valid and binding upon such Subsidiary and, to the knowledge of Company, the other party or parties thereto in accordance with their terms. Except as set forth in Section 4.14(b) of the Company Disclosure Schedule, neither Company nor any of the Subsidiaries is in default in any material respect under any of such Material Contracts, nor does any condition exist that with notice or lapse of time or both would constitute such a default thereunder. Except as set forth in Section 4.14(b) of the Company Disclosure Schedule, to the knowledge of Company, no other party to any such Material Contract is in default thereunder in any material respect nor does any condition exist that with notice or lapse of time or both would constitute such a default thereunder. To the knowledge of Company, no event of force majeure or other event or condition exists that permits or requires any party to a Material Contract to cancel, suspend or terminate its performance under any Material Contract to which it is a party in accordance with the terms thereof or that would excuse any such party from liability for non-performance thereunder. (c) Except as set forth in Section 4.14(c) of the Company Disclosure Schedule, Company (including Reorganized Covanta), the Subsidiaries and, to the knowledge of Company, the Investment Entities, previously have assumed in the Case or will assume on or prior to the Effective Date or pursuant to the Plan all Material Contracts necessary to continue to operate their respective businesses subsequent to the Closing as such businesses were operated on the date hereof. (d) Except as set forth in Section 4.14(d) of the Company Disclosure Schedule, there are no purchase contracts or commitments of more than twelve (12) months of Company, any Subsidiary or, to the knowledge of Company, any Investment Entity, that are not terminable by Company or such Subsidiary or, to the knowledge of Company, such Investment Entity on notice of 90 days or less, other than purchase contracts or commitments entered in the ordinary course of business that require payments by Company of less than $1,000,000 individually or in respect of substantially similar contracts with the same vendor, $1,000,000 in the aggregate. (e) Except as set forth in Section 4.14(e) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has any outstanding contracts with directors, officers or employees that are not cancelable by it on notice of not longer than thirty (30) days and without liability, penalty or premium or any agreement or arrangement providing for the payment of any bonus or commission based on sales or earnings. (f) Except as set forth in Section 4.14(f) of the Company Disclosure Schedule and except for employment or similar agreements, neither Company, any Subsidiary nor to the knowledge of Company, any Investment Entity, is restricted by agreement in any material respect from carrying on, anywhere in the world, the businesses of the development and/or operation of waste to energy projects, independent power projects or water projects. (g) Except as set forth in Section 4.14(g) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has outstanding any agreement to acquire any Page 28 debt obligations of others in an amount in excess of $100,000 in the aggregate. (h) Except as indicated in Section 4.14(h) of the Company Disclosure Schedule, neither Company nor any Subsidiary has any outstanding loan to any Person for an amount in excess of $1,000,000 in the aggregate. (i) Except as indicated in Section 4.14(i) of the Company Disclosure Schedule, neither Company, any Subsidiary nor, to the knowledge of Company, any Investment Entity, has any commitment or obligation to continue to utilize the services of, or otherwise do business with, any licensor, agent, consultant, advisor, vendor, supplier or licensee of Company, any Subsidiary or any Investment Entity that is not terminable on notice of 90 days or less, except for such services having an aggregate value less than $1,000,000. (j) All material instruments, records, agreements and other documents (including but not limited to all Material Contracts) relating to Company, any Subsidiary and, to the knowledge of Company and to the extent available to Company, any Investment Entity, have been made available to Purchaser in the data rooms in New York, New York, Fairfax, Virginia and Fairfield, New Jersey. Further, all minute books and records of Company and its Subsidiaries relating to proceedings of their respective shareholders, boards of directors and committees of their respective boards of directors other than those specific portions concerning any Alternative Transaction proposed prior to the date hereof have been made available to Purchaser, and are their original minute books and records or are true, correct and complete copies thereof (excluding those portions concerning any such Alternative Transaction), through the date hereof. In the event that definitive minutes have not been prepared with respect to any such proceedings of such shareholders, boards of directors or committees, Company and the Subsidiaries have made available to Purchaser with originals or true, correct and complete copies of draft minutes, to the extent they exist, or written agendas relating thereto, which drafts and agendas, if any, reflect all events that occurred in connection with such proceedings (excluding those portions concerning any such Alternative Transactions). 4.15. Tangible Property. The facilities, machinery, equipment, furniture, buildings and other improvements, fixtures, vehicles, structures, any related capitalized items and other tangible property material to the business of Company, its Subsidiaries and, to the knowledge of Company, the Investment Entities, taken as a whole, whether owned, leased, managed, developed or operated by Company, any Subsidiaries or any Investment Entities (the "Tangible Property") are in good operating condition and repair, subject to ordinary wear and tear and continued repair and replacement in accordance with accepted good practices for the particular industry, and are suitable for theft intended use. 4.16. Intellectual Property. As of the date hereof, Section 4.16 of the Company Disclosure Schedule contains a true, accurate and complete list of all material Intellectual Property other than Trade Secrets and, in the case of foreign Intellectual Property, as determined solely on the basis of searches of publicly available computer databases. Each of Company and the Subsidiaries owns or has the right to use all material Intellectual Property used in the conduct of its business, and none of such Intellectual Property conflicts with a right of any other Person to the extent such conflict would not reasonably be expected to result in a Material Adverse Effect on Company. 4.17. Title to Properties. (a) Company (including Reorganized Covanta), the Subsidiaries and, to the knowledge of Company, the Investment Entities and Projects have (i) good, sufficient and legal title to (in the case of fee interests in real property), (ii) valid leasehold interests in (in the case of leasehold interests in real or personal property), or (iii) good title to (in the case of all other personal property), all of their respective material properties and assets reflected in the most recent financial statements referred to in Section 4.7 or in the Monthly Management Reports and financial Page 29 statements delivered pursuant to Section 6.14, in each case except for assets disposed of since the date of such financial statements in the ordinary course of business or as otherwise permitted under Section 6.1. Except as set forth in Section 4.17 of the Company Disclosure Schedule, all such properties and assets are free and clear of Liens. (b) As of the date hereof, Section 4.17(a) of the Company Disclosure Schedule contains a true, accurate and complete list of (i) all fee interests in any Real Property and (ii) all leases, subleases or assignments of leases (together with all amendments, modifications, supplements, renewals or extensions of any thereof) affecting each Real Property, regardless of whether Company, one of the Subsidiaries or, to the knowledge of Company, one of the Investment Entities is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. Except as specified in Section 4.17(b) of the Company Disclosure Schedule, each agreement listed in clause (ii) of the immediately preceding sentence is in full force and effect and Company has no knowledge of any material default that has occurred and is continuing thereunder, and each such agreement constitutes the legally valid and binding obligation of Company, such Subsidiary or, to the knowledge of Company, such Investment Entity, enforceable against Company, such Subsidiary or, to the knowledge of Company, such Investment Entity in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles. 4.18. Employee Benefit Plans. (a) Company, each of the Subsidiaries, to the knowledge of Company, each of the Investment Entities and, with respect to Pension Plans and Multiemployer Plans, each of their ERISA Affiliates, are in material compliance with all applicable provisions and requirements of ERISA and the regulations and published interpretations thereunder with respect to each "employee benefit plan" as defined in Section 3(3) of ERISA which is maintained or contributed to by Company, any of the Subsidiaries or any of their respective ERISA Affiliates (the "Benefit Plans"), and have performed all of their material obligations under each Benefit Plan. Each Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such Benefit Plan's qualification. (b) No ERISA Event has occurred or is reasonably expected to occur. (c) Except to the extent required under Section 4980B of the Internal Revenue Code or except as set forth in Section 4.18 of the Company Disclosure Schedule, no Benefit Plan provides health or welfare benefits (through the purchase of insurance or otherwise) for any retired or former employee of Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities. (d) As of the most recent January 1 (based on, with respect to each Pension Plan, the actuarial valuation of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as which the valuation was so performed), the amount of unfounded benefit liabilities (as defined in Section 4001(a)(l8) of ERISA, but determined on the basis of the actuarial assumptions used for funding purposes with respect to a Pension Plan (as set forth in Section 412 of the Code, including, where applicable, the interest rate assumptions set forth in Section 412(j) of the Code), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000 in the event the applicable law (including statutorily prescribed actuarial assumptions) used in Page 30 determining such unfounded benefit liabilities (the "Assumptions") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. (e) To the knowledge of Company, as of the most recent valuation date for each Multiemployer Plan for which the actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, the potential withdrawal liability of Company, the Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan (within the meaning of Section 4203 of ER1SA), when aggregated with the potential liability for a complete withdrawal from all other Multiemployer Plans for which such actuarial report (or an estimate provided pursuant to Section 4221(e) of ERISA) is reasonably available to Company, based on the information contained in such reports or estimates, would not reasonably be expected to exceed $7,500,000. (f) Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of the Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company, any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities. 4.19. Employee Matters. Except as set forth in Section 4.19 of the Company Disclosure Schedule: (a) Neither Company nor any of the Subsidiaries is a party to or bound by any collective bargaining or similar agreement with any labor organization, or work rules or practices agreed to with any labor organization or employee association applicable to employees of Company or any of the Subsidiaries. (b) None of the employees of Company or any of the Subsidiaries is represented by any labor organization and Company has no knowledge of any current union organizing activities among the employees of Company or any of the Subsidiaries, nor, to the knowledge of Company, does any dispute concerning representation exist concerning such employees. (c) There are no material labor strikes, labor disputes, work stoppages, lockouts or material grievances pending or, to the knowledge of Company, threatened involving the employees of Company or any of the Subsidiaries, and during the past five (5) years there has not been any such actions with respect to Reorganized Covanta or its Subsidiaries. (d) There are no complaints, charges or claims against Company or any of the Subsidiaries pending or, to the knowledge of Company, threatened to be brought or filed with any Governmental Authority in connection with the employment by Company or any of the Subsidiaries of any individual, including, without limitation, any claim relating to employment discrimination, equal pay, sexual harassment, employee safety and health, wages and hours or workers' compensation which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. (e) Neither Company nor any of the Subsidiaries has received notice of the intent of any Governmental Authority responsible for the enforcement of labor or employment laws to conduct an investigation with respect to or relating to Company or any of the Subsidiaries and no such investigation is in progress where such investigation, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. Page 31 (f) To the knowledge of Company, neither Company nor any of the Subsidiaries has incurred any material liability as the result of failure to comply with the Worker Adjustment and Retraining Notification Act. (g) None of the employees of Company or any of the Subsidiaries has suffered an "employment loss" (as defined in the WARN Act) during the 90 day period prior to the date of this Agreement. The listing on Schedule 4.19(g) shall be updated at the Closing for employment losses occurring during the 90 day period prior to the Closing. 4.20. Insurance. Section 4.20 of the Company Disclosure Schedule sets forth a true and complete list of (a) all insurance policies currently held by Company and the Subsidiaries, and in force as of the date hereof with respect to the assets, properties, business, employees, officers, representatives and directors of Company and the Subsidiaries, setting forth as to each policy a general description of type of coverage, carrier, policy number, coverage limit and expiration date and (b) the total amount of annual premiums for Company and the Subsidiaries for all policies referred to in this Section 4.20. Such policies of Company and the Subsidiaries are in full force and effect as of the date hereof, except in each case, where the failure of such policies to be in full force and effect would not reasonably be expected to result in a Material Adverse Effect on Company; and, except as set forth in Section 4.20 of the Company Disclosure Schedule, such policies of Company and the Subsidiaries and, to the knowledge of Company, such policies of any of the Investment Entities will remain in effect following the Closing or be replaced by at least substantially comparable policies, except where the failure of such policies to so remain or be so replaced would not reasonably be expected to result in a Material Adverse Effect on Company. The holders of those policies of Company and the Subsidiaries listed on Section 4.20 of the Company Disclosure Schedule are in compliance with the terms and conditions thereof in all material respects. All premiums on such policies of Company and the Subsidiaries have been paid when due except where the failure to pay such premiums when due would not reasonably be expected to result in a Material Adverse Effect on Company. 4.21. No Brokers. Except for Chilmark Partners, no broker, finder, financial advisor, agent or similar intermediary has acted on behalf of Company, any Subsidiary or, to the knowledge of Company, any Investment Entity, in connection with this Agreement or the Contemplated Transactions, and, except for fees to Chilmark Partners and Houlihan, Lokey, Howard & Zukin payable pursuant to a Final Order of the Bankruptcy Court and except for fees payable in connection with the Exit Financing there are no brokerage commissions, finder's fees or similar fees or commissions payable in connection therewith based on any agreement, arrangement or understanding with Company or any Subsidiary or, to the knowledge of Company, any Investment Entity, or any action taken by Company or any Subsidiary or, to the knowledge of Company, any Investment Entity. 4.22. SEC Documents and Other Documents. (a) Except as set forth in Section 4.22 of the Company Disclosure Schedule, since January 1, 2000, Company has filed with the SEC all reports, schedules, forms, statements and other documents (including exhibits and all other information incorporated therein) required to be filed with the SEC pursuant to the Exchange Act, and the rules and regulations of the SEC thereunder (the "SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents when filed contained any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No representation or warranty by Company contained in this Agreement and no statement contained in any document (including financial statements and the Company Disclosure Schedule), certificate, or other writing furnished or to be furnished by Company (including Reorganized Covanta) or any Page 32 Subsidiary to Purchaser or any of its representatives pursuant to the provisions hereof or in connection with the Contemplated Transactions, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading that has not been corrected. 4.23. Projects. Section 4.23 of the Company Disclosure Schedule is a true and complete list of all projects to be owned, leased, managed or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity (noting, (a) the state or country in which it is located, (b) the type of fuel, (c) the type of project (i.e., power Project, water Project or steam Project), (d) the nature of the interest, (e) the regulatory status of power Projects located in the United States (i.e., as a Qualifying Small Power Production Facility or a Qualifying Cogeneration Facility), and (f) the regulatory status of power Projects located outside the United States (i.e., "exempt wholesale generators" pursuant to Section 32 of PUHCA and the FERC regulations implemented thereunder or a foreign utility company pursuant to Section 33 of PUHCA). Any domestic project is referred to herein as a "Domestic Protect" and any international project is referred to herein as an "International Project." 4.24. Qualifying Facility Status; Nature of Business. (a) All Domestic Power Projects owned, leased or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity are listed in Section 4.24(a) of the Company Disclosure Schedule and each Domestic Power Project identified in Section 4.24(a) of the Company Disclosure Schedule and each Domestic Power Project identified in Section 4.24(a) of the Company Disclosure Schedule is a Qualifying Small Power Production Facility or a Qualifying Cogeneration Facility. Each Domestic Power Project has since the first generation or sale of electricity met all requirements for, and except for the Domestic Power Project operated by Covanta Mid-Conn, Inc., has been either, (i) certified by FERC or (ii) self certified by the Domestic Project in accordance with PURPA and the FERC regulations issued thereunder, in each case as either a Qualifying Small Power Production Facility or Qualifying Cogeneration Facility, as applicable, the FERC regulations implemented thereunder and all administrative and judicial precedents relating thereto. Each such certification is in full force and effect. Each Domestic Power Project meets all ownership requirements for a Qualifying Facility under PURPA (and such regulations and precedents). (b) Each Domestic Power Project identified on Section 4.24(b) of the Company Disclosure Schedule is a Qualifying Small Power Production Facility that is not exempt from the FPA pursuant to 18 C.F.R. ss. 292.601 (each a "Non-Exempt Qualifying Facility Project"). Each Non-Exempt Qualifying Facility Project has received all Governmental Approvals necessary under the FPA for the operation and ownership of such Non-Exempt Qualifying Facility Project, including, without limitation (i) blanket authorization for the issuance of securities and assumptions of liabilities under Section 204 of the FPA, (ii) for the sale of power at wholesale under Section 205 of the FPA, as applicable, and (iii) any and all authorizations required under Section 203 of the FPA or Section 8 of the FPA, in each case that are necessary to the conduct of its business and the fulfillment of its obligation under applicable Material Contracts and Governmental Rules. (c) The Subsidiaries owning or operating each Domestic Power Project that is a Qualifying Facility and the Subsidiaries that are EWGs or Foreign Utility Companies ("FUCO") do not conduct any business or own any interest in another entity that would cause such projects that are Qualifying Facilities and such Subsidiaries that are EWGs or FUCOs to fail to satisfy the legal requirements that must be met to obtain and retain status as a Qualifying Facility, an EWG or a FUCO, respectively. Page 33 4.25. Certain Regulatory Matters. (a) All utility services necessary for the development, ownership, operation, and financing of each Project, including, as necessary, fuel supply, water supply, storm and sanitary sewer, gas, electric and telephone services and facilities, are available to the Project on commercially reasonable terms. (b) None of Company (including Reorganized Covanta), any of the Subsidiaries or, to the knowledge of Company, any of the Investment Entities is now and will not be after giving effect to the Contemplated Transactions and Purchaser will not, solely as a consequence of the Contemplated Transactions, be: (i) a "public utility company," a "holding company" or either a "subsidiary company" or an "affiliate" of either a "holding company" or an "public utility company," as such terms are defined in PUHCA; (ii) subject to regulation under PUHCA, except pursuant to Sections 9(a)(2), 32 and 33 thereof; (iii) except for Non-Exempt Qualifying Facility Projects, an "electric utility" as such term is used in 18 C.F.R. ss. 292.206, or subject to regulation as a "public utility" under the FPA, provided that, Qualifying Facilities are not exempt from regulation under Sections 1-18, 21-30, 202(c), 210, 211, 212, 213, 214 and 305(c) of the EPA and any Governmental Rules promulgated with respect thereto, including, without limitation, any enforcement provisions applicable thereto; (iv) subject to regulation under the applicable Governmental Rules of any state respecting the rates of electric utilities, or subject to material financial and organizational regulation of electric utilities under such Governmental Rules; or (v) subject to regulation under the applicable Governmental Rules of any state as a gas utility. (c) No Subsidiary is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940 or an "investment advisor" within the meaning of the Investment Company Act of 1940. (d) All International Power Projects owned, leased or operated by Reorganized Covanta, any Subsidiary or, to the knowledge of Company, any Investment Entity are listed in Section 4.23(d) of the Company Disclosure Schedule. Each of the International Power Projects has obtained from FERC exempt wholesale generator status under Section 32 of PUHCA and FERC's applicable regulations relating thereto or foreign utility company status under Section 33 of PUHCA and regulations applicable thereto. Each of the International Power Projects is (i) located outside the United States, (ii) not a public utility holding company within the meaning of PUHCA and (iii) not subject to regulation under PUHCA. 4.26. Agreements with Regulatory Agencies. Neither Company, the Subsidiaries nor, to the knowledge of Company, the Investment Entities is subject to any cease-and-desist or other order issued by, or is a party to any currently effective written agreement, consent agreement or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any order or directive by, or is a recipient of any extraordinary supervisory letter from, or has adopted any board resolutions at the request of (each a "Regulatory Agreement") any Governmental Authority that restricts the conduct of its business or that in any manner relates to its capital adequacy, its management or its business, and that, with respect to all others mentioned above, relates to the Projects, nor has Company, any Subsidiary or, to the knowledge of Company, any Investment Entity been advised in writing by any Governmental Authority that it is considering issuing or requesting any Regulatory Agreement, excluding in all such cases orders that are applicable to the power generation industry in general. 4.27. Taxes. Except as indicated in Section 4.27 of the Company Disclosure Schedule: (a) Company and each of the Covanta Tax Affiliates have filed (or there have been filed on such Persons' behalf) all federal and all Page 34 foreign, state and local tax returns required to be filed by each of them under applicable Governmental Rule. All such tax returns were and are true, complete and correct in all material respects and filed on a timely basis (after giving effect to any filing extension properly granted by a Governmental Authority having the authority to do so). (b) Company and each of the Covanta Tax Affiliates have paid all Taxes (other than Taxes to be discharged pursuant to the Plan or included in the Tax Note) that are currently due and payable for all periods through and including the Closing Date within the time and in the manner prescribed by applicable Governmental Rules. (c) Company and the Covanta Tax Affiliates have established on their books and records reserves adequate to pay all Taxes and reserves for deferred income Taxes in accordance with GAAP. (d) There are no Tax liens upon the assets of Company or any of the Covanta Tax Affiliates, except liens for Taxes not yet due. (e) Company and each of the Covanta Tax Affiliates have complied with the provisions of the Code relating to the withholding of Taxes (including, without limitation, pursuant to Sections 1441 and 1442 of the Code and withholding from employee wages), as well as similar provisions under any other applicable Governmental Rules, and have withheld and paid over to the proper Governmental Authorities all amounts required within the time and in the manner prescribed by applicable Governmental Authority. (f) Neither Company nor any Covanta Tax Affiliate has requested any extension of time within which to file any tax return, which tax return has not since been filed. (g) Company has filed, as a common parent corporation of an "affiliated group" (within the meaning of Section 1504(a) of the Code), a consolidated return for federal income tax purposes on behalf of itself and all of those Covanta Tax Affiliates which are "includible corporations" (within the meaning of Section 1504(b) of the Code). (h) Prior to the Closing (assuming the Tax Note will be paid according to its terms), (i) the statute of limitations for the assessment of federal income taxes will have expired for all consolidated federal income tax returns of Company (and any members of its group) or such returns shall have been examined and resolved by the IRS for all periods through 2001; (ii) except for Taxes relating to taxable periods that close after April 1, 2002 and Taxes relating to Covanta Tax Affiliates that have not filed for voluntary relief under Chapter 11 of the Bankruptcy Code, the statute of limitations for the assessment of state, local and foreign income taxes has expired for all applicable returns of Company and the Covanta Tax Affiliates or those returns have been examined and resolved by the appropriate taxing authorities for all periods; and (iii) no deficiency for any Taxes (other than as reflected in the Tax Note) has been proposed, asserted or assessed against Company or the Covanta Tax Affiliates which has not been resolved and paid in full. (i) No material audits or other administrative or court proceedings are presently pending with regard to any Taxes or Tax Returns of Company or any of the Covanta Tax Affiliates and no power of attorney or similar document which is currently in force has been granted by Company or any Covanta Tax Affiliate with respect to any matter relating to Taxes. (j) Neither Company nor any of the Covanta Tax Affiliates has applied for, received, or has pending a Tax Ruling or commenced negotiations or entered into a Closing Agreement with any taxing authority. (k) Neither Company nor any Covanta Tax Affiliate is a Page 35 party to any agreement relating to indemnifying for, allocating or sharing Taxes. (l) Neither Company nor any Covanta Tax Affiliate has participated in or cooperated with an international boycott within the meaning of Section 999 of the Code. (m) Neither Company nor any of the Covanta Tax Affiliates has any liability for Taxes of any Person other than Company and the Covanta Tax Affiliates (i) under Treasury Reg. Section 1.1502-6 (or any similar provision of state, local or foreign law), (ii) by Contract, or (iii) otherwise. (n) Neither Company nor any of the Covanta Tax Affiliates has, with regard to any assets or property held or acquired by any of them, filed a consent to the application of Section 341(f)(2) of the Code, or agreed to have Section 341(f)(2) of the Code apply to any disposition of a "subsection (f) asset" (as such term is defined in Section 341(f)(4) of the Code) owned by Company or any of the Covanta Tax Affiliates. (o) No deficiencies for any Taxes have been proposed, asserted or assessed against Company, or any Covanta Tax Affiliate, and there is no outstanding waiver of the statute of limitations with respect to any Taxes or Tax Returns of Company or any Covanta Tax Affiliate. (p) Neither Company nor any of the Covanta Tax Affiliates is required to include in income any adjustment pursuant to Section 481(a) of the Code by reason of a voluntary change in accounting method or has knowledge that the Internal Revenue Service has proposed any such adjustment or change in accounting method. (q) Neither Company nor any Covanta Tax Affiliate is a party to any agreement, contract or arrangement that would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code and the acquisition of the stock of Company will not be a factor causing any payments to be made by Company or any Covanta Tax Affiliate which payments are not deductible (in whole or in part) pursuant to Section 280G of the Code. (r) None of the Covanta Tax Affiliates have an "investment in United States property" within the meaning of Section 956 of the Code. (s) None of the Covanta Tax Affiliates have income which is includible in computing the taxable income of a United States person (as determined under Section 7701 of the Code) under Section 951 of the Code. (t) To the knowledge of Company, all transactions which could give rise to an understatement of federal income tax (within the meaning of Section 6662 of the Code) were adequately disclosed on the returns as required in accordance with Section 6662(d)(2)(B) of the Code. (u) Neither Company nor any Covanta Tax Affiliate has entered into any transactions or other arrangements which could give rise to a material accrual of taxable income subsequent to the Closing without a contemporaneous receipt of cash. 5. Representations and Warranties of Purchaser. Purchaser represents and warrants to Company as follows: 5.1. Due Incorporation and Authority. Purchaser is duly organized, validly existing and in good standing under the Governmental Rules of the jurisdiction under which it was organized and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being and as heretofore conducted. Page 36 5.2. Authority to Execute and Perform Agreement. Purchaser has the full legal right and power and all authority and approvals required to enter into, execute and deliver this Agreement and each and every agreement and instrument contemplated hereby to which Purchaser is or will be a party or by which Purchaser will be bound and to perform fully its obligations hereunder and thereunder. This Agreement has been duly executed and delivered by Purchaser, and on the Closing Date each and every agreement and instrument contemplated. hereby to which Purchaser is a party will be duly executed and delivered by Purchaser and (assuming due execution and delivery hereof and thereof by the other parties hereto and thereto) this Agreement and each such other agreement and instrument will be valid and binding obligations of Purchaser enforceable against Purchaser in accordance with their respective terms. The execution and delivery by Purchaser of this Agreement and each and every other agreement and instrument contemplated hereby to which Purchaser is a party, the consummation of the transactions contemplated hereby and thereby and the performance by Purchaser of this Agreement and each such other agreement and instrument in accordance with their respective terms and conditions will not (a) violate any provision of Purchaser's governing or organizational documents; (b) require Purchaser to obtain any consent, approval, authorization or action of, or make any filing with or give any notice to, any Governmental Authority or any other Person; (c) violate, conflict with or result in the breach of any of the terms and conditions of, result in a material modification of the effect of, otherwise cause the termination of or give any other contracting party the right to terminate, or constitute (or with notice or lapse of time or both constitute) a default under, any contract to which Purchaser is a party or by or to which Purchaser or any of its properties is or may be bound or subject; or (d) violate any Governmental Rule applicable to Purchaser. 5.3. Purchase for Investment. Purchaser is purchasing the Purchased Shares for its own account for investment and not with a view to public resale or distribution thereof. 5.4. Plan Acknowledgment. The Plan substantially in the form attached hereto as Exhibit E-l is satisfactory to Purchaser in all material respects. 5.5. Financing. At the Closing, Purchaser will have the financial ability to purchase the Purchased Shares for the Consideration pursuant to Section 3.1. 5.6. Certain Tax Matters. (a) As of December 31, 2002, Purchaser had net operating loss carryforwards and other tax attributes in the amount set forth in Appendix 1 hereto, which, as adjusted for current year results, as of the Closing Date, are not subject to limitations under Section 382 or other provisions of the Code. (b) For U.S. federal income tax purposes, as of the date hereof, Purchaser projects that it will have a net operating loss for its consolidated group for its 2003 taxable year. 5.7. SEC Documents and Other Documents. (a) Except as set forth in Section 5.7(a) of Purchaser Disclosure Schedule, since January 1, 2000, Purchaser has filed all SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents when filed contained any untrue statement of a material fact or omitted or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) No representation or warranty by Purchaser contained in Page 37 this Agreement and no statement contained in any document (including the Purchaser Disclosure Schedule), certificate or other writing furnished or to be furnished by Purchaser to Company or any of its representatives pursuant to the provisions hereof or in connection with the Contemplated Transactions, contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. 5.8. Insurance Matters. (a) Unless exempted by applicable law, neither Purchaser nor any Insurer has transacted any insurance business in any jurisdiction requiring an insurance license in which it did not possess such an insurance license and each of Purchaser and the Insurers are in compliance in all material respects with all applicable insurance statutes, laws, regulations, rules, injunctions, decrees, permits, orders and licenses (including, without limitation, laws relating to insurance holding companies), except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser, and neither Purchaser nor any Insurer has received notice of any alleged violation of any such law, statute, rule, regulation, injunction, decree, permit, order or license except for notices of alleged violations which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. (b) Each of the Insurers and Purchaser has timely filed all reports, data, registrations, filings, other information and applications required to be filed with any Insurance Regulator, except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. True and genuine copies of all material filings for the past two years have been made available to Company or its representatives. (c) There are no intercompany agreements or understandings (written or oral) between Purchaser or any subsidiary of Purchaser, on the one hand, and any of the Insurers on the other hand (or between Purchaser or an Insurer on the one hand and a third party on the other hand) relating to loans or investments of any sort (including without limitation, surplus notes, guarantees, keep-well arrangements that could affect the solvency of an Insurer), or that could otherwise be reasonably be expected to result in the imposition of any material liability on either Purchaser or any Insurer (such agreements or understandings being referred to herein collectively as "Inter-Purchaser Agreements") currently in effect. Except as disclosed in statutory financial statements, or in Purchaser's SEC Documents, Schedule 5.8(c) sets forth a list of all Inter-Purchaser Agreements that were in effect at any time within the last six (6) years. All existing Inter-Purchaser Agreements have been disclosed, to the extent required by law, to the appropriate Insurance Regulator on the appropriate form, and all required consents of the appropriate Insurance Regulator relating thereto have been obtained. (d) Except as set forth in Section 5.8(d) of the Purchaser Disclosure Schedule, the execution, delivery and performance of this Agreement by the Purchaser does not and will not: (i) conflict with or violate any insurance law, statute, rule, regulation or policy of any jurisdiction applicable to Purchaser or any Insurer; or (ii) require any consent, approval, authorization or permit of, action by, filing with or notification to, any Insurance Regulator, except where such failure, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect on Purchaser. (e) There are no Proceedings, at law or in equity, or before or by any court or other Government Authority that are pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser, any of the Insurers or their subsidiaries, which have been, are or will be initiated by an Insurance Regulator or other Governmental Authority that, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect Page 38 on Purchaser. 5.9. No Material Adverse Change. Except as disclosed in the Purchaser's Quarterly Report on Form 10-Q for the quarter ended September 30, 2003, since December 31, 2002, there has been no change, event or occurrence which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Purchaser, and Purchaser does not know of any such change, event or occurrence which is threatened, nor has there been any damage, destruction or loss which, individually or in the aggregate, has had or would reasonably be expected to result in a Material Adverse Effect on Purchaser, whether or not covered by insurance. 5.10. Utility Regulatory Status. None of Purchaser nor any of its subsidiaries is: a "public utility company," a "holding company" or either a "subsidiary company" or an "affiliate" of either a "holding company" or a "public utility company," as such terms are defined in PUHCA; (b) subject to regulation under PUHCA except pursuant to Section 9(a)(2) thereof; (c) an "electric utility" or "public utility" as such terms are defined under the FPA, or subject to regulation under the FPA; or (d) an "electric utility" or "electric utility holding company" as such terms are defined in PURPA and the FERC regulations issued thereunder. 5.11. Marine Services Affiliates. There are no intercompany agreements or understandings (written or oral) between Purchaser or any subsidiary of Purchaser other than the Marine Services Affiliates, on the one hand, and any of the Marine Services Affiliates, on the other hand, relating to loans or investments of any sort, including without limitation guarantees or keep-well arrangements, or that could otherwise reasonably be expected to result in the imposition of any material liability on Purchaser with respect to the liabilities of the Marine Services Affiliates. There are no Proceedings, at law or in equity, or before or by any court or other Governmental Authority that are pending or, to the knowledge of Purchaser, threatened against or affecting Purchaser (or any of the Affiliates of Purchaser other than the Marine Services Affiliates), that purport to establish liability of Purchaser for the liabilities of the Marine Services Affiliates which Proceedings, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Purchaser. 6. Covenants and Agreements. 6.1. Conduct of Business. From the date hereof through the Closing Date, except as (w) set forth in Section 6.1 of the Company Disclosure Schedule, (x) contemplated by the Plan, (y) authorized by the Bankruptcy Court or (z) required under the DIP Agreement, Company agrees that (i) it shall (and shall cause the Subsidiaries to) use commercially reasonable efforts to preserve intact its business relationships with third parties; (ii) it shall use commercially reasonable efforts to conduct its (and shall cause the Subsidiaries to use commercially reasonable efforts to conduct their) businesses and maintain its (and shall cause the Subsidiaries to maintain their) assets in a manner consistent with good industry practice and such that the representations and warranties contained in Section 4 shall continue to be true and correct on and as of the Closing Date as if made on and as of the Closing Date; (iii) it shall give Purchaser prompt written notice of any event, condition or circumstance occurring that would constitute a violation or breach of (x) any representation or warranty, whether made as of the date hereof or as of the Closing Date, or (y) any covenant or agreement of Company contained in this Agreement; and (iv) without limiting the generality of the foregoing, without the prior written consent of Purchaser: (a) neither Company nor any Subsidiary shall: (i) amend its certificate of incorporation or by-laws or similar organizational documents, (ii) issue, sell, transfer, pledge, dispose of or encumber any shares of any class or series of its capital stock or Indebtedness, or securities convertible Page 39 into or exchangeable for, or options, warrants, calls, commitments or rights of any kind to acquire, any shares of any class or series of its capital stock or any Indebtedness, (iii) declare, set aside or pay any dividend or other distribution payable in cash, stock or property with respect to any shares of any class or series of its capital stock; (iv) split, combine or reclassify any shares of any class or series of its stock; or (v) redeem, purchase or otherwise acquire directly or indirectly any shares of any class or series of its capital stock, or any instrument or security which consists of or includes a right to acquire such shares; (b) neither Company nor any Subsidiary shall organize any new Subsidiary or acquire any capital stock or other equity securities, or equity or ownership interest in the business, of any other Person; (c) except as set forth in Section 6.1(c) of the Company Disclosure Schedule, neither Company nor any Subsidiary shall make any material change in the operations of the Projects; (d) except as set forth in Section 6.1(d) of the Company Disclosure Schedule, neither Company nor any Subsidiary shall modify, amend or terminate any of its Material Contracts or waive, release or assign any material rights or claims, except in the ordinary course of business and consistent with past practice; (e) except as set forth in Section 6.1(e) of the Company Disclosure Schedule and except for loans or payments pursuant to the DIP Agreement, neither Company nor any Subsidiary shall: (i) incur or assume any Indebtedness, except in the ordinary course of business in an amount not to exceed $100,000 in the aggregate, from the date hereof until the Closing; (ii) pay, repay, discharge, purchase, repurchase or satisfy any Indebtedness issued or guaranteed by Company or any Subsidiary except for any Project limited recourse debt; (iii) modify the terms of any Indebtedness or other liability except for any Project limited recourse debt; (iv) assume, guarantee, endorse or otherwise become liable or responsible (whether directly, contingently or otherwise) for the obligations of any other Person, except as described in the Company Disclosure Schedule as being in the ordinary course of business and consistent with past practice; (v) make any loans, advances or capital contributions to, or investments in, any other Person; (vi) enter into any material commitment or transaction (including any capital expenditure or purchase, sale or lease of assets or real estate), except in the ordinary course of business; or (vii) dispose of or permit to lapse any rights to any Intellectual Property; (f) neither Company nor any Subsidiary shall lease, license, mortgage, pledge or encumber any assets other than in the ordinary and usual course of business and consistent with the past practice as described in Section 6.1(f) of the Company Disclosure Schedule or transfer, sell or dispose of any assets other than in the ordinary and usual course of business and consistent with past practice described in Section 6.1(f) of the Company Disclosure Schedule or dispose of or permit to lapse any rights to any Intellectual Property; (g) neither Company nor any Subsidiary shall increase any compensation payable or to become payable to any of its officers, directors or employees (other than normal recurring increases in the ordinary course of business of compensation payable to employees who are not contemplated to participate in any broad based management incentive plan of Company and other than increases made pursuant to the terms of any Benefit Plan), or enter into or amend any employment, severance, consulting, termination agreement with, or employee benefit plan for, or make any loan or advance to, any of its officers, directors or employees or make any change in its existing borrowing or lending arrangements for or on behalf of any of such Persons pursuant to an employee benefit plan or otherwise; Page 40 (h) neither Company nor any Subsidiary shall (i) adopt or pay, grant, issue, accelerate or accrue payments or benefits pursuant to any pension, profit-sharing, extra compensation, incentive, deferred compensation, stock purchase, stock option, stock appreciation right, group insurance, severance pay, retirement or other employee benefit plan, agreement or arrangement, with or for the benefit of any director, officer or employee, whether past or present, except as described in Section 6.1(h) of the Company Disclosure Schedule or in accordance with the terms of any plan, agreement or arrangement as in effect on the date hereof or (ii) amend any of the foregoing in any material respect or enter into any material consulting agreement with any former employee; (i) neither Company nor any Subsidiary shall enter into any contract or transaction relating to the purchase of assets other than in the ordinary and usual course of business consistent with past practices; (j) neither Company nor any Subsidiary shall pay, repurchase, discharge or satisfy any of its claims, liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction in the ordinary course of business and consistent with past practice; (k) other than as contemplated by the Plan or herein, neither Company nor any Subsidiary shall adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of Company or any Subsidiary; (l) neither Company nor any Subsidiary shall (i) change any of the accounting methods used by it unless required by GAAP or (ii) make any election relating to Taxes, change any election relating to Taxes already made, adopt any accounting method relating to Taxes or change any accounting method relating to Taxes; (m) neither Company nor any Subsidiary shall take, or agree to or commit to take, any action that would or would be reasonably likely to result in any of the conditions to the Closing set forth in Section 8 not being satisfied or that would materially impair the ability of Company to consummate the Closing in accordance with the terms hereof or materially delay such consummation; (n) neither Company nor any of Subsidiary shall enter into any agreement, contract, commitment or arrangement to do any of the foregoing or authorize, recommend, propose or announce an intention to do any of the foregoing; and (o) neither Company nor any Subsidiary shall take, or commit to take, any action outside the ordinary course of business that would or would reasonably be likely to result in a material increase in current liabilities or a material decrease in current assets. 6.2. Corporate Examinations and Investigations. Prior to the Closing Date, Company shall, and shall cause each of the Subsidiaries to, permit any authorized representatives of Purchaser to visit and inspect any of the properties of Company or of any of the Subsidiaries, to inspect, copy and take extracts from its and their financial, accounting and tax records (excluding information relating to any Alternative Transaction), and to discuss its and their affairs, finances and accounts with its and their officers and independent public accountants (provided that Company may, if it so chooses, be present at or participate in any such discussion), all upon reasonable notice and at such reasonable times during normal business hours and as often as may reasonably be requested. Without limiting the foregoing, Purchaser and its representatives shall be allowed to conduct an environmental investigation of the Facilities Page 41 owned or operated by Company or any Subsidiary, including, at the reasonable discretion of Purchaser, the undertaking of environmental testing at the Facilities, subject to consultation with Company and subject to customary indemnification arrangements. Both parties agree and acknowledge that they will continue to be bound by the terms of the confidentiality agreement, dated January 21, 2003, (the "Confidentiality Agreement") between Purchaser and Company. 6.3. Publicity. The parties agree that no publicity release or public statement or public communication concerning this Agreement or the Contemplated Transactions shall be made without written advance approval thereof by Company and Purchaser; provided, however, that a party may, without the prior consent of the other party, issue such press release or make such public statement as may, upon the advice of counsel, be required by applicable Governmental Rule or any listing agreement with any national securities exchange. Notwithstanding anything herein to the contrary, except as reasonably necessary to comply with applicable securities laws, each party to this Agreement (and each employee, representative or other agent of such party) may (a) consult any tax advisor regarding the U.S. federal income tax treatment or tax structure of the transaction, and (b) disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the taxpayer relating to such tax treatment and tax structure; provided that clause (b) shall not apply until the earliest of (i) the date of the public announcement of discussions relating to the transaction, (ii) the date of the public announcement of the transaction or (iii) the date of the execution of an agreement, with or without conditions, to enter into the transaction. For this purpose, "tax structure" is limited to any facts relevant to the U.S. federal income tax treatment of the transaction and does not include information relating to the identity of the parties. 6.4. Efforts and Actions to Cause Closing to Occur. Prior to the Closing, upon the terms and subject to the conditions of this Agreement, each of Company and Purchaser shall, and Company shall cause the Subsidiaries to, use their commercially reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done and cooperate with each other in order to do, all things necessary (subject to applicable laws) to satisfy the conditions to Closing set forth in Sections 7 and 8 and consummate the Closing and the Contemplated Transactions, including, but not limited to (a) the preparation and filing of all forms, registrations and notices required to be filed to consummate the Closing and the Contemplated Transactions, and the taking of such actions as are necessary to obtain any requisite approvals, authorizations, consents, orders, licenses, permits, qualifications, exemptions or waivers by any third patty, including the Required Consents, and (b) the preparation of any disclosure documents requested by Purchaser in order to facilitate the financing of any of the Contemplated Transactions. 6.5. Governmental Approvals. (a) Each of the parties shall take all actions necessary to file as soon as practicable all notifications, filings and other documents required to obtain all Governmental Approvals including, without limitation, under the FPA, and to respond as promptly as practicable to any inquiries and requests received from the Federal Trade Commission, the Antitrust Division of the Department of Justice, FERC and any other Governmental Authority for additional information or documentation in connection therewith. (b) Company shall use best efforts, at and as of the Closing, at its sole expense, to cause the transfer, reissuance or modification of any Governmental Approvals to the extent that such is required to cause the Governmental Approvals to remain in full force and effect in the possession of Reorganized Covanta or any of the Subsidiaries, as the case may be, after the Closing. Page 42 6.6. No Inconsistent Action. Neither party shall take any action that is materially inconsistent with its obligations under this Agreement, except for (and as follows from) the Approval Order and except as required by the Bankruptcy Court. 6.7. Bankruptcy Covenants. (a) As soon as practicable following the execution of this Agreement (and in no event later than December 5, 2003), Company shall, and shall cause each of the other Debtors to, file the Plan. As soon as practicable thereafter (and in no event later than December 18, 2003), Company shall, and shall cause each of the other Debtors to, file a Disclosure Statement with respect to the Plan. Thereafter, without the prior written consent of Purchaser, Company shall not, and shall cause each of the other Debtors not to, amend or modify any material provision of the Plan or the Disclosure Statement with respect to the business, operations, assets, condition (financial or otherwise) or prospects of Reorganized Covanta and its Subsidiaries or withdraw the Plan or file any other plan of reorganization of the Debtors. Company shall, and shall cause each of the other Debtors to, promptly provide Purchaser with (i) proposed final drafts of all documents, motions, orders, filings, pleadings, supplements or amendments that Company or any other Debtor proposes to file with the Bankruptcy Court which relate to the consummation or approval of the Plan, this Agreement or any provision therein or herein, and will provide Purchaser with reasonable opportunity to review and comment upon such filings and (ii) any objections to the Plan or Disclosure Statement. Company shall, and shall cause each of the other Debtors to, consult and cooperate with Purchaser, and consider in good faith the views of Purchaser, as contemplated by the Plan, with respect to all such filings and the acceptance or rejection prior to Closing of any unexpired lease or other executory contract. Company shall, and shall cause each of the other Debtors to, promptly (and, in any event, within two (2) Business Days after receipt of such pleadings by the Debtors) provide Purchaser with copies of all pleadings (other than proofs of claim below $10,000 in amount) received by or served by or upon any of the Debtors in connection with the Case after the date hereof. (b) In the event an appeal is taken, or a stay pending appeal is requested or reconsideration is sought, from either the Confirmation Orders or the Disclosure Statement Order, Company shall promptly after becoming aware thereof notify Purchaser of such notice of appeal, request for a stay pending appeal or motion for reconsideration. Company shall also provide Purchaser with written notice (and copies) of any other or further notice of appeal, motion or application filed in connection with any appeal from or application for reconsideration of, either of such orders and any related briefs. (c) Promptly after the execution of this Agreement (and in no event later than two (2) Business Days following the execution of this Agreement), Company shall, and shall cause each of the other Debtors to, file a motion (the "Investment Motion") for expedited determination of the approval of the Exclusivity Provisions (as defined in Section 6.10(a)), the Termination Fee and the Expense Reimbursement provided for in this Agreement in form and substance reasonably acceptable to Purchaser. Company shall, and shall cause each of the other Debtors to, use commercially reasonable efforts to obtain the Approval Order by December 18, 2003, which order shall be in form and substance reasonably acceptable to Purchaser and Company, with only such changes as shall be agreed to by Purchaser and Company in writing. (d) Promptly after the execution of this Agreement (and in no event later than five (5) Business Days following execution of this Agreement), Company shall file a motion to seek authorization to pay, with respect to the Second Lien L/C Credit Facility Credit Agreement, a commitment fee of up to $125,000, and cost reimbursement of up to $75,000. Company shall use commercially reasonable efforts to obtain an order granting such authorization as soon as practicable. Page 43 6.8. ISRA. Company shall seek a determination from the New Jersey Department of Environmental Protection ("NJDEP") that the Industrial Site Recovery Act, N.J.S.A. 13:1K-6, et seq. ("ISRA"), is not applicable to the transactions contemplated by this Agreement. Company shall allow Purchaser and its representatives to review and comment on any filings made in connection with this request. If the NJDEP determines that ISRA is applicable to this transaction, Company shall ensure that it obtains any approval necessary in order to comply with the requirements of ISRA in connection with the closing of the transaction. 6.9. Connecticut Property Transfer Act. Company and Purchaser shall make an evaluation to determine whether the Connecticut Transfer Act, Conn. Gen. Stat. ss. 22a-134, et seq. ("CTA"), applies to the Contemplated Transactions. If Company and Purchaser determine that CTA applies to the Contemplated Transactions, Company shall undertake all actions required to (a) determine which form(s) must be prepared pursuant to the CTA and delivered to Purchaser prior to Closing and (b) ensure that such form(s) are prepared correctly and delivered to Purchaser prior to Closing. 6.10. Exclusivity. (a) From and after the date of this Agreement, Company shall not, and shall cause each Subsidiary and each of their respective directors, officers, employees, financial advisors, representatives and agents not to, directly or indirectly, (i) solicit, initiate, engage or participate in or encourage discussion or negotiations with any Person or entity (other than Purchaser) concerning any merger, consolidation, sale of material assets, tender offer for, recapitalization of or accumulation or acquisition of securities issued by Company or any Subsidiary, proxy solicitation, other business combination involving Company or any Subsidiary or any other plan of reorganization of Company or any Subsidiary (including, without limitation, any Employee Stock Ownership Plan structure) (collectively, "Alterative Transaction"), or (ii) provide any non-public information concerning the business, properties or assets of Company or any Subsidiary to any Person or entity (other than to Purchaser). Company shall, and shall cause each of its Subsidiaries to, immediately cease any and all existing activities, discussions and negotiations with any Person other than Purchaser with respect to any Alternative Transaction and the Company shall, and shall cause its Subsidiaries to, continue indefinitely the confirmation hearing for their pending reorganization and liquidation plans involving an Employee Stock Ownership Plan. Company shall immediately notify Purchaser of, and shall disclose to Purchaser all details of, any inquiries, discussions or negotiations described in the first sentence of this Section 6.10. The provisions of this Section 6.10 are referred to in this Agreement as the "Exclusivity Provisions." (b) Notwithstanding the provisions of subsection (a) above, prior to entry of the Confirmation Orders, the Debtors may, to the extent required by the Bankruptcy Code, the Bankruptcy Rules, the operation and information requirements of the Office of the United States Trustee, or any orders entered or approvals or authorizations granted by the Bankruptcy Court in the Case during the period prior to Closing (collectively, the "Bankruptcy Related Requirements"), or to the extent that the board of directors of Company determines, in good faith after consultation with outside legal counsel, that such board's fiduciary duties under applicable Governmental Rule require it to do so, participate in discussions or negotiations with, and, subject to the requirements of subsection (c) below, furnish information to any Person, entity or group after such Person, entity or group has delivered to the Debtors, in writing, an unsolicited bona fide offer to effect an Alternative Transaction that the board of directors of Company in its good faith judgment determines, after consultation with its independent financial advisors, would result in a transaction more favorable to the stakeholders of the Debtors from a financial point of view than the transactions contemplated hereby and for which financing, to the extent required, is then committed (or which, in the good faith judgment Page 44 of the board of directors, is reasonably capable of being obtained) and which (in the good faith judgment of the board of directors) is likely to be consummated (a "Superior Proposal"). In the event the Debtors receive a Superior Proposal, nothing contained in this Agreement (but subject to the terms hereof) will prevent the board of directors of Company from approving such Superior Proposal or requesting authorization of such Superior Proposal from the Bankruptcy Court, if such board determines, in good faith, after consultation with outside legal counsel, that such action is required by its fiduciary duties under applicable Governmental Rule; and in such case, the board of directors of Company may terminate this Agreement pursuant to Section 11.1(f) hereof; provided, however, that Company shall not terminate this Agreement until at least five (5) Business Days after Purchaser's receipt of a copy of such Superior Proposal. (c) Debtors shall, within one (1) Business Day of the occurrence thereof, notify Purchaser orally and in writing of the receipt of a Superior Proposal. Such notice to Purchaser shall indicate in reasonable detail the identity of the potential acquirer and the material terms and conditions of such Superior Proposal, to the extent known. (d) Notwithstanding anything to the contrary in this Section 6.10, Company shall not, and shall cause each of its Subsidiaries not to, provide any non-public information to a third party unless: (i) Company and its Subsidiaries provide such non-public information pursuant to a non-disclosure agreement entered into subsequent to the date hereof with terms regarding the protection of confidential information at least as restrictive as such terms in the Confidentiality Agreement or pursuant to confidentiality agreements existing on the date hereof; and (ii) such non-public information has been delivered previously or made available to Purchaser. (e) Notwithstanding anything to the contrary in this Section 6.10, Company shall be permitted to continue the solicitation of expressions of interest in its international operations. 6.11. Tax Matters. (a) Except as disclosed in Section 6.11 of the Company Disclosure Schedule and except to the extent reflected on Appendix 2 hereto, Company shall not, nor shall Company permit any Covanta Tax Affiliate to, without the written consent of Purchaser, (i) make or rescind any election relating to Taxes if such action would materially adversely affect Company's tax position, (ii) settle or compromise any material claim, action, suit, litigation, proceeding, arbitration, investigation, audit or controversy relating to Taxes, (iii) materially change any of its methods of reporting income or deductions for federal income tax purposes from those employed in the preparation of its federal income tax return for the taxable year ending December 31, 2001 or (iv) undertake any transactions or enter into any arrangements that could (A) result in the receipt of cash or other consideration prior to the Closing Date but an accrual of taxable income subsequent to the Closing Date, (B) otherwise defer the recognition of income or gain to a period subsequent to the Closing Date or (C) accelerate a loss or deduction to a period prior to the Closing Date. Notwithstanding any other provision of this Agreement, and except as disclosed in Section 6.11 of the Company Disclosure Schedule and except to the extent reflected on Appendix 2 hereto, in the event that, after the date hereof, Company or any Covanta Tax Affiliate seeks a "Closing Agreement" from the IRS or a definitive settlement agreement from the IRS or any state, local or foreign taxing authority on a matter that is subject to a representation, warranty or covenant set forth in this Agreement (including with respect to the Tax Note), then: (A) Company shall, or shall cause such Covanta Tax Affiliate to, keep Purchaser informed as to the status of such agreement and any discussions, negotiations or arrangements related thereto, and (B) Company shall not, and shall cause any such Covanta Tax Affiliate not to, file or submit any document to any taxing authority in connection with any such agreement without first providing Purchase with (1) copies of any such document and (2) an opportunity to review and comment on any such document prior to such Page 45 filing or submission. (b) From the date hereof through the Closing Date, Purchaser shall not undertake any action that would cause the net operating loss carryforwards and other tax attributes in the amount set forth in Appendix 1 hereto, as adjusted for current year results and anticipated ordinary course results up and until the Closing Date, not to be available for the use by Company and its Subsidiaries. 6.12. Pro Forma Taxes. (a) Company shall prepare pro forma U.S. federal, state and local income tax calculations (including for any taxes determined by reference to gross or net income or revenue) for all relevant jurisdictions reflecting the liabilities of Company and the Covanta Tax Affiliates for all taxable periods (including 2003 and 2004 through the Closing Date) for which the Taxes have not been paid or discharged pursuant to the Plan (other than payment of the Tax Note) taking into account the consummation of all transactions included in the Plan, any prior transactions and the transactions required by Section 7.17 of this Agreement (the "Pro Forma Income Tax Calculations"). Such Pro Forma Income Tax Calculations shall be delivered to Purchaser at least twenty (20) Business Days prior to Closing for review and approval. (b) Prior to Closing, Company shall have established a cash reserve (the "Cash Tax Reserve") for the unpaid aggregate tax liability reflected on the Pro Forma income Tax Calculations (the "Unpaid Pro Forma Tax Liability"). 6.13. D&O Insurance. The D&O Insurance Cost shall have been paid by Company on or prior to the Closing Date, and the D&O Insurance shall be in full force and effect. 6.14. Financial Statements. (a) As promptly as practicable, and in any event no later than thirty (30) days after the end of each monthly period ending after the date hereof and before the Closing Date, Company shall deliver to Purchaser true and complete copies of(in the case of any such monthly period) the unaudited consolidated statements of income and cash flows of Company and its Subsidiaries as of and for each such monthly period and the portion of the fiscal year then ended (each set, the "Monthly Management Reports"). (b) Company shall, and shall cause its Subsidiaries and certified public accountants to, cooperate with Purchaser in connection with the preparation of the financial statements required by Rule 3-05 of Regulation S-X and the financial statements and other information required by Article 11 of Regulation S-X with respect to Reorganized Covanta and its Subsidiaries. 6.15. Benefit Plans. Purchaser generally intends to maintain the existing Benefit Plans, subject to Purchaser's right to amend, terminate or modify the Benefit Plans as permitted by such Benefit Plans or applicable law. 7. Conditions Precedent to the Obligation of Purchaser. The obligation of Purchaser to purchase the Purchased Shares from Company is subject, at the option of Purchaser acting in accordance with the provisions of Section 11 with respect to termination of this Agreement, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Purchaser (unless the non-fulfillment of any condition is the result of the action or inaction of Purchaser): 7.1. Representations and Covenants. (a) The representations and warranties of Company contained in (i) this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect on Company" qualifiers set forth therein) on and as of Page 46 the Closing Date with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not reasonably be expected to result in a Material Adverse Effect on Company and (ii) Section 4.8(a) shall be true and correct on and as of the Closing Date. (b) Company shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by Company on or prior to the Closing Date. (c) Company shall have delivered to Purchaser a certificate, dated as of the Closing Date and signed by the Chief Executive Officer and Chief Financial Officer of Company, certifying as to (a) and (b) above. 7.2. Required Consents and Required Governmental Approvals. All Required Consents and Required Governmental Approvals shall have been obtained or deemed by operation of the Plan or the Confirmation Order to be given and be in full force and effect, and Purchaser shall have been furnished with evidence reasonably satisfactory to it that such Required Consents and Required Governmental Approvals have been granted and obtained. 7.3. No Claims. No Claims shall be pending or, to the knowledge of Purchaser or Company, threatened, before any Governmental Authority (including investigations instituted by the United States Department of Justice or the Federal Trade Commission in connection with antitrust regulations) to restrain or prohibit, or to obtain damages in respect of, this Agreement or the consummation of the Contemplated Transactions or which, individually or in the aggregate, would reasonably be expected to result in a Material Adverse Effect on Company. 7.4. Disclosure Statement Order. The Bankruptcy Court shall have entered an order in form and substance satisfactory to Purchaser (the "Disclosure Statement Order") approving the Disclosure Statement for the Plan. 7.5. Liquidation Plan. The final Liquidation Plan shall be in form and substance satisfactory to Purchaser except for modifications that would not have an adverse effect upon the business, operations, properties, assets, condition (financial or otherwise) or prospects of Reorganized Covanta and the Subsidiaries. 7.6. Confirmation Orders. The Bankruptcy Court shall have entered orders in form and substance reasonably satisfactory to Purchaser (the "Confirmation Orders") confirming the Plan and the Liquidation Plan pursuant to Section 1129 of the Bankruptcy Code and the Confirmation Orders shall have become Final Orders. 7.7. Approval Orders. The Bankruptcy Court shall have entered the Approval Order and the Approval Order shall be in full force and effect, and shall not have been stayed, vacated, modified or supplemented without Purchaser's prior written consent. 7.8. Exit Financing. All conditions precedent to the closing of the Exit Financing shall have been satisfied or waived and the Exit Financing shall have been consummated in accordance with the material terms contained in the Credit Agreements and the Senior Secured Notes Indenture; provided that failure of this condition precedent shall not affect the obligations of the Purchaser under, or the terms of, Section 3.5(b)(ii) or Section 11.2(c). 7.9. International Reorganization and Arrangements. (a) The reorganization of the International Projects and the international operations and entities of Company and Subsidiaries shall have been consummated on the terms and conditions set forth in Exhibit G and otherwise on terms and Page 47 conditions satisfactory to Purchaser. (b) The CPIH Management Services & Reimbursement Agreement shall have been authorized, executed and delivered by each of the parties thereto on terms substantially as set forth in Exhibit H and otherwise on terms and conditions satisfactory to Purchaser and shall be in full force and effect. 7.10. Tax Sharing Agreement. The Tax Sharing Agreement shall have been authorized, executed and delivered by Company on terms as set forth in Exhibit F and shall be in full force and effect. 7.11. Cash Reserve. On the Effective Date, Company shall, (i) have established a fully funded cash reserve for Exit Costs and (ii) in addition, have a cash balance, after giving effect to payment of the Consideration, in an amount equal to the Closing Cash Balance plus Retained Cash. 7.12. ISRA. For any Facility subject or potentially subject to ISRA, (a) Company shall have obtained a letter of non-applicability from the NJDEP or (b) if ISRA is applicable to one or more of such Facilities, with respect to each such Facility, Company shall have obtained an approval of a Remedial Action Workplan (as such term is defined by ISRA) from the NJDEP, entered into a Remediation Agreement (as such term is defined by ISRA) with the NJDEP or obtained such other approval as authorized by ISRA to allow for the closing of this transaction. 7.13. Qualifying Facility Recertifications. Company shall cause each of its Subsidiaries directly owning a Qualifying Facility to have prepared and filed at FERC a self-recertification using FERC Form 556 updating the prior certification or self certification, as applicable, to include any changes that have occurred prior to Closing and the change in upstream ownership effected by the Contemplated Transactions at Closing (each a "Qualifying Facility Self Recertification"). Each such Qualifying Facility Self Recertification shall fully comply with all applicable FERC rules and regulations, including but not limited to, fully updating all changes that have occurred to the relevant Project since the last certification for which FERC's rules and regulations require a recertification or self-recertification, including, without limitation, its ownership, technical characteristics, fuel use, size and ability to meet applicable operating and efficiency requirements. 7.14. Tax Liability. Company shall have established the Cash Tax Reserve for the Unpaid Pro Forma Tax Liability. 7.15. Opinion. Company shall have delivered an opinion of regulatory counsel in a form reasonably satisfactory to Purchaser and its counsel. 7.16. Geothermal Sale. The closing of the Geothermal Sale shall have occurred on substantially the same terms as set forth in the Heber Reorganization Plan. 7.17. Treatment of Certain Projects. Prior to Closing, Company and Purchaser shall have mutually agreed upon the treatment under the Plan of, and all arrangements with respect to, the waste-to-energy-Projects in Haverhill, Massachusetts, Lake County, Florida, Warren County, New Jersey, the Town of Babylon, New York, and the water Project in Tampa, Florida. Company and Purchaser agree that various mutually agreed arrangements for each of such Projects as described in Section 7.17 of the Company Disclosure Schedule shall be acceptable arrangements, which if consummated by the Company, subject to the reasonable approval of Purchaser, shall satisfy this condition precedent. 8. Conditions Precedent to the Obligation of Company. The obligation of Company to issue and sell the Purchased Shares is subject, at the option of Page 48 Company acting in accordance with the provisions of Section 11 with respect to termination of this Agreement, to the fulfillment on or prior to the Closing Date of the following conditions, any one or more of which may be waived by Company (unless the non-fulfillment of any condition is a result of the action or inaction of Company, the Subsidiaries or their Affiliates): 8.1. Representations and Covenants. (a) The representations and warranties of Purchaser contained in (i) this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "material adverse effect" qualifiers set forth therein) on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not reasonably be expected to result in a Material Adverse Effect on Purchaser and (ii) Section 5.9 shall be true and correct on and as of the Closing Date. (b) Purchaser shall have performed and complied in all material respects with all covenants and agreements required by this Agreement to be performed or complied with by it on or prior to the Closing Date. (c) Purchaser shall have delivered to Company a certificate, dated the date of the Closing and signed by an officer of Purchaser, certifying as to (a) and (b) above and satisfaction of the condition set forth in Section 8.8. 8.2. Required Consents and Required Governmental Approvals. All Required Consents and Required Governmental Approvals shall have been obtained or deemed by operation of the Plan or the Confirmation Orders to have been given and shall be in full force and effect. 8.3. Confirmation Orders. The Confirmation Orders shall have been entered by the Bankruptcy Court and shall not be stayed, reversed, amended, ordered to be reconsidered, or modified in a manner not approved by Company. 8.4. Exit Financing. All conditions precedent to closing the Exit Financing (other than any failure of a condition precedent due to the breach, action or inaction of Company) shall have been satisfied or waived and the Exit Financing shall have been consummated in accordance with the material terms contained in the Credit Agreements and the Senior Secured Notes Indenture; provided that the failure to consummate is not the result of the breach, action or inaction of Company. 8.5. New Securities Issued. All conditions precedent to the issuance of each of the Unsecured Notes and the Tax Note (other than the Closing hereunder) shall have been satisfied. 8.6. Execution of Tax Sharing Agreement. The Tax Sharing Agreement shall have been authorized, executed and delivered by Purchaser on terms as set forth in Exhibit F and shall be in full force and effect. 8.7. Geothermal Sale. The Closing of the Geothermal Sale shall have occurred on substantially the same terms as set forth in the Heber Reorganization Plan. 8.8. Non-Operating Loss Carryforwards. Purchaser's good faith estimate of the amount of net operating loss carryforwards projected to be available to Company and its Subsidiaries at Closing shall not be less than $325 million. 9. Designation of Executory Contracts. Company and Purchaser shall determine in good faith the executory contracts and Leases that Company will assume or reject. At least thirty (30) days before the Confirmation Hearing, Company shall provide to Purchaser a schedule identifying the executory contracts and Leases that it proposes to assume or reject for Purchaser's Page 49 approval. 10. Representations and Warranties of Company. Notwithstanding any right of Purchaser to investigate fully the affairs of Company and the Subsidiaries and notwithstanding any knowledge of facts determined or determinable by Purchaser pursuant to such investigation or right of investigation, prior to the Closing, Purchaser has the right to rely fully upon the representations and warranties of Company contained in Section 4 of this Agreement. 11. Termination of Agreement. 11.1. Termination. This Agreement may be terminated prior to the Closing as follows: (a) at the election of Purchaser, if any one or more of the conditions to the obligation of Purchaser to close set forth in Section 7 has not been fulfilled as of June 15, 2004; (b) at the election of Company, if any one or more of the conditions to the obligation of Company to close set forth in Section 8 has not been fulfilled as of June 15, 2004; (c) at the election of either party, if there is any Order of any nature of any Governmental Authority of competent jurisdiction that is in effect that restrains, enjoins or otherwise prohibits the consummation of the Contemplated Transactions; (d) at the election of Company, if Purchaser has materially breached any material covenant or agreement contained in this Agreement, which breach cannot be or is not cured prior to June 15, 2004, provided that Company is not then in material breach of any material covenant or agreement contained in this Agreement; (e) at the election of Purchaser, if Company has materially breached any material covenant or agreement contained in this Agreement, which breach cannot be or is not cured prior to June 15, 2004, provided that Purchaser is not then in material breach of any material covenant or agreement contained in this Agreement; (f) at the election of Company, if (i) Company accepts a Superior Proposal or (ii) the Bankruptcy Court approves an Alternative Transaction, provided that Company has complied with its obligations under Section 6.10 and provided further that Company shall not terminate this Agreement pursuant to this paragraph (f) until the expiration of five (5) Business Days following Purchaser's receipt of written notice advising Purchaser that Company has received an offer for an Alternative Transaction specifying the material terms and conditions of such an Alternative Transaction (and including a copy thereof with all accompanying documentation), identifying the Person making such an offer for an Alternative Transaction and stating whether Company intends to enter into a definitive agreement with respect thereto. After providing the notice referred to in the preceding sentence, Company shall provide a reasonable opportunity to Purchaser during such five (5) Business Day period to make any adjustments in the terms and conditions of this Agreement as are necessary to cause the Contemplated Transactions to proceed on terms and conditions equivalent to or better than such Alternative Transaction; (g) at the election of Purchaser, if (i) Company enters into an agreement with respect to an Alternative Transaction or (ii) the Bankruptcy Court approves an Alternative Transaction; (h) at any time after December 18, 2003, at the election of Purchaser, if by such date the Approval Order has not been entered or if such Page 50 order has been vacated, reversed or materially modified or amended or stayed; or (i) at any time on or prior to the Closing Date, by mutual written consent of Company and Purchaser. 11.2. Survival After Termination; Termination Fee. (a) If this Agreement terminates pursuant to Section 11.1 and the Contemplated Transactions are not consummated, this Agreement shall become null and void and have no further force or effect, except that (i) any such termination shall be without prejudice to the rights of(A) Purchaser and Laminar, as applicable, to receive the damages and payments described in Section 3.3, Section 11.2(b), Section 11.2(c) and Section 11.2(d) and (B) if applicable, Company to receive the payment set forth in Section 11.2(c) and (ii) the provisions of Section 11.2(g) shall survive. Notwithstanding anything in this Agreement to the contrary, the provisions of Section 6.2 relating to the Confidentiality Agreement shall remain in full force and effect. (b) The parties agree that if (i) this Agreement is terminated under Section 11.1 for any reason by a party which has the right to terminate this Agreement (other than by Company pursuant to (A) Section 11.1(b) (x) solely in connection with a failure of the condition set forth in Section 81(a) or 8.2 to be satisfied other than as a result of any breach, action or inaction of Company or (y) solely in connection with a failure of the condition set forth in Section 8.4 if such failure is not the result of a Company Failure and a First Lien Failure has not occurred or (B) Section 11.1(d)) and (ii) Company closes an Alternative Transaction within 6 months of such termination, or contracts to close an Alternative Transaction within 6 months of such termination and subsequently closes such an Alternative Transaction, Purchaser shall be entitled to payment of $12,000,000 as a termination fee (the "Termination Fee"), which Company shall pay or cause to be paid to Purchaser by wire transfer of immediately available funds within two (2) Business Days of the closing of such an Alternative Transaction to an account designated in writing by Purchaser; provided that if Purchaser terminates pursuant to Section 7.6 solely because an appeal is pending against the Confirmation Order, and there is no stay of the Confirmation Order, no Termination Fee shall be payable under this Section 11.2(b). (c) The parties agree that if this Agreement is terminated pursuant to Section 11.1 for any reason, the parties will instruct the Escrow Agent to return the Deposit to Purchaser with interest within two (2) Business Days of termination by wire transfer of immediately available funds to an account designated in writing by Purchaser, provided that, notwithstanding the foregoing, if (i) Company terminates this Agreement pursuant to (A) Section 11.1(b) in connection with a failure of the condition set forth in (x) Section 8.1(a) solely as a result of a knowing breach of the representations and warranties set forth in Section 5 by Purchaser or (y) Section 8.4 if such failure is not the result of a Company Failure and a First Lien Failure has not occurred or (B) Section 11.1(d) and (ii) Purchaser has not terminated, or has no right to terminate, this Agreement pursuant to any clause of Section 11.1 (other than pursuant to Section 11.1(a) solely in connection with a failure of the condition precedent set forth in (x) Section 7.2 that is the result of any intentional breach, action or inaction of Purchaser or (y) Section 7.8 solely in connection with the failure of Purchaser to perform its obligation under Section 3.5(b)(ii)), the parties shall instruct the Escrow Agent to transfer the Deposit to Company with interest within two (2) Business Days of termination by wire transfer of immediately available funds to an account designated in writing by Company. (d) In the event that this Agreement is terminated because of a failure of Company to consummate the Geothermal Sale, Purchaser may submit invoices to Company for reimbursement of out-of-pocket fees and expenses incurred by Purchaser, and Company shall pay or cause to be paid by wire transfer of immediately available funds to an account designated in writing by Page 51 Purchaser up to an additional $1 million over the amounts payable by Company in respect of Purchaser Expense Reimbursement under Section 3.3; provided that Company has not terminated, and has no right to terminate, this Agreement pursuant to (i) Section 11.1(b) (solely in connection with a failure of the condition in Section 8.1(a) or 8.2 to be satisfied other than as a result of any breach, action or inaction of Company) or (ii) Section 11.1(d). (e) If Purchaser receives payment of the Termination Fee under Section 11.2(b), such payment, together with the Expense Reimbursement, shall (i) be full consideration for Purchaser's efforts and expenses in connection with this Agreement and the Contemplated Transactions, including the substantial due diligence efforts of Purchaser and its professionals and advisors and (ii) constitute liquidated and agreed damages to Purchaser in respect of this Agreement and the Contemplated Transactions, and Company and Reorganized Covanta shall have no further obligations under this Agreement or further liability to Purchaser. Purchaser and Company believe that it is impossible to determine accurately the amount of all damages that Purchaser would incur by virtue of the failure to proceed with the Contemplated Transactions, and Purchaser's sole and exclusive remedy for any such failure shall be to receive payment of the Expense Reimbursement and payment of the Termination Fee. Except as provided in this Section, Purchaser shall have no right or remedy against Company, at law or in equity, by reason of a breach by Company of its obligation to proceed with the Contemplated Transactions. (f) The parties agree that if the Deposit is paid to Company pursuant to Section 11.2(c), such payment shall (i) be full consideration for Company's efforts and expenses in connection with this Agreement and the Contemplated Transactions, and (ii) constitute liquidated and agreed damages to Company in respect of this Agreement and the Contemplated Transactions, including failure to close the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement, and Purchaser shall have no further obligation under this Agreement or further liability to Company. Company and Purchaser believe that it is impossible to determine accurately the amount of all damages that Company would incur by virtue of a breach by Purchaser of their obligations to proceed with the Contemplated Transactions, including failure to close the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement, and Company's sole and exclusive remedy for any such breach shall be to retain the Deposit, if applicable, pursuant to the provisions of this Section 11.2. Except as provided in this Section 11.2, Company shall have no right or remedy against Purchaser, at law or in equity, by reason of a breach by Purchaser of its obligation to proceed with the Contemplated Transactions, including failure to arrange for or close the Second Lien L/C Credit Facility Credit Agreement or the International Revolver Credit Facility Credit Agreement. For the avoidance of doubt, notwithstanding anything in this Agreement to the contrary, the parties to this Agreement hereby agree that a breach by Purchaser of its obligations under Section 3.5(b)(ii) or a failure of the condition precedent in Sections 7.8 or 8.4 with respect to the Second Lien L/C Credit Facility Credit Agreement and the International Revolver Credit Facility Credit Agreement will not result in any liability to Purchaser in an amount greater than the amount of the Deposit (in accordance with, and to the extent provided in, Section 11.2(c) above). (g) Notwithstanding any provision of this Agreement or any other agreement, instrument or document executed in connection with the Contemplated Transactions or otherwise, Company acknowledges and hereby covenants with the Investors that each such Investor, the lenders under the First Lien L/C Credit Facility Credit Agreement, International Revolver Credit Facility Credit Agreement and Second Lien L/C Credit Facility Credit Agreement and any indemnitee of each Investor shall have no responsibility, obligation or liability under or in connection with this Agreement and the Contemplated Transactions, whether in contract, under tort law or otherwise. The parties agree that each of the Investors severally shall be a third party beneficiary of Page 52 this Section 11.2(g) with the full right to enforce it. (h) The parties hereby agree that there shall be no liability for lost profits (save for forfeiture of the Deposit under this Agreement, if applicable) or punitive, incidental or consequential damages under this Agreement. (i) The Expense Reimbursement and Termination Fee shall constitute administrative expenses of Company under section 364(c)(i) of the Bankruptcy Code with priority over any and all administrative expenses of the kind specified in section 503(b) or 507(b) of the Bankruptcy Code. (j) Company acknowledges that Purchaser would not have invested efforts in negotiating and documenting the Contemplated Transactions and incurring duties to pay its legal and financial representatives if Purchaser were not entitled to the Termination Fee plus Expense Reimbursement, as provided for herein. 12. Miscellaneous. 12.1. Consent to Jurisdiction and Service of Process. All disputes arising out of or related to this Agreement, including, without limitation, any dispute relating to the interpretation, meaning or effect of any provision hereof, will be resolved in the Bankruptcy Court and the parties hereto each submit to the exclusive jurisdiction of the Bankruptcy Court for the purpose of adjudicating any such dispute. 12.2. Notices. Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, sent by facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such notice shall be deemed given when so delivered personally, or sent by facsimile transmission or, if mailed, five days after the date of deposit in the United States mails, as follows: (a) if to Purchaser, to: Danielson Holding Corporation 2 North Riverside Plaza Suite 600 Chicago, Illinois 60606 Attention: Philip Tinkler Telephone: (312) 466-3842 Facsimile: (312) 470-1126 with a copy to: Skadden, Arps, Slate, Meagher & Flom (Illinois) 333 W. Wacker Drive, Suite 2100 Chicago, IL 60606 Attention: Peter C. Krupp Timothy R. Pohl Telephone: (312) 407-0855 (312) 407-0772 Facsimile: (312) 407-0411 (b) if to Company, to: Covanta Energy Corporation 0 Lane Road airfield, NJ 07007-2615 Page 53 Attention: Anthony Orlando, President and CEO Telephone: (973) 882-7152 Facsimile: (973) 882-4148 with a copy to: Cleary Gottlieb Steen & Hamilton One Liberty Plaza New York, NY 10006-1470 Attention: Filip Moerman Deborah Buell Telephone: (212) 225-2770 (212)225-2940 Facsimile: (212) 225-3999 Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notices hereunder. 12.3. Entire Agreement. This Agreement and any other collateral agreements executed in connection with the consummation of the Contemplated Transactions contain the entire agreement among the parties with respect to the purchase of the Purchased Shares and supersede all prior agreements, written or oral, with respect thereto. 12.4. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies. This Agreement may be amended, superseded, canceled, renewed or extended, and the terms hereof may be waived, only by a written instrument signed by Purchaser and Company or, in the case of a waiver, by the party waiving compliance. No delay on the part of any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party of any such right, power or privilege, nor any single or partial exercise of any such right, power or privilege, preclude any further exercise thereof or the exercise of any other such right, power or privilege. 12.5. Availability of Equitable Relief. The parties acknowledge that damages following termination may not be an adequate remedy and accordingly agree that prior to the Closing a party shall be entitled to equitable relief for any breach (or anticipatory breach) of this Agreement by any other party. The parties further agree that equitable relief shall be the only relief available prior to delivery of a notice of termination of this Agreement by any party in accordance with Section 11. 12.6. Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of New York. 12.7. Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and legal representatives. Purchaser may not assign its rights or delegate its obligations hereunder without the prior written consent of Company, which may be withheld in Company's sole discretion. Any purported assignment by Purchaser without prior written consent of Company shall be deemed void. 12.8. Usage. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. All terms defined in this Agreement in their singular or plural forms have correlative meanings when used herein in their plural or singular forms, respectively. Unless otherwise expressly provided, the words "include," "includes" and "including" do not limit the preceding words or terms and shall be deemed to be followed by the words "without limitation." Page 54 12.9. Counterparts. This Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. Each counterpart may consist of a number of copies hereof each signed by less than all, but together signed by all of the parties hereto. 12.10. Exhibits, Appendices and Disclosure Schedules; Cross References. The Exhibits, Appendices and the Disclosure Schedules are a part of this Agreement as if fully set forth herein and all references to this Agreement shall be deemed to include the Exhibits, Appendices and the Disclosure Schedules. All references herein to Sections, Exhibits, Appendices and the Disclosure Schedules shall be deemed references to such parts of this Agreement, unless the context shall otherwise require. 12.11. Headings. The headings in this Agreement are for reference only, and shall not affect the interpretation of this Agreement. 12.12. Interpretation. The parties acknowledge and agree that (a) each party and its counsel reviewed and negotiated the terms and provisions of this Agreement and have contributed to its revision; (b) the rule of construction to the effect that any ambiguities are resolved against the drafting party shall not be employed in the interpretation of this Agreement; and (c) the terms and provisions of this Agreement shall be construed fairly as to all parties hereto, regardless of which party was generally responsible for the preparation of this Agreement. 12.13. Severability of Provisions. (a) If any provision or any portion of any provision of this Agreement shall be held invalid or unenforceable, the remaining portion of such provision and the remaining provisions of this Agreement shall not be affected thereby. (b) If the application of any provision or any portion of any provision of this Agreement to any person or circumstance shall be held invalid or unenforceable, the application of such provision or portion of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable shall not be affected thereby. 12.14. Exclusivity of Representations. Except for the representations and warranties contained in Sections 4 and 5, (a) neither Company, Reorganized Covanta, Purchaser nor any other Person has made any representation or warranty (whether express or implied) on behalf of Company, Reorganized Covanta, Purchaser, any of their respective Affiliates or any of their respective employees, agents or representatives regarding Company or any of its Affiliates, Reorganized Covanta, the Subsidiaries, Purchaser or any of its Affiliates, the New Common Stock (or the value thereof) or the Contemplated Transactions and (b) Company and Purchaser hereby disclaim any such representation or warranty, notwithstanding the delivery or disclosure to the other party or its employees, agents or representatives of any information, documents or other material, including without limitation any projections, estimates or budgets. 12.15. Company's Knowledge. For purposes of any representation or warranty of Company set forth in this Agreement, the words "to Company's knowledge" or "to the knowledge of Company" shall mean the actual knowledge without due inquiry as of the date of such representation or warranty of any of Anthony Orlando, Timothy Simpson and Jeffrey Horowitz. 12.16. No Third Party Beneficiaries. Except as set forth in Section 11.2(g) and Section 3.3, nothing in this Agreement, express or implied, shall be construed to confer upon any Person (other than the parties hereto and theft respective successors and assigns permitted hereby) any legal or equitable right, remedy or claim under or by reason of this Agreement. Page 55 IN WITNESS WHEREOF, the parties have executed this Agreement on the date first above written. PURCHASER: DANIELSON HOLDING CORPORATION By /s/ Philip Tinkler ------------------------------ Name: Philip Tinkler Title: CFO COMPANY: COVANTA ENERGY CORPORATION By /s/ Anthony J. Orlando ------------------------------ Name: A.J. Orlando Title: President Page 56 EX-3.4 4 y95330exv3w4.txt BY-LAWS Exhibit 3.4 BY-LAWS OF COVANTA ENERGY CORPORATION (As Amended through March 10, 2004) ARTICLE I Offices SECTION 1. REGISTERED OFFICE. The registered office of Covanta Energy Corporation (the "Corporation") shall be established and maintained at the office of Prentice-Hall Corporation System, Inc., 229 South State Street, Dover, Delaware, and said corporation shall be the registered agent of this corporation in charge thereof. SECTION 2. OTHER OFFICES. The Corporation may have other offices, either within or without the State of Delaware, at such place or places as the board of directors (the "Board of Directors") may from time to time appoint or the business of the corporation may require. ARTICLE II MEETING OF STOCKHOLDERS SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders for the election of directors and for such other business as may be stated in the notice of the meeting, shall be held at such place, either within or without the State of Delaware, and at such time and date as the Board of Directors, by resolution, shall determine and as set forth in the notice of the meeting. If the date of the annual meeting shall fall upon a legal holiday, the meeting shall be held on the next business day. At each annual meeting, the stockholders entitled to vote shall elect a Board of Directors and transact such other corporate business as shall be stated in the notice of the meeting. SECTION 2. NOMINATION OF DIRECTORS. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors 1 at any annual meeting of stockholders. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 2. Such nominations, other than those made by or at the direction of the Board, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than 50 days or more than 75 days prior to the meeting. SECTION 3. SPECIAL MEETINGS. Unless otherwise prescribed by law or by the amended and restated certificate of incorporation, as it may be further amended and/or restated from time to time (the "Certificate of Incorporation"), special meetings of the stockholders, for any purpose or purposes, may be held upon call of the Chairman of the Board of Directors or a majority of the Board of Directors. Special meetings of stockholders may not be called by any other person or persons. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. SECTION 4. VOTING. Each stockholder entitled to vote in accordance with the terms of the Certificate of Incorporation and in accordance with the provisions of these By-Laws shall be entitled to one vote, in person or by proxy, for each share of stock entitled to vote held by such stockholder, but no proxy shall be voted after three years from its date unless such proxy provides for a longer period. Upon the demand of any stockholder, the vote for directors and the vote upon any question before the meeting shall be by ballot. All elections for directors shall be decided by plurality vote; all questions shall be decided by majority vote except as otherwise provided by the Certificate of Incorporation or the laws of the State of Delaware. A complete list of the stockholders entitled to vote at the ensuing election, arranged in alphabetical order, with the address of each, and the number of shares held by each, shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. SECTION 5. QUORUM. Except as otherwise required by law, by the Certificate of Incorporation or by these By-Laws, the presence, in person or by proxy, of stockholders holding a majority of the stock of the corporation entitled to vote shall constitute a quorum at all meetings of the stockholders. In case a quorum shall not be present at any meeting, a majority in interest of the stockholders entitled to vote thereat, present in person or by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of stock entitled to vote shall be present. At any such adjourned meeting at which the requisite amount of stock entitled to vote shall be 2 represented, any business may be transacted which might have been transacted at the meeting as originally noticed; but only those stockholders entitled to vote at the meeting as originally noticed shall be entitled to vote at any adjournment or adjournments thereof. SECTION 6. NOTICE OF MEETINGS. Written notice, stating the place, date and time of the meeting, and the general nature of the business to be considered, shall be given to each stockholder entitled to vote thereat at his address as it appears on the records of the corporation, not less than ten nor more than sixty days before the date of the meeting. No business other than that stated in the notice shall be transacted at any meeting without the unanimous consent of all the stockholders entitled to vote thereat. SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided by the Certificate of Incorporation, any action required to be taken at any annual or special meeting of stockholders, or any action which may be taken at any annual or special meeting, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE III DIRECTORS SECTION 1. NUMBER AND TERM. The number of directors shall be 3. The directors shall be elected at the annual meeting of the stockholders and each director shall be elected to serve until his successor shall be elected and shall qualify. Directors need not be stockholders. SECTION 2. RESIGNATIONS. Any director, member of a committee or other officer may resign at any time. Such resignation shall be made in writing, and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the President or Secretary. The acceptance of a resignation shall not be necessary to make it effective. SECTION 3. VACANCIES. If the office of any director, member of a committee or other officer becomes vacant, the remaining directors in office, though less than a quorum, by a majority vote, may appoint any qualified person to fill such vacancy, who shall hold office for the un-expired term and until his successor shall be duly chosen. SECTION 4. REMOVAL. Except as hereinafter provided, any director or directors may be removed either for or without cause at any time by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote, at a special meeting of the stockholders called for the purpose and the vacancies thus created may be filled, 3 at the meeting held for the purpose of removal, by the affirmative vote of a majority in interest of the stockholders entitled to vote. SECTION 5. INCREASE OF NUMBER. The number of directors may be increased by amendment of these By-Laws by the affirmative vote of a majority of the directors, or, by the affirmative vote of a majority interest of the stockholders, at the annual meeting or at a special meeting called for that purpose, and by like vote the additional directors may be chosen at such meeting to hold office until the next annual election and until their successors are elected and qualify. SECTION 6. POWERS. The Board of Directors shall exercise all of the powers of the corporation except such as are by law, or by the Certificate of Incorporation of the corporation or by these By-Laws conferred upon or reserved to the stockholders. SECTION 7. COMMITTEES. The Board of Directors may, by resolution or resolutions passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, or in these By-Laws, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, recommending to the stockholders a dissolution of the corporation or a revocation of a dissolution, or amending the By-Laws of the corporation; and, unless the resolution, these By-Laws, or the Certificate of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. SECTION 8. MEETINGS. The newly elected directors may hold their first meeting for the purpose of organization and the transaction of business, if a quorum be present, immediately after the annual meeting of the stockholders; or the time and place of such meeting may be fixed by consent in writing of all the directors. Regular meetings of the directors may be held at such places and times as shall be determined from time to time by resolution of the directors. 4 Special meetings of the directors may be called by the President or by the Secretary on the written request of any two directors and shall be held at such place or places as may be determined by the directors, or shall be stated in the call of the meeting. Unless otherwise restricted by the Certificate of Incorporation or by these By-Laws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. SECTION 9. NOTICE. The Secretary or officer performing his duties shall give reasonable notice (which shall not be less than two (2) days) of all meetings of directors, provided that a meeting may be held without notice immediately after the annual election, and notice need not be given of regular meetings held at times fixed by resolution of the Board. Notice by mail or telegraph to the usual business or residence address of the directors not less than the time above specified before the meeting shall be sufficient. Meetings may be held at any time without notice if all the directors are present or if those not present waive notice either before or after the meeting. SECTION 10. QUORUM. A majority of the directors shall constitute a quorum for the transaction of business. If at any meeting of the board there shall be less than a quorum present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained, and no further notice thereof need be given other than by announcement at the meeting which shall be so adjourned. SECTION 11. COMPENSATION. Directors shall not receive any stated salary for their services as directors or as members of committees, but by resolution of the board a fixed fee and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent or otherwise, and receiving compensation therefor. SECTION 12. ACTION WITHOUT MEETING. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the board, or of such committee as the case may be, and such written consent is filed with the minutes of proceedings of the board or committee. 5 ARTICLE IV OFFICERS SECTION 1. OFFICERS. The Board of Directors, as soon as may be practicable after the election of directors in each year, shall: (i) appoint one of their number as Chairman of the Board, (ii) appoint one President, and (iii) appoint one or more Vice Presidents and a Secretary and may appoint from time to time such other officers, including a Treasurer, as they may deem proper. None of the officers of the corporation need be directors. More than two offices may be held by the same person. SECTION 2. TERM. The term of office of all officers shall be until the next election of directors and until their respective successors are chosen and qualified, or until they shall die or resign, but any officer may be removed from office, without cause, at any time by the Board of Directors. Vacancies in any office may be filled by the Board at any meeting. SECTION 3. CHAIRMAN. The Chairman of the Board shall be the presiding officer of the Corporation and shall preside at meetings of the Board of Directors and of the stockholders. He shall have such other powers and duties as may from time to time be conferred upon him by the Board of Directors. SECTION 4. PRESIDENT. The President shall be the Chief Executive Officer of the Corporation and, in the absence of the Chairman of the Board, shall preside at all meetings of the Board and stockholders. The President shall be the officer of the Corporation who has general and active responsibility for the management of the business of the Corporation, and shall be responsible for implementing all orders and resolutions of the Board of Directors. The President shall have such other powers and duties as presidents of corporations usually have or as the Board assigns to him. Except as the Board of Directors shall authorize the execution thereof in some other manner, he shall execute bonds, mortgages and other contracts on behalf of the corporation, and shall cause the seal to be affixed to any instrument requiring it and when so affixed the seal shall be attested by the signature of the Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer. SECTION 5. VICE-PRESIDENT. Each Vice-President shall have such powers and shall perform such duties as shall be assigned to him by the directors. SECTION 6. TREASURER. The Treasurer, if any, shall have the custody of the corporate funds and securities and shall keep full and accurate account of receipts and disbursements in books belonging to the corporation. He shall deposit all moneys and other valuables in the name and to the credit of the corporation in such depositaries as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the corporation as may be ordered by the Board of Directors, or the President, taking proper vouchers for such disbursements. He shall render to the President and Board of Directors at the regular meetings of the Board of Directors, 6 or whenever they may request it, an account of all his transactions as Treasurer and of the financial condition of the corporation. If required by the Board of Directors, he shall give the corporation a bond for the faithful discharge of his duties in such amount and with such surety as the board shall prescribe. SECTION 7. SECRETARY. The Secretary shall give, or cause to be given, notice of all meetings of stockholders and directors, and all other notices required by law or by these By-Laws, and in case of his absence or refusal or neglect so to do, any such notice may be given by any person thereunto directed by the President, or by the directors, or stockholders, upon whose requisition the meeting is called as provided in these By-Laws. He shall record all the proceedings of the meetings of the corporation and of the directors in a book to be kept for that purpose, and shall perform such other duties as may be assigned to him by the directors or the President. He shall have the custody of the seal of the corporation and shall affix the same to all instruments requiring it, when authorized by the directors or the President, and attest the same. ARTICLE V INDEMNIFICATION SECTION 1. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in, or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. SECTION 2. The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if 7 he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation unless and only to the extent that the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery of the State of Delaware or such other court shall deem proper. SECTION 3. To the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 1 or 2 of this Article, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. SECTION 4. Any indemnification under Section 1 or 2 of this Article (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in sections Section 1 or 2. Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. SECTION 5. Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in these By-laws. SECTION 6. The indemnification and advancement of expenses provided by this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any other by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person's official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. SECTION 7. The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such whether or not the Corporation would have the power to indemnify him against such liability under the provisions of these By-laws. 8 SECTION 8. Any amendment to this Article shall not apply to any liability of a director, officer, employee or agent arising out of a transaction or omission occurring prior to the adoption of such amendment, but any such liability based on a transaction or omission occurring prior to the adoption of such amendment shall be governed by this Article, as in effect at the time of such transaction or omission. ARTICLE VI MISCELLANEOUS SECTION 1. CERTIFICATES OF STOCK. Certificate of stock, signed by the Chairman of the Board of Directors, if they be elected, President or Vice-President, and the Treasurer or an Assistant Treasurer, or Secretary or an Assistant Secretary, shall be issued to each stockholder certifying the number of shares owned by him in the corporation. Any of or all the signatures may be facsimiles. SECTION 2. LOST CERTIFICATES. A new certificate of stock may be issued in the place of any certificate theretofore issued by the corporation, alleged to have been lost or destroyed, and the directors may, in their discretion, require the owner of the lost or destroyed certificate, or his legal representatives, to give the corporation a bond, in such sum as they may direct, not exceeding double the value of the stock, to indemnify the corporation against any claim that may be made against it on account of the alleged loss of any such certificate, or the issuance of any such new certificate. SECTION 3. TRANSFER OF SHARES. The shares of stock of the corporation shall be transferable only upon its books by the holders thereof in person or by their duly authorized attorneys or legal representatives, and upon such transfer the old certificates shall be surrendered to the corporation by the delivery thereof to the person in charge of the stock and transfer books and ledgers, or to such other person as the directors may designate, by whom they shall be cancelled, and new certificates shall thereupon be issued. A record shall be made of each transfer and whenever a transfer shall be made for collateral security, and not absolutely, it shall be so expressed in the entry of the transfer. SECTION 4. STOCKHOLDERS RECORD DATE. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to 9 any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. SECTION 5. DIVIDENDS. Subject to the provisions of the Certificate of Incorporation, the Board of Directors may, out of funds legally available therefor at any regular or special meeting, declare dividends upon the capital stock of the corporation as and when they deem expedient. Before declaring any dividend there may be set apart out of any funds of the corporation available for dividends, such sum or sums as the directors from time to time in their discretion deem proper for working capital or as a reserve fund to meet contingencies or for equalizing dividends or for such other purposes as the directors shall deem conducive to the interests of the company. SECTION 6. SEAL. The corporate seal of the Corporation shall be in such form as the Board of Directors shall prescribe. SECTION 7. FISCAL YEAR. The fiscal year of the corporation shall be determined by resolution of the Board of Directors. SECTION 8. CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation, and in such manner as shall be determined from time to time by resolutions of the Board of Directors. SECTION 9. NOTICE AND WAIVER OF NOTICE. Whenever any notice is required by these By-Laws to be given, personal notice is not meant unless expressly so stated, and any notice so required shall be deemed to be sufficient if given by depositing the same in the United States mail, postage prepaid, addressed to the person entitled thereto at his address as it appears on the records of the corporation, and such notice shall be deemed to have been given on the day of such mailing. Stockholders not entitled to vote shall not be entitled to receive notice of any meetings except as otherwise provided by statute. Whenever any notice whatever is required to be given under the provisions of any law, or under the provisions of the Certificate of Incorporation of the corporation or these By-Laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE VII AMENDMENTS These By-Laws may be altered or repealed and By-Laws may be made at any annual meeting of the stockholders or at any special meeting thereof if notice of the proposed alteration or repeal or By-Law or By-Laws to be made be contained in the notice of such special meeting, by the affirmative vote of a majority of the stock issued and outstanding and entitled to vote thereat, or by the affirmative vote of a majority of the Board of Directors, at any regular meeting of the Board of Directors, or at any special meeting of the Board of Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws to be made, be contained in the notice of such special meeting. 10 EX-10.1.A 5 y95330exv10w1wa.txt TERMINATION AGREEMENT Exhibit 10.1(a) Dated as of November 5, 2003 TERMINATION AGREEMENT by and between OGDEN FACILITY MANAGEMENT CORPORATION OF ANAHEIM (as the Manager), COVANTA ENERGY CORPORATION and THE CITY OF ANAHEIM, CALIFORNIA Cleary, Gottlieb, Steen & Hamilton 1 Liberty Plaza New York, NY 10006 TABLE OF CONTENTS Page ARTICLE I DEFINED TERMS Section 1.1 Definitions.................................................. 6 Section 1.2 Certain Rules of Construction................................ 6 ARTICLE II TERMINATION AND ASSIGNMENT OF CONTRACTS Section 2.1 Terminations, Assignments and Transfers...................... 7 Section 2.2 COPS Letter of Credit Payment................................ 7 Section 2.3 Working Capital Adjustment................................... 7 Section 2.4 Contract Assumption and Rejection............................ 9 Section 2.5 Amounts Due Under Executory Contracts; Cure Costs................................................... 9 Section 2.6 Assumed Liabilities.......................................... 9 Section 2.7 Excluded Liabilities......................................... 10 Section 2.8 No Expansion of Third Party Rights........................... 10 Section 2.9 Transfer Taxes............................................... 10 ARTICLE III CONDITIONS TO CLOSING Section 3.1 Conditions Precedent to Obligations of Covanta Parties and the City......................................... 10 Section 3.2 Conditions Precedent to Obligations of the City.............. 11 Section 3.3 Conditions Precedent to Obligations of the Covanta Parties.............................................. 12 ARTICLE IV THE CLOSING Section 4.1 Closing...................................................... 12 Section 4.2 Termination of Contracts At Closing.......................... 13 Section 4.3 Other Closing Actions........................................ 13 Section 4.4 Deliveries by the Manager at the Closing..................... 13 Section 4.5 Deliveries by the City at the Closing........................ 13 Section 4.6 Payment to CSFB.............................................. 13 ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE MANAGER Section 5.1 Organization, Standing and Authority......................... 14 Section 5.2 No Conflict; Required Filings and Consents................... 14 Section 5.3 Title To Assets.............................................. 14 Section 5.4 Assigned Contracts........................................... 14 Section 5.5 Licenses and Permits: Compliance with Laws.................. 15 Section 5.6 No Other Assets.............................................. 15 Section 5.7 Pending Actions.............................................. 15 Section 5.8 Environmental Compliance..................................... 15 Section 5.9 Information True and Complete................................ 15 Section 5.10 Employee Matters............................................. 15 Section 5.11 Compliance with Law.......................................... 15 Section 5.12 Brokers...................................................... 15 Page 2 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE CITY Section 6.1 Organization................................................. 16 Section 6.2 Authority.................................................... 16 Section 6.3 Consents and Approvals....................................... 16 Section 6.4 No Violations................................................ 16 Section 6.5 Brokers...................................................... 16 ARTICLE VII COVENANTS Section 7.1 Bankruptcy Court Approval of Agreement....................... 17 Section 7.2 Conduct of Business by the Manager Pending the Closing....... 18 Section 7.3 Access and Information....................................... 18 Section 7.4 Notification................................................. 19 Section 7.5 No Inconsistent Action....................................... 19 Section 7.6 Satisfaction of Conditions................................... 19 Section 7.7 Filings...................................................... 19 Section 7.8 Additional Matters and Further Assurances.................... 19 Section 7.9 Employment Matters........................................... 19 Section 7.10 Maintenance of Books and Records............................. 20 Section 7.11 Survival of Representations and Warranties................... 20 Section 7.12 Disclaimer................................................... 20 ARTICLE VIII TERMINATION Section 8.1 Termination.................................................. 21 Section 8.2 Procedure and Effect of Termination.......................... 22 ARTICLE IX GENERAL PROVISIONS Section 9.1 Notices...................................................... 22 Section 9.2 Publicity.................................................... 23 Section 9.3 Descriptive Headings......................................... 23 Section 9.4 Entire Agreement; Assignment................................. 23 Section 9.5 Governing Law................................................ 24 Section 9.6 Expenses..................................................... 24 Section 9.7 Amendment.................................................... 24 Section 9.8 Waiver....................................................... 24 Section 9.9 Counterparts; Effectiveness.................................. 24 Section 9.10 Severability; Validity; Parties in Interest.................. 24 Section 9.11 Representation............................................... 24 Page 3 TABLE OF CONTENTS Annex A Definitions A-1 Annex B Form of Mutual Release B-1 Schedule 1A Transferred Assets S-1A Schedule 2.1 Per se Rejected Contracts S-2.1 Schedule 2.3(a)-1 Form of Pre-Closing Statement S-2.3(a)-1 Schedule 2.3(a)-2 Reference Balance Sheet S-2.3(a)-2 Schedule 2.3(c) Form of Closing Statement S-2.3(c) Schedule 2.4(a) Manager's Executory Contracts Eligible for Assignment S-2.4(a) Schedule 2.4(c) Post-petition Ordinary Course Executory Contracts S-2.4(c) Schedule 2.7 Excluded Liabilities S-2.7 Schedule 3.1(b) Pre-Closing Regulatory Consents and Filings S-3.1(b) Schedule 3.2(d) Leasehold Restructuring S-3.2(d) Schedule 3.2(i) Agreements Requiring CSFB's Release of the City S-3.2(i) Schedule 3.3(b) Agreements Requiring the Leasehold Participants' Release of Manager S-3.3(b) Schedule 5.4 Consents to Transfer of Designated Contracts S-5.4 Schedule 7.9(c) Terminated Employees S-7.9(c) Page 4 TERMINATION AGREEMENT THIS TERMINATION AGREEMENT, dated as of November 5, 2003 (the "Agreement"), is made by and between Covanta Energy Corporation, a Delaware corporation ("Covanta"), Ogden Facility Management Corporation of Anaheim, a California corporation ("OFM" or the "Manager" and together with Covanta, the "Covanta Parties"), and the City of Anaheim, a municipality incorporated in the State of California (the "City"). RECITALS WHEREAS on April 1, 2002, the Covanta Parties filed in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code and the Covanta Parties currently continue to operate their businesses as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code; WHEREAS OFM manages the arena known as the Arrowhead Pond of Anaheim located at 2695 East Katella Avenue in Anaheim, California (the "Facility") pursuant to a 30-year exclusive Second Amended and Restated Arena Management Agreement dated December 1, 1993 between OFM and the City, as amended or supplemented from time to time (the "Management Agreement"); WHEREAS pursuant to the Management Agreement, OFM has the obligation to provide unlimited working capital to the Facility to assure that, in the event of cash shortfalls, operating expenses and debt service (including payments of both interest and principal on the Certificates of Participation, as defined herein) are timely paid; WHEREAS Covanta has provided a guarantee of OFM's obligations under the Management Agreement, including the obligation to provide unlimited working capital; WHEREAS the Facility is beneficially owned by the City; WHEREAS the Facility is the home arena of the Mighty Ducks hockey team of the National Hockey League pursuant to the Mighty Ducks Agreement, as defined herein; WHEREAS the Parties had entered into a Facility financing agreement pursuant to which Credit Suisse First Boston acting by and through its New York branch ("CSFB") provided the COPS Letter of Credit in connection with the issuance as of December 1, 1993 of Certificates of Participation in that certain Lease Agreement between the City and the Anaheim Public Improvement Corporation, a California non-profit corporation (such financing transaction, hereinafter the "COPS Transaction"), and the Parties desire to fulfill and/or resolve any and all obligations remaining from the COPS Transaction; WHEREAS as part of the COPS Transaction, the City, OFM and CSFB had entered into a bank reimbursement agreement with respect to the COPS Letter of Credit pursuant to which OFM has an obligation to reimburse CSFB in the event of a draw upon the COPS Letter of Credit, and which obligation is a secured obligation of Covanta under the Security Agreement dated as of March 14, 2001 among Covanta, certain of its subsidiaries, and Bank of America; WHEREAS the Parties had entered into a leasehold transaction with respect to the Facility as of January 6, 1999 (the "Leasehold Transaction") along with certain other parties (the "Leasehold Participants"), and the Parties desire to stabilize the Leasehold Transaction and arrange for the release of the Covanta Parties from all liabilities and obligations with respect to the Leasehold Transaction; Page 5 WHEREAS the City and the Manager desire to terminate the Management Agreement and the Manager desires to reject certain other executory contracts pertaining to the Facility; WHEREAS Covanta desires to terminate its obligations under its guarantee of OFM's obligations under the Management Agreement, including the obligation to provide unlimited working capital to the Facility; WHEREAS the Manager desires to assume and assign to the City or its designee certain executory contracts referred to herein as the Designated Contracts (including the Mighty Ducks Agreement) together with certain obligations and liabilities relating thereto, pursuant to the terms and conditions of this Agreement; WHEREAS the Manager desires to abandon and transfer to the City certain tangible and intangible assets as defined in Schedule 1A (the "Transferred Assets"); WHEREAS the Rejected Contracts will be rejected and the Designated Contracts will be assumed and assigned pursuant to the terms of this Agreement and the Approval Order, as defined herein; WHEREAS the City is considering appointing a new manager for the Facility; and WHEREAS, the City has authorized execution of this Agreement by City resolution; NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants, and agreements set forth herein, the Parties hereto agree as follows: ARTICLE I DEFINED TERMS Section 1.1 Definitions. As used in this Agreement, unless the context otherwise requires, capitalized terms used in this Agreement shall have the meanings set forth in Annex A hereto. Section 1.2 Certain Rules of Construction. (a) Any term defined herein in the singular form shall have a comparable meaning when used in the plural form, and vice versa. (b) When used herein, the words "hereof", "herein" and "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular provision of this Agreement. References to the Recitals, Articles, Sections, Schedules or Annexes shall refer respectively to the recitals, articles, sections, schedules or annexes of this Agreement, unless otherwise expressly provided. (c) When used herein, the terms "include", "includes" and "including" are not limiting. (d) Unless the context requires otherwise, derivative forms of any term defined herein shall have a comparable meaning to that of such term. (e) When a Party's consent is required hereunder, such Party's consent may be granted or withheld in such Party's sole discretion, unless otherwise specified. Page 6 (f) Any reference to an agreement hereunder shall refer to that agreement as it may be amended or supplemented from time to time. ARTICLE II TERMINATION AND ASSIGNMENT OF CONTRACTS Section 2.1 Terminations, Assignments and Transfers. (a) Subject to the terms and conditions herein set forth, at the Closing, (i) the Parties shall by mutual agreement terminate the Management Agreement and, except as provided in Section 2.3 herein, irrevocably, definitively and unconditionally release each other from any and all obligations or liabilities under or in connection therewith, in the form of the mutual general release attached as Annex B (the "Mutual Release"), and (ii) the Manager shall reject the Management Agreement. As soon as practicable after the Closing, the Manager shall also reject all its executory contracts that have not become Assigned Contracts (the "Rejected Contracts"), including all per se Rejected Contracts, as listed on Schedule 2.1. (b) Subject to the terms and conditions herein set forth, at the Closing, the Manager shall assume, assign and deliver to the City (or a City Designee, as the case may be), and the City (or such City Designee) shall accept from the Manager, all of the Manager's rights in and obligations under all of the Assigned Contracts. (c) Subject to the terms and conditions herein set forth, at the Closing, the Manager shall transfer, convey, and deliver to the City (or a City Designee, as the case may be), and the City (or such City Designee) shall accept from the Manager, all of the Manager's right and interest in, to and under all of the Transferred Assets, wherever located, whether tangible or intangible, as the same shall exist on the Closing Date, free and clear of all Liens except Permitted Liens. Section 2.2 COPS Letter of Credit Payment. In consideration of the releases contemplated in Section 3.1(e), the termination by mutual agreement of the Management Agreement, the rejection of the Rejected Contracts, the assignment of the Designated Contracts, the transfer of the Transferred Assets and the Covanta Parties' performance of their obligations under this Agreement, at the Closing, the City shall make a payment (the "Reimbursement Payment") to CSFB, as partial reimbursement for the draw on the COPS Letter of Credit referred to in Sections 3.1(e) and 4.6 herein, pursuant to the City's rights and obligations under Article III of the Bank Agreement, equal to (x) the Reimbursement Amount minus (y) an amount of $1,000,000 (the "Escrow") which shall be deposited with an escrow agent selected by the Parties' mutual agreement, and which shall be reserved exclusively for the true-up of the Reimbursement Amount pursuant to Section 2.3 herein. Section 2.3 Working Capital Adjustment (a) At least 10 Business Days prior to the Closing, the Manager shall prepare and deliver to the City an estimated statement of working capital for the Facility as of the opening of business on the scheduled Closing Date in the format of Schedule 2.3(a)-1 hereto (the "Pre-Closing Statement"). The Pre-Closing Statement shall be prepared by the Manager in good faith on a basis consistent in all material respects with the methods, principles, practices and policies set forth in the Management Agreement and employed in the preparation and presentation of the reference financial statements for the Facility as of February 28, 2003, attached hereto as Schedule 2.3(a)-2 (the "Reference Balance Sheet") (without regard to consummation of the transactions contemplated by this Agreement or the Chapter 11 Cases). Page 7 (b) The Reimbursement Amount shall, immediately prior to the Closing, be (A) increased by 100% of the amount, if any, by which the Net Working Capital, as calculated based on the Pre-Closing Statement, is greater than $0.00 (zero dollars) or (B) decreased by 100% of the amount, if any, by which the Net Working Capital, as calculated based on the Pre-Closing Statement, is less than $0.00 (zero dollars). (c) Within 45 Business Days after the Closing, the City shall cause the staff at the Facility to prepare and deliver to the Parties a statement of Net Working Capital as of the opening of business on the Closing Date in the format of Schedule 2.3(c) hereto (the "Closing Statement"). The Closing Statement shall be prepared by the Facility staff in good faith on a basis consistent in all material respects with the methods, principles, practices and policies employed in the preparation and presentation of the Reference Balance Sheet (without regard to consummation of the transactions contemplated by this Agreement or the Chapter 11 Cases). The City shall cause the Parties to be given full access, during regular business hours, to the Facility staff and Facility records to monitor the preparation of the Closing Statement, and the City shall cause the Facility staff as much as reasonably practicable to keep the Parties appraised of its progress and findings with respect to the Closing Statement and its preparation. (d) After receipt of the Closing Statement, the Parties shall have 15 Business Days to review it together with the work papers used in the preparation thereof. Unless a Party delivers written notice to the other Parties on or prior to the 15th Business Day after the notifying Party's receipt of the Closing Statement stating that it has objections thereto, the Parties shall be deemed to have accepted and agreed to the Closing Statement. The Parties shall not object to any method, principle, practice or policy employed in the preparation of the Closing Statement if such method, principle, practice or policy is consistent in all material respects with that employed in the preparation and presentation of the Reference Balance Sheet. If, however, a Party notifies the other Parties of objections to the Closing Statement on or prior to the 15th Business Day after the notifying Party's receipt of the Closing Statement, the Parties shall in good faith attempt to resolve, within 10 Business Days (or such longer period as the Parties may agree in writing) following such notice (the "Resolution Period"), their differences with respect to such objections and any resolution by them as to any disputed amounts shall be final, binding and conclusive. In so doing, the Parties (sharing any fees and expenses equally) may engage a mutually agreed-upon independent accounting firm experienced in audit projects to assist such resolution by acting as a non-binding mediator. (e) Amounts relating to any working capital and other accounts set forth in the Closing Statement remaining in dispute at the conclusion of the Resolution Period shall be promptly submitted to the Independent Auditor for resolution. The Independent Auditor shall render a decision within 30 calendar days from referral of the dispute by either Party. The decision of the Independent Auditor with respect to the Closing Statement and the determination of the Net Working Capital shall be final and binding upon the Parties. The Independent Auditor shall be retained at the Parties' equally shared expense. (f) Once the Closing Statement is finalized in accordance with this Section 2.3 (as so finalized, the "Final Closing Statement"), the Reimbursement Amount shall be trued-up as set forth in this Section 2.3(f) to give effect to the Net Working Capital as of the opening of business on the Closing Date. If the Reimbursement Amount as adjusted pursuant to this Section 2.3(f) is less than the Reimbursement Amount as adjusted pursuant to Section 2.3(b), the City shall be allowed to withdraw from the Escrow an amount of cash equal to the difference obtained by subtracting the Reimbursement Amount as adjusted pursuant to this Section 2.3(f) from the Reimbursement Amount as adjusted pursuant to Section 2.3(b), and the balance of the Escrow, if any, shall be paid to CSFB. If the Reimbursement Amount as adjusted pursuant to this Section 2.3(f) is greater than the Reimbursement Amount as adjusted pursuant to Section 2.3(b), the City Page 8 shall release the Escrow to CSFB, and promptly pay to CSFB an amount of cash equal to the difference obtained by subtracting the Reimbursement Amount as adjusted pursuant to Section 2.3(b) from the Reimbursement Amount as adjusted pursuant to this Section 2.3(f). (g) During the preparation of the Pre-Closing Statement and Closing Statement and the period of any review or dispute within the contemplation of this Section 2.3, the Parties shall (i) provide each other Party upon reasonable advance request with full access for review and copying by the other Party, its agents and representatives at all reasonable times, and in a manner so as not to interfere unreasonably with the normal business operations of each Party, to all relevant books, records, work papers, information and employees, and (ii) cooperate fully with each other Party as necessary for the preparation, calculation and reviews of the Pre-Closing Statement and Closing Statement or for the contemplated resolution of any dispute between the Parties relating thereto. Section 2.4 Contract Assumption and Rejection. (a) Schedule 2.4(a) is a list of the pre-petition executory contracts related to the Facility, other than the Management Agreement, to which the Manager is a party and that the City may choose to assume (the "Schedule 2.4(a) Contracts"). The Manager shall make available to the City a copy of each of the Schedule 2.4(a) Contracts no later than five Business Days from the date of this Agreement. The City shall elect, as soon as practicable and in any event no later than three Business Days prior to the date of the Approval Hearing, which of the Schedule 2.4(a) Contracts the City wishes the Manager to assume and assign to the City (or a City Designee) effective as of the Closing (the "Designated Contracts"). It is understood that the Mighty Ducks Agreement shall in any event be a Designated Contract and, subject to Bankruptcy Court approval, be assumed and assigned to the City (or a City Designee) at Closing. All of the Schedule 2.4(a) Contracts that are not Designated Contracts following the entry of the Final Order shall be rejected as soon as practicable thereafter. (b) If after the date hereof, but prior to the Closing, any Party becomes aware of any pre-petition executory contract related to the management of the Facility not previously disclosed to the City during the due diligence process, or if the Manager enters into any additional executory contract (each, an "Undisclosed Contract"), the discovering Party shall immediately notify the other Parties of such Undisclosed Contract, and the City may elect, no later than five Business Days following such notification, to assume such Undisclosed Contract, subject to Bankruptcy Court authorization. Any Undisclosed Contract that the City elects to assume shall be a Designated Contract. Notwithstanding the foregoing, if any Undisclosed Contract is entered into after the date of the Approval Order and such Undisclosed Contract contains language allowing the Manager to assign the contract to the City, then such contract may be assumed and assigned without the entry of a Bankruptcy Court order. (c) All post-petition executory contracts related to the Facility that were entered into by the Manager in the ordinary course of business consistent with past practice and in accordance with the Management Agreement shall be Designated Contracts and shall at the Closing be assigned to, and assumed by, the City (or a City Designee). Schedule 2.4(c) contains a list of such post-petition executory contracts through the date hereof that will be assumed. Section 2.5 Amounts Due Under Executory Contracts; Cure Costs. The City shall be obligated to pay all liabilities under the Assigned Contracts as of the Closing Date and thereafter, including all cure and reinstatement costs and expenses pursuant to 11 U.S.C. ss.365 or otherwise, arising from the assignment, assumption, or both, of the Assigned Contracts to the City (or a City Designee, as the case may be) as set forth on Schedule 2.4(a) (the "Cure Costs"). Section 2.6 Assumed Liabilities. Subject to the terms and conditions Page 9 set forth in this Agreement, at the Closing, the City shall assume from the Covanta Parties and thereafter pay, perform, or discharge, or cause a City Designee to pay, perform, or discharge, in accordance with their terms and hold the Covanta Parties harmless in respect of the following: (i) all Current Liabilities as of the Closing Date; (ii) all payables, obligations and liabilities with respect to, arising out of, or associated with the Assigned Contracts arising on or after the Closing Date; (iii) all payables, obligations and liabilities associated with the Transferred Assets, arising on or after the Closing Date; (iv) liabilities and obligations pursuant to Section 7.9(b) hereof; and (v) any Cure Costs. The liabilities to be assumed pursuant to the preceding sentence shall be referred to herein as the "Assumed Liabilities". Section 2.7 Excluded Liabilities. Notwithstanding anything contained in this Agreement to the contrary, except for the Assumed Liabilities, the City shall not assume or be under an obligation to pay, discharge or perform, and shall not be deemed to have assumed, or to have agreed to pay, discharge or perform, as a result of the consummation of the transactions contemplated herein, and shall not be liable for, any liability, claim, commitment, or obligation of the Covanta Parties, disclosed or undisclosed, in particular, without limitation, the liabilities as listed on Schedule 2.7 (the "Excluded Liabilities"). Section 2.8 No Expansion of Third Party Rights. The assumption by the City or a City Designee of the Assumed Liabilities shall in no way expand the rights or remedies of any third party against the City, such City Designee or the Manager as compared to the rights and remedies which such third party would have had against the Manager absent the Chapter 11 Cases, had the City or the City Designee not assumed such liabilities. Without limiting the generality of the preceding sentence, the assumption by the City or the City Designee of the Assumed Liabilities shall not create any third-party beneficiary rights other than with respect to the Person whose debt is assumed. Section 2.9 Transfer Taxes. Any sales, use, transfer or recording taxes with respect to personal property due as a result of the transactions provided for herein shall be borne and paid by the City. The Parties will reasonably cooperate to minimize any such taxes. ARTICLE III CONDITIONS TO CLOSING Section 3.1 Conditions Precedent to Obligations of Covanta Parties and the City. The respective obligations of each Party to effect the transactions contemplated by this Agreement shall be subject to the satisfaction of the following conditions: (a) on or before December 22, 2003, the Approval Order, in form and substance consistent with this Agreement, shall have been entered by the Bankruptcy Court and such order shall not have been stayed, modified, reversed or amended in any manner adverse to the City or the Covanta Parties, and shall be final and unappealable; (b) the material regulatory consents and filings set out at Schedule 3.1(b) shall have been obtained or made; (c) no action, suit or proceeding (including any proceeding over which the Bankruptcy Court has jurisdiction under 28 U.S.C. ss. 157(b) and (c)) shall be pending by any Governmental Authority to enjoin, restrain, prohibit or obtain substantial damages or significant equitable relief in respect of or related to the transactions contemplated by this Agreement, or that would be reasonably likely to prevent or make illegal the consummation of the transactions contemplated by this Agreement; Page 10 (d) there shall not be in effect any Law of any Governmental Authority of competent jurisdiction restraining, enjoining or otherwise preventing consummation of the transactions contemplated by this Agreement; and (e) the COPS shall have been either repurchased in full, or repaid in full, out of the proceeds from a draw on the COPS Letter of Credit and, subject to receipt by CSFB of the Reimbursement Payment from the City, the Parties shall have been released, by means of a written instrument in form and substance to their reasonable satisfaction, of all of their respective obligations and security interests granted to CSFB under the COPS Financing Documents, except for CSFB's residual Reimbursement Claim against the Covanta Parties (giving effect to the Reimbursement Amount), to be pursued in the Covanta Parties' Chapter 11 cases. CSFB's release instrument shall confirm the credit of the Reimbursement Amount against the Reimbursement Claim of CSFB against the Covanta Parties. Section 3.2 Conditions Precedent to Obligations of the City. The obligation of the City to effect the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing Date of the following additional conditions: (a) the representations and warranties of the Covanta Parties contained in this Agreement qualified by materiality or Material Adverse Effect shall be true and correct in all respects as of the Closing Date as if made on such date (except for representations and warranties that relate to a specific date), and all representations and warranties that are not so qualified shall be true and correct with only such exceptions as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect; (b) the City shall have completed the New City Financing; (c) from the date of this Agreement, no Leasehold Participant shall have commenced any remedy under any of the Leasehold Documents due to any event of default contained therein; (d) the Leasehold Transaction shall have been restructured substantially in accordance with Schedule 3.2(d), pursuant to documents in form and substance reasonably satisfactory to City; (e) the Manager shall have performed in all material respects the covenants and obligations under this Agreement required to be performed by it at or prior to the Closing Date, with only such exceptions as, individually or in the aggregate, do not constitute and would not reasonably be expected to constitute a Material Adverse Effect; (f) the City Council shall have taken all actions to approve, as necessary, the transactions contemplated herein and all related transactions, including the assumption and assignment of the Designated Contracts, the restructuring of the Leasehold Transaction and the issuance of the New City Financing; (g) since the signing date hereof, no Material Adverse Effect shall have occurred or be reasonably expected to occur; (h) the Facility shall have been operated by the Manager from the period after the date of this Agreement until the Closing Date in a manner consistent with the Management Agreement; (i) CSFB shall have released the City and the Anaheim Public Improvement Corporation from their obligations, and released its security interests in the collateral pledged, under the COPS Financing Documents, including, but not limited to, the documents listed in Schedule 3.2(i), in form and substance to the City's reasonable satisfaction; Page 11 (j) Bank of America shall have released the City from its obligations under the interest rate swap agreement between Bank of America and the City, dated January 12, 1999, as amended, in form and substance to the City's reasonable satisfaction; and (k) the Bank of New York Trust Company of California shall have released the City, the Anaheim Public Improvement Corporation and the Covanta Parties from their obligations, and released its security interests in the collateral pledged, under the COPS Financing Documents, in form and substance to the City's reasonable satisfaction. Section 3.3 Conditions Precedent to Obligations of the Covanta Parties. The obligation of the Covanta Parties to effect the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing Date of the following additional conditions: (a) the representations and warranties of the City contained in this Agreement qualified by materiality or Material Adverse Effect shall be true and correct as of the Closing Date as if made on such date (except for representations and warranties that relate to a specific date) and all representations and warranties that are not so qualified shall be true and correct with only such exceptions as, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect; (b) the Leasehold Participants shall have released the Covanta Parties from their obligations under the Leasehold Documents, including the documents listed in Schedule 3.3(b), in form and substance to the Covanta Parties' reasonable satisfaction; (c) the Ogden Guaranty shall have been terminated, and the Covanta Parties shall have been released from all obligations thereunder; (d) the City shall have withdrawn all proofs of claim it has filed in the Bankruptcy Court against the Covanta Parties in their Chapter 11 Cases; (e) approval of the transactions contemplated in this Agreement by the requisite DIP Lenders, as required by the DIP Financing; (f) the Leasehold Letters of Credit shall have been returned to Covanta, undrawn, for cancellation; and (g) the City shall have performed in all material respects the obligations under this Agreement required to be performed by the City at or prior to the Closing Date. ARTICLE IV THE CLOSING Section 4.1 Closing. The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of the City Manager of the City, or such other place at the Parties shall agree, at 10:00 a.m. California time, on the earlier of (i) the first Business Day after all the conditions to the Closing set forth in Article 3 have been met or waived; (ii) such other time, date, and place as shall be agreed upon by the Parties (the date of the Closing being herein referred to as the "Closing Date") and (iii) January 22, 2004. To the fullest extent practicable, the Closing shall occur concurrently with the closing of the New City Financing unless otherwise agreed by the City. Page 12 Section 4.2 Termination of Contracts At Closing. (a) At the Closing, the Management Agreement shall be deemed mutually terminated by the Parties and shall be deemed rejected by the Manager. The City and the Covanta Parties shall irrevocably, definitively and unconditionally release each other from any and all obligations or liabilities under or in connection therewith, and execute the Mutual Release. (b) At the Closing, all other Rejected Contracts shall be deemed rejected. Section 4.3 Other Closing Actions. (a) At the Closing, Covanta and the City (or a City Designee, as the case may be) shall sign assumption and assignment agreements, substantially satisfactory to the Parties, with respect to the Assigned Contracts, which shall necessarily include the Mighty Ducks Agreement. (b) At the Closing, all licenses, assignments or quitclaim deeds of parking facilities and other transfer documents required to effectuate the transaction described in this Agreement shall be executed and delivered. (c) At the Closing, the Parties shall sign and deliver the Mutual Release. Section 4.4 Deliveries by the Manager at the Closing. At the Closing, the Manager shall deliver to the City: (a) a general bill of sale and assignment, in form and substance reasonably satisfactory to the City, with respect to the Transferred Assets to be conveyed by the Manager at the Closing and any other documents reasonably requested by the City so as to convey to the City or the City Designee good title, free and clear of all Liens (other than Permitted Liens), to all of the Manager's rights, title and interest in and to the Transferred Assets to be conveyed at the Closing; (b) keys, security codes and pass cards to the Facility, and every lock thereon in the Covanta Parties' possession; (c) effective control over software programs and databases, operating systems, licenses, codes and related programs and services in use at the Facility immediately prior to the Closing in connection with Facility operations (including, but not limited to, booking, calendaring, and accounting programs); (d) all of the Manager's books and records, customer files and related business records pertaining to the Facility and the Assigned Contracts, including the originals of all Assigned Contracts, the originals of all permits and warranties, and copies of all maintenance records and operating manuals in the Covanta Parties' possession pertaining to the Facility and any personal property included in the Assigned Contracts; and (e) such other instruments of transfer as are necessary or required to transfer the Assigned Contracts, and all other documents, certificates, instruments or writings reasonably requested by the City in connection herewith, including, in particular, the release documents referred to in Sections 3.2(i), (j) and (k), and the documents described in Section 4.3. Section 4.5 Deliveries by the City at the Closing. At the Closing, the City shall deliver to the Covanta Parties such documents, instruments or certificates as are required to be delivered to carry out the City's obligations under this Agreement, or as the Covanta Parties or their counsel reasonably request, including the documents described in Section 4.3. Section 4.6 Payment to CSFB. At the Closing, the City shall make the Reimbursement Payment to CSFB, in accordance with the reimbursement provisions Page 13 of Article III of the Bank Agreement and as instructed by CSFB, and post the Escrow. CSFB's Reimbursement Claim shall be reduced by an amount equal to the Reimbursement Amount. The receipt of the Reimbursement Payment and the reduction of the Reimbursement Claim shall be formally acknowledged in writing by CSFB to the City and the Covanta Parties, respectively. ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE MANAGER The Manager makes the following representations and warranties to the City: Section 5.1 Organization, Standing and Authority. OFM is a corporation duly organized, validly existing and in good standing under the Laws of its jurisdiction of incorporation. Subject to compliance with applicable provisions of the Bankruptcy Code, the Manager has all requisite corporate power and authority to (i) carry on its business as it is now being conducted or presently being proposed to be conducted, except where the failure to hold such corporate authority or carry on its business would not constitute or be reasonably expected to constitute a Material Adverse Effect and (ii) enter into the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Manager and the consummation by the Manager of the transactions contemplated hereby have been duly authorized by all requisite corporate actions. This Agreement has been duly and validly executed and delivered by the Manager and (assuming this Agreement constitutes a valid and binding obligation of the City) constitutes a valid and binding obligation of the Manager in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other Laws affecting creditors' rights generally from time to time in effect and to general equitable principles. Section 5.2 No Conflict; Required Filings and Consents. Assuming the satisfaction of the conditions set forth in Article 3 and compliance with the applicable requirements for consents, approvals, authorizations, permits or filings referred to in this Section 5.2, no consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, domestic or foreign, or of any other Person is required to be made or obtained by the Manager in connection with the execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated hereby except (i) approvals of the Bankruptcy Court, and (ii) where the failure to obtain such consents, approvals, authorizations or permits, or to make such filings or notifications would neither (x) prevent or materially delay the consummation by the Manager of the transactions contemplated by this Agreement nor (y) individually or in the aggregate, constitute nor be reasonably expected to constitute a Material Adverse Effect. Section 5.3 Title To Assets. Upon entry and effectiveness of the Final Order, the Manager (a) shall have the power and the right to sell, convey, transfer, assign and deliver to the City the Designated Contracts and (b) on the Closing Date shall sell, convey, transfer, assign and deliver the Designated Contracts free and clear of all Liens, except for and subject to the Assumed Liabilities and Permitted Liens. Section 5.4 Assigned Contracts. To the Manager's knowledge, the Assigned Contracts are valid and enforceable in accordance with their terms, subject to applicable bankruptcy, reorganization, moratorium, and similar Laws affecting creditor's rights and remedies generally and subject, as to enforceability, to general principles of equity. To the Manager's knowledge, each of such contracts are in full force and effect and, other than as previously disclosed, no event has occurred which with or without the giving of notice or lapse of time, or both, would constitute a default thereunder. Other than in connection with the commencement of the Chapter 11 Cases, entry of the Page 14 Final Order and as set forth on Schedule 5.4 hereto, none of such contracts requires the consent of any party to its assignment in connection with the transactions contemplated hereby, or to the extent that consent is required, such consent has not been withheld by any party. True and complete copies or descriptions (as to oral contracts) of all executory contracts of the Manager known and available to the Manager have been delivered or made available, or will be made available within five Business Days from the date of this Agreement, to the City. Section 5.5 Licenses and Permits: Compliance with Laws. To the Manager's knowledge, the Manager has all licenses, permits and authorizations necessary in order to operate and conduct its business involving the Facility, the Designated Contracts and the Transferred Assets as presently conducted. Section 5.6 No Other Assets. To the Manager's knowledge, other than the Transferred Assets and the assets which the City has advised the Manager it does not wish to acquire, no furniture, fixtures, equipment or other personal property, tangible or intangible, are in use by the Manager in the day-to-day operation of the Facility. Section 5.7 Pending Actions. To the Manager's knowledge, there are no actions or proceedings pending against the Manager that would, if adversely determined, be likely to have a Material Adverse Effect with respect to the Facility (including any notices of violation by the Occupational Safety and Health Act or other applicable Law which have not been corrected as of the date hereof). Section 5.8 Environmental Compliance. To the Manager's knowledge, there is not (and as of the Closing Date there will not be, except as otherwise disclosed in writing by the Manager to the City and accepted by the City in writing) any written notice or order by the County of Orange, the State of California or the federal government of the United States finding or alleging that a violation of Law exists with respect to the Facility relating to pollution or to protection of the environment. Section 5.9 Information True and Complete. All information, documents, statements and instruments delivered by the Manager to the City pursuant to this Agreement are, to the Manager's knowledge, true, complete, and accurate in all material respects. Section 5.10 Employee Matters. Pursuant to Section 7.9, all wages, salary and other compensation, commissions, bonuses, vacation pay, reimbursements, federal, state and local income and payroll tax withholdings (including FICA and FUTA), premiums for health insurance, workers' compensation insurance and other benefits, withholdings and contributions to any disability, pension benefit, 401(k) or unemployment compensation plans relating to any Arena Employee (collectively the "Employee Compensation") in respect of periods through the Closing Date have been or will be, as of the Closing Date, paid in full, in compliance with applicable Law. Section 5.11 Compliance with Law. To the Manager's knowledge, in performing its obligations under the Management Agreement, the Manager has complied with all applicable Law in all material respects. Section 5.12 Brokers. No Person, other than Chilmark Partners, is entitled to any brokerage, financial advisory, finder's or similar fee or commission payable by the Covanta Parties in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Covanta Parties. Page 15 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE CITY The City makes the following representations to the Covanta Parties: Section 6.1 Organization. The City is a California charter city and municipal corporation duly organized and established pursuant to the City Charter and the Laws of the State of California and has the full power, authority and legal right to conduct its business as presently conducted with respect to the Facility, to own or hold under lease the property it purports to own or hold under lease with respect to the Facility and to enter into and perform its obligations under this Agreement. Section 6.2 Authority. Relative to this Agreement, the City has the municipal power and authority to enter into this Agreement and to carry out its obligations hereunder. The execution, delivery, and performance of this Agreement by the City and the consummation by the City of the transactions contemplated hereby have been duly authorized by all requisite City Council actions and corporate actions. This Agreement has been duly and validly executed and delivered by the City and (assuming this Agreement constitutes a valid and binding obligation of the Covanta Parties) constitutes a valid and binding agreement of the City, enforceable against the City in accordance with its terms, subject to applicable bankruptcy, reorganization, insolvency, moratorium, and other Laws affecting creditors' rights generally from time to time in effect and to general equitable principles. Section 6.3 Consents and Approvals. Except for the consents contemplated to be obtained in this Agreement, no consent, approval, authorization or permit of, or filing with or notification to, any Governmental Authority, domestic or foreign, or of any other Person is required to be made or obtained by the City in connection with the execution, delivery, and performance by the City of this Agreement and the consummation by the City of the transactions contemplated hereby. Section 6.4 No Violations. To the City's knowledge neither the execution, delivery, or performance of this Agreement by the City, nor the consummation by the City of the transactions contemplated hereby, nor compliance by the City with any of the provisions hereof, will (a) conflict with or result in any violations of any city ordinances of the City, (b) result in a violation or breach of, or constitute (with or without due notice or lapse of time) a default (or give rise to any right of termination, cancellation, acceleration, vesting, payment, exercise, suspension, or revocation) under any of the terms, conditions, or provisions of any note, bond, mortgage, deed of trust, security interest, indenture, license, contract, agreement, plan, or other instrument or obligation to which the City is a party or by which the City or the City's properties or assets may be bound or affected, (c) violate any order, writ, injunction, decree, statute, rule, or regulation applicable to the City or the City's properties or assets, (d) result in the creation or imposition of any encumbrance on any asset of the City, or (e) cause the suspension or revocation of any permit, license, governmental authorization, consent, or approval necessary for the City to conduct its business as currently conducted, except in the case of clauses (b), (c), (d), and (e) for violations, breaches, defaults, terminations, cancellations, accelerations, creations, impositions, suspensions, or revocations that would not individually or in the aggregate have a Material Adverse Effect. Section 6.5 Brokers. No Person is entitled to any brokerage, financial advisory, finder's or similar fee or commission payable by the City in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the City. Page 16 ARTICLE VII COVENANTS Section 7.1 Bankruptcy Court Approval of Agreement (a) As promptly as practicable following the City Council approval of this Agreement but in no event later than November 10, 2003, and subject to the provisions of this Agreement, the Covanta Parties shall file a motion (the "Approval Motion") with the Bankruptcy Court seeking entry of a Bankruptcy Court order authorizing the consummation of the transactions contemplated in this Agreement (the "Approval Order"), subject to higher or better offers. The Covanta Parties shall provide a copy of the form of the Approval Motion and Approval Order to the City for its review and comment prior to filing. Upon filing, the Covanta Parties shall notify, as is required by the Bankruptcy Code, all parties entitled to notice of the Approval Motion and/or the Approval Order, as modified by orders in respect of notice which may be issued at any time and from time to time by the Bankruptcy Court. (b) The Covanta Parties and the City agree to use their reasonable best efforts to obtain entry of the Approval Order by the Bankruptcy Court pursuant to the applicable provisions, including sections 363 and 365, of the Bankruptcy Code. The Approval Order is expected to contain, among other provisions reasonably requested by the City, the following provisions (it being understood that certain of such provisions may be contained in either the findings of fact or conclusions of Law to be made by the Bankruptcy Court as part of the Approval Order): (i) the termination and rejection at the Closing of the Management Agreement; (ii) authorization for the rejection of the Rejected Contracts; (iii) authorization for the Manager's assumption and assignment of the Designated Contracts to the City or the City Designee pursuant to sections 363 and 365 of the Bankruptcy Code; (iv) authorization for the Manager's assignment and transfer to the City or the City Designee all of the Manager's right, title and interest (including common law rights) to all of its Transferred Assets; (v) the transfers of the Assigned Contracts and the Transferred Assets by the Manager to the City or the City Designee are or will be legal, valid and effective transfers, free and clear of Liens, of the Assigned Contracts and the Transferred Assets; (vi) all Persons who are parties to the Assigned Contracts shall be enjoined from raising after the date of the assignment any uncured defaults under such contract; (vii) any Person that may have had the right to consent to the assignment of an Assigned Contract is deemed to have consented to such assignment as required by section 365(e)(2)(A)(ii) of the Bankruptcy Code if it fails to object to the assumption and assignment; (viii) the City is obligated to pay any Cure Costs payable to the other parties to the Assigned Contracts consistent with the terms of this Agreement; (ix) the Reimbursement Amount shall result in a reduction in the same amount of the Reimbursement Claim; (x) all Persons are enjoined from taking any action against the City, any of the City's affiliates (as they existed immediately prior to the Closing) or the City Designee to recover any claim or Excluded Liability which such Person has solely against the Manager or any of the Manager's affiliates (as they existed immediately following the Closing); Page 17 (xi) the transactions contemplated by this Agreement are undertaken by the City and the Covanta Parties at arms' length, without collusion and in good faith within the meaning of section 363(m) of the Bankruptcy Code, and such Parties are entitled to the protections of section 363(m) of the Bankruptcy Code; (xii) the order provides that any stay of orders authorizing the use, sale or lease of property or assumption of contracts as provided in Fed. R. Bankr. Proc. 6004(g) and/or Fed. R. Bankr. Proc. 6006(d) shall not apply to the Approval Order and that the Approval Order is immediately effective and enforceable; and (xiii) the Bankruptcy Court retains exclusive jurisdiction to interpret, construe and enforce the provisions of the Final Order in all respects, provided that in the event the Bankruptcy Court abstains from exercising or declines to exercise jurisdiction with respect to any matter provided for in this clause (xiii) or is without jurisdiction, such abstention, refusal or lack of jurisdiction shall have no effect upon and shall not control, prohibit or limit the exercise of jurisdiction of any other court having competent jurisdiction with respect to any such matter. (c) If the Approval Order or any other orders of the Bankruptcy Court relating to this Agreement shall be appealed by any Person (or a petition for certiorari or motion for rehearing or reargument shall be filed with respect thereto), the Covanta Parties agree to take all steps as may be reasonable and appropriate to defend against such appeal, petition or motion, and the City agrees to cooperate in such efforts. Section 7.2 Conduct of Business by the Manager Pending the Closing. From the date hereof until the date of the Closing the Manager shall operate the Facility in accordance with the Management Agreement and shall not (i) sell, transfer, or otherwise dispose of or encumber any material tangible or intangible assets included in the Transferred Assets (other than under Permitted Liens or in the provision of services in the ordinary course of business in accordance with past practice or as permitted under the terms of the DIP Financing); (ii) grant any increase in the compensation or benefits of any Arena Employee (other than pursuant to the terms of any employee retention, incentive, or severance plan approved by the Bankruptcy Court and delivered to City); or (iii) without reasonably consulting with (or, with respect to post-petition executory contracts on Schedule 2.4(c) with an annual cost of $40,000 or more, without the approval of) the City, modify, cancel, reject or otherwise impair or permit to lapse any of its executory contracts. The Manager shall be permitted to cause Current Liabilities to Covanta or Covanta affiliates to be paid in accordance with the provisions of the Management Agreement. The Manager shall, to the fullest extent permitted by Law, inform the City of all important developments and events in respect of the conduct of the Assigned Contracts. Section 7.3 Access and Information. The Manager shall afford to the City, the City Designee (including its financial advisors, counsel and accountants, in each case subject to a customary and appropriate confidentiality agreement) and the City's financial advisors, legal counsel, accountants, consultants, financing sources, and other authorized representatives reasonable access during normal business hours throughout the period prior to the Closing Date to all books, records, properties, and personnel of the Manager that pertain to the Designated Contracts in a manner which is not disruptive to the Manager's business operations, and, during such period, shall furnish as promptly as practicable to the City any and all such information as the City may reasonably request pertaining to the Designated Contracts. Page 18 Section 7.4 Notification. (a) Each Party shall promptly notify the other of any litigation, arbitration or administrative proceeding pending or, to the relevant Party's knowledge, threatened against such Party which challenges or, if adversely determined could materially affect, the transactions contemplated hereby. (b) The Manager shall promptly provide written notice to the City of any change in any of the information contained in the representations or warranties made by the Covanta Parties in Article 5 or any of the Schedules attached hereto and shall promptly furnish any information that the City may reasonably request in relation to such change. Section 7.5 No Inconsistent Action. Neither the City nor the Covanta Parties shall take any action that is materially inconsistent with its obligations under this Agreement, except for (and as follows from) the Approval Motion and except as approved by the Bankruptcy Court, and, until entry of the Final Order, except as required under the Covanta Parties' fiduciary duties. Section 7.6 Satisfaction of Conditions. Prior to the Closing, each of the Parties shall use commercially reasonable efforts with due diligence and in good faith to promptly satisfy all the conditions precedent to the Closing set out in Article 3 in order to expedite the consummation of the transactions contemplated hereby. Section 7.7 Filings. As promptly as practicable after the execution of this Agreement, each Party shall use its reasonable efforts to obtain, and to co-operate with the other Parties in obtaining, the approvals and consents referred to in Sections 3.1(a) and (b), and to take all reasonable actions to avoid the entry of any order or decree by any Governmental Authority prohibiting the consummation of the transactions contemplated hereby and shall furnish to the other Parties all such information in its possession as may be necessary for the completion of the notifications to be filed by the other Parties. Section 7.8 Additional Matters and Further Assurances. (a) Subject to the terms and conditions of this Agreement, each of the parties hereto agrees to use all commercially reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper, or advisable under applicable Laws and regulations to consummate and make effective the transactions contemplated by this Agreement, including using all commercially reasonable efforts to obtain all necessary waivers, consents, and approvals required under this Agreement. (b) In addition to the provisions of this Agreement, from time to time after the Closing Date, the Manager and the City will use all commercially reasonable efforts to execute and deliver such other instruments of conveyance, transfer or assumption, as the case may be, and take such other actions as may be reasonably requested to implement more effectively, the conveyance and transfer of the Assigned Contracts to the City and the assumption of the Assumed Liabilities by the City. (c) The Manager and the City shall cooperate and take such actions as may be reasonably requested by the other in order to effect an orderly transfer of the Assigned Contracts and the Transferred Assets with a minimum of disruption to the operations and employees of the businesses of the Parties. Section 7.9 Employment Matters. (a) The Covanta Parties shall have sole responsibility for (i) all Employee Compensation due for any period prior to the Closing Date, and (ii) "continuation coverage" benefits provided under group health plans to all current or former Arena Employees and qualified beneficiaries relating thereto for whom a qualifying event has occurred on or prior to the Closing Date. Terms used in this subsection 7.9(a) and not otherwise defined herein shall have the meanings ascribed to them under COBRA. Page 19 (b) OFM shall comply with all applicable notice and other requirements under the federal Workers Adjustment and Retraining Notification Act (the "WARN Act") and any similar state or local statute with respect to all Arena Employees for the period to and including Closing, and the City shall comply with all applicable notice and other requirements under the WARN Act and any similar state or local statue with respect to all Arena Employees for the period after the Closing. (c) No later than ten days before the Closing, the City (or City Designee) shall offer employment to each Arena Employee, except for those employees designated on Schedule 7.9(c) as "Terminated Employees". With respect to each Arena Employee who accepts such employment as of the Closing, the City (or the City Designee, if such employees are employed by the City Designee) shall provide similar compensation and working hours as each such Arena Employee enjoyed immediately prior to the Closing Date and shall maintain such similar compensation and working hours for the 45-day period immediately following the Closing Date. The City (or the City Designee, if such employees are employed by the City Designee) shall also provide group health coverage to each Arena Employee who accepts such employment as of the Closing Date and had group health plan coverage immediately prior to the Closing Date, and shall maintain such coverage for the 45-day period immediately following the Closing Date. Section 7.10 Maintenance of Books and Records. The Covanta Parties and the City shall preserve until the fifth anniversary of the Closing Date (or, with respect to OFM, until such time as OFM is liquidated) all records possessed by such Party relating to the Assigned Contracts prior to the Closing Date. After the Closing Date, where there is a legitimate purpose, such Party shall provide the other Party with access, upon prior reasonable written request specifying the need therefor, during regular business hours, to (i) the relevant officers and employees of such Party and (ii) the books of account and records of such Party, but, in each case, only to the extent relating to the Assigned Contracts prior to the Closing Date, and the other Parties and its representatives shall have the right to make copies of such books and records, provided that the foregoing right of access shall not be exercisable in such a manner as to interfere unreasonably with the normal operations and business of such Party. Such records may nevertheless be destroyed by a Party if such Party sends the other Parties written notice of its intent to destroy records, specifying with reasonable particularity the contents of the records to be destroyed. Such records may then be destroyed after the thirtieth day following delivery of such notice unless the other Parties objects to the destruction, in which case the Party seeking to destroy the records shall either agree to retain such records or to deliver such records to the objecting Party. Section 7.11 Survival of Representations and Warranties. No representations or warranties given by the Covanta Parties or by the City in this Agreement or in any instrument delivered pursuant to this Agreement shall survive beyond the Closing Date. Section 7.12 Disclaimer. In entering into this Agreement, the City: (a) acknowledges that, except for the specific representations and warranties of the Covanta Parties contained herein, the Covanta Parties and any of their directors, officers, employees, affiliates, controlling Persons, agents, advisors or representatives, shall not make and shall not be deemed to have made any representation or warranty, either express or implied, as to the accuracy or completeness of any of the information (including any estimates, projections, forecasts or other forward-looking information) provided or otherwise made available to the City or any of its directors, officers, employees, affiliates, controlling Persons, agents, advisors or representatives (including in any management presentations, information or offering memorandum, supplemental information or other materials or information with respect to any of the above); Page 20 (b) agrees that the Covanta Parties and their directors, officers, employees, affiliates, controlling Persons, agents, advisors or representatives shall not have any liability or responsibility whatsoever to the City or any of its directors, officers, employees, affiliates, controlling Persons, agents, advisors or representatives on any basis in respect of the specific representations and warranties of the Covanta Parties; and (c) has no knowledge of any breach of a representation or warranty of the Covanta Parties made under this Agreement or of any material errors or omissions as of the date hereof. ARTICLE VIII TERMINATION Section 8.1 Termination. This Agreement may be terminated and the transactions contemplated hereby may be abandoned at any time prior to the Closing: (a) by mutual consent of the Covanta Parties and the City; (b) by either the Covanta Parties or the City (provided that any such Party is not then in breach of any provision of this Agreement): (i) if the Closing has not occurred prior to January 22, 2004; (ii) if a Governmental Authority shall have issued an order, decree or ruling or taken any other action (which order, decree, ruling or action the Parties hereto shall use their reasonable best efforts to lift or reverse), in each case permanently restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order, decree, ruling or other action shall have become final and nonappealable; or (iii) if the Bankruptcy Court approves an alternative transaction that is considered "better and higher" to the Covanta Parties, from a financial perspective; (c) by the City (provided that the City is not then in breach of any provision of this Agreement): (i) if the Approval Order shall not have become a Final Order by December 22, 2003; (ii) if either of the Covanta Parties shall be in breach or default with respect to the due and timely performance of any of its covenants or agreements contained herein, or if its representations or warranties contained in this Agreement shall have become inaccurate, if such default, breach or inaccuracy has not been cured (if capable of being cured) or waived within 15 days after written notice to such Covanta Party specifying, in reasonable detail, such claimed default, breach or inaccuracy and demanding its cure or satisfaction and such default, breach or misrepresentation would, if not cured, constitute or would reasonably be expected to constitute a Material Adverse Effect, provided that if and to the extent that a misrepresentation consists of the failure to provide information relative to certain facts, circumstances or matters, the provision of the information in question shall not constitute cure if the facts, circumstances or matters previously undisclosed, individually or in the aggregate, constitute or be reasonably expected to constitute a Material Adverse Effect and are not capable of cure and effectively cured within such 15-day period; or Page 21 (iii) if any of the conditions set forth in Sections 3.1 or 3.2 shall have become definitively incapable of fulfillment or cure and shall not have been waived by the City; and (d) by the Covanta Parties (provided that no Covanta Party is then in breach of any provision of this Agreement): (i) if the City shall be in material default or material breach with respect to the due and timely performance of any of its covenants or agreements contained herein or if its representations or warranties contained in this Agreement shall have become inaccurate in any material respect if such default, breach or inaccuracy has not been cured (if capable of being cured) or waived within 15 days after written notice to the City specifying in reasonable detail such claimed default, breach or inaccuracy and demanding its cure or satisfaction; or (ii) if any of the conditions set forth in Sections 3.1 or 3.3 shall have become definitively incapable of fulfillment or cure and shall not have been waived by Covanta. Section 8.2 Procedure and Effect of Termination. (a) If this Agreement is terminated under Section 8.1, written notice thereof shall forthwith be given to the other Parties to this Agreement and this Agreement shall terminate (subject to the provisions of this Section 8.2) and the transactions contemplated hereby shall be abandoned without further action by any of the Parties hereto. (b) If this Agreement is terminated as provided herein, then: (i) upon request therefor each Party shall return all documents, work papers and other material of any other Party relating to the transactions contemplated hereby, whether obtained before or after the execution hereof, to the Party furnishing the same; and (ii) the Parties shall be released from future performance and no Party hereto shall have any liability or further obligation to any other Party resulting from such termination. (c) The provisions of Article 9 of this Agreement shall survive its termination. ARTICLE IX GENERAL PROVISIONS Section 9.1 Notices. All notices, claims, demands, and other communications hereunder shall be in writing and shall be deemed given upon (a) confirmation of receipt of a facsimile transmission, (b) confirmed delivery by a standard overnight carrier or when delivered by hand, or (c) the expiration of five Business Days after the day when mailed by registered or certified mail (postage prepaid, return receipt requested), addressed to the respective Parties at the following addresses (or such other address for a Party as shall be specified by like notice): Page 22 (a) If to the City, to 200 South Anaheim Blvd. Anaheim, CA 92805 Tel: 714-765-5165 Fax: 714-765-5164 Attn: David Morgan, City Manager with copies to The City of Anaheim 200 South Anaheim Blvd. Anaheim, CA 92805 Tel: 714-765-5169 Fax: 714-765-5123 Attn: Jack White, City Attorney Orrick, Herrington & Sutcliffe, LLP 777 South Figueroa Street Suite 3200 Los Angeles, CA 90017-5855 Tel.: 213-612-2425 Fax: 213-612-2499 Attention: Eugene J. Carron, Esq. Freeman, Freeman & Smiley, LLP 2 Park Plaza, Suite 1245 Irvine, CA 92614 Tel: 949-252-2708 Fax: 949-252-2776 Attention: Jill MacGregor Draffin, Esq. and (b) If to the Covanta Parties, to Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Tel: 973-882-9000 Fax: 973-882-7202 Attention: Jeffrey R. Horowitz with copies to Cleary, Gottlieb, Steen & Hamilton 1 Liberty Plaza New York, NY Tel: (212) 225-2000 Fax: (212) 225-3999 Attention: Deborah M. Buell, Esq. Filip Moerman, Esq. Nixon Peabody LLP 401 9th Street, N.W., Suite 900 Washington, DC 20004-2128 Tel: 202-585-8392 Fax: 202-585-8080 Attention: William Andrews, Esq. Section 9.2 Publicity. No Party to this Agreement shall issue any press release or other publicity concerning the proposed transaction without the prior approval of the other Party, except as otherwise required by Law. Each Party shall provide to the other Party a reasonable opportunity to review any press release or other publicity prior to its issuance. Section 9.3 Descriptive Headings. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 9.4 Entire Agreement; Assignment. This Agreement (including the Annexes, Schedules and the other documents and instruments referred to herein) Page 23 (a) constitutes the entire agreement and supersedes all other prior agreements and understandings, both written and oral, among the Parties or any of them, with respect to the subject matter hereof, including any transaction between or among the Parties hereto, provided, however, that the terms of the confidentiality agreement, if any, executed in connection with the City's investigation and due diligence of the Designated Contracts shall survive execution of this Agreement, and (b) shall not be assigned by operation of Law or otherwise. Section 9.5 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of California without regard to the rules of conflict of Laws of the State of California or any other jurisdiction. Each of the Parties hereto irrevocably and unconditionally consents to submit to the jurisdiction of the courts of the Southern District of New York, including the Bankruptcy Court, for any litigation arising out of or relating to this Agreement and the transactions contemplated thereby (and agrees not to commence any litigation relating thereto except in such courts), waives any objection to the laying of venue of any such litigation therein, and agrees not to plead or claim that such litigation has been brought in an inconvenient forum. Section 9.6 Expenses. Except as expressly provided herein, whether or not the transactions contemplated by this Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated thereby shall be paid by the Party incurring such expenses. The foregoing shall not affect the legal right, if any, that any Party hereto may have to recover expenses from any other Party that breaches its obligations hereunder. Section 9.7 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of all the Parties hereto. Section 9.8 Waiver. At any time prior to the Closing Date, the Parties hereto may (a) extend the time for the performance of any of the obligations or other acts of the other Parties hereto, (b) waive any inaccuracies in the representations and warranties contained herein or in any document delivered pursuant hereto, and (c) waive compliance with any of the agreements or conditions contained herein. Any agreement on the part of a Party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such Party. Section 9.9 Counterparts; Effectiveness. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement. This Agreement shall become effective when each Party hereto shall have received counterparts thereof signed by the other Parties hereto. Section 9.10 Severability; Validity; Parties in Interest. If any provision of this Agreement or the application thereof to any Person or circumstance is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other Persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable. Nothing in this Agreement, express or implied, is intended to confer upon any Person not a party to this Agreement any rights or remedies of any nature whatsoever under or by reason of this Agreement. Section 9.11 Representation. Covanta shall represent the Manager for the purposes of this Agreement. Any notice given or communication made to the City on behalf of the Manager by Covanta shall constitute effective notice or communication to the City. Any notice given or communication made by the City to Covanta shall constitute effective notice or communication to the Manager. Any action, approval, or consent by Covanta under or with respect to this Agreement shall bind both Covanta and the Manager. In connection with the transfer of the Designated Contracts and the Transferred Assets to the City, Covanta shall act as agent for any of its direct or indirect subsidiaries who is not a Party and who has any interest in any of the Designated Contracts or the Transferred Assets. Covanta represents that it has the authority to act on behalf of the Manager as provided in this Section 9.11. [SIGNATURES ON FOLLOWING PAGE] Page 24 IN WITNESS WHEREOF, the Covanta Parties and the City have caused this Agreement to be executed on their behalf by their officers thereunto duly authorized, as of the date first above written. COVANTA ENERGY CORPORATION By: --------------------------------------------- Name: Title: OGDEN FACILITY MANAGEMENT CORPORATION OF ANAHEIM By: --------------------------------------------- Name: Title: CITY OF ANAHEIM, CALIFORNIA By: --------------------------------------------- Name: Title: Attest: By: ----------------------------------------------- Name: Sheryll Schroeder Title: City Clerk Approved as to Form: By: ----------------------------------------------- Name: Jack L. White, Esq. Title: City Attorney Page 25 Annex A ------- Definitions Unless otherwise defined herein, terms used herein shall have the meanings set forth below: "Agreement" means this Termination Agreement, including all Annexes, Exhibits and Schedules hereto, as the same may be amended from time to time in accordance with its terms. "Approval Motion" shall have the meaning set forth in Section 7.1(a) hereof. "Approval Hearing" shall mean the hearing before the Bankruptcy Court to consider the Approval Motion, as such hearing may be adjourned or otherwise continued. "Approval Order" shall have the meaning set forth in Section 7.1(a) hereof. "Arena Employee" shall mean any Full-time or Part-time employee, as such terms are defined under applicable federal and state employment Laws, employed by the Manager as of the date hereof. "Assigned Contract" shall mean a Designated Contract that is assumed by Manager and assigned to the City or a City Designee under Section 365 of the Bankruptcy Code, as of the Closing. "Assumed Liabilities" shall have the meaning set forth in Section 2.6 hereof. "Bank Agreement" means the bank agreement dated December 1, 1993, relating to the Certificates of Participation, between CSFB, OFM and the City, as amended and supplemented from time to time. "Bankruptcy Code" shall mean title 11 of the United States Code, sections 101-1330. "Bankruptcy Court" shall have the meaning set forth in the Recitals hereof. "Business Day" means a day on which the major stock exchanges in the United States are open for trading. "Certificates of Participation" and "COPS" mean the $126,500,000 City of Anaheim Certificates of Participation Municipal Adjustable Rate Taxable Securities (1993 Arena Financing Project) Evidencing Direct Undivided Fractional Interests of the Owners Thereof in Lease Payments to be made by the City of Anaheim, California, pursuant to that certain Lease Agreement with the Anaheim Public Improvement Corporation, a California non-profit corporation, of which a principal amount of $113,700,000 remains outstanding. "Chapter 11 Cases" means the cases commenced by the Covanta Parties on April 1, 2002 under Chapter 11 of the Bankruptcy Code, pending in the Bankruptcy Court under Docket No. 02-40826(CB), jointly administered. "City" shall have the meaning set forth in the Preamble hereof. "City Council" shall mean the governing body of the City. A-1 "City Designee" shall mean any entity, including any of the City's direct or indirect subsidiaries that the City may appoint to (i) assume all or certain Assigned Contracts or Assumed Liabilities, (ii) receive all or certain Transferred Assets, or (iii) employ all or certain Arena Employees on the Closing Date, and which does assume such Assigned Contracts and Assumed Liabilities, receive such Transferred Assets, or employ such Arena Employees, subject to satisfaction of the requirements of Section 365 of the Bankruptcy Code including the provision of adequate assurances for future performance. "City Payable" shall mean an amount of $177,417.00. "Closing" shall have the meaning set forth in Section 4.1 hereof. "Closing Date" shall have the meaning set forth in Section 4.1 hereof. "Closing Statement" shall have the meaning set forth in Section 2.3(c) hereof. "COBRA" shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended. "Contract" means any agreement, contract, commitment, or other binding arrangement or understanding, whether written or oral. "COPS Letter of Credit" means the $127,975,833.33 letter of credit, as periodically adjusted, issued by CSFB in favor of The Bank of New York, in connection with the COPS Transaction. "COPS Financing Documents" shall have the meaning ascribed to it in the glossary to the Leasehold Transaction documents. "COPS Transaction" shall have the meaning set forth in the Recitals hereof. "Covanta" shall have the meaning set forth in the Preamble hereof. "Covanta Parties" shall have the meaning as set forth in the Preamble hereof. "CSFB" shall have the meaning set forth in the Recitals hereof. "Cure Costs" means any amounts payable as contemplated in Section 2.5 hereof. "Current Assets" shall mean cash, consigned tickets, net accounts receivable, prepaid expenses (including, but not limited to, prepaid insurance), prepaid Disney commissions and other assets, as set forth on Schedule 2.3(a)-1. "Current Liabilities" shall mean accounts payable (excluding all accounts payable that arose, or relate to periods, prior to April 1, 2002, but including the City Payable and possessory interest tax payable), accrued expenses, unearned ticket revenue, unearned premium revenue and other current liabilities, as set forth in, and derived from Schedule 2.3(a)-1. "Designated Contracts" shall have the meaning set forth in Section 2.4(a) hereof. "DIP Financing" shall mean the credit facility entered into between Covanta, OFM and their related subsidiaries who have filed for bankruptcy protection and certain financial institutions pursuant to the Debtor-In-Possession Credit Agreement dated April 1, 2002. "DIP Lenders" shall mean the Lenders under the DIP Financing, as A-2 defined therein. "Dollars" or "$" means dollars of the United States of America. "Employee Compensation" shall have the meaning set forth in Section 5.10 hereof. "Escrow" shall have the meaning set forth in section 2.2 hereof. "Excluded Liabilities" shall have the meaning set forth in Section 2.7 hereof. "Facility" shall have the meaning set forth in the Recitals hereof. "FICA" shall mean the taxes imposed by the U.S. Internal Revenue Service on employees and employers under the Federal Insurance Contributions Act. "Final Closing Statement" shall have the meaning set forth in Section 2.3(f) hereof. "Final Order" means the version of the Approval Order that shall have become final and entered by the Bankruptcy Court as contemplated by Section 7.1 hereof. "FUTA" shall mean the taxes imposed by the U.S. Internal Revenue Service on employers under the Federal Unemployment Tax Act. "Governmental Authority" means any federal, state, local or foreign government or any subdivision, agency, instrumentality, authority, department, commission, board or bureau thereof, provided, in each case, that the relevant action in any given circumstance has the force of Law, or any federal, state, local or foreign court, tribunal or arbitrator of competent jurisdiction (including the Bankruptcy Court). "Independent Auditor" shall mean PricewaterhouseCoopers or another independent auditor with arbitration experience mutually agreeable to the Parties. "Law" means any provision of any foreign, federal, state or local law, statute, ordinance, charter, constitution, treaty, code, rule, regulation or guidelines (including those of self-regulatory organizations such as the New York Stock Exchange and the National Association of Securities Dealers, Inc.). "Leasehold Documents" shall mean the Operative Documents as defined in the glossary to the Leasehold Transaction documents. "Leasehold Letters of Credit" shall mean the Debt Letter of Credit and the Equity Letter of Credit collectively, each as defined in the Leasehold Documents. "Leasehold Participants" shall have the meaning set forth in the Recitals hereof. "Leasehold Transaction" shall have the meaning set forth in the Recitals hereof. "Liability" means any debt, liability or obligation of any nature, whether secured, unsecured, recourse, nonrecourse, liquidated, unliquidated, accrued, absolute, fixed, contingent, ascertained, unascertained, known, unknown or otherwise. "Lien" means any security, interest, lien, charge, mortgage, deed, A-3 assignment, pledge, hypothecation, claim, encumbrance, easement, restriction or interest of another Person of any kind or nature. "Management Agreement" shall have the meaning set forth in the Recitals hereof. "Manager" shall have the meaning set forth in the Preamble hereof. "Material Adverse Effect" means (a) any event, change, conditions or matters in respect of the Designated Contracts that, individually or in the aggregate, result in or would be reasonably expected to result in a material adverse effect on the business, results of operations, assets, condition (financial or otherwise) of the Designated Contracts taken as a whole, excluding any such effect to the extent resulting from or arising in connection with (i) the filing of the Chapter 11 Cases, (ii) macro-economic changes or general market-related changes unless the Designated Contracts are affected by such changes in a manner that is substantially disproportionate when compared with competitive or peer businesses, or (iii) the conditions of the Facility that are commonly referred to by the Parties as the "chilled pipes issue"; or (b) any events, conditions or matters that would have a material adverse effect on the legality, validity or enforceability of this Agreement and the agreements and instruments to be entered into in connection herewith, the consummation of the transactions contemplated hereby, or the realization of the rights and remedies hereunder. "Mighty Ducks Agreement" shall mean the agreement dated February 24, 1993 between OFM and Anaheim Sports, Inc., formerly Disney Sports Enterprises Inc., as amended or supplemented as follows: 1. March 31, 1993 First Amendment between OFM and Anaheim Sports, Inc. 2. June 15, 1993 Letter regarding the Use of Complimentary Suites and Club Seats, from Tony Tavares to Brad Mayne. 3. September 15, 1993 Standard Operating Procedures (as may be modified from time to time), pursuant to Section 16(c) of the Mighty Ducks Agreement. 4. July 2, 1994 Letter Agreement regarding the Bronze Club Seat Program, from Brad Mayne to Andy Roundtree. 5. April 29, 1999 Letter Agreement regarding All-Event Silver Club "West" Seats and Revitalized Sports Pack, from Spencer Neumann to Tim Ryan. 6. May 26, 1999 Letter Agreement regarding the sale and packaging of seats in Sections 310-317, from Spencer Neumann to Tim Ryan. 7. July 12, 1999 Letter Agreement regarding Advertising/Sponsorship Issues, from Rick Schlesinger to Tim Ryan. 8. October 15, 2001 Letter Agreement regarding Licensing of Luxury Boxes, from Larry Cohen to Tim Ryan. 9. March 7, 2002 Letter regarding the Benchmark Standard from Rick Schlesinger to Tim Ryan. 10. August 14, 2001 Letter Agreement regarding Advertising/Sponsorship engaging The Cabana Group LLC as agent, from Rick Schlesinger to Tim Ryan. A-4 11. February 10, 2003 Agreement regarding Licensing of Luxury Boxes, from Bruce Carter to Tim Ryan. 12. August 27, 2003 Letter Agreement regarding LED Purchase and Revenue Sharing, from Al Coates to Tim Ryan. "Mutual Release" shall have the meaning set forth in Section 2.1(a) hereof. "Net Working Capital" shall mean Current Assets minus Current Liabilities. "New City Financing" shall mean the bond issue in an estimated principal amount of no more than $45,000,000.00, to be carried out pursuant to the following documents: 1. Amended and Restated Lease Agreement dated as of December 1, 2003 by and between the Anaheim Public Financing Authority, a public entity of the State of California (the" Authority"), as lessor, and the City, as lessee, as the same may be amended and supplemented; 2. Amended and Restated Site and Facility Lease dated as of December 1, 2003 by and between the City, as lessor, and the Authority, as lessee, as the same may be amended and supplemented; and 3. Indenture of Trust dated as of December 1, 2003 by and between the Authority and BNY Western Trust Company, as the same may be amended and supplemented. "OFM" shall have the meaning set forth in the Preamble hereof. "Ogden Agreement" shall mean the Ogden Agreement related to the Leasehold Transaction, as such agreement is defined in the glossary to the Leasehold Transaction. "Ogden Guaranty" shall mean the Ogden Guaranty related to the Leasehold Transaction, as such agreement is defined in the glossary to the Leasehold Transaction. "Participation Agreement" shall mean the Participation Agreement related to the Leasehold Transaction, as such agreement is defined in the glossary to the Leasehold Transaction. "Party" or "Parties" are those Persons listed in the first paragraph of this Agreement. "Permitted Liens" means any non-material Liens on non-material Designated Contracts and Liens that will be released before or on Closing. "Person" means any corporation, partnership, joint venture, limited liability company, organization, entity, authority or individual. "Pre-Closing Statement" shall have the meaning set forth in Section 2.3(a) hereof. "Reference Balance Sheet" shall have the meaning set forth in Section 2.3(a) hereof. "Reimbursement Amount" shall mean $40,000,000, subject to adjustment as provided in Section 2.3 hereof. A-5 "Reimbursement Claim" shall mean the claim CSFB has against the Covanta Parties resulting from a draw on the COPS Letter of Credit, pursuant to Section III.B of the Bank Agreement. "Reimbursement Payment" shall have the meaning set forth in Section 2.2 hereof. "Rejected Contracts" shall have the meaning set forth in Section 2.1(a) hereof. "Resolution Period" shall have the meaning set forth in Section 2.3(d) hereof. "Schedule 2.4(a) Contracts" shall have the meaning set forth in Section 2.4(a) hereof. "Schedules" means the schedules hereto. "Taxes" means all taxes, charges, fees, duties, levies or other assessments, including income, gross receipts, net proceeds, ad valorem, turnover, real and personal property (tangible and intangible), sales, use, franchise, excise, value added, license, payroll, unemployment, environmental, customs duties, capital stock, disability, stamp, leasing, lease, user, transfer, fuel, excess profits, occupational and interest equalization, windfall profits, severance and employees' income withholding and Social Security taxes imposed by the United States or any other country or by any state, municipality, subdivision or instrumentality of the United States or of any other country or by any other tax authority, including all applicable penalties and interest, and such term shall include any interest, penalties or additions to tax attributable to such Taxes. "Terminated Employees" shall have the meaning set forth in Section 7.9(b) hereof. "Transferred Assets" shall have the meaning set forth in the Recitals hereof. "Undisclosed Contract" shall have the meaning set forth in Section 2.4(b) hereof. "WARN Act" shall have the meaning set forth in Section 7.9(b) hereof. A-6 Annex B ------- Form of Mutual Release This Management Agreement Mutual Release dated as of December o, 2003 (the "Release"), is made by and between Covanta Energy Corporation, a Delaware corporation ("Covanta"), Ogden Facility Management Corporation of Anaheim, a California corporation (the "Manager" and together with Covanta, the "Covanta Parties"), the City of Anaheim, a municipality incorporated in the State of California (the "City"), and Anaheim Public Improvement Corporation, a California corporation (together with the City, the "City Parties". Reference is made to the Second Amended and Restated Arena Management Agreement dated December 1, 1993 between the Manager and the City, as amended or supplemented from time to time (the "Management Agreement"), the Termination Agreement dated as of November 5, 2003 by and between the Covanta Parties and the City (the "Termination Agreement"), and the Final Order entered by the Bankruptcy Court approving the transactions contemplated in the Termination Agreement, dated as of December [4], 2003. All capitalized terms not defined herein shall have the meaning attributed to them in the Termination Agreement. Pursuant to Section 4.2(a) of the Termination Agreement, the Covanta Parties and the City have terminated the Management Agreement effective as of the date hereof. As required under the terms of the Termination Agreement, the Covanta Parties and the City Parties hereby enter into this Release, and release each other irrevocably, definitively and unconditionally from any and all obligations or liabilities, known or unknown, actual or contingent, under or in connection with the Management Agreement (excluding the Termination Agreement). Each of the Covanta Parties and the City Parties hereby waives and relinquishes any rights, benefits and claims, known or unknown, actual or contingent, it may have against the other Party under the Management Agreement (excluding the Termination Agreement). Furthermore, each of the Covanta Parties and the City Parties acknowledges that it is familiar with Section 1542 of the Civil Code of the State of California, which provides as follows: "A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." Each of the Covanta Parties and the City Parties waives and relinquishes any and all rights and benefits which it may have under, or which may be conferred upon it by, the provisions of Section 1542 of the California Civil Code, to the fullest extent that it may lawfully waive such rights or benefits pertaining to the subject matter of this agreement. Each of the parties hereto shall execute from time to time any other agreements or documents as may be necessary to give effect to this Release. All terms of this Release shall necessarily also apply to any and all of the Covanta Parties' and the City's officials (whether elected or appointed), directors, employees, and agents and their respective successors and assigns. IN WITNESS WHEREOF, the Covanta Parties and the City Parties have caused this Release to be executed on their behalf by their officers thereunto duly authorized, as of the date first above written. COVANTA ENERGY CORPORATION CITY OF ANAHEIM, CALIFORNIA By: By: ----------------------------------- ----------------------------- Name: Name: Title: Title: Attest: ------------------------- Name: Sheryll Schroeder Title: City Clerk Approved as to Form: ------------ Name: Jack L. White, Esq. Title: City Attorney OGDEN FACILITY MANAGEMENT ANAHEIM PUBLIC IMPROVEMENT CORPORATION OF ANAHEIM CORPORATION By: By: ----------------------------------- ----------------------------- Name: Name: Title: Title B-1 Schedule 1A ----------- Transferred Assets Equipment 1. All security cameras 2. Basketball goals 3. Currency counter 4. Fire alarm covers 5. Security clock 6. Radios 7. GTE customer network 8. Adjustable chrome racks 9. Contractor saws / blades 10. Roller hockey 11. All parking radios 12. All photocopiers 13. Vomitory curtains 14. Janitorial supplies 15. Cyber lights 16. All computer equipment and software licenses Furniture and Fixtures 1. All stage curtains 2. All modular panel systems 3. All vomitory curtains 4. Tile for bathroom repairs 5. Television monitor 6. All televisions and cabinets 7. Credenza 8. Soccer offices 9. Partitions for soccer offices 10. All office furniture 11. All storage cabinets Schedule 2.1 ------------ Per se Rejected Contracts 1. Management Agreement. 2. Arena Concessions Agreement between OFM and Aramark Entertainment, Inc. (f/k/a Ogden Entertainment, Inc.), dated April 1, 1993, as amended and supplemented from time to time. 3. Booking Agreement between OFM and Nederlander Anaheim, Inc., dated November 13, 2000. 4. Stage work contract between Hirsh Entertainment Group (a/k/a L.A. Stagecall) and OFM, originally dated June 1, 1996, and as amended from time to time. 5. Personnel Services contract between Staff Pro Inc. and OFM, dated November 30, 2001. Schedule 2.3(a)-1 ----------------- Form of Pre-Closing Statement Current Assets --------------- Cash $ o Consigned Tickets o Accounts Receivable, net o Prepaid Expenses o Prepaid Disney Commissions o Other Assets o --- Total Current Assets $ o
Current Liabilities -------------------- Accounts Payable (excluding all accounts payable that arose prior to April 1, 2002 but including the City Payable and posessory interest tax payable) and Accrued Expenses $o Unearned Ticket Revenue o Unearned Premium Revenue o Other Current Liabilities o --- Total Current Liabilities $o
Schedule 2.3(a)-2 ----------------- Reference Balance Sheet
Unaudited February 2003 Actual ----------- Assets - ------ Current Assets Cash $ 9,432 Consigned Tickets 47 Accounts Receivable, net 1,757 Prepaid Expenses 186 Prepaid Disney Commissions 2,301 Other Assets 200 ------- Total Current Assets $13,923 Fixed Assets Parking Lot Rights $ 2,827 Leasehold Improvements (net) 44 Furniture, Fixtures, and Equipment -- ------- Total Fixed Assets $ 2,871 ------- Total Assets $16,794 =======
Schedule 2.3(a)-2 ----------------- (Reference Balance Sheet - continued)
Unaudited February 2003 Actual ----------- Liabilities Current Liabilities Accounts Payable (excluding all accounts payable that arose prior to April 1, 2002 but including the City Payable and posessory interest tax payable) and Accrued Expenses $ 1,404 Due to Affiliates 5,311 Interest Payable 3,359 Finance Charges Payable 1,394 Working Capital Payable 2,547 Working Capital Interest Payable 18 Unearned Ticket Revenue 5,286 Unearned Premium Revenue 5,048 Other Current Liabilities 110 -------- Total Current Liabilities $ 24,477 Repairs and Maintenance Fund $ (186) City Shortfall Account 7,500 Manager Shortfall Payable 23,215 City Shortfall - Parking Lot 1,926 Manager Shortfall - Parking Lot 1,926 LT Working Capital Interest Payable 2,084 -------- Long-Term Liabilities $ 36,465 Total Liabilities $ 60,942 Retained Earnings $(44,148) -------- Total Liabilities and Retained Earnings $ 16,794 ========
Schedule 2.3(c) --------------- Form of Closing Statement Current Assets Cash $o Consigned Tickets o Accounts Receivable, net o Prepaid Expenses o Prepaid Disney Commissions o Other Assets o -- Total Current Assets $o
Current Liabilities Accounts Payable (excluding all accounts payable that arose prior to April 1, 2002 but including the City Payable and posessory interest tax payable) and Accrued Expenses $o Unearned Ticket Revenue o Unearned Premium Revenue o Other Current Liabilities o -- Total Current Liabilities $o Schedule 2.4(a) --------------- Manager's Executory Contracts Eligible for Assignment License Contracts: Counter Party/Name of Contract Date of Execution Cure costs 1. City of Anaheim (County Sheriff Lot Sublicense Agreement) 14-Jun-03 $0.00 2. City of Anaheim (17-Acre Sublicense Agreement) 1993 $0.00 3. City of Anaheim (Amendment to Sublicense Agreement) 6-Jun-95 $0.00 4. Lewis R. & Judith E. Schmid (Katella Maintenance Yard Letter Agreement) 1-May-95 $0.00 5. Lewis R. & Judith E. Schmid (Sub-Sublease Agreement) 1-May-95 $0.00
Operational Contracts: Counter Party/Name of Contract Date of Execution Cure costs 1. GTE Customer Networks Inc. (now Verizon) 13-Nov-92 $0.00 2. GTE Customer Networks Inc. (now Verizon) 12-Dec-92 $0.00 3. Ticketmaster (and amendments) 24-Dec-92 $0.00 4. Mighty Ducks Agreement 24-Feb-93 $0.00 a. First Amendment to Letter Agreement 31-Mar-93 b. Letter Agreement re: Use of Complimentary Suites and Club Seats 15-Jun-93 c. Standard Operating Procedures for Mighty Ducks Agreement (with City of Anaheim Endorsement ) 7-Dec-93 d. Letter Agreement re: Bronze Club Seat Program 2-Jul-94 e. Letter Agreement re: Sports Pack Seats 29-Apr-99 f. Letter Agreement re: Sports Pack Seats 26-May-99 g. Letter Agreement re: Advertising/Sponsorship Issues 12 Jul-99 h. Letter Agreement re: The Cabana Group LLC 14 Aug- 01 i. Letter Agreement re: Licensing of Luxury Boxes 15-Oct-01 j. Letter Agreement re: Benchmark Standard (The Staples Center) 7-Mar-02 k. Letter Agreement re: Licensing of Luxury Boxes 10-Feb-03 l. Letter Agreement re: LED Purchase and Revenue Sharing 2-Jul-03 5. Consent, Traffic and Parking and Non-Disturbance and Attornment Agreement (as amended) 26-Feb-93 $0.00 6. Dover Elevator Company 1-Jun-94 $0.00 7. South Shore Building Services Inc 24-Apr-97 $0.00 8. Loomis, Fargo & Co 1-Nov-97 $0.00 9. Standard American Sweeping 1-Aug-98 $0.00 10. AT&T 20-Aug-98 $0.00 11. City of Anaheim (Douglass St. Guard Railing Encroachment Agreement) 1-Oct-98 $0.00 12. National Mobile Television 1-Oct-98 $0.00 13. Non-Disturbance and Attornment Agreement (LILO) 6-Jan-99 $0.00 14. JMG Security 19-Feb-99 $0.00 15. Radical Entertainment 6-Apr-99 $0.00 16. IKON Solutions 22-May-99 $0.00 17. Adelphia Cable (cf. Sponsorship Agreement) 31-Aug-99 $0.00 18. PCS Internet Inc 1-Oct-00 $0.00 19. Ford Motor Credit Corp (vehicle lease) 20-Nov-00 $0.00 20. Electronic Arts 4-Apr-01 $0.00 21. ArenaNetwork 6-Apr-01 $0.00 22. Automobile Club of Southern California 1-Aug-01 $0.00 23. Sony Computer Entertainment 1-Aug-01 $0.00 24. Mike Milidonis 27-Aug-01 $0.00 25. Air Conditioning Automation 1-Sep-01 $0.00
Schedule 2.4(a) --------------- (Manager's Executory Contracts Eligible for Assignment - continued)
Event Contracts: Counter Party/Name of Contract Date of Execution Cure Costs 1. Irvin Feld and Kenneth Feld Productions as amended (Ringling Bros. Circus) [under renegotiation] 4-Jun-93 $0.00 2. Ringling Bros.- Barnum & Bailey Combined Shows Inc.-Lease Agreement, as amended. (Disney on Ice) 29-Nov-93 $0.00 3. Ringling Bros.- Barnum & Bailey Combined Shows Inc.-Lease Agreement, as amended. (Disney on Ice) 7-Feb-00 $0.00 Sponsorship Contracts: Counter Party/Name of Contract Date of Execution Cure costs 1. Ticket Master with Amendments (cf. Operation Contracts) 24-Dec-92 $0.00 2. Adelphia Cable Sponsorship (cf. Operational Contracts) 31-Aug-99 $0.00 3. J&J Snack Foods 1-Mar-01 $0.00 Seat Agreements: Counter Party/Name of Contract Date of Execution Cure costs 1. Anaheim Hilton & Towers (Seat Agreement) 1-Jun-99 $0.00 2. Dr. Richard Fukumoto (Seat Agreement) 1-Jun-99 $0.00 3. Fortifiber Corporation (Seat Agreement) 1-Jun-99 $0.00 4. Joe's Garage (Seat Agreement) 1-Jun-99 $0.00 5. Kihong Kwon (Seat Agreement) 1-Jun-99 $0.00 6. L.E. Duncan (Seat Agreement) 1-Jun-99 $0.00 7. Osterkamp Trucking (Seat Agreement) 1-Jun-99 $0.00 8. Platinum Capital Group (Seat Agreement) 1-Jun-99 $0.00 9. Stanwall Corp (Seat Agreement) 1-Jun-99 $0.00 10. Turelk Inc (Seat Agreement) 1-Jun-99 $0.00 11. Revenue Enhancement Group (Seat Agreement) 16-Jun-99 $0.00 12. John Oden/Mike Steger (Seat Agreement) 1-Jul-99 $0.00 13. Gabriel Container Co (Seat Agreement) 1-Aug-99 $0.00 14. Adelphia (Part of sponsorship agreement) 31-Aug-99 $0.00 15. Tom's Truck Center (Seat Agreement) 31-Aug-99 $0.00 16. Word & Brown (Seat Agreement) 1-Jan-00 $0.00 17. Hanson Aggregates (Seat Agreement) 16-Jun-00 $0.00 18. Anaheim Marriott (Seat Agreement) 19-Jun-00 $0.00 19. Ed Ruzak & Assoc. (Seat Agreement) 19-Jun-00 $0.00 20. Ivan Turpin, MD 19-Jun-00 $0.00 21. Shugart (Seat Agreement) 19-Jun-00 $0.00 22. Walter Froemke (Seat Agreement) 19-Jun-00 $0.00 23. Jax Market (Seat Agreement) 19-Jun-00 $0.00 24. American Bolt (Seat Agreement) 19-Jul-00 $0.00 25. Stainless Steel Fabricators (Seat Agreement) 20-Jul-00 $0.00 26. Sully Miller (Seat Agreement) 1-Aug-00 $0.00 27. Air Control Systems (Seat Agreement) 12-Sep-00 $0.00 28. Robert Mondavi Winery (Seat Agreement) 1-Oct-00 $0.00 29. Part of AD Coca-Cola (Seat Agreement) 23-Oct-00 $0.00 30. Gavina & Sons (Seat Agreement) 7-Nov-00 $0.00 31. Clement Calvillo (Seat Agreement) 1-Jan-01 $0.00 32. Kelloggs Company (Seat Agreement) 4-Apr-01 $0.00 33. Universal Alloy Corporation (Seat Agreement) 16-Jun-01 $0.00 34. Bill Podlich (Seat Agreement) 19-Jun-01 $0.00 35. Mark Morena (Seat Agreement) 19-Jun-01 $0.00 36. Patrick Burns (Seat Agreement) 19-Jun-01 $0.00 37. Southern Wine & Spirits (Seat Agreement) 19-Jun-01 $0.00 38. Spicers Paper Company (Seat Agreement) 19-Jun-01 $0.00 39. Universal Health Services (Seat Agreement) 19-Jun-01 $0.00 40. V and M Restoration Inc. (Seat Agreement) 19-Jun-01 $0.00 41. Elma Payton (Seat Agreement) 1-Jul-01 $0.00 42. College Hospital Costa Mesa (Seat Agreement) 1-Jul-01 $0.00 43. Rick Gaulden (Seat Agreement) 1-Jul-01 $0.00 44. Ringler Associates (Seat Agreement) 1-Jul-01 $0.00 45. St. Johns Knits Inc (Seat Agreement) 1-Jul-01 $0.00 46. The Traut & Aitken Law Firm (Seat Agreement) 1-Jul-01 $0.00 47. Trilogy Financial Services Inc (Seat Agreement) 2-Jul-01 $0.00 48. Southern California Gas Co (Seat Agreement) 16-Jul-01 $0.00 49. Alco Magazine Dist (Seat Agreement) 1-Aug-01 $0.00 50. Mission Foods (Seat Agreement) 1-Aug-01 $0.00 51. Montebello Container Co (Seat Agreement) 1-Aug-01 $0.00 52. Pasternack Enterprises (Seat Agreement) 1-Aug-01 $0.00 53. Boeing Company (Seat Agreement) 1-Sep-01 $0.00 54. Chicago Title Company (Seat Agreement) 1-Sep-01 $0.00 55. Weyerhaeuser (Seat Agreement) 1-Sep-01 $0.00 56. Part of AD Anheuser-Busch, Inc (Seat Agreement) 1-Oct-01 $0.00 57. Jim Hicks (Seat Agreement) 1-Oct-01 $0.00 58. Michaelson Connor & Bouling (Seat Agreement) 1-Nov-01 $0.00 59. Advantage Sales & Marketing (Seat Agreement) 1-Jan-02 $0.00 60. Manheim Auctions (Seat Agreement) 1-Jan-02 $0.00 61. San Diego Erosion Control (Seat Agreement) 1-Jan-02 $0.00 62. TruGreen LandCare (Seat Agreement) 1-Jan-02 $0.00 63. Beech Street Corp. (Seat Agreement) 28-Jan-02 $0.00 64. Frize Corporation (Seat Agreement) 1-Mar-02 $0.00 65. Kaiser Permanente (Seat Agreement) 1-Mar-02 $0.00
Schedule 2.4(a) --------------- (Manager's Executory Contracts Eligible for Assignment - continued)
Suite Agreements: Counter Party/Name of Contract Date of Execution Cure costs 66. Arrowhead (Part of sponsorship agreement) 23-Sep-96 $0.00 67. William Pochirowski (Suite Agreement) 24-Apr-97 $0.00 68. Irvine Medical (Suite Agreement) 1-Aug-98 $0.00 69. Pacific Care (Suite Agreement) 16-Jun-99 $0.00 70. Remedytemp, Inc. (Suite Agreement) 16-Jun-99 $0.00 71. Beckman Coulter (Suite Agreement) 19-Jun-99 $0.00 72. Dr. Michael Cornfield, DPM, Linda Bauermeister, Stephanie Kurz (Suite Agreement) 1-Aug-99 $0.00 73. Gordon Automotive Group (Suite Agreement) 22-Mar-00 $0.00 74. Alan Jarrick, Jon Feder, Alliance Imaging, Robert Benson (Suite Agreement) 22-May-00 $0.00 75. IMPAC Funding Corporation (Suite Agreement) 1-Jun-00 $0.00 76. Nederlander (Suite Agreement) 5-Jun-00 $0.00 77. E.T. Horn Company (Suite Agreement) 16-Jun-00 $0.00 78. T. Randall Bryan (Suite Agreement) 19-Jun-00 $0.00 79. Adams Steel and Kinsbursky Brothers (Suite Agreement) 29-Jul-00 $0.00 80. FCB Southern California, Outdoor Dimensions, American Racing, Glenn Miller Films, New Homes Magazine, DGWB Advertising, Liberty Capital Management (Suite Agreement) 1-Aug-00 $0.00 81. Del Taco (Suite Agreement) 1-Sep-00 $0.00 82. The Heritage Escrow Company (Suite Agreement) 13-Nov-00 $0.00 83. Emery, Inc (Suite Agreement) 20-Nov-00 $0.00 84. Tarsadia (Suite Agreement) 15-Mar-01 $0.00 85. Marriott Vacation Club International (Suite Agreement) 1-Apr-01 $0.00 86. Onyx Acceptance Corporation (Suite Agreement) 1-Apr-01 $0.00 87. County Financial Services (Suite Agreement) 16-Jun-01 $0.00 88. Kwikset (Suite Agreement) 16-Jun-01 $0.00 89. Golden State Foods (Suite Agreement) 17-Jun-01 $0.00 90. Fisher Printing, Inc. and Smurfit Newsprint (Suite Agreement) 18-Jun-01 $0.00 91. Perricone Insurance (Suite Agreement) 19-Jun-01 $0.00 92. People's Choice Home Loan (Suite Agreement) 6-Jul-01 $0.00 93. Straub Distribution Company (Suite Agreement) 1-Aug-01 $0.00 1. Ganis Credit Corporation (Suite Agreement) 1-Sep-01 $0.00 94. Toshiba America Information Systems, Inc (Suite Agreement) 1-Oct-01 $0.00 95. UPS (Part of sponsorship) 1-Oct-01 $0.00 96. Class Leasing (Suite Agreement) 1-Nov-01 $0.00 97. Ameriquest Mortgage Company (Suite Agreement) 1-Mar-02 $0.00 98. City of Anaheim (Suite Agreement) N/A $0.00 99. City of Anaheim (Suite Agreement) N/A $0.00 100. Ogden Facility Management (Suite Agreement) N/A $0.00
* - OFM not party to contract. Mighty Ducks Hockey Club, Anaheim Sports, Inc., or Ogden Entertainment Services, Inc. is signatory. Schedule 2.4(c) --------------- Post-Petition Ordinary Course Executory Contracts
Operational Contracts: Counter Party/Name of Contract Date of Execution 1. KCAL (Fight Night) 26-Feb-02 2. LA Times (cf. Sponsorship contract) 17-Mar-03 3. XBOX (Microsoft) 14-Nov-02 4. Event Medical Services 21-Jan-03 5. Orange County Register Advertising Dollar Volume Contract 30-Jan-03 6. Gerard Sports Marketing, LLC 1-Mar-03 7. DBS Photography Inc 1-Apr-03 8. KCAL (Fight Night) - extends previous contract 28-Jul-02 9. Moreno Valley Lawn Maintenance 10-Jun-03 10. SBC 3-Oct-03 Miscellaneous Counter Party/Name of Contract Date of Execution 1. Pacific Insurance Company, Ltd. (Earth Movement and Flood Insurance, Policy # ZG 0024108) 8-Oct-03 2. ACE American Insurance Company (Workers Compensation Insurance, General Liability Insurance, Auto Insurance, Binder # 10102003) 20-Oct-03 3. Zurich North America (Property Damage and Business Income Insurance) (Policy # ERP 9376595-00 20-Oct-03 4. Westchester Surplus Lines Insurance Co. (Earth Movement and Flood Insurance, Policy # I2 06 53 70 A) 20-Oct-03 Event Contracts: Counter Party/Name of Contract Date of Execution 1. Tom Collins Enterprises Inc 1-Jul-02 2. John Wooden Classic 10-Dec-02 3. Orange County Register, Event/venue agreement 1-Mar-03 4. World Wrestling Entertainment 5-Sep-03 Sponsorship Contracts: Counter Party/Name of Contract Date of Execution 1. K&D Graphics 1-Dec-02 2. LA Times (cf. Operational contract) 17-Mar-03 3. Moreno Valley Lawn Maintenance (cf. Operational Contract) 10-Jun-03 4. Burke Williams Day Spa 27-Jun-03 5. HOOTERS Restaurant (Fight Night) 4-Aug-03 6. Freedom Orange County Information 1-Oct-03
Schedule 2.4(c) --------------- (Post-Petition Ordinary Course Executory Contracts - continued)
Seat Agreements: Counter Party/Name of Contract Date of Execution 1. James & Leslie Davidson (Seat Agreement) 1-May-02 2. Mike Thompson RV (Seat Agreement) 1-May-02 3. Pam Doodridge (Seat Agreement) 1-May-02 4. Bordier's Nursery (Seat Agreement) 1-Jun-02 5. Dr. Allan Sheridan (Seat Agreement) 5-Jun-02 6. Apria Health Care (Seat Agreement) 19-Jun-02 7. B.C. I. Framing & Drywall (Seat Agreement) 19-Jun-02 8. Claim Jumper Restaurant (Seat Agreement) 19-Jun-02 9. D. M. Steele (Seat Agreement) 19-Jun-02 10. Johnson-Peltier (Seat Agreement) 19-Jun-02 11. Lyle Parks Jr (Seat Agreement) 19-Jun-02 12. Ram Mudiyam (Seat Agreement) 19-Jun-02 13. VIP Transport (Seat Agreement) 19-Jun-02 14. Williams Medical Company (Seat Agreement) 19-Jun-02 15. Gary Hendricks/Intertate Specialty (Seat Agreement) 1-Jul-02 16. Harbor Distributing LLC (Seat Agreement) 1-Jul-02 17. Information Technology RES (Seat Agreement) 1-Jul-02 18. Dow Diversified Inc (Seat Agreement) 2-Jul-02 19. Kenwood USA Corp (Seat Agreement) 2-Jul-02 20. Dio Ross Publications (Seat Agreement) 2-Jul-02 21. Sunstone Systems Int'ls (Seat Agreement) 19-Jul-02 22. CAM Steel Company Inc (Seat Agreement) 1-Aug-02 23. Hawaiian Air Corp (Seat Agreement) 1-Aug-02 24. Heritage Foods (Seat Agreement) 1-Aug-02 25. Jeffrey Elumba (Seat Agreement) 1-Aug-02 26. Ruth Kane (Seat Agreement) 1-Aug-02 27. Trans Marine Navigation (Seat Agreement) 1-Aug-02 28. Chapman Western Medical Center SA (Seat Agreement) 1-Aug-02 29. Western Tube & Conduit (Seat Agreement) 1-Aug-02 30. John A. McLuckey (Seat Agreement) 1-Aug-02 31. FT Valley Regional Hospital (Seat Agreement) 15-Aug-02 32. Aire Masters Air Conditioning (Seat Agreement) 1-Sep-02 33. Disneyland Resort (Seat Agreement) 1-Sep-02 34. Eastwood Insurance (Seat Agreement) 1-Sep-02 35. Michael Lisa Trucking Inc. (Seat Agreement) 16-Sep-02 36. Full Spectrum Inc. (Seat Agreement) 17-Sep-02 37. Quality Container Company (Seat Agreement) 17-Sep-02 38. Lance Capel (Seat Agreement) 1-Oct-02 39. Pacific World Corporation (Seat Agreement) 1-Oct-02 40. Richard Rodriguez & Warren Parchan (Seat Agreement) 1-Oct-02 41. Searing Industries (Seat Agreement) 1-Oct-02 42. Southern California Gas Co (Seat Agreement) 1-Oct-02 43. Superior Metal Shapes (Seat Agreement) 9-Oct-02 44. City National Bank (Seat Agreement) 1-Nov-02 45. Educational Consulting Service (Seat Agreement) 1-Nov-02 46. Hyosung (Seat Agreement) 1-Nov-02 47. Part of AD LG Mobile Phones (Seat Agreement) 22-Nov-02 48. Aetna US Healthcare (Seat Agreement) 1-Dec-02 49. Reliance Steel & Aluminum (Seat Agreement) 1-Jan-03 50. William Lyon Homes (Seat Agreement) 1-Jan-03 51. Gilead Sciences, Inc. (Seat Agreement) 1-Feb-03 52. Southern California Digital Systems (Seat Agreement) 1-Feb-03 53. LA Times (Part of sponsorship agreement) 17-Mar-03 54. KPMG (Seat Agreement) 1-May-03 55. Mitsubishi NEC (Seat Agreement) 1-May-03 56. Northrop Grumman (Seat Agreement) 1-May-03 57. Preferred Framing (Seat Agreement) 1-May-03 58. Chapel Funding Corporation (Seat Agreement) 31-May-03 59. Unilever (Seat Agreement) 19-Jun-03 60. Lloyd W. Holland (Seat Agreement) 1-Jul-03 61. Sasco (Seat Agreement) 1-Jul-03 62. Independent Capital Marketing (Seat Agreement) 2-Jul-03 63. Sares Regional Group (Seat Agreement) 16-Jul-03 64. Jeff Usher (Seat Agreement) 1-Aug-03 65. Miller Brewing Company (Seat Agreement) 13-Aug-03 66. Barron Harley (Seat Agreement) 1-Sep-03 67. Bill Hunt (Seat Agreement) 1-Sep-03 68. Fairchild Fasteners (Seat Agreement) 1-Sep-03 69. Pacific Transformer Corporation (Seat Agreement) 1-Sep-03 70. Transit Marketing Group (Seat Agreement) 1-Sep-03 71. SBC (Seat Agreement) 15-Sep-03 72. Amcor Sunclipse North America (Seat Agreement) 17-Sep-03 73. Pacific Care Dental & Vision (Seat Agreement) 22-Sep-03 74. GES Exposition Services (Seat Agreement) 1-Oct-03 75. Kevin Crampton (Seat Agreement) 1-Oct-03 76. LA Chemical / Shepard Bros. (Seat Agreement) 1-Oct-03 77. ND Industries (Seat Agreement) 1-Oct-03 78. Orange County Optometric Group (Seat Agreement) 1-Oct-03 79. John O'Neil (Seat Agreement) 1-Nov-03 80. New Homes Magazine (Seat Agreement) 1-Nov-03 81. ABC Radio Group (Seat Agreement) Date N/A 82. Bank of the West (Seat Agreement) Date N/A 83. CDX Communications (Seat Agreement) Date N/A 84. Don Pickler (Seat Agreement) Date N/A 85. E-Systems Design GST (Seat Agreement) Date N/A 86. Hugo Neu-Proler (Seat Agreement) Date N/A 87. Independent Capital Management (Seat Agreement) Date N/A 88. Investors Business Daily (Seat Agreement) Date N/A 89. James E. Hudson (Seat Agreement) Date N/A 90. Jim Steffens (Seat Agreement) Date N/A 91. Lithographix (Seat Agreement) Date N/A 92. Media Networks (Seat Agreement) Date N/A 93. Miro Knezvic (Seat Agreement) Date N/A 94. OC Business Journal Date N/A 95. Paul Folino / Kathy Cole (Seat Agreement) Date N/A 96. Scher Tire (Seat Agreement) Date N/A 97. The Business Press (Seat Agreement) Date N/A 98. Toyota-Davielson Advertising (Seat Agreement) Date N/A 99. Trend Offset Printing (Seat Agreement) Date N/A
Schedule 2.4(c) --------------- (Post-Petition Ordinary Course Executory Contracts - continued)
Suite Agreements: Counter Party/Name of Contract Date of Execution 1. Toshiba America Business Solutions (Suite Agreement) 5-Apr-02 2. First American Title (Suite Agreement) 1-May-02 3. Talbot Insurance & Financial Services (Suite Agreement) 7-Jun-02 4. F & A Cheese Company (Suite Agreement) 1-Jul-02 5. John Ginger Masonry, Inc. (Suite Agreement) 1-Aug-02 6. Wells Fargo Bank, N. A. (Suite Agreement) 7-Aug-02 7. C R & R (Suite Agreement) 1-Sep-02 8. Manheim Auctions (Suite Agreement) 1-Sep-02 9. William Gross (Suite Agreement) 1-Sep-02 10. World Variety Produce Inc & Harold & Wendy Rothman (Suite Agreement) 1-Sep-02 11. Cablerep, Inc (Suite Agreement) 1-Oct-02 12. National Title (Suite Agreement) 1-Oct-02 13. Marc Spirizzi (Suite Agreement) 8-Nov-02 14. K & D Graphics (Part of sponsorship agreement) 1-Dec-02 15. Brown-Forman Spirits (Suite Agreement) 1-Mar-03 16. Price Communications (Suite Agreement) 20-Apr-03 17. Model Finance (Suite Agreement) 1-May-03 18. PC Mall Services (Suite Agreement) 8-May-03 19. WFS Financial (Suite Agreement) 27-Mar-03 20. Douglas Nissan of Huntington Beach (Suite Agreement) 14-May-03 21. Lobel, Friedman and Reisner (Suite Agreement) 1-Jun-03 22. Fun at Arena (Suite Agreement) 15-Jun-03 23. Vince Taormina (Suite Agreement) 15-Jun-03 24. LSI (Suite Agreement) 1-Aug-03 25. The Concierge Advantage (Suite Agreement) 1-Oct-03 26. Brad Bradley (Suite Agreement) Date N/A 27. David Wilson (Suite Agreement) Date N/A 28. John Hartley (Suite Agreement) Date N/A 29. KCAL TV (part of contract) (Suite Agreement) Date N/A 30. Kim Megonigal (Suite Agreement) Date N/A 31. Marc Kaplan (Suite Agreement) Date N/A 32. SBC (Suite Agreement) Date N/A 33. Taormina Industries (Suite Agreement) Date N/A 34. Ticketmaster (Suite Agreement) Date N/A
* - OFM not party to contract. Mighty Ducks Hockey Club, Anaheim Sports, Inc., or Ogden Entertainment Services, Inc. is signatory. Schedule 2.7 ------------ Excluded Liabilities None. Schedule 3.1(b) --------------- Pre-Closing Regulatory Consents and Filings None. Schedule 3.2(d) --------------- Leasehold Restructuring 1. Senior Debt: The existing COPs (approximately $115 MM outstanding principal amount) will be repaid and replaced by new bonds (the "Refunding Bonds") in a principal amount not to exceed $45 MM. 2. UBC: The City will grant a lien on net Pond revenues as security for the City's obligations under the Operative Documents in replacement of the requirement for the Equity Letter of Credit and in exchange for the existing undrawn Equity Letter of Credit. 3. AIG: A replacement Acceptable Debt Letter of Credit to be issued by West LB will be provided to AIG in the stated amount from time-to-time specified in Schedule IV to the Participation Agreement (currently $2,072,193.54 and declining annually thereafter) in exchange for the undrawn existing Debt Letter of Credit. No letter of credit fee will be payable in respect of the replacement Debt Letter of Credit. The replacement Debt Letter of Credit will automatically renew annually until January 2, 2019, unless the then applicable stated amount has been paid in full. A failure to renew will constitute a drawing event under the replacement Debt Letter of Credit. 4. Bank of America: Bank of America will release its claims against the City in connection with the COPs swap arrangements. 5. Priority of Net Pond Revenues: A lien junior to the lien of the equity investor (UBC) on net Pond revenues will be pledged as security for the other payment obligations owed to AIG; further subordinate liens support the Refunding Bonds and then the reimbursement obligations of the City and the City Designee arising from issuance of the replacement Debt Letter of Credit. 6. Closing Schedule: City Council approval is anticipated on or about November 4, 2003. Definitive documentation will be executed shortly thereafter. Closing is expected to occur on or about December 17, 2003. 7. Leasehold Documentation A new "Omnibus Agreement" among the parties to the Leasehold Transaction reflects the restructuring referenced above, and new agreements will be substituted for the Management Agreement and the City and Manager Pledge Agreements. The participation of Ogden Facility Management Corporation of Anaheim ("OFM") and Covanta Energy Corporation will be terminated and the new manager will be substituted therefor. OFM and Covanta will be released from all of their obligations contained in the Operative Documents. The City's obligations under the Operative Documents will remain limited to net Pond revenue. Schedule 3.2(i) --------------- Agreements Requiring CSFB's Release of the City COPS Financing Documents (as such documents are defined in the Leasehold Documents): 1. Management Agreement 2. Guaranty Agreement 3. Consent to Assignment 4. Pledge & Security Agreement (of OFM as Pledgor) 5. Pledge & Security Agreement (of City as Pledgor) 6. Bank Agreement 7. Site and Facility Lease 8. Lease Agreement 9. City Assignment Agreement 10. Corporation Assignment Agreement 11. Non-Disturbance and Attornment Agreement Schedule 3.3(b) --------------- Agreements Requiring the Leasehold Participants' Release of the Manager Leasehold Documents: 1. Participation Agreement 2. Ogden Agreement 3. Guaranty Agreement (Ogden Guaranty) 4. Debt Letter of Credit and Reimbursement Agreement 5. Equity Letter of Credit and Reimbursement Agreement 6. Manager Debt Pledge Agreement 7. Manager Equity Pledge Agreement Schedule 5.4 ------------ Consents to Transfer of Designated Contracts None. Schedule 7.9(c) --------------- Terminated Employees None. EX-10.1.B 6 y95330exv10w1wb.txt OWNERSHIP INTEREST PURCHASE AGREEMENT Exhibit 10.1(b) OWNERSHIP INTEREST PURCHASE AGREEMENT By and among COVANTA HEBER FIELD ENERGY, INC., HEBER FIELD ENERGY II, INC., ERC ENERGY, INC., ERC ENERGY II, INC., HEBER LOAN PARTNERS, COVANTA POWER PACIFIC, INC. PACIFIC GEOTHERMAL CO., MAMMOTH GEOTHERMAL CO., AMOR 14 CORPORATION, COVANTA SIGC ENERGY II, INC. AND COVANTA ENERGY AMERICAS, INC. (the "Sellers") and COVANTA ENERGY CORPORATION ("Covanta") and ORHEBER 1 INC., ORHEBER 2 INC., ORHEBER 3 INC. AND ORMAMMOTH INC. (the "Buyers") Providing for the purchase and sale of the partnership interests of HEBER GEOTHERMAL COMPANY AND HEBER FIELD COMPANY, and the interests of COVANTA SIGC ENERGY, INC., COVANTA SIGC ENERGY II, INC., PACIFIC GEOTHERMAL CO. AND MAMMOTH GEOTHERMAL CO. dated as of November 21, 2003 SCHEDULES AND EXHIBITS Schedules 3.3(a) Assumed Contracts 3.3(b) Assumed and Assigned Contracts 3.3(c) Assigned Contracts 4.4 Officers and Directors 4.5 Bank Accounts, Safe Deposit Boxes and Powers of Attorney 4.9 Changes or Events 4.10 Assets and Permitted Encumbrances 4.11 Real Property Agreements 4.12 Firm Operation Dates 4.13 Material Contracts 4.14 No Conflicts 4.15 Permits 4.18 Litigation 4.21 Transactions with Related Parties 4.24 Tax Returns 4.25 Insurance 4.26 Environmental Matters 7.5 Form of Opinion of Counsel 7.7 Consents Required for Closing 7.9 Title Policies 12.1 On Site Employees and O+M Contracts 13.5 Purchase Price Allocation Exhibits Exhibit A Plan and Confirmation Order Exhibit B Heber Settlement Exhibit C Working Capital Methodology Exhibit D Form of Escrow Agreement Exhibit E Bidding Procedures Motion, Bidding Procedures Order, Sale Motion and Sale Order Page 1 OWNERSHIP INTEREST PURCHASE AGREEMENT THIS OWNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is dated as of the 21st day of November, 2003, by and among Covanta Heber Field Energy, Inc. ("HFC One Seller"), Heber Field Energy II, Inc. ("HFC Two Seller"), Heber Loan Partners ("HGC One Seller"), ERC Energy, Inc. ("HGC Two Seller"), ERC Energy II, Inc. ("HGC Three Seller"), Covanta Power Pacific, Inc. ("Mammoth Seller"), Pacific Geothermal Co. ("MP One Sub"), Mammoth Geothermal Co. ("MP Two Sub"), Amor 14 Corporation ("Amor"), Covanta SIGC Energy II, Inc. ("SIGC Two Sub"), Covanta Energy Americas, Inc. ("SIGC Seller") (individually a "Seller" and collectively, the "Sellers"), Covanta Energy Corporation ("Covanta") and OrHeber 2 Inc. ("HFC/HGC One Buyer"), OrHeber 3 Inc. ("HFC/HGC Two Buyer"), OrMammoth Inc. ("Mammoth Buyer"), OrHeber 1 Inc. ("SIGC Buyer") (individually a "Buyer" and collectively, the "Buyers"). RECITALS WHEREAS, on April 1, 2002, the Debtors filed their respective voluntary petitions for relief pursuant to Chapter 11 of Title 11 of the United States Code, 11 U.S.C.ss.ss. 101 et seq. (as amended, the "Bankruptcy Code"), in the United States Bankruptcy Court for the Southern District of New York (the "Bankruptcy Court") (collectively, the "Bankruptcy Cases"); WHEREAS, the Mammoth Seller owns a 100% interest in each of MP One Sub and MP Two Sub, which respectively own a 1% limited partnership interest and a 49% general partnership interest in Mammoth-Pacific, L.P., a California limited partnership (such partnership, the "MP Project Company") (such interests of the Mammoth Seller in the MP One Sub and the MP Two Sub are collectively referred to as the "MP Interests"); WHEREAS, the MP Project Company owns a nominal 40 Megawatt ("MW") geothermal electric power plant (comprised of three geothermal plants) located near Mammoth Lakes, California (the "MP Project"); WHEREAS, the SIGC Seller owns a 100% interest in each of Covanta SIGC Energy, Inc. ("SIGC One Sub") and SIGC Two Sub, SIGC One Sub owns, through its wholly-owned subsidiary Amor, a 74.999% general partnership interest and a 0.001% limited partnership interest and the SIGC Two Sub owns a 24.999% general Page 2 partnership interest and a 0.001% limited partnership interest in Second Imperial Geothermal Company, L.P., a California limited partnership (the "SIGC Project Company") (such interests of the SIGC Seller in SIGC One Sub and SIGC Two Sub are collectively referred to as the "SIGC Interests"); WHEREAS, the SIGC Project Company leases a nominal 48 MW geothermal electric power plant located in Heber, California (the "SIGC Project"); WHEREAS, the HGC One Seller owns a 99% general partnership interest, the HGC Two Seller owns a 0.5% general partnership interest and the HGC Three Seller owns a 0.5% general partnership interest in Heber Geothermal Company, a California general partnership ("HGC Project Company") (such interests of the HGC One Seller, HGC Two Seller and the HGC Three Seller in the HGC Project Company are collectively referred to as the "HGC Interests"); WHEREAS, the HGC Project Company owns a nominal 52 MW geothermal electric power plant located in Heber, California (the "HGC Project"); WHEREAS, the HFC One Seller owns a 50% general partnership interest and the HFC Two Seller owns a 50% general partnership interest in Heber Field Company, a California general partnership ("HFC Project Company") (such interests of the HFC One Seller and the HFC Two Seller in the HFC Project Company are collectively referred to as the "HFC Interests"); WHEREAS, the HFC Project Company owns a geothermal fluid facility located in Heber, California (the "HFC Project"); WHEREAS, the SIGC Operator operates the SIGC Project, the HGC Operator operates the HGC Project, the HFC Operator operates the HFC Project and MP Operator operates the MP Project; WHEREAS, each of the Sellers identified above desires to sell the Interests owned by it to Buyers in accordance with the terms of this Agreement, and the Buyers desire to purchase such Interests, upon the terms and subject to the conditions contained in this Agreement; WHEREAS, in connection with the transactions contemplated by this Agreement, the Debtors desire to either (a) dismiss the Bankruptcy Cases with respect to the SIGC One Sub, the SIGC Two Sub, Amor, SIGC Project Company, the HGC Project Company and the HFC Project Company or (b) cause the Reorganizing Heber Debtors to reorganize pursuant to a plan of reorganization under the Bankruptcy Code; and NOW, THEREFORE, in consideration of the mutual promises and agreements set forth herein, Buyers and Sellers agree as follows: 1. DEFINITIONS. Capitalized terms used herein shall have the meanings set forth below: "Actions" shall mean any action, order, writ, injunction, judgment, decree, suit, litigation, arbitration, mediation, administrative or other proceeding or investigation. "Affidavit of Service" shall have the meaning set forth in Section 7.11. "Affiliate" means, with respect to any Person, any other Person: (a) directly or indirectly controlling, controlled by, or under common control with, such Person; (b) directly or indirectly owning or holding any equity interest or other economic interest or benefit in such Person in excess of five percent (5%); or (c) in which such Person directly or indirectly controls any voting stock or other equity interest in excess of five percent (5%). For purposes of this definition, "control" (including with correlative meanings, the terms Page 3 "controlling," "controlled by," and "under common control with") means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "Agreement" shall have the meaning set forth in the title paragraph of this Agreement. "Approval Order" shall mean the Sale Order or the Confirmation Order, as determined by the Sellers in consultation with the Buyers. "Assets" shall mean any and all rights, title and interests of each Project Company in and to properties, assets and rights of any kind, whether tangible or intangible, real or personal, used or useful in connection with the operation of its Business including, without limitation, any and all contractual rights of such Project Company to generate, transmit and sell electrical output or, in the case of the HFC Project Company, the production and sale of geothermal fluid. "Bidding Procedures Motion" shall have the meaning set forth in Section 6.1(b). "Bidding Procedures Order" shall have the meaning set forth in Section 6.1(b). "Business" shall mean (i) with respect to each of the MP Project Company, the SIGC Project Company and the HGC Project Company the generation and sale of electrical output pursuant to the Power Purchase Agreements entered into by each such Project Company, (ii) with respect to the HFC Project Company, the production and sale of geothermal fluid and (iii) with respect to the Debtor Operators and the MP Operator, the maintenance and operation of the Projects. "Buyer" and "Buyers" shall have the respective meanings set forth in the title paragraph of this Agreement. "Buyer Default Termination" shall have the meaning set forth in Section 10.1(b). "Confirmation Order" shall mean the order of the Bankruptcy Court confirming the Plan, a copy which is attached hereto as Exhibit A - Part I. "Closing" shall have the meaning set forth in Section 3.1. "Closing Date" shall have the meaning set forth in Section 3.1. "Closing Instruments" shall mean all other agreements, instruments and other documents to be executed and delivered by the Buyers or the Sellers in connection with this Agreement. "Closing Working Capital" shall mean an amount equal to the Working Capital determined as of the opening of business on the Closing Date. "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. "Confidentiality Agreement" means (a) the Confidentiality Agreement between ORMAT Nevada, Inc. and Salomon Smith Barney, Inc. (on behalf of Covanta Energy Corporation), dated January 11, 2003, and (b) the Amendment to Confidentiality Agreement between ORMAT Nevada, Inc. and Covanta Energy Corporation, dated August 14, 2003. "Contested Taxes" shall have the meaning set forth in Section 13.3. Page 4 "Contracts" shall mean all agreements, contracts, leases (including the Real Property Agreements), purchase orders, undertakings, covenants not to compete, employment agreements, confidentiality agreements, licenses, instruments, obligations and commitments, to which any Project Company is a party or by which any Project Company, the Business or any Assets of the Project Companies are bound. "Court Order" shall mean any judgment, decision, consent decree, injunction, ruling or order of any federal, state or local court or governmental agency, department or authority that is binding on any Person or its property under applicable law. "Current Liabilities" shall mean, as of the Closing Date and for any Project Company or Holding Company, the aggregate amount of current liabilities including accounts payable, current portion of long-term debt and accrued expenses, as used in the computation of Working Capital in the Working Capital Methodology, including, without duplication, the pro rata share of all property Taxes payable by such Project Company for the period in 2003 prior to the Closing Date and, without duplication, proper accruals for cure costs payable in connection with the assumption of the Scheduled Contracts pursuant to this Agreement and the Approval Order. "Debtor Project Company" shall mean each of the SIGC Project Company, the HFC Project Company and the HGC Project Company. "Debtor Operators" shall mean the HFC Operator, the HGC Operator and the SIGC Operator. "Debtors" shall mean Covanta and certain of its Affiliates that are debtors and debtors-in-possession in the Bankruptcy Cases. "Default" shall mean (a) a breach of or default under any Contract, (b) the occurrence of an event that with the passage of time or the giving of notice or both would constitute a breach of or default under any Contract, or (c) the occurrence of an event that with or without the passage of time or the giving of notice or both would give rise to a right of termination, renegotiation or acceleration under any Contract. "Deposit" shall have the meaning set forth in Section 2.3. "DIP Agreement" shall mean the Debtor-in-Possession Credit Agreement dated as of April 1, 2002, by and among Covanta and its subsidiaries listed on the signature pages thereof as Borrowers, its subsidiaries listed on the signature pages thereof as Subsidiary Guarantors, the financial institutions parties thereto as Lenders, Bank of America, N.A., as Administrative Agent for the Lenders, and Deutsche Bank AG, New York Branch, as Documentation Agent for the Lenders, as amended. "DIP Security Agreement" shall mean the Security Agreement, dated as of April 1, 2002, by and among Covanta, Bank of America, N.A. as Agent and the other parties named therein, as amended from time to time. "Disclosure Statement" means the disclosure statement, including all exhibits, appendices and attachments thereto, filed in connection with the Plan, as such statement may be amended or supplemented from time to time. "Employee Benefit Plan" shall mean any employee benefit plan within the meaning of Section 3(3) of ERISA that (a) is maintained for employees of any Person or any of its ERISA Affiliates or (b) has at any time within the six (6) years preceding the date of this Agreement been maintained for the employees of such Person or any current or former ERISA Affiliate, as well as any Multiemployer Plan under ERISA. Page 5 "Encumbrance" shall mean any lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other similar right of any third party, including, without limitation, any lien of any contractor or supplier, whether voluntarily incurred or arising by operation of law, and shall include any agreement or obligation to give or grant any lien, pledge, option, charge, easement, security interest, deed of trust, mortgage, right-of-way, encroachment, building or use restriction, conditional sales agreement, encumbrance or other similar right in the future, and any contingent sale or other title retention agreement or lease in the nature thereof. "Environmental Conditions" shall have the meaning set forth in Section 4.26. "Environmental Laws" shall have the meaning set forth in Section 4.26. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute and all rules and regulations promulgated thereunder. "ERISA Affiliate" shall mean any Person that is a member of a group that is under common control with any other Person, which together with such other Person is treated as a single employer within the meaning of Section 414(b) or (c) of the Code. "Escrow Agent" shall have the meaning set forth in Section 2.3. "FERC" means the Federal Energy Regulatory Commission or any successor agency thereto. "GECC" shall mean General Electric Capital Corporation. "GECC Liens" shall mean Encumbrances in respect of the SIGC Project in favor of GECC or its Affiliates or nominees, including the U.S. Trust Company of California, N.A., as set forth in Schedule 4.10. "Governmental Person" shall mean the United States, any state, any county, or any other political subdivision in which any portion of a Project is located, and any other political subdivision, agency, authority, board, bureau, commission, court, department, or instrumentality exercising jurisdiction over any Seller, any Interest, any Project Company or any Project. "Hazardous Substance" shall have the meaning set forth in Section 4.26. "Heber Resource Leases" shall mean the leases set forth in Schedule 4.11 in connection with the leased geothermal resource available to the HFC Project. "Heber Settlement" shall mean the settlement of disputes regarding certain Heber Resource Leases substantially in accordance with the terms and conditions set forth in the letter of intent dated June 2, 2003, attached as Exhibit B. "HGC/HFC Liens" shall mean the Encumbrances in respect of the HGC Project and the HFC Project in favor of GECC or its Affiliates or nominees as set forth in Schedule 4.10. "HFC Operator" shall mean Covanta Geothermal Operations, Inc., the operator of the HFC Project. "HGC Operator" shall mean Covanta Imperial Power Services, Inc., the operator of the HGC Project. Page 6 "Holding Companies" shall mean SIGC One Sub, SIGC Two Sub, Amor, MP One Sub and MP Two Sub. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Improvements" shall have the meaning set forth in Section 4.11(a). "Independent Auditor" shall mean PricewaterhouseCoopers or another independent auditor with arbitration experience mutually agreeable to the Parties. "Interests" shall mean the SIGC Interests, the MP Interests, the HFC Interests and the HGC Interests. "Liabilities" shall mean any direct or indirect liability, indebtedness, obligation, commitment, expense, deficiency or guaranty, in each case requiring the payment of a monetary amount, of or by a Project Company or Holding Company of any type, whether accrued, absolute, contingent, matured, unmatured, liquidated, unliquidated, known or unknown. "MP Operator" shall mean Covanta Power Plant Operations, the operator of the MP Project. "Material Adverse Effect" shall mean, with respect to a Project Company, any material adverse effect on the Business, operations, or financial condition of such Project Company; provided that there shall be no Material Adverse Effect resulting, individually or in the aggregate, from (x) macro-economic events or general market-related changes unless the Project Companies are affected by such events or changes in a manner that is substantially disproportionate when compared to competitor or peer businesses or (y) that certain Order Authorizing Assumption of Certain Intercompany Agreements, issued by the Bankruptcy Court on June 27, 2002, and that certain Emergency Interim Order (I) Authorizing the Use of Cash Collateral Pursuant to 11 U.S.C. ss.363 and (II) Granting Adequate Protection Pursuant to 11 U.S.C. ss.363 and ss.364, And (III) Scheduling a Final Hearing Pursuant to Bankruptcy Rules 4001(b) and (c), issued by the Bankruptcy Court on April 2, 2002. "Material Contracts" shall have the meaning set forth in Section 4.13. "O+M Contract" shall have the meaning set forth in Section 12.1. "On Site Employee" shall have the meaning set forth in Section 12.1. "Ordinary Course of Business" shall mean all actions that are consistent with the past operating practices of a Project Company taken in the course of normal day-to-day operations of its Business. "Permits" shall mean all licenses, permits, franchises, approvals, authorizations, consents or orders of, or filings with, any governmental authority, whether foreign, federal, state or local, necessary for the conduct or operation of the Business or ownership of the Assets, including, without limitation, the Projects. "Permitted Encumbrances" means (i) Encumbrances for current taxes not yet due and payable, (ii) Encumbrances listed on Schedule 4.10, (iii) any Encumbrances to be released at the Closing, (iv) any easements, zoning restrictions, rights-of-way or similar encumbrances imposed by statute or operation of law, and (v) mechanics', workmen's, repairmen's, carriers' or other like liens and encumbrances arising in the Ordinary Course of Business or being contested in good faith by appropriate proceedings. "Person" shall mean and includes an individual, a partnership, a Page 7 limited liability company, a joint stock company, an association, a bank, a trust company, a land trust, a business trust, a joint venture, a corporation, a trust, an unincorporated organization, a Governmental Person, or any other entity whether or not such entity is a legal entity. "Plan" means the plan of reorganization for the Reorganizing Heber Debtors, including exhibits and supplements thereto, as amended or modified from time to time by the Reorganizing Heber Debtors in accordance with its terms, a copy of which is attached hereto as Exhibit A - Part II. "Power Purchase Agreements" shall mean (a) the Power Purchase Contract, dated as of April 16, 1985, between Southern California Edison Company ("SCE") and the SIGC Project Company, as amended by Amendment No. 1, dated as of October 23, 1987, between SCE and SIGC Project Company, as amended by Amendment No. 2, dated as of July 27, 1990, between SCE and SIGC Project Company, as amended by Amendment No. 3, dated as of November 24, 1992, between SCE and SIGC Project Company, as amended by the Agreement Addressing Renewable Energy Pricing and Payment Issues, dated June 19, 2001, between SCE and SIGC Project Company, as amended on November 30, 2001; (b) the Power Purchase and Sales Agreement, dated as of August 26, 1983, between SCE and Chevron U.S.A., Inc., as assigned to HGC Project Company by the Assignment and Assumption Agreement, dated August 26, 1983, between Chevron U.S.A., Inc. and HGC Project Company, as amended by Amendment No. 1 to Power Purchase and Sales Agreement, dated as of December 11, 1984, between SCE and HGC Project Company, as amended by Settlement Agreement and Amendment No. 2 to Power Purchase Contract, executed on August 7, 1995, between SCE and HGC Project Company, as amended by the Agreement Addressing Renewable Energy Pricing and Payment Issues, dated as of June 19, 2001, as amended on November 30, 2001; (c) the Amended and Restated Power Purchase and Sales Agreement, dated as of December 2, 1986, between SCE and MP Project Company, as amended by the Amendment No. 1 to the Amended and Restated Power Purchase and Sales Agreement, dated as of May 18, 1990, between SCE and MP Project Company, as amended by the Agreement Addressing Renewable Energy Pricing and Payment Issues, dated as of June 19, 2001, between SCE and MP Project Company, as amended on November 30, 2001; (d) the Power Purchase Contract, dated as of April 15, 1985, between SCE and MP Project Company, as amended by Amendment No. 1 to Power Purchase Contract, dated as of October 27, 1989, between SCE and MP Project Company, as amended by Amendment No. 2 to Power Purchase Contract, dated as of December 20, 1989, between SCE and MP Project Company, as amended by the Agreement Addressing Renewable Energy Pricing and Payment Issues, dated as of June 19, 2001, between SCE and MP Project Company, as amended on November 30, 2001; and (e) the Power Purchase Contract, dated as of April 16, 1985, between SCE and Santa Fe Geothermal, Inc., as assigned to Pacific Lighting Energy Systems by Assignment and Assumption Agreement, dated April 2, 1986, between Santa Fe Geothermal, Inc., and Pacific Lighting Energy Systems, as amended by Amendment No. 1 to Power Purchase Contract, dated as of October 27, 1989, between SCE and Pacific Lighting Energy Systems, as amended by Amendment No. 2 to the Power Purchase Contract, dated as of December 20, 1989, between SCE and Pacific Lighting Energy Systems, as assigned to MP Project Company by Assignment and Assumption Agreement, dated January 29, 1990, among Pacific Lighting Energy Systems, Pacific Geothermal Company, CD Mammoth Lakes I, CD Mammoth Lakes II, and MP Project Company, as amended by the Agreement Addressing Renewable Energy Pricing and Payment Issues, dated as of June 19, 2001, between SCE and MP Project Company, as amended on November 30, 2001. "Project" shall mean each of the SIGC Project, the MP Project, the HFC Project and the HGC Project. Page 8 "Project Company" shall mean each of the SIGC Project Company, the MP Project Company, the HFC Project Company and the HGC Project Company. "Proprietary Rights" shall mean all (a) U.S. and foreign patents, patent applications, patent disclosures and improvements thereto, including any applications therefor, (b) software (other than software normally subject to commercial shrink-wrap licenses), drawings, specifications, designs, technical data, copyrightable works, financial and business data, pricing and cost information, and customer and supplier lists and information, (c) copies and tangible embodiments thereof (in whatever form or medium) and (d) licenses granting any rights with respect to any of the foregoing. "Purchase Price" shall mean $214,000,000. "Real Property" shall have the meaning set forth in Section 4.11(b). "Real Property Agreements" shall have the meaning set forth in Section 4.11(a). "Regulations" shall mean any laws, statutes, ordinances, regulations, rules, notice requirements, court decisions, and orders of any foreign, federal, state or local government and any other governmental department or agency, including Environmental Laws, energy, motor vehicle safety, public utility, zoning, building and health codes, occupational safety and health, and laws respecting employment practices, employee documentation, and the terms and conditions of employment, wages and hours. "Related Party" shall mean (i) any Affiliate of any Seller or any Project Company, (ii) any officers, director or employee of any Seller, Project Company or Affiliate thereof, and (iii) any Person in which any Project Company or Seller or any Affiliate of any Project Company or Seller has any direct or material indirect interest. "Release" shall have the meaning set forth in Section 4.26. "Reorganizing Heber Debtors" shall mean SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies. "Representatives" shall mean, with regard to any Person, the employees, officers, directors, and authorized agents of such Person. "Qualifying Facility Self Recertification" shall have the meaning set forth in Section 12.2. "Sale Hearing" shall have the meaning set forth in Section 6.1(b); provided, however, if the transactions contemplated by this Agreement are effected by way of a Plan, all references to the Sale Hearing shall be deemed references to the hearing before the Bankruptcy Court seeking confirmation of the Plan. "Sale Motions" shall have the meaning set forth in Section 6.1(c); provided, however, if the transactions contemplated by this Agreement are effected by way of a Plan, all references to the Sale Motions in Sections 7.11 and 10.2(c) shall be deemed references to the Plan. "Sale Orders" shall have the meaning set forth in Section 6.1(c); provided, however, if the transactions contemplated by this Agreement are effected by way of a Plan, all references to the Sale Order shall be deemed references to the Plan and/or Confirmation Order, as applicable. "Scheduled Contracts" shall mean the Contracts set forth on Schedule 3.3(a), Schedule 3.3(b) and Schedule 3.3(c), each as amended to reflect any additional contracts of any Seller listed on any of the schedules to the Plan as Page 9 contracts to be assumed or assumed and assigned or any other contracts agreed to be included as a "Scheduled Contract" by Buyer and Seller. "Seller" and "Sellers" shall have the respective meanings set forth in the title paragraph of this Agreement. "SIGC/GE Project Documents" shall mean each of the agreements in connection with the SIGC Project set forth in Schedule 4.13 that are designated as "SIGC/GE Project Documents." "SIGC Operator" shall mean Covanta SIGC Geothermal Operations, Inc., the operator of the SIGC Project. "Tax" or "Taxes" shall mean any and all taxes, assessments, levies, charges or fees, including all net income, corporation, gross income, ad valorem, receipts, transfer, gains, profits, windfall profits, excise, real and personal property, gross receipts, sales, capital stock, use, production, value-added, goods and services, disability, license, payroll, estimated, stamp, custom duties, severance, withholding, social security and franchise or other governmental taxes or charges, imposed by any Governmental Person, and such term shall include any interest, penalties or additions to tax attributable thereto. "Tax Return" shall mean any report, return (including any information return), declaration, statement, bill, schedule, claim for refund or written information required to be supplied to a Governmental Person with respect to Taxes, including any amendments thereof or any schedule or attachment thereto. "Title Policies" shall mean title insurance policies or commitments to issue title insurance policies with respect to the Real Property. "Working Capital" shall mean the aggregate amount of adjusted current assets minus adjusted current liabilities for the Project Companies and the Holding Companies, taken as a whole, as of the opening of business on the Closing Date, calculated in accordance with the Working Capital Methodology; provided, that with respect to the MP Project Company, only 50% of the aggregate amount attributable to such company shall be included in the definition of "Working Capital"; provided, further, if the transactions contemplated by this Agreement are effected by way of a Plan, all reasonable, documented out-of-pocket costs and expenses incurred by the Reorganizing Heber Debtors following the Closing Date in connection with the administration and closing of their cases before the Bankruptcy Court shall be accounted for and treated as a current liability in the computation of "Working Capital." "Working Capital Methodology" shall mean the methodology for the computation of Working Capital set forth in Exhibit C, provided that unless specified differently in such Exhibit C, the components of Working Capital set forth as line items on Exhibit C will be calculated on the basis of generally accepted accounting principles in the United States of America as in effect on the date hereof consistently applied. 2. SALE AND PURCHASE OF INTERESTS 2.1 Purchase of Interests. At the Closing, upon the terms and subject to the conditions of this Agreement and in reliance upon the representations, warranties and agreements contained herein: (a) (i) SIGC Seller shall sell, convey, assign, transfer and deliver to SIGC Buyer, and SIGC Buyer shall purchase or acquire from SIGC Seller, all of its right, title and interest in SIGC One Sub held by SIGC Seller and (ii) SIGC Seller shall sell, convey, assign, transfer and deliver to SIGC Buyer, and SIGC Buyer shall purchase or acquire from SIGC Seller, all of its right, title and interest in SIGC Two Sub held by SIGC Seller; provided, however, if at least three days prior to the Closing Date Buyer receives the consent of GECC and GECC Page 10 agrees to release any and all liens against and/or security interests in the equity and assets of SIGC One Sub, SIGC Two Sub, Amor and any other Debtor (other than the SIGC Project Company) in connection with the SIGC Project, then, at Buyer's option, Amor and SIGC Two Sub shall sell, convey, assign, transfer and deliver to SIGC Buyer, and SIGC Buyer shall purchase or acquire from Amor and SIGC Two Sub, all of their right, title and interest in the SIGC Project Company only; (b) Mammoth Seller shall sell, convey, assign, transfer and deliver to Mammoth Buyer, and Mammoth Buyer shall purchase or acquire from Mammoth Seller, all of its right, title and interest in the MP Interests held by Mammoth Seller; provided, however, if at least three days prior to the Closing Date Buyer receives the consent of Constellation Energy, then, at Buyer's option, MP Sub One and MP Sub Two shall sell, convey, assign, transfer and deliver to Mammoth Buyer, and Mammoth Buyer shall purchase or acquire from MP Sub One and MP Sub Two, all of their right, title and interest in the MP Project; (c) (i) HGC One Seller shall sell, convey, assign, transfer and deliver to HFC/HGC One Buyer, and HFC/HGC One Buyer shall purchase or acquire from HGC One Seller, all of its right, title and interest in 50% of the HGC Interests held by HGC One Seller, (ii) HGC One Seller shall sell, convey, assign, transfer and deliver to HFC/HGC Two Buyer, and HFC/HGC Two Buyer shall purchase or acquire from HGC One Seller, all of its right, title and interest in 50% of the HGC Interests held by HGC One Seller, (iii) HGC Two Seller shall sell, convey, assign, transfer and deliver to HFC/HGC One Buyer, and HFC/HGC One Buyer shall purchase or acquire from HGC Two Seller, all of its right, title and interest in the HGC Interests held by HGC Two Seller and (iv) HGC Three Seller shall sell, convey, assign, transfer and deliver to HFC/HGC Two Buyer, and HFC/HGC Two Buyer shall purchase or acquire from HGC Three Seller, all of its right, title and interest in the HGC Interests held by HGC Three Seller; and (d) (i) HFC One Seller shall sell, convey, assign, transfer and deliver to HFC/HGC One Buyer, and HFC/HGC One Buyer shall purchase or acquire from HFC One Seller, all of its right, title and interest in the HFC Interests held by HFC One Seller, and (ii) HFC Two Seller shall sell, convey, assign, transfer and deliver to HFC/HGC Two Buyer, and HFC/HGC Two Buyer shall purchase or acquire from HFC Two Seller, all of its right, title and interest in the HFC Interests held by HFC Two Seller; in each case, free and clear of any lien, claim or Encumbrance, except for the GECC Liens, in exchange for the payment by Buyers of the Purchase Price adjusted in accordance with Section 2.2. 2.2 Working Capital Adjustment. (a) Seven business days prior to the Closing, the Sellers shall prepare and deliver to the Buyers an estimated statement of Working Capital as of the opening of business on the scheduled Closing Date (the "Pre-Closing Statement"). The Sellers shall prepare the Pre-Closing Statement in good faith, in accordance with the Working Capital Methodology applied on a consistent basis, and shall consult with the Buyers in respect thereof and give the Buyers proper access to the work papers used in the preparation thereof. (b) The Purchase Price shall, immediately prior to the Closing, be (A) increased by 100% of the amount, if any, by which the Closing Working Capital, as calculated based on the Pre-Closing Statement, is greater than $12,508,000 or (B) decreased by 100% of the amount, if any, by which the Closing Working Capital, as calculated based on the Pre-Closing Statement, is less than $12,508,000; provided, that if the amount of any adjustment increasing the Purchase Price exceeds $4,000,000, the excess over $4,000,000 shall be deposited in escrow with the Escrow Agent pending determination of the Final Closing Statement and true-up of the Purchase Price pursuant to paragraph (e) hereof. Page 11 (c) Within 30 business days after the Closing, the Buyers shall prepare and deliver to Covanta a statement of Closing Working Capital (the "Closing Statement"). The Closing Statement shall be prepared in accordance with the Working Capital Methodology applied on a consistent basis showing the differences from the Pre-Closing Statement. After receipt of the Closing Statement, Covanta shall have 15 business days to review it together with the work papers used in the preparation thereof. Unless Covanta delivers written notice to the Buyers on or prior to the 15th business day after the receipt of the Closing Statement stating that they have objections thereto, the Sellers shall be deemed to have accepted and agreed to the Closing Statement. If, however, Covanta notifies the Buyers of objections to the Closing Statement on or prior to the 15th business day after its receipt of the Closing Statement, the parties shall in good faith attempt to resolve, within 10 business days (or such longer period as the parties may agree in writing) following such notice (the "Resolution Period"), their differences with respect to such objections and any resolution by them as to any disputed amounts shall be final binding and conclusive. In so doing, the parties (sharing any fees and expenses equally) may engage a mutually agreed upon independent accounting firm experienced in audit projects to assist such resolution by acting as a non-binding mediator. (d) Amounts relating to any working capital and other accounts set forth in the Closing Statement remaining in dispute at the conclusion of the Resolution Period shall be promptly submitted to the Independent Auditor for resolution. The Independent Auditor shall render a decision within 30 calendar days from referral of the dispute by either party. The decision of the Independent Auditor with respect to the Closing Statement and the determination of the Closing Working Capital shall be final and binding upon the parties. The Independent Auditor shall be retained at the parties' equally shared expense. (e) Once the determination of the Closing Working Capital is finalized in accordance with this Section 2.2 (as so finalized, the "Final Closing Statement"), the Purchase Price shall be trued up as set forth in this Section 2.2(e) to give effect to the Closing Working Capital as of the opening of business on the Closing Date. If the Purchase Price as adjusted pursuant to this Section 2.2(e) is less than the Purchase Price as adjusted pursuant to Section 2.2(b), Covanta shall pay to the Buyers an amount of cash equal to the difference obtained by subtracting the Purchase Price as adjusted pursuant to this Section 2.2(e) from the Purchase Price as adjusted pursuant to Section 2.2(b). Such payment shall be made by wire transfer from Covanta of immediately available funds within two business days to an account designated in writing by the Buyers. Such payment shall constitute an administrative priority claim against Covanta's and the Sellers' estates under Sections 503(b) and 507(a)(1) of the Bankruptcy Code and shall be paid immediately, without further order of the Bankruptcy Court. If the Purchase Price as adjusted pursuant to this Section 2.2(e) is greater than the Purchase Price as adjusted pursuant to Section 2.2(b), the Buyers shall pay to Covanta and the Sellers an amount of cash equal to the difference obtained by subtracting the Purchase Price as adjusted pursuant to Section 2.2(b) from the Purchase Price as adjusted pursuant to this Section 2.2(e). Such payment shall be made by wire transfer from the Buyers of immediately available funds within two business days to an account designated in writing by Covanta or the Sellers. (f) During the preparation of the Pre-Closing Statement and Closing Statement and the period of any review or dispute within the contemplation of this Section 2.2, the parties shall (i) provide each other upon reasonable advance request with full access for review and copying by the other party, its agents and Representatives at all reasonable times, and in a manner so as not to interfere unreasonably with the normal business operations of each party, to all relevant books, records (whether in paper or electronic form), work papers, information and employees, and (ii) cooperate fully with each other as necessary for the preparation, calculation and reviews of the Pre-Closing Statement and Closing Statement or for the contemplated resolution of any dispute between the Parties relating thereto. Page 12 2.3 Deposit. (a) On November 14, 2003 the Buyers made a deposit on the Purchase Price of $15,000,000 and (b) on November 25, 2003 the Buyers shall make an additional deposit on the Purchase Price of $25,000,000 (the aggregate of such amounts referred to in clauses (a) and (b), as of their deposit, together with all interest and fees earned or charged thereon, the "Deposit"), to be held by The Bank of Nova Scotia Trust Company of New York (the "Escrow Agent") pursuant to the escrow agreement attached as Exhibit D hereto. Upon receipt of the Deposit, the Escrow Agent shall immediately deposit the Deposit into an interest-bearing account. The Escrow Agent shall hold the Deposit until the earlier of the Closing Date or the termination of this Agreement, at which time the Deposit shall, (x) if the Closing shall occur, be applied to the payment of the Purchase Price, (y) if this Agreement shall terminate prior to the Closing, be applied in accordance with Section 10.2. The Escrow Agent's escrow fees and charges shall be paid one-half by the Sellers, collectively, and one-half by the Buyers. Each of the Buyers and the Sellers agree to provide written instructions to the Escrow Agent providing for the release of the Deposit in accordance with the terms of this Section 2.3. 3. CLOSING. 3.1 Time and Place. The closing of the transactions contemplated hereby (the "Closing") shall be held at a location to be mutually agreed to by the parties at 10:00 a.m. (New York time) on the third business day (the "Closing Date") following the satisfaction or waiver of the conditions set forth in Sections 7 and 8 (other than those conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or waiver of those conditions at the Closing) or at such other time, or at such other place as Buyers and Sellers may agree. 3.2 Transactions at Closing. At the Closing, (a) the Sellers shall transfer the Interests as set forth in Section 2.1, together with all certificates evidencing such Interests and accompanied by instruments of assignment and transfer reasonably satisfactory to Buyers, and (b) the Buyers shall deliver to Sellers an amount that, together with the Deposit delivered to Sellers by the Escrow Agent, equals the Purchase Price, by wire transfer of immediately available funds to an account designated by the Sellers to the Buyers no later than three business days prior to the Closing Date. 3.3 Contracts. (a) At the Closing, immediately prior to the transactions referred to in Section 3.2, hereof the Holding Companies and the Debtor Project Companies shall assume the Contracts set forth in Schedule 3.3(a). (b) At the Closing, immediately prior to the transactions referred to in Section 3.2 hereof, the Sellers and the Debtor Operators, as applicable, shall assume and assign to the Buyers the Contracts set forth in Schedule 3.3(b). (c) At the Closing, immediately prior to the transactions referred to in Section 3.2 hereof, the Sellers, the Debtor Project Companies and the Debtor Operators, as applicable, shall assign to the Buyers or Buyers' designee the Contracts previously assumed by such entities as set forth in Schedule 3.3(c), including the applicable O+M Contracts. (d) At the Closing, the MP Operator shall transfer, assign and convey to the Buyers or Buyers' designee all of its rights and obligations under the Agreement, dated August 15, 2003, between the MP Operator, the MP Project Company and EMA in respect of permitting services in the amount of $176,000 (which agreement expires August 15, 2004). 3.4 Reorganization -- Dismissal of Bankruptcy Cases. At the Closing, (i) the Plan shall become effective with respect to the Reorganizing Heber Page 13 Debtors or, (ii) alternatively, if the transactions contemplated by this Agreement are not effected by way of a Plan, immediately following the transactions referred to in Section 3.2 hereof, the Bankruptcy Cases in respect of SIGC One Sub, the SIGC Two Sub, Amor, SIGC Project Company, the HGC Project Company and the HFC Project Company shall be deemed dismissed pursuant to the Sale Order. 4. REPRESENTATIONS AND WARRANTIES OF SELLERS. Covanta and each Seller makes the following representations and warranties to the Buyers as of the date hereof, all of which have been and will be relied upon by the Buyers in entering into this Agreement and consummating the transactions contemplated hereby. 4.1 Organization. (a) Covanta and each Seller (other than Mammoth Seller and HGC One Seller) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of Mammoth Seller and HGC One Seller is a partnership or a corporation duly organized, validly existing and in good standing under the laws of the State of California. Covanta and each Seller has corporate or equivalent power and authority to conduct its Business as it is presently being conducted, subject to, in the case of Covanta or any Seller that is a Debtor, the limitations imposed by the Bankruptcy Code and the Bankruptcy Court. Covanta and each Seller is duly qualified to do business as a foreign limited liability company, partnership or corporation and is in good standing in each jurisdiction in which such qualification is necessary under applicable law. (b) The HFC Project Company and the HGC Project Company are each a general partnership, and the SIGC Project Company and the MP Project Company are each a limited partnership, duly organized, validly existing and in good standing under the laws of the State of California. SIGC One Sub and Amor are each a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. SIGC Two Sub, MP One Sub and MP Two Sub are each a corporation, duly organized, validly existing and in good standing under the laws of the State of California. Each Holding Company and Project Company has corporate or equivalent power and authority to conduct its Business as it is presently being conducted and to own or lease, as applicable, its Assets, subject to, in the case of SIGC One Sub, SIGC Two Sub, Amor and any Debtor Project Company, the authority and supervision of the Bankruptcy Court. SIGC One Sub and Amor are duly qualified to do business as a corporation in the State of California and are in good standing in each jurisdiction in which such qualification is necessary under applicable law. 4.2 Capitalization. (a) The Sellers own the entirety of the Interests. The Interests represent all of the equity interests in the Holding Companies and the Project Companies (other than the MP Project Company) and, following the Closing, the Interests (other than the SIGC Interests) shall be free and clear of any and all liens, pledges, claims, assessments, security interests or other Encumbrances of any nature whatsoever. Except as follows from the GECC Liens or the HGC/HGC Liens, neither Covanta nor any Seller has entered into any agreement or delivered any document that in any way restricts the transferability of the Interests or the Buyers' full exercise of their rights as the holders of all Interests after the Closing. At the Closing, the Sellers will transfer and convey to the Buyers the SIGC Interests, the MP Interests, the HFC Interests and the HGC Interests, and the Buyers will receive such Interests, free and clear of any lien or Encumbrance other than, in the case of the SIGC Interests, the GECC Liens. (b) There are no outstanding options, warrants, convertible securities or rights of any kind to purchase or otherwise acquire any general partnership interests, limited partnership interests, stock or other securities in any Holding Company or Debtor Project Company. (c) The Interests are validly issued, and are not subject to any preemptive rights created by (i) applicable statute, (ii) any Holding Company's Page 14 or Project Company's governing documents or (iii) any contract or agreement, and the Interests have been issued in compliance with all relevant Regulations, including, without limitation, all applicable federal and state corporate, limited partnership, limited liability company and securities laws. There are no voting agreements or voting trusts with respect to the Interests of any Holding Company or Project Company, except pursuant to the DIP Security Agreement, the GECC Liens and the HGC/HFC Liens. (d) Except for the Sellers, no other Person has any interest, economic, voting or otherwise, in the Interests, except pursuant to the DIP Security Agreement, the GECC Liens and the HGC/HFC Liens. 4.3 Authorization. (a) Subject to approval of the Bankruptcy Court in the case of Covanta and the Sellers that are Debtors, Covanta and each Seller has all necessary corporate or equivalent power and authority to enter into this Agreement and the Closing Instruments to which it is a party and has taken all partnership, limited partnership, limited liability company or corporate action, as appropriate, necessary for the consummation of the transactions contemplated hereby and thereby and, in the case of Covanta and a Seller that is a Debtor, upon receipt of any required approval of the Bankruptcy Court, to perform its obligations hereunder and thereunder. (b) This Agreement and the Closing Instruments have each been duly and validly executed and delivered by Covanta and the Sellers that are parties thereto and (assuming due authorization, execution and delivery hereof by the Buyers and subject to approval of the Bankruptcy Court) will constitute the legal, valid and binding obligation of Covanta and the Sellers enforceable against Covanta and the Sellers in accordance with its terms. 4.4 Officers and Directors. Schedule 4.4 contains a complete and accurate list of all officers and directors of each Holding Company and each Project Company. 4.5 Bank Accounts. (a) Schedule 4.5 contains a complete and accurate list of the bank accounts, safe deposit boxes, and related powers of attorney of each Holding Company or Project Company, and persons authorized to draw thereon or have access thereto. (b) No Holding Company or Project Company has an outstanding power of attorney for banking or other purposes, except as disclosed in such Schedule 4.5. 4.6 MP Project Bankruptcy. (a) Neither the MP Project Company nor the Mammoth Seller and its Subsidiaries has filed any voluntary petition in bankruptcy or been adjudicated as bankrupt or insolvent, filed any petition or answer seeking any reorganization, liquidation, dissolution or similar relief under any federal bankruptcy, insolvency, or other debtor relief law, or sought or consented to or acquiesced in the appointment of any trustee, receiver, conservator or liquidator of all or any substantial part of its properties. (b) No court of competent jurisdiction has entered an order, judgment or decree approving a petition filed against the MP Project Company or the Mammoth Seller and its Subsidiaries seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any federal bankruptcy act, or other debtor relief law, and no other liquidator has been appointed for the MP Project Company or the Mammoth Seller and its Subsidiaries, or for all or any substantial part of their properties. (c) The MP Project Company and the Mammoth Seller and its Subsidiaries are solvent, have assets which do not constitute unreasonably small capital and are able to pay their debts as such debts mature. 4.7 Reserved. Page 15 4.8 Subsidiaries, Etc. There are no corporations, partnerships, joint ventures or other entities in which any Project Company or Holding Company owns, of record or beneficially, any direct or indirect equity interest or any right (contingent or otherwise) to acquire the same (a "Subsidiary") other than as set forth in this Agreement. 4.9 Absence of Certain Changes or Events. Except as set forth in Schedule 4.9 or as required in this Agreement, since December 31, 2002: (a) there has been no failure by any Seller, any Holding Company or any Project Company to operate the Business of such Holding Company or Project Company, as applicable, in the Ordinary Course of Business and no failure to use commercially reasonable efforts to preserve such Business intact; (b) there has been no actual or, to the knowledge of the Sellers, threatened termination of any Material Contract; and each Holding Company and Project Company has fulfilled, or taken all action necessary to enable it to fulfill when due, all of its material obligations under each Material Contract listed in Schedule 4.13, including, without limitation, the Real Property Agreements; (c) there has been no failure by the MP Project Company to satisfy its payment obligations; (d) there has been no commencement or assertion of any Action by any Holding Company or Project Company against any Person; (e) there has been no cancellation of any indebtedness or compromise, waiver or settlement of any claim, potential claim or any other rights of value to any Holding Company or Project Company, except (i) in the Ordinary Course of Business or (ii) in the case of SIGC One Sub, SIGC Two Sub, Amor or a Debtor Project Company, as authorized by the Bankruptcy Court; and (f) there has been no agreement by any Holding Company or Project Company to do any of the foregoing. 4.10 Assets. (a) Each Holding Company and Project Company has title to its respective Assets and none of the Assets are subject to any Encumbrances, except for Permitted Encumbrances. (b) Except as set forth on Schedule 4.10, to the Sellers' knowledge, the Assets of each Holding Company and Project Company constitute all of the material Assets, rights and properties, tangible or intangible, real or personal, which are required by such Holding Company and Project Company in the operation of its Business and each Holding Company and Project Company has title to its respective Assets. (c) Except as set forth on Schedule 4.10, all tangible assets and properties which are part of the Assets of each Holding Company and Project Company are in good operating condition and repair, normal wear and tear excepted, and are usable in the Ordinary Course of Business. 4.11 Real Property. (a) Schedule 4.11 sets forth all agreements and instruments relating to the Real Property or any parcel thereof, including any amendments thereto (the "Real Property Agreements"), pursuant to which each Holding Company or Project Company leases, subleases, licenses or otherwise occupies or uses any plants, offices, facilities, warehouses, control buildings or other structures, improvements, or fixtures (collectively, "Improvements"), land, mineral rights, surface use rights or any other Real Property. (b) The Real Property Agreements set forth the material real property and real property rights and interests owned or leased by each Holding Company Page 16 and Project Company, whether solely owned or owned in co-tenancy, and any options to acquire material real property or real property interests (collectively, the "Real Property"). (c) No Seller, Holding Company or Project Company has received written notice of, and no Seller, Holding Company or Project Company has knowledge that: (i) there are any pending or threatened utility or governmental proceedings in eminent domain, for rezoning or otherwise, which would affect the Real Property or any portion thereof or any Improvements; (ii) the Real Property or any portion thereof or any Improvements, or the uses conducted therein or thereon, violate any Regulations or Court Orders; or (iii) there are any pending or threatened public improvements or special assessments that would affect the Real Property or any portion thereof or any Improvements, or that could result in any charge being levied or assessed or in the creation of any lien. (d) To the Sellers' knowledge, there is not pending or threatened any utility or governmental action that would result in the utilities necessary for the use of the Real Property and each material portion thereof by any Holding Company or Project Company or any Improvements as presently used, not being available thereto. (e) Except as disclosed in the schedules to this Agreement or the Title Policies, no Holding Company, Project Company or any Seller is a party to or has knowledge of any lease, tenancy, sublease, license, occupancy or co-tenancy in effect, oral or written, related to Real Property or any portion thereof or any Improvements. (f) Except for Permitted Encumbrances, there are no material Encumbrances, covenants, conditions, reservations, restrictions, easements or other matters affecting the Real Property or any portion thereof or any Improvements. 4.12 Firm Operation. The original "firm operation date" under each of the Power Purchase Agreements occurred as set forth on Schedule 4.12. 4.13 Material Contracts. Schedule 4.13 sets forth (a) a complete and accurate list of all Contracts that have a remaining term of one year or more and provide for the future delivery of or payment for goods and services having a value in excess of $50,000 in the aggregate in any calendar year ("Material Contracts") and (b) certain other Contracts. Copies of all of the Material Contracts listed on Schedule 4.13, including all amendments and supplements thereto, have been made available to Buyers. All of the Material Contracts listed in Schedule 4.13 (including the Real Property Agreements) are valid, binding and enforceable against the Holding Company or Project Company party thereto in accordance with their terms, subject to the Bankruptcy Cases and, in the case of Contracts of the MP Project Company, except that enforceability may be limited by the effect of bankruptcy, insolvency, reorganization, moratorium or other similar laws relating to or affecting the rights of creditors and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). In the case of the SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies, the commencement of the Bankruptcy Cases does not impair the enforceability of any Material Contract or give rise to a default thereunder, which shall not have been cured or voided pursuant to the Approval Order. There is no existing Default by any Holding Company or Project Company, or to the knowledge of the Sellers, by any counterparty, and to the Sellers' knowledge there is no existing material Page 17 dispute, each time with respect to performance under the Material Contracts listed in Schedule 4.13 (including the Real Property Agreements). 4.14 No Conflict or Violation; Consents. Except as set forth in Schedule 4.14, (a) the execution, delivery or performance by Covanta and each Seller of this Agreement and the Closing Instruments, and, assuming approval of this Agreement by the Bankruptcy Court, the consummation of the transactions contemplated hereby and thereby, and compliance by Covanta, each Seller, each Holding Company and each Project Company with any of the provisions hereof, will not (i) violate or conflict with any provision of their respective governing documents; (ii) violate, conflict with, result in a breach of, constitute a default (with or without notice or passage of time) under, result in the termination of, accelerate the performance required by, result in a right to terminate, accelerate, modify or cancel under, require a notice under, or result in the creation of any Encumbrance upon any of its respective Assets or the Business or under any Contract, lease, sublease, license, sublicense, franchise, Permit, indenture, agreement or mortgage for borrowed money, instrument of indebtedness, security interest or other arrangement to which any such Seller, Holding Company or any Project Company is a party or by which such Seller, Holding Company or any Project Company is bound or to which any of its respective Assets are subject; (iii) violate any Regulation or Court Order applicable to any Seller, Holding Company or any Project Company, in each case; or (iv) impose any Encumbrance on any Assets or the Business. (b) Except as set forth on Schedule 4.14, no notices to, declaration, filing or registration with, approvals or consents of, or assignments by, any Persons (including any federal, state or local governmental or administrative authorities) are necessary to be made or obtained by Covanta, any Seller, Holding Company or Project Company in connection with the execution, delivery or performance of this Agreement or any Closing Instrument. 4.15 Permits. (a) Schedule 4.15 sets forth a list, true and complete in all respects, of all Permits held by each Project Company. (b) To the Sellers' knowledge, the Permits listed on Schedule 4.15 constitute all Permits required under any applicable Regulation in connection with the operation of any Project Company or its Business. Except as set forth on Schedule 4.15(b), each Project Company owns or possesses the Permits listed on Schedule 4.15 free and clear of all Encumbrances, except for the DIP Security Agreement, the GECC Liens and the HGC/HFC Liens. No Project Company is in default, and no Project Company or Seller has received any notice of any claim of default, with respect to any Permit listed on Schedule 4.15. Each Project Company has materially complied with all requirements set forth in the Permits listed on Schedule 4.15. Each Project Company has properly and validly obtained the Permits listed on Schedule 4.15 under applicable Regulations from all relevant authorities, and, to the knowledge of the Sellers, there is no threatened suspension, cancellation or revocation of the Permits. 4.16 Books and Records; Minutes. (a) Each Holding Company and each Project Company maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed with management's authorization, and (ii) access to Assets is permitted only in accordance with management's authorization. (b) The books and records of each Holding Company and each Project Company, in reasonable detail, accurately and fairly reflect the activities of such Project Company and its Business and have been provided to Buyers for their inspection. (c) The records and minute books, or equivalent records and documents, of each Holding Company and each Project Company have heretofore been made available to Buyers and, as applicable, have been kept and maintained as required by law and in accordance with applicable accounting principles, and Page 18 contain true, correct and complete copies of the governing documents of such Holding Company or Project Company. 4.17 Liabilities. No Holding Company or Project Company has any Liabilities except (a) as set forth or reflected in the audited financial statements for the SIGC Project dated as of December 31, 2002 and the balance sheets for each of the Holding Companies, the HFC Project, the HGC Project and the MP Project dated as of July 31, 2003, (b) pursuant to the Contracts to which such Project Company is a party, (c) Current Liabilities to be included in the Closing Working Capital and (d) pursuant to the DIP Agreement. 4.18 Litigation. (a) Except as set forth on Schedule 4.18, there is no Action pending or, to the knowledge of any Seller, threatened (i) against any Holding Company, Project Company, or any of their officers and directors as such or the Business or any Assets of the relevant Holding Company or Project Company and (ii) which seek to obtain any legal or equitable relief from, or remedies against, such Holding Company or Project Company. (b) Except as set forth on Schedule 4.18 and except in respect of the Bankruptcy Cases, there are presently no outstanding judgments, decrees or orders of any court or any governmental or administrative agency against or affecting any Holding Company, Project Company, its Business or any of their Assets. 4.19 Employees. No Holding Company or Project Company currently employs any individual or has any "leased employees," within the meaning of Section 414(n) of the Code, and, except for individuals serving as officers of a Project Company from time to time, (a) in the case of the HGC Project Company, since January 1, 1990, the HGC Project Company has not employed any individual or had any such leased employees; (b) in the case of the HFC Project Company, since January 1, 1992, the HFC Project Company has not employed any individual or had any such leased employees; (c) in the case of the SIGC Project, since January 1, 1995, each of SIGC One Sub, SIGC Two Sub, Amor and the SIGC Project Company has not employed any individual or had any such leased employees; and (d) in the case of the MP Project, since January 1, 1998, each of MP One Sub, MP Two Sub and the MP Project Company has not employed any individual or had any such leased employees. 4.20 Employee Benefit Plans. No Holding Company or Project Company currently maintains, nor, (a) in the case of the HGC Project Company, since January 1, 1990, (b) in the case of the HFC Project Company, since January 1, 1992, (c) in the case of the SIGC Project, since January 1, 1995, and (d) in the case of the MP Project, since January 1, 1998, has such Holding Company or Project Company, as applicable, maintained, any Employee Benefit Plan, nor does such Holding Company or Project Company currently have, and (a) in the case of the HGC Project Company, since January 1, 1990, (b) in the case of the HFC Project Company, since January 1, 1992, (c) in the case of the SIGC Project, since January 1, 1995, and (d) in the case of the MP Project, since January 1, 1998, has not had, an obligation to contribute to any Employee Benefit Plan. 4.21 Transactions with Related Parties. Except as set forth on Schedule 4.21, no Related Party (A) has made any material loan of money or other property to, or borrowed money or other property from, any Holding Company or Project Company which has not been repaid or returned, (B) has asserted any contractual or other claims, express or implied, of any kind whatsoever against any Holding Company or Project Company, (C) has any interest in any property used by any Holding Company or Project Company or in any of the Assets, (D) has any pending transaction with any Holding Company or Project Company, or (E) has any material interest, beneficial or otherwise, in any contractual rights of any Holding Company, Project Company or Seller. For the purposes of this Section 4.21, Constellation Energy and its Affiliates shall not be deemed Related Parties. 4.22 Compliance with Law. (a) The Debtor Operators, the MP Operator, Page 19 each Holding Company and Project Company have conducted the Business and owned or operated the Real Property, as applicable, in compliance with all applicable Regulations and Court Orders. (b) None of the Debtor Operators, the MP Operator, any Holding Company or any Project Company have received any written notice to the effect that any Project Company is not in compliance with any applicable Regulations or Court Orders. (c) Sellers do not have knowledge of any existing circumstance that would result in a material violation of any Regulation or Court Order by any Project Company or its Business. 4.23 Intellectual Property Matters. (a) General. The transfer of the Interests under this Agreement shall not violate or cause a breach of any material license or other agreement pursuant to which any Holding Company or Project Company has acquired Proprietary Rights. (b) Adequacy. The Proprietary Rights of each Holding Company and Project Company constitute all of the material intellectual property rights that are used by such Holding Company and Project Company in the operation of its Business as it is presently conducted. (c) Royalties and Licenses. No Holding Company or Project Company has any obligation to compensate any Person for the use of any of such Project Company's Proprietary Rights nor has any Holding Company or Project Company granted to any Person any license, option or other rights to use in any manner any of such Holding Company's or Project Company's Proprietary Rights, whether requiring the payment of royalties or not. (d) Ownership. Each Holding Company and Project Company owns or holds a valid right or license to use its respective Proprietary Rights, and such Proprietary Rights will not cease to be valid rights of such Holding Company or Project Company by reason of the execution, delivery and performance of this Agreement or the Closing Instruments or the consummation of the transactions contemplated hereby. (e) Absence of Claims. To the knowledge of the Sellers, no Seller, Holding Company or Project Company has received any written notice of (A) alleged invalidity with respect to any Proprietary Rights of the Holding Companies or Project Companies, (B) alleged infringement of any rights of others due to any activity or use of the Proprietary Rights by any Holding Company or Project Company, or (C) alleged entitlement to receive royalties or license fees in exchange for any Holding Company's or Project Company's exercise of its Proprietary Rights. 4.24 Tax Matters. (a) Each Project Company is and has, since its inception, been treated as a partnership for Federal, state and local income tax purposes (and, therefore, has never been classified as an association taxable as a corporation for Federal, state and local income tax purposes). (b) The Holding Companies, the Project Companies and the Sellers have each timely filed when due, all federal, state and local Tax Returns required to be filed by it for any and all periods ending on or prior to the Closing Date and all such Tax Returns are true, correct and complete in all material respects, a true and correct list of all such returns for 2002 which is set forth on Schedule 4.24. Each Holding Company, Project Company or Seller has paid all material Taxes required to be paid in respect of all periods for which Tax Returns have been filed or are due, and neither the Holding Companies, Project Companies nor the Sellers have any liability for Taxes materially in excess of the amount so paid. The Holding Companies, Project Companies and the Sellers Page 20 have each paid all material Taxes and all deficiencies or assessments of material Taxes proposed or claimed as a result of examination by any taxing authority, with respect to any and all periods ending on or before the Closing Date. (c) There are no Tax audits, claims, assessments, levies, administrative proceedings, or lawsuits pending, or to the knowledge of the Sellers, threatened against any Holding Company or Project Company or as to which the Assets of such Holding Company or Project Company could be made subject. (d) There are no agreements or consents currently in effect for the extension or waiver of the time (A) for any Holding Company or Project Company to file any Tax Return or (B) for assessment, audit or collection of any Taxes relating to any Holding Company or Project Company for any period. (e) No Holding Company or Project Company has registered or qualified to do business in any state other than the State of California, other than, in the case of SIGC One Sub, the State of Delaware, and, in the case of Amor, the State of Delaware and the State of Oregon. (f) The Assets of each Holding Company and Project Company are not subject to the Alternative Depreciation System within the meaning of Section 168(g) of the Code (or equivalent provision of state or local law). (g) No Holding Company or Project Company is a party to any Tax sharing or Tax indemnity agreements or similar arrangements. (h) No Holding Company or Project Company is subject to any joint venture or other arrangement or contract which is treated as a partnership or other entity for income tax purposes. (i) All Taxes which any Holding Company or Project Company is required by Regulation to withhold or collect have been duly withheld or collected, and have been timely paid over to the appropriate taxing authorities to the extent due and payable. (j) No Holding Company or Project Company is liable or has any obligations (contingent or otherwise) to any Person, for any Taxes paid or payable by such Person. (k) No Tax ruling has been requested of any Governmental Authority with respect to any Tax matter relating to any Holding Company or Project Company. 4.25 Insurance. (a) Schedule 4.25 contains a complete and accurate description of all material policies or binders of insurance of which any Project Company is the owner, insured or beneficiary on the date hereof. (b) To the knowledge of the Sellers, no Project Company is in default under any of such policies or binders, nor have they failed to give any notice or to present any claim under any such policy or binder in a due and timely fashion. (c) Except as set forth on Schedule 4.25, there are no outstanding unpaid claims with respect to any of the Project Companies under any such policies or binders, and such policies and binders are in full force and effect. All policies or binders of insurance provided by Sellers or their Affiliates which name any Project Company as owner, insured or beneficiary shall be cancelled on the Closing Date with respect to such Project Company. Page 21 4.26 Environmental Matters. (a) Definitions. The following terms, when used in this Section 4.26, shall have the following meanings: "Project Company" for purposes of this Section 4.26 includes (A) all partnerships, joint ventures and other entities or organizations in which such Project Company was at any time or is a partner, joint venturer, member or participant and (B) all predecessor or former corporations, partnerships, joint ventures, organizations, businesses or other entities, whether in existence as of the date hereof or at any time prior to the date hereof, the Assets or obligations of which have been acquired or assumed by any Project Company or to which any Project Company has succeeded. "Release" means and includes any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping or disposing into the environment or the workplace of any Hazardous Substance, and otherwise as defined in any Environmental Law. "Hazardous Substance" means any pollutants, contaminants, chemicals, waste and any toxic, infectious, carcinogenic, reactive, corrosive, ignitable or flammable chemical or chemical compound or hazardous substance, material or waste, whether solid, liquid or gas, including any quantity of asbestos in any form, urea formaldehyde, PCBs, radon gas, crude oil or any fraction thereof, all forms of natural gas, petroleum products or by-products or derivatives, radioactive substance, waste waters, sludges, slag and any other substance, material or waste that is subject to regulation, control or remediation under any Environmental Laws. "Environmental Laws" means all Regulations which regulate or relate to the protection or clean-up of the environment, the use, treatment, storage, transportation, generation, manufacture, processing, distribution, handling or disposal of, or emission, discharge or other release or threatened release of, Hazardous Substances or otherwise dangerous substances, wastes, pollution or materials (whether gas, liquid or solid), the preservation or protection of waterways, groundwater, drinking water, air, wildlife, plants or other natural resources, or the health and safety of persons or property, including protection of the health and safety of employees. Environmental Laws include the Federal Water Pollution Control Act, Resource Conservation and Recovery Act, Clean Water Act, Safe Drinking Water Act, Atomic Energy Act, Occupational Safety and Health Act, Toxic Substances Control Act, Clean Air Act, Comprehensive Environmental Response, Compensation and Liability Act, Hazardous Materials Transportation Act, Endangered Species Act and all analogous or related federal, state or local law. "Environmental Conditions" means the introduction into the environment of any pollution, including any Hazardous Substance (whether or not such pollution constituted at the time thereof a violation of any Environmental Law as a result of any Release of any kind whatsoever of any Hazardous Substance), as a result of which any Project Company has or would reasonably be expected to become liable to any Person or by reason of which any of the Assets have been or would reasonably be expected to be subjected to any Encumbrance. (b) Notice of Violation. Except as set forth in Schedule 4.26, no Project Company, Debtor Operator, the MP Operator or any Seller has received or given to any third party any written notice or has actual knowledge of alleged, actual or potential liability or responsibility for (A) any Release or threatened Release of any Hazardous Substance at the Real Property or (B) an alleged violation of or non-compliance with the conditions of any Permit required under any Environmental Law or the provisions of any Environmental Law. Except as set forth in Schedule 4.26, no Project Company, Debtor Operator, the MP Operator or any Seller has received any written notice of any other claim, demand or Action by any Person alleging any actual or threatened injury or damage to any Person, property, natural resource or the environment arising from Page 22 or relating to any Release or threatened Release by any Project Company of any Hazardous Substances. (c) Environmental Conditions. Except as set forth in the Schedule 4.26, there are no Environmental Conditions in any way relating to any Holding Company, Project Company, the Business or the Assets. (d) Notices, Warnings and Records. Except as set forth in Schedule 4.26, each Project Company has given all notices and warnings, made all reports, and kept and maintained all records required by and in compliance with all Environmental Laws. 4.27 No Brokers; Transaction Costs. No Holding Company, Project Company nor any Seller has entered into or will enter into any contract, agreement, arrangement or understanding with any Person which will result in the obligation of the Buyers or any Holding Company or Project Company to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 4.28 Regulatory Status. Each of the electric generating facilities owned by any Project Company is a Qualifying Facility (as defined under the Public Utility Regulatory Policies Act of 1978, as amended). The nameplate capacity of each of the facilities (as determined in accordance with 18 C.F.R. Section 292.204(a)) does not exceed 80 megawatts, calculated in accordance with 18 C.F.R. Section 292.204(a) and each such facility is eligible for the exemptions set forth in 18 C.F.R. Sections 292.601(c) and 292.602(b) and (c). Compliance by the Project Companies with the material terms and conditions contained in any of the Contracts, this Agreement or the Closing Instruments will not cause or result in the Project losing its status as a Qualifying Facility or losing its exemption under 18 C.F.R. Sections 292.601(c) and 292.602(b) and (c). 4.29 No Other Agreements to Sell Project Companies or the Assets. Subject to the auction which may be carried out pursuant to the Bidding Procedures Order and except as contemplated by the transactions described herein, no Holding Company, Project Company or Seller has any legal obligation, absolute or contingent, to any other Person to sell all or substantially all the Assets or to sell any of the Interests or any other ownership interests of any Holding Company or Project Company or to effect any merger, consolidation or other reorganization (including, without limitation, a plan of reorganization pursuant to the Bankruptcy Code) of any Holding Company or Project Company or to enter into any agreement with respect thereto. 4.30 Financial Statements. The Sellers have heretofore furnished to Buyers balance sheets and income statements of each Holding Company and each Project Company as of July 31, 2003. Such financial statements are complete and correct and fairly present the financial condition of each such Holding Company or Project Company as of said date. 4.31 Material Misstatements or Omissions. No representation or warranty of Covanta or any Seller made under this Agreement, and no Schedule furnished by Covanta or the Sellers to the Buyers pursuant to this Agreement, contains any untrue statement of a material fact, or omits to state a material fact necessary in order to make the statements contained therein not misleading. 4.32 Exclusivity of Representations. Except for the representations and warranties contained in this Section 4, (a) neither Covanta, the Sellers nor any other Person has made any representation or warranty (whether express or implied) on behalf of Covanta, the Sellers, any of their respective Affiliates or any of their respective employees, agents or representatives regarding Covanta, the Sellers or any of its Affiliates or any transactions contemplated by this Agreement and (b) Covanta and the Sellers hereby disclaim any such representation or warranty, notwithstanding the delivery or disclosure to the Page 23 Buyers or their respective employees, agents or representatives of any information, documents or other material, including without limitation any projections, estimates or budgets. 5. REPRESENTATIONS AND WARRANTIES OF BUYERS. The Buyers represent and warrant to Covanta and the Sellers as follows: 5.1 Organization; Authority. Each Buyer is a corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware. Each Buyer has full power and authority under its certificate of formation, operating agreement and applicable laws to execute and deliver this Agreement and the Closing Instruments, to consummate the transactions contemplated hereby, to perform all its agreements and obligations under this Agreement and the Closing Instruments in accordance with their respective terms, and to purchase the Interests from the Sellers. 5.2 Corporate or Other Approval; Binding Effect. Each Buyer has obtained all necessary authorizations and approvals required for the execution and delivery of this Agreement and the Closing Instruments and the consummation of the transactions contemplated hereby and thereby. This Agreement has been duly executed and delivered by the Buyers and constitutes the legal, valid and binding obligation of each Buyer, enforceable against each Buyer in accordance with its terms, except to the extent such enforceability is subject to the effect of any applicable bankruptcy, insolvency, reorganization, moratorium or other law affecting or relating to creditors' rights generally and general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 Non-Contravention. Neither the execution and delivery of this Agreement by Buyers nor the consummation by each Buyer of the transactions contemplated hereby will constitute a violation of, or be in conflict with, constitute or create a default under, or result in the creation or imposition of any liens upon any property of any Buyer pursuant to (a) the charter documents or by-laws of any Buyer, each as amended to date; (b) any agreement or commitment to which any Buyer is a party or by which any Buyer or any of its properties is bound or to which any Buyer or any of its properties is subject; or (c) subject to the expiration of the waiting period under the HSR Act, any statute or any judgment, decree, order, regulation or rule of any court or other Governmental Person relating to any Buyer. 5.4 Consents. No consent, approval or authorization of, or registration, qualification or filing with, any Governmental Person is required for the execution and delivery of this Agreement or the Closing Instruments by Buyers or for the consummation by the Buyers of the transactions contemplated hereby, other than those already obtained prior to Closing. No consent or approval of any other Person is required for the execution and delivery of this Agreement or the Closing Instruments by the Buyers or for the consummation by the Buyers of the transactions contemplated hereby, other than those already obtained prior to Closing. 5.5 Brokers. No Buyer has entered into or will enter into any contract, agreement, arrangement or understanding with any Person that will result in the obligation of Covanta, the Sellers, any Holding Company or any Project Company to pay any finder's fee, brokerage commission or similar payment in connection with the transactions contemplated hereby. 5.6 No Financing. The Buyers will jointly have adequate funds at their disposal to finance the Purchase Price on the Closing Date. The consummation of the purchase described in this Agreement shall not be subject to the Buyers' ability to obtain financing. 5.7 Investment Company Act. No Buyer is an "investment company" or a company "controlled" by an investment company within the meaning of the Page 24 Investment Company Act of 1940. 5.8 Due Diligence Review. The Buyers and their Affiliates, considered as a whole, are sophisticated and knowledgeable with respect to geothermal power projects and related matters and have performed their own independent investigation, with due diligence, of the investment represented by the purchase of the Interests and have formed their own independent assessment of the risks and potential returns of the Interests. The Buyers and their Affiliates, taken as a whole, have extensive financial experience with investments such as the investment contemplated by this Agreement and therefore have the ability to protect their own interests in connection with this Agreement. 5.9 No Registration; Investment Representation; Sophisticated Person. Each Buyer acknowledges that the Interests have not been registered under any federal, state or local securities laws, and may not be resold unless permitted under applicable exemptions contained in such securities laws or upon satisfaction of the registration or qualification requirements of such securities laws (nor does any Seller have any obligation to effect any such registration). Each Buyer will refrain from acquiring, transferring or otherwise disposing of the Interests or any interest therein, in such manner as to violate any registration requirements of any applicable federal, state or local securities laws, and the rules and regulations promulgated thereunder regulating the disposition thereof. Each Buyer is acquiring the Interests for its own account for investment purposes only, and not with a view to, or for sale in connection with, any distribution or public offering thereof or any portion thereof. 5.10 No Reliance. The Buyers and their Affiliates, considered as a whole, are experienced and sophisticated with respect to the transactions contemplated by this Agreement and have had access to all information they deem relevant to its decision to enter into this Agreement. In entering into this Agreement, the Buyers and their Affiliates, considered as a whole, are not relying on the accuracy or completeness of any information or materials provided (whether in writing or orally) by or on behalf of Covanta, the Sellers, any of their Affiliates or their respective employees, agents or representatives except for representations and warranties made herein. Without limiting the generality of the foregoing, the Buyers acknowledge that, except for representations and warranties made herein, no representation or warranty has been made by or on behalf of Covanta, the Sellers, any of their Affiliates or any of their respective employees, agents or representatives with respect to any information, documents or material provided or made available by Covanta, the Sellers, any of their Affiliates or any of their respective employees, agents or representatives to the Buyers or any of its employees, agents or representatives relating to Covanta, the Sellers, including without limitation any projections, estimates or budgets. 5.11 ERISA. Each Buyer is buying the Interests with its general assets. No funds used to acquire the Interests will be furnished directly or indirectly out of the assets of or in connection with any Employee Benefit Plan. 5.12 No Public Utility Company Status. Neither the Buyers nor any of their Affiliates are or will become, as a result of the transactions contemplated hereby, subject to regulation as a "public utility company" or a "holding company" or a "subsidiary company" or an "affiliate", in each case of a "holding company" or a "public utility company", as such terms are defined under the Federal Power Act or the Public Utility Holding Company Act, nor otherwise subject to any federal, state or local utility regulation. Neither the Buyer nor any of its Affiliates owns or operates facilities for the transmission or sale of electric energy other than (i) a "qualifying small power production facility" or "qualifying cogeneration facility", as such terms are defined under 16 U.S.C. Section 796(17) and (18) and the implementing regulations of the FERC or (ii) an "exempt wholesale generator", as such term is defined under 15 U.S.C. Section 79z-5a(a)(1) and the implementing regulations of the FERC. Page 25 6. COVENANTS PRIOR TO CLOSING DATE 6.1 Submission for Bankruptcy Court Approval. (a) On the timetables set forth below, the Debtors shall file with the Bankruptcy Court one or more motions and proposed orders as set forth below, notify, as required by the Bankruptcy Code, the Bankruptcy Rules and the Bankruptcy Court, all parties entitled to notice of such motions and orders, and subject to the provisions of this Agreement, the Debtors shall use commercially reasonable efforts to obtain Bankruptcy Court approval of such orders. The Buyers agree to cooperate with such efforts. (b) Bidding Procedures Order. The Debtors filed with the Bankruptcy Court one or more motions (the "Bidding Procedures Motion") requesting entry of an order (the "Bidding Procedures Order") detailing the bidding procedures for the sale of the Interests. The Bankruptcy Court entered the Bidding Procedures Order on September 26, 2003. (c) Approval Order. As Promptly as possible, the Debtors shall file with the Bankruptcy Court the Plan and one or more motions (collectively, the "Sale Motions") requesting entry of the Confirmation Order or, alternatively, the Sale Order. Said motions shall, among other things, seek to: (i) approve the sale of the Interests in SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies to the Buyers on the terms and conditions set forth in this Agreement and authorize Covanta and the Sellers that are Debtors to proceed with this transaction; (ii) include a specific finding that the Buyers are a good faith purchaser of the Interests in SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies; (iii) state that the sale of the Interests to the Buyers shall be free and clear of all liens, claims, interests and encumbrances whatsoever, except as set forth in this Agreement; (iv) provide for a waiver of the stays contemplated by Bankruptcy Rules 6004(g) and 6006(d); (v) approve SIGC One Sub's, SIGC Two Sub's, Amor's and the Debtor Project Companies' respective assumption and/or assignment pursuant to Section 365 of the Bankruptcy Code of all of the Scheduled Contracts, find void and unenforceable any provision thereof which purports to give rise to a default or other breach of such Scheduled Contracts by reason of the Bankruptcy Cases or the sale of the Interests pursuant to this Agreement, find that the time to assume any Scheduled Contracts, to the extent applicable, has not expired and that such are in full force and effect and free from default (other than for specified cure amounts); (vi) provide that the Sellers shall pay all cure costs payable in connection with the assumption of the Scheduled Contracts pursuant to this Agreement and the Approval Order or that such cure cost shall be properly accrued for, without duplication, in the Current Liabilities of the relevant Debtor Project Companies; (vii) waive and release all claims of any kind of Covanta, the Sellers and any other Debtors against SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies, including, without Page 26 limitation, all preference or avoidance claims and actions of the Sellers against SIGC One Sub, SIGC Two Sub, Amor or any Debtor Project Company, pursuant to Sections 544, 545, 547, 548, 549, 550 and 553(b) of the Bankruptcy Code; (viii) approve the assumption of any Scheduled Contract solely on the terms contained therein as in existence on the date hereof and shall not impose upon the Buyers or any Holding Company or Project Company any additional financial obligation to provide "adequate assurances" (as such term is used in Section 365 of the Bankruptcy Code) to any Person in respect of any such Scheduled Contract except as required under the terms of any such Scheduled Contract; and (ix) if the Approval Order is the Sale Order, after approval of the assumptions of the Scheduled Contracts, order the dismissal of the Bankruptcy Cases with respect to each of SIGC One Sub, SIGC Two Sub, Amor and the Debtor Project Companies. Following the filing of the Sale Motion, Covanta and the Sellers shall use reasonable efforts to obtain entry of the Approval Order. Covanta and the Sellers shall seek to obtain entry by the Bankruptcy Court of the Approval Order not later than November 30, 2003 (or, in the event the Sellers pursue consummation of the transactions contemplated in this Agreement through the Plan, December 15, 2003). (d) Plan. Covanta and the Sellers shall provide the Buyers with (i) proposed final drafts of all documents, motions, orders, filings or pleadings that Covanta and the Sellers propose to file with the Bankruptcy Court which relate to the consummation or approval of the Plan (to the extent related to the transactions contemplated herein), this Agreement or any provision therein or herein, and will provide the Buyers with reasonable opportunity to review such filings and (ii) any objections to the Plan or Disclosure Statement (to the extent related to the transactions contemplated herein). Covanta and the Sellers shall make such modifications to the Plan or the Confirmation Order that are reasonably requested by the Buyers and that are necessary or desirable in order to make the Plan or the Confirmation Order consistent with the provisions of this Agreement and to provide the Buyers with legal protection and economic benefits consistent with those provided by the provisions of this Agreement. Any such requests and modifications shall be made within seven Business Days of the date hereof. (e) The Bidding Procedures Motion and the Sale Motions may be brought in a single motion or in separate motions, so long as the Bidding Procedures Order is entered in accordance with the time limitation set forth in Section 6.1(b) above. (f) If any Approval Order, the Bidding Procedures Order or any other order of the Bankruptcy Court relating to this Agreement shall be appealed by any Person (or a petition for certiorari or motion for rehearing, reargument or stay shall be filed with respect thereto), the Debtors agree to, and to cause their Affiliates to, take all commercially reasonable steps, and use commercially reasonable efforts, to defend against such appeal, petition or motion, and Buyers agree to cooperate in such efforts. Each party shall use commercially reasonable efforts to obtain an expedited resolution of such appeal; provided that nothing herein shall preclude the parties hereto, in their sole and absolute discretion, from consummating the transactions contemplated herein if the Approval Order shall have been entered and have not been stayed and the Buyers have waived in writing the requirement that the Approval Order be an order as to which the time to file an appeal, a motion for rehearing or reconsideration or a petition for a writ of certiorari has expired and no such appeal, motion or petition is pending, in which event the Buyers shall be able to assert the benefits of Section 363(m) of the Bankruptcy Code as a consequence Page 27 of which such appeal shall become moot. 6.2 Reserved. 6.3 Access and Investigation; Developments. From the date of this Agreement until the Closing Date, subject to the terms of the Confidentiality Agreement, each Debtor will, and the Sellers and Covanta will cause each Holding Company, Project Company, Debtor Operator and their respective Representatives to, upon reasonable notice, (i) afford Buyers and their Representatives and prospective lenders and their Representatives (collectively, "Buyers' Advisors") reasonable access, during normal business hours, to its personnel (including on site personnel providing operations and maintenance services), properties and leased properties, contracts, books and records, corporate minute books, financial records and other documents and data (whether in paper or electronic form) of each Holding Company, Project Company and Debtor Operator, (ii) furnish Buyers and Buyers' Advisors with copies of all such contracts, books and records, and other existing documents and data as Buyers may reasonably request, including (subject to availability with respect to Amor) balance sheets and income statements of each Holding Company and each Project Company as specified in Section 4.30 on a monthly basis for periods after July 31, 2003, and (iii) notify Buyers of (x) any events or conditions that may cause any of the representations and warranties of the Sellers and Covanta contained in this Agreement not to be true and correct as of the Closing Date and (y) the occurrence or non-occurrence of any event prior to Closing that would constitute a deviation from the operation of the Business as contemplated by Section 6.4. In addition, from the date hereof through the Closing Date, Covanta and the Sellers shall reasonably promptly (with a monthly summary) inform in writing the Buyers of developments pertaining to the Business that would require modifications to the Schedules hereto and, as appropriate and with the consent of the Sellers, update the disclosure provided in the Schedules hereto. 6.4 Operation of the Business of each Project Company. Except as authorized by Court Order of the Bankruptcy Court, from the date of this Agreement until the Closing Date, Sellers and Covanta will cause each Project Company to: (a) conduct its Business only in the Ordinary Course of Business; (b) use their commercially reasonable efforts to preserve intact the current business organization of each Project Company, keep available the services of the current employees of Affiliates of Covanta that provide services to the Business and maintain the relations and goodwill with material suppliers, customers, landlords, creditors, employees, agents, Governmental Bodies and others having material business relationships with the Business other than as permitted with the prior written consent of the Buyers; and (c) not enter into any transactions with Affiliates or enter into transactions other than on an arms-length basis or with the prior written consent of the Buyers. 6.5 Negative Covenant. Except (i) as contemplated by this Agreement, (ii) in the Ordinary Course of Business, or (iii) as required by Legal Requirement or order of the Bankruptcy Court, from the date of this Agreement until the Closing Date, each Debtor Operator, the MP Operator, each Holding Company and each Project Company will not, and the Sellers will cause each Debtor Operator, the MP Operator, each Holding Company and each Project Company not to, without the prior consent of the Buyers (such consent not to be unreasonably withheld), fail to take any commercially reasonable action within its control to prevent any of the changes or events listed in Section 4.9 from occurring. 6.6 Commercially Reasonable Efforts. Until the Closing has occurred, the parties shall use all commercially reasonable efforts to cause the Page 28 conditions to Closing set forth in Sections 7 and 8 to be satisfied as promptly as practicable. 6.7 Further Assignments. Provided that the Buyers have received consent to such assignment from CD Mammoth Lakes I, Inc. and CD Mammoth Lakes II, Inc., the Sellers shall cause the MP Operator to assign to an entity designated by the Buyers the Plant Operating Services Agreement between the MP Project Company and the MP Operator providing for the management and operation of the MP Project by the MP Operator. At the Closing, Covanta and the Sellers shall have caused Covanta Power Pacific, Inc. to transfer, assign and convey its interests in Federal Leases CA-14404, CA-14405, CA-14406, CA-14407 and CA-11672 to MP Two Sub. 6.8 Bayerische Vereinsbank, AG Payment. At the Closing, Covanta shall have repaid all amounts outstanding under the Loan Agreement, dated as of April 10, 1998, among Ogden Power Pacific, Inc. and Bayerische Vereinsbank, AG, New York Branch and the lenders referred to therein, as amended. 6.9 Release of Affiliate Claims. At the Closing, Covanta shall have caused all of its Affiliates to release all claims against the Holding Companies and the Project Companies. 6.10 Heber Debt. At the Closing, Covanta shall have repaid all amounts outstanding to GECC in connection with the HGC Project and the HFC Project giving rise to the HGC/HFC Liens, the HGC/HFC Liens shall have been released or reconveyed, and the assets and contracts related to the HGC Project and the HFC Project shall be sold, transferred, assigned or otherwise transferred to the HGC Project Company and the HFC Project Company, as applicable, from GECC. 7. CONDITIONS PRECEDENT TO THE BUYERS' OBLIGATIONS AT CLOSING. The obligation of the Buyers to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of each of the following conditions (to the extent noncompliance is not waived in writing by the Buyers): 7.1 Representations and Warranties True at Closing. The representations and warranties of Covanta and the Sellers contained in this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" qualifiers set forth therein) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not, individually or in the aggregate, result in a Material Adverse Effect. 7.2 Compliance With Agreement. Covanta and each Seller shall have performed and complied with its respective obligations under this Agreement to be performed or complied with by such Seller on or prior to the Closing Date, except where failures to perform or comply would not, individually or in the aggregate, result in a Material Adverse Effect. 7.3 Officer's Certificate. The Sellers shall have delivered to the Buyers in writing, at and as of the Closing, a certificate, in form and substance satisfactory to the Buyers, certifying that the conditions in each of Sections 7.1 and 7.2 hereof have been satisfied. 7.4 Resignations of Directors and Officers. All the directors and officers of each Holding Company and Project Company shall have resigned their positions on or prior to the Closing Date, and shall have delivered to the Buyers releases of any claims against such Holding Company and Project Company. In addition, all powers of attorney authorizing any individual (including, without limitation, those identified on Schedule 4.5) to draw upon the bank account of any Holding Company or Project Company or to take any other action on their behalf shall have been terminated in their entirety. Page 29 7.5 Opinion of Counsel. Special counsel to the Sellers, shall have delivered to the Buyers a written opinion, addressed to the Buyers and dated the Closing Date, in connection with the sale of the MP Interests, substantially in the form of Schedule 7.5. 7.6 Documents. The Sellers shall have delivered or caused to be delivered each of the following documents: (a) an executed copy of each Closing Instrument to which any Seller or Affiliate of any Seller is a party; and (b) for each Seller, Holding Company and Project Company, certified copies of charter/organizational documents, partnership, agreement, bylaws or limited liability company agreement, as the case may be, certificates of good standing, and evidence of all corporate partnership or limited liability company authority for each Seller with respect to the execution, delivery and performance of this Agreement. 7.7 Consents and Approvals. All consents listed on Schedule 7.7 shall have been obtained. 7.8 No Actions or Court Orders. No Action by any court, governmental authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and by the Closing Instruments and which could reasonably be expected to have a Material Adverse Effect on the Project Companies if the transactions contemplated hereby or thereby are consummated. There shall not be any Regulation or Court Order that makes the purchase and sale of the Interests contemplated hereby illegal or otherwise prohibited. 7.9 Title Policies. Title Policies with respect to the Project Companies, in substance in accordance with Schedule 7.9, shall have been delivered to the Buyers. 7.10 No Material Adverse Effect. Since the date of this Agreement until the Closing Date, there shall not have been any facts, changes, conditions, circumstances or occurrences of any events that, individually or in the aggregate, have had a Material Adverse Effect. 7.11 Notice of Sale. The Sellers shall have served a copy of the Bidding Procedures Motion and the Sale Motion upon: (i) the Office of the United States Trustee; (ii) counsel to the Buyers; (iii) counsel to the committee for Covanta's unsecured creditors; (iv) counsel to the administrative agent for the Debtors' prepetition lenders; (v) counsel to the lenders under the DIP Agreement; (vi) counsel to the trustee for the 9.25% debenture holders; (vii) counsel to the committee for 9.25% debenture holders; (viii) all entities known to have expressed an interest in acquiring any of the Interests or the Assets and which the Debtors reasonably consider to be potential qualified bidders; (ix) all entities known to have asserted any Encumbrances in or upon any of the SIGC Interests, HFC Interests or the HGC Interests; (x) all federal, state and local taxing authorities that have jurisdiction over the Acquired Debtor Companies (as defined in the Bidding Procedures Motion) or their Businesses; (xi) all regulatory authorities or recording offices that have a reasonably known interest in the relief requested in the Bidding Procedures Motion; (xii) all governmental agencies having jurisdiction over the Acquired Debtor Companies or their Businesses with respect to environmental laws; (xiii) parties to governmental approvals or permits; (xiv) the United States Attorney's office and the attorneys general of all states in which the Acquired Debtor Companies conduct business; (xv) the Securities and Exchange Commission; (xvi) all non-Debtor parties to the Scheduled Contracts; and (xvii) all other parties that had filed a notice of appearance and demand for service of papers in these bankruptcy cases under Bankruptcy Rule 2002 as of the date of the Bidding Procedures Motion. In addition, the Sellers shall have served notice of the Page 30 Bidding Procedures Motion and the Sale Motion (which notice may take the form of a signed order to show cause) on (xviii) all scheduled creditors of the Acquired Debtor Companies, the Sellers that are Debtors and the Debtor Operators; (xix) all creditors or interest holders who have filed proofs of claim against the Acquired Debtor Companies; and (xx) each of the On Site Employees. In addition, the Sellers shall have served a copy of the Sale Motion, along with the exhibits attached thereto, to (xxi) all other persons reasonably designated by the Buyers on or before two business days after entry of the Bidding Procedures Order. The Sellers shall have filed an affidavit of such service with the Bankruptcy Court in the Bankruptcy Case (the "Affidavit of Service"). 7.12 Bankruptcy Court Action. (a) The Bankruptcy Court shall have entered the Approval Order in conformance with the provisions of this Agreement; (b) the Bidding Procedures Order, the Plan (if the transactions contemplated by this Agreement are effected by way of a Plan) and the Approval Order shall be in a form and substance reasonably satisfactory to the Buyers; and (c) the Approval Order shall be a final order which has not been reversed, modified, rescinded, or stayed, and for which the time to appeal the Approval Order has expired and the Approval Order is no longer subject to appeal or further judicial review. 7.13 Heber Resource Leases. At the Closing Date, Heber Resource Leases relating to not less than 90% in value of the leased geothermal resource available to the HFC Project shall be either (i) amended in accordance with the Heber Settlement pursuant to legal instruments that are in full force and effect and assumed by the relevant Debtor Project Company pursuant to an order of the Bankruptcy Court given under Section 365 of the Bankruptcy Code, or (ii) assumed by the relevant Debtor Project Company pursuant to an order of the Bankruptcy Court given under Section 365 of the Bankruptcy Code, provided in the latter case that the counter-parties to each such Heber Resource Leases will be offered a settlement substantially on the same terms as set forth in the Heber Settlement. 7.14 [Intentionally Omitted.] 7.15 Release of Security Interests. At the Closing, the lenders under the DIP Agreement shall have released all claims against the Holding Companies and the Project Companies under the DIP Agreement and all security interests granted to them pursuant to the DIP Security Agreement in respect of the Interests, the Assets or the Business of the Project Companies. 8. CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS AT CLOSING. The obligation of the Sellers to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction, at or prior to the Closing, of each of the following conditions (to the extent noncompliance is not waived in writing by Sellers): 8.1 Representations and Warranties True at Closing. The representations and warranties of each Buyer contained in this Agreement shall be true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" qualifiers set forth therein) on and as of the Closing Date, with the same force and effect as though made on and as of the Closing Date, except in any case for such failures to be true and correct which would not, individually or in the aggregate, result in a Material Adverse Effect. 8.2 Compliance with Agreement. The Buyers shall have paid the Purchase Price and shall have performed and complied with their obligations under this Agreement to be performed or complied with by the Buyers on or prior to the Closing Date, except where failures to perform or comply would not, individually or in the aggregate, result in a Material Adverse Effect. 8.3 Officer's Certificate. Each Buyer shall have delivered to the Sellers in writing, at and as of the Closing, a certificate, in form and substance satisfactory to the Sellers, to the effect that the conditions in each Page 31 of Sections 8.1 and 8.2 hereof have been satisfied. 8.4 Documents. The Buyers shall have delivered each of the following documents: (a) an executed copy of each Closing Instrument to which any Buyer or Affiliate of any Buyer is a party; and (b) for each Buyer, certified copies of charter, and bylaws or limited liability company agreement, as the case may be, certificates of good standing, and evidence of all corporate or limited liability company authority for each Buyer with respect to the execution, delivery and performance of this Agreement. 8.5 Bankruptcy Court Action. The Bankruptcy Court shall have entered the Bidding Procedures Order in accordance with Section 6.1(b) below and the Approval Order shall be a final order which has not have been reversed, modified, rescinded, or stayed as of the Closing Date. 8.6 Covanta Creditor Approval. The Sellers shall have received formal approval of the lenders under the DIP Agreement, consenting to the consummation of the transactions contemplated herein and releasing security interests granted to them pursuant to the DIP Security Agreement. 8.7 Bayerische Hypo-Vereinsbank, AG Consent. The Sellers shall have received such consents and waivers as are required with respect to the sale and transfer of the Interests from the lenders under the Loan Agreement, dated as of April 10, 1998, among Ogden Power Pacific, Inc. and Bayerische Vereinsbank, AG, New York Branch and the lenders referred to therein, as amended. 8.8 Consents and Approvals. All consents listed on Schedule 7.7 shall have been obtained. 8.9 No Actions or Court Orders. No Action by any court, governmental authority or other Person shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby and by the Closing Instruments and which could reasonably be expected to have a Material Adverse Effect on the Project Companies if the transactions contemplated hereby or thereby are consummated. There shall not be any Regulation or Court Order that makes the purchase and sale of the Interests contemplated hereby illegal or otherwise prohibited. 9. CONFIDENTIAL INFORMATION AND HSR ACT. 9.1 Confidentiality Agreement. The Sellers and the Buyers agree that the Confidentiality Agreement shall remain in full force and effect for the duration thereof, and that the parties hereto shall be governed by its terms and conditions, which are hereby incorporated into this Agreement by reference. Notwithstanding anything herein to the contrary, except as reasonably necessary to comply with applicable securities laws, each party to this Agreement (and each employee, representative or other agent of such party) may (a) consult any tax advisor regarding the U.S. federal income tax treatment or tax structure of the transaction, and (b) disclose to any and all persons, without limitation of any kind, the U.S. federal income tax treatment and tax structure of the transaction and all materials of any kind (including opinions or other tax analyses) that are provided to the taxpayer relating to such tax treatment and tax structure; provided that clause (b) shall not apply until the earliest of (i) the date of the public announcement of discussions relating to the transaction, (ii) the date of the public announcement of the transaction or (iii) the date of the execution of an agreement, with or without conditions, to enter into the transaction. For this purpose, "tax structure" is limited to any facts relevant to the U.S. federal income tax treatment of the transaction and does not include information relating to the identity of the parties. Page 32 9.2 HSR Act. The Buyers and the Sellers each shall prepare and file with the United States Department of Justice and the United States Federal Trade Commission the Notification and Report Form required to be filed under the HSR Act, concerning the transactions contemplated hereby, as soon as practicable and in any event within three days following the entry of the Confirmation Order. The Buyers and the Sellers acknowledge and agree that it shall be a condition to closing the transactions contemplated by this Agreement that the waiting period specified in the HSR Act has either expired or been earlier terminated. 10. TERMINATION 10.1 Termination Events. This Agreement may, by notice given prior to the Closing, be terminated: (a) by the Buyers, (i) in the event of non-compliance by any Debtor with the requirements set forth in Section 6.1 hereof, except where such non-compliance has not or would not reasonably be expected to have a Material Adverse Effect, provided that if any such non-compliance is curable prior to December 31, 2003 by the Sellers through the use of commercially reasonable efforts, following written notice of such breach from the Buyers for as long as the Sellers shall be using their commercially reasonable best efforts to cure such breach, the Buyers may not terminate this Agreement pursuant to this clause (i), (ii) in the event the Sellers shall fail to make their pre-merger notification filing with the Federal Trade Commission no later three days following entry of the Confirmation Order, (iii) if the Bankruptcy Court shall fail to enter (A) the Sale Order in the form required by Section 6.1 on or before November 30, 2003 or, (B) if the Reorganizing Heber Debtors pursue confirmation of the Plan, the Confirmation Order on or before December 15, 2003, (iv) if there shall have been, since the date hereof, any change, condition, circumstance or occurrence of any event that, individually or in the aggregate, has had or would reasonably be expected to have a Material Adverse Effect, (v) if any of the conditions in Sections 7.1 through and including 7.15 are not satisfied by December 31, 2003 (other than through the failure of the Buyers to comply with their obligations under this Agreement) and the Buyers have not waived such condition, or (vi) if the Closing Date does not occur on or prior to December 31, 2003; (b) by the Sellers, (i) if any of the conditions in Section 8.1 through and including 8.9 becomes incapable of being satisfied by December 31, 2003 (other than through the failure of the Sellers to comply with their obligations under this Agreement) and the Sellers have not waived such condition, or (ii) if the Buyers fail to make the Deposit as required by Section 2.3 of this Agreement, Page 33 (a termination pursuant to this clause (b) resulting from a breach by the Buyers of obligations under this Agreement being referred to as a "Buyer Default Termination"); or (c) by mutual consent of the Buyers and the Sellers (which such consent shall be signed by each such party hereto and effective when signed. 10.2 Liabilities in the Event of Termination. (a) Return of Deposit; No Special Damages. In the event this Agreement terminates as a result of any reason other than a Buyer Default Termination, the Deposit shall be immediately returned to Buyers. In no event shall Covanta or the Sellers have any liability to the Buyers for any special, consequential or punitive damages, and any claim, right, cause of action or liability for any damages that are special, consequential or punitive or for specific performance of this Agreement is hereby fully released and forever discharged. (b) Termination As a Consequence Of A Buyer Default Termination. In the event this Agreement terminates as a result of a Buyer Default Termination, Covanta's and the Sellers' sole and exclusive remedy, notwithstanding any other provision of this Agreement, shall be strictly limited to the retention of the Interests and of the Deposit as liquidated damages. In no event shall the Buyers or their Affiliates have any liability to Covanta and the Sellers in excess of the Deposit in the event this Agreement terminates as a result of a Buyer Default Termination, except in the event of the Buyers' gross negligence or fraud. In no event shall the Buyers have any liability to Covanta or the Sellers for any special, consequential or punitive damages, and any claim, right, cause of action or liability for any damages that are special, consequential or punitive or for specific performance of this Agreement is hereby fully released and forever discharged. Without limiting the generality of the foregoing, the Sellers shall not have a right to specific performance following a Buyer Default Termination. 11. NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES 11.1 Nature of Representations and Warranties. Each statement, representation, warranty, covenant and agreement made by Covanta and the Sellers, on the one hand, and the Buyers, on the other hand, in this Agreement or in any document, certificate or other instrument delivered pursuant to this Agreement or in connection herewith shall be deemed the joint and several statement, representation, warranty, covenant and agreement of Covanta and the Sellers, on the one hand, and the Buyers, on the other hand. 11.2 No Survival of Representations and Warranties. The representations and warranties contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in the connection herewith shall not survive the Closing. Neither Covanta nor the Sellers shall be liable to the Buyers for any statement, representation, warranty, covenant or agreement contained in this Agreement or in any certificate or other writing delivered pursuant hereto or in connection herewith after the Closing Date and the Buyers hereby acknowledge that the Buyers are purchasing the Interests on an "as-is, where-is" basis; provided, however, that nothing in this Section 11.2 shall be deemed to limit the liability of Covanta or the Sellers under applicable law for intentional misrepresentations or for fraud or under Section 13.2 or Section 13.7. 12. POST CLOSING LABOR AND REGULATORY MATTERS 12.1 Service Contractors; Employment. The Buyers and the Sellers acknowledge and agree that the individuals identified on Schedule 12.1 attached hereto and made a part hereof (the "On Site Employees") are employed by certain Affiliates of Covanta (the "O+M Affiliates") that are not a party to this Page 34 Agreement in connection with the operation of the Projects. The Debtor Operators and MP Operator currently provide on-site operations and maintenance services to the Project Companies pursuant to the operations and maintenance agreements identified on Schedule 12.1 (all of such agreements being collectively referred to as the "O+M Contracts"). It is agreed that in connection with the foregoing: (a) At the Closing, each Debtor Operator and the MP Operator, to the extent required by Section 6.7, that is a party to an O+M Contract will assign all of its rights and obligations under such O+M Contract to a designee of Buyers. (b) Such designee of the Buyers will offer employment, subject to satisfaction of the customary hiring requirements of Ormat Nevada Inc., commencing on the Closing Date, to each On Site Employee that prior to the Closing Date had been providing services for a Project Company. Such offer of employment will contain terms and conditions, including benefits, that are substantially similar in the aggregate to the terms and conditions of employment of the On Site Employees as of the date hereof. To the extent applicable, with respect to the medical, dental, health, disability, life insurance and other welfare plans, programs and arrangements of the Buyers to be applicable to each On Site Employee, such plans, programs and arrangements shall not contain any exclusions or limitations for pre-existing conditions and/or evidence of insurability and/or actively at work requirements. The benefit plans and policies applicable to each On Site Employee, including with respect to vacation, floating holidays, retirement, severance and welfare plans, programs and arrangements, shall recognize (i) for purposes of satisfying any deductibles during the coverage period that includes the Closing Date, any payments made by any On Site Employee towards deductibles in any health or insurance plan of the O+M Affiliates in which such On Site Employee participated, and (ii) for purposes of determining eligibility to participate, vesting and for any schedule of benefits based on service, all service with the O+M Affiliates, including service with predecessor employers that was recognized by the O+M Affiliates. (c) Other than as set forth in paragraph (b) above, neither the Buyers, their designee nor, after the Closing, any Holding Company, any Project Company, shall have any duties or liabilities with respect to any or all of the On Site Employees pursuant to this Agreement. (d) The Sellers will notify the Buyers of (i) any increase in the rate of compensation granted by Covanta or the Sellers payable to or to become payable prior to the Closing Date to any On Site Employee, including the making of any loan to, or the payment, grant or accrual of any bonus, incentive compensation, service award or other similar benefit to, any such On Site Employee prior to the Closing Date, other than compensation changes as a matter of law or regulation and (ii) any resignations or terminations of any On Site Employees prior to the Closing Date, other than in the Ordinary Course of Business. 12.2 FERC Self-Recertification. The Buyers shall prepare and file, within six months from the Closing Date, at FERC in respect of each Project a self-recertification using FERC Form 556 updating the prior certification or self certification, as applicable, to include any changes that have occurred prior to Closing and the change in upstream ownership effected by the transaction contemplated at Closing (each a "Qualifying Facility Self Recertification"). Each such Qualifying Facility Self Recertification shall fully comply with all applicable FERC rules and regulations, including but not limited to, fully updating all changes that have occurred to the relevant Project since the last certification for which FERC's rules and regulations require a recertification, including, without limitation, its ownership, technical characteristics, fuel use, size and ability to meet applicable operating and efficiency requirements. 13. POST CLOSING TAX MATTERS Page 35 13.1 Closing of the Books. Covanta, the Sellers and the Buyers acknowledge and agree that the Sellers shall cause each Holding Company and each Project Company to use the interim closing of the books method to allocate between the Sellers and the Buyers items of income, gain, loss, deduction and credit attributable to the Interests for the taxable year or taxable period of each Holding Company and each Project Company that includes the Closing Date. 13.2 Returns for Periods Through the Effective Date. Covanta and the Sellers will include the income of each Holding Company and each Project Company on Covanta's consolidated federal income tax returns and state income tax returns for all periods through the Closing Date and pay any and all Taxes attributable to such income and will indemnify and hold harmless the Buyers in respect thereof. The Buyers shall cause each Holding Company and each Project Company to furnish Tax information to the Sellers for inclusion in the Seller's federal consolidated income Tax Return for the period up to and including the Closing Date in accordance with the Holding Company's and Project Company's past custom and practice. The income of each Holding Company and each Project Company will be apportioned to the period up to and including the Closing Date and the period after the Closing Date by closing the books of the Holding Company and Project Company as of the end of the Closing Date. 13.3 Audits. The Buyers shall notify the Sellers within 30 days of its receipt of written notice of any pending or threatened examination, audit or other administrative or judicial proceeding relating to any Project Company or Holding Company that could reasonably be expected to result in an indemnification obligation of the Sellers and Covanta pursuant to Section 13.2 ("Contested Taxes"). If the Buyers fail to provide such notice to the Sellers, the Buyers shall not be entitled to indemnification for such Contested Taxes if the failure shall preclude or effectively preclude a contest of the Contested Tax. The Buyers shall control the contest of any Contested Tax that could affect any post-Closing Tax obligation of a Project Company, Holding Company or its owners. If the Contested Tax could not affect any post Closing Tax obligation of a Holding Company, Project Company or its owners and if the Sellers request in writing, the Buyers shall cause the Project Company to contest such Contested Tax at the cost and expense of Sellers and Sellers may control the contest of such Contested Tax. Regardless of which party controls the contest of the Contested Tax, the other party shall have the right to observe the conduct of the contest at its own expense, including through its own counsel and other professional experts, and to receive copies of any written material issued by or to the party in control (other than material reasonably believed to be the subject of a privilege arising under a rule or statute). Any refunds or rebates of Taxes relating to a Project Company or Holding Company shall be for the account of the Buyers, unless they relate to a tax period for which Taxes were paid during the Sellers ownership of the Interests, in which case such refund or rebate, net of any expenses of the Project Company or the Buyers in obtaining such refund or rebate, shall be for the account of the Sellers. 13.4 Post-Closing Elections. At the reasonable request of the Buyers, the Sellers will join with the Buyers in making any election if the making of such election does not have an adverse impact on the Sellers, including an election under Section 338 of the Code (or any comparable state or local law). 13.5 Allocation of Purchase Price. The Buyers and the Sellers agree to the Purchase Price allocation on Schedule 13.5. The Buyers, the Sellers and Covanta mutually agree that all Tax Returns filed by the parties shall be filed consistent with such allocation. The Buyers, the Sellers and Covanta further agree to take no position, unless otherwise required by applicable law, with respect to any Taxes inconsistent with such allocation. 13.6 Transfer and Similar Taxes. The Buyers and the Sellers shall each be liable for 50% of all transfer, sales, stamp, recording and other similar fees and Taxes due in connection with the transactions contemplated hereunder. Page 36 13.7 Taxes of the Sellers or their Affiliates. Covanta and the Sellers agree to indemnify the Buyers from and against their allocable portion of any adverse consequences the Buyers may suffer resulting from, arising out of, relating to, in the nature of, or caused by, any liability of any Holding Company or Project Company for Taxes of Covanta, the Sellers or any of their Affiliates under Treasury Regulation Section 1.1502-6 (or any similar provision of state, local or foreign law). 14. GENERAL. 14.1 Expenses. All expenses of the preparation, execution and consummation of this Agreement and of the transactions contemplated hereby, including, without limitation, attorneys', accountants' and outside advisers' fees and disbursements, shall be borne by (a) Buyer, if incurred for Buyer's account or (b) Sellers, if incurred for the account of Sellers or the Project Companies. 14.2 Notices. All notices, demands and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally, by overnight courier, by facsimile or, if mailed, by certified mail, return receipt requested, postage prepaid, or sent by written telecommunication, as follows: If to Covanta or any Seller, care of: Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007-2615 Attention: Anthony Orlando Telephone: (973) 882-7152 Facsimile: (973) 882-4148 with a copy to: Cleary Gottlieb Steen & Hamilton One Liberty Plaza New York, NY 10006-1470 Attention: Filip Moerman/James L. Bromley Telephone: (212) 225-2940 / 2264 Facsimile: (212) 225-3999 If to any Buyer, to: c/o Ormat Nevada, Inc. 980 Greg Street Sparks, NV 89431 Attention: President Telephone: 775-356-9029 Facsimile: 775-356-9039 with a copy to: Weil, Gotshal & Manges LLP 767 Fifth Avenue New York, NY 10153 Attention: Philip Rosen Telephone: 212-310-8604 Facsimile: 212-310-8007 Page 37 Any party may by notice given in accordance with this Section to the other parties designate another address or person for receipt of notices hereunder. 14.3 Entire Agreement. This Agreement, together with the Confidentiality Agreement, incorporated herein by reference, and each Closing Instrument entered into contemporaneously herewith, contain the entire understanding of the parties, supersede all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by all of the parties hereto. 14.4 GOVERNING LAW; BANKRUPTCY COURT JURISDICTION. (a) EXCEPT TO THE EXTENT THAT THE MANDATORY PROVISIONS OF THE BANKRUPTCY CODE APPLY, THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. (b) EACH OF THE PARTIES IRREVOCABLY AND UNCONDITIONALLY CONSENTS TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE SOUTHERN DISTRICT OF NEW YORK, INCLUDING THE BANKRUPTCY COURT, FOR ANY LITIGATION ARISING OUT OF OR RELATING TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY (AND AGREES NOT TO COMMENCE ANY LITIGATION RELATING THERETO EXCEPT IN SUCH COURTS), WAIVES ANY OBJECTION TO THE LAYING OF VENUE OF ANY SUCH LITIGATION THEREIN, AND AGREES NOT TO PLEAD OR CLAIM THAT SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. 14.5 Sections and Section Headings. All references to "Section" "subsection" "Exhibit" and "Schedule" shall be a reference to Sections and subsection of, and Exhibits and Schedules to, this Agreement. The headings of Sections and subsections are for reference only and shall not limit or control the meaning thereof. 14.6 Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor the obligations of any party hereunder shall be assignable or transferable by such party without the prior written consent of the other parties hereto; provided, however, that a Buyer, upon prior written notice to the Sellers, may assign this Agreement without the prior consent of the Sellers to an Affiliate of such Buyer if, in the Sellers' reasonable determination, (a) such Affiliate has provided an adequate assurance of performance and (b) such Affiliate is a creditworthy party and provided further that such assignee agrees in writing to assume the obligations of such assignor hereunder and agrees to be bound by the terms of this Agreement. 14.7 Further Assurances. The Sellers and the Buyers shall execute and deliver to all appropriate other parties such other instruments as may be reasonably required in connection with the performance of this Agreement and each shall take all such further actions as may be reasonably required to carry out the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, Covanta and the Sellers shall cause all of the books and records mentioned in Section 4.16 hereof and all files, documentation and records, in whatever form, of the Project Companies or any Holding Company relating to the Business, including (to the extent permitted by applicable law) employment records and files relating to the individuals identified on Schedule 12.1 hereof, to be delivered to the Buyers promptly following the Closing. 14.8 Survival of Certain Sections. Notwithstanding anything to the contrary contained in this Agreement, Sections 9.1, 10.2, 11.2, and Article 14 hereof shall survive the termination of this Agreement. 14.9 No Implied Rights or Remedies. Except as otherwise expressly provided herein, nothing herein expressed or implied is intended or shall be construed to confer upon or to give any person, firm or corporation, other than Page 38 the Sellers and Buyers and their respective shareholders or members hereto, any rights or remedies under or by reason of this Agreement. 14.10 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 14.11 Representation. (a) Covanta shall represent all the Sellers for the purposes of this Agreement, including, without limitation, with respect to any waivers or consents. Any notice given or communication, including, without limitation, any required deliveries of any documents or reports required hereunder, made to the Buyers on behalf of any Seller by Covanta shall constitute effective notice or communication to the Buyers. Any notice given or communication, including, without limitation, any required deliveries of any documents or reports required hereunder, made by the Buyers to Covanta shall constitute effective notice or communication to all Sellers. Any action, approval or consent by Covanta, including, without limitation, with respect to any waivers or consents, under or with respect to this Agreement shall bind all the Sellers. Covanta represents that it has the authority to act on behalf of all the Sellers as provided for in this Section 14.11. (b) HFC/HGC One Buyer shall represent all the Buyers for the purposes of this Agreement, including, without limitation, with respect to any waivers or consents. Any notice given or communication, including, without limitation, any required deliveries of any documents or reports required hereunder, made to the Sellers on behalf of any Buyer by HFC/HGC One Buyer shall constitute effective notice or communication to the Sellers. Any notice given or communication, including, without limitation, any required deliveries of any documents or reports required hereunder, made by the Sellers to HFC/HGC One Buyer shall constitute effective notice or communication to all Buyers. Any action, approval or consent by HFC/HGC One Buyer, including, without limitation, with respect to any waivers or consents, under or with respect to this Agreement shall bind all the Buyers. HFC/HGC One Buyer represents that it has the authority to act on behalf of all the Buyers as provided for in this Section 14.11. 14.12 Transitional Services. During a transition period of two months from Closing, Covanta shall provide to the Buyers, subject to availability, limited transition services in the area of asset management, legal and regulatory (including in connection with the requirements of Section 12.2), risk management and human resources. Covanta and the Buyers shall each designate a transition services coordinator. The Buyers shall reimburse Covanta for out-of-pocket expenses incurred in connection with the rendering of such transition services. Covanta shall incur no liability to the Buyers in connection with such transition services. 14.13 Knowledge of the Sellers. For purposes of any representation or warranty of the Sellers set forth in this Agreement, references to the "Sellers' knowledge" or to the "knowledge of the Sellers" shall mean the actual knowledge after due inquiry of such records and other individuals employed by Covanta or any of its Affiliates that are in a position to know such information by reason of the duties and responsibilities of their job description, as of the date of such representation or warranty, of Lucian Fox, Dale Daileader, Richard Dyer, Jeff Wood (in respect of tax matters), Gary Perusse (with respect to insurance matters), Andrew Washington (in respect of environmental matters) and Stephen Gansler (in respect of human resources matters). [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.] Page 39 IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed and delivered by their respective duly authorized officers as of the date and year first above written. SELLERS: -------- COVANTA HEBER FIELD ENERGY, INC. By ----------------------------------------- Name: Title: HEBER FIELD ENERGY II, INC. By ----------------------------------------- Name: Title: ERC ENERGY, INC. By ----------------------------------------- Name: Title: ERC ENERGY II, INC. By ----------------------------------------- Name: Title: HEBER LOAN PARTNERS By ----------------------------------------- Name: Title: COVANTA POWER PACIFIC, INC. By ----------------------------------------- Name: Title: COVANTA ENERGY AMERICAS, INC. By ----------------------------------------- Name: Title: PACIFIC GEOTHERMAL CO. By ----------------------------------------- Name: Title: MAMMOTH GEOTHERMAL CO. By ----------------------------------------- Name: Title: AMOR 14 CORPORATION By ----------------------------------------- Name: Title: COVANTA SIGC ENERGY II, INC. By ----------------------------------------- Name: Title: COVANTA: COVANTA ENERGY CORPORATION By ----------------------------------------- Name: Title: Page 40 BUYERS: ------- ORHEBER 1 INC. By ----------------------------------------- Name: Ran Raviv Title: Authorized Signatory ORHEBER 2 INC. By ----------------------------------------- Name: Ran Raviv Title: Authorized Signatory ORHEBER 3 INC. By ----------------------------------------- Name: Ran Raviv Title: Authorized Signatory ORMAMMOTH INC. By ----------------------------------------- Name: Ran Raviv Title: Authorized Signatory Page 41 EX-10.1.N 7 y95330exv10w1wn.txt TENTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10.1(n) TENTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT This TENTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT (this "Amendment") is dated as of November 3, 2003 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, as amended by that certain First Amendment to Debtor-in-Possession Credit Agreement and Security Agreement dated as of April 3, 2002, that certain Second Amendment to Debtor-in-Possession Credit Agreement dated as of May 10, 2002, that certain Third Amendment and Limited Waiver to Debtor-in-Possession Credit Agreement dated as of October 4, 2002, that certain Fourth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of December 10, 2002, that certain Fifth Amendment to Debtor-in-Possession Credit Agreement dated as of December 18, 2002, that certain Sixth Amendment to Debtor-in-Possession Credit Agreement, Limited Consent and Amendment to Security Agreement dated as of March 25, 2003, that certain Seventh Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of May 23, 2003, that certain Eighth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of August 22, 2003 and that certain Ninth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of September 15, 2003 (as so amended, 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 amend the Credit Agreement, subject to the terms and conditions set forth below; NOW, THEREFORE, in consideration of the premises and agreements, provisions and covenants herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Provisions Relating to Defined Terms. A. Subsection 1.1 of the Credit Agreement is hereby amended by deleting the definitions of "Insurance Premium Financing Arrangements" and "Minimum Cumulative Consolidated Operating Income Schedule" in their entirety and inserting the following new definitions in the appropriate alphabetical order: "Insurance Premium Financing Arrangements" means, collectively, such agreements as Company and its Subsidiaries may enter into (A) on or after the Third Amendment Effective Date and prior to December 1, 2002 with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries in an aggregate amount not to exceed $33,000,000 and (B) on or after the Page 37 Tenth Amendment Effective Date and prior to December 1, 2003 with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries in an aggregate amount not to exceed $23,000,000, and, in each case, any orders entered by the Bankruptcy Court in connection therewith. Such Insurance Premium Financing Arrangements (i) shall provide for the benefit of such Insurance Premium Financers a security interest in no property of Company or any of its Subsidiaries other than gross unearned premiums for the insurance policies, (ii) shall not purport to prohibit any portion of the Liens created in favor of Administrative Agent (for the benefit of Lenders) pursuant to the Collateral Documents or authorized by the Interim Borrowing Order or Final Borrowing Order, (iii) shall provide that the Insurance Premium Financers shall not be entitled to a cash payment on the Reorganization Effective Date (except for regularly scheduled monthly payments of principal and interest), (iv) shall not contain any provision or contemplate any transaction prohibited by this Agreement and shall otherwise be in form and substance reasonably satisfactory to Agents, and (v) may provide that the security interests granted to Insurance Premium Financers in connection with Insurance Premium Financing Arrangements shall rank prior to the Liens of Lenders under this Agreement. "Minimum Cumulative Consolidated Operating Income Schedule" has the meaning assigned to that term in subsection 6.1(xxi); provided, however, that the Minimum Cumulative Consolidated Operating Income Schedule shall be deemed supplemented (i) as of the Sixth Amendment Effective Date by the supplement thereto delivered to the Agents in accordance with Section 3.1 of the Sixth Amendment, and (ii) by, and as of the date of delivery of, the supplement thereto delivered to the Agents in accordance with subsection 6.1(xxiv) or 6.1(xxv) of this Agreement. B. Subsection 1.1 of the Credit Agreement is hereby amended by inserting the following new definitions in the appropriate alphabetical order: "Covanta Tampa" means Covanta Tampa Construction, Inc., a Delaware corporation. "Geothermal Sale" means (i) the sale or other disposition by Company and its Subsidiaries of all or substantially all of (a) their respective (1) equity or membership interests in Covanta SIGC Energy, Inc., Covanta SIGC Energy II, Inc. and Amor 14 Corporation, (2) partnership interests in Heber Geothermal Company, Heber Field Company and Second Imperial Geothermal Company, and (3) equity, membership or partnership interests in non-debtor Affiliates Pacific Geothermal Company, Mammoth Geothermal Company and Mammoth Pacific L.P., which entities own or lease geothermal plants and facilities in California (the "Geothermal Business") and/or (b) the assets of each of the entities referenced in clause (a) and (ii) the assumption and/or assignment by Company and its Subsidiaries of certain contracts related to the Geothermal Business. "Geothermal Sale Bidding Procedures Order" means the Order Under 11 U.S.C. ss.ss. 105(a), 363, 503 and 507 and Fed.R.Bankr.P. 2002, 6004 and 6006 (A) Authorizing and Approving: (I) Notice and Bidding Procedures; (II) Bid Protections, Including Breakup Fee, Overbid Protections and Expense Reimbursement, in Connection with Proposed Sale of Debtors' Equity Interest in Certain Subsidiaries; (III) Notice of Conversion of Certain Debtors To Limited Liability Companies, Proposed Assumption and/or Assignment of Certain Executory Contracts and Unexpired Leases; and (IV) Notice of Proposed Dismissal of Certain Chapter 11 Cases; and (B) Scheduling Hearing and Setting Bidding and Objection Deadlines in Connection with the Foregoing entered by the Bankruptcy Court on September 26, 2003. "Tenth Amendment" means the Tenth Amendment to Debtor-In-Possession Credit Agreement dated as of November 3, 2003. Page 2 "Tenth Amendment Effective Date" has the meaning assigned to that term in Section 4.6 of the Tenth Amendment. C. The definition of "Excluded Subsidiary" in subsection 1.1 of the Credit Agreement is hereby amended by deleting the last sentence thereof and substituting the following sentence therefor: "Nothwithstanding the foregoing provisions of this definition, Metropolitan Entertainment and Covanta Tampa shall each be an Excluded Subsidiary.". 1.2 Provisions Relating to Representations and Warranties. Subsection 5.11D of the Credit Agreement is hereby amended by deleting the reference to "$5,000,000" contained therein and substituting therefor "$13,000,000". 1.3 Provisions Relating to Affirmative Covenants. A. Subsection 6.1 of the Credit Agreement is hereby amended by (i) deleting the "and" at the end of clause (xxiii) thereof, (ii) deleting the "." at the end of clause (xxiv) thereof and substituting therefor "; and", and (iii) adding at the end thereof the following new clause (xxv): "(xxv) Prior to the consummation of the Geothermal Sale, Borrowers shall have delivered to Agents (a) projected financial statements for Company and its Subsidiaries for the fourth Fiscal Quarter of 2003 and the first Fiscal Quarter of 2004, such projected financial statements to be prepared on a consolidated and consolidating basis in accordance with GAAP and to be in form and substance reasonably satisfactory to Agents and to contain projections of cash flows for each such period and such other financial information and projections for such periods as Agents may reasonably request, and (b) a supplement to the Minimum Cumulative Consolidated Operating Income Schedule satisfactory in form and substance to Agents.". B. Subsection 6.8E of the Credit Agreement is hereby amended by deleting the parenthetical phrase contained in clause (i) thereof in its entirety and substituting therefor the following: "(other than Metropolitan Entertainment and Covanta Tampa)". 1.4 Provisions Relating to Negative Covenants. A. Subsection 7.1 of the Credit Agreement is hereby amended by amending and restating clause (ix) thereof as follows: "(ix) Company may become and remain liable with respect to Indebtedness consisting solely of its obligations under Insurance Premium Financing Arrangements, provided that the obligations incurred pursuant to this clause (ix) shall not exceed $23,000,000 in the aggregate at any time on or after the Tenth Amendment Effective Date.". B. Subsection 7.5 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (c) thereof, (ii) deleting the "." at the end of clause (d) thereof and substituting therefor ", and", and (iii) adding at the end thereof the following new clause (e): "(e) Borrowers and their respective Subsidiaries may make payments after the Tenth Amendment Effective Date, in an amount not to exceed $100,000 in the aggregate, for the purpose of satisfying pre-Petition Date tax obligations and other obligations the payment of which is required in order for the Borrowers and their Subsidiaries (1) to convert certain Page 3 Subsidiaries from corporations to limited liability companies in connection with the Geothermal Sale, and (2) to be in good standing in their respective jurisdictions of formation upon emergence from their Chapter 11 Cases." C. Subsection 7.7(i)(7) of the Credit Agreement is hereby amended by deleting clause (z) thereof in its entirety and substituting the following therefor: "(z) that the aggregate amount of all fees, costs and expenses of attorneys and advisors of Company and its Subsidiaries (including, but not limited to, advisory fees and success fees) in connection with such transaction and all other such transactions occurring prior to the date thereof (which shall be set forth in a statement in reasonable detail attached to such Officer's Certificate) shall not exceed $400,000 in the aggregate;" D. Subsection 7.7 of the Credit Agreement is hereby further amended by (i) deleting the word "and" at the end of clause (xii) thereof, (ii) deleting the "." at the end of clause (xiii) thereof and substituting therefor "; and", and (iii) adding immediately after clause (xiii) thereof the following new clause (xiv): "(xiv) Company and its Subsidiaries may consummate the Geothermal Sale with either (a) Caithness Energy LLC, ArcLight Capital Partners, LLC and/or certain of their affiliates on the terms and conditions set forth in the Amended and Restated Ownership Interest Purchase Agreement dated as of September 25, 2003 (as such agreement may be amended or modified pursuant to the terms thereof, so long as any such amendment or modification that is deemed material by the Agents shall be consented to by the Agents), and in accordance with the Geothermal Sale Bidding Procedures Order or (b) such other higher and better bidder as selected by Company (so long as such bidder and such bidder's bid for the Geothermal Sale shall be consented to by Agents) in accordance with such order; provided that, in either case, the principal documentation for such Geothermal Sale and any earnout or contingent payments relating thereto shall have been delivered to Agents." E. Section 7 of the Credit Agreement is hereby further amended by adding at the end thereof the following new subsection 7.17: "7.17 Plan of Liquidation; Plan of Reorganization. No Borrower shall propose an amendment, supplement or other modification to: (i) Debtors' First Amended Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code and the Liquidation Plan Supplement to Debtors' First Amended Joint Plan of Liquidation (collectively, the "Plan of Liquidation"); (ii) Debtors' First Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code and the Reorganization Plan Supplement to Debtors' First Amended Joint Plan of Reorganization (collectively, the "Reorganization Plan"); or (iii) Heber Debtors' Second Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code (the "Heber Plan", and together with the Plan of Liquidation and the Reorganization Plan, the "Plans"), each as filed with the Bankruptcy Court on September 28, 2003, without the prior consent of Agents if such proposed amendment, supplement or other modification would have a materially adverse effect on the treatment of, or distributions to, any holder of claims in Class 3A under the Reorganization Plan or Class 3A under the Plan of Liquidation, including the amount of distributions made to such holders or the currency in which such distributions are made, or effect the disposition or distribution of any Collateral under any of the Plans, and no Borrower shall revoke or withdraw any of the Plans without the prior written consent of the Agents, unless the Debtors contemporaneously file an alternative or amended plan of reorganization Page 4 that is reasonably acceptable to the Agents." 1.5 Provisions Relating to Events of Default Subsection 8.9 of the Credit Agreement is hereby amended by deleting the reference to "$10,000,000" contained therein and substituting therefor "$13,000,000". 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. Subject to compliance with the Final Borrowing Order and any applicable provisions of the Bankruptcy Code, 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 Loan Party. 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 Company or any of its Subsidiaries, the Organizational Documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation (which Contractual Obligation is enforceable on a post-Petition Date basis) of Company or any of its Subsidiaries or an applicable order of the Bankruptcy Court, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Amended Agreement do not and will not require any Governmental Authorization. 2.5 Binding Obligation. This Amendment has been duly executed and delivered by each 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 Tenth Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier Page 5 date. 2.7 Notice to Committee. Notice of this Amendment has been given to and received by counsel to the official committee of unsecured creditors in the Chapter 11 Cases and the informal committee of holders of Company's 9.25% Debentures. 2.8 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 A. Each Borrower and Subsidiary Guarantor hereby (i) acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects, (ii) ratifies and confirms the effectiveness of the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment and the Ninth Amendment in all respects, and (iii) confirms that the provisions of the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment and the Ninth Amendment are binding on each of the Borrowers. B. Each Borrower and Subsidiary Guarantor hereby acknowledges that all Cash and non-Cash proceeds from the Geothermal Sale (whether from the Amended and Restated Ownership Interest Purchase Agreement dated as of September 25, 2003 or from any higher and better bidder's bid for the Geothermal Sale, each as described in Section 1.3C of this Amendment) that Company, any of the other Borrowers or any non-debtor Subsidiaries of Company receive or have an interest in upon closing of such sale or from time to time thereafter are subject to (i) the valid, perfected non-voidable first priority, senior priming Liens of the Agents, for the sole and exclusive benefit of the Lenders (such Liens not being junior or subject to any other Liens, claims or interests) pursuant to section 364(d) of the Bankruptcy Code and (ii) the superpriority administrative claims of the Agents and the Lenders, in each case without further action by any party or further order of the Bankruptcy Court. SECTION 4. MISCELLANEOUS 4.1 Covenant Regarding Bids for Geothermal Sale. Immediately upon receipt thereof, Company shall deliver to Agents copies of any formal bids for the Geothermal Sale submitted to Company and any accompanying documentation, including, without limitation, evidence of the bidder's financial ability, ability to provide certain assurances and ability to consummate the transaction. The Company hereby agrees that any default in the performance of or compliance with this Section 4.1 shall constitute an immediate Event of Default under the Credit Agreement. 4.2 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Tenth 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. Page 6 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. 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 Amendment and the documents and transactions contemplated hereby shall be for the account of Borrowers. 4.4 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. 4.5 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. 4.6 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 upon the first date on which all of the following conditions precedent shall have been satisfied (the date of satisfaction of such conditions being referred to herein as the "Tenth Amendment Effective Date"): (i) Borrower, each Subsidiary Guarantor, and Lenders constituting Requisite Lenders shall have each executed a counterpart hereof; (ii) Company and Administrative Agent shall have received written or telephonic notification of such execution and authorization of delivery of such counterparts; and (iii) Company shall have paid in full all outstanding statements for fees and expenses of O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC, to the extent submitted to Company prior to 5:00 p.m. (New York City time) on November 3, 2003. [Remainder of this page intentionally left blank] Page 7 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: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Each of the entities named on Schedule A annexed hereto, as Borrowers By: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Each of the entities named on Schedule B annexed hereto, as Borrowers By: ----------------------------------- Scott Mackin Authorized Officer Page 8 SUBSIDIARY GUARANTORS: Each of the entities named on Schedule C annexed hereto, as Subsidiary Guarantors By: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Page 9 AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger and as a Lender By: ----------------------------------- Henry Yu Managing Director Page 10 DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent and Co-Arranger and as a Lender By: ----------------------------------- Keith C. Braun Director By: ----------------------------------- Mark B. Cohen, Managing Director Head of Workout Page 11 BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 12 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 13 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: ----------------------------------- Name: Title: Page 14 WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By: ----------------------------------- Name: Title: Page 15 HSBC BANK USA, as a Lender By: ----------------------------------- Name: Title: Page 16 IIB BANK LTD, IFSC BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 17 JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as a Lender By: ----------------------------------- Name: Title: Page 18 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 19 MERRILL LYNCH, PIERCE & SMITH, INCORPORATED, as a Lender By: ----------------------------------- Name: Title: Page 20 BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender By: ----------------------------------- Name: Title: Page 21 SPECIAL SITUATIONS INVESTING GROUP, as a Lender By: ----------------------------------- Name: Title: Page 22 SUNTRUST BANK, as a Lender By: ----------------------------------- Name: Title: Page 23 THE BANK OF NEW YORK, as a Lender By: ----------------------------------- Name: Title: Page 24 THE BANK OF NOVA SCOTIA, as a Lender By: ----------------------------------- Name: Title: Page 25 UBS AG, STAMFORD BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 26 U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: ----------------------------------- Name: Title: Page 27 WESTLB AG (formerly known as Westdeutsche Landesbank Girozentrale), NEW YORK BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 28 BEAR STEARNS & CO. INC., as a Lender By: ----------------------------------- Name: Title: Page 29 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. Page 30 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. Ogden Services Corporation 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. Ogden Environmental & Energy Services Co., Inc. 92. OPI Quezon, Inc. 93. Second Imperial Geothermal Co., L.P. 94. Three Mountain Operations, Inc. 95. Three Mountain Power LLC Page 31 Schedule B Other Borrowers 1. Alpine Food Products, Inc. 2. BDC Liquidating Corp. 3. Bouldin Development Corp. 4. Covanta Energy Group, Inc. 5. Covanta Energy International, Inc. 6. Covanta Equity of Alexandria/Arlington, Inc. 7. Covanta Equity of Stanislaus, Inc. 8. Covanta Power International Holdings, Inc. 9. Covanta Projects, Inc. 10. Doggie Diner, Inc. 11. Gulf Coast Catering Company, Inc. 12. J.R. Jacks Construction Corp. 13. Lenzar Electro-Optics, Inc. 14. Logistics Operations, Inc. 15. Offshore Food Service, Inc. 16. OFS Equity of Alexandria/Arlington, Inc. 17. OFS Equity of Babylon, Inc. 18. OFS Equity of Delaware, Inc. 19. OFS Equity of Huntington, Inc. 20. OFS Equity of Indianapolis, Inc. 21. OFS Equity of Stanislaus, Inc. 22. Ogden Allied Abatement & Decontamination Service, Inc. 23. Ogden Allied Maintenance Corp. 24. Ogden Allied Payroll Services, Inc. 25. Ogden Attractions, Inc. 26. Ogden Aviation Distributing Corp. 27. Ogden Aviation Fueling Company of Virginia, Inc. 28. Ogden Aviation Security Services of Indiana, Inc. 29. Ogden Aviation Service Company of Colorado, Inc. 30. Ogden Aviation Service Company of Pennsylvania, Inc. 31. Ogden Aviation Service International Corporation 32. Ogden Aviation Terminal Services, Inc. 33. Ogden Aviation, Inc. 34. Ogden Cargo Spain, Inc. 35. Ogden Central and South America, Inc. 36. Ogden Cisco, Inc. 37. Ogden Communications, Inc. 38. Ogden Constructors, Inc. 39. Ogden Facility Holdings, Inc. 40. Ogden Facility Management Corporation of Anaheim 41. Ogden Facility Management Corporation of West Virginia 42. Ogden Film and Theatre, Inc. 43. Ogden Firehole Entertainment Corp. 44. Ogden Food Service Corporation of Milwaukee, Inc. 45. Ogden International Europe, Inc. 46. Ogden Leisure, Inc. 47. Ogden Management Services, Inc. 48. Ogden New York Services, Inc. 49. Ogden Pipeline Service Corporation 50. Ogden Support Services, Inc. 51. Ogden Technology Services Corporation 52. Ogden Transition Corporation 53. PA Aviation Fuel Holdings, Inc. 54. Philadelphia Fuel Facilities Corporation Page 32 Schedule C Subsidiary Guarantors 1. Covanta Haverhill Properties, Inc. 2. Covanta Haverhill, Inc. 3. Covanta Omega Lease, Inc. 4. Haverhill Power, Inc. 5. LMI, Inc. 6. Michigan Waste Energy, Inc. Page 33 EX-10.1.O 8 y95330exv10w1wo.txt ELEVENTH AMENDMENT TO CREDIT AGREEMENT Exhibit 10.1(o) ELEVENTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT AND LIMITED CONSENT This ELEVENTH AMENDMENT TO DEBTOR-IN-POSSESSION CREDIT AGREEMENT AND LIMITED CONSENT (this "Amendment") is dated as of December 15, 2003 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, as amended by that certain First Amendment to Debtor-in-Possession Credit Agreement and Security Agreement dated as of April 3, 2002, that certain Second Amendment to Debtor-in-Possession Credit Agreement dated as of May 10, 2002, that certain Third Amendment and Limited Waiver to Debtor-in-Possession Credit Agreement dated as of October 4, 2002, that certain Fourth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of December 10, 2002, that certain Fifth Amendment to Debtor-in-Possession Credit Agreement dated as of December 18, 2002, that certain Sixth Amendment to Debtor-in-Possession Credit Agreement, Limited Consent and Amendment to Security Agreement dated as of March 25, 2003, that certain Seventh Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of May 23, 2003, that certain Eighth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of August 22, 2003, that certain Ninth Amendment to Debtor-in-Possession Credit Agreement and Limited Consent dated as of September 15, 2003 and that certain Tenth Amendment to Debtor-in-Possession Credit Agreement dated as of November 3, 2003 (as so amended, 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, 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: "Allied Aviation" has the meaning assigned to that term in subsection 7.7(xvi). "Arrowhead Arena" has the meaning assigned to that term in the definition of Anaheim Transaction. "Anaheim Management Agreement" has the meaning assigned to that term in the definition of Anaheim Transaction. "Anaheim Transaction" means, collectively, (i) the termination and rejection of the existing management agreement (the "Anaheim Management Agreement") between The City of Anaheim (the "City") and Ogden Facility Management Corporation of Anaheim ("OFM") to manage the Arrowhead Pond arena in Anaheim, California ("Arrowhead Arena"), including the compromise and settlement of the City's asserted and potential claims against Company and OFM in connection therewith and the termination of Company's guaranty of the performance of OFM under the Anaheim Management Agreement, the release of Company and its Subsidiaries from all obligations and liabilities in connection therewith, and the rejection of certain other executory contracts ancillary to OFM's obligations under the Anaheim Management Agreement, (ii) the assumption and assignment of certain contracts in connection with the termination of the Anaheim Management Agreement, (iii) the transfer of miscellaneous furniture, equipment and other assets to the City or the City's designee, Anaheim Arena Management, LLC, in connection with the termination of the Anaheim Management Agreement, (iv) the withdrawal by Company and OFM from the lease-in lease-out transaction with respect to the Arrowhead Arena and the release of Company and its Subsidiaries from all obligations and liabilities in connection therewith (including the termination of OFM's guaranty of certain obligations of the City and the return to Company of all letters of credit (cancelled and undrawn) issued for its account to support the City's payment obligations in connection with the lease-in lease-out transaction involving the Arrowhead Arena), in exchange for the payment by Company of $2,000,000 to Anaheim Arena Management, LLC (the Person designated by the City to replace Company in the aforementioned lease-in lease-out transaction), (v) the compromise and settlement of Credit Suisse First Boston's ("CSFB") claims relating to the certificates of participation (the "COPS") issued to finance the construction and operation of the Arrowhead Pond, through (a) termination of the COPS through a drawing on the outstanding letter of credit issued by CSFB to repurchase the COPS, (b) payment by the City to CSFB of $40,000,000 plus the `Net Working Capital' amount, as described in the Termination Agreement (as defined below), to partially reimburse such drawing, (c) retention by CSFB in the Chapter 11 Cases of a claim to reimbursement of the portion of such drawing not reimbursed by the City, and (d) payment of up to $250,000 of CSFB's fees and expenses in connection with the foregoing), (vi) the payment by OFM to Anaheim Arena Management, LLC of $750,000 as described in and in accordance with the letter agreement dated as of December 4, 2003 among OFM, the Mighty Ducks Hockey Club, Inc. and Anaheim Arena Management, LLC, all of the transactions described in clauses (i) through (vi) on substantially the terms contemplated in that certain Termination Agreement between the City, OFM and Company dated November 5, 2003 (the "Termination Agreement") and in the order relating thereto entered by the Bankruptcy Court prior to the Eleventh Amendment Effective Date, and (vii) the release of the City from its obligations under certain swap agreements related to the COPS that are Opt-Out Facilities (as defined in the Prepetition Credit Agreement). "Babylon" means the Town of Babylon, New York. "Babylon Project" means the waste-to-energy Project in Babylon. "Babylon Project Restructuring" means the consummation of the transactions contemplated in the Motion for Authority to Approve Compromises and Amend Contractual Arrangements between Covanta Babylon, Inc. and Babylon as filed on November 26, 2003 with the Bankruptcy Court, on substantially the terms set forth in such motion and as more specifically provided for in the `MOU' (as defined in such motion), including (i) the execution and delivery by CBI and Babylon of an amendment to the service agreement in effect on the Eleventh Amendment Effective Date Page 2 between CBI and Babylon relating to the Babylon Project, which amendment shall clarify the terms regarding the obligations of Company and its Subsidiaries to process and dispose of waste under such service agreement, and reduce the annual base operating fee payable by Babylon to CBI under such service agreement by $620,000 beginning January 1, 2004, (ii) the payment by Company and its Subsidiaries of $2,700,000 to Babylon in settlement and satisfaction of certain of Babylon's administrative claims, (iii) the execution by CBI and Babylon of mutual releases with respect to claims arising against each other prior to consummation of the Babylon Project Restructuring, and (iv) the agreement by Babylon and CBI to share certain costs under the `Liquidity Guaranty' (as defined in such motion) and for CBI to pay certain increased interest expense under the `Swap Agreement' (as defined in such motion). "Babylon Project Restructuring Conditions" means, collectively, (i) the consummation of the Babylon Project Restructuring, (ii) delivery by Company to Agents of an Officer's Certificate certifying that the transactions contemplated in clauses (i) through (iv) of the definition of "Babylon Project Restructuring" have occurred and that the conditions set forth in clauses (i), (iii) and (iv) of this definition have been met and that CBI and Company have no further obligations to Babylon with respect to the claims referred to in clause (ii) of the definition of "Babylon Project Restructuring", (iii) delivery by Company to Agents of the primary documentation relating to the Babylon Project Restructuring, the terms of which documentation shall be in all material respects consistent with this definition and the definition of "Babylon Project Restructuring", and (iv) the filing by Babylon with the Bankruptcy Court of a notice of withdrawal (with prejudice) of its claims asserted against Company and its Subsidiaries prior to the Eleventh Amendment Effective Date. "CBI" means Covanta Babylon, Inc. "City" has the meaning assigned to that term in the definition of Anaheim Transaction. "COPS" has the meaning assigned to that term in the definition of Anaheim Transaction. "CSFB" has the meaning assigned to that term in the definition of Anaheim Transaction. "Eleventh Amendment" means the Eleventh Amendment to Debtor-In-Possession Credit Agreement and Limited Consent dated as of December 15, 2003. "Eleventh Amendment Effective Date" has the meaning assigned to that term in Section 4.5 of the Eleventh Amendment. "OFM" has the meaning assigned to that term in the definition of Anaheim Transaction. "Termination Agreement" has the meaning assigned to that term in the definition of Anaheim Transaction. 1.2 Provisions Relating to Negative Covenants. A. Subsection 7.5 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (d) thereof, (ii) deleting the "." at the end of clause (e) thereof and substituting therefor ",", and (iii) adding at the end thereof the following new clauses (f) and (g): "(f) Borrowers and their respective Subsidiaries may make payments after the Eleventh Amendment Effective Date, in an amount not to exceed $30,000 Page 3 in the aggregate, for the purpose of satisfying pre-Petition Date tax obligations and other obligations as described in and in accordance with the Supplemental Order Authorizing Payment of Prepetition Sales and Use Taxes entered by the Bankruptcy Court on December 4, 2003, and (g) Borrowers and their respective Subsidiaries may make payments after the Eleventh Amendment Effective Date described in clauses (ii) and (iv) of the definition of `Babylon Project Restructuring'." B. Subsection 7.7 of the Credit Agreement is hereby amended by (i) deleting the word "and" at the end of clause (xiii) thereof, (ii) deleting the "." at the end of clause (xiv) thereof and substituting therefor ";", and (iii) adding immediately after clause (xiv) thereof the following new clauses (xv) and (xvi): "(xv) Company 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 Lender under the applicable Opt-Out Facility Documents (as such terms are defined in the Prepetition Credit Agreement)), consent to and/or consummate, as the case may be, the Anaheim Transaction and may, with the consent of the Agents, execute all instruments and documents and take all actions necessary or reasonably required to effect such transactions, so long as, upon consummation of the Anaheim Transaction, (a) Company and its Subsidiaries shall have received, cancelled and undrawn, all letters of credit issued for the account of Company to support the City's payment obligations in connection with the lease-in lease-out transaction relating to the Arrowhead Arena, (b) the unreimbursed portion of the drawings made on the letter of credit issued by CSFB to repurchase the COPS shall not exceed $74,000,000 and such letter of credit shall have been cancelled and returned (after the applicable drawing), and (c) Company and its Subsidiaries shall be released from all other obligations and liabilities in connection with the Anaheim Management Agreement, the Arrowhead Arena, the lease-in lease-out transaction relating to the Arrowhead Arena, the COPS and such letters of credit (other than such remaining reimbursement obligation), with such exceptions as are disclosed to Agents prior to the Eleventh Amendment Effective Date and are satisfactory to Agents; and (xvi) Company may return, cancel or otherwise dispose of the Secured Note dated December 31, 2002 made by Allied Aviation Holdings Corporation and certain of its Affiliates (collectively, "Allied Aviation") payable to Company, so long as (a) Allied Aviation pays $1,715,000 to Company and (b) Allied Aviation releases Company, its Subsidiaries and its affiliates from all claims, obligations and liabilities in connection with the 'Transactions' and the 'Transaction Documents', except to the extent described in the Stipulation and Order of Settlement between Debtors and Defendants Regarding Debtors' Adversary Proceeding against Defendant entered by the Bankruptcy Court on December 4, 2003, in the case of clauses (a) and (b) above as described in and in accordance with such stipulation and order." C. Subsection 7.7 of the Credit Agreement is hereby further amended by adding immediately after the "." at the end of the last paragraph thereof the following: "Nothing in this subsection 7.7 shall prohibit Borrowers and their Subsidiaries from consummating the Babylon Project Restructuring, so long as the Babylon Project Restructuring Conditions are satisfied." D. Subsection 7.14A of the Credit Agreement is hereby amended by deleting the second proviso to the first sentence thereof and substituting the following therefor: "; and provided further, however, that nothing in this subsection 7.14A Page 4 shall prohibit Company and its Subsidiaries from consummating the Corel Centre Disposition, so long as the conditions set forth in subsection 7.7(xiii) are satisfied, or the Anaheim Transaction, so long as the conditions set forth in subsection 7.7(xv) are satisfied" E. Subsection 7.14A of the Credit Agreement is hereby further amended by adding immediately after the "." at the end of the last sentence thereof the following: "Nothing in this subsection 7.14A shall prohibit Company and its Subsidiaries, after the Eleventh Amendment Effective Date, from consummating the Babylon Project Restructuring, so long as the Babylon Project Restructuring Conditions are satisfied." F. Subsection 8.6 of the Credit Agreement is hereby amended by inserting immediately prior to the ")" at the end of the last parenthetical phrase contained therein the following: "; and provided, further, however, that neither the consummation of the Babylon Project Restructuring nor the filing of any motion, application or other petition to effect any order or consent to consummate the Babylon Project Restructuring shall constitute an Event of Default under this subsection 8.6 so long as the Babylon Project Restructuring Conditions are satisfied" G. Subsection 8.15 of the Credit Agreement is hereby amended by inserting immediately prior to the ")" at the end of the last parenthetical phrase contained therein the following: "; and provided, further, however, that the consummation of the Babylon Project Restructuring shall not constitute an Event of Default under this subsection 8.15 so long as the Babylon Project Restructuring Conditions are satisfied" 1.3 Limited Consent. A. Pursuant to subsection 9.6 of the Credit Agreement, each of the undersigned Lenders hereby approves of and consents to the release by Administrative Agent of its Lien on the Secured Note dated December 31, 2002 made by Allied Aviation payable to Company, so long as (i) Allied Aviation pays $1,715,000 to Company and (ii) Allied Aviation releases Company, its Subsidiaries and its affiliates from all claims, obligations and liabilities in connection with the `Transactions' and the `Transaction Documents', except to the extent described in the Stipulation and Order of Settlement between Debtors and Defendants Regarding Debtors' Adversary Proceeding against Defendant entered by the Bankruptcy Court on December 4, 2003, in the case of clauses (i) and (ii) above as described in and in accordance with such stipulation and order. B. The limited consent set forth in Section A above shall be limited precisely as written, and nothing herein shall be deemed to prejudice any right, remedy or privilege that any Agent or any Lender may now have or may have in the future under or in connection with the Credit Agreement, the Intercreditor 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 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: Page 5 2.1 Corporate Power and Authority. Subject to compliance with the Final Borrowing Order and any applicable provisions of the Bankruptcy Code, 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 Loan Party. 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 Company or any of its Subsidiaries, the Organizational Documents of Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation (which Contractual Obligation is enforceable on a post-Petition Date basis) of Company or any of its Subsidiaries or an applicable order of the Bankruptcy Court, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. 2.4 Governmental Consents. The execution and delivery by each Loan Party of this Amendment and the performance by each Loan Party of the Amended Agreement do not and will not require any Governmental Authorization. 2.5 Binding Obligation. This Amendment has been duly executed and delivered by each 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 Eleventh Amendment Effective Date to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. 2.7 Notice to Committee. Notice of this Amendment has been given to and received by counsel to the official committee of unsecured creditors in the Chapter 11 Cases and the informal committee of holders of Company's 9.25% Debentures. 2.8 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. 2.9 Certain Consents. To the best of Company's knowledge, as of the date of the Anaheim Transaction all necessary consents of any Person required to consent to the Anaheim Transaction have been obtained. Page 6 SECTION 3. ACKNOWLEDGEMENT AND CONSENT Each Borrower and Subsidiary Guarantor hereby (i) acknowledges that such Loan Party has read this Amendment and consents to the terms hereof and hereby confirms and agrees that, notwithstanding the effectiveness of this Amendment, the obligations of such Loan Party under each of the Loan Documents to which such Loan Party is a party shall not be impaired and each of the Loan Documents to which such Loan Party is a party are, and shall continue to be, in full force and effect and are hereby confirmed and ratified in all respects, (ii) ratifies and confirms the effectiveness of the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment, the Ninth Amendment and the Tenth Amendment in all respects, and (iii) confirms that the provisions of the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment, the Sixth Amendment, the Seventh Amendment, the Eighth Amendment, the Ninth Amendment and the Tenth Amendment are binding on each of the Borrowers. SECTION 4. MISCELLANEOUS 4.1 Reference to and Effect on the Credit Agreement and the Other Loan Documents. A. On and after the Eleventh Amendment Effective Date, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as amended by this Amendment. B. Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. C. The execution, delivery and performance of this Amendment shall not constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of any Agent or any Lender under, the Credit 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 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. 4.3 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. 4.4 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. 4.5 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 upon the first date on which all of the following conditions precedent shall have been satisfied (the Page 7 date of satisfaction of such conditions being referred to herein as the "Eleventh Amendment Effective Date"): (i) Borrowers, each Subsidiary Guarantor, and Lenders constituting Requisite Lenders shall have each executed a counterpart hereof; (ii) Company and Administrative Agent shall have received written or telephonic notification of such execution and authorization of delivery of such counterparts; and (iii) Company shall have paid in full all outstanding statements for fees and expenses of O'Melveny & Myers LLP and Ernst & Young Corporate Finance LLC, to the extent submitted to Company prior to 5:00 p.m. (New York City time) on December 15, 2003. [Remainder of this page intentionally left blank] Page 8 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. BORROWERS: COVANTA ENERGY CORPORATION By: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Each of the entities named on Schedule A annexed hereto, as Borrowers By: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Each of the entities named on Schedule B annexed hereto, as Borrowers By: ----------------------------------- Anthony Orlando Authorized Officer Page 9 SUBSIDIARY GUARANTORS: Each of the entities named on Schedule C annexed hereto, as Subsidiary Guarantors By: ----------------------------------- Jeffrey R. Horowitz Authorized Officer Page 10 AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger and as a Lender By: ----------------------------------- Henry Yu Managing Director Page 11 DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent and Co-Arranger and as a Lender By: ----------------------------------- Keith C. Braun Director By: ----------------------------------- Mark B. Cohen, Managing Director Head of Workout Page 12 BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 13 COMMERZBANK AG, NEW YORK AND GRAND CAYMAN BRANCHES, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 14 CREDIT LYONNAIS NEW YORK BRANCH, as a Lender By: ----------------------------------- Name: Title: Page 15 WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By: ----------------------------------- Name: Title: Page 16 HSBC BANK USA, as a Lender By: ----------------------------------- Name: Title: Page 17 IIB BANK LTD, IFSC BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 18 JPMORGAN CHASE BANK (formerly known as The Chase Manhattan Bank), as a Lender By: ----------------------------------- Name: Title: Page 19 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 20 MERRILL LYNCH, PIERCE & SMITH, INCORPORATED, as a Lender By: ----------------------------------- Name: Title: Page 21 BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender By: ----------------------------------- Name: Title: Page 22 SPECIAL SITUATIONS INVESTING GROUP, as a Lender By: ----------------------------------- Name: Title: Page 23 SUNTRUST BANK, as a Lender By: ----------------------------------- Name: Title: Page 24 THE BANK OF NEW YORK, as a Lender By: ----------------------------------- Name: Title: Page 25 THE BANK OF NOVA SCOTIA, as a Lender By: ----------------------------------- Name: Title: Page 26 UBS AG, STAMFORD BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 27 U.S. BANK NATIONAL ASSOCIATION (formerly known as Firstar Bank, N.A.), as a Lender By: ----------------------------------- Name: Title: Page 28 WESTLB AG (formerly known as Westdeutsche Landesbank Girozentrale), NEW YORK BRANCH, as a Lender By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Page 29 BEAR STEARNS & CO. INC., as a Lender By: ----------------------------------- Name: Title: Page 30 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. Page 31 51. Covanta Onondaga Three Corp. 52. Covanta Onondaga Two Corp. 53. Covanta Onondaga, Inc. 54. Ogden Services Corporation 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. Ogden Environmental & Energy Services Co., Inc. 92. OPI Quezon, Inc. 93. Second Imperial Geothermal Co., L.P. 94. Three Mountain Operations, Inc. 95. Three Mountain Power LLC Page 32 Schedule B Other Borrowers 1. Alpine Food Products, Inc. 2. BDC Liquidating Corp. 3. Bouldin Development Corp. 4. Covanta Energy Group, Inc. 5. Covanta Energy International, Inc. 6. Covanta Equity of Alexandria/Arlington, Inc. 7. Covanta Equity of Stanislaus, Inc. 8. Covanta Power International Holdings, Inc. 9. Covanta Projects, Inc. 10. Doggie Diner, Inc. 11. Gulf Coast Catering Company, Inc. 12. J.R. Jacks Construction Corp. 13. Lenzar Electro-Optics, Inc. 14. Logistics Operations, Inc. 15. Offshore Food Service, Inc. 16. OFS Equity of Alexandria/Arlington, Inc. 17. OFS Equity of Babylon, Inc. 18. OFS Equity of Delaware, Inc. 19. OFS Equity of Huntington, Inc. 20. OFS Equity of Indianapolis, Inc. 21. OFS Equity of Stanislaus, Inc. 22. Ogden Allied Abatement & Decontamination Service, Inc. 23. Ogden Allied Maintenance Corp. 24. Ogden Allied Payroll Services, Inc. 25. Ogden Attractions, Inc. 26. Ogden Aviation Distributing Corp. 27. Ogden Aviation Fueling Company of Virginia, Inc. 28. Ogden Aviation Security Services of Indiana, Inc. 29. Ogden Aviation Service Company of Colorado, Inc. 30. Ogden Aviation Service Company of Pennsylvania, Inc. 31. Ogden Aviation Service International Corporation 32. Ogden Aviation Terminal Services, Inc. 33. Ogden Aviation, Inc. 34. Ogden Cargo Spain, Inc. 35. Ogden Central and South America, Inc. 36. Ogden Cisco, Inc. 37. Ogden Communications, Inc. 38. Ogden Constructors, Inc. 39. Ogden Facility Holdings, Inc. 40. Ogden Facility Management Corporation of Anaheim 41. Ogden Facility Management Corporation of West Virginia 42. Ogden Film and Theatre, Inc. 43. Ogden Firehole Entertainment Corp. 44. Ogden Food Service Corporation of Milwaukee, Inc. 45. Ogden International Europe, Inc. 46. Ogden Leisure, Inc. 47. Ogden Management Services, Inc. 48. Ogden New York Services, Inc. 49. Ogden Pipeline Service Corporation 50. Ogden Support Services, Inc. 51. Ogden Technology Services Corporation 52. Ogden Transition Corporation 53. PA Aviation Fuel Holdings, Inc. 54. Philadelphia Fuel Facilities Corporation Page 33 Schedule C Subsidiary Guarantors 1. Covanta Haverhill Properties, Inc. 2. Covanta Haverhill, Inc. 3. Covanta Omega Lease, Inc. 4. Haverhill Power, Inc. 5. LMI, Inc. 6. Michigan Waste Energy, Inc. Page 34 EX-10.1.R 9 y95330exv10w1wr.txt CREDIT AGREEMENT CREDIT AGREEMENT DATED AS OF MARCH 10, 2004 AMONG COVANTA ENERGY CORPORATION AND EACH OF ITS SUBSIDIARIES PARTY HERETO, THE LENDERS LISTED HEREIN, AS LENDERS, BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT, AND DEUTSCHE BANK SECURITIES, INC. AS DOCUMENTATION AGENT BANK OF AMERICA, N.A. AND DEUTSCHE BANK SECURITIES, INC. AS CO-LEAD ARRANGERS TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS........................................................................ 1 1.1 Certain Defined Terms.................................................................... 1 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement....... 34 1.3 Other Definitional Provisions and Rules of Construction.................................. 35 SECTION 2. AMOUNT OF COMMITMENTS; CERTAIN TERMS OF PAYMENT AND REPAYMENT...................... 35 2.1 Letter of Credit Commitments; Register; Default Rate; Computation of Interest; Maximum Rate............................................................................. 35 2.2 Fees..................................................................................... 36 2.3 Mandatory Payments, Reductions in Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral.................................................... 37 2.4 Increased Costs; Taxes; Capital Adequacy................................................. 41 2.5 Statement of Lenders; Obligation of Lenders and Issuing Lenders to Mitigate.............. 45 2.6 Defaulting Lender........................................................................ 46 2.7 Joint and Several Liability; Payment Indemnifications.................................... 47 2.8 Rights of Subrogation, Contribution, Etc................................................. 48 SECTION 3. LETTERS OF CREDIT.................................................................. 49 3.1 Issuance of Letters of Credit and Lenders' Purchase of Participations Therein............ 49 3.2 Letter of Credit Fees.................................................................... 51 3.3 Drawings and Reimbursement of Amounts Paid Under Letters of Credit....................... 52 3.4 Obligations Absolute..................................................................... 54 3.5 Nature of Issuing Lenders' Duties........................................................ 55 3.6 Cash Collateral for Letters of Credit.................................................... 56 SECTION 4. CONDITIONS TO CLOSING DATE......................................................... 57 4.1 Conditions to Closing Date............................................................... 57 SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES........................................... 68 5.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries............ 68 5.2 Authorization of Borrowing, etc.......................................................... 69
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PAGE 5.3 Financial Condition...................................................................... 70 5.4 No Material Adverse Change; No Restricted Payments....................................... 71 5.5 Title to Properties; Liens; Real Property; Intellectual Property......................... 71 5.6 Litigation; Adverse Facts................................................................ 72 5.7 Payment of Taxes......................................................................... 72 5.8 Performance of Agreements; Material Contracts............................................ 72 5.9 Governmental Regulation.................................................................. 73 5.10 Securities Activities.................................................................... 73 5.11 Employee Benefit Plans................................................................... 73 5.12 Certain Fees............................................................................. 74 5.13 Environmental Protection................................................................. 75 5.14 Employee Matters......................................................................... 75 5.15 Matters Relating to Collateral........................................................... 76 5.16 Disclosure............................................................................... 77 5.17 Cash Management System................................................................... 77 5.18 Matters Relating to Credit Parties....................................................... 77 5.19 Investigation............................................................................ 78 5.20 Matters Relating to Bankruptcy Proceedings............................................... 78 5.21 Subordinated Indebtedness................................................................ 78 5.22 Reporting to IRS......................................................................... 78 5.23 Solvency................................................................................. 79 SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS.................................................... 79 6.1 Financial Statements and Other Reports................................................... 79 6.2 Existence, etc........................................................................... 84 6.3 Payment of Taxes and Claims; Tax......................................................... 84 6.4 Maintenance of Properties; Insurance; Application of Net Insurance/ Condemnation Proceeds................................................................................. 85 6.5 Inspection Rights; Lender Meeting........................................................ 87 6.6 Compliance with Laws, etc................................................................ 87 6.7 Environmental Matters.................................................................... 87
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PAGE 6.8 Execution of Borrower Joinder Agreement and Personal Property Collateral Documents After the Closing Date................................................................... 89 6.9 Matters Relating to Additional Real Property Collateral.................................. 91 6.10 Deposit Accounts......................................................................... 91 6.11 Further Assurances....................................................................... 92 6.12 High Yield Notes......................................................................... 93 6.13 Most Favored Nations Payments............................................................ 93 SECTION 7. BORROWERS' NEGATIVE COVENANTS...................................................... 93 7.1 Indebtedness............................................................................. 94 7.2 Liens and Related Matters................................................................ 97 7.3 Investments; Acquisitions................................................................ 100 7.4 Contingent Obligations; Performance Guaranties........................................... 102 7.5 Restricted Payments...................................................................... 105 7.6 Financial Covenants...................................................................... 106 7.7 Restriction on Fundamental Changes; Asset Sales.......................................... 109 7.8 Transactions with Shareholders and Affiliates............................................ 111 7.9 Restriction on Leases.................................................................... 111 7.10 Detroit Project Covenants................................................................ 112 7.11 Conduct of Business...................................................................... 112 7.12 Amendments to Related Agreements, Debt Documentation and Organizational Documents........ 112 7.13 End of Fiscal Years; Fiscal Quarters..................................................... 113 7.14 Amendment to Pension Plans............................................................... 113 SECTION 8. EVENTS OF DEFAULT.................................................................. 114 8.1 Failure to Make Payments When Due........................................................ 114 8.2 Default in Other Agreements.............................................................. 114 8.3 Breach of Certain Covenants.............................................................. 114 8.4 Breach of Warranty....................................................................... 115 8.5 Other Defaults Under Credit Documents.................................................... 115 8.6 Involuntary Bankruptcy; Appointment of Receiver, etc..................................... 115 8.7 Voluntary Bankruptcy; Appointment of Receiver, etc....................................... 115
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PAGE 8.8 Judgments and Attachments................................................................ 116 8.9 Dissolution.............................................................................. 116 8.10 Employee Benefit Plans................................................................... 116 8.11 Material Adverse Effect.................................................................. 117 8.12 Change in Control........................................................................ 117 8.13 Invalidity of Intercreditor Agreement; Failure of Security; Repudiation of Obligations... 117 8.14 Termination of Material Contracts........................................................ 117 8.15 NOL Treatment............................................................................ 117 SECTION 9. ADMINISTRATIVE AGENT............................................................... 118 9.1 Appointment.............................................................................. 118 9.2 Powers and Duties; General Immunity...................................................... 119 9.3 Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness......................................................................... 120 9.4 Right to Indemnity....................................................................... 121 9.5 Successor Agents......................................................................... 121 9.6 Intercreditor Agreement.................................................................. 122 9.7 Administrative Agent May File Proofs of Claim............................................ 122 SECTION 10. MISCELLANEOUS...................................................................... 123 10.1 Successors and Assigns; Assignments and Participations in Letters of Credit.............. 123 10.2 Expenses................................................................................. 127 10.3 Indemnity................................................................................ 128 10.4 Set-Off.................................................................................. 129 10.5 Ratable Sharing.......................................................................... 129 10.6 Amendments and Waivers................................................................... 130 10.7 Independence of Covenants................................................................ 131 10.8 Notices; Effectiveness of Signatures..................................................... 132 10.9 Survival of Representations, Warranties and Agreements................................... 132 10.10 Failure or Indulgence Not Waiver; Remedies Cumulative.................................... 133 10.11 Marshalling; Payments Set Aside.......................................................... 133
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PAGE 10.12 Severability............................................................................. 133 10.13 Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver................ 133 10.14 Release of Security Interest............................................................. 134 10.15 Headings................................................................................. 134 10.16 Applicable Law........................................................................... 134 10.17 Construction of Agreement................................................................ 135 10.18 Consent to Jurisdiction and Service of Process........................................... 135 10.19 Waiver of Jury Trial..................................................................... 136 10.20 Confidentiality.......................................................................... 136 10.21 Release of Parties; Waivers.............................................................. 137 10.22 No Fiduciary Duty........................................................................ 138 10.23 Counterparts; Effectiveness.............................................................. 138 10.24 No Third Party Beneficiaries............................................................. 138
-v- EXHIBITS I [INTENTIONALLY OMITTED] II [INTENTIONALLY OMITTED] III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT IV FORM OF CLOSING DATE LETTERS OF CREDIT V FORM OF COMPLIANCE CERTIFICATE VI FORM OF ASSIGNMENT AGREEMENT VII FORM OF SECURITY AGREEMENT VIII FORM OF BORROWER JOINDER AGREEMENT IX FORM OF SOLVENCY CERTIFICATE X FORM OF OPINIONS OF CREDIT PARTIES' COUNSEL XI FORM OF DHC PLEDGE AGREEMENT XII [INTENTIONALLY OMITTED] XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF MORTGAGE XV [INTENTIONALLY OMITTED] -iv- SCHEDULES 1.1A DIP TRANCHE A L/Cs AND DIP TRANCHE B L/Cs 1.1B PRINCIPAL LEASE, SERVICE AND OPERATING AGREEMENTS 1.1C BUDGET 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 2.3A(i)(f) RESTRICTED ACCOUNTS 4.1C CORPORATE STRUCTURE 4.1N CLOSING DATE MORTGAGED PROPERTIES 4.1P 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(vi) CERTAIN EXISTING INDEBTEDNESS 7.1(ix) CERTAIN EXISTING CAPITAL LEASES 7.2 CERTAIN EXISTING LIENS 7.3(v) CERTAIN EXISTING INVESTMENTS 7.3(vi) CERTAIN WTE PROJECTS 7.4(iv) CERTAIN EXISTING PERFORMANCE GUARANTIES 7.4(vi) CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.6G STIPULATED ADJUSTED EBITDA 7.8 CERTAIN TRANSACTIONS WITH AFFILIATES -vii- COVANTA ENERGY CORPORATION CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of March 10, 2004 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("COMPANY"); EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (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 PERSONS IDENTIFIED ON THE SIGNATURE PAGES HEREOF AS LENDERS (each individually referred to herein as a "LENDER" and collectively as "LENDERS"); DEUTSCHE BANK SECURITIES, INC. ("DEUTSCHE BANK"), as documentation agent for Lenders (in such capacity, "DOCUMENTATION AGENT"); and BANK OF AMERICA, N.A. ("BANK OF AMERICA"), 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"), Borrowers and certain of their Domestic Subsidiaries (collectively, the "DEBTORS") filed voluntary petitions for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (such proceedings being jointly administered under Case Nos. 02-40826 through 02-40949, 02-16322, 03-13679 through 03-13685, and 03-13687 through 03-13709 are hereinafter referred to as the "CHAPTER 11 CASES"), and each Borrower has operated its businesses and managed its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, the Debtors have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; WHEREAS, pursuant to the Plan of Reorganization, the Existing Detroit L/Cs shall be replaced under this Agreement; 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 6.8B. "ADJUSTED EBITDA" means, for any period, (i) without duplication, the aggregate amount derived by combining the amounts for such period of (a) "Operating income (loss)", plus (b) Net Depreciation and Amortization Expense, plus (c) "Amortization of premium and discount, net", plus (d) "Unbilled receivables", to the extent associated with accretion accounting for Limited Recourse Debt relating to Projects of Company and its Subsidiaries, minus (e) "Equity in income from unconsolidated investments", minus (ii) without duplication, the aggregate amount derived by combining the amounts (each expressed as a positive number) for such period of (a) "Payment of debt", to the extent consisting of principal payments on Limited Recourse Debt relating to Projects of Company and its Subsidiaries, plus (b) "Minority interests", plus (c) accretion of principal on the High Yield Notes, as each such line item referred to in clauses (i)(a), (i)(e) and (ii)(b) is reflected in Company's consolidated statement of income prepared in conformity with GAAP and as each such line item referred to in clauses (i)(c), (i)(d) and (ii)(a) is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP, in each case reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled; provided, however, that with respect to any such period ending during 2008, each of the line items referred to above shall be calculated as if the terms of the service agreement of Company and its Subsidiaries relating to the Alexandria Project in effect for Fiscal Year 2007 continued in effect during 2008, without giving effect to any negative impact on Adjusted EBITDA from the terms of any extension in 2008 of such service agreement. "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. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or 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. "AGGREGATE AMOUNTS DUE" has the meaning assigned to that term in subsection 10.5. "AGREEMENT" means this Credit Agreement dated as of March 10, 2004, as it may be amended, restated, supplemented or otherwise modified from time to time. "ANNUAL FREE CASH FLOW" means, for any period, (i) the sum for such period of (without duplication) (a) all cash revenue received by Company and its Subsidiaries from Projects and facilities that are not Projects, other than amounts received by Company or such Subsidiary as a "pass through" entity for debt service on Limited Recourse Debt, (b) all amounts previously in reserve with respect to Projects that are released from such reserves to Company or 2 any of its Subsidiaries, other than amounts that are required to be paid (but that have not yet been paid) to third parties pursuant to binding Contractual Obligations of Company or any of its Subsidiaries and that are permitted under this Agreement to be paid to such third parties, (c) all distributions made to Company and its Subsidiaries on account of Capital Stock held by Company and its Subsidiaries, (d) all interest earned by Company and its Subsidiaries on Cash On Hand of Company and its Subsidiaries, (e) all amounts released to Company and its Subsidiaries from cash accounts related to Expansions, excluding any portion of such amounts that are not expended in such period and are required to be (and are permitted under this Agreement to be) expended by Company and its Subsidiaries in connection with such Expansions in a subsequent period (provided that Agents shall have reviewed and approved the exclusion of such portion of such released amounts from this clause (i)(e) prior to such exclusion), (f) all reimbursement amounts received by Company and its Subsidiaries under the Management Services and Reimbursement Agreement, and (g) all cash refunds or rebates of taxes received by Company and its Subsidiaries (but excluding from the amounts referred to in clauses (i)(a) through (i)(g) any portion of such amounts that was previously required to be applied (and was applied) as a Mandatory Payment), minus, without duplication of amounts already excluded or deducted from clauses (i)(a) through (i)(g) above, (ii) the sum for such period of (without duplication) (a) operating disbursements of Company and its Subsidiaries, (b) Consolidated Facilities Capital Expenditures, (c) corporate overhead of Company and its Subsidiaries, (d) payments on debt and leases of Company and its Subsidiaries, to the extent such payments are permitted to be made under this Agreement, (e) distributions on Capital Stock of Subsidiaries to Persons other than Company and its Subsidiaries, (f) all payments by Company and its Subsidiaries to third parties during such period as a result of drawings under the Existing IPP International Project Guaranties, (g) all payments by Company and its Subsidiaries to the extent such payments are required to be reimbursed to Company and its Subsidiaries pursuant to the Management Services and Reimbursement Agreement, (h) any amounts posted in such period by Company and its Subsidiaries for credit support to the extent such amounts are required to be posted during such period pursuant to binding Contractual Obligations of Company or any of its Subsidiaries, (i) all cash principal, interest and fee payments (other than Mandatory Payments) by Company and its Subsidiaries that are not prohibited by the terms of this Agreement, including all payments made by Borrowers to reimburse amounts drawn under Letters of Credit or letters of credit issued under the New L/C Facility Agreement, (j) all cash payments of taxes by Company and its Subsidiaries, (k) all cash payments by Company and its Subsidiaries during such period under the DHC Corporate Services Reimbursement Agreement, to the extent such payments are permitted to be made under this Agreement, and (l) all payments by Company and its Subsidiaries made during such period into reserves with respect to Projects, to the extent such payments (1) are required to be placed during such period in such reserves pursuant to binding Contractual Obligations of Company or any of its Subsidiaries and (2) are funded from amounts which are included in the amounts described in clause (i) of this definition for such period; provided, however, that in any Fiscal Year commencing with Fiscal Year 2005, Annual Free Cash Flow for such Fiscal Year shall be reduced by the amount, if any, by which the sum of the amounts of Annual Free Cash Flow for each of the immediately preceding Fiscal Years (commencing with Fiscal Year 2004) was less than zero. "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. 3 "APPROVED PLAN OF REORGANIZATION" has the meaning assigned to that term in subsection 4.1E. "ASSET SALE" means the sale by Company or any of its Subsidiaries to any Person of (i) any of the Capital 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 $500,000 or less and the aggregate value of all such other assets since the Closing Date is equal to $2,000,000 or less, in each case so long as not less than 90% of the consideration received for such assets shall be cash); 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 (provided, that sales and discounts of not more than $10,000,000 in face value of accounts receivable may be excluded from Asset Sales pursuant this clause (1), and the sole consideration received in connection with any such sale of accounts receivable shall be cash), (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 120 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 (provided, that any cash received in connection with any such sale or exchange that is not expended as part of such sale or exchange to obtain such replacement items of equipment, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus property in the ordinary course of business (provided, that not less than 75% of the consideration, if any, received in connection with any such disposal shall be cash, and any such cash received, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (4) any discount or compromise of notes or accounts receivable for less than the face value thereof, to the extent Company deems necessary in order to resolve disputes that occur in the ordinary course of business, or (5) any IPP International Sale. "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit VI annexed hereto. "ASSUMPTIONS" has the meaning assigned to that term in subsection 5.11D. "BANK OF AMERICA" has the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. 4 "BANKRUPT SUBSIDIARY" means any of the Warren Subsidiaries, the Lake Subsidiary or the Tampa Subsidiaries, in each case so long as such Debtor remains subject to its Chapter 11 Case before the Bankruptcy Court. "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. "BORROWER JOINDER AGREEMENT" means a Borrower Joinder Agreement, substantially in the form of Exhibit VIII annexed hereto. "BORROWERS" has the meaning assigned to that term in the introduction to this Agreement. "BUDGET" means (i) with respect to Fiscal Year 2004, the budget delivered by Company to Lenders on or prior to the Closing Date pursuant to subsection 4.1G, setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and each Fiscal Quarter from the Closing Date through December 31, 2004, and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2009, as such budget may be supplemented pursuant to subsection 6.1(i), and (ii) with respect to each Fiscal Year after 2004, the budget delivered by Company to Lenders pursuant to subsection 6.1(xvi), setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and Fiscal Quarter during such Fiscal Year and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2009, as such budget may be supplemented pursuant to subsection 6.1(i). "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, the State of Texas or the State of California or is a day on which banking institutions located in any such state are authorized or required by law or other governmental action to close. "CANADIAN LENDERS" means Non-US Lenders, if any, that are (i) Lenders on the Closing Date in addition to being Canadian Loss Sharing Lenders (as defined in the Existing Intercreditor Agreement) immediately prior to the Closing Date or (ii) Non-US Lenders domiciled in Canada that (a) hold Letter of Credit Exposure originally held on the Closing Date by one or more Non-US Lenders referred to in clause (i) and (b) received such Letter of Credit Exposure directly from another Canadian Lender. Each reference herein to Canadian Lenders shall be a reference to such Persons solely with respect to Letter of Credit Commitments and Letter of Credit Exposure held by Canadian Lenders on the Closing Date. "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. 5 "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. "CASH MANAGEMENT SYSTEM" means the cash management system of Borrowers, described in Schedule 4.1P annexed hereto, as such Cash Management System may be modified pursuant to subsection 6.10. "CASH ON HAND" has the meaning assigned to that term in subsection 2.3A(i)(f). "CEA" means Covanta Energy Americas, Inc., a Delaware corporation. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "CHANGE IN CONTROL" means the occurrence of any one or more of the following: (i) DHC shall cease to own, directly, 80% or more of the outstanding Capital Stock of Company; or (ii) any "change of control" or "change in control" or event, however titled, shall occur that requires under the High Yield Indenture a prepayment of the High Yield Notes or an offer to prepay High Yield Notes as a result of a change in ownership of all or some portion of the Capital Stock of Company or any of its Subsidiaries or all or substantially all of the assets of Company and its Subsidiaries. "CHAPTER 11 CASES" has the meaning assigned to that term in the recitals to this Agreement. "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 (or such other Lenders as may be required under subsection 10.6). "CLOSING DATE MORTGAGED PROPERTY" has the meaning assigned to that term in subsection 4.1N. "CLOSING DATE MORTGAGES" has the meaning assigned to that term in subsection 4.1N. "CLOSING DATE RETAINED AMOUNT" has the meaning assigned to that term in subsection 4.1T. "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, as security for the Obligations. 6 "COLLATERAL ACCOUNT" means the cash collateral account maintained with Collateral Agent pursuant to the Security Agreement to secure the obligations of Borrowers with respect to Letter of Credit Exposure. "COLLATERAL AGENT" means Bank of America, in its capacity as Collateral Agent under the Intercreditor Agreement and the Collateral Documents. "COLLATERAL DOCUMENTS" means the Security Agreement, the DHC Pledge Agreement, the Control Agreements, the Mortgages and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Credit Party pursuant to this Agreement or any of the other Credit Documents, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time. "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 (i) the generation and sale of electricity or (ii) municipal waste management. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit V annexed hereto. "CONFIRMATION ORDER" means the Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March 5, 2004 in the Chapter 11 Cases, without modification, revision or amendment. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, (i) Consolidated Interest Expense for such period minus (ii) to the extent included in Consolidated Interest Expense for such period, accretion of principal on the High Yield Notes, interest paid in kind and not in cash during such period and any other amounts not paid or payable in cash. "CONSOLIDATED FACILITIES CAPITAL EXPENDITURES" means, for any period, the aggregate of all cash expenditures by Company and its Subsidiaries during that period 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 that or any other period. Expenditures that are reimbursed by the client (if such client is a Government Authority) of a Project under the principal lease, service or operating agreement relating to such Project pursuant to a Contractual Obligation on the part of such client to reimburse such expenditures shall not constitute Consolidated Facilities Capital Expenditures. 7 "CONSOLIDATED INTEREST EXPENSE" means, for any period, (i) total interest expense, net of interest income, of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries to the extent such Indebtedness is or is required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP, but excluding any Indebtedness consisting of Limited Recourse Debt, and (ii) to the extent not included in the calculation of the amount described in clause (i), all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, from clauses (i) and (ii) any amounts referred to in subsection 2.2 payable to Agents and Lenders on or before the Closing Date and any amounts referred to in subsection 2.3 of the New L/C Facility Agreement payable to the administrative agent and the lenders thereunder on or before the Closing Date. "CONSOLIDATED LEVERAGE RATIO" means, as at any date of determination, the ratio of (a) Total Debt as at such date to (b) Adjusted EBITDA for the four-Fiscal Quarter period most recently ended prior to such date. "CONSOLIDATED NET WORTH" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of Company and its Subsidiaries on a consolidated basis, as such amounts are or are required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP. "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, or (iii) under Hedge Agreements. 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 8 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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Administrative Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, is maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "CORPORATE SERVICES REIMBURSEMENT AGREEMENT" means the corporate services and expense reimbursement agreement entered into by DHC and Company on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "COVANTA ENERGY PENSION PLAN" means the Pension Plan referred to generally by Company on and prior to the Closing Date as the "Covanta Energy Pension Plan". "CPIH" means Covanta Power International Holdings, Inc., a Delaware corporation, and its successors and assigns. "CPIH BORROWERS" means CPIH and any additional borrowers under the CPIH Term Loan Agreement from time to time. "CPIH REVOLVER AGREEMENT" means that certain credit agreement dated as of the date hereof by and among CPIH Borrowers, as borrowers, and the financial institutions listed on the signature pages thereof, as lenders, as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "CPIH REVOLVER DOCUMENTS" means the "Loan Documents" as defined in the CPIH Revolver Agreement. "CPIH STOCK PLEDGE AGREEMENT" means the pledge agreement dated as of the Closing Date pursuant to which CEA pledges the Capital Stock of CPIH to secure the obligations of CPIH Borrowers under the CPIH Revolver Documents and the CPIH Term Loan Documents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. 9 "CPIH SUBSIDIARIES" means, on and after the Closing Date, CPIH and its Subsidiaries. "CPIH TERM LOAN AGREEMENT" means that certain credit agreement dated as of the date hereof by and among CPIH Borrowers, the other Persons listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "CPIH TERM LOAN DOCUMENTS" means the "Loan Documents" as defined in the CPIH Term Loan Agreement. "CREDIT DOCUMENTS" means this Agreement, 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) and the Collateral Documents, the Intercreditor Agreement and all amendments, waivers and consents relating thereto. "CREDIT PARTY" means each Borrower and DHC, and "CREDIT PARTIES" means all such Persons, collectively. "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. "D.E. SHAW" means D.E. Shaw Laminar Portfolios, L.L.C. a Delaware limited liability company. "DEBTORS" has the meaning assigned to that term in the recitals to this Agreement. "DEFAULTED PARTICIPATION" has the meaning assigned to that term in subsection 2.6. "DEFAULT EXCESS" has the meaning assigned to that term in subsection 2.6. "DEFAULTING LENDER" has the meaning assigned to that term in subsection 2.6. "DEFAULT PERIOD" has the meaning assigned to that term in subsection 2.6. "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. "DETROIT PROJECT SUBSIDIARY" means Michigan Waste Energy, Inc., a Delaware corporation. 10 "DEUTSCHE BANK" has the meaning assigned to that term in the introduction to this Agreement. "DEVELOPMENT EXPENSE" means, with respect to any Project, cash expenditures made by Company or any of its Subsidiaries to fund (i) engineering, permitting, legal, environmental and other similar expenses and (ii) fees and expenses of consultants and advisers with respect to engineering, permitting, legal and environmental issues, in each case to the extent such expenses are payable to Persons other than Company and its Subsidiaries in connection with any Expansion permitted under this Agreement, prior to the date of financial closing for such Expansion; provided, that Development Expenses shall exclude payroll expense and reasonable travel expenses of employees of Company and its Subsidiaries. "DHC" means Danielson Holding Corporation, a Delaware corporation. "DHC PLEDGE AGREEMENT" means the DHC Pledge Agreement executed and delivered on the Closing Date by DHC, substantially in the form of Exhibit XI annexed hereto, as such DHC Pledge Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "DHC TAX SHARING AGREEMENT" means the tax sharing agreement entered into by DHC, Company and CPIH on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "DIP AGENTS" means the Persons identified as "Agents" under the DIP Credit Agreement, in their capacities as agents for DIP Lenders under the DIP Credit Agreement. "DIP CREDIT AGREEMENT" means that certain Debtor-In-Possession Credit Agreement dated as April 1, 2002, by and among Company and certain of its Subsidiaries, as debtors and debtors-in-possession, the financial institutions listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such agreement is in effect immediately prior to the Closing Date. "DIP CREDIT DOCUMENTS" means the "Loan Documents" as defined in the DIP Credit Agreement. "DIP LENDER" means each of the "Lenders" under the DIP Credit Agreement on the Closing Date, in its capacity as a lender under the DIP Credit Agreement. "DIP TRANCHE A L/C" means each letter of credit outstanding as of the Closing Date that is described on Schedule 1.1A (Part I) annexed hereto (setting forth the expiration date, renewal requirements and other particulars of such letter of credit, including the type of obligation supported thereby), under which the maximum aggregate available amount for drawing is $6,276,500.00, determined as of the Closing Date; and "DIP TRANCHE A L/CS" means all such letters of credit, collectively. "DIP TRANCHE B L/C" means each letter of credit outstanding as of the Closing Date that is described on Schedule 1.1A (Part II) annexed hereto (setting forth the expiration 11 date, renewal requirements and other particulars of such letter of credit), under which the maximum aggregate available amount for drawing is $170,074,145.19, determined as of the Closing Date; and "DIP TRANCHE B L/CS" means all such letters of credit, collectively. "DISTRIBUTABLE CASH" has the meaning assigned to that term in subsection 4.1T. "DOCUMENTATION AGENT" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Documentation Agent appointed pursuant to subsection 9.5. "DOLLARS" and the sign "$" mean the lawful money of the United States. "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 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 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, any state thereof or in the District of Columbia. "ELIGIBLE ASSIGNEE" means (i) any Person that 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 Person that is a Lender at the time of the relevant assignment; or (iii) any other Person designated as an Eligible Assignee pursuant to the prior written consent of Agents in their sole discretion; 12 provided that none of 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. "ENFORCING LENDERS" has the meaning assigned to that term in subsection 10.5B. "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 (including, solely with respect to periods prior to the Closing Date, CPIH Subsidiaries) or any Facility. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation that is a member of a controlled group of corporations within the meaning of Section 414(b) of the 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) that would reasonably be expected to have a Material Adverse Effect; (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 imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition 13 attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (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 material current liability of Company or any of its Subsidiaries (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates 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 that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (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 (in excess of the contribution that would otherwise have been due absent such withdrawal), or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (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, if such assertion or the liability with respect thereto would reasonably be expected to have a Material Adverse Effect; (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, in either case if such failure would reasonably be expected to have a Material Adverse Effect; or (x) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "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. 14 "EXCLUDED SUBSIDIARY" means (i) each Subsidiary of Company for which becoming a Borrower 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 at such time as such Subsidiary's becoming a Borrower 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, and (ii) each Bankrupt Subsidiary. "EXISTING DETROIT L/CS" means, collectively, the following DIP Tranche B L/Cs: (i) Irrevocable Standby Letter of Credit Number SBY501806 issued by UBS Bank, in the available amount of $96,731,392.81 as of the Closing Date, for the benefit of PMCC Leasing Corporation and Resource Recovery Business Trust - - A, and (ii) Irrevocable Standby Letter of Credit Number SBY501835 issued by UBS Bank, in the available amount of $41,460,161.38 as of the Closing Date, for the benefit of Aircraft Services Corporation and Resource Recovery Business Trust - B. "EXISTING INTERCREDITOR AGREEMENT" means the "Intercreditor Agreement" as defined in the DIP Credit Agreement on the Closing Date, as such "Intercreditor Agreement" is in effect on the Closing Date. "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means, collectively, (i) the existing guaranty by Covanta Energy Group of the obligations of the CPIH Subsidiaries under certain agreements relating to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the existing guaranty by Covanta Projects, Inc. of the obligations of the CPIH Subsidiaries under certain agreements relating to the Quezon Project, and (iii) the existing guaranty by Company of the obligations of the CPIH Subsidiaries under certain agreements relating to the Balaji/Madurai Project and the LICA Project, as each such guaranty may be amended, restated, supplemented or otherwise modified to the extent permitted hereunder. "EXPANSION" means, with respect to any waste-to-energy Project in existence as of the date hereof, additions or improvements to the existing facilities of such Project that involve the addition of a boiler or a turbine generator. "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, by any of their respective predecessors or by any Person who was an Affiliate of Borrower or any of its Subsidiaries prior to the Closing Date. "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. 15 "FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien is perfected and has priority over any other Lien on such Collateral (other than Liens permitted pursuant to subsections 7.2A(iii) through (xi)) and (ii) such Lien is the only Lien (other than Liens permitted pursuant to subsection 7.2) to which such Collateral is subject. "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 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 901 Main St., 14th Floor, Mc: TX1-492-14-11, Dallas, Texas 75202 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 2.7C. "FUNDING DEFAULT" has the meaning assigned to that term in subsection 2.6. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, accounting principles generally accepted in the United States 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. "GEOTHERMAL SALE" means (i) the sale or other disposition by Company and its Subsidiaries of all or substantially all of their respective (1) Capital Stock in Heber Geothermal Company, Heber Field Company and Second Imperial Geothermal Company, L.P., and (2) Capital Stock in non-debtor Affiliate Mammoth-Pacific L.P., which entities own or lease geothermal plants and facilities in California (the "GEOTHERMAL BUSINESS"), and (ii) the assumption and/or assignment by Company and its Subsidiaries of certain contracts related to the 16 Geothermal Business, in the case of both clauses (i) and (ii) occurring prior to or concurrently with the consummation of the Plan of Reorganization. "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. "GREENWAY L/C" means, collectively, the letter of credit outstanding on the Closing Date in the stated amount of $820,000 issued under the DIP Credit Agreement as a "Tranche B Letter of Credit" (as defined in the DIP Credit Agreement), and shall not mean or include any amendment, reissuance, renewal or extension of such letter of credit after the Closing Date. "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. "HAVERHILL DEFERRED INCOME" means, for any period, all non-cash income resulting from payments made in 1998 by the counterparty to the power purchase agreement relating to the Haverhill Project in order to "buydown" its obligations under such agreement, to the extent such non-cash income is included in consolidated revenue or consolidated earnings of Company and its Subsidiaries during such period. "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, 17 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 (i) an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively, or (ii) a forward agreement or arrangement designed to hedge against fluctuation in electricity rates pertaining to electricity produced by a Project, so long as the contractual arrangements relating to such Project contemplate that Company or its Subsidiaries shall deliver such electricity to third parties. "HIGH YIELD INDENTURE" means (i) the indenture pursuant to which the High Yield Notes are issued and (ii) any replacement indenture entered into in connection with a refinancing, renewal, replacement or extension of the High Yield Notes permitted under subsection 7.1(xiii), in each case as such indenture or replacement indenture may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "HIGH YIELD NOTES" means (i) the $230,000,000 in aggregate principal amount at maturity of 8.25% Senior Notes due 2010 of Company issued pursuant to the High Yield Indenture, and (ii) any Indebtedness incurred to refinance, renew, replace or extend the High Yield Notes permitted to be incurred under subsection 7.1(xiii); provided, that the initial principal amount (and issue price) of such High Yield Notes on the Closing Date shall be $205,000,000. "IMMATERIAL FOREIGN SUBSIDIARY" means any of the following Foreign Subsidiaries, in each case so long as such Subsidiary (i) has engaged in substantially no business or operations in the most recent fiscal year of Company and its Subsidiaries, (ii) in the most recent fiscal year of Company and its Subsidiaries, accounted for less than $100,000 of revenues, and (iii) holds at the time of determination less than $100,000 of assets: Covanta Energy Europe, Ltd. (United Kingdom), OPI Carmona Ltd. (Cayman Islands), OPI Carmona One Ltd. (Cayman Islands), and Covanta Waste to Energy Asia Investments (Mauritius). "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 18 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 (and Hedge Agreements that protect against fluctuation in electricity rates) 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. "INSURANCE PREMIUM FINANCERS" means Persons who are non-Affiliates of Company that advance insurance premiums for Company and its Subsidiaries pursuant to Insurance Premium Financing Arrangements. "INSURANCE PREMIUM FINANCING ARRANGEMENTS" means, collectively, such agreements as Company and its Subsidiaries shall enter into after the Closing Date with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries. Such Insurance Premium Financing Arrangements (i) shall provide for the benefit of such Insurance Premium Financers a security interest in no property of Company or any of its Subsidiaries other than gross unearned premiums for the insurance policies, (ii) shall not purport to prohibit any portion of the Liens created in favor of Collateral Agent (for the benefit of Secured Parties) pursuant to the Collateral Documents, and (iii) shall not contain any provision or contemplate any transaction prohibited by this Agreement and shall otherwise be in form and substance reasonably satisfactory to Agents. "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 MASTER NOTE" means a promissory note evidencing Indebtedness of Company and each of its Subsidiaries which (a) to the extent the Indebtedness evidenced thereby is owed to any Borrower, is pledged pursuant to the Collateral Documents, and (b) to the extent the Indebtedness evidenced thereby is owed by a Subsidiary of Company, is senior Indebtedness of such Subsidiary (except to the extent that requiring such Indebtedness to be 19 senior would breach a contractual obligation binding on such Subsidiary), except that any such Indebtedness owed by any Borrower 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 such note. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement executed and delivered on the Closing Date by Borrowers, Lenders, Agents, Collateral Agent, the agent and the lenders under the New L/C Facility Documents, the Investor Parties, DHC and the trustee under the High Yield Indenture, in the form of Exhibit XIII annexed hereto, as it may thereafter be amended, restated, supplemented or otherwise modified from time to time. "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. "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 or services to that other Person in the ordinary course of business, (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements, (v) Commodities Agreements not constituting Hedge Agreements, or (vi) any Expansion of any Project by Company or any of its Subsidiaries to the extent that the costs of such Expansion are borne, directly or indirectly, by Company or any of its Subsidiaries. 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. No account receivable owed by a Person to Company or any of its Subsidiaries that on the relevant date of determination constitutes a current asset and arose from sales or services to such Person in the ordinary course of business shall constitute an Investment on such date. "INVESTOR PARTIES" means D.E. Shaw, SZ Investments, L.L.C., a Delaware limited liability company, and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series. "IP COLLATERAL" means, collectively, the Intellectual Property that constitutes Collateral. 20 "IPP INTERNATIONAL BUSINESS" means the assets and operations of the business of Company and its Subsidiaries referred to by Company as the "IPP International business" prior to the Closing Date, including the Haripur Project, the Samalpatti Project, the Trezzo Project, the Quezon Project, the Balaji/Madurai Project, the Linasa Project, the Don Pedro Project, the Rio Volcan Project, the Bataan Project, the Magellan Project, the Linan Project, the Huantai Project, the Yanjiang Project and the Island Power Project. "IPP INTERNATIONAL SALES" means one or more sales or dispositions of (i) the assets and/or operations of CPIH and its Subsidiaries and/or (ii) the Capital Stock of CPIH or any of its Subsidiaries. "ISSUING LENDER" means (i) in the event UBS Bank executes a counterpart hereof on the Closing Date as Issuing Lender, UBS Bank, in its capacity as Issuing Lender, and (ii) otherwise, Bank of America, in its capacity as Issuing Lender, or any successor Administrative Agent to Bank of America appointed pursuant to subsection 9.5. "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form. "LAKE SUBSIDIARY" means Covanta Lake II, Inc., a Florida corporation. "LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, satisfactory in form and substance to Administrative Agent, pursuant to which such lessor agrees, for the benefit of Administrative Agent, (i) that without any further consent of such lessor or any further action on the part of the Borrower holding such Leasehold Property, such Leasehold Property may be encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if Administrative Agent, any Lender, or an Affiliate of either so acquires such Leasehold Property), (ii) that such lessor shall not terminate such lease as a result of a default by such Borrower thereunder without first giving Administrative Agent notice of such default and at least 60 days (or, if such default cannot reasonably be cured by Administrative Agent within such period, such longer period as may reasonably be required) to cure such default, and (iii) to such other matters relating to such Leasehold Property and the Collateral located thereon as Administrative Agent may reasonably request. "LEASEHOLD PROPERTY" means any leasehold interest of any Borrower 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 (i) letters of credit issued under this Agreement by the Issuing Lender pursuant to subsection 3.1A and (ii)(a) letters of credit issued by the Issuing Lender to replace Letters of Credit pursuant to subsection 3.1B(i) and (b) amendments to Letters of Credit issued by the Issuing Lender to extend the expiration date of such Letters of Credit. 21 "LETTER OF CREDIT COMMITMENT" means the commitment of a Lender under subsection 2.1A to purchase and fund participations in Letters of Credit pursuant to Section 3, and "LETTER OF CREDIT COMMITMENTS" means such commitments of all Lenders in the aggregate. "LETTER OF CREDIT EXPOSURE" means, with respect to any Lender as of any date of determination, the sum of (a) in the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or in any drawings thereunder not theretofore reimbursed by Borrowers) plus (b) the aggregate amount of all participations purchased by that Lender in any other outstanding Letters of Credit or any drawings under any such other Letters of Credit not theretofore reimbursed by Borrowers. "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 Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under all Letters of Credit honored by Issuing Lenders and not theretofore reimbursed by Borrowers. "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. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by CPIH, Company and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to the Agents as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. 22 "MANDATORY PAYMENT" means any amount described in subsections 2.3A(i)(a)-(f) to be applied to repay funded amounts under Letters of Credit or to cash collateralize Letter of Credit Exposure, as determined pursuant to subsection 2.3A. "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 Credit Parties taken as a whole 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 1.1B annexed hereto, and (ii) any other contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Credit 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, with respect to any Person, any Subsidiary of such Person now existing or hereafter acquired or formed by such Person which, on a consolidated basis for such Subsidiary and all of its Subsidiaries, (i) for the most recent fiscal year of such Person accounted for more than 1% of the consolidated revenues of such Person and its Subsidiaries, (ii) as at the end of such fiscal year, was the owner of more than 1% of the consolidated assets of such Person and its Subsidiaries, or (iii) is capitalized with more than $500,000 of equity. "MATURITY DATE" means March 10, 2009. "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 Borrower, 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. 23 "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 eighteen months from the date of such Asset Sale and (b) the Maturity Date 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) actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to such Asset Sale or pursuant to applicable law) and payable immediately upon consummation of such Asset Sale to employees of Company and its Subsidiaries that are terminated as a result thereof) paid to Persons other than Company and its Subsidiaries and their respective Affiliates 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 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 Credit Documents. "NET DEPRECIATION AND AMORTIZATION EXPENSE" means, for any period, (i) the sum of the amounts (each expressed as a positive number) for such period of "Depreciation" and "Amortization", as each such line item is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled, minus (iii) Haverhill Deferred Income. "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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) the Maturity Date as a result of the receipt of such payments or proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or relating to the payment referred to in clause (i) or (ii) above or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have been terminated as a result of the relevant loss, taking or sale) paid to 24 Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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, 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 INDEBTEDNESS 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)) from the incurrence of Indebtedness by Company or any of its Subsidiaries. "NEW L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Borrowers, as borrowers, and the financial institutions listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder (provided, that (a) the terms of such credit agreement, such Indebtedness and such letters of credit as so refinanced, replaced, renewed or extended shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents) than the New L/C Facility Agreement in effect on the Closing Date (it being understood and agreed that any refinancing, replacement, renewal or extension having the effect of (1) increasing the maximum amount of any commitment to extend loans (as opposed to letters of credit) under the New L/C Facility Documents, or (2) reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend loans or letters of credit under the New L/C Facility Documents, shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Agents), (b) the aggregate amount of Indebtedness and letters of credit outstanding, and additional commitments to extend credit, if any, under the New L/C Facility Agreement as refinanced, replaced, renewed or extended, shall not exceed the aggregate amount of the commitments to extend credit in effect under the New L/C Facility Agreement on the Closing Date, plus $5,000,000, (c) the obligations under (and the Liens securing) such credit agreement as refinanced, replaced, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the New L/C Facility Agreement on the Closing Date, and (d) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith), in the case of clause (i) or (ii) as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "NEW L/C FACILITY DOCUMENTS" means (i) the New L/C Facility Agreement and (ii) the other "Credit Documents" as defined in the New L/C Facility Agreement. "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such term is defined in the Plan of Reorganization. 25 "NON-BORROWER CASH FLOW" means, for any period with respect to Subsidiaries of Company that are not Borrowers, (i) the aggregate amount of cash from such Subsidiaries paid as dividends or otherwise distributed to Borrowers, minus (ii) the aggregate amount of cash expenditures made by such Subsidiaries from amounts received from Borrowers to fund operations and capital expenditures of such Subsidiaries (whether such amounts are received from Borrowers as the proceeds of Indebtedness incurred by such non-Borrower Subsidiary or as the proceeds of equity contributions or both). Amounts included in the calculation of the Development Expenses with respect to a Project shall not be included in the calculation of clause (ii) of Non-Borrower Cash Flow. "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. "OBLIGATIONS" means all obligations of every nature of Credit Parties under the Credit Documents, including any liability of such Credit Party on any claim arising out of or relating to the Credit Documents, 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. Without limiting the generality of the foregoing, the Obligations of the Credit Parties under the Credit Documents include (a) the obligation to pay principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Credit Party, whether or not allowed in such case or proceeding), charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Borrower and any other Credit Party under any Credit 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 Credit Party; provided, that nothing in this definition shall be construed as creating any obligations of DHC under the Credit Documents that are not expressly set forth in such Credit Documents. "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 2.3A(i)(h) or 6.1(v) shall be executed by a senior financial officer of Company reasonably acceptable to Administrative Agent. 26 "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 agreement entered into by Company or any of its Subsidiaries under which Company or any such Subsidiary guarantees the performance of a Subsidiary of Company under a principal lease, service or operating agreement relating to a Project. The Existing IPP International Project Guaranties shall not constitute Performance Guaranties. "PERMANENT L/C OBLIGATION REDUCTION" means a cancellation, termination or reduction in the amount of any Letter of Credit (including any such reduction, cancellation or termination resulting from a drawing under such Letter of Credit), other than such a cancellation, termination or reduction concurrently with a reissuance of the relevant cancelled, terminated or reduced portion of the applicable Letter of Credit pursuant to subsection 3.1B(i). Notwithstanding the foregoing, any scheduled reduction in the stated amount of any Letter of Credit shall be a Permanent L/C Obligation Reduction only to the extent the maximum amount available for drawing at any time thereafter under such Letter of Credit is permanently reduced. "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; 27 (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 8.8; (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. 28 Other Liens on assets of Borrowers and their Subsidiaries permitted under this Agreement (which are not Permitted Encumbrances) are described in subsection 7.2A. "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. "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "PLEDGED COLLATERAL" means the "Pledged Collateral" as defined in the Security Agreement. "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 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 Bank of America, as Administrative Agent, as amended, restated, supplemented or otherwise modified through the Closing Date and as it may hereafter be amended, restated, supplemented or otherwise modified. "PREPETITION CREDIT DOCUMENTS" means all "Loan Documents" as defined in the Prepetition Credit Agreement. "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 OBLIGATIONS" means all "Obligations" as defined in the Prepetition Credit Agreement. "PREPETITION SECURED CLAIMS" means, collectively, the "Secured Bank Claims" and the "9.25% Debenture Claims", as such terms are defined in the Plan of Reorganization. "PREPETITION UNSECURED CLAIMS" means "Parent and Holding Company Unsecured Claims" that are "Allowed," as such terms are defined in the Plan of Reorganization. 29 "PRIME RATE" means the rate that Bank of America 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. Bank of America 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, electrical generation plant, cogeneration plant, water treatment facility 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 (including CPIH Subsidiaries) 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "PRO RATA SHARE" means, with respect to any Lender, the percentage obtained by dividing (i) the Letter of Credit Exposure of that Lender by (ii) the aggregate Letter of Credit 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 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. Section 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 Borrower in any real property. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, 30 the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "REGISTER" has the meaning assigned to that term in subsection 2.1B. "REIMBURSEMENT DATE" has the meaning assigned to that term in subsection 3.3B. "RELATED AGREEMENTS" means the New L/C Facility Documents, the High Yield Indenture, the High Yield Notes, the Corporate Services Reimbursement Agreement, the Management Services and Reimbursement Agreement and the DHC Tax Sharing Agreement, as such agreements and instruments may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "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 DIP LENDERS" means DIP Lenders having or holding more than 50% of the aggregate credit exposure under the DIP Tranche A L/Cs and the DIP Tranche B L/Cs. "REQUISITE LENDERS" means Lenders having or holding more than 50% of the aggregate Letter of Credit Exposure of all Lenders, provided, however, that prior to the Closing Date, for purposes of this definition the Letter of Credit Exposure of each Lender shall equal the original Letter of Credit Commitment of such Lender on the Closing Date. "RESTRICTED ACCOUNT" means any account that is either (i) a collateral account, debt service reserve account or other Deposit Account to which the access of Company and its Subsidiaries is restricted pursuant to a valid and enforceable Contractual Obligation, so long as such account is (a) related to a Project of Company and its Subsidiaries, (b) is required to be opened or maintained by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person and (c) is permitted to be maintained under this Agreement, or (ii) a reserve account established in accordance with the Approved Plan of Reorganization. "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 31 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 Company and its Subsidiaries other than (a) the Obligations, (b) Indebtedness owed by a Subsidiary to a Borrower, (c) Indebtedness under the New L/C Facility Documents or the High Yield Notes, and (d) other amounts required to be paid under this Agreement. "SECURED OBLIGATIONS" means the obligations secured by the Collateral pursuant to the Collateral Documents. "SECURED PARTIES" means the "Secured Parties" as defined in the Intercreditor Agreement. "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. "SECURITIES ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Closing Date by Credit Parties (except as otherwise contemplated in subsection 5.18) other than DHC, substantially in the form of Exhibit VII annexed hereto, as such Security Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "SEIU PENSION PLAN" means the Pension Plan referred to generally by Company on and prior to the Closing Date as the "Service Employees International Union Pension Trust for Employees of Allied Plant Maintenance Company, Inc. Defined Benefit Pension Plan". "SOLVENT" means, with respect to any Person, that as of the date of determination, in light of all of the facts and circumstances existing at such time, (i) the then fair saleable value of the property of such Person is (a) greater than the total amount of liabilities (including contingent liabilities) of such Person and (b) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and due considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any 32 time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBORDINATED INDEBTEDNESS" means, collectively, (i) Indebtedness under the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and (ii) any other Indebtedness of Company or any of its Subsidiaries incurred from time to time and subordinated by its terms in right of payment to the Obligations. "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. Any reference contained herein to one or more Subsidiaries of Company or of Company's Domestic Subsidiaries shall, unless otherwise expressly indicated, not include any CPIH Subsidiaries and Greenway Insurance Company of Vermont. "SWEEP DATE" has the meaning assigned to that term in subsection 2.3A(i)(f). "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). "TAMPA SUBSIDIARIES" means Covanta Tampa Construction, Inc., a Delaware corporation, and Covanta Tampa Bay, Inc., a Florida corporation. "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. "TAX NOTE" has the meaning assigned to that term in subsection 4.1F(iv). "TOTAL DEBT" means, as at any date of determination, (i) the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, minus (ii) the amounts of "Current portion of project debt" and "Project Debt", whether such line items are so titled or otherwise titled, as such line items are or would be reflected in Company's consolidated balance sheet as at such date prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amounts in its quarterly or annual report (as the case may be) on Form 10Q or 33 10K, respectively, prior to the Closing Date, minus (iii) any portion of Indebtedness of Company and its Subsidiaries under the CPIH Stock Pledge Agreement or the Corporate Services Reimbursement Agreement included in the amount described in clause (i) above, minus (iv) any portion of the amount described in clause (i) above that represents a funded drawing under a letter of credit (otherwise permitted to be outstanding under this Agreement) supporting obligations of Company and its Subsidiaries (including CPIH Subsidiaries) in respect of the Quezon Project. "TREASURY REGULATIONS" means the Treasury Regulations promulgated under the Internal Revenue Code. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C. Section 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "UBS BANK" means UBS AG, Stamford Branch. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNDERWRITING LENDER" means Merrill Lynch, Pierce, Fenner & Smith Incorporated. "UNITED STATES" means the United States of America. "UNSECURED CREDITOR NOTES" has the meaning assigned to that term in subsection 4.1F(iv). "UNSECURED CREDITOR NOTES INDENTURE" means the Indenture pursuant to which the Unsecured Creditor Notes are issued. "WARREN SUBSIDIARIES" means Covanta Warren Energy Resource Co. LP, a Delaware limited partnership, Covanta Warren Holdings I, Inc., a Virginia corporation, and Covanta Warren Holdings II, Inc., a California corporation. 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 34 any Credit 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 Credit 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. AMOUNT OF COMMITMENTS; CERTAIN TERMS OF PAYMENT AND REPAYMENT 2.1 LETTER OF CREDIT COMMITMENTS; REGISTER; DEFAULT RATE; COMPUTATION OF INTEREST; MAXIMUM RATE. A. LETTER OF CREDIT 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 agrees to purchase in accordance with subsection 3.1C participations in each Letter of Credit and any drawings honored thereunder, in an aggregate amount not exceeding its Pro Rata Share of the Letter of Credit Commitments. The original amount of each Lender's Letter of Credit Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Letter of Credit Commitments is $138,191,554.19; provided, however, that the Letter of Credit Commitments of Lenders shall be adjusted to give effect to any assignments of the Letter of Credit 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 2.3. Each Lender's Letter of Credit Commitment shall expire on the Maturity Date. B. 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 35 Letter of Credit Commitment and participations in Letters of Credit 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 Letter of Credit Commitments and participations listed therein for all purposes hereof; all amounts owed with respect to any Letter of Credit Commitment or participation 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 Letter of Credit Commitment or participation. Each Lender shall record on its internal records the amount of its participations and Letter of Credit Commitment 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 participations or Letter of Credit Commitments or any Obligations in respect of any participations. C. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default, any fees and other amounts then due and payable hereunder (but not including amounts drawn under any Letter of Credit that are not reimbursed by Borrowers when required under subsection 3.3) shall thereafter bear interest (including post petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate equal to the Base Rate plus 5.00% per annum. Payment or acceptance of the increased rates of interest provided for in this subsection 2.1C 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. D. COMPUTATION OF INTEREST. Interest on amounts bearing interest with reference to the Base Rate 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. In computing interest on any amount funded in a drawing under a Letter of Credit, the date of the funding of such drawing shall be included; and the date of payment of such funded drawing shall be excluded; provided that if a funded drawing is repaid on the same day on which it is made, one day's interest shall be paid on that funded drawing. E. MAXIMUM RATE. Notwithstanding the foregoing provisions of this subsection 2.1, in no event shall the rate of interest payable by Borrowers with respect to any funded drawing under any Letter of Credit exceed the maximum rate of interest permitted to be charged under applicable law. 2.2 FEES. A. FACILITY FEES. Borrowers, jointly and severally, agree to pay to Administrative Agent on the Closing Date, for distribution to each Lender, a facility fee in an amount equal to 1.0% of the Letter of Credit Commitment of such Lender as of the Closing Date. 36 B. 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 2.2 shall be earned when payable and shall be non-refundable. 2.3 MANDATORY PAYMENTS, REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS; APPLICATION OF PROCEEDS OF COLLATERAL. A. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS. (i) Mandatory Payments. 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 2.3A(ii), except to the extent the Intercreditor Agreement requires application thereof in a different manner than as set forth in this subsection 2.3A(i) or subsection 2.3A(ii): (a) 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, Company shall make a Mandatory Payment in an aggregate amount equal to (1) to the extent that aggregate Net Asset Sale Proceeds in respect of all Asset Sales made on or prior to such date is $7,500,000 or less, 33.33% of such Net Asset Sale Proceeds, or (2) to the extent that aggregate Net Asset Sale Proceeds in respect of all Asset Sales made on or prior to such date exceeds $7,500,000, 100% of such excess (without duplication). (b) 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 a Mandatory Payment in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds. (c) Issuance of Indebtedness. On the date of receipt of the Net Indebtedness Proceeds from the issuance of any Indebtedness of Company or any of its Subsidiaries after the Closing Date, other than Indebtedness permitted pursuant to subsections 7.1(i) through (xvi), Company shall make a Mandatory Payment in an aggregate amount equal to such Net Indebtedness Proceeds. (d) Tax Refunds. If after the Closing Date, Company or any of its Subsidiaries receives any payment of a cash refund or rebate of any Tax, 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, except to the extent such application would constitute a material violation of a valid Contractual Obligation in connection with a Project of Company or any of its Subsidiaries to remit such refund or rebate to the client of such Project. (e) Annual Free Cash Flow. In the event that there shall be Annual Free Cash Flow for any Fiscal Year (commencing with Fiscal Year 2004), 37 Company shall, no later than 60 days after the end of such Fiscal Year, make a Mandatory Payment in an aggregate amount equal to 50% (or, during the continuance of an Event of Default, 100%) of such Annual Free Cash Flow; provided, however, that the amount of such Mandatory Payment shall be reduced by the amount of cash, if any, applied to cash collateralize Letter of Credit Exposure pursuant to subsection 2.3A(i)(f) during the four Fiscal Quarters most recently preceding the date of such Mandatory Payment. (f) Excess Cash. Any amounts on deposit in the Cash Management System (such amounts, in any event, not to include amounts, if any, on deposit in the Collateral Accounts or required to be held in Deposit Accounts which are Restricted Accounts described on Schedule 2.3A(i)(f) annexed hereto, as said Schedule 2.3A(i)(f) may be supplemented from time to time pursuant to the provisions of subsection 6.1(xvii)) (the aggregate of such amounts on deposit at any time (excluding any amounts on deposit in accounts set forth on said Schedule at such time) being referred to herein as "CASH ON HAND") in excess of $60,000,000 (plus the Closing Date Retained Amount) for each Sweep Date (as defined below) in 2004 and 2005, $70,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2006, $75,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2007 and $80,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2008, on June 30 and December 31 of each of the aforementioned years (each such date, a "SWEEP DATE"), shall be applied on the next succeeding Business Day to repay funded amounts, if any, under the Letters of Credit and then to cash collateralize the Letters of Credit and the Letter of Credit Commitments under the Collateral Account Agreement in an amount, taken together with all then existing cash collateral for the Letter of Credit Commitments, equal to 105% of the Letter of Credit Commitments. (g) Prepayments Due to Certain Changes of Control. Upon the date on which any "change of control" or "change in control" or event, however titled, shall occur that requires under the High Yield Indenture a repurchase of the High Yield Notes or an offer to repurchase High Yield Notes as a result of a change in ownership of all or some portion of the Capital Stock of Company or any of its Subsidiaries or all or substantially all of the assets of Company and its Subsidiaries, (1) Borrowers shall repay all funded amounts, if any, under the Letters of Credit, then deposit into the Collateral Account an amount equal to 105% of 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 (2) the right or obligation of any Issuing Lender to issue, renew or extend any Letter of Credit hereunder shall terminate. (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 38 subsections 2.3A(i)(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 Indebtedness Proceeds, cash in the Cash Management System, Annual Free Cash Flow or 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. (ii) Application of Prepayments. (a) Application of Prepayments. Except as provided in subsection 2.3C and the last sentence of this subsection 2.3A(ii)(a) and to the extent the Intercreditor Agreement requires application of such Mandatory Payment in a different manner than as set forth in this sentence, any Mandatory Payments made pursuant to subsections 2.3A(i)(a) - (e) shall be applied to repay funded amounts, if any, under the Letters of Credit and then to cash collateralize the Letters of Credit and the Letter of Credit Commitments under the Collateral Account Agreement in an amount, taken together with all then existing cash collateral for the Letter of Credit Commitments, equal to 105% of the Letter of Credit Commitments. Notwithstanding the foregoing, Borrowers and Lenders hereby agree that any cash applied to collateralize Letter of Credit Exposure pursuant to subsection 2.3A(i)(f) with respect to a cash balance on June 30 or December 31 of any Fiscal Year (the "SUBJECT FISCAL YEAR") shall, in the event that the amount of such cash applied to collateralize Letter of Credit Exposure exceeds 50% of the Annual Free Cash Flow for the Subject Fiscal Year, be released to Borrowers to the extent of such excess (but in no event shall more cash be so released than the aggregate amount applied pursuant to subsection 2.3A(i)(f) with respect to the Subject Fiscal Year) after the 60th day of the following Fiscal Year, promptly following Borrowers' certification of such excess; provided, however, that such release shall not be required if, at the time such release would otherwise be required, an Event of Default shall have occurred and be continuing; and provided, further, that to the extent the Intercreditor Agreement requires application of such amounts in a different manner than as set forth in this sentence, such amounts shall be applied in accordance with the Intercreditor Agreement. 39 (iii) Mandatory Reduction of Letter of Credit Commitments. Immediately upon the occurrence of any Permanent L/C Obligation Reduction, the Letter of Credit Commitments shall be permanently reduced in an amount equal to the amount of such Permanent L/C Obligation Reduction, and such reduction of the Letter of Credit Commitments shall reduce each Lender's Letter of Credit Commitment ratably. 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 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 Maturity Date (a) the unpaid principal amount of, and accrued interest on, any funded amounts under such Letters of Credit, (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 in an amount equal to 105% of the amount thereof. (ii) Application of Payments to Principal and Interest. All payments in respect of any honored drawing under a Letter of Credit 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. (iii) 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. C. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS AFTER EVENT OF DEFAULT. Except to the extent the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 2.3C, upon the occurrence and during the continuation 40 of an Event of Default, either if requested by Requisite Lenders or upon termination of the Letter of Credit Commitments (a) all Mandatory Payments or other payments received on account of the Obligations, whether from any Borrower 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 2.2), reimbursement and indemnification under any Credit Document and all advances made by Administrative Agent thereunder for the account of the applicable Credit Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the Credit Documents, all in accordance with subsections 9.4, 10.2 and 10.3 and the other terms of this Agreement and the Credit Documents; (ii) thereafter, to the extent of any excess such proceeds, first, to repay owed and outstanding amounts (subject to the provisions of subsection 2.3B(ii) hereof) with respect to Letter of Credit Exposure, with the remainder applied to cash collateralize Letter of Credit Exposure and unutilized Letter of Credit Commitments (it being understood that for purposes of this clause (ii), the portion of such Letter of Credit Exposure that consists of unutilized Letter of Credit Commitments or undrawn amounts under outstanding Letters of Credit shall be measured at 105% of the amount thereof), for the ratable benefit of the holders thereof; and (iii) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Credit Party or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct. 2.4 INCREASED COSTS; TAXES; CAPITAL ADEQUACY. A. COMPENSATION FOR INCREASED COSTS. Subject to the provisions of subsection 2.4B (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): 41 (i) subjects such Lender to any additional Tax (other than any withholding tax with respect to which subsection 2.4B applies) 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 Letter of Credit 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; or (iii) imposes any other condition (other than with respect to Taxes) on or affecting such Lender or its obligations hereunder; and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining its Letter of Credit 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 2.5A, 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 on an after-tax basis 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 Credit 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 or any political subdivision in or of the United States 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 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 Credit 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 (it being understood and agreed that no such notice shall be required with respect to Canadian Lenders, if any); (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 42 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 2.4B(iii), a "NON-US LENDER") shall (1) to the extent such Non-US Lender is not a Canadian Lender, 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 Credit Documents, and (2) to the extent such Non-US Lender is a Canadian Lender, deliver to Administrative Agent and to Company, on or prior to the Closing Date (in the case of each Canadian Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Canadian Lender (in the case of each other Canadian 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 any forms, properly completed and duly executed by such Lender, required under the Internal Revenue Code or the regulations issued thereunder to establish that such Canadian Lender is eligible for a reduced withholding tax rate under the "Convention Between the United States of America and Canada with Respect to Taxes on Income and Capital" or any successor thereto. 43 (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 Credit Documents (or, if such Lender is a Canadian Lender, to confirm or establish that such Lender is eligible for the relevant reduced withholding tax rate) 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 2.4B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.4B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.4B(iii)(a) on the date such Lender became a Lender, nothing in this subsection 2.4B(iii)(c) shall relieve Borrowers of their obligation to pay any amounts pursuant to subsection 2.4B(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 2.4B(iii)(a) (or, if such Lender is a Canadian Lender, establishing the fact that such Lender is eligible for the relevant reduced withholding tax rate). (d) Notwithstanding anything contained in this subsection to the contrary, Borrowers shall be required to pay additional amounts to each Canadian Lender under clause (c) of subsection 2.4B(ii) with respect to any Credit Exposure held by such Canadian Lender in its capacity as a Canadian Lender notwithstanding that such Lender fails to deliver forms, certificates or other evidence establishing the fact that such Lender is not subject to withholding as described in subsection 2.4B(iii)(a)(1). (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 or any political subdivision in or of the United States 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 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 2.4B) that Borrowers are required to pay pursuant to subsection 2.4B(ii) but were paid by Agents or Lenders with respect to sums payable by Borrowers under this Agreement and the other Credit Documents and any liability 44 (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 Letter of Credit 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 2.5A, 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. 2.5 STATEMENT OF LENDERS; OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE. A. STATEMENTS. Each Lender claiming compensation or reimbursement pursuant to subsection 2.4 or 2.5B 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 2.4B(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 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 entitle such Lender or Issuing Lender to receive payments under subsection 2.4 (other than subsection 2.4B(ii)), it will use reasonable efforts to make, issue, fund or maintain the Letter of Credit Commitments of such Lender or the 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 additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.4 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 45 pursuant to this subsection 2.5B 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. 2.6 DEFAULTING 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") in accordance with the terms of this Agreement or defaults in its obligation to comply with the agreements contained in subsection 10.1H, 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 Credit 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 outstanding funded Obligations, an increase in the amount of such Lender's Letter of Credit 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 Maturity Date, or an extension of the Maturity Date), (ii) solely in the case of a Funding Default, 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 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 Letter of Credit participations of other Lenders (other than any other Defaulting Lenders) as if such Defaulting Lender (and any other Defaulting Lenders) had no participations outstanding and the Letter of Credit Exposure of such Defaulting Lender were zero, (iii) except to the extent that the immediately preceding clause (ii) applies, during any Default Period with respect to such Defaulting Lender any payment or reimbursement of amounts funded by such Defaulting Lender with respect to a drawing under a Letter of Credit shall be applied first, to cash collateralize, to the full extent thereof, the maximum amount of the Letter of Credit Commitment of such Defaulting Lender pursuant to documentation and arrangements reasonably satisfactory to Administrative Agent and Issuing Lenders, second, to reimburse fees and expenses of the type described in the last sentence of subsection 10.1H in connection with such cash collateralization, and third, to reimburse amounts funded by such Defaulting Lender with respect to its participations in Letters of Credit, and (iv) such Defaulting Lender's Letter of Credit Commitment and Pro Rata Share 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 letter of credit fee with respect to such Defaulting Lender's Letter of Credit Commitments in respect of any Default Period with respect to such Defaulting Lender. For purposes of this Agreement, (I) "DEFAULT PERIOD" means (i) with respect to any default in any Defaulting Lender's obligations under subsection 10.1H, the period commencing on the date of the applicable default in such obligations and ending on the earliest 46 of the following dates: (A) the date on which all Letter of Credit Commitments and participations are cancelled or terminated and/or the Obligations are paid in full and all Letters of Credit have been returned to the Issuing Lenders cancelled, (B) the date on which such Defaulting Lender shall have complied with its obligations under subsection 10.1H, and (C) the date on which Administrative Agent and all Issuing Lenders waive all such defaults of such Defaulting Lender in writing; and (ii) with respect to any Funding Default of 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 Letter of Credit Commitments and participations are cancelled or terminated and/or the Obligations are paid in full and all Letters of Credit have been returned to the Issuing Lenders cancelled, (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 Participations of such Defaulting Lender or by the non-pro rata application of any payments of amounts with respect to 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 Letter of Credit 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 Share of all funded participations in Letters of Credit (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Participations) over (y) 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 2.6, performance by any Borrower of its obligations under this Agreement and the other Credit Documents shall not be excused or otherwise modified, as a result of any Funding Default or the operation of this subsection 2.6. The rights and remedies against a Defaulting Lender under this subsection 2.6 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. 2.7 JOINT AND SEVERAL LIABILITY; PAYMENT INDEMNIFICATIONS. A. JOINT AND SEVERAL OBLIGATIONS. All Obligations of Borrowers under the Credit 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 Credit 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 Credit 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 47 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 Credit Documents, or alter, limit or impair the obligation of each Borrower, which is absolute and unconditional, to repay the Obligations. 2.8 RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Except as prohibited under applicable law, Company hereby waives any claim, right or remedy, direct or indirect, that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations in connection with this Agreement or the performance by Company 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 (a) any right of subrogation, reimbursement or indemnification that Company now has or may hereafter have against any other Borrower or guarantor of the Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Agent or Lender now has or may hereafter have against any other Borrower or guarantor of the Obligations, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Agent or Lender. In addition, until the Obligations shall have been indefeasibly paid in full and the Letter of Credit Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, Company shall withhold exercise of any right of contribution Company may have against any other Borrower or Credit Party. Company 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 Company may have against any other Borrower or Credit Party or against any collateral or security shall be junior and subordinate to any rights any Agent or Lender may have against any other Borrower, to all right, title and interest any Agent or Lender may have in any such collateral or security, and to any right any Agent or Lender may have against such Credit Party. If any amount shall be paid to Company on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Obligations shall not have been paid in full, such amount shall be held in trust for Administrative Agent on behalf of Agents and Lenders and shall forthwith be paid over to Administrative Agent for the benefit of Agents and Lenders to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms hereof. 48 SECTION 3. LETTERS OF CREDIT 3.1 ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS THEREIN. A. INITIAL ISSUANCE. In the event that UBS Bank executes and delivers a counterpart of this Agreement as Issuing Lender on or prior to the Closing Date, UBS Bank shall, on the Closing Date upon receiving evidence satisfactory to it that the Existing Detroit L/Cs are concurrently therewith being returned undrawn and cancelled, issue a Letter of Credit or Letters of Credit in substantially the form attached hereto as Exhibit IV to replace the Existing Detroit L/Cs. In the event that UBS Bank does not execute and deliver a counterpart of this Agreement as Issuing Lender on or prior to the Closing Date, Bank of America shall, on the Closing Date upon receiving evidence satisfactory to it that the Existing Detroit L/Cs are concurrently therewith being returned undrawn and cancelled, issue a Letter of Credit or Letters of Credit in substantially the form attached hereto as Exhibit IV to replace the Existing Detroit L/Cs. B. MECHANICS OF ADDITIONAL ISSUANCES. (i) Request for Issuance of Letters of Credit. After the issuance of any Letter of Credit on the Closing Date pursuant to subsection 3.1A, whenever Borrowers desire to have the Issuing Lender issue a Letter of Credit to extend or replace such outstanding Letter of Credit, or Agents request (with a copy of such request to Company) that the Issuing Lender issue a Letter of Credit to extend or to replace such outstanding Letter of Credit, Borrowers 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, which Request for Issuance shall describe the relevant Letter of Credit and the verbatim text of the Letter of Credit proposed to be issued or of such extension, as the case may be, and shall specify such proposed date of issuance or extension; provided, that Borrowers shall not request that Issuing Lender issue or extend (and Issuing Lender shall not issue or extend) any Letter of Credit: (a) if the underlying Contractual Obligation to provide any such Letter of Credit or a replacement thereto to the beneficiary thereof has terminated, and/or the beneficiary of such Letter of Credit has otherwise returned the same for cancellation without the expectation that a Letter of Credit will be issued contemporaneously with such cancellation in substitution therefor; (b) unless the terms of such Letter of Credit as so replaced or extended (other than the stated amount and expiration date thereof) are substantially identical to the terms of the corresponding Letter of Credit being replaced or extended; (c) unless the stated amount of such Letter of Credit as so replaced or extended is identical to the stated amount of the corresponding Letter of Credit being replaced or extended, as the case may be, in effect at the time of such 49 extension (and the formula in effect on the Closing Date for calculating required reductions in the stated amount of any Letter of Credit shall apply to such Letter of Credit as so replaced or extended), and is denominated in Dollars; (d) if such Letter of Credit as so replaced or extended has an expiration date later than the earlier of (y) the 5th Business Day prior to the Maturity Date and (z) the date which is three years from the date of issuance of such Letter of Credit; or (e) if, after giving effect to such issuance or extension, the Letter of Credit Usage would exceed the Letter of Credit Commitments. (ii) Recertification. Borrowers shall notify the Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance or extension of any Letter of Credit in the event that any of the matters to which Borrowers are required to certify in the relevant Request for Issuance is no longer true and correct as of the proposed date of issuance or extension of such Letter of Credit (provided that no Request for Issuance shall require Borrowers to make representations or warranties other than those referenced in subsection 3.1B(iii)(b)), and upon the issuance or extension of such Letter of Credit Borrowers shall be deemed to have re-certified, as of the date of such issuance or extension, as to the matters to which Borrowers are required to certify in such Request for Issuance (except to the extent such requirement to re-certify as to such matters shall have been waived in accordance with subsection 10.6 hereof). (iii) Issuance of Letter of Credit. Subject to subsections 3.1B(i) and 3.1B(ii), unless the Maturity Date shall have occurred, upon satisfaction or waiver (in accordance with subsection 10.6) of the following conditions on the date of issuance or extension, the applicable Issuing Lender shall issue the requested Letter of Credit (in the form set forth in such notice) to replace (or shall extend, as the case may be) the relevant outstanding Letter of Credit, in accordance with such Issuing Lender's standard operating procedures: (a) On or before the date of issuance or extension of such 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), 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 Issuing Lender may reasonably require in connection with the issuance or extension of such Letter of Credit; (b) The representations and warranties contained in subsections 5.1, 5.2, 5.15, 5.16 and 5.18 shall be true, correct and complete in all material respects on and as of the date of issuance or extension of such Letter of Credit 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; and 50 (c) No event shall have occurred and be continuing or would result from the issuance or extension of such Letter of Credit that would constitute an Event of Default or a Potential Event of Default. (iv) 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 any Letter of Credit (including any issuance of a Letter of Credit pursuant to subsection 3.1A), each Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from the Issuing Lender a participation in such 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 the Existing Detroit L/Cs and the Letters 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 Closing Date with respect to the Existing Detroit L/Cs) defense, set off, claim or counterclaim against Agents or any Lender in regard to its obligations in respect of any such participation in a 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 DIP Credit Documents to the Closing Date with respect to the Existing Detroit L/Cs) with respect to each Letter of Credit in accordance with the terms and conditions of this Agreement and the other Credit Documents. 3.2 LETTER OF CREDIT FEES. Borrowers jointly and severally agree to pay the following amounts with respect to each Letter of Credit: (i) a fronting fee, payable directly to the applicable Issuing Lender for its own account, equal to (a) the greater of (X) $500 and (Y) 0.25% per annum of the daily amount available to be drawn under such Letter of Credit, plus (b) an annual fee of $1,500, and (ii) a letter of credit fee, payable to Administrative Agent for the account of Lenders, equal to 2.50% per annum (expressed as a daily rate) multiplied by the daily amount available to be drawn under such Letter of Credit, 51 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, except that the annual fee referred to in clause (i)(b) shall be payable in advance on the date of issuance of such Letter of Credit and on each anniversary thereof; 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), Borrowers jointly and severally agree to pay 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 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 (ii) of this subsection 3.2 with respect to a Letter of Credit, Administrative Agent shall distribute to each Lender its Pro Rata Share of such amount. All fees referenced in this subsection 3.2 shall be earned when payable and shall be non-refundable. Upon the occurrence and during the continuation of any Event of Default, all fees set forth in this subsection 3.2 shall accrue at a rate that is 2.00% per annum in excess of the rate otherwise set forth in this subsection and shall, if Requisite Lenders so request, be payable upon demand. Payment or acceptance of the increased rates provided for in this paragraph 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. 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 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. 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, 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 52 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 the aggregate principal amount of all participations funded by a Lender with respect to Letters of Credit shall in no event exceed the amount of such Lender's Letter of Credit Commitment. 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 at a rate equal to (1) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the Base Rate plus 3.00% per annum and (2) thereafter, a rate which is 2% per annum in excess of the rate of interest set forth in the foregoing clause (i)(1). Interest payable pursuant to this subsection 3.3D(i) shall be computed on the basis of a 365-day or 366-day year, as the case may be, for the actual number of days 53 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. Payment or acceptance of the increased rates of interest provided for in this subsection 3.3D 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. (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, 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 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 54 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 (including CPIH Subsidiaries); (vi) any breach of this Agreement or any other Credit 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 2.4, 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. 55 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. 3.6 CASH COLLATERAL FOR LETTERS OF CREDIT. A. RELEASES OF CASH COLLATERAL. If (i) (a) the underlying Contractual Obligation to provide a Letter of Credit or a replacement thereto to the beneficiary thereof has terminated (other than by drawing under such Letter of Credit), and/or (b) the beneficiary of such Letter of Credit has otherwise returned the same for cancellation without the expectation that a Letter of Credit will be issued contemporaneously with such cancellation in substitution for such cancelled Letter of Credit, and/or the maximum amount available for drawing under a Letter of Credit is permanently reduced (other than such a reduction concurrently with a reissuance or replacement of the relevant reduced portion of such Letter of Credit pursuant to subsection 3.1B(iii)), and (ii) the Letter of Credit Commitments are permanently reduced by the amount of such Letter of Credit or such reduction in the stated amount of such Letter of Credit, as the case may be, then, to the extent that the amount of cash collateral securing the Letter of Credit Exposure pursuant to the Collateral Account Agreement exceeds 105% of the Letter of Credit Commitments then in effect after such permanent reduction, the excess cash collateral shall be applied to the payment to or upon the order of Borrowers or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, except to 56 the extent the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 3.6. B. CASH COLLATERAL ON THE MATURITY DATE. On the Maturity Date, any outstanding Letter of Credit Exposure shall be cash collateralized in an amount equal to 105% of the amount thereof by Borrowers or otherwise supported, in either case in a manner satisfactory to the Lenders. SECTION 4. CONDITIONS TO CLOSING DATE The initial issuance of Letters of Credit hereunder is subject to the satisfaction of the following conditions. 4.1 CONDITIONS TO CLOSING DATE. The obligations of Lenders with respect to their respective Letter of Credit Commitments, and the issuance of any Letters of Credit to be issued on the Closing Date, are subject to prior or concurrent satisfaction of the following conditions: A. CREDIT PARTY DOCUMENTS. On or before the Closing Date, Borrowers shall, and shall cause each other Credit 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 Credit 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 Credit 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; (ii) Resolutions of the Governing Body of such Person approving and authorizing the execution, delivery and performance of the Credit Documents to which it is a party 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 Credit Documents to which it is a party; (iv) Executed originals of the Credit Documents to which such Person is a party; and (v) Such other documents as Administrative Agent may reasonably request. 57 B. FEES. Borrowers shall have paid out of Debtors' estates to Administrative Agent, (i) for distribution (as appropriate) to Agents and Lenders, the fees payable on the Closing Date referred to in subsection 2.2 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 incurred in connection with the negotiation, preparation, recordation, execution and completion of the Credit 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, and (ii) for distribution (as appropriate) to DIP Lenders and DIP Agents, all unpaid interest and fees accrued under the DIP Credit Agreement on or before the Closing Date, and all reasonable and documented costs and expenses of Agents and Lenders owed pursuant to subsection 10.2 of the DIP Credit Agreement. Borrowers shall have paid out of Debtors' estates to Merrill Lynch Pierce Fenner & Smith Incorporated the underwriting fee of $1,381,915.54 required pursuant to the "Commitment Letter" (as defined in the Order Pursuant to Section 363 of the Bankruptcy Code Authorizing Debtors to Enter into Letter Agreement with Merrill Lynch Pierce Fenner & Smith Incorporated, on Behalf of D.E. Shaw Laminar Portfolios, L.L.C. and Quantum Partners LDC, in Connection with Exit Financing and Make Certain Payments in Connection Therewith entered by the Bankruptcy Court on February 27, 2004). C. CORPORATE AND CAPITAL STRUCTURE; MANAGEMENT; OWNERSHIP. (i) Corporate Structure. DHC shall own all of the issued and outstanding Capital Stock of Company. The corporate organizational structure of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto. (ii) Capital Structure and Ownership. DHC shall have made a cash equity contribution to Company of not less than $30,000,000 (including cash equity contributed in connection with the "Lake Transaction" (as defined in the DIP Credit Agreement). The capital structure and ownership of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto. (iii) Management. The Governing Bodies, officers and management structure of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto and shall be as set forth on Schedule 4.1C annexed hereto. Lenders shall have received copies of, and Requisite Lenders shall be satisfied with the form and substance of any employment agreements with and any incentive arrangements for senior management of Company and its Subsidiaries. D. 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, 58 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. E. PLAN OF REORGANIZATION; CONFIRMATION ORDER; DISCHARGE OF EXISTING CREDIT FACILITIES. (i) Plan of Reorganization. The Plan of Reorganization and all amendments, modifications, revisions and restatements thereof, if any, shall have been approved by the creditors of Borrowers (including the DIP Lenders and the Prepetition Lenders) in requisite number and percentage and confirmed by the Bankruptcy Court pursuant to the Confirmation Order and delivered to Agents (the "APPROVED PLAN OF REORGANIZATION"). Except as set forth in modifications filed with the Bankruptcy Court and approved by Agents, there shall have been no modifications, amendments, revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Company or any of its Subsidiaries in the Approved Plan of Reorganization shall be accurate, true, correct and complete in all material respects as of the Closing Date. The Approved Plan of Reorganization (a) shall provide for the payments on the Closing Date described in subsection 4.1T, the corporate reorganization described in subsection 4.1S, and the issuance of the Letters of Credit under this Agreement and the Indebtedness described in subsection 4.1F; and (b) upon satisfaction of all conditions to the effectiveness of this Agreement, shall become effective in accordance with its terms without waiver of any condition to such effectiveness that, in Agents' reasonable judgment, is material. (ii) Confirmation Order. The Confirmation Order shall have been delivered to Lenders, shall address the matters set forth in subsections 4.1F, 4.1S and 4.1T, the issuance of the Letters of Credit under this Agreement and the terms hereof and the granting of all Liens and consents required under this Agreement and the other Credit Documents and otherwise be in form and substance satisfactory to Requisite Lenders. The Confirmation Order shall be in full force and effect and no portion thereof shall have been stayed pending any appeal or petition for review or for rehearing, and Agents shall have received evidence satisfactory to each demonstrating such facts. Debtors' Second Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code and the Liquidation Plan Supplement to Debtors' Second Joint Plan of Liquidation, as filed with the Bankruptcy Court on December 18, 2003 and February 18, 2004, respectively, and as amended, supplemented or otherwise modified from time to time thereafter to the extent permitted under the DIP Credit Agreement, shall have been confirmed by the Bankruptcy Court pursuant to an order in form and substance satisfactory to Requisite Lenders. (iii) Approval of Fees Related to Exit Financing. The Bankruptcy Court order approving the fees payable to Agents and the Lenders described in subsection 4.1B shall be in full force and effect, without modification or amendment except to the extent approved by Agents. 59 (iv) Material Agreements. The terms and conditions of any Material Contracts to be entered into by the Borrowers or any of their Subsidiaries pursuant to the Approved Plan of Reorganization shall be in form and substance satisfactory to Requisite Lenders and Agents. F. MATTERS RELATING TO EXISTING INDEBTEDNESS. (i) Termination of DIP Credit Agreement and Related Liens. (a) Indebtedness consisting of funded amounts outstanding under the DIP Credit Agreement on the Closing Date shall have been repaid in full in cash, (b) all undrawn DIP Tranche A L/Cs and DIP Tranche B L/Cs (other than the Existing Detroit L/Cs) shall be replaced (or any further drawings thereunder shall be fully supported pursuant to arrangements satisfactory to DIP Lenders and the issuers thereof) with letters of credit issued under the New L/C Facility Agreement, (c) the Existing Detroit L/Cs shall be replaced with Letters of Credit, (d) each letter of credit (if any) issued or deemed issued under the DIP Credit Agreement other than the DIP Tranche A L/Cs and DIP Tranche B L/Cs shall have been cash collateralized pursuant to arrangements reasonably satisfactory to the issuer of such letter of credit, or cancelled and returned undrawn, or reimbursed, (e) all commitments to lend or make other extensions of credit under the DIP Credit Agreement shall have terminated (except that the participations of DIP Lenders purchased in the letters of credit, if any, referred to in clause (d) above shall continue), and (f) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries (including CPIH Subsidiaries) under the DIP Credit Agreement shall have been delivered to Administrative Agent to the extent required by Administrative Agent. (ii) Termination of Prepetition Credit Agreement, 9.25% Debentures and Related Liens. (a) Indebtedness consisting of the 9.25% Debentures and the Prepetition Obligations on the Closing Date shall be satisfied by application of the High Yield Notes and the CPIH Term Loans and by application of Cash On Hand of Borrowers (as described in subsection 4.1T), and (b) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries (including CPIH Subsidiaries) under the Prepetition Credit Agreement and the 9.25% Debentures shall have been delivered to Administrative Agent to the extent required by the Administrative Agent. (iii) CPIH Facilities. Indebtedness under the CPIH Revolver Agreement and Indebtedness under the CPIH Term Loan Agreement shall be secured as set forth in the CPIH Revolver Documents and the CPIH Term Loan Documents and shall be non-recourse to the Borrowers or their assets other than pursuant to the CPIH Stock Pledge Agreement. The CPIH Revolver Documents and the CPIH Term Loan Documents shall be in full force and effect, the "Closing Date" as defined in each of the CPIH Revolver Documents and the CPIH Term Loan Documents shall have occurred, and the CPIH Revolver Documents and the CPIH Term Loan Documents shall provide for $10,000,000 in revolving loan commitments and $90,000,000 in term loans (subject to increase to up to $95,000,000 pursuant to and in accordance with the Approved Plan of 60 Reorganization), respectively, and shall otherwise be in form and substance satisfactory to Requisite Lenders. (iv) Existing Indebtedness to Remain Outstanding. After giving effect to the Approved Plan of Reorganization, the Indebtedness and Contingent Obligations of Borrowers (other than Indebtedness under the Credit Documents) shall consist of (a) the New L/C Facility Documents, which shall provide for maximum aggregate commitments of $118,000,000 for the issuance of letters of credit to be issued on the Closing Date to replace all DIP Tranche A L/Cs and DIP Tranche B L/Cs (other than the Existing Detroit L/Cs) and for other specified uses, shall have a final maturity date of 5 years from the Closing Date, shall provide for fees on undrawn outstanding letters of credit at a rate no greater than 6.5% per annum, fees on unused letter of credit commitments at a rate no greater than .50% per annum and upfront fees not greater than 2.00% of the entire amount of letter of credit commitments, and shall be secured by a junior Lien on the Collateral, (b) $205,000,000 in aggregate initial principal amount of High Yield Notes, (c) a note issued by Company in a principal amount not to exceed $35,000,000 (the "TAX NOTE"), representing the back tax liability of Company and its Subsidiaries as of the Closing Date, which Tax Note shall be unsecured and unguarantied, shall have a final maturity date of 6 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize on a 30-year schedule for the first 5 years after the issuance thereof with the balance due at maturity, (d) "Class 6 Unsecured Notes" (as defined in the Approved Plan of Reorganization) in the aggregate principal amount of $4,000,000 and subordinated notes issued by Company (the "UNSECURED CREDITOR NOTES") in an aggregate principal amount equal to the amount of "Operating Company Unsecured Claims" that are "Allowed" (as such terms are defined in the Approved Plan of Reorganization), which Unsecured Creditor Notes shall be unsecured and unguarantied, shall have a final maturity date of 8 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize in an amount not to exceed $3,900,000 annually commencing on the second anniversary of the Closing Date with the remainder due at final maturity, (e) outstanding Indebtedness described in Schedule 7.1(vi) and Schedule 7.1(ix) annexed hereto, and (f) Indebtedness and Contingent Obligations under the CPIH Stock Pledge Agreement, and outstanding Contingent Obligations described in Schedule 7.4(iv) and Schedule 7.4(vi) annexed hereto. The terms and conditions of all such Indebtedness and Contingent Obligations (including payment terms, covenants, representations and warranties, defaults and, in the case of the Unsecured Notes, payment subordination provisions), and the definitive documentation therefor, shall be in form and in substance satisfactory to Requisite Lenders. (v) Related Agreements in Full Force and Effect. Lenders shall have received a fully executed or conformed copy of the New L/C Facility Documents, the CPIH Revolver Documents, the CPIH Term Loan Documents, the CPIH Stock Pledge Agreement, the High Yield Indenture and the High Yield Notes, the Tax Note, the Unsecured Creditor Notes, the Unsecured Creditor Notes Indenture, the Intercreditor Agreement and any documents executed in connection therewith, each such Related Agreement, the Unsecured Creditor Notes, the CPIH Term Loan Documents, the CPIH Revolver Documents, the Intercreditor Agreement and the Unsecured Creditor Notes 61 Indenture shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by either Agent to be material. G. FINANCIAL STATEMENTS; PROJECTIONS. On or before the Closing Date, Lenders shall have received the unaudited consolidated financial statements of Company and its Subsidiaries for the Fiscal Quarters ended June 30, 2003 and September 30, 2003, all in reasonable detail and certified by the chief executive officer or chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as of 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. Company shall have delivered to Agents and Lenders such projected financial statements as Agents may reasonably request for the period from the Closing Date through December 31, 2009, including the budget of monthly and quarterly cash receipts and expenditures for Fiscal Year 2004 and annual net cash flow for Fiscal Years 2005, 2006, 2007, 2008 and 2009 attached hereto as Schedule 1.1C, which budget and other projections shall be satisfactory to Agents and Requisite Lenders and shall be accompanied by a certificate from the chief executive officer or chief financial officer of Company certifying that they are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made. H. SOLVENCY ASSURANCES. On the Closing Date, Administrative Agent and Lenders shall have received an Officer's Certificate dated the Closing Date, substantially in the form of Exhibit IX annexed hereto and with appropriate attachments, demonstrating that, after giving effect to the consummation of the transactions contemplated by the Credit Documents, Borrowers, taken as a whole, and Company will be Solvent. I. OPINIONS OF COUNSEL TO CREDIT PARTIES. Lenders shall have received originally executed copies of one or more favorable written opinions of (a) Cleary, Gottlieb, Steen & Hamilton, (b) LeBoeuf, Lamb, Greene & McRae, (c) Morris, James, Hitchens & Williams LLP and (d) Nixon Peabody, LLP, counsel for Borrowers, and of Skadden, Arps, Slate, Meagher & Flom LLP and affiliates, counsel for DHC, 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 X 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). J. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS AND OTHER DOCUMENTS. Administrative Agent and its counsel shall have received copies of the opinions of counsel delivered to the parties under the Related Agreements, the CPIH Revolver Documents, the CPIH Term Loan Documents, the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and Borrowers shall have made reasonable efforts to obtain from each such counsel letters authorizing Lenders to rely on such opinions to the same extent as though such opinions were addressed to Lenders. K. 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 Collateral 62 Agent and/or 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. L. 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 Credit 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. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable Government Authority to take action to set aside its consent on its own motion shall have expired. M. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent not otherwise satisfied pursuant to subsection 4.1N, Administrative Agent shall have received evidence satisfactory to it that Credit Parties (except as otherwise contemplated in subsection 5.18 hereof) 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 Collateral Agent, for the benefit of Secured Parties, a valid and perfected security interest in the entire personal and mixed property Collateral, with the priority set forth in the Collateral Documents (it being understood that such actions by DHC shall relate solely to its pledge of the Capital Stock of Company). Such actions shall include the following: (i) Stock Certificates and Instruments. Delivery to Collateral 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 Collateral 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 Collateral Agent) evidencing any Collateral; (ii) Lien Searches and UCC Termination Statements. Delivery to Collateral Agent of (a) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Borrower and of all effective UCC financing statements which may have been made with respect to Capital Stock of Borrowers or any Subsidiary of any Borrower, in each case 63 together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement); (iii) UCC Financing Statements and Fixture Filings. Delivery to Collateral Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Borrower with respect to all personal and mixed property Collateral of such Borrower and by DHC with respect to the Capital Stock of Company, in each case for filing in all jurisdictions as may be necessary or in the opinion of Collateral Agent desirable to perfect the security interests in favor of Collateral Agent created in such Collateral pursuant to the Collateral Documents; (iv) PTO Cover Sheets, Etc. Delivery to Collateral Agent of all cover sheets or other documents or instruments Collateral Agent may reasonably request to be filed with the PTO in order to evidence Liens in favor of Collateral Agent in respect of any IP Collateral; (v) Control Agreements. Delivery to Collateral Agent of such Control Agreements with financial institutions and other Persons in order to perfect Liens in respect of Deposit Accounts, Securities Accounts and other Collateral pursuant to the Collateral Documents; and (vi) Certificate. Delivery to Agents and Collateral Agent of an Officer's Certificate certifying that, as of the Closing Date, the foreign patent registrations held by Company and its Subsidiaries are not, individually or in the aggregate, material to the business of Company and its Subsidiaries as a whole. N. CLOSING DATE MORTGAGES; CLOSING DATE MORTGAGE POLICIES; ETC. Collateral Agent shall have received from each applicable Borrower: (i) Closing Date Mortgages. Fully executed and notarized Mortgages (each a "CLOSING DATE MORTGAGE" and, collectively, the "CLOSING DATE MORTGAGES"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 4.1N annexed hereto (each a "CLOSING DATE MORTGAGED PROPERTY" and, collectively, the "CLOSING DATE MORTGAGED PROPERTIES" (it being understood and agreed that (a) no Leasehold Property that is not a Material Leasehold Property shall be required to be a Closing Date Mortgaged Property, and (b) no Real Property Asset the pledge of which would constitute a material violation of (1) 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 (2) applicable law affecting the Borrower holding such Real Property Asset, shall be required to be a Closing Date Mortgaged Property)); 64 (ii) Opinions of Local Counsel. An opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Landlord Consents and Estoppels; Recorded Leasehold Interests. In the case of each Closing Date Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel with respect thereto, and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) ALTA mortgagee title insurance policies or unconditional commitments therefor (the "CLOSING DATE MORTGAGE POLICIES") issued by the Title Company with respect to the Closing Date Mortgaged Properties listed in Part A of Schedule 4.1N annexed hereto, in amounts not less than the respective amounts designated therein with respect to any particular Closing Date Mortgaged Properties, insuring fee simple title to, or a valid leasehold interest in, each such Closing Date Mortgaged Property vested in such Borrower and assuring Collateral Agent that the applicable Closing Date Mortgages create valid and enforceable First Priority mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby, subject only to a standard survey exception, which Closing Date Mortgage Policies (1) shall include an endorsement for mechanics' liens, for future advances under this Agreement and for any other matters reasonably requested by Collateral Agent and (2) shall provide for affirmative insurance and such reinsurance as Collateral Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Collateral Agent; and (b) evidence satisfactory to Collateral Agent that such Borrower has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Closing Date Mortgage Policies and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Closing Date Mortgage Policies and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Closing Date Mortgages in the appropriate real estate records; (v) Title Reports. With respect to each Closing Date Mortgaged Property listed in Part B of Schedule 4.1N annexed hereto, a title report issued by the Title Company with respect thereto, dated not more than 30 days prior to the Closing Date and satisfactory in form and substance to Administrative Agent; (vi) Copies of Documents Relating to Title Exceptions. Copies of all recorded documents listed as exceptions to title or otherwise referred to in the Closing Date Mortgage Policies or in the title reports delivered pursuant to subsection 4.1N(iv); and (vii) Matters Relating to Flood Hazard Properties. (a) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property and (2) the 65 community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Borrower's written acknowledgement of receipt of written notification from Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System. O. NO MATERIAL ADVERSE CHANGE. Agents (in their sole discretion) shall be satisfied that there has been no material adverse change (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) since December 31, 2002 in the business, property, assets, operations, financial condition or prospects of Company and its Subsidiaries taken as a whole, and Company shall have delivered to Agents an Officer's Certificate to the foregoing effect. P. CASH MANAGEMENT SYSTEM. The cash management system of Company and its Subsidiaries shall be as set forth on Schedule 4.1P annexed hereto. Q. [INTENTIONALLY OMITTED] R. GEOTHERMAL SALE. Company shall have consummated the Geothermal Sale on terms and conditions and pursuant to documentation in form and substance satisfactory to the Requisite DIP Lenders. S. CPIH REORGANIZATION. On the Closing Date, (i) Company shall own, directly or indirectly, 100% of the outstanding Capital Stock of CEA, (ii) CEA shall own 100% of the outstanding common stock of CPIH, which shall own the Capital Stock of all Persons (including Persons holding the equity interests in other Persons) holding the assets and operations of the IPP International Business to the extent described in the Approved Plan of Reorganization and the Disclosure Statement related thereto, (iii) all relevant operating and administrative expenses associated with the IPP International Business shall be transferred into CPIH in accordance with the Management Services and Reimbursement Agreement, and (iv) not less than $5,000,000 of cash for working capital shall have been transferred from Company and its Subsidiaries to the CPIH Borrowers as an equity contribution. T. DISTRIBUTION. All unrestricted Cash On Hand (including, without limitation, net sale proceeds from the Geothermal Sale) of Borrowers remaining prior to the equity contribution referred to in subsection 4.1C(ii) but after (i) the transfer of working capital amounts to CPIH as described in subsection 4.1S, (ii) the payment of the fees referred to in subsection 4.1B, (iii) the disposition of those letters of credit referred to in subsection 4.1F(i)(d), (iv) the payment of allowed administrative expenses, (v) the reimbursement of reasonable accrued fees and expenses of DHC not to exceed $4,000,000 in the aggregate and reasonable accrued fees and expenses of D.E. Shaw not to exceed $350,000 in the aggregate, and (vi) the payment of funded outstanding obligations under the DIP Credit Agreement (if any) and (without duplication of clauses (i) through 66 (vi)) the payment of other "Exit Costs" (as defined in the Approved Reorganization Plan), subject to an amount of cash (which amount shall be determined in accordance with terms set forth in the draft Plan of Reorganization attached (on the date of execution thereof) to the Investment and Purchase Agreement dated as of December 2, 2003 between DHC and Company) to be retained in the domestic Cash Management System by Company and its Subsidiaries (collectively, such Cash On Hand, net of such transferred amount, such payments and reimbursements, such retained amount and such reserves, is referred to herein as "DISTRIBUTABLE CASH"), shall have been distributed as follows: first, to the extent of the first $60,000,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims that are Lenders on the Closing Date, on account of their allowed pre-petition exposure, in accordance with the Approved Plan of Reorganization, second, to the extent of the next $7,200,000 of such Distributable Cash, for the benefit of those holders of Prepetition Secured Claims that are not Lenders on the Closing Date, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization, and third, to the extent of 25% of any remaining Distributable Cash, to Company (the amount of Distributable Cash so distributed to Company being referred to herein as the "CLOSING DATE RETAINED AMOUNT"), and to the extent of the remaining 75%, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization. U. NOL AVAILABILITY. Company, its independent advisers, Agents and Agents' counsel shall have determined to their respective sole satisfaction that the net operating losses disclosed to Agents and Lenders prior to the Closing Date as being held by DHC are available and accessible to Company and its Subsidiaries. V. LITIGATION. On the Closing Date, there shall be no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect the Approved Plan of Reorganization, any of the Credit Documents or any of the CPIH Term Loan Documents that could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Approved Plan of Reorganization, any of the Credit Documents or any of the CPIH Term Loan Documents. W. 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. X. LENDER REQUIREMENTS. Each Person that is a Lender on the Closing Date (each such Lender being a "CLOSING DATE LENDER"), at its own expense, either (i) shall have provided Issuing Lenders with evidence satisfactory to Issuing Lenders that such Closing Date Lender has long term senior unsecured debt ratings in effect on the Closing Date of (a) if such Closing Date Lender is not a DIP Lender, "A2" or better from Moody's and "A" or better from S&P, and (b) if such Closing Date Lender is a DIP Lender, "Baa3" or better from Moody's and "BBB-" or better from S&P, or (ii) shall have delivered to Issuing Lenders, at such Closing Date Lender's option, either (a) evidence satisfactory to Issuing Lenders that the Letter of Credit Commitment of such Closing Date Lender is irrevocably guaranteed or similarly supported 67 pursuant to arrangements (and by Persons) reasonably satisfactory to Administrative Agent and Issuing Lenders, or (b) cash collateral supporting the maximum amount of the Letter of Credit Commitment of such Closing Date Lender pursuant to documentation and arrangements reasonably satisfactory to Administrative Agent and Issuing Lenders. Each Lender, by delivering to Agents a signed counterpart to this Agreement, shall be deemed (unless such Lender indicates otherwise in writing to Agents and Company) to have acknowledged receipt of, and to have consented to, approved and be satisfied with, the documents, agreements, instruments or information which require approval, consent or satisfaction of the Lenders or Requisite Lenders, as applicable, in order for the conditions precedent contained in this subsection 4.1 to be satisfied. Notwithstanding anything in this Section 4 to the contrary, it is understood and agreed that the conditions of subsection 4.1A(i) shall be deemed satisfied notwithstanding (i) failure to deliver all of the certificates or other evidence of good standing described in subsection 4.1A(i), so long as (a) Administrative Agent is notified which certificates or other evidence shall not have been delivered and, in its sole discretion, agrees that such certificates or other evidence may be delivered with respect to the relevant Persons after the Closing Date, (b) failure to deliver all of the certificates or other evidence of good standing described in subsection 4.1A(i) on or prior to the date which is 90 days after the Closing Date shall constitute an immediate Event of Default on such date (unless such failure is due to failure to pay franchise taxes full payment of which has been tendered by such date), or (ii) failure to deliver all or any portion of the title insurance-related documents and instruments described in subsection 4.1N with respect to the Real Property Asset located in Lassen County, California, provided, that failure to deliver all of such documents and instruments with respect to such property on or prior to the date which is 360 days after the Closing Date shall constitute an immediate Event of Default on such date. SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement, 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 the Closing Date and (in the case of the representations and warranties referenced in subsection 3.1B(iii)(b)) on the date of issuance of a replacement or extension of any 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 Credit 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 (provided, however, that failure of any Credit Party to be in good standing in the relevant jurisdiction shall not be deemed a breach of this representation if (x) such failure is due solely to failure to pay franchise taxes and (y) full payment of such franchise taxes has been tendered no later than the date which is 90 days after the Closing Date). Each Credit Party has all requisite 68 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 Credit Documents to which it is a party and to carry out the transactions contemplated thereby. Each Credit Party is in compliance with all material terms of its Organizational Documents. B. QUALIFICATION AND GOOD STANDING. Each Credit Party is qualified to do business and in good standing in every jurisdiction 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 as of the Closing Date and their jurisdictions of organization are identified in Schedule 5.1 annexed hereto. The Capital Stock of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto 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 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 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 correctly sets forth, as of the Closing Date, 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 Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto. B. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit 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 of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, other than any Liens created under any of the Credit Documents in favor of Collateral Agent on behalf of Secured Parties, or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of 69 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. C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any Governmental Authorization, except for the entry of the Confirmation Order and except for filings expressly contemplated by the Credit Documents and those Governmental Authorizations which have been obtained. D. BINDING OBLIGATION. Each of the Credit Documents has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit 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. 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 (i) prohibitions or restrictions existing under or by reason of (a) this Agreement and the other Credit Documents, (b) applicable law, (c) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices, and (d) any documents or instruments governing the terms of any Indebtedness or other obligations secured by Liens permitted by subsection 7.2A, provided that such prohibitions or restrictions apply only to the assets subject to such Liens, and (ii) restrictions described in clauses (a) through (d) of subsection 7.2D. 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, 2002 and (ii) the unaudited consolidated financial statements of Company and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 and September 30, 2003. 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 Borrower 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 (a) those liabilities reflected on the Schedules to this Agreement and (b) Performance Guaranties and Contingent Obligations that are permitted to be incurred under subsection 7.4) and that, in any such case, is material in relation to the 70 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 December 31, 2002, no event or change has occurred (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) that has resulted in or evidences, either in any case or in the aggregate, a Material Adverse Effect. Since the Petition 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 DIP 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 Borrower 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 Borrower, enforceable against such Borrower 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. 71 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 (other than taxes represented by the Tax Note) 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 Company or its Subsidiaries dispute or disagree with, 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, after giving effect to the Approved Plan of Reorganization, 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 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 (i) any agreements or instruments the performance of which, in the ordinary course, would reasonably be expected to result in a Material Adverse Effect, or (ii) any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 72 C. Schedule 5.8C contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date after giving effect to the Approved Plan of Reorganization. Except as described on Schedule 5.8C, all such Material Contracts are in full force and effect and no material defaults currently exist thereunder. 5.9 GOVERNMENTAL REGULATION. Neither Company nor any of its Subsidiaries is subject to regulation under (i) the Public Utility Holding Company Act of 1935, (ii) the Federal Power Act (other than as a "qualifying small power production facility", as such term is defined in PURPA), (iii) the Interstate Commerce Act, (iv) the Investment Company Act of 1940, or (v) any other federal or state statute or regulation 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. 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 material compliance with all applicable provisions and requirements of ERISA, the regulations and published interpretations thereunder and other applicable law with respect to each Employee Benefit Plan, and have performed all of their material obligations under each Employee Benefit Plan. Company and each of its Subsidiaries are in material compliance with all applicable laws and orders of foreign Government Authorities with respect to each of its pension plans and employee benefit plans for foreign employees, and have performed all of their material obligations under each such pension plan and employee benefit plan. Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such 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 73 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 (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates of Company or any of its Subsidiaries). D. As of January 1 of each year (based on, with respect to the Covanta Energy Pension Plan, the actuarial valuation as of such January 1 and, with respect to the SEIU Pension Plan, the actuarial valuation as of the immediately preceding June 1), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including, where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000, in the event the applicable law (including statutorily prescribed actuarial assumptions) used in determining such unfunded benefit liabilities (the "ASSUMPTIONS") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. E. To each Borrower's knowledge, 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 $7,500,000. F. Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of its Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company or any of its Subsidiaries (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates of 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. 74 5.13 ENVIRONMENTAL PROTECTION. A. Except as set forth in Schedule 5.13 annexed hereto, neither Company nor any of its Subsidiaries (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH Subsidiaries) nor, to Company's knowledge, any predecessor of Company or any of its Subsidiaries (including, solely with respect to periods prior to the Closing Date, CPIH 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. 75 5.15 MATTERS RELATING TO COLLATERAL. A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery of the Collateral Documents by Credit Parties, together with (x) the actions taken on or prior to the date hereof pursuant to subsections 4.1M, 4.1N, 6.8, 6.9 and 6.11 and (y) the delivery to Collateral Agent of any Pledged Collateral of the Credit Parties not delivered to Collateral 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 Collateral Agent, for the benefit of Secured Parties, a Lien on all of the Collateral of the Credit Parties (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 Collateral 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 Collateral Agent. 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 Credit Party of the Liens purported to be created in favor of Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral 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 Credit Party which is subject to regulation under the Federal Power Act pursuant to Section 210(e)(2) of PURPA. C. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 5.15A and to evidence Liens permitted pursuant to subsection 7.2, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. 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. E. INFORMATION REGARDING COLLATERAL. All information supplied to Collateral Agent by any Credit Party (including its officers, employees, agents, advisors, representatives or counsel) 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. 76 5.16 DISCLOSURE. No representation or warranty of Company or any of its Subsidiaries (including CPIH Subsidiaries) contained in any Credit Document or in any other certificate or written statement (excluding the projections, pro forma financial statements and forward looking statements contained therein and the estimates contained in such projections, pro forma financial statements and forward looking statements) furnished to Lenders by Company or any of its Subsidiaries (including CPIH Subsidiaries), including any such Person's officers, employees, agents, advisors, representatives or counsel, for use in connection with the transactions contemplated by this Agreement, contained as of the date such representation or warranty was made any untrue statement of a material fact or omitted to state a material fact 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 and in light of such representations and warranties and all such prior representations and warranties, taken as a whole. Any projections and pro forma financial information contained in such materials 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. 5.17 CASH MANAGEMENT SYSTEM. The summary of the Cash Management System attached hereto as Schedule 4.1P 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 has any Deposit Account which is not described in Schedule 4.1P other than Deposit Accounts permitted to be owned after the Closing Date pursuant to subsection 6.10. There has been no change to the Cash Management System since the Closing Date except such changes as are permitted under subsection 6.10 and such other changes as have been disclosed to Lenders in writing and approved by Administrative Agent. 5.18 MATTERS RELATING TO CREDIT PARTIES. A. CREDIT PARTIES. Neither Company nor any of its Subsidiaries owns any interest in any Subsidiary which is not a Borrower (other than Excluded Subsidiaries). B. DOMESTIC SUBSIDIARY ASSETS. Each Subsidiary which is a Borrower has granted a Lien in favor of Collateral Agent on substantially all of its property (other than the Capital Stock of CPIH) pursuant to the Collateral Documents, except in any case where the grant of such Lien would constitute a material violation of 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. 77 C. SUBSIDIARY CAPITAL STOCK. The Capital Stock of each Subsidiary which is directly owned by any Borrower has been pledged to Collateral Agent pursuant to the Collateral Documents, except for the Capital Stock of those 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 Borrower or such Subsidiary. 5.19 INVESTIGATION. All obligations in existence immediately after the Closing Date (other than obligations that do not, in the aggregate, exceed $2,000,000) to extend credit or credit support or obtain the extension of credit or credit support or to make investments or expenditures with respect to existing or future Projects of any Borrower or any Subsidiary of any Borrower that are contained in Contractual Obligations or of which Borrowers are otherwise aware have been disclosed to Agents and the DIP Lenders prior to the Closing Date. Borrowers have made such inquiry and investigation as is necessary to enable Borrowers to make the representation contained in the preceding sentence. 5.20 MATTERS RELATING TO BANKRUPTCY PROCEEDINGS. A. PLAN OF REORGANIZATION. There have been no material modifications, amendments revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Borrowers or any Subsidiary in the Approved Plan of Reorganization is accurate, true and correct in all material respects as of the Closing Date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were accurate, true and correct in all material respects as of such earlier date). B. CONFIRMATION ORDER. The Confirmation Order has been entered by the Bankruptcy Court at least 11 days prior to the Closing Date. The Confirmation Order has not been stayed pending any appeal or petition for review or for rehearing. 5.21 SUBORDINATED INDEBTEDNESS. The Obligations constitute senior indebtedness that is entitled to the benefits of the subordination provisions, if any, of all Indebtedness of Company and its Subsidiaries under the Unsecured Creditor Notes. 5.22 REPORTING TO IRS. Company does not intend to treat the Letters of Credit and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event Company determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof. Company acknowledges that one or more Lenders may treat their Letters of Credit as part of a transaction that is subject to Treasury Regulation section 1.6011-4 or section 301.6112-1, and Administrative Agent and such Lender or Lenders, 78 as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations. 5.23 SOLVENCY. Borrowers (taken as a whole) and Company are, and, upon the incurrence of any Obligations by such Borrowers on any date on which this representation is made, will be, Solvent. SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS Borrowers covenant and agree that, so long as any of the Letter of Credit Commitments hereunder shall remain in effect and until payment in full of all 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 6. 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) Budget Report; Budget Update: as soon as available and in any event no later than the 15th Business Day of each month commencing with the 15th Business Day of April 2004, (a) for the month most recently ended, a report in form satisfactory to Administrative Agent reflecting the actual cash receipts and disbursements of Company and its Subsidiaries for the preceding month with respect to each line item described in the Budget for the current Fiscal Year and the percentage and dollar variance of such amounts from the projected amounts therefor set forth in (x) such Budget and (y) the Budget for the current Fiscal Year as delivered pursuant to subsection 6.1(xvi), accompanied by an Officer's Certificate from the chief financial officer of Company certifying that such report accurately presents, in all material respects, cash receipts and cash expenditures of Company and its Subsidiaries for the periods indicated, and (b) a supplement to the Budget for the current Fiscal Year, in the form of such Budget, reflecting projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter remaining in the current Fiscal Year with respect to each line item described in such Budget, which supplement shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such supplement are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (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 79 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 45 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 90 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 independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall (with respect to the audits for all Fiscal Years after 2003) be unqualified, shall express no doubts, assumptions or qualifications concerning the ability of Company and its Subsidiaries to continue as a going concern, and shall (with respect to the audits for all Fiscal Years including 2003) state that in the opinion of such certified public accountants such consolidated financial statements fairly present, in all material respects, the 80 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; 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: other than the fresh start adjustments required under SOP 90-7, 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) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iv) above, 81 a written statement by the independent certified public accountants giving the report thereon stating that in connection with their audit, nothing came to their attention that caused them to believe that Company failed to comply with the terms, provisions or conditions of subsection 7.6, insofar as they relate to financial and accounting matters, or, if such a failure to comply has come to their attention, specifying the nature and period of existence thereof (it being understood that their audit is not directed primarily toward obtaining knowledge of non-compliance and that such accountants shall not be liable by reason of any failure to obtain knowledge of any such non-compliance that would not be disclosed in the course of their audit); (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): I. 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 II. seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, or to contest or challenge the legality, validity or enforceability 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 82 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: with reasonable promptness upon becoming aware of the occurrence of or forthcoming occurrence of (a) any ERISA Event or (b) any event that would constitute an ERISA Event but for the requirements (in order for such event to constitute an ERISA Event) that a Lien or liability imposed as a result thereof be material, that the error giving rise thereto be in bad faith, and/or that such event would reasonably be expected to result in a Material Adverse Effect, 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 (it being agreed that commencing on the Closing Date, on an annual basis Borrowers shall request information from each Multiemployer Plan in accordance with section 4221 of ERISA to determine the potential withdrawal liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan); (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) 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; (xvi) Budget: no later than the 15th day of December of each year commencing with December 15, 2004, a budget for the next Fiscal Year, in the form of the Budget for the current Fiscal Year, reflecting (a) projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter in the next Fiscal Year and (b) projected net cash flows of Company and its Subsidiaries for each Fiscal Year following the next Fiscal Year and ending with 2009, in each case with respect to each line item described in the Budget for the current Fiscal Year, which budget shall be 83 accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such budget are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (xvii) New Restricted Accounts: promptly upon opening any Restricted Account after the Closing Date that is required to be opened by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person, a written notice setting forth in reasonable detail (a) the Project or obligation to which such account relates, (b) a description of the Contractual Obligation requiring such account to be opened and (c) the provisions of this Agreement permitting such account to be opened and maintained (it being understood that such written notice shall be deemed to supplement Schedule 2.3A(i)(f) annexed hereto for all purposes of this Agreement); (xviii) 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)); and (xix) Notices from Holders of Subordinated Indebtedness: promptly, upon receipt, copies of all notices from holders of Subordinated Indebtedness or a trustee, agent or other representative of such a holder. 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 the existence of any such Subsidiary or 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. 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 tax, assessment, 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 tax, assessment, charge or claim which has or may become a Lien against any of the Collateral, such proceedings 84 conclusively operate to stay the sale of any portion of the Collateral to satisfy such charge or claim. 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 and, for not less than one year following the Closing Date, of CPIH Subsidiaries (provided that Company shall not be required to maintain such insurance with respect to CPIH Subsidiaries to the extent such insurance is not commercially available to Company) 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 Collateral Agent for the benefit of Secured Parties 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 Collateral Agent for the benefit of Secured Parties 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 Collateral 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 Collateral Agent on behalf of Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 6.4. 85 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 or Potential 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 (b) if an Event of Default or Potential 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 2.3A. (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 2.3A, 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 2.3A. (iii) Net Insurance/Condemnation Proceeds Received by Administrative Agent or Collateral Agent. Upon receipt by Administrative Agent or Collateral Agent, as the case may be, of any Net Insurance/Condemnation Proceeds, (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 or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 2.3A, and (b) to the extent the foregoing clause (a) does not apply Administrative Agent or Collateral Agent, as the case may be, shall deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under this Agreement and (2) Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 or Collateral Agent, as the case may be, of such Net Insurance/Condemnation Proceeds, Administrative Agent or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, 86 as the case may be, to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 2.3A. Notwithstanding the foregoing, no Net Insurance/Condemnation Proceeds shall be required to be applied as provided in subsection 2.3A to the extent such application would constitute a material violation of (1) a valid Contractual Obligation (in effect on the Closing Date or arising under the documentation for Limited Recourse Debt permitted to be incurred under this Agreement) 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. Notwithstanding anything in this Agreement to the contrary, in the event of any conflict or inconsistency between subsection 6.4C and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 6.5 INSPECTION RIGHTS; LENDER MEETING. A. INSPECTION RIGHTS. Borrowers shall, and shall cause each of their respective Subsidiaries to, permit any authorized representatives designated by any Lender, at such Lender's expense, 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 visits, inspections and audits as Administrative Agent or Requisite Lenders may deem necessary or advisable, at any time or from time to time, all at Borrowers' expense. B. LENDER MEETING. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Agents and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such 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 (including CPIH 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: 87 (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; (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 88 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; and (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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 BORROWER JOINDER AGREEMENT AND PERSONAL PROPERTY COLLATERAL DOCUMENTS AFTER THE CLOSING DATE. A. EXECUTION OF BORROWER JOINDER AGREEMENT AND PERSONAL PROPERTY COLLATERAL DOCUMENTS. In the event that any Subsidiary of Company existing on the Closing 89 Date ceases to be an Excluded Subsidiary, Company will promptly notify Administrative Agent of that fact and cause such 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 Borrower Joinder Agreement and counterparts of the Security Agreement and the Intercreditor 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 4.1M) as may be necessary or, in the opinion of Administrative Agent, desirable to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and perfected First Priority security interest in all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents, subject to any Liens in existence on the date such 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, subject to the terms of the Intercreditor Agreement, direct Collateral Agent (without need for any further consent from any Lender or Lenders) to release any Liens on a Subsidiary's assets and/or release a Subsidiary from this Agreement solely to the extent required by the terms of any such sales permitted under this Agreement; provided, however, that no Capital Stock of any Subsidiary that meets the criteria set forth in subsections 5.18C(i) or 5.18C(ii) shall be required to be pledged as Collateral pursuant to this subsection. B. SUBSIDIARY ORGANIZATIONAL DOCUMENTS, LEGAL OPINIONS, ETC. Company shall deliver to Administrative Agent, together with the relevant Credit Documents, (i) certified copies of Organizational Documents of each Subsidiary which is becoming a Borrower pursuant to subsection 6.8A (each, an "ADDITIONAL SUBSIDIARY BORROWER"), 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 Credit 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 Credit 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 Credit Documents, (c) the enforceability of such Credit 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 Credit 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. 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 Capital Stock of any Subsidiary of a Borrower, (ii) entry into a Borrower Joinder Agreement by a Subsidiary which is not already a Borrower, or (iii) granting a Lien on 90 substantially all of the assets of a 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. 6.9 MATTERS RELATING TO ADDITIONAL REAL PROPERTY COLLATERAL. From and after the Closing Date, in the event that any Borrower acquires any fee interest in real property or any Material Leasehold Property, such Borrower shall, as soon as practicable after such Person acquires such real property or Material Leasehold Property, 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, including, without limitation, deliver to Collateral Agent in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Borrower in such mortgaged property; and such opinions, appraisal, documents, title insurance, environmental reports that would have been delivered on the Closing Date if such mortgaged were a Closing Date Mortgaged Property, and to assure, convey, assign, transfer and confirm unto Collateral Agent, for the benefit of the Secured Parties, 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. 6.10 DEPOSIT ACCOUNTS. Borrowers shall, and shall cause each of their Subsidiaries (other than Bankrupt Subsidiaries) to, maintain the Cash Management System as described in Schedule 4.1P, as said Schedule 4.1P may be supplemented from time to time pursuant to clause (i)(c) below, 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, except that (i) Company and its Subsidiaries may open and maintain funds in Deposit Accounts with Collateral Agent or other depository institutions after the Closing Date so long as (a) concurrently with the opening of any such account with a depository institution other than Collateral Agent, Borrowers shall deliver to Administrative Agent a Control Agreement with respect to such account (unless after giving effect to such opening Borrowers would not be in breach of the requirement set forth in clause (i)(b)), (b) the aggregate amount on deposit at any time in all Deposit Accounts maintained with depository institutions other than Collateral Agent for which Control Agreements have not been delivered to Administrative Agent shall not exceed $1,000,000, and (c) concurrently with the opening of any such account, Borrowers shall deliver to Administrative Agent a written notice setting forth the account number and the name of the relevant depository institution (it being understood that such written notice shall be deemed to supplement Schedule 4.1P annexed hereto for all purposes of this Agreement) and, if applicable, the Project to which such account relates and the primary purpose of such account, and (ii) after the Closing Date Company and its Subsidiaries may open and maintain funds in Restricted Accounts that are required to be opened by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person so long as promptly upon opening any such account, a written notice setting forth in reasonable detail (a) the Project or obligation to which 91 such account relates, (b) a description of the Contractual Obligation requiring such account to be opened, and (c) the provisions of this Agreement permitting such account to be opened and maintained (it being understood that such written notice shall be deemed to supplement Schedule 2.3A(i)(f) annexed hereto for all purposes of this Agreement). 6.11 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 Credit Documents and the Confirmation Order, including to subject any Collateral, intended to now or hereafter be covered, to the Liens created by the Collateral Documents and the Confirmation Order, to perfect and maintain such Liens, and to assure, convey, assign, transfer and confirm unto Collateral 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 Collateral Agent or for carrying out the intention of or facilitating the performance of the terms of this Agreement, any other Credit Documents or the Confirmation Order, registering or recording this Agreement or any other Credit Document. Without limiting the generality of the foregoing, Borrowers shall deliver to Collateral 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 Collateral Agent to perfect Collateral 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 Credit Document, including any instrument of further assurance described in subsection 6.11A, 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 Credit Document, including any instrument of further assurance described in subsection 6.11A, or by reason of its interest in, or measured by amounts payable under, the Notes, the Mortgages or any other Credit Document, including any instrument of further assurance described in subsection 6.11A, (excluding income, franchise and doing business Taxes), and shall pay all stamp Taxes and other Taxes required to be paid on any Credit 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) 92 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 Credit 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 Credit 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. 6.12 HIGH YIELD NOTES. Company shall obtain no later than three months after the Closing Date, ratings of the High Yield Notes from S&P and/or Moody's; provided, however, that if such ratings shall not have been obtained by such date solely due to inaction or a refusal to act by any such rating agency that is, in either case, beyond the control of Borrowers (as determined in the reasonable judgment of Administrative Agent), Borrowers shall not be in breach of this subsection 6.12 so long as Borrowers shall take all steps Agents reasonably request from time to time to obtain such ratings. 6.13 MOST FAVORED NATIONS PAYMENTS. Company shall, and shall cause each of its Subsidiaries to, extend any fees or pricing increases, to the extent such fees or pricing increases are the direct obligation of Company or its Subsidiaries, resulting from the amendment, waiver or modification, after the Closing Date, of the New L/C Facility Documents, on an equivalent basis (based in the case of fees on the respective amounts of Letter of Credit Exposure outstanding (on one hand) and the credit exposure under the New L/C Facility Documents (on the other hand)) to the Lenders regardless of whether a particular Lender has participated in or consented to a corresponding amendment, waiver or modification (if any) of the Credit Documents, and any such payment of equivalent fees shall be paid in cash concurrently with the fees giving rise to such equivalent fees. SECTION 7. BORROWERS' NEGATIVE COVENANTS Borrowers covenant and agree that, so long as any of the Letter of Credit Commitments hereunder shall remain in effect and until payment in full of all 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. 93 7.1 INDEBTEDNESS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, create, incur or assume, 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 and Indebtedness under the New L/C Facility Documents, the High Yield Notes, the Tax Note and the Unsecured Creditor Notes, and Subsidiaries of Borrowers may become and remain liable with respect to Indebtedness under the Tax Note; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations and Performance Guaranties permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, any Indebtedness created as a result thereof; (iii) Borrowers may become and remain liable with respect to Indebtedness to any other Borrowers; provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (iv) Subsidiaries of Company other than Borrowers may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company so long as the proceeds of such Indebtedness are applied to working capital, capital expenditure, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of the Subsidiaries incurring such Indebtedness; provided, that (a) no such Indebtedness may be incurred at any time that Borrowers shall not be in compliance with subsection 7.6E, (b) no such Indebtedness may be incurred to make capital expenditures if after giving effect to such expenditures Borrowers would not be in pro forma compliance with subsection 7.6F, and (c) all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (v) Subsidiaries of Company may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company the proceeds of which are applied to Development Expenses; provided that Development Expenses for all Projects of Company's Subsidiaries at any time after the Closing Date, net of any such Development Expenses that have theretofore been reimbursed after the Closing Date by the client of the relevant Project, shall not exceed on any date of determination an amount equal to (a) $3,000,000 plus (b) the product of $3,000,000 multiplied by the number of Fiscal Years that have commenced following January 31, 2004 but prior to such date of determination; and provided further, that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (vi) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness outstanding on the Closing Date and described in Schedule 7.1(vi) annexed hereto; (vii) Subsidiaries of Company may become and remain liable with respect to Indebtedness to Company or any of its Subsidiaries the proceeds of which are applied to 94 make Expansions permitted under subsection 7.3(vi) or 7.3(vii); provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (viii) Subsidiaries of Company may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by Company or another Subsidiary of Company in such Subsidiaries, provided that the underlying equity Investment was permitted under this Agreement at the time of such conversion; (ix) Company and its Subsidiaries may become and remain liable with respect to Indebtedness under (a) Capital Leases in existence as of the Closing Date and described in Schedule 7.1(ix) and (b) Capital Leases entered into after the Closing Date, so long as the aggregate amount of Indebtedness outstanding at any time with respect to Capital Leases under clause (b) of this subsection 7.1(ix) shall not exceed $5,000,000; (x) Company or any Subsidiary of Company may become and remain liable with respect to Indebtedness incurred to refinance, replace, renew or extend, in whole or in part, Indebtedness of such Person permitted to remain outstanding under subsection 7.1(vi); provided, that in each case (a) the terms (excluding the interest rate and fees payable with respect thereto, so long as such interest and fees on such Indebtedness are not borne directly or indirectly by Company or any of its Subsidiaries, whether through an offset to or deduction against service or operating agreement fees to Company or its Subsidiaries or otherwise) of such Indebtedness as refinanced, replaced, renewed or extended, taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such refinancing, replacement, renewal, or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Indebtedness relates), shall not be more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the Indebtedness so refinanced, replaced, renewed or extended, (b) the principal amount of the Indebtedness as refinanced, replaced, renewed or extended shall not exceed 110% of the principal amount of the Indebtedness so refinanced, replaced, renewed or extended (provided that such limitation shall not apply with respect to Indebtedness that an existing client (if such client is a Government Authority) of a Project undertakes to service through the principal lease, service or operating agreement of the applicable Project), (c) no obligee or beneficiary of such Indebtedness after such refinancing, replacement, renewal or extension shall have greater recourse to Persons for the payment or collection of such Indebtedness than the obligee or beneficiary of the Indebtedness so refinanced, replaced, renewed or extended had immediately prior to such transaction, and (d) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (xi) Subsidiaries of Company that are obligated with respect to Limited Recourse Debt on the Closing Date relating to waste-to-energy Projects may, after the Closing Date, become and remain liable with respect to Limited Recourse Debt relating to such waste-to-energy Projects, so long as (a) all or substantially all the proceeds of such Limited Recourse Debt are applied to Expansions of such waste-to-energy Projects permitted under subsection 7.3(vii) or to ensure compliance with applicable laws and 95 regulatory requirements and (b) the incurrence by such Subsidiary of such Limited Recourse Debt is required by the existing client (if such client is a Government Authority) of the relevant Project and Company shall have delivered to Agents an Officer's Certificate to the foregoing effect; provided, that after the occurrence and during the continuation of an Event of Default, neither Company nor any of its Subsidiaries shall enter into a contractual commitment to incur any such Limited Recourse Debt; (xii) Company may become and remain liable with respect to Indebtedness consisting solely of its obligations under Insurance Premium Financing Arrangements, which obligations shall not exceed at any time $30,000,000 in the aggregate; (xiii) Borrowers may become and remain liable with respect to Indebtedness incurred to refinance, replace, defease, renew or extend, in whole or in part, the High Yield Notes issued on the Closing Date; provided, that (a) the fees, interest rates and pricing terms of such Indebtedness as refinanced, replaced, defeased, renewed or extended, taken as a whole (considering any extension of the term of such Indebtedness), shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents) than the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (b) no scheduled installment of principal shall be required on earlier dates than the maturity date of the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (c) the other terms (including the redemption and repayment terms, representations and warranties, covenants and events of default) of such Indebtedness as refinanced, replaced, defeased, renewed or extended, taken as a whole, shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents) than the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (d) the principal amount of the Indebtedness as refinanced, replaced, defeased, renewed or extended shall not exceed the sum of (1) 110% of the principal amount of the Indebtedness so refinanced, replaced, defeased, renewed or extended, (2) interest accrued and unpaid on such principal amount immediately prior to such refinancing, replacement, defeasance, renewal or extension, and (3) premiums required to be paid upon such refinancing, replacement, defeasance, renewal or extension pursuant to the documentation for the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (e) the obligations under (and the Liens securing) such Indebtedness as refinanced, replaced, defeased, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the High Yield Notes refinanced, replaced, defeased, renewed or extended thereby, and (f) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, defeasance, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (xiv) Company may become and remain liable with respect to Subordinated Indebtedness to Persons other than Company and its Subsidiaries in an aggregate amount at any time outstanding not to exceed $10,000,000; provided, that (a) such Indebtedness shall be unsecured and unguarantied, (b) no cash interest or cash principal payments shall be required on such Indebtedness until the Obligations are paid in full, (c) the interest 96 rates maturities, amortization schedules, covenants, defaults, remedies, subordination provisions and other terms of such Indebtedness are satisfactory to Agents and Requisite Lenders, (d) the proceeds of such Indebtedness shall not be applied to any purpose prohibited under this Agreement, and (e) after giving effect to the incurrence of such Indebtedness, Borrowers shall be in pro forma compliance with subsection 7.6B; (xv) Bankrupt Subsidiaries may become and remain liable under intercompany loans by Company and its Subsidiaries (other than Bankrupt Subsidiaries) to such Bankrupt Subsidiaries to the extent such loans are permitted under subsection 7.3(xi); (xvi) CEA may become and remain liable with respect to Indebtedness arising solely due to its pledge of the Capital Stock of CPIH under the CPIH Stock Pledge Agreement; (xvii) Company and its Subsidiaries may become and remain liable with respect to their obligations to pay for services rendered by DHC to them under and in accordance with the Corporate Services Reimbursement Agreement; and (xviii) Company and its Subsidiaries may become and remain liable with respect to other unsecured Indebtedness in an aggregate amount at any time outstanding not to exceed $7,500,000. 7.2 LIENS AND RELATED MATTERS. A. PROHIBITION ON LIENS. Borrowers shall not, and shall not permit 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 of their respective Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or authorize the filing of, or permit to remain in effect, any effective 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, except: (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Collateral Documents to secure the Obligations, the obligations of Borrowers under the New L/C Facility Documents, the obligations under the High Yield Notes and the obligations to the cash management bank with respect to the Cash Management System; (iii) Liens existing on the Closing Date and described in Schedule 7.2 annexed hereto; (iv) Liens on assets of any Subsidiary of Company and/or on the stock or other equity interests of such Subsidiary, in each case to the extent such Liens secure Limited Recourse Debt of such Subsidiary permitted by subsection 7.1(xi); 97 (v) Liens on assets of Company or any Subsidiary of Company securing refinancing Indebtedness permitted by subsection 7.1(x), 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, if applicable, assets the acquisition of which was financed with the proceeds of such refinancing Indebtedness permitted by subsection 7.1(x); (vi) Liens securing debt service reserve funds, completion obligations and similar accounts and obligations (other than Indebtedness) of Subsidiaries of Company to Persons other than Company and its Subsidiaries and their respective Affiliates, so long as (a) each such obligation is associated with a Project, (b) such Lien is limited to (1) assets associated with such Project (which in any event shall not include assets held by any Borrower other than a Borrower whose sole business is the ownership and/or operation of such Project and substantially all of whose assets are associated with such Project) and/or (2) the equity interests in such Subsidiary, but in the case of clause (2) 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, and (c) such obligation is otherwise permitted under this Agreement; (vii) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 7.4(ix), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (viii) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 7.4(x), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (ix) Liens on cash collateral of Company and its Subsidiaries securing Contingent Obligations permitted under subsection 7.4(xi); (x) Liens created pursuant to Insurance Premium Financing Arrangements otherwise permitted under this Agreement, so long as such Liens attach only to gross unearned premiums for the insurance policies; (xi) Liens on cash collateral of Company securing insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 6.4B; (xii) Liens on all or substantially all of the assets of the Bankrupt Subsidiaries to the extent such Liens secure the obligations of such Bankrupt Subsidiaries under loans made to them and permitted under subsection 7.3(xi); 98 (xiii) Liens securing Indebtedness permitted under subsection 7.1(ix)(b), so long as such Liens extend only to the assets subject to the relevant Capital Lease; (xiv) Liens on the Capital Stock of CPIH pledged by CEA under the CPIH Stock Pledge Agreement; and (xv) Other Liens on assets of any Subsidiary of Company securing Indebtedness in an aggregate amount not exceeding $2,500,000. B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Borrowers or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A and Liens created or assumed on properties or assets on which First Priority Liens created under the Collateral Documents are attached and perfected at the time of such creation or assumption, the Borrowers hereby agree that (i) they will be deemed to have automatically and without further action secured the Obligations with such Lien equally and ratably with any and all other Indebtedness, Contingent Obligations or any other obligations or debt (as defined in the Bankruptcy Code) secured thereby, and (ii) they shall take or cause to be taken such actions as Agents or Requisite Lenders deem necessary or advisable to evidence such equal and ratable Lien; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A, and the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A shall constitute an Event of Default. C. NO FURTHER NEGATIVE PLEDGES. Neither Company nor any of its Subsidiaries shall enter into any agreement (other than this Agreement, the Credit Documents, the New L/C Facility Documents and the High Yield Indenture) 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 (i) specific property encumbered by a Lien permitted hereunder to secure payment of particular Indebtedness permitted to be incurred under subsection 7.1(vii), 7.1(x) (but only to the extent that the Indebtedness being refinanced was subject to a negative pledge on the same assets), 7.1(xi), or 7.1(xii), or by a Lien permitted under subsection 7.2A(vi), 7.2A(vii), 7.2A(viii), 7.2A(ix), 7.2A(xi), 7.2A(xii) or 7.2A(xiv), or by a Lien permitted under subsection 7.2A(xv) to the extent such Lien secures obligations permitted hereunder that are incurred to finance the acquisition of such specific property, (ii) specific property to be sold pursuant to an executed agreement with respect to an Asset Sale which is permitted hereunder, (iii) specific property that is leased pursuant to a lease permitted hereunder, (iv) provisions in the principal lease, service and operating agreements pertaining to Projects or the partnership and financing agreements relating to Projects, so long as in each case such lease, service, operating, partnership or financing agreement is an extension, renewal or replacement of such agreement in effect as of the Closing Date, is otherwise permitted to be entered into hereunder and contains no more restrictive provisions relating to prohibiting the creation or assumption of any Lien upon the properties or assets of the relevant Subsidiary than the lease, service, operating, partnership or financing agreement so extended, renewed or replaced, and (v) provisions contained in any New L/C Facility Agreement described in and permitted under clause (ii) of the definition of New L/C Facility Agreement. 99 D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY 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 other 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 Credit Documents, (b) those encumbrances or restrictions applicable to Subsidiaries of Company to the extent created under documentation in existence on the Closing Date, under the New L/C Facility Documents or under the High Yield Indenture, (c) as may be provided in an executed agreement with respect to an Asset Sale which is permitted hereunder, and (d) provisions in the principal lease, service or operating agreements, partnership agreements and financing agreements pertaining to Projects, so long as such lease, service or operating agreements, partnership agreements and financing agreements are extensions, renewals or replacements of such agreements in effect as of the Closing Date, are otherwise permitted to be entered into hereunder and in each case contain no more restrictive provisions relating to the ability of the relevant Subsidiary to take the actions described in clauses (i) through (iv) than the agreement so extended, renewed or replaced. 7.3 INVESTMENTS; ACQUISITIONS. Borrowers shall not, and shall not permit 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 Subsidiaries may make and own Investments in Domestic Cash Equivalents and in such investments as are permitted or imposed under the terms of any cash collateral or debt service reserve agreement (including pursuant to the terms of any Project bond indenture) permitted hereunder; (ii) Borrowers may make and own additional equity Investments in other Borrowers, so long as no such Investment shall be made by one Borrower in another Borrower if (a) the latter is subject to restrictions of the type described in subsection 7.2D more adverse than restrictions of such type that are applicable to the Borrower making such Investment, or (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment; and Subsidiaries that are not Borrowers may make and own additional equity Investments in Borrowers other than Company, so long as no such Investment shall be made if (a) the applicable Subsidiary is subject to restrictions of the type described in subsection 7.2D more adverse than restrictions of such type that are applicable to the applicable Borrower, (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or 100 Contingent Obligation (other than the Obligations) of such Subsidiary having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment, or (c) such Investment shall have any adverse effect on the Collateral for the Obligations; (iii) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsections 7.1(iii) and 7.1(vii); (iv) Company and its Subsidiaries may make Consolidated Facilities Capital Expenditures permitted by subsection 7.6; (v) Company and its Subsidiaries may continue to own the Investments owned by them on the Closing Date and described in Schedule 7.3(v) annexed hereto; (vi) Company and its Subsidiaries may make Expansions which Company and its Subsidiaries are committed as of the Closing Date to make in those waste-to-energy Projects set forth in Schedule 7.3(vi) annexed hereto; provided that each such Investment (or commitment to make the same) made in connection with such Projects shall be of a type described on such Schedule and shall be in an amount not exceeding the amount set forth on such Schedule; (vii) Company and its Subsidiaries may make Expansions (and may enter into contractual commitments to make such Investments) with respect to existing waste-to-energy Projects to the extent such Expansions are publicly financed, so long as (a) Company shall provide to Agents reasonable prior advance written notice of each such Investment and Expansion and copies of all material contracts or other agreements being entered into in connection with such Investment and Expansion, (b) such Expansion is not otherwise prohibited under this Agreement, (c) such Expansions are required by the existing client (if such client is a Government Authority) of the relevant Project and the amounts required therefor are advanced to Company and its Subsidiaries or paid directly by such client, and (d) such Investment (or such contractual commitment, as the case may be) shall not breach any other provision of this Agreement; provided, that after the occurrence and during the continuation of an Event of Default, neither Company nor any of its Subsidiaries shall enter into a contractual commitment for any such Investment; (viii) Company and its Subsidiaries may, after the Closing Date, make and own Investments in any other Subsidiary of Company (to the extent in existence on the Closing Date) the proceeds of which are applied to working capital, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of Subsidiaries other than Borrowers; provided, that no such Investment may be made at any time that Borrowers shall not be in compliance with subsection 7.6E; (ix) Company and its Subsidiaries may, after the Closing Date, make and own Investments in any other Subsidiary of Company (to the extent in existence on the Closing Date) the proceeds of which are applied to Development Expenses; provided that Development Expenses for all Projects of Company's Subsidiaries at any time after the 101 Closing Date, net of any such Development Expenses that have theretofore been reimbursed after the Closing Date by the client of the relevant Project, shall not exceed on any date of determination an amount equal to (a) $3,000,000 plus (b) the product of $3,000,000 multiplied by the number of Fiscal Years that have commenced following January 31, 2004 but prior to such date of determination; (x) Borrowers and their Subsidiaries may own Investments in the form of non-cash consideration received in connection with (a) Asset Sales permitted under subsection 7.7(iii) or 7.7(iv) or (b) settlements of disputes, to the extent such settlements occur in the ordinary course of business; (xi) Company and its Subsidiaries may make Investments after the Closing Date consisting of intercompany loans to the Bankrupt Subsidiaries, so long as (a) the proceeds of such loans are applied to working capital, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of such Bankrupt Subsidiaries, (b) the aggregate amount of such intercompany loans outstanding to the Bankrupt Subsidiaries at any time shall not exceed $2,000,000, (c) such loans shall have, pursuant to an order of the Bankruptcy Court in form and substance satisfactory to Agents, no less favorable payment priority and lien priority than the payment priority and lien priority of such Bankrupt Subsidiaries' obligations under the DIP Credit Agreement immediately prior to the Closing Date, and shall be secured by substantially the same assets of such Bankrupt Subsidiary as such obligations under the DIP Credit Agreement immediately prior to the Closing Date, and (d) such loans shall be evidenced by promissory notes that shall be pledged to secure the Obligations; (xii) Borrowers may make payments to the extent contractually obligated pursuant to the terms of the Existing IPP International Project Guaranties; (xiii) Subject to the Intercreditor Agreement, Borrowers may reimburse drawings made under letters of credit issued under the New L/C Facility Agreement that support obligations with respect to the IPP International Business; and (xiv) CEA may make payments on account of Indebtedness of CPIH to the extent such payments are made solely from the proceeds of sales of Capital Stock of CPIH. 7.4 CONTINGENT OBLIGATIONS; PERFORMANCE GUARANTIES. Company shall not, and shall not permit any of its 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 or to post cash collateral to secure any obligation, except: (i) Borrowers may become and remain liable (a) with respect to Contingent Obligations in respect of the Obligations and under the Credit Documents, (b) with respect to Contingent Obligations under guarantees of the High Yield Notes, and (c) with 102 respect to Contingent Obligations under the New L/C Facility Documents and the CPIH Stock Pledge Agreement; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; (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 permitted under this Agreement; (iv) Company and its Subsidiaries may become and remain liable with respect to (a) Performance Guaranties in existence on the Closing Date and described on Schedule 7.4(iv) annexed hereto, (b) Performance Guaranties replacing, renewing or extending Performance Guaranties described in clause (a), and (c) Performance Guaranties entered into in connection with a Bankrupt Subsidiary ceasing to be a Bankrupt Subsidiary, for the purpose of replacing a Performance Guaranty relating to such Bankrupt Subsidiary that was in effect immediately prior to the Closing Date but was terminated on the Closing Date, so long as no Persons enter into any such replacement Performance Guaranty as obligors other than the obligors under the Performance Guaranty being so replaced; provided that no such replacement, renewed or extended Performance Guaranty referred to in clause (b) or (c) (x) taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such replacement, renewal or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Performance Guaranty relates), shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Performance Guaranty so replaced, renewed or extended or (y) shall be secured or guarantied; (v) Company and its Subsidiaries may become and remain liable with respect to Performance Guaranties or Contingent Obligations supporting Expansions of waste-to-energy Projects permitted pursuant to subsection 7.3(vii), provided that (a) the terms of any such Performance Guaranty or Contingent Obligation shall be generally consistent with past practice of Company and its Subsidiaries, (b) in no event shall any such Performance Guaranty or Contingent Obligation be secured by collateral, (c) no Borrower or Subsidiary other than a Person already liable under a substantially similar Contingent Obligation with respect to such Project shall become liable under any such Contingent Obligation, (d) no Borrower or Subsidiary other than a Person already liable under a substantially similar Performance Guaranty with respect to such Project shall become liable under any such Performance Guaranty, and (e) after the occurrence and during the continuation of an Event of Default, neither Company nor any if its Subsidiaries shall enter into any such Performance Guaranty or Contingent Obligation or enter into a contractual commitment to provide any such Performance Guaranty or Contingent Obligation; 103 (vi) Company and its Subsidiaries, as applicable, may become and remain liable with respect to (a) Contingent Obligations (other than the Existing IPP International Project Guaranties) in existence on the Closing Date and described in Schedule 7.4(vi) annexed hereto, and (b) Contingent Obligations replacing, renewing or extending Contingent Obligations described in clause (a); provided that no such replacement, renewed or extended Contingent Obligation, taken as a whole, shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Contingent Obligations so replaced, renewed or extended; (vii) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with arrangements made with third parties to obtain surety bonds, bid bonds and other similar security required to be delivered or posted in connection with (i) additions or improvements to existing facilities to increase the capacity, efficiency, performance or profitability of the applicable Project, so long as such additions or improvements are not Expansions, are required pursuant to binding Contractual Obligations of Company or its Subsidiaries and are in compliance with subsection 7.6F, and (ii) Expansions of existing Projects, to the extent such Expansions are otherwise permitted under subsection 7.3(vii) and the other provisions of this Agreement; (viii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations which Company and its Subsidiaries are contractually committed as of the Closing Date to incur with respect to those Projects set forth on Schedule 7.3(vi) annexed hereto; provided that each such Contingent Obligation (or commitment to incur the same) incurred in connection with such Projects shall be of a type described on such Schedule and shall be in an amount not exceeding the amount set forth on such Schedule; (ix) 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; (x) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations constituting Hedge Agreements; (xi) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations incurred in exchange (or in consideration) for (a) the release of cash collateral pledged by Company or its Subsidiaries or (b) the return and cancellation of undrawn letters of credit for which Company or its Subsidiaries are liable for reimbursement; provided that in each case the maximum amount of the Contingent Obligations so incurred shall not exceed 110% of the amount of cash collateral released or the face amount of the letters of credit returned and cancelled, as the case may be; (xii) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with insurance 104 deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 6.4B; and (xiii) Company and its Subsidiaries, as applicable, may remain liable with respect to the Existing IPP International Project Guaranties, as such guaranties are in effect on the Closing Date. 7.5 RESTRICTED PAYMENTS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided, however, that (i) so long as no Event of Default shall have occurred and be continuing, Borrowers may make regularly scheduled payments of principal and interest in respect of any Subordinated Indebtedness (other than the Tax Note) in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the indenture or other agreement pursuant to which such Subordinated Indebtedness was issued, as such indenture or other agreement may be amended from time to time to the extent permitted under subsection 7.12, provided that so long as Borrowers may elect to pay all or any portion of such interest in kind rather than in cash, Borrowers shall elect to pay in kind the maximum portion of such interest with respect to which Borrowers can make such election; (ii) Company and its Subsidiaries may make payments of principal, interest and other amounts in respect of the Tax Note and Indebtedness permitted under subsections 7.1(vi), 7.1(ix), 7.1(x), 7.1(xi), 7.1(xii), 7.1(xiv), 7.1(xv) and 7.1(xviii), in accordance with the terms of, and only to the extent required by, the Tax Note or the indentures or other agreements pursuant to which such Indebtedness was issued, as the case may be, as such Tax Note, indentures or other agreements may be amended from time to time to the extent permitted hereunder, provided, however, that during the continuance of an Event of Default, notwithstanding anything to the contrary in this Agreement, neither Company nor any Subsidiary shall fund, contribute or otherwise advance amounts for payment of Indebtedness permitted under subsections 7.1(vi), 7.1(x) and 7.1(xi) related to Projects unless it has an irrevocable Contractual Obligation to make such payments; (iii) so long as no Event of Default shall have occurred and be continuing, Subsidiaries of Company may, at the time Indebtedness is refinanced or replaced as permitted under subsection 7.1 by other Indebtedness permitted under such subsection, pay principal, accrued interest and other amounts owing on such refinanced Indebtedness at such time, provided that such payments may be made with respect to Limited Recourse Debt during the continuance of an Event of Default so long as such payments are from the proceeds of Limited Recourse Debt permitted to be incurred hereunder and such proceeds are required to be applied to make such payments under a binding Contractual Obligation to a third party; (iv) Company and its Subsidiaries may pay any fees required to be paid to the Agents and Lenders hereunder; (v) so long as no failure to pay any amount when due shall have occurred and be continuing under this Agreement, Company may make payments to DHC to the extent required under the Corporate Services Reimbursement Agreement; (vi) Company and its Subsidiaries may make payments required under the DHC Tax Sharing Agreement; (vii) Company and its Subsidiaries may make payments to Persons in accordance with the Approved Plan of Reorganization to the extent such payments are made from funds held in reserves established pursuant to the Approved Plan of Reorganization, provided, that Borrowers shall not, and shall not permit their respective Subsidiaries to, deposit 105 any amounts in such reserves in excess of the amounts established prior to the Closing Date pursuant to the Approved Plan of Reorganization; and (viii) Company and its Subsidiaries may apply cash in an amount not exceeding, in the aggregate, 105% of the stated amount of the Greenway L/C to cash collateralize or otherwise support the Greenway L/C as contemplated under subsection 4.1F(i)(d) and/or to reimburse drawings thereunder. In addition, in any case where a Borrower or Subsidiary is a Joint Venture, Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except a dividend payable solely in shares of that class of stock to the holders of that class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except in each case to the extent the relevant action described in clause (a), (b) or (c) is required pursuant to a binding Contractual Obligation in effect as of the Closing Date or pursuant to an extension, renewal or replacement of such a Contractual Obligation so long as such extension, renewal or replacement is otherwise permitted to be entered into hereunder and contains provisions no less favorable to Company and its Subsidiaries than the relevant Contractual Obligations so extended, renewed or replaced. 7.6 FINANCIAL COVENANTS. A. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the ratio of (i) Adjusted EBITDA to (ii) Consolidated Cash Interest Expense, in each case for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter set forth below, to be less than the correlative ratio indicated:
MINIMUM INTEREST FISCAL QUARTER COVERAGE RATIO -------------- -------------- FQ2 2004 1.15:1.00 FQ3 2004 1.15:1.00 FQ4 2004 1.15:1.00 FQ1 2005 1.15:1.00 FQ2 2005 1.20:1.00 FQ3 2005 1.20:1.00 FQ4 2005 1.25:1.00 FQ1 2006 1.25:1.00 FQ2 2006 1.30:1.00 FQ3 2006 1.30:1.00
106 FQ4 2006 1.30:1.00 FQ1 2007 1.30:1.00 FQ2 2007 1.35:1.00 FQ3 2007 1.35:1.00 FQ4 2007 1.35:1.00 FQ1 2008 1.35:1.00 FQ2 2008 1.40:1.00 FQ3 2008 1.40:1.00 FQ4 2008 and thereafter 1.40:1.00
B. MAXIMUM CONSOLIDATED LEVERAGE RATIO. Company shall not permit the Consolidated Leverage Ratio as at any date on or after the end of the most recently ended Fiscal Quarter set forth in the table below to exceed the correlative ratio indicated:
MAXIMUM CONSOLIDATED FISCAL QUARTER LEVERAGE RATIO -------------- -------------- FQ2 2004 7.00:1.00 FQ3 2004 7.00:1.00 FQ4 2004 7.00:1.00 FQ1 2005 7.00:1.00 FQ2 2005 6.75:1.00 FQ3 2005 6.75:1.00 FQ4 2005 6.50:1.00 FQ1 2006 6.50:1.00 FQ2 2006 6.25:1.00 FQ3 2006 6.25:1.00 FQ4 2006 6.25:1.00 FQ1 2007 6.25:1.00 FQ2 2007 6.00:1.00 FQ3 2007 6.00:1.00 FQ4 2007 6.00:1.00 FQ1 2008 6.00:1.00
107 FQ2 2008 5.75:1.00 FQ3 2008 5.75:1.00 FQ4 2008 and thereafter 5.75:1.00
C. MINIMUM CONSOLIDATED NET WORTH. Company shall not permit Consolidated Net Worth on any date of determination after the Closing Date to be less than (i) Consolidated Net Worth as of the Closing Date, if such date of determination occurs during 2004, or (ii) the sum of (a) Consolidated Net Worth as of the Closing Date plus (b) the product of $7,000,000 multiplied by the number of Fiscal Quarters that have ended after December 31, 2004 but prior to such date of determination, if such date of determination occurs after 2004. D. MINIMUM ADJUSTED EBITDA. Company shall not permit Adjusted EBITDA for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter set forth below to be less than the correlative amount indicated:
MINIMUM ADJUSTED FISCAL QUARTER EBITDA -------------- ------ FQ2 2004 $40,000,000 FQ3 2004 $40,000,000 FQ4 2004 $40,000,000 FQ1 2005 $40,000,000 FQ2 2005 $40,000,000 FQ3 2005 $40,000,000 FQ4 2005 $45,000,000 FQ1 2006 $45,000,000 FQ2 2006 $45,000,000 FQ3 2006 $45,000,000 FQ4 2006 $45,000,000 FQ1 2007 $45,000,000 FQ2 2007 $45,000,000 FQ3 2007 $45,000,000 FQ4 2007 $45,000,000 FQ1 2008 $45,000,000 FQ2 2008 $45,000,000 FQ3 2008 $45,000,000 FQ4 2008 and thereafter $45,000,000
108 E. MINIMUM NON-BORROWER CASH FLOW. Company shall not permit Non-Borrower Cash Flow for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter, to be less than zero. F. MAXIMUM CONSOLIDATED FACILITIES CAPITAL EXPENDITURES. Borrowers shall not, and shall not permit their respective Subsidiaries to, make or incur Consolidated Facilities Capital Expenditures during any Fiscal Year in excess of the Maximum Consolidated Facilities Capital Expenditures Amount for such Fiscal Year. For purposes of this subsection 7.6F, the "MAXIMUM CONSOLIDATED FACILITIES CAPITAL EXPENDITURES AMOUNT" for Fiscal Year 2004 shall equal $25,000,000 and for each Fiscal Year thereafter shall equal $20,000,000; provided, however, that the Maximum Consolidated Facilities Capital Expenditures Amount for any Fiscal Year after 2004 shall be increased by an amount equal to 25% of the excess, if any, of the Maximum Consolidated Facilities Capital Expenditures Amount for the previous Fiscal Year (prior to giving effect to this proviso) over the actual amount of Consolidated Facilities Capital Expenditures made or incurred during such previous Fiscal Year; and provided further, however, that Company may elect by written notice to Agents to increase the Maximum Consolidated Facilities Capital Expenditures Amount for any Fiscal Year by an amount not more than $5,000,000 by decreasing the Maximum Consolidated Facilities Capital Expenditures Amount for the subsequent Fiscal Year by an amount equal to the amount of such increase. G. CERTAIN CALCULATIONS. Notwithstanding any provision of this Agreement to the contrary, (i) for purposes of calculating Adjusted EBITDA for any four-Fiscal Quarter period ending prior to the first Fiscal Quarter of 2005, Adjusted EBITDA for the third and fourth Fiscal Quarters of 2003 and the first Fiscal Quarter of 2004 shall be deemed to be equal to the correlative amounts set forth opposite such Fiscal Quarters on Schedule 7.6G annexed hereto; (ii) for purposes of determining compliance with subsection 7.6A for any four-Fiscal Quarter period ending prior to the last Fiscal Quarter of 2004, Consolidated Cash Interest Expense shall equal the product of (a) actual Consolidated Cash Interest Expense during the period from the Closing Date to the end of such four-Fiscal Quarter period multiplied by (b) the ratio of (1) 365 divided by (2) the number of days in such period; and (iii) for purposes of determining compliance with each of the covenants in this subsection 7.6, each of Adjusted EBITDA, Consolidated Cash Interest Expense, Consolidated Net Worth, Non-Borrower Cash Flow and Consolidated Facilities Capital Expenditures shall not include any portion thereof attributable to the results of operations or financial position, as the case may be, of CPIH Subsidiaries for the relevant period or as of the relevant date of determination. 7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES. Borrowers shall not, and shall not permit 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, 109 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 Borrower may be merged with or into a 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 a Borrower; provided that, no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; (ii) (a) any Subsidiary of Company that is not a Borrower may be merged with or into any other Subsidiary of Company that is not a 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 another Subsidiary that is not a Borrower, provided, that no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; and (b) any Immaterial Foreign Subsidiary may be merged with or into any 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 a Borrower, provided, that (1) no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) of such Immaterial Foreign Subsidiary having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction and (2) the relevant Borrower shall be a surviving entity in any such transaction; (iii) 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; and (iv) Company and its Subsidiaries may make 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) not less than 90% of the consideration received (other than any consideration consisting of the assumption of liabilities related to such assets) in any such Asset Sale shall be cash (it being agreed that cash the receipt of which may by the relevant terms of such Asset Sale be deferred more than six months after the date of consummation of such Asset Sale shall not be considered cash for purposes of this clause (b)); (c) not more than 10% of the cash consideration received by Company and its Subsidiaries in any such Asset Sale shall be received after the date of consummation of such Asset Sale; (d) any Indebtedness in relation to the assets sold in any such Asset Sale shall be repaid and the related letters of credit shall be cancelled and returned to the 110 issuers thereof; (e) the Net Asset Sale Proceeds of such Asset Sales shall be applied as Mandatory Payments to the extent required under subsection 2.3A; and (f) in the event that the Net Asset Sale Proceeds from any Asset Sale, when added to the aggregate Net Asset Sale Proceeds from all other Asset Sales after the Closing Date, would exceed $10,000,000, Company and its Subsidiaries shall not be permitted to consummate such Asset Sale without the prior written consent of Requisite Lenders. 7.8 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Company shall not, and shall not permit any of its 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 among Company and its Subsidiaries or among Subsidiaries of Company, (ii) reasonable and customary salaries and fees paid to current officers and members of the Governing Bodies of Company and its Subsidiaries, provided that such salary and fee arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iii) reasonable and customary indemnifications and insurance arrangements for the benefit of Persons that are officers or members of the Governing Bodies of Company and its Subsidiaries on or after the Closing Date, whether such Persons are current or former officers or members at the time such indemnifications or arrangements are entered into, provided that such indemnifications and arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iv) any employment agreements or benefits arrangements entered into on or after the Closing Date by Company and its Subsidiaries with employees at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (v) payments (and other transactions) made in accordance with the terms of the Management Services and Reimbursement Agreement, the DHC Tax Sharing Agreement, the Corporate Services Reimbursement Agreement and the other Related Agreements, (vi) transactions occurring on the Closing Date and described on Schedule 7.8 annexed hereto, and (vii) 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. 7.9 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 for equipment (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 111 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; provided, however, that this subsection 7.9 shall not prohibit Company or its Subsidiaries from incurring obligations pursuant to the renewal, extension or replacement of leases in effect at the Closing Date so long as such leases as renewed, extended or replaced are not more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the leases so renewed, extended or replaced. 7.10 DETROIT PROJECT COVENANTS Company shall not, and shall not permit any of its Subsidiaries to, enter into any Contractual Obligation after the Closing Date that would (i) grant a right to any Person or Persons to consent to or approve a sale or other disposition of all or any portion of the Detroit Project or the Capital Stock of the Detroit Project Subsidiary, (ii) be breached by a sale or other disposition of all or any portion of the Detroit Project or the Capital Stock of the Detroit Project Subsidiary if the consent or approval of any Person or Persons (other than Requisite Lenders) is not obtained, (iii) create any additional restriction not in existence as of the Closing Date limiting the ability of Company and its Subsidiaries to sell or dispose of all or any portion of the Detroit Project or the Capital Stock of the Detroit Project Subsidiary, or (iv) purport to restrict the ability of Company and its Subsidiaries to fund the operations of the Detroit Project after a default under the terms of such Contractual Obligation. 7.11 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 energy, water and waste management businesses of the type in which they are engaged on the Closing Date and other activities to the extent incidental or reasonably related to such businesses. 7.12 AMENDMENTS TO RELATED AGREEMENTS, DEBT DOCUMENTATION AND ORGANIZATIONAL DOCUMENTS. Company shall not, and shall not permit any of its Subsidiaries to, amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of (i) the Management Services and Reimbursement Agreement or the other Related Agreements (other than the New L/C Facility Documents), in each case if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) except as otherwise permitted under subsection 7.1(xiii), is to impose additional material obligations on, or confer material additional rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, or (b) is otherwise adverse to the interests of the Lenders in a manner deemed material in the judgment of Agents or Requisite Lenders so notifying Agents or Company; (ii) the Organizational Documents of Company and its Subsidiaries, if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, is adverse to the interests of the Lenders in a manner deemed material in the judgment of Agents or Requisite Lenders; (iii) the Subordinated Indebtedness, if the effect thereof would be to (a) change to earlier dates the dates on which any 112 payments of principal or interest are due thereon, (b) increase the interest rate, or the portion thereof payable on a current basis in cash, applicable thereto, (c) change any event of default with respect thereto in any manner adverse to the interests of the Lenders, (d) change the redemption, prepayment or defeasance provisions thereof, (e) change the subordination provisions thereof (or of any guaranty thereof or intercreditor arrangement with respect thereto), (f) change any collateral therefor (other than to release such collateral), or (g) change any other term or provision thereof, if the effect of such change, together with all other changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Indebtedness that would be materially adverse (in the judgment of Agents or Requisite Lenders so notifying Agents or Company) to Company, Agents or the Lenders, without the prior written consent of Requisite Lenders; (iv) the principal documents relating to Limited Recourse Debt with respect to a Project if such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications and waivers made, would reasonably be expected to have a Material Adverse Effect; or (v) the New L/C Facility Documents, unless (a) the terms of the New L/C Facility Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents) than the New L/C Facility Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of (1) increasing the maximum amount of any commitment to extend loans (as opposed to letters of credit) under the New L/C Facility Documents, or (2) reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend loans or letters of credit under the New L/C Facility Documents, shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Agents), (b) the aggregate amount of Indebtedness and letters of credit outstanding, and additional commitments to extend credit, if any, under the New L/C Facility Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the New L/C Facility Documents on the Closing Date, plus $5,000,000, (c) the obligations under (and the Liens securing) such New L/C Facility Documents as so amended, restated, modified or waived are subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the New L/C Facility Documents on the Closing Date, and (d) Company provides to Agents reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith). 7.13 END OF FISCAL YEARS; FISCAL QUARTERS. 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. 7.14 AMENDMENT TO PENSION PLANS. Borrowers shall not amend or modify any Pension Plan after the Closing Date in any manner that results in or would reasonably be expected to result in an increase in the amount of unfunded benefit liabilities (as such unfunded benefit liabilities are determined in accordance with subsection 5.11D hereof), unless such amendment or modification is required under applicable law. 113 SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("EVENT OF DEFAULT") shall occur: 8.1 FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Borrowers to pay when due any amount payable to an Issuing Lender in reimbursement of any drawing under a Letter of Credit; failure by Borrowers to pay any Mandatory Payment when due; 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 (other than the Bankrupt Subsidiaries) to pay when due any principal of or interest on or any other amount payable in respect of (a) the New L/C Facility Documents or the High Yield Notes, (b) any one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1 or in clause (a) above or clause (c) below) or Contingent Obligations or Performance Guaranties, in each case in the principal amount of $5,000,000 or more, individually or in the aggregate, or (c) Limited Recourse Debt of Subsidiaries of Company (other than the Bankrupt Subsidiaries) in the principal amount of $10,000,000 or more, individually or in the aggregate (provided that Limited Recourse Debt incurred in connection with one or more Projects to which less than $2,000,000 in the aggregate of the operating income of Company and its Subsidiaries (on a consolidated basis) 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 (c)), in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) with respect to any other material term of (a) the New L/C Facility Documents, the High Yield Indenture or the High Yield Notes, (b) one or more items of Indebtedness (other than Limited Recourse Debt) or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (c) 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); or 8.3 BREACH OF CERTAIN COVENANTS. Failure of any Borrower to perform or comply with any term or condition contained in subsection 6.2 or Section 7 of this Agreement; or 114 8.4 BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Credit 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 CREDIT DOCUMENTS. Any Credit Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Credit 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 Credit Party becoming aware of such default or (ii) receipt by Company or such Credit Party of notice from Administrative Agent or any Lender of such default; or 8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.. (i) DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a 115 voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) shall make any assignment for the benefit of creditors; or (ii) DHC or Company or any of its Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Governing Body of DHC or Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries), or any committee thereof, shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8 JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving (a) in any individual case an amount in excess of $5,000,000 or (b) in the aggregate at any time an amount in excess of $5,000,000 (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 (other than the Bankrupt 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 8.9 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 8.10 EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events that individually or in the aggregate result 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 $5,000,000 during the term of this Agreement; or there shall exist as of January 1 of any year (based on, with respect to the Covanta Energy Pension Plan, the actuarial valuation as of such January 1 and, with respect to the SEIU Pension Plan, the actuarial valuation as of the immediately preceding June 1), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including, where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), in excess of (i) $20,000,000, in the event Assumptions are generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans; or 116 8.11 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 8.12 CHANGE IN CONTROL. A Change in Control shall have occurred; or 8.13 INVALIDITY OF INTERCREDITOR AGREEMENT; FAILURE OF SECURITY; REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Intercreditor Agreement 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) any Collateral Document (with respect to the obligations thereunder of Company or any Material Subsidiary (other than any Bankrupt Subsidiary)) 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 satisfaction in full of the Secured Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Collateral 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 Collateral Agent or any Lender to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party; or 8.14 TERMINATION OF MATERIAL CONTRACTS. Any Material Contract of the type described in clause (i) of the definition of Material Contract, or any power purchase agreement to which Company or any of its Subsidiaries is a party relating to a Project, 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, unless (a) such Material Contract is replaced within ten (10) days after such termination with a contract that is reasonably acceptable to the Requisite Lenders and on substantially the same economic terms as the relevant Material Contract being terminated, or (b) the Subsidiary of Company party to such Material Contract or power purchase agreement, as the case may be, is a Bankrupt Subsidiary and such termination would not reasonably be expected to have a Material Adverse Effect, or (c) the termination of such Material Contract occurs pursuant to the exercise by the counterparty or counterparties thereto of a contractual right to terminate such Material Contract for convenience and such termination would not reasonably be expected to have a Material Adverse Effect; or 8.15 NOL TREATMENT. Any Capital Stock of Company of any of its Subsidiaries shall be issued, or any equity contribution shall be made to Company or any of its Subsidiaries, if (i) such issuance or 117 equity contribution would reasonably be expected to have a material adverse effect on the availability or accessibility to Company and its Subsidiaries of the net operating losses disclosed to Agents and Lenders prior to the Closing Date as being held by DHC, or (ii) the proceeds of such issuance or equity contribution are applied to any purpose prohibited under this Agreement: THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) an amount equal to 105% of 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 (b) 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 obligation of Administrative Agent and any other Issuing Lender to issue, renew or extend any Letter of Credit and the right of Administrative Agent and any other Issuing Lender to issue, renew or extend 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, 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) and (b) above to be, and the same shall forthwith become, immediately due and payable, and the obligation of Administrative Agent and any other Issuing Lender to issue, renew or extend any Letter of Credit and the right of Administrative Agent and any other Issuing Lender to issue, renew or extend any Letter of Credit hereunder shall thereupon terminate. Any amounts described in clause (a) above, when received by Collateral Agent, shall be held by Collateral Agent pursuant to the terms of the Security Agreement and shall be applied as therein provided (subject to the terms of the Intercreditor Agreement). Further upon the occurrence and during the continuance of any Event of Default, subject to the Intercreditor Agreement, Administrative Agent and Collateral Agent may, and upon the written request of Requisite Lenders shall, (i) exercise all rights and remedies of Administrative Agent or Collateral 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 or Collateral Agent has an interest. 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. SECTION 9. ADMINISTRATIVE AGENT 9.1 APPOINTMENT. A. APPOINTMENT OF ADMINISTRATIVE AGENT. Bank of America is hereby appointed Administrative Agent hereunder and under the other Credit 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 Credit Documents. Each Agent agrees to act upon the express conditions contained in this Agreement 118 and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Agents and Lenders and no Credit 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 2.1B) 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 Credit Party. B. CONTROL. Each Lender and Administrative Agent hereby appoint each other Lender as agent for the purpose of perfecting Collateral Agent's security interest in assets that, in accordance with the UCC, can be perfected by possession or control. 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 Credit 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 Credit 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 Credit Documents, a fiduciary relationship in respect of any Lender or any Borrower; and nothing in this Agreement or any of the other Credit 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 Credit 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 Credit 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 Credit 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 Credit Documents or as to 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 the 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 Credit Documents except to the extent caused by such Agent's gross negligence or willful misconduct. An Agent shall be entitled to refrain from any 119 act or the taking of any action (including the failure to take an action) in connection with this Agreement or any of the other Credit 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 Credit 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 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. The Lenders acknowledge that, pursuant to such activities, Deutsche Bank or Bank of America or their respective Affiliates may receive information regarding a Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that the relevant Agent shall be under no obligation to provide such information to them. 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 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 issuance of any 120 Letter of Credit 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 Credit Documents or otherwise in its capacity as Agent in any way relating to or arising out of this Agreement or the other Credit 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. If Bank of America is an Issuing Lender, any such resignation or removal of Bank of America as Administrative Agent shall also constitute its resignation or removal as Issuing Lender. 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. If, within 30 days after the date of an Agent's notice of its intention to resign, no successor to such Agent shall have been so appointed by Requisite Lenders, then such Agent's resignation shall become effective on such date without the need for any further action and the Lenders shall be deemed to have been appointed as successor to such Agent hereunder and shall thereafter perform all the duties of such Agent hereunder and/or under any other Credit Document until the appointment by Requisite Lenders of some other successor to such Agent. Upon the acceptance of any appointment as an Agent hereunder by a successor to an Agent, including the Lenders as successor to an Agent (who shall be deemed to have accepted such appointment pursuant to this subsection 9.5), such successor to such Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Agent (and, if the removed Agent is an Issuing Lender, all the rights, powers, privileges and duties of an Issuing Lender), the retiring or removed Agent shall be discharged from its duties and obligations under this Agreement, and, if the retiring or removed Agent is an Issuing Lender, such retiring or removed Issuing Lender shall be discharged from its duties and obligations under this Agreement, without any other or further act or deed on the part of such retiring or removed Issuing Lender or any other Lender; provided, however, that the successor 121 Issuing Lender shall be obligated to issue Letters of Credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or to make other arrangements satisfactory to the retiring or removed Issuing Lender to effectively assume the obligations of such retiring or removed Issuing Lender with respect to such outstanding Letters of Credit, and such retiring or removed Issuing Lender shall continue to have all rights of an Issuing Lender with respect to such outstanding Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder. 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 Credit Documents. 9.6 INTERCREDITOR AGREEMENT. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into and to be the agent for and representative of Lenders under the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement; provided that Administrative Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in the Intercreditor Agreement 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). Anything contained in any of the Credit 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, it being understood and agreed that all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent for the benefit of Lenders in accordance with the terms thereof and of the Intercreditor Agreement, and (2) in the event of a foreclosure by Collateral 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 any Obligation 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 any Obligations that are owing and unpaid and to file such 122 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 2.2, 3.2 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 2.2, 3.2 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 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 relevant Letter of Credit Commitment 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 2.4 if such assignment did not occur. 123 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 Letter of Credit Exposure of the assigning Lender and the assignee subject to each such assignment shall not be less than $5,000,000, determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent or, if a trade date is specified in the Assignment Agreement, as of such trade date, unless Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed, (b) 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, and the Eligible Assignee, if it shall not be a Lender prior to such assignment, shall deliver to Administrative Agent a counterpart to the Intercreditor Agreement and such 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 2.4B(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), (c) except in the case of an assignment to another Lender, Administrative Agent and each Issuing Lender shall have consented thereto (which consents shall not be unreasonably withheld or delayed (it being understood that nothing in this clause (c) shall affect the requirement that the relevant assignee meet the requirements in the definition of Eligible Assignee and any other applicable requirements of this Agreement)), and (d) 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 participations in Letters of Credit; provided, however, that Underwriting Lender shall have the right to assign all or any portion of its rights and obligations under this Agreement, from time to time, without regard to the $5,000,000 minimum assignment amount (but otherwise in accordance with the terms of this Agreement, including this subsection 10.1) set forth in subsection 10.1B(i)(a), so long as the aggregate amount of the Letter of Credit Exposure of each of the Underwriting Lender and of such assignee, determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent or, if a trade date is specified in the Assignment Agreement, as of such trade date, shall not be less than $1,000,000. 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 "Creditor Party" thereunder (as such term is defined in the Intercreditor Agreement) and (z) the assigning Lender thereunder shall, to the 124 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 Credit Documents to the contrary notwithstanding (but subject to subsection 9.5), if such Lender is an Issuing Lender such Lender shall continue to have all rights and obligations of an Issuing Lender with respect to any Letters of Credit issued by it until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). 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, as between Agents and such Lender, or as between Issuing Lender 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 Letter of Credit Commitment, 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 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 2.4B(iii), Administrative Agent shall, if Administrative Agent and Issuing Lenders have consented to the assignment evidenced thereby (to the extent each 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, Agents 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 125 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 Maturity Date or (ii) a reduction of the principal amount of or the rate of interest payable on any Obligation 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 subsection 2.4 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 subsection 2.4 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 2.4. D. PLEDGES AND ASSIGNMENTS. Any Lender may at any time pledge or assign a security interest in all or any portion of the 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 (including CPIH Subsidiaries) in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.20. F. AGREEMENTS OF LENDERS. Each Lender listed on the signature pages hereof hereby agrees, and each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree, (i) that it is an Eligible Assignee described in clause (i) of the definition thereof; (ii) that it has experience and expertise in the funding of or purchasing participations of the type purchased in the Letters of Credit; and (iii) that it will fund or purchase such participations for its own account in the ordinary course of its business and without a view to distribution thereof 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 participations or any interests therein shall at all times remain within its exclusive control). G. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of the Obligations owed to such Lender hereunder to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and 126 (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. H. LENDER RATING REQUIREMENTS. Each Lender (to the extent not already a Downgraded Lender) agrees to notify Administrative Agent and Issuing Lenders within five Business Days after any downgrade of its long term senior unsecured debt obligations to a rating of worse than "Baa3" from Moody's or worse than "BBB-" from S&P (any Lender so downgraded being a "DOWNGRADED LENDER"). Promptly, and in any event prior to the date which is 10 Business Days after such downgrade, the relevant Downgraded Lender, at its own expense, shall deliver to Issuing Lenders, at such Downgraded Lender's option, either (i) evidence satisfactory to Issuing Lenders that the Letter of Credit Commitment of such Downgraded Lender is irrevocably guaranteed or similarly supported pursuant to documentation and arrangements (and by Persons) reasonably satisfactory to Administrative Agent and Issuing Lenders, or (ii) cash collateral supporting the maximum amount of the Letter of Credit Commitment of such Downgraded Lender pursuant to documentation and arrangements reasonably satisfactory to Administrative Agent and Issuing Lenders. Each such Downgraded Lender agrees to pay promptly on demand the reasonable fees and expenses of Issuing Lenders and Administrative Agent (including reasonable costs, fees and expenses of counsel) in connection with the arrangements for such fronting institution, such guaranty or similar support or such cash collateral. 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 Credit Documents and any consents, amendments, waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Credit 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 Credit 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) in connection with the negotiation, preparation, execution, interpretation or administration of the Credit 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 Collateral Agent on behalf of Secured Parties 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 Collateral 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 (including Ernst & Young Corporate Finance LLC) 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 127 actual and reasonable costs and expenses incurred by Agents in connection with the syndication of the Letter of Credit Commitments; and (viii) all the actual costs and reasonable 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 Credit Party hereunder or under the other Credit Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral) 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. 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"), including Issuing Lenders, 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 Credit Documents and the Chapter 11 Cases (it being understood that such Indemnified Liabilities arising out of the Chapter 11 Cases shall apply solely to Indemnitees in their capacities as Agents, Lenders and Issuing Lenders or officers, directors, employees, agents and affiliates of Agents, Lenders or Issuing Lenders, and not in any other capacities) or the transactions contemplated hereby or thereby (including 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 Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral), (ii) the statements contained in the commitment letter delivered by any Lender with respect thereto, or (iii) any Environmental Claim or any 128 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by each Borrower at any time or from time to time, without notice to any Borrower 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 any Borrower or any other Credit Party against and on account of the obligations and liabilities of any Borrower or any other Credit 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 Credit 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 Credit Document, irrespective of whether or not (i) any Agent or any Lender shall have made any demand hereunder or (ii) 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. Each Borrower hereby further grants to Administrative Agent and each Lender a security interest in all deposits and accounts maintained with Administrative Agent or such Lender as security for the Obligations. 10.5 RATABLE SHARING. A. Subject at all times to their obligations under the Intercreditor Agreement, Lenders hereby agree among themselves that if any of them shall, whether by voluntary or involuntary payment, 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 Credit 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 Letters of Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Credit Documents with respect to the Obligations (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) that is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other Lender of the receipt of such payment and (ii) apply a portion of such payment to purchase assignments 129 (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 Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing 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 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 Lender and each selling Lender agree to enter into an assignment agreement at the request of a selling Lender or a purchasing Lender, as the case may be, in form and substance reasonably satisfactory to each such Lender and to Administrative Agent. B. Notwithstanding anything in this subsection 10.5 to the contrary, in the event any one or more Lenders (for purposes of this subsection 10.5, "ENFORCING LENDERS") receives any amounts that are subject to the sharing provisions of subsection 10.5A as a result of such Enforcing Lender or Enforcing Lenders, but not any Agents or all Lenders, commencing Proceedings to recover such amounts, no Lender that is not an Enforcing Lender shall be entitled to the benefits of subsection 10.5A with respect to the amounts received by such Enforcing Lenders (i) unless and until such Lender has paid its Pro Rata Share of the out-of-pocket costs and expenses (including legal fees and expenses of counsel to such Enforcing Lenders) incurred by such Enforcing Lenders in connection with such Proceedings or (ii) in any greater amount at any time than such Lender would be entitled to receive under such subsection if all Lenders paid their Pro Rata Shares of such costs and expenses. 10.6 AMENDMENTS AND WAIVERS. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes or the Credit 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 funded amount with respect to a participation in a Letter of Credit, (2) increase the maximum aggregate amount of such Lender's Letter of Credit Commitment or Letters of Credit, (3) postpone the Maturity Date, (4) postpone the date on which any interest or any fees are payable, (5) decrease the interest rate borne by any funded amount with respect to a participation in a Letter of Credit (other than any waiver of any increase in the interest rate applicable pursuant to subsection 2.1C, the penultimate sentence of subsection 3.2 or subsection 6.13) or the amount of any fees payable hereunder, (6) reduce the amount or postpone the due date of any reimbursement of a drawing (other than from a Mandatory Payment) in respect of any Letter of Credit, (7) extend the expiration date of any Letter of Credit beyond the Maturity Date, (8) change in any manner the obligations of Lenders relating to the purchase of participations in Letters of Credit, or (9) change in any manner or waive the provisions contained 130 in subsection 8.1; (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 Letter of Credit 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) release any Lien granted in favor of Administrative Agent or Collateral Agent with respect to all or substantially all of the Collateral or release any substantial portion of Borrowers from their obligations under this Agreement, in each case other than in accordance with the terms of the Credit Documents, or (4) change in any manner or waive the provisions contained in subsection 10.6; (c) Administrative Agent, Documentation Agent and each Issuing Lender, change in any manner the definition of "Eligible Assignee"; (d) Administrative Agent and each Issuing Lender, change subsection 4.1X or the obligations of any Lender under subsection 10.1H or subsection 2.6 (and no consent of Requisite Lenders shall be required for any waiver of the conditions precedent contained in subsection 4.1X or any waiver of any obligations of a Lender contained in subsection 10.1H if such waiver is consented to by each Issuing Lender and Administrative Agent); (e) the relevant Agent, affect the rights or duties of such Agent (in its capacity as such Agent) under this Agreement or any other Credit Document; and (f) the relevant Issuing Lender, affect the rights or duties of such Issuing Lender (in its capacity as an Issuing Lender) under this Agreement or any other Credit Document. In addition, (i) 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; (ii) 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; and (iii) 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. 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. 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 131 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 or (subject to the following paragraphs in this subsection 10.8) electronic mail and shall be deemed to have been given (a) when delivered in person or by courier service, (b) upon receipt of telefacsimile in complete and legible form, (c) three Business Days after depositing it in the United States mail with postage prepaid and properly addressed, or (d) in the case of communications delivered by electronic mail to the extent provided in the following paragraph, as provided pursuant to such paragraph; 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. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 or Section 3 hereof if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. Credit Documents and notices under the Credit 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 Credit 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 or in any other Credit Document shall survive the execution and delivery of this Agreement 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 2.4, 3.5A, 10.2, 10.3, 10.4, 10.19 132 and 10.20 and the agreements of Lenders set forth in subsections 9.2C, 9.4, 10.5, 10.19 and 10.20 shall survive 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 Credit 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 Credit 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 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. 10.13 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 Letter of Credit Commitments of any other Lender hereunder. Nothing contained herein or in any other Credit 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 133 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, any other Credit Document, any transaction contemplated by the Credit Documents, any Letter of Credit or the use of proceeds of drawings thereunder. 10.14 RELEASE OF SECURITY INTEREST. Upon the proposed sale or other disposition of any Collateral that is permitted by this Agreement or to which Requisite Lenders have otherwise consented, for which a Credit Party desires to obtain a security interest release from Collateral Agent, such Credit Party shall deliver to Administrative Agent and Collateral Agent an Officer's Certificate (i) stating that the Collateral or the Capital Stock subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Credit Documents and (ii) specifying the Collateral or Capital Stock being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at such Credit Party's expense, so long as Collateral Agent (a) believes in good faith that the facts stated in such Officer's Certificate are true and correct and (b), if the sale or other disposition of such item of Collateral or Capital Stock constitutes an Asset Sale, shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds if and as required by subsection 2.3, execute and deliver such releases of its security interest in such Collateral as may be reasonably requested by such Credit Party. In the event of any conflict or inconsistency between this subsection 10.14 and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 10.15 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. 10.16 APPLICABLE LAW. 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. 134 10.17 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. 10.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT 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 COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.18 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. 135 10.19 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 CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS CREDIT 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 10.19 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 CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE CREDIT EXTENDED HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. 10.20 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 Obligations 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 136 required to return any materials furnished by Company or any of its Subsidiaries (including CPIH Subsidiaries). Notwithstanding anything herein to the contrary, information required to be treated as confidential by reason of the foregoing shall not include, and Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the respective partners, directors, officers, employees, agents, advisors and other representatives of each of the foregoing and their respective Affiliates) (collectively, the "LENDER PARTIES") may disclose to any and all Persons, without limitation of any kind, (x) any information with respect to United States federal and state income tax treatment and United States federal income tax structure of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other non-public business or financial information that is unrelated to such tax treatment or facts, and (y) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Lender Parties. 10.21 RELEASE OF PARTIES; WAIVERS. A. Each Borrower, on behalf of itself and each of its Subsidiaries, including CPIH 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 or the DIP Credit Documents), each other Prepetition Lender and DIP 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 or the DIP Credit Documents), 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 Credit Documents, the Prepetition Credit Documents, and DIP Credit Documents 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 137 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. 10.22 NO FIDUCIARY DUTY. No Agent nor any Lender has or shall have, by reason of this Agreement or any of the Credit Documents, a fiduciary relationship in respect of, or a fiduciary duty to, any Borrower, Borrowers, any other Credit Party or Credit Parties, and the relationship between Administrative Agent, the other Agents and Lenders, on one hand, and each Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. 10.23 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. 10.24 NO THIRD PARTY BENEFICIARIES Nothing in this Agreement, express 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 Indemnitees and Released Parties related to Agents, and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. [Remainder of page intentionally left blank] 138 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 a Borrower By: _________________________________ Name: Anthony Orlando Title: Authorized Officer EACH OF THE ENTITIES NAMED ON SCHEDULE A ANNEXED HERETO, as a Borrower By: _________________________________ Name: Anthony Orlando Title: Authorized Officer Notice Address for each Borrower: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson Schedule A Other Borrowers 1. AMOR 14 Corporation 2. Burney Mountain Power 3. Covanta Acquisition, Inc. 4. Covanta Alexandria/Arlington, 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 Group, Inc. 11. Covanta Energy International, Inc. 12. Covanta Energy Resource Corp. 13. Covanta Energy Services, Inc. 14. Covanta Energy West, Inc. 15. Covanta Engineering Services, Inc. 16. Covanta Fairfax, Inc. 17. Covanta Geothermal Operations Holdings, Inc. 18. Covanta Geothermal Operations, Inc. 19. Covanta Haverhill Properties, Inc. 20. Covanta Haverhill, Inc. 21. Covanta Heber Field Energy, Inc. 22. Covanta Hennepin Energy Resource Co., Limited Partnership 23. Covanta Hillsborough, Inc. 24. Covanta Honolulu Resource Recovery Venture 25. Covanta Huntsville, Inc. 26. Covanta Hydro Energy, Inc. 27. Covanta Hydro Operations West, Inc. 28. Covanta Hydro Operations, Inc. 29. Covanta Imperial Power Services, Inc. 30. Covanta Indianapolis, Inc. 31. Covanta Kent, Inc. 32. Covanta Lancaster, Inc. 33. Covanta Lee, Inc. 34. Covanta Long Island, Inc. 35. Covanta Marion Land Corp. 36. Covanta Marion, Inc. 37. Covanta Mid-Conn., Inc. 38. Covanta Montgomery, Inc. 39. Covanta New Martinsville Hydroelectric Corporation 40. Covanta New Martinsville Hydro-Operations Corporation 41. Covanta Oahu Waste Energy Recovery, Inc. 42. Covanta Omega Lease, Inc. 43. Covanta Onondaga Operations, Inc. 44. Covanta Operations of Union, LLC 45. Covanta OPW Associates, Inc. 46. Covanta OPWH, Inc. 47. Covanta Pasco, Inc. 48. Covanta Plant Services of New Jersey, Inc. 49. Covanta Power Equity Corporation 50. Covanta Power Pacific, Inc. 51. Covanta Power Plant Operations 52. Covanta Projects of Hawaii, Inc. 53. Covanta Projects, Inc. 54. Covanta RRS Holdings, Inc. 55. Covanta Secure Services, Inc. 56. Covanta SIGC Energy, Inc. 57. Covanta SIGC Energy II, Inc. 58. Covanta SIGC Geothermal Operations, Inc. 59. Covanta Stanislaus, Inc. 60. Covanta Systems, LLC 61. Covanta Wallingford Associates, Inc. 62. Covanta Waste to Energy , LLC 63. Covanta Water Holdings, Inc. 64. Covanta Water Systems, Inc. 65. Covanta Water Treatment Services, Inc. 66. DSS Environmental, Inc. 67. ERC Energy II, Inc. 68. ERC Energy, Inc. 69. Haverhill Power, LLC 70. Heber Field Energy II, Inc. 71. Heber Loan Partners 72. LMI, Inc. 73. Mammoth Geothermal Company 74. Mammoth Power Company 75. Michigan Waste Energy, Inc. 76. Mt. Lassen Power 77. Pacific Geothermal Company 78. Pacific Oroville Power, Inc. 79. Pacific Wood Fuels Company 80. Pacific Wood Services Company 81. Three Mountain Operations, Inc. 82. Three Mountain Power, LLC AGENTS AND LENDERS: AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent and Co-Arranger By: _____________________________________________ Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A., as Administrative Agent 555 So. Flower Street, 17th Floor CA9-706-17-54 Los Angeles, California 90071 Attention: David Price, Vice President Voice: (213) 345-1300 Fax: (415) 503-5011 email: david.price@bankofamerica.com For all operational issues for Letters of Credit and Loans: Bank of America, N.A., as Administrative Agent 901 Main St., 14th Floor MC: TX1-492-14-11 Dallas, Texas 75202 Phone: 214-209-0987 Fax: 214-290-8370 Attention: Richard A. Piland E-mail: richard.a.piland@bankofamerica.com DEUTSCHE BANK SECURITIES, INC., as Documentation Agent and Co-Arranger By: _______________________________________ Name: Title: By: _______________________________________ Name: Title: Notice Address: Attention: Deutsche Bank Securities, Inc. 60 Wall Street New York, NY 10005 UBS AG, STAMFORD BRANCH, as Issuing Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender By: ___________________________________ Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: BEAR STEARNS & CO. INC., as a Lender By: ___________________________________ Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH as a Lender By: ___________________________________ Name: Keith Braun Title: Director By: ___________________________________ Name: Patrick Dowling Title: Vice President IIB BANK LIMITED, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: KBC BANK NV, NEW YORK BRANCH, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: Notice Address: Attention: Rose Pagan KBC Bank NV, New York Branch 125 West 55th Street New York, NY 10019 Telephone No.: (212) 541-0657 Fax No.: (212) 956-5581 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: Notice Address: 420 Fifth Avenue New York, New York 10018 Attention: Structured Finance Telephone: 212-703-5303 Telecopier: 212-703-5262 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as a Lender By: ___________________________________ Name: Title: THE BANK OF NEW YORK, as a Lender By: ___________________________________ Name: Title: UBS LOAN FINANCE LLC, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION (FORMERLY KNOWN AS FIRSTAR BANK, N.A.), as a Lender By: ___________________________________ Name: Alan R. Milster Title: Vice President WESTLB AG (FORMERLY KNOWN AS WESTDEUTSCHE LANDESBANK GIROZENTRALE), NEW YORK BRANCH, as a Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: SCHEDULE A COMPANY 1. AMOR 14 Corporation 2. Burney Mountain Power 3. Covanta Acquisition, Inc. 4. Covanta Alexandria/Arlington, 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 Corporation 11. Covanta Energy Group, Inc. 12. Covanta Energy International, Inc. 13. Covanta Energy Resource Corp. 14. Covanta Energy Services, Inc. 15. Covanta Energy West, Inc. 16. Covanta Engineering Services, Inc. 17. Covanta Fairfax, Inc. 18. Covanta Geothermal Operations Holdings, Inc. 19. Covanta Geothermal Operations, Inc. 20. Covanta Haverhill Properties, Inc. 21. Covanta Haverhill, Inc. 22. Covanta Heber Field Energy, Inc. 23. Covanta Hennepin Energy Resource Co., Limited Partnership 24. Covanta Hillsborough, Inc. 25. Covanta Honolulu Resource Recovery Venture 26. Covanta Huntsville, Inc. 27. Covanta Hydro Energy, Inc. 28. Covanta Hydro Operations West, Inc. 29. Covanta Hydro Operations, Inc. 30. Covanta Imperial Power Services, Inc. 31. Covanta Indianapolis, Inc. 32. Covanta Kent, Inc. 33. Covanta Lancaster, Inc. 34. Covanta Lee, Inc. 35. Covanta Long Island, Inc. 36. Covanta Marion Land Corp. 37. Covanta Marion, Inc. 38. Covanta Mid-Conn, Inc. 39. Covanta Montgomery, Inc. 40. Covanta New Martinsville Hydroelectric Corporation 41. Covanta New Martinsville Hydro-Operations Corporation 42. Covanta Oahu Waste Energy Recovery, Inc. 43. Covanta Omega Lease, Inc. 44. Covanta Onondaga Operations, Inc. 45. Covanta Operations of Union, LLC 46. Covanta OPW Associates, Inc. 47. Covanta OPWH, Inc. 48. Covanta Pasco, Inc. 49. Covanta Plant Services of New Jersey, Inc. 50. Covanta Power Equity Corporation 51. Covanta Power Pacific, Inc. 52. Covanta Power Plant Operations 53. Covanta Projects of Hawaii, Inc. 54. Covanta Projects, Inc. 55. Covanta RRS Holdings, Inc. 56. Covanta Secure Services, Inc. 57. Covanta SIGC Energy, Inc. 58. Covanta SIGC Energy II, Inc. 59. Covanta SIGC Geothermal Operations, Inc. 60. Covanta Stanislaus, Inc. 61. Covanta Systems, LLC 62. Covanta Wallingford Associates, Inc. 63. Covanta Waste to Energy , LLC 64. Covanta Water Holdings, Inc. 65. Covanta Water Systems, Inc. 66. Covanta Water Treatment Services, Inc. 67. DSS Environmental, Inc. 68. ERC Energy II, Inc. 69. ERC Energy, Inc. 70. Haverhill Power, LLC 71. Heber Field Energy II, Inc. 72. Heber Loan Partners 73. LMI, Inc. 74. Mammoth Geothermal Company 75. Mammoth Power Company 76. Michigan Waste Energy, Inc. 77. Mt. Lassen Power 78. Pacific Geothermal Company 79. Pacific Oroville Power, Inc. 80. Pacific Wood Fuels Company 81. Pacific Wood Services Company 82. Three Mountain Operations, Inc. 83. Three Mountain Power, LLC EX-10.1.S 10 y95330exv10w1ws.txt CREDIT AGREEMENT CREDIT AGREEMENT DATED AS OF MARCH 10, 2004 AMONG COVANTA ENERGY CORPORATION AND EACH OF ITS SUBSIDIARIES PARTY HERETO, THE LENDERS LISTED HEREIN, AS LENDERS, AND BANK ONE, NA, AS ADMINISTRATIVE AGENT TABLE OF CONTENTS
Page No. -------- Section 1. DEFINITIONS................................................................................... 1 1.1. Certain Defined Terms......................................................................... 1 1.2. Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement............ 39 1.3. Other Definitional Provisions and Rules of Construction....................................... 40 Section 2. REVOLVING LOANS; INTEREST RATES; FEES; AND CERTAIN TERMS OF PAYMENT AND REPAYMENT AND OTHER MATTERS................................................................................. 40 2.1. Revolving Loan Commitments; Making of Revolving Loans; the Register; Optional Notes........... 40 2.2. Interest on the Revolving Loans............................................................... 44 2.3. Fees.......................................................................................... 47 2.4. Mandatory Payments, Reductions in Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral......................................................... 48 2.5. Use of Proceeds............................................................................... 55 2.6. Special Provisions Governing Eurodollar Rate Loans............................................ 55 2.7. Increased Costs; Taxes; Capital Adequacy...................................................... 57 2.8. Statement of Lenders; Obligation of Lenders and Issuing Lender to Mitigate.................... 60 2.9. Defaulting Lender............................................................................. 61 2.10. Joint and Several Liability; Payment Indemnifications......................................... 63 2.11. Rights of Subrogation, Contribution, Etc...................................................... 63 Section 3. LETTERS OF CREDIT............................................................................. 64 3.1. Letter of Credit Commitments; Issuance of Letters of Credit and Lenders' Purchase of Participations Therein........................................................................ 64 3.2. Letter of Credit Fees......................................................................... 68 3.3. Drawings and Reimbursement of Amounts Paid Under Letters of Credit............................ 69 3.4. Obligations Absolute.......................................................................... 71 3.5. Nature of Issuing Lender's Duties............................................................. 72 3.6. Cash Collateral for Letters of Credit......................................................... 73
-i- Section 4. CONDITIONS.................................................................................... 74 4.1. Conditions to Closing Date.................................................................... 74 4.2. Conditions to All Revolving Loans............................................................. 85 4.3. Conditions to Letters of Credit............................................................... 86 Section 5. COMPANY'S REPRESENTATIONS AND WARRANTIES...................................................... 86 5.1. Organization, Powers, Qualification, Good Standing, Business and Subsidiaries................. 87 5.2. Authorization of Borrowing, Etc............................................................... 87 5.3. Financial Condition........................................................................... 88 5.4. No Material Adverse Change; No Restricted Payments............................................ 89 5.5. Title to Properties; Liens; Real Property; Intellectual Property.............................. 89 5.6. Litigation; Adverse Facts..................................................................... 90 5.7. Payment of Taxes.............................................................................. 90 5.8. Performance of Agreements; Material Contracts................................................. 91 5.9. Governmental Regulation....................................................................... 91 5.10. Securities Activities......................................................................... 91 5.11. Employee Benefit Plans........................................................................ 91 5.12. Certain Fees.................................................................................. 93 5.13. Environmental Protection...................................................................... 93 5.14. Employee Matters.............................................................................. 94 5.15. Matters Relating to Collateral................................................................ 94 5.16. Disclosure.................................................................................... 95 5.17. Cash Management System........................................................................ 96 5.18. Matters Relating to Credit Parties............................................................ 96 5.19. Investigation................................................................................. 96 5.20. Matters Relating to Bankruptcy Proceedings.................................................... 97 5.21. Subordinated Indebtedness..................................................................... 97 5.22. Reporting to IRS.............................................................................. 97 5.23. Solvency...................................................................................... 97 Section 6. COMPANY'S AFFIRMATIVE COVENANTS............................................................... 97 6.1. Financial Statements and Other Reports........................................................ 98 6.2. Existence, Etc................................................................................ 103
-ii- 6.3. Payment of Taxes and Claims; Tax.............................................................. 103 6.4. Maintenance of Properties; Insurance; Application of Net Insurance/ Condemnation Proceeds...................................................................................... 104 6.5. Inspection Rights; Lender Meeting............................................................. 106 6.6. Compliance with Laws, Etc..................................................................... 107 6.7. Environmental Matters......................................................................... 107 6.8. Execution of Borrower Joinder Agreement and Personal Property Collateral Documents After the Closing Date........................................................................ 109 6.9. Matters Relating to Additional Real Property Collateral....................................... 110 6.10. Deposit Accounts.............................................................................. 111 6.11. Further Assurances............................................................................ 111 6.12. High Yield Notes.............................................................................. 113 6.13. Most Favored Nations Payments................................................................. 113 6.14. Montgomery Letter of Credit Cancellation...................................................... 113 Section 7. BORROWERS' NEGATIVE COVENANTS................................................................. 113 7.1. Indebtedness.................................................................................. 114 7.2. Liens and Related Matters..................................................................... 117 7.3. Investments; Acquisitions..................................................................... 120 7.4. Contingent Obligations; Performance Guaranties................................................ 123 7.5. Restricted Payments........................................................................... 125 7.6. Financial Covenants........................................................................... 127 7.7. Restriction on Fundamental Changes; Asset Sales............................................... 130 7.8. Transactions with Shareholders and Affiliates................................................. 132 7.9. Restriction on Leases......................................................................... 132 7.10. [Intentionally Omitted]....................................................................... 133 7.11. Conduct of Business........................................................................... 133 7.12. Amendments to Related Agreements, Debt Documentation and Organizational Documents............. 133 7.13. End of Fiscal Years; Fiscal Quarters.......................................................... 134 7.14. Amendment to Pension Plans.................................................................... 134 Section 8. EVENTS OF DEFAULT............................................................................. 134 8.1. Failure to Make Payments When Due............................................................. 135
-iii- 8.2. Default in Other Agreements................................................................... 135 8.3. Breach of Certain Covenants................................................................... 135 8.4. Breach of Warranty............................................................................ 136 8.5. Other Defaults Under Credit Documents......................................................... 136 8.6. Involuntary Bankruptcy; Appointment of Receiver, Etc.......................................... 136 8.7. Voluntary Bankruptcy; Appointment of Receiver, Etc............................................ 136 8.8. Judgments and Attachments..................................................................... 137 8.9. Dissolution................................................................................... 137 8.10. Employee Benefit Plans........................................................................ 137 8.11. [Material Adverse Effect...................................................................... 138 8.12. Change in Control............................................................................. 138 8.13. Invalidity of Intercreditor Agreement; Failure of Security; Repudiation of Obligations........ 138 8.14. Termination of Material Contracts............................................................. 138 8.15. NOL Treatment................................................................................. 139 Section 9. ADMINISTRATIVE AGENT.......................................................................... 140 9.1. Appointment................................................................................... 140 9.2. Powers and Duties; General Immunity........................................................... 140 9.3. Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness.............................................................................. 142 9.4. Right to Indemnity............................................................................ 142 9.5. Successor Administrative Agents............................................................... 143 9.6. Intercreditor Agreement....................................................................... 143 9.7. Administrative Agent May File Proofs of Claim................................................. 144 Section 10. MISCELLANEOUS................................................................................. 145 10.1. Successors and Assigns; Assignments and Participations in Letters of Credit................... 145 10.2. Expenses...................................................................................... 149 10.3. Indemnity..................................................................................... 150 10.4. Set-Off....................................................................................... 151 10.5. Ratable Sharing............................................................................... 151 10.6. Amendments and Waivers........................................................................ 152
-iv- 10.7. Independence of Covenants..................................................................... 154 10.8. Notices; Effectiveness of Signatures.......................................................... 154 10.9. Survival of Representations, Warranties and Agreements........................................ 155 10.10. Failure or Indulgence Not Waiver; Remedies Cumulative......................................... 155 10.11. Marshalling; Payments Set Aside............................................................... 155 10.12. Severability.................................................................................. 156 10.13. Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver..................... 156 10.14. Release of Security Interest.................................................................. 156 10.15. Headings...................................................................................... 157 10.16. Applicable Law................................................................................ 157 10.17. Construction of Agreement..................................................................... 157 10.18. Consent to Jurisdiction and Service of Process................................................ 157 10.19. Waiver of Jury Trial.......................................................................... 158 10.20. Confidentiality............................................................................... 159 10.21. No Fiduciary Duty............................................................................. 159 10.22. Counterparts; Effectiveness................................................................... 160 10.23. No Third Party Beneficiaries.................................................................. 160 SIGNATURE PAGES................................................................................................. S-1
-v- EXHIBITS I NOTICE OF BORROWING II FORM OF REVOLVING NOTE III FORM OF REQUEST FOR ISSUANCE OF LETTER OF CREDIT IV NOTICE OF CONVERSION / CONTINUATION V FORM OF COMPLIANCE CERTIFICATE VI FORM OF ASSIGNMENT AGREEMENT VII FORM OF SECURITY AGREEMENT VIII FORM OF BORROWER JOINDER AGREEMENT IX FORM OF SOLVENCY CERTIFICATE X FORM OF OPINIONS OF CREDIT PARTIES' COUNSEL XI DHC PLEDGE AGREEMENT XII [INTENTIONALLY OMITTED] XIII FORM OF INTERCREDITOR AGREEMENT XIV FORM OF MORTGAGE XV [INTENTIONALLY OMITTED] -vi- SCHEDULES 1.1A [INTENTIONALLY OMITTED] 1.1B PRINCIPAL LEASE, SERVICE AND OPERATING AGREEMENTS 1.1C BUDGET 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 2.4A(iii)(f) DEBT SERVICE RESERVE ACCOUNTS 3.1(a)(i) LETTER OF CREDIT OBLIGATIONS 4.1C CORPORATE STRUCTURE 4.1N CLOSING DATE MORTGAGED PROPERTIES 4.1P 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(vi) CERTAIN EXISTING INDEBTEDNESS 7.1(ix) CERTAIN EXISTING CAPITAL LEASES 7.2 CERTAIN EXISTING LIENS 7.3(v) CERTAIN EXISTING INVESTMENTS 7.3(vi) CERTAIN WTE PROJECTS 7.4(iv) CERTAIN EXISTING PERFORMANCE GUARANTIES -vii- 7.4(vi) CERTAIN EXISTING CONTINGENT OBLIGATIONS 7.6G STIPULATED ADJUSTED OPERATING CASH FLOW 7.8 CERTAIN TRANSACTIONS WITH AFFILIATES -viii- COVANTA ENERGY CORPORATION CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of March 10, 2004 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("COMPANY"); EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (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 PERSONS IDENTIFIED ON THE SIGNATURE PAGES HEREOF AS LENDERS (each individually referred to herein as a "LENDER" and collectively as "LENDERS"); and BANK ONE, NA ("BANK ONE"), 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"), Borrowers and certain of their Domestic Subsidiaries (collectively, the "DEBTORS") filed voluntary petitions for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (such proceedings being jointly administered under Case Nos. 02-40826 through 02-40949, 02-16322, 03-13679 through 03-13685, and 03-13687 through 03-13709 are hereinafter referred to as the "CHAPTER 11 CASES"), and each Borrower has operated its businesses and managed its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; and WHEREAS, the Debtors have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Lenders and Administrative Agent 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 6.8B. "ADJUSTED EBITDA" means, for any period, (i) without duplication, the aggregate amount derived by combining the amounts for such period of (a) "Operating income (loss)", plus (b) Net Depreciation and Amortization Expense, plus (c) "Amortization of premium and discount, net" plus (d) "Unbilled receivables", to the extent associated with accretion accounting for Limited Recourse Debt relating to Projects of Company and its Subsidiaries, minus (e) "Equity in income from unconsolidated investments", minus (ii) without duplication, the aggregate amount derived by combining the amounts (each expressed as a positive number) for such period of (a) "Payment of debt", to the extent consisting of principal payments on Limited Recourse Debt relating to Projects of Company and its Subsidiaries, plus (b) "Minority interests", plus (c) accretion of principal on the High Yield Notes, as each such line item referred to in clauses (i)(a), (i)(e) and (ii)(b) is reflected in Company's consolidated statement of income prepared in conformity with GAAP and as each such line item referred to in clauses (i)(c), (i)(d) and (ii)(a) is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP, in each case reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled; provided, however, that with respect to any such period ending during 2008, each of the line items referred to above shall be calculated as if the terms of the service agreement of Company and its Subsidiaries relating to the Alexandria Project in effect for Fiscal Year 2007 continued in effect during 2008, without giving effect to any negative impact on Adjusted EBITDA from the terms of any extension in 2008 of such service agreement. "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. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or Project manager or operator), whether through the ownership of voting securities or by contract or otherwise. "AGGREGATE AMOUNTS DUE" has the meaning assigned to that term in subsection 10.5. "AGREEMENT" means this Credit Agreement dated as of March 10, 2004, as it may be amended, restated, supplemented or otherwise modified from time to time. "ANNUAL FREE CASH FLOW" means, for any period, (i) the sum for such period of (without duplication) (a) all cash revenue received by Company and its Subsidiaries from Projects and facilities that are not Projects, other than amounts received by Company or such Subsidiary as a "pass through" entity for debt service on Limited Recourse Debt, (b) all -2- amounts previously in reserve with respect to Projects that are released from such reserves to Company or any of its Subsidiaries, other than amounts that are required to be paid (but that have not yet been paid) to third parties pursuant to binding Contractual Obligations of Company or any of its Subsidiaries and that are permitted under this Agreement to be paid to such third parties, (c) all distributions made to Company and its Subsidiaries on account of Capital Stock held by Company and its Subsidiaries, (d) all interest earned by Company and its Subsidiaries on Cash On Hand of Company and its Subsidiaries, (e) all amounts released to Company and its Subsidiaries from cash accounts related to Expansions, excluding any portion of such amounts that are not expended in such period and are required to be (and are permitted under this Agreement to be) expended by Company and its Subsidiaries in connection with such Expansions in a subsequent period (provided, that Administrative Agent shall have reviewed and approved the exclusion of such portion of such released amounts from this clause (i)(e) prior to such exclusion), (f) all reimbursement amounts received by Company and its Subsidiaries under the Management Services and Reimbursement Agreement, and (g) all cash refunds or rebates of taxes received by Company and its Subsidiaries (but excluding from the amounts referred to in clauses (i)(a) through (i)(g) any portion of such amounts that was previously required to be applied (and was applied) as a Mandatory Payment), minus, without duplication of amounts already excluded or deducted from clauses (i)(a) through (i)(g) above, (ii) the sum for such period of (without duplication) (a) operating disbursements of Company and its Subsidiaries, (b) Consolidated Facilities Capital Expenditures, (c) corporate overhead of Company and its Subsidiaries, (d) payments on debt and leases of Company and its Subsidiaries, to the extent such payments are permitted to be made under this Agreement, (e) distributions on Capital Stock of Subsidiaries to Persons other than Company and its Subsidiaries, (f) all payments by Company and its Subsidiaries to third parties during such period as a result of drawings under the Existing IPP International Project Guaranties, (g) all payments by Company and its Subsidiaries to the extent that such payments are required to be reimbursed to Company and its Subsidiaries pursuant to the Management Services and Reimbursement Agreement, (h) any amounts posted in such period by Company and its Subsidiaries for credit support to the extent such amounts are required to be posted during such period pursuant to binding Contractual Obligations of Company or any of its Subsidiaries, (i) all cash principal, interest and fee payments (other than Mandatory Payments) by Company and its Subsidiaries that are not prohibited by the terms of this Agreement, including all payments made by Borrowers to reimburse amounts drawn under Letters of Credit or letters of credit issued under the Detroit L/C Facility Agreement, (j) all cash payments of taxes by Company and its Subsidiaries, (k) all cash payments by Company and its Subsidiaries during such period under the DHC Corporate Services Reimbursement Agreement, to the extent such payments are permitted to be made under this Agreement, and (l) all payments by Company and its Subsidiaries made during such period into reserves with respect to Projects, to the extent such payments (1) are required to be placed during such period in such reserves pursuant to binding Contractual Obligations of Company or any of its Subsidiaries and (2) are funded from amounts which are included in the amounts described in clause (i) of this definition for such period; provided, however, that in any Fiscal Year commencing with Fiscal Year 2005, Annual Free Cash Flow for such Fiscal Year shall be reduced by the amount, if any, by which the sum of -3- the amounts of Annual Free Cash Flow for each of the immediately preceding Fiscal Years (commencing with Fiscal Year 2004) was less than zero. "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. "APPROVED PLAN OF REORGANIZATION" has the meaning assigned to that term in subsection 4.1E(i). "ASSET SALE" means the sale by Company or any of its Subsidiaries to any Person of (i) any of the Capital 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 $500,000 or less and the aggregate value of all such other assets since the Closing Date is equal to $2,000,000 or less, in each case so long as not less than 90% of the consideration received for such assets shall be cash); 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 (provided, that sales and discounts of not more than $10,000,000 in face value of accounts receivable may be excluded from Asset Sales pursuant this clause (1), and the sole consideration received in connection with any such sale of accounts receivable shall be cash), (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 120 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 (provided, that any cash received in connection with any such sale or exchange that is not expended as part of such sale or exchange to obtain such replacement items of equipment, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus property in the ordinary course of business (provided, that not less than 75% of the consideration, if any, received in connection with any such disposal shall be cash, and any such cash received, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (4) any discount or compromise of notes or accounts receivable for less than the face value thereof, to the extent Company deems necessary in order to resolve disputes that occur in the ordinary course of business, or (5) any IPP International Sale. "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit VI annexed hereto. "ASSUMPTIONS" has the meaning assigned to that term in subsection 5.11D. -4- "BACK-UP CLOSING DATE LETTER OF CREDIT" means a Closing Date Letter of Credit issued in support of a DIP Tranche A L/C or a DIP Tranche B L/C and any Letter of Credit issued to replace or extend the same pursuant to subsection 3.1B(ii)(a). "BANK OF AMERICA" means Bank of America, N.A. "BANK ONE" has the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. "BANKRUPT SUBSIDIARY" means any of the Warren Subsidiaries, the Lake Subsidiary or the Tampa Subsidiaries, in each case so long as such Debtor remains subject to its Chapter 11 Case before the Bankruptcy Court. "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 Revolving Loans bearing interest at rates determined by reference to the Base Rate as provided in subsection 2.2A. "BASE RATE MARGIN" means four and one-half of one percent (4.50%). "BORROWER JOINDER AGREEMENT" means a Borrower Joinder Agreement, substantially in the form of Exhibit VIII annexed hereto. "BORROWERS" has the meaning assigned to that term in the introduction to this Agreement. "BUDGET" means (i) with respect to Fiscal Year 2004, the budget delivered by Company to Lenders on or prior to the Closing Date pursuant to subsection 4.1G, setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and each Fiscal Quarter from the Closing Date through December 31, 2004, and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2008, as such budget may be supplemented pursuant to subsection 6.1(i), and (ii) with respect to each Fiscal Year after 2004, the budget delivered by Company to Lenders pursuant to subsection 6.1(xvi), setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and Fiscal Quarter during such Fiscal Year and projected net cash flows for Company and its Subsidiaries for -5- each Fiscal Year thereafter through December 31, 2009, as such budget may be supplemented pursuant to subsection 6.1(i). "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or the State of Illinois or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "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. "CASH MANAGEMENT SYSTEM" means the cash management system of Borrowers, described in Schedule 4.1P annexed hereto, as such Cash Management System may be modified pursuant to subsection 6.10. "CASH ON HAND" has the meaning assigned to that term in subsection 2.4A(iii)(f). "CEA" means Covanta Energy Americas, Inc., a Delaware corporation. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "CHANGE IN CONTROL" means the occurrence of any one or more of the following: (i) DHC shall cease to own, directly, 80% or more of the outstanding Capital Stock of Company; or (ii) any "change of control" or "change in control" or event, however titled, shall occur that requires under the High Yield Indenture a prepayment of the High Yield Notes or an offer to prepay High Yield Notes as a result of a change in ownership of all or some portion of the Capital Stock of Company or any of its Subsidiaries or all or substantially all of the assets of Company and its Subsidiaries. "CHAPTER 11 CASES" has the meaning assigned to that term in the recitals to this Agreement. "CLOSING DATE" means the date on which each of the conditions described in subsection 4.1 have been satisfied or waived by Administrative Agent and Requisite Lenders (or such other Lenders as may be required under subsection 10.6). -6- "CLOSING DATE LETTERS OF CREDIT" means the Letters of Credit issued on or about the Closing Date pursuant to subsection 3.1B(i), consisting of the Back-Up Closing Date Letters of Credit, the Montgomery Closing Date Letter of Credit and the Replacement Closing Date Letters of Credit and any Letters of Credit issued to replace or extend the same pursuant to subsection 3.1B(ii)(a). "CLOSING DATE MORTGAGED PROPERTY" has the meaning assigned to that term in subsection 4.1N. "CLOSING DATE MORTGAGES" has the meaning assigned to that term in subsection 4.1N. "CLOSING DATE RETAINED AMOUNT" has the meaning assigned to that term in subsection 4.1T. "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, as security for the Obligations. "COLLATERAL ACCOUNT" means the cash collateral account maintained with Collateral Agent pursuant to the Security Agreement to secure the obligations of Borrowers with respect to Letter of Credit Exposure. "COLLATERAL AGENT" means Bank of America, in its capacity as Collateral Agent under the Intercreditor Agreement and the Collateral Documents. "COLLATERAL DOCUMENTS" means the Security Agreement, the DHC Pledge Agreement, the Control Agreements, the Mortgages and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Credit Party pursuant to this Agreement or any of the other Credit Documents, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time. "COMMITMENTS" means one or more of the Revolving Loan Commitments or the Letter of Credit Commitments or any combination thereof. "COMMITMENT FEE PERCENTAGE" means, on any date of determination, a per annum rate equal to 0.50%. "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. -7- "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 (i) the generation and sale of electricity or (ii) municipal waste management. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit V annexed hereto. "CONFIRMATION ORDER" means the Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March 5, 2004 in the Chapter 11 Cases, without modification, revision or amendment. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, (i) Consolidated Interest Expense for such period minus (ii) to the extent included in Consolidated Interest Expense for such period, accretion of principal on the High Yield Notes, interest paid in kind and not in cash during such period and any other amounts not paid or payable in cash. "CONSOLIDATED FACILITIES CAPITAL EXPENDITURES" means, for any period, the aggregate of all cash expenditures by Company and its Subsidiaries during that period 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 that or any other period. Expenditures that are reimbursed by the client (if such client is a Government Authority) of a Project under the principal lease, service or operating agreement relating to such Project pursuant to a Contractual Obligation on the part of such client to reimburse such expenditures shall not constitute Consolidated Facilities Capital Expenditures. "CONSOLIDATED INTEREST EXPENSE" means, for any period, (i) total interest expense, net of interest income, of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries to the extent such Indebtedness is or is required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP, but excluding any Indebtedness consisting of Limited Recourse Debt, and (ii) to the extent not included in the calculation of the amount described in clause (i), all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, from clauses (i) and (ii) any amounts referred to in subsection 2.3 payable to Administrative Agent and Lenders on or before the Closing Date and any amounts referred to in subsection 2.3 of the Detroit L/C Facility Agreement payable to the agents and lenders thereunder on or before the Closing Date. -8- "CONSOLIDATED LEVERAGE RATIO" means, as at any date of determination, the ratio of (a) Total Debt as at such date to (b) Adjusted EBITDA for the four-Fiscal Quarter period most recently ended prior to such date. "CONSOLIDATED NET WORTH" means, as at any date of determination, the sum of the capital stock and additional paid-in capital plus retained earnings (or minus accumulated deficits) of Company and its Subsidiaries on a consolidated basis, as such amounts are or are required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP. "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, or (iii) under Hedge Agreements. 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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Administrative Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, is -9- maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "CORPORATE SERVICES REIMBURSEMENT AGREEMENT" means the corporate services and expense reimbursement agreement entered into by DHC and Company on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "COVANTA ENERGY PENSION PLAN" means the Pension Plan referred to generally by Company on and prior to the Closing Date as the "Covanta Energy Pension Plan". "CPIH" means Covanta Power International Holdings, Inc., a Delaware corporation, and its successors and assigns. "CPIH BORROWERS" means CPIH and any additional borrowers under the CPIH Term Loan Agreement from time to time. "CPIH REVOLVER AGREEMENT" means that certain credit agreement dated as of the date hereof by and among CPIH Borrowers, as borrowers, and the financial institutions listed on the signature pages thereof, as lenders, as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "CPIH REVOLVER DOCUMENTS" means the "Loan Documents" as defined in the CPIH Revolver Agreement. "CPIH STOCK PLEDGE AGREEMENT" means the pledge agreement dated as of the Closing Date pursuant to which CEA pledges the Capital Stock of CPIH to secure the obligations of CPIH Borrowers under the CPIH Revolver Documents and the CPIH Term Loan Documents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "CPIH SUBSIDIARIES" means, on and after the Closing Date, CPIH and its Subsidiaries. "CPIH TERM LOAN AGREEMENT" means that certain credit agreement dated as of the date hereof by and among CPIH Borrowers, the Persons listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. -10- "CPIH TERM LOAN DOCUMENTS" means the "Loan Documents" as defined in the CPIH Term Loan Agreement. "CREDIT DOCUMENTS" means this Agreement, the Revolving Notes, the Letters of Credit (and any applications for, or reimbursement agreements or other documents or certificates executed by Borrowers in favor of Issuing Lender relating to, the Letters of Credit) and the Collateral Documents, the Intercreditor Agreement and all amendments, waivers and consents relating thereto. "CREDIT EXPOSURE" means, with respect to any Lender, as of any date of determination, that Lender's Revolving Loan Exposure and Letter of Credit Exposure. "CREDIT PARTY" means each Borrower and DHC, and "CREDIT PARTIES" means all such Persons, collectively. "CREDIT UTILIZATION" means, on any date of determination, the sum of (i) the aggregate principal amount of all outstanding Revolving Loans plus (ii) the aggregate amount of Letter of Credit Usage. "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. "D.E. SHAW" means D. E. Shaw Laminar Portfolios, L.L.C. a Delaware limited liability company. "DEBTORS" has the meaning assigned to that term in the recitals to this Agreement. "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. "DETROIT L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Borrowers, as borrowers, Bank of America, as Administrative Agent, the Documentation Agent party thereto, the Co-Lead Arrangers party thereto, and the financial institutions listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Borrowers to refinance, replace, renew or extend, in -11- whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder (provided, that (a) the terms of the Detroit L/C Facility Documents as so refinanced, replaced, renewed or extended shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent) than the Detroit L/C Facility Documents in effect on the Closing Date (it being understood and agreed that any refinancing, replacement, renewal or extension having the effect of reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend letters of credit under the Detroit L/C Facility Documents shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Administrative Agent), (b) the aggregate amount of Indebtedness and letters of credit outstanding and additional commitments to extend credit, if any, under the Detroit L/C Facility Documents as refinanced, replaced, renewed or extended, shall not exceed the aggregate amount of the commitments to extend credit in effect under the Detroit L/C Facility Documents on the Closing Date (or, if less, the amount of such commitments in effect immediately prior to such refinancing, replacement, renewal or extension), plus $5,000,000, (c) the credit available under the Detroit L/C Facility Documents as refinanced, replaced, renewed or extended shall be limited to letters of credit issuable in connection with the Project to which the Existing Detroit L/Cs relate (provided, that the requirements of this clause (c) shall not apply with respect to credit extended pursuant to the $5,000,000 additional amount described at the end of the foregoing clause (b)), (d) the obligations under (and the Liens securing) the Detroit L/C Facility Documents as refinanced, replaced, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the Detroit L/C Facility Documents in effect on the Closing Date, and (e) Company shall provide to Administrative Agent reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith), in the case of clause (i) or (ii) as such credit agreement may be amended, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "DETROIT L/C FACILITY DOCUMENTS" means (i) the Detroit L/C Facility Agreement, and (ii) the other "Credit Documents" as defined in the Detroit L/C Facility Agreement. "DETROIT PROJECT SUBSIDIARY" means Michigan Waste Energy, Inc., a Delaware corporation. "DEUTSCHE BANK" means Deutsche Bank Securities, Inc. "DEVELOPMENT EXPENSE" means, with respect to any Project, cash expenditures made by Company or any of its Subsidiaries to fund (i) engineering, permitting, legal, environmental and other similar expenses and (ii) fees and expenses of consultants and advisers with respect to engineering, permitting, legal and environmental issues, in each case to the extent such expenses are payable to Persons other than Company and its Subsidiaries in connection with any Expansion permitted under this Agreement, prior to the date of financial closing for such Expansion; provided, that Development Expenses shall exclude -12- payroll expense and reasonable travel expenses of employees of Company and its Subsidiaries. "DHC" means Danielson Holding Corporation, a Delaware corporation. "DHC PLEDGE AGREEMENT" means the DHC Pledge Agreement executed and delivered on the Closing Date by DHC, substantially in the form of Exhibit XI annexed hereto, as such DHC Pledge Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "DHC TAX SHARING AGREEMENT" means the tax sharing agreement entered into by DHC, Company and CPIH on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "DIP AGENTS" means the Persons identified as "Agents" under the DIP Credit Agreement, in their capacities as agents for DIP Lenders under the DIP Credit Agreement. "DIP CREDIT AGREEMENT" means that certain Debtor-In-Possession Credit Agreement dated as April 1, 2002, by and among Company and certain of its Subsidiaries, as debtors and debtors-in-possession, the financial institutions listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such agreement is in effect immediately prior to the Closing Date. "DIP CREDIT DOCUMENTS" means the "Loan Documents" as defined in the DIP Credit Agreement. "DIP LENDER" means each of the "Lenders" under the DIP Credit Agreement on the Closing Date, in its capacity as a lender under the DIP Credit Agreement. "DIP TRANCHE A L/C" means each letter of credit outstanding as of the Closing Date that is described on Schedule 1.1A (Part I) annexed to the Detroit L/C Facility Agreement (setting forth the expiration date, renewal requirements and other particulars of such letter of credit, including the type of obligation supported thereby), under which the maximum aggregate available amount for drawing is $6,276,500.00, determined as of the Closing Date; and "DIP TRANCHE A L/CS" means all such letters of credit, collectively. "DIP TRANCHE B L/C" means each letter of credit outstanding as of the Closing Date that is described on Schedule 1.1A (Part II) annexed to the Detroit L/C Facility Agreement (setting forth the expiration date, renewal requirements and other particulars of such letter of credit), under which the maximum aggregate available amount for drawing is $170,074,145.19, determined as of the Closing Date; and "DIP TRANCHE B L/CS" means all such letters of credit, collectively. "DISTRIBUTABLE CASH" has the meaning assigned to that term in subsection 4.1T. -13- "DOCUMENTATION AGENT" has the meaning assigned to that term in the introduction to this Agreement and also means and includes any successor Documentation Agent appointed pursuant to subsection 9.5. "DOLLARS" and the sign "$" mean the lawful money of the United States. "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 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 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 Administrative Agent 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, any state thereof or in the District of Columbia. "ELIGIBLE ASSIGNEE" means (i) any Person that 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 Person that is a Lender at the time of the relevant assignment; or (iii) any other Person designated as an Eligible Assignee pursuant to the prior written consent of Administrative Agent in its sole discretion; provided, that none of 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 -14- 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. "ENFORCING LENDERS" has the meaning assigned to that term in subsection 10.5B. "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 (including, solely with respect to periods prior to the Closing Date, CPIH Subsidiaries) or any Facility. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor thereto. "ERISA AFFILIATE" means, as applied to any Person, (i) any corporation that is a member of a controlled group of corporations within the meaning of Section 414(b) of the 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) that would reasonably be expected to have a Material Adverse Effect; (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 -15- Section 412(d) of the Internal Revenue Code) or the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (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 material current liability of Company or any of its Subsidiaries (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates 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 that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (vi) the imposition of material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (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 (in excess of the contribution that would otherwise have been due absent such withdrawal), or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (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, if such assertion or the liability with respect thereto would reasonably be expected to have a Material Adverse Effect; (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, in either case if such failure would reasonably be expected to have a Material Adverse Effect; or (x) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. -16- "EURODOLLAR BASE RATE" means, with respect to a Eurodollar Loan for the relevant Interest Period, the applicable British Bankers' Association LIBOR rate for deposits in U.S. dollars as reported by any generally recognized financial information service as of 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, and having a maturity equal to such Interest Period, provided that, if no such British Bankers' Association LIBOR rate is available to Administrative Agent, the applicable Eurodollar Base Rate for the relevant Interest Period shall instead be the rate determined by Administrative Agent to be the rate at which Bank One or one of its Affiliate banks offers to place deposits in U.S. dollars with first-class banks in the interbank market at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Interest Period, in the approximate amount of Bank One's relevant Eurodollar Loan and having a maturity equal to such Interest Period. "EURODOLLAR RATE" means, with respect to a Eurodollar Loan for the relevant Interest Period the quotient of (i) the Eurodollar Base Rate applicable to such Interest Period, divided by (ii) one minus the Reserve Requirement (expressed as a decimal) applicable to such Interest Period. "EURODOLLAR RATE LOANS" means Revolving Loans bearing interest at rates determined by reference to the Eurodollar Rate as provided in subsection 2.2A. "EURODOLLAR RATE MARGIN" means six and one-half of one percent (6.50%). "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 (i) each Subsidiary of Company for which becoming a Borrower 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 at such time as such Subsidiary's becoming a Borrower 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, and (ii) each Bankrupt Subsidiary. "EXISTING DETROIT L/CS" means, collectively, the following DIP Tranche B L/Cs: (i) Irrevocable Standby Letter of Credit Number SBY501806 issued by UBS Bank, in the available amount of $96,731,392.81 as of the Closing Date, for the benefit of PMCC Leasing Corporation and Resource Recovery Business Trust-A, and (ii) Irrevocable Standby Letter of Credit Number SBY501835 issued by UBS Bank, in the available amount of $41,460,161.38 as of the Closing Date, for the benefit of Aircraft Services Corporation and Resource Recovery Business Trust-B. -17- "EXISTING INTERCREDITOR AGREEMENT" means the "Intercreditor Agreement" as defined in the DIP Credit Agreement on the Closing Date, as such "Intercreditor Agreement" is in effect on the Closing Date. "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means, collectively, (i) the existing guaranty by Covanta Energy Group of the obligations of the CPIH Subsidiaries under certain agreements relating to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the existing guaranty by Covanta Projects, Inc. of the obligations of the CPIH Subsidiaries under certain agreements relating to the Quezon Project, and (iii) the existing guaranty by Company of the obligations of the CPIH Subsidiaries under certain agreements relating to the Balaji/Madurai Project and the LICA Project, as each such guaranty may be amended, restated, supplemented or otherwise modified to the extent permitted hereunder. "EXPANSION" means, with respect to any waste-to-energy Project in existence as of the date hereof, additions or improvements to the existing facilities of such Project that involve the addition of a boiler or a turbine generator. "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, by any of their respective predecessors or by any Person who was an Affiliate of Borrower or any of its Subsidiaries prior to the Closing Date. "FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating interest rate per annum 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 at approximately 10:00 a.m. (Chicago time) 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. Section 136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien is perfected and has priority over any other Lien on such Collateral (other than Liens permitted pursuant to subsections 7.2A(iii) through (xi)) and (ii) such Lien is the only Lien (other than Liens permitted pursuant to subsection 7.2) to which such Collateral is subject. "FISCAL QUARTER" means a fiscal quarter of any Fiscal Year. -18- "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 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 120 South LaSalle Street, 8th Floor, Mail Code L1-1713, Chicago, Illinois 60603 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 2.10C. "FUNDING DATE" means the date of funding of a Revolving 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 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. "GEOTHERMAL SALE" means (i) the sale or other disposition by Company and its Subsidiaries of all or substantially all of their respective (1) Capital Stock in Heber Geothermal Company, Heber Field Company and Second Imperial Geothermal Company, L.P. and (2) Capital Stock in non-debtor Affiliate Mammoth Pacific L.P., which entities own or lease geothermal plants and facilities in California (the "GEOTHERMAL BUSINESS") and (ii) the assumption and/or assignment by Company and its Subsidiaries of certain contracts related to the Geothermal Business, in the case of both clauses (i) and (ii) occurring prior to or concurrently with the consummation of the Plan of Reorganization. "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. -19- "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. "GREENWAY L/C" means, collectively, the letter of credit outstanding on the Closing Date in the stated amount of $820,000 issued under the DIP Credit Agreement as a "Tranche B Letter of Credit" (as defined in the DIP Credit Agreement), and shall not mean or include any amendment, reissuance, renewal or extension of such letter of credit after the Closing Date. "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. "HAVERHILL DEFERRED INCOME" means, for any period, all non-cash income resulting from payments made in 1998 by the counterparty to the power purchase agreement relating to the Haverhill Project in order to "buydown" its obligations under such agreement, to the extent such non-cash income is included in consolidated revenue or consolidated earnings of Company and its Subsidiaries during such period. "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, -20- 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 (i) an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively, or (ii) a forward agreement or arrangement designed to hedge against fluctuation in electricity rates pertaining to electricity produced by a Project, so long as the contractual arrangements relating to such Project contemplate that Company or its Subsidiaries shall deliver such electricity to third parties. "HIGH YIELD INDENTURE" means (i) the indenture pursuant to which the High Yield Notes are issued and (ii) any replacement indenture entered into in connection with a refinancing, renewal, replacement or extension of the High Yield Notes permitted under subsection 7.1(xiii), in each case as such indenture or replacement indenture may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "HIGH YIELD NOTES" means (i) the $230,000,000 in aggregate principal amount at maturity of 8.25% Senior Notes due 2010 of Company issued pursuant to the High Yield Indenture, and (ii) any Indebtedness incurred to refinance, renew, replace or extend the High Yield Notes permitted to be incurred under subsection 7.1(xiii); provided, that the initial principal amount (and issue price) of such High Yield Notes on the Closing Date shall be $205,000,000. "IMMATERIAL FOREIGN SUBSIDIARY" means any of the following Foreign Subsidiaries, in each case so long as such Subsidiary (i) has engaged in substantially no business or operations in the most recent fiscal year of Company and its Subsidiaries, (ii) in the most recent fiscal year of Company and its Subsidiaries, accounted for less than $100,000 of revenues, and (iii) holds at the time of determination less than $100,000 of assets: Covanta Energy Europe, Ltd. (United Kingdom), OPI Carmona Ltd. (Cayman Islands), OPI Carmona One Ltd. (Cayman Islands), and Covanta Waste to Energy Asia Investments (Mauritius). "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 -21- 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 (and Hedge Agreements that protect against fluctuation in electricity rates) 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. "INSURANCE PREMIUM FINANCERS" means Persons who are non-Affiliates of Company that advance insurance premiums for Company and its Subsidiaries pursuant to Insurance Premium Financing Arrangements. "INSURANCE PREMIUM FINANCING ARRANGEMENTS" means, collectively, such agreements as Company and its Subsidiaries shall enter into after the Closing Date with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries. Such Insurance Premium Financing Arrangements (i) shall provide for the benefit of such Insurance Premium Financers a security interest in no property of Company or any of its Subsidiaries other than gross unearned premiums for the insurance policies, (ii) shall not purport to prohibit any portion of the Liens created in favor of Collateral Agent (for the benefit of Secured Parties) pursuant to the Collateral Documents, and (iii) shall not contain any provision or contemplate any transaction prohibited by this Agreement and shall otherwise be in form and substance reasonably satisfactory to Administrative Agent. "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 MASTER NOTE" means a promissory note evidencing Indebtedness of Company and each of its Subsidiaries which (a) to the extent the -22- Indebtedness evidenced thereby is owed to any Borrower, is pledged pursuant to the Collateral Documents, and (b) to the extent the Indebtedness evidenced thereby is owed by a Subsidiary of Company, 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 Borrower 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 such note. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement executed and delivered on the Closing Date by Credit Parties, Lenders, Administrative Agent, Collateral Agent, the agents and the lenders under the Detroit L/C Facility Documents, the Investor Parties and the trustee under the High Yield Indenture, in the form of Exhibit XIII annexed hereto, as it may thereafter be amended, restated, supplemented or otherwise modified from time to time. "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 Eurodollar Rate 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" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "INTER-LENDER AGREEMENT" means that certain Inter-Lender Agreement of even date herewith among Administrative Agent, Lenders and Issuing Lender, as the same may be amended from time to time in accordance with its terms. "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 or services to that other Person in the -23- ordinary course of business, (iv) Interest Rate Agreements or Currency Agreements not constituting Hedge Agreements, (v) Commodities Agreements not constituting Hedge Agreements, or (vi) any Expansion of any Project by Company or any of its Subsidiaries to the extent that the costs of such Expansion are borne, directly or indirectly, by Company or any of its Subsidiaries. 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. No account receivable owed by a Person to Company or any of its Subsidiaries that on the relevant date of determination constitutes a current asset and arose from sales or services to such Person in the ordinary course of business shall constitute an Investment on such date. "INVESTOR PARTIES" means D.E. Shaw, SZ Investments, L.L.C., a Delaware limited liability company, and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series "IP COLLATERAL" means, collectively, the Intellectual Property that constitutes Collateral. "IPP INTERNATIONAL BUSINESS" means the assets and operations of the business of Company and its Subsidiaries referred to by Company as the "IPP International business" prior to the Closing Date, including the Haripur Project, the Samalpatti Project, the Trezzo Project, the Quezon Project, the Balaji/Madurai Project, the Linasa Project, the Don Pedro Project, the Rio Volcan Project, the Bataan Project, the Magellan Project, the Linan Project, the Huantai Project, the Yanjiang Project and the Island Power Project. "IPP INTERNATIONAL SALES" means one or more sales or dispositions of (i) the assets and/or operations of CPIH and its Subsidiaries and/or (ii) the Capital Stock of CPIH or any of its Subsidiaries. "ISSUING LENDER" means Bank One, in its capacity as Issuing Lender and any successor Issuing Lender hereunder. "JOINT VENTURE" means a joint venture, partnership or other similar arrangement, whether in corporate, partnership or other legal form. "JPMORGAN" means J.P. Morgan Chase Bank, NA. "LAKE SUBSIDIARY" means Covanta Lake II, Inc., a Florida corporation. "LANDLORD CONSENT AND ESTOPPEL" means, with respect to any Leasehold Property, a letter, certificate or other instrument in writing from the lessor under the related lease, satisfactory in form and substance to Administrative Agent, pursuant to which such lessor agrees, for the benefit of Administrative Agent, (i) that without any further consent of such lessor or any further action on the part of the Borrower holding such Leasehold Property, such Leasehold Property may be encumbered pursuant to a Mortgage and may be assigned to the purchaser at a foreclosure sale or in a transfer in lieu of such a sale (and to a subsequent third party assignee if Administrative Agent, any Lender, or an Affiliate of either -24- so acquires such Leasehold Property), (ii) that such lessor shall not terminate such lease as a result of a default by such Borrower thereunder without first giving Administrative Agent notice of such default and at least 60 days (or, if such default cannot reasonably be cured by Administrative Agent within such period, such longer period as may reasonably be required) to cure such default, and (iii) to such other matters relating to such Leasehold Property and the Collateral located thereon as Administrative Agent may reasonably request. "LEASEHOLD PROPERTY" means any leasehold interest of any Borrower 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 (i) letters of credit issued under this Agreement by Issuing Lender pursuant to subsection 3.1 and (ii)(a) letters of credit issued by Issuing Lender to replace Closing Date Letters of Credit pursuant to subsection 3.1B(ii)(a) and (b) amendments to Letters of Credit issued by Issuing Lender to extend the expiration date of such Letters of Credit pursuant to subsection 3.1B(ii)(a). "LETTER OF CREDIT COMMITMENT" means the commitment of a Lender to purchase and fund participations in Letters of Credit pursuant to Section 3, and "LETTER OF CREDIT COMMITMENTS" means such commitments of all Lenders in the aggregate. "LETTER OF CREDIT EXPOSURE" means, with respect to any Lender as of any date of determination, the sum of (a) in the event that Lender is the Issuing Lender, the aggregate Letter of Credit Usage in respect of all Letters of Credit issued by that Lender (in each case net of any participations purchased by other Lenders in such Letters of Credit or in any drawings thereunder not theretofore reimbursed by Borrowers) plus (b) the aggregate amount of all participations purchased by that Lender in any other outstanding Letters of Credit or any drawings under any such other Letters of Credit not theretofore reimbursed by Borrowers. "LETTER OF CREDIT LENDER" means any Lender having or holding Letter of Credit Exposure. "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 Letters of Credit then outstanding plus (ii) the aggregate amount of all drawings under all Letters of Credit honored by Issuing Lender and not theretofore reimbursed by Borrowers. "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) -25- 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. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by CPIH, Company and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to Administrative Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 7.12. "MANDATORY PAYMENT" means any amount described in subsections 2.4A(iii)(a)-(g) to be applied as a prepayment of the Revolving Loans, as a permanent reduction of the Commitments, to repay funded amounts under Letters of Credit and/or to cash collateralize Letter of Credit Exposure, in each case as determined pursuant to subsection 2.4A. "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 Credit Parties taken as a whole 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 1.1B annexed hereto, and (ii) any other -26- contract or other arrangement to which Company or any of its Subsidiaries is a party (other than the Credit 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, with respect to any Person, any Subsidiary of such Person now existing or hereafter acquired or formed by such Person which, on a consolidated basis for such Subsidiary and all of its Subsidiaries, (i) for the most recent fiscal year of such Person accounted for more than 1% of the consolidated revenues of such Person and its Subsidiaries, (ii) as at the end of such fiscal year, was the owner of more than 1% of the consolidated assets of such Person and its Subsidiaries, or (iii) is capitalized with more than $500,000 of equity. "MATURITY DATE" means March 10, 2009. "MONTGOMERY CLOSING DATE LETTER OF CREDIT" means the Closing Date Letter of Credit issued by Issuing Lender and confirmed by JPMorgan that supports obligations of Company under the Montgomery Service Agreement and any Letter of Credit issued to replace or extend the same pursuant to subsection 3.1B(ii)(a). "MONTGOMERY SERVICE AGREEMENT" means that certain Service Agreement between Northeast Maryland Waste Disposal Authority and Covanta Montgomery, Inc. (formerly known as Ogden Martin Systems of Montgomery, Inc.) dated November 16, 1990, as such agreement is in effect on the Closing Date and as it may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder. "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 Borrower, 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. -27- "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 eighteen months from the date of such Asset Sale and (b) the Maturity Date 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) actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to such Asset Sale or pursuant to applicable law) and payable immediately upon consummation of such Asset Sale to employees of Company and its Subsidiaries that are terminated as a result thereof) paid to Persons other than Company and its Subsidiaries and their respective Affiliates 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 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 Credit Documents. "NET DEPRECIATION AND AMORTIZATION EXPENSE" means, for any period, (i) the sum of the amounts (each expressed as a positive number) for such period of "Depreciation" and "Amortization", as each such line item is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled, minus (iii)Haverhill Deferred Income. "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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) the Maturity Date as a result of the receipt of such payments or proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or relating to the payment referred to in clause (i) or (ii) above or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have -28- been terminated as a result of the relevant loss, taking or sale) paid to Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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, 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 INDEBTEDNESS 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)) from the incurrence of Indebtedness by Company or any of its Subsidiaries. "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such term is defined in the Plan of Reorganization. "NON-BORROWER CASH FLOW" means, for any period with respect to Subsidiaries of Company that are not Borrowers, (i) the aggregate amount of cash from such Subsidiaries paid as dividends or otherwise distributed to Borrowers, minus (ii) the aggregate amount of cash expenditures made by such Subsidiaries from amounts received from Borrowers to fund operations and capital expenditures of such Subsidiaries (whether such amounts are received from Borrowers as the proceeds of Indebtedness incurred by such non-Borrower Subsidiary or as the proceeds of equity contributions or both). Amounts included in the calculation of the Development Expenses with respect to a Project shall not be included in the calculation of clause (ii) of Non-Borrower Cash Flow. "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. "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 IV annexed hereto. "OBLIGATIONS" means all obligations of every nature of Credit Parties under the Credit Documents, including any liability of such Credit Party on any claim arising out of or relating to the Credit Documents, 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. Without limiting the generality of the foregoing, the Obligations of the Credit Parties under the Credit Documents include (a) the obligation to pay principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Credit -29- Party, whether or not allowed in such case or proceeding), charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Borrower and any other Credit Party under any Credit Document and (b) the obligation to reimburse any amount in respect of any of the foregoing that Administrative Agent or any Lender, in its sole discretion, may elect to pay or advance on behalf of such Borrower or other Credit Party; provided, that nothing in this definition shall be construed as creating any obligations of DHC under the Credit Documents that are not expressly set forth in such Credit Documents. "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) or 6.1(v) shall be executed by a senior financial officer of Company reasonably acceptable to Administrative Agent. "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 agreement entered into by Company or any of its Subsidiaries under which Company or any such Subsidiary guarantees the performance of a Subsidiary of Company under a principal lease, service or operating agreement relating to a Project. The Existing IPP International Project Guaranties shall not constitute Performance Guaranties. "PERMANENT L/C OBLIGATION REDUCTION" means a cancellation, termination or reduction in the amount of any Closing Date Letter of Credit (including any such reduction, cancellation or termination resulting from a drawing under such Closing Date Letter of -30- Credit) issued on the Closing Date, other than such a cancellation, termination or reduction (i) in the amount of the Montgomery Closing Date Letter of Credit not resulting from a drawing under such Letter of Credit or (ii) concurrently with a reissuance of the relevant cancelled, terminated or reduced portion of the applicable Closing Date Letter of Credit pursuant to subsection 3.1B(ii)(a). Notwithstanding the foregoing, any scheduled reduction in the stated amount of any Closing Date Letter of Credit shall be a Permanent L/C Obligation Reduction only to the extent the maximum amount available for drawing at any time thereafter under such Closing Date Letter of Credit is permanently reduced. "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 8.8; (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 -31- 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. "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. -32- "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "PLEDGED COLLATERAL" means the "Pledged Collateral" as defined in the Security Agreement. "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 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 Bank of America, as Administrative Agent, as amended, restated, supplemented or otherwise modified through the Closing Date and as it may hereafter be amended, restated, supplemented or otherwise modified. "PREPETITION CREDIT DOCUMENTS" means all "Loan Documents" as defined in the Prepetition Credit Agreement. "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 OBLIGATIONS" means all "Obligations" as defined in the Prepetition Credit Agreement. "PREPETITION SECURED CLAIMS" means, collectively, the "Secured Bank Claims" and the "9.25% Debenture Claims", as such terms are defined in the Plan of Reorganization. "PREPETITION UNSECURED CLAIMS" means "Parent and Holding Company Unsecured Claims" that are "Allowed," as such terms are defined in the Plan of Reorganization. "PRIME RATE" means the rate per annum equal to the prime rate of interest announced from time to time by Bank One or its parent (which is not necessarily the lowest rate charged to any customer), changing when and as said prime rate changes. Bank One 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. -33- "PROJECT" means any waste-to-energy facility, electrical generation plant, cogeneration plant, water treatment facility 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 (including CPIH Subsidiaries) 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "PRO RATA SHARE" means (i) with respect to all payments, computations and other matters relating to the Revolving Loan Commitment or the Revolving Loans of any Lender, the percentage obtained by dividing (x) the Revolving Loan Exposure of that Lender by (y) the aggregate Revolving Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1; (ii) with respect to all payments, computations and other matters relating to the Letter of Credit Commitment of any Lender or any Letters of Credit issued or participations therein deemed purchased by any Lender, the percentage obtained by dividing (a) the Letter of Credit Exposure of that Lender by (b) the aggregate Letter of Credit Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 10.1 and (iii) with respect to all payments, computations and other matters relating to the Commitments of Lenders generally, the percentage obtained by dividing (x) the aggregate Credit Exposure of that Lender by (y) the aggregate Credit 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 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. Section 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 Borrower in any real property. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of -34- such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "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 from time to time in effect and any successor thereto or other regulation or official interpretation of said Board of Governors relating to reserve requirements applicable to member banks of the Federal Reserve System. "REIMBURSEMENT DATE" has the meaning assigned to that term in subsection 3.3B. "RELATED AGREEMENTS" means the Detroit L/C Facility Documents, the High Yield Indenture, the High Yield Notes, the Corporate Services Reimbursement Agreement, the Management Services and Reimbursement Agreement and the DHC Tax Sharing Agreement as such agreements and instruments may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 7.12. "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. "REPLACEMENT CLOSING DATE LETTER OF CREDIT" means a Closing Date Letter of Credit issued to replace a DIP Tranche A L/C or a DIP Tranche B L/C and any Letter of Credit issued to replace or extend the same pursuant to subsection 3.1B(ii)(a). "REQUEST FOR ISSUANCE" means a request substantially in the form of Exhibit III annexed hereto. "REQUISITE DIP LENDERS" means DIP Lenders having or holding more than 50% of the aggregate credit exposure under the DIP Tranche A L/Cs and the DIP Tranche B L/Cs. "REQUISITE LENDERS" means Lenders having or holding more than 50% of the aggregate Credit Exposure of all Lenders. -35- "RESERVE REQUIREMENT" means, with respect to an Interest Period, the maximum aggregate reserve requirement (including all basic, supplemental, marginal and other reserves) which is imposed under Regulation D on eurocurrency liabilities. "RESTRICTED ACCOUNT" means any account that is either (i) a collateral account, debt service reserve account or other Deposit Account to which the access of Company and its Subsidiaries is restricted pursuant to a valid and enforceable Contractual Obligation, so long as such account is (a) related to a Project of Company and its Subsidiaries, (b) is required to be opened or maintained by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person and (c) is permitted to be maintained under this Agreement, or (ii) a reserve account established in accordance with the Approved Plan of Reorganization. "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 Company and its Subsidiaries other than (a) the Obligations, (b) Indebtedness owed by a Subsidiary to a Borrower, (c) Indebtedness under the Detroit L/C Facility Documents or the High Yield Notes, and (d) other amounts required to be paid under this Agreement. "REVOLVING LENDER" means any Lender having or holding Revolving Loan Exposure. "REVOLVING LOAN COMMITMENT" and "REVOLVING LOAN COMMITMENTS" have the respective meanings assigned to such terms in subsection 2.1(A). "REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Revolving Loan Commitments, that Lender's Revolving Loan Commitment, and (ii) after the termination of the Revolving Loan Commitments, the aggregate outstanding principal amount of the Revolving Loans of that Lender. "REVOLVING LOANS" means the loans made (or deemed made) by Revolving Lenders to Borrowers pursuant to subsection 2.1A. "REVOLVING NOTES" means any promissory notes of Borrowers issued pursuant to subsection 2.1F to evidence the Revolving Loans of any Lenders, substantially in the form -36- of Exhibit II annexed hereto, as they may be amended, restated, supplemented or otherwise modified from time to time. "SECURED OBLIGATIONS" means the obligations secured by the Collateral pursuant to the Collateral Documents. "SECURED PARTIES" means the "Secured Parties" as defined in the Intercreditor Agreement. "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. "SECURITIES ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Closing Date by Credit Parties (except as otherwise contemplated in Section 5.18) other than DHC, substantially in the form of Exhibit VII annexed hereto, as such Security Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "SEIU PENSION PLAN" means the Pension Plan referred to generally by Company on and prior to the Closing Date as the "Service Employees International Union Pension Trust for Employees of Allied Plant Maintenance Company, Inc. Defined Benefit Pension Plan". "SETTLEMENT" has the meaning assigned to that term in subsection 2.1D. "SETTLEMENT DATE" has the meaning assigned to that term in subsection 2.1D. "SOLVENT" means, with respect to any Person, that as of the date of determination, in light of all of the facts and circumstances existing at such time, (i) the then fair saleable value of the property of such Person is (a) greater than the total amount of liabilities (including contingent liabilities) of such Person and (b) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and due considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in -37- relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBORDINATED INDEBTEDNESS" means, collectively, (i) Indebtedness under the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and (ii) any other Indebtedness of Company or any of its Subsidiaries incurred from time to time and subordinated by its terms in right of payment to the Obligations. "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. Any reference contained herein to one or more Subsidiaries of Company or of Company's Domestic Subsidiaries shall, unless otherwise expressly indicated, not include any CPIH Subsidiaries and Greenway Insurance Company of Vermont. "SWEEP DATE" has the meaning assigned to that term in subsection 2.4A(iii)(f). "SWINGLINE LOAN" has the meaning assigned to that term in subsection 2.1D. "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). "TAMPA SUBSIDIARIES" means Covanta Tampa Construction, Inc., a Delaware corporation, and Covanta Tampa Bay, Inc., a Florida corporation. "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. "TAX NOTE" has the meaning assigned to that term in subsection 4.1F(iv). -38- "TOTAL DEBT" means, as at any date of determination, (i) the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, minus (ii) the amounts of "Current portion of project debt" and "Project Debt", whether such line items are so titled or otherwise titled, as such line items are or would be reflected in Company's consolidated balance sheet as at such date prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amounts in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, minus (iii) any portion of Indebtedness of Company and its Subsidiaries under the CPIH Stock Pledge Agreement or the Corporate Services Reimbursement Agreement included in the amount described in clause (i) above, minus (iv) any portion of the amount described in clause (i) above that represents a funded drawing under a letter of credit (otherwise permitted to be outstanding under this Agreement) supporting obligations of Company and its Subsidiaries (including CPIH Subsidiaries) in respect of the Quezon Project. "TREASURY REGULATIONS" means the Treasury Regulations promulgated under the Internal Revenue Code. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C. Section 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "UBS BANK" means UBS AG, Stamford Branch. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNITED STATES" means the United States of America. "UNSECURED CREDITOR NOTES" has the meaning assigned to that term in subsection 4.1F(iv). "UNSECURED CREDITOR NOTES INDENTURE" means the Indenture pursuant to which the Unsecured Creditor Notes are issued. "WARREN SUBSIDIARIES" means Covanta Warren Energy Resource Co. LP, a Delaware limited partnership, Covanta Warren Holdings I, Inc., a Virginia corporation, and Covanta Warren Holdings II, Inc., a California corporation. 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 -39- 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 Credit 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 Credit 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 REVOLVING LOANS; INTEREST RATES; FEES; AND CERTAIN TERMS OF PAYMENT AND REPAYMENT AND OTHER MATTERS 2.1. REVOLVING LOAN COMMITMENTS; MAKING OF REVOLVING LOANS; THE REGISTER; OPTIONAL NOTES. A. REVOLVING LOAN 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 severally, and not jointly and severally, agrees to make a portion of its Letter of Credit Commitment available as Revolving Loans to be made to Borrowers from time to time during the period from the Closing Date to but excluding the Maturity Date in an aggregate amount not exceeding such Lender's Pro Rata Share of the aggregate amount of the Revolving Loan Commitments (as hereinafter defined) to be used for the purposes identified in subsection 2.5A. The original amount of the portion of each Lender's Letter of Credit Commitment that is available for the making of Revolving Loans to Borrowers (such Lender's "REVOLVING LOAN COMMITMENT") is set forth opposite its name on -40- Schedule 2.1 annexed hereto and the aggregate original amount of such portions of the Letter of Credit Commitments that are available for the making of Revolving Loans to Borrowers is $10,000,000 (the "REVOLVING LOAN COMMITMENTS"); provided, however, that the Revolving Loan Commitments of Lenders shall be adjusted to give effect to any assignments of the Revolving Loan 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 Revolving Loan Commitment shall expire on the day before the Maturity Date and all Revolving Loans and all other amounts owed hereunder with respect to the Revolving Loans and the Revolving Loan Commitments shall be paid in full no later than the Maturity Date. Amounts borrowed under this subsection 2.1A may be repaid and reborrowed up to but excluding the Maturity Date. Anything contained in this Agreement to the contrary notwithstanding, in no event shall any Revolving Loan be requested or made if, after giving effect thereto, (i) the aggregate principal amount of all Revolving Loans outstanding would exceed the aggregate Revolving Loan Commitments then in effect or (ii) the aggregate Credit Utilization then in effect would exceed the aggregate Letter of Credit Commitments then in effect. B. BORROWING MECHANICS. Revolving Loans made on any Funding Date 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 Revolving Loan Commitments unfunded and available for borrowing is less than such aggregate minimum amount, an amount equal to the amount of the Revolving Loan Commitments unfunded and available for borrowing); provided that Revolving 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 Revolving Loans they shall deliver to Administrative Agent a Notice of Borrowing no later than 10:00 A.M. (Chicago 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). Revolving 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 2.1B; 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 2.1B or under subsection 2.2D, and upon funding of Revolving Loans by Lenders, and upon conversion or continuation of the applicable basis for determining the interest rate with respect to any Revolving Loans pursuant to subsection 2.2D, in each case in accordance with this Agreement, pursuant to any such telephonic notice Borrowers shall have effected Revolving Loans or a conversion or continuation thereof, as the case may be. -41- Borrowers shall notify Administrative Agent prior to the funding of any Revolving 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 Revolving 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 2.1B, 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. C. DISBURSEMENT OF FUNDS. All Revolving 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 a Revolving Loan requested hereunder nor shall the Commitment of any Lender to make a Revolving 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 Revolving Loan requested hereunder. Promptly after receipt by Administrative Agent of a Notice of Borrowing pursuant to subsection 2.1B (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 Revolving Loan available to Administrative Agent not later than 12:00 Noon (Chicago time) on the applicable Funding Date, in same day funds in Dollars, at the Funding and Payment Office. Upon satisfaction or waiver of the conditions precedent specified in subsections 4.1 (in the case of Revolving Loans made on the Closing Date) and 4.2 (in the case of all Revolving Loans), Administrative Agent shall make the proceeds of such Revolving 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 Revolving Loans received by Administrative Agent from Lenders to be credited to the account of Borrowers at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to a Funding Date that such Lender does not intend to make available to Administrative Agent the amount of such Lender's Revolving 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 -42- 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 2.1C 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. D. SWINGLINE LOANS. Subject to each of the terms and conditions set forth herein, Administrative Agent shall make each Revolving Loan, on behalf of Revolving Lenders and in the amount requested, available to Borrowers on the applicable Funding Date in the manner set forth in subsection 2.1C. Each Revolving Loan made solely by Administrative Agent pursuant to this subsection 2.1D is referred to in this Agreement as a "SWINGLINE LOAN" and such Revolving Loans are referred to in this Agreement collectively as "SWINGLINE LOANS". Each Swingline Loan shall be subject to all of the terms and conditions applicable to other Revolving Loans funded by Revolving Lenders (including, without limitation, the conditions set forth in Section 4), except that all payments thereon shall be payable to Administrative Agent solely for its own account (other than as expressly set forth in the Inter-Lender Agreement). All Swingline Loans shall be secured by the Liens under the Collateral Documents and shall constitute Revolving Loans for all purposes hereunder and under each other Credit Document. At any time upon the occurrence and during the continuance of an Event of Default, Administrative Agent may request settlement of any Swingline Loans (a "SETTLEMENT") with the Revolving Lenders by notifying the Revolving Lenders of such requested Settlement by telecopy or telephone no later than 12:00 Noon (Chicago time) on the date of such requested Settlement (the "SETTLEMENT DATE"). Each Revolving Lender (excluding Administrative Agent in all events) agrees to transfer in immediately available funds the entire amount of such Revolving Lender's Pro Rata Share of the outstanding principal balance of the Swingline Loan with respect to which a Settlement has been requested to Administrative Agent, at such account of Administrative Agent as Administrative Agent may designate, no later than 2:00 p.m. (Chicago time) on the Settlement Date. The foregoing obligations of the Revolving Lenders in respect of Settlements shall be unconditional (it being understood for the avoidance of doubt that Settlements may occur during the existence of an Event of Default or Potential Event of Default and regardless of whether the applicable conditions set forth in Section 4 have been satisfied). Such amounts that are transferred by the Revolving Lenders to Administrative Agent shall be applied against the outstanding principal balance of the applicable Swingline Loan and shall constitute Revolving Loans of such Revolving Lenders, respectively. If any such amount in respect of a Swingline Loan is not transferred to Administrative Agent by any Revolving Lender on the Settlement Date applicable thereto, then Administrative Agent shall be unconditionally entitled to recover such amount on demand from such Revolving -43- Lender together with interest thereon at the rate applicable to such Swingline Loan 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 Revolving Loan Commitment, Letter of Credit Commitment, Revolving Loans and participations in Letters of Credit 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, Revolving Loans and participations listed therein for all purposes hereof; all amounts owed with respect to any Commitment, Revolving Loan or participation 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 Revolving Loans. Each Lender shall record on its internal records the amount of its participation, Revolving 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 participations, Revolving Loans or Commitments or any Obligations in respect of any Revolving Loans or participations. 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) a promissory note or promissory notes to evidence such Lender's Revolving Loans, substantially in the form of Exhibit II annexed hereto, with appropriate insertions, including the principal amount of that Lender's Revolving Loan Commitment. 2.2. INTEREST ON THE REVOLVING LOANS. A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and 2.7, each Revolving 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 Revolving Loan shall be selected by Borrowers initially at the time a Notice of Borrowing is -44- given with respect to such Revolving Loan pursuant to subsection 2.2B (subject to the last sentence of subsection 2.1B), and the basis for determining the interest rate with respect to any Revolving Loan may be changed from time to time pursuant to subsection 2.2B (subject to the last sentence of subsection 2.1B); provided, that if an Event of Default or Potential Event of Default then exists, Borrowers shall not be entitled to request that any Revolving Loan be made as a Eurodollar Rate Loan. If on any day a Revolving 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 Revolving 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 Revolving Loans shall bear interest through maturity as follows: (i) if a Base Rate Loan, then at the sum of the Base Rate plus the Base Rate Margin; or (ii) 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 shall, pursuant to the applicable Notice of Borrowing or Notice of Conversion/Continuation, as the case may be, select an the interest period (each, an "INTEREST PERIOD") to be applicable to such Revolving Loan, which Interest Period shall be a one-, two- or three-month period; provided that: (i) the initial Interest Period for any Eurodollar Rate Loan shall commence on the Funding Date in respect of such Revolving Loan, in the case of a Revolving 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 Revolving 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; -45- (v) no Interest Period with respect to any portion of the Revolving Loans shall extend beyond the 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 Revolving Loan shall be payable in arrears on and to each Interest Payment Date applicable to that Revolving Loan, upon any prepayment of that Revolving 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 Revolving Loans equal to $200,000 and integral multiples of $100,000 in excess of that amount from Revolving Loans bearing interest at a rate determined by reference to one basis to Revolving 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 Revolving 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) no Base Rate Loan may be converted into a Eurodollar Rate Loan and no Eurodollar Rate Loan may be continued as a Eurodollar Rate Loan if an Event of Default or Potential Event of Default then exists and (b) 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. (Chicago 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. Administrative Agent shall promptly notify each Lender of any Revolving Loan subject to the Notice of Conversion/Continuation. E. DEFAULT RATE. Upon the occurrence and during the continuation of any Event of Default and notice to Borrowers from Administrative Agent, the outstanding principal amount of all Revolving 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 (but not including amounts drawn under any Letter of Credit that are not reimbursed by Borrowers when required under subsection 3.3), shall thereafter bear interest (including post petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is (i) in the case of any -46- Revolving Loans, 2.00% per annum in excess of the interest rate otherwise payable under this Agreement with respect to such Revolving Loans or (ii) in the case of fees and other amounts, 2.00% 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 Revolving Loans and other amounts bearing interest with reference to the Base Rate shall be computed 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 Revolving Loan or amount funded in a drawing under a Letter of Credit, the date of the making of such Revolving Loan or the date of funding of such drawing or the first day of an Interest Period applicable to such Revolving 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 Revolving Loan or funded drawing or the expiration date of an Interest Period applicable to such Revolving 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 Revolving Loan or funded drawing is repaid on the same day on which it is made, one day's interest shall be paid on that Revolving 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 Revolving 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. AGENCY FEE. Borrowers, jointly and severally, agree to pay to Administrative Agent on the Closing Date and each anniversary of the Closing Date (excluding the Maturity Date), for Administrative Agent's own account and in advance for the forthcoming year, an annual agency fee in an amount equal to $30,000. Each such annual maintenance fee shall be fully-earned and non-refundable when due. B. COMMITMENT FEE. Borrowers, jointly and severally, agree to pay to Administrative Agent, for distribution to Issuing Lender and Lenders (with the allocation among Issuing Lender and Lenders to be as set forth in the Inter-Lender Agreement and the allocation among Lenders to be in proportion to their respective Pro Rata Shares), commitment fees for the period from and including the Closing Date to but excluding the Maturity Date equal to (i) the daily excess of the aggregate Letter of Credit Commitments over the aggregate Credit Utilization, multiplied by (ii) the Commitment Fee Percentage, expressed as a daily rate. Such commitment fees shall be payable in arrears on and to (but excluding) the last day of each fiscal quarter and on the Maturity Date and computed on the basis of a 360-day year, for the actual number of days elapsed. -47- C. CLOSING FEE. Borrowers, jointly and severally, agree to pay on the Closing Date to Lenders, in proportion to their respective Pro Rata Shares, a closing fee in an aggregate amount that is equal to two percent (2.00%) of the total amount of the Letter of Credit Commitments of Lenders hereunder as of the Closing Date. D. OTHER FEES. Borrowers, jointly and severally, agree to pay to Administrative Agent such fees in the amounts and at the times separately agreed upon between Company and Administrative Agent. All fees referenced in this subsection 2.3 shall be earned when payable and shall be non-refundable. 2.4. MANDATORY PAYMENTS, REDUCTIONS IN COMMITMENTS; GENERAL PROVISIONS REGARDING PAYMENTS; APPLICATION OF PROCEEDS OF COLLATERAL. 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 (Chicago time) on the date required and, if given by telephone, promptly confirmed in writing to Administrative Agent, who will promptly notify each Lender whose Revolving Loans are to be prepaid of such prepayment, at any time and from time to time prepay any Revolving Loans on any Business Day in whole or in part in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount (or, if the amount of the Revolving Loans is less than such aggregate minimum amount, an amount equal to the amount of the Revolving Loans); provided that voluntary prepayments of Eurodollar Rate Loans made on a date other than an Interest Payment Date applicable to such Eurodollar Rate 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 Revolving 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, at any time and from time to time, terminate in whole or permanently reduce in part, without premium or penalty, (a) the Revolving Loan Commitments in an amount up to the amount by which the Revolving Loan Commitments exceed the aggregate Revolving Loans outstanding at the time of such proposed termination or reduction or (b) the Letter of Credit Commitments in an amount up to the amount by which the Letter of Credit Commitments exceed the Letter of Credit Usage at the time of such proposed termination or reduction; provided that any such partial reduction of either the Revolving Loan Commitments or the Letter of Credit Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount. Borrowers' -48- notice to Administrative Agent (who shall promptly notify each Revolving Lender or Letter of Credit Lender, as applicable, of such notice) 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 Revolving Loan Commitments being less than the aggregate principal amount of all outstanding Revolving Loans, or (2) the aggregate Letter of Credit Commitments being less than the aggregate Letter of Credit Usage then in effect. (iii) Mandatory Payments. Mandatory Payments shall be made in the amounts and under the circumstances set forth below, all such Mandatory Payments to be applied to repay the Obligations and/or permanently reduce the Commitments as set forth below or as more specifically provided in subsection 2.4A(iv), except to the extent that the Intercreditor Agreement requires application thereof in a different manner than as set forth in this subsection 2.4A(iii) or subsection 2.4A(iv) (it being understood that if a payment is made in accordance with the terms of the Intercreditor Agreement, a duplicate payment shall not be required hereunder and the application required under the terms of the Intercreditor Agreement shall apply as if set forth herein): (a) Net Asset Sale Proceeds. No later than 2 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, Company shall make a Mandatory Payment in an aggregate amount equal to (1) to the extent that aggregate Net Asset Sale Proceeds in respect of all Asset Sales made on or prior to such date is $7,500,000 or less, 33.33% of such Net Asset Sale Proceeds, or (2) to the extent that aggregate Net Asset Sale Proceeds in respect of all Asset Sales made on or prior to such date exceeds $7,500,000, 100% of such excess (without duplication). (b) 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 a Mandatory Payment in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds. (c) Issuance of Indebtedness. On the date of receipt of the Net Indebtedness Proceeds from the issuance of any Indebtedness of Company or any of its Subsidiaries after the Closing Date, other than Indebtedness permitted pursuant to subsections 7.1(i) through (xvi), Company shall make a Mandatory Payment in an aggregate amount equal to such Net Indebtedness Proceeds. -49- (d) Tax Refunds. If after the Closing Date, Company or any of its Subsidiaries receives any payment of a cash refund or rebate of any Tax, 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, except to the extent such application would constitute a material violation of a valid Contractual Obligation in connection with a Project of Company or any of its Subsidiaries to remit such refund or rebate to the client of such Project. (e) Annual Free Cash Flow. In the event that there shall be Annual Free Cash Flow for any Fiscal Year (commencing with Fiscal Year 2004), Company shall, no later than 60 days after the end of such Fiscal Year, make a Mandatory Payment in an aggregate amount equal to 50% (or, during the continuance of an Event of Default, 100%) of such Annual Free Cash Flow; provided, however, that the amount of such Mandatory Payment shall be reduced by the amount of cash, if any, applied to cash collateralize Letter of Credit Exposure pursuant to subsection 2.4A(iii)(f) during the four Fiscal Quarters most recently preceding the date of such Mandatory Payment. (f) Excess Cash. Any amounts on deposit in the Cash Management System (such amounts, in any event, not to include amounts, if any, on deposit in the Collateral Accounts or required to be held in Deposit Accounts which are Restricted Accounts described on Schedule 2.4A(iii)(f) annexed hereto, as said Schedule 2.4A(iii)(f) may be supplemented from time to time pursuant to the provisions of subsection 6.1(xvii)) (the aggregate of such amounts on deposit at any time (excluding any amounts on deposit in accounts set forth on said Schedule at such time) being referred to herein as "Cash On Hand") in excess of $60,000,000 (plus the Closing Date Retained Amount) for each Sweep Date (as defined below) in 2004 and 2005, $70,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2006, $75,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2007 and $80,000,000 (plus the Closing Date Retained Amount) for each Sweep Date in 2008, on June 30 and December 31 of each of the aforementioned years (each such date, a "Sweep Date"), shall be applied to repay the Obligations and/or permanently reduce the Commitments on the next succeeding Business Day in the following manner: first, to Letter of Credit Exposure, with the amount applied to Letter of Credit Exposure being applied to repay all funded amounts, if any, under the Letters of Credit and then to cash collateralize the Letter of Credit Exposure outstanding after giving effect to the foregoing repayment of all funded amounts under the Letters of Credit in an amount, taken together with all then existing cash collateral for such Letter of Credit Exposure, equal to 105% of such Letter of Credit Exposure; second, to repay outstanding Revolving Loans to the full extent thereof; and third, to cash collateralize the unutilized Letter of Credit Commitments in an amount, taken together with all then existing cash collateral for such unutilized Letter of -50- Credit Commitments, equal to 105% of such unutilized Letter of Credit Commitment. (g) Prepayments Due to Certain Changes of Control. Upon the date on which any "change of control" or "change in control" or event, however titled, shall occur that requires under the High Yield Indenture a repurchase of the High Yield Notes or an offer to repurchase High Yield Notes as a result of a change in ownership of all or some portion of the Capital Stock of Company or any of its Subsidiaries or all or substantially all of the assets of Company and its Subsidiaries, (1) Borrowers shall repay all funded amounts, if any, under the Letters of Credit, then deposit into the Collateral Account an amount equal to 105% of the Letter of Credit Exposure outstanding after giving effect to the foregoing repayment of all funded amounts under the Letters of Credit and repay the principal balance of any outstanding Revolving Loans, and (2) the right or obligation of Issuing Lender to issue, renew or extend any Letter of Credit hereunder shall terminate and the right or obligation of any Lender to make any new Revolving Loans hereunder shall terminate. (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 Indebtedness Proceeds, cash in the Cash Management System, Annual Free Cash Flow or 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. (iv) Application of Prepayments; Reduction of Commitments. (a) Application of Prepayments; Reduction of Commitments. Except as provided in subsection 2.4C and the last sentence of this subsection 2.4A(iv)(a) and to the extent that the Intercreditor Agreement requires application of such Mandatory Payment in a different manner than as set forth in this sentence (it being understood that if a payment is made in accordance with the terms of the Intercreditor Agreement, a duplicate payment shall not be required hereunder and the application required under the terms of the Intercreditor Agreement shall apply as if set forth herein), (1) any voluntary prepayments of the Revolving Loans made pursuant to subsection 2.4A shall be applied to repay outstanding Revolving Loans to the full extent thereof, and (2) the aggregate amount of any Mandatory Payments -51- made pursuant to subsections 2.4A(iii)(a) - (e) shall be applied to repay the Obligations and/or permanently reduce the Commitments in the following manner: first, to Letter of Credit Exposure, with the amount applied to Letter of Credit Exposure being applied to repay all funded amounts, if any, under the Letters of Credit and then to cash collateralize the Letter of Credit Exposure outstanding after giving effect to the foregoing repayment of all funded amounts under the Letters of Credit in an amount, taken together with all then existing cash collateral for such Letter of Credit Exposure, equal to 105% of such Letter of Credit Exposure; second, to repay outstanding Revolving Loans to the full extent thereof (and as a concurrent, permanent reduction of (x) the unutilized Letter of Credit Commitments and (y) to the extent that the unutilized Letter of Credit Commitments have been reduced to an amount of $10,000,000 or less, the Revolving Loan Commitments); and third, to permanently reduce the unutilized Letter of Credit Commitments (and, to the extent that the unutilized Letter of Credit Commitments have been reduced to an amount of $10,000,000 or less, to permanently and concurrently reduce the Revolving Loan Commitments). Notwithstanding the foregoing, Borrowers and Lenders hereby agree that any cash applied to collateralize Letter of Credit Exposure pursuant to subsection 2.4A(iii)(f) with respect to a cash balance on June 30 or December 31 of any Fiscal Year (the "Subject Fiscal Year") shall in the event that the amount of such cash applied to collateralize Letter of Credit Exposure exceeds 50% of the Annual Free Cash Flow for the Subject Fiscal Year, be released to Borrowers to the extent of such excess (but in no event shall more cash be so released than the aggregate amount applied pursuant to subsection 2.4A(iii)(f) with respect to the Subject Fiscal Year) after the 60th day of the following Fiscal Year, promptly following Borrowers' certification of such excess; provided, however, that such release shall not be required if, at the time such release would otherwise be required, an Event of Default shall have occurred and be continuing; and provided, further, that to the extent that the Intercreditor Agreement requires application of such amounts in a different manner than as set forth in this sentence, such amounts shall be applied in accordance with the Intercreditor Agreement. (b) Application of Prepayments to Base Rate Loans and Eurodollar Rate Loans. Any prepayment of Revolving Loans 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. (v) Mandatory Reduction of Letter of Credit Commitments. Immediately upon the occurrence of any Permanent L/C Obligation Reduction, the Letter of Credit Commitments shall be permanently reduced in an amount equal to the amount of such Permanent L/C Obligation Reduction, and such reduction of the Letter of Credit Commitments shall reduce each Lender's Letter of Credit Commitment ratably. In -52- addition, the Commitments shall be reduced as specifically provided in subsections 2.4A(ii), 2.4A(iii) and 2.4A(iv) above. 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 (Chicago 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 Revolving 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 Maturity Date (a) the unpaid principal amount of, and accrued interest on, any funded amounts under such Letters of Credit and on any Revolving 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 in an amount equal to 105% of the amount thereof. (ii) Application of Payments to Principal and Interest. All payments in respect of the principal amount of any Revolving Loan or any honored drawing under a Letter of Credit 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 Revolving Loan on a date when interest is due and payable with respect to such Revolving Loan) shall be applied to the payment of interest before application to principal. (iii) Apportionment of Payments. Aggregate payments of principal and interest shall be apportioned among all outstanding Revolving 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 -53- by Administrative Agent and the commitment fees and letter of credit fees of such Lender, if any, when received by Administrative Agent pursuant to subsection 2.3 and subsection 3.2. 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. C. APPLICATION OF PROCEEDS OF COLLATERAL AND PAYMENTS AFTER EVENT OF DEFAULT. Except to the extent that the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 2.4C, 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 Mandatory Payments or other payments received on account of the Obligations, whether from any Borrower 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 Administrative Agent is entitled to compensation (including the fees described in subsection 2.3), reimbursement and indemnification under any Credit Document and all advances made by Administrative Agent thereunder for the account of the applicable Credit Party, and to the payment of all costs and expenses paid or incurred by Administrative Agent in connection with the Credit Documents, all in accordance with subsections 9.4, 10.2 and 10.3 and the other terms of this Agreement and the Credit Documents; (ii) thereafter, to the extent of any excess such proceeds, ratably to repay owed and outstanding amounts (subject to the provisions of subsection 2.4B(ii) hereof) with respect to Revolving Loan Exposure and Letter of Credit Exposure, with the remainder applied to cash collateralize Letter of Credit Exposure and unutilized Letter of Credit Commitments (it being understood that for purposes of determining the ratable portion of such excess proceeds to be applied to Letter of Credit Exposure, the portion of such Letter of Credit Exposure that consists of unutilized Letter of -54- Credit Commitments or undrawn amounts under outstanding Letters of Credit shall be measured at 105% of the amount thereof), for the ratable benefit of the holders thereof; and (iii) thereafter, to the extent of any excess such proceeds, to the payment to or upon the order of such Credit 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. REVOLVING LOANS. The proceeds of any Revolving Loans shall be applied by Borrowers to fund working capital requirements and general corporate purposes. Borrowers shall use the entire amount of the proceeds of each Revolving Loan in accordance with this subsection 2.5A. B. 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. On each Interest Rate Determination Date, Administrative Agent shall determine in accordance with the terms of this Agreement (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 Revolving 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 Revolving 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 -55- of Borrowing or Notice of Conversion/Continuation given by Borrowers with respect to the Revolving 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. Administrative Agent shall promptly notify each other Lender of the receipt of such notice. Thereafter (a) the obligation of the Affected Lender to make Revolving Loans as, or to convert Revolving 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 Revolving Loan as (or convert such Revolving 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 2.2D, 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. Administrative Agent shall promptly notify each other Lender of the receipt of such notice. 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 Revolving Loans as, or to convert Revolving 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 (or, if applicable, Administrative Agent), upon written request by such Person, for all reasonable losses, -56- expenses and liabilities (including any interest paid by such Person to lenders of funds borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense or liability sustained by such Person in connection with the liquidation or re-employment of such funds) which such Person may sustain: (i) if for any reason (other than a default by such Person) 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. 2.7. INCREASED COSTS; TAXES; CAPITAL ADEQUACY. A. COMPENSATION FOR INCREASED COSTS. Subject to the provisions of subsection 2.4B (which shall be controlling with respect to the matters covered thereby), in the event that any Lender (including 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 (other than any withholding tax with respect to which subsection 2.7B applies) 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 Letter of Credit 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; -57- and the result of any of the foregoing is to increase the cost to such Lender of agreeing to make, making or maintaining its Revolving 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 on an after-tax basis 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 Credit 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 or any political subdivision in or of the United States 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 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 Credit 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 -58- 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 2.4B(iii), a "NON-US LENDER") shall deliver to Administrative Agent and to Company, on or prior to the Closing Date (in the case of any Non-U.S. Lenders listed on the signatures pages hereto on the date 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 Non-U.S. 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 Credit 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 Credit 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 -59- 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 Administrative Agent 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 or any political subdivision in or of the United States 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 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) that Borrowers are required to pay pursuant to subsection 2.7B(ii) but were paid by Administrative Agent or Lenders with respect to sums payable by Borrowers under this Agreement and the other Credit 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 Administrative 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 Revolving 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 5 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 LENDER TO MITIGATE. A. STATEMENTS. Each Lender claiming compensation or reimbursement pursuant to subsection 2.6, 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 -60- 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 Issuing Lender) agrees that, as promptly as practicable after the officer of such Lender or Issuing Lender responsible for administering the Revolving 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 entitle such Lender or Issuing Lender to receive payments under subsection 2.4 (other than subsection 2.7B(ii)), it will use reasonable efforts to make, issue, fund or maintain the Letter of Credit Commitments of such Lender or the Revolving 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 additional amounts which would otherwise be required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7 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. DEFAULTING 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 Revolving 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 Credit 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 Revolving Loans or other outstanding funded Obligations, an increase in the amount of such Lender's Revolving Loan Commitment or Letter of Credit 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 Maturity Date, or an extension of the Maturity 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 Revolving 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 Administrative Agent, Issuing Lender or other Lenders (together with unpaid interest accrued thereon) in lieu of such amounts required to be funded by Defaulting -61- Lenders and second, to the Revolving 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 Revolving Loans outstanding and the Credit Exposure of such Defaulting Lender were zero, (iii) such Defaulting Lender's Commitments, Revolving Loans and Pro Rata Share 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, Revolving 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 Credit Utilization 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 Revolving 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 Administrative Agent 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 Issuing Lender 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 Share of the aggregate outstanding principal amount of Revolving 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 Revolving 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 Credit 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 Administrative Agent, -62- Issuing Lender or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.10. JOINT AND SEVERAL LIABILITY; PAYMENT INDEMNIFICATIONS. A. JOINT AND SEVERAL OBLIGATIONS. All Obligations of Borrowers under the Credit 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 Credit 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 Credit 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 Credit Documents, or alter, limit or impair the obligation of each Borrower, which is absolute and unconditional, to repay the Obligations. 2.11. RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Except as prohibited under applicable law, Company hereby waives any claim, right or remedy, direct or indirect, that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations in connection with this Agreement or the performance by Company 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 (a) any right of subrogation, reimbursement or indemnification that Company now has or may hereafter have against any other Borrower or guarantor of the Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that Administrative Agent or any Lender now has or may hereafter have against any other Borrower or guarantor of the Obligations, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by Administrative Agent or any Lender. In addition, until the Obligations shall have been indefeasibly paid in full and all Commitments shall have terminated and all Letters of Credit shall have expired or been cancelled, Company shall -63- withhold exercise of any right of contribution Company may have against any other Borrower or Credit Party. Company 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 Company may have against any other Borrower or Credit Party or against any collateral or security shall be junior and subordinate to any rights Administrative Agent or any Lender may have against any other Borrower, to all right, title and interest Administrative Agent or any Lender may have in any such collateral or security, and to any right Administrative Agent or any Lender may have against such Credit Party. If any amount shall be paid to Company on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Obligations shall not have been paid in full, such amount shall be held in trust for Administrative Agent on behalf of Administrative Agent and Lenders and shall forthwith be paid over to Administrative Agent for the benefit of Administrative Agent and Lenders to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms hereof. SECTION 3 LETTERS OF CREDIT 3.1. LETTER OF CREDIT COMMITMENTS; ISSUANCE OF LETTERS OF CREDIT AND LENDERS' PURCHASE OF PARTICIPATIONS THEREIN. A. LETTERS OF CREDIT. 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 Maturity Date, that Issuing Lender issue Letters of Credit for the account of Borrowers (in the case of Closing Date Letters of Credit, for the purposes of supporting obligations of the type set forth on Schedule 3.1A(i) annexed hereto, and, in the case of all other Letters of Credit, for the purposes described in subsection 3.1B(ii)(b)). The original amount of each Lender's Letter of Credit Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Letter of Credit Commitments is $118,000,000; provided, however, that the Letter of Credit Commitments of Lenders shall be adjusted to give effect to any assignments of the Letter of Credit 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. Notwithstanding anything herein to the contrary, Borrowers shall not request that Issuing Lender issue (and Issuing Lender shall not issue) any Letter of Credit: (a) if, after giving effect to such issuance, the aggregate Credit Utilization would exceed the aggregate Letter of Credit Commitments then in effect; (b) with respect to Closing Date Letters of Credit only, if the obligations to be supported by such Letter of Credit are not of a type identified on Schedule 3.1A(i) annexed hereto; -64- (c) with respect to Closing Date Letters of Credit only, if, after giving effect to such issuance, the maximum aggregate amount which is or at any time thereafter may be available for drawing under Letters of Credit issued to support an obligation of a type identified on Schedule 3.1A(i) annexed hereto would exceed the correlative amount set forth for such obligation on such Schedule (as such amount may be reduced from time to time pursuant to subsection 2.4A(v)); (d) having an expiration date later than the earlier of (a) the 5th Business Day prior to the Maturity Date and (b) the date which is three years from the date of issuance of such Letter of Credit; provided that the immediately preceding clause (b) shall not prevent Issuing Lender from agreeing that a Letter of Credit will automatically be extended to a date not later than the 5th Business Day prior to the Maturity Date unless Issuing Lender elects not to extend for any such additional period; and provided, further that Issuing Lender shall elect not to extend such 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 Issuing Lender must elect whether or not to allow such extension (with it being agreed and understood that Issuing Lender shall provide Borrowers with prompt notice of any such extension of a Letter of Credit having been denied); or (e) denominated in a currency other than Dollars. B. MECHANICS OF ISSUANCES. (i) Issuance of Closing Date Letters of Credit on the Closing Date. Issuing Lender shall, on or about the Closing Date, issue the Closing Date Letters of Credit as follows: (1) Issuing Lender shall issue the Montgomery Letter of Credit, (2) Issuing Lender shall issue the Back-Up Closing Date Letters of Credit and (3) Issuing Lender shall issue the Replacement Closing Date Letters of Credit upon Issuing Lender's receipt of evidence satisfactory to it that the DIP Tranche A L/Cs and DIP Tranche B L/Cs being replaced by such Replacement Closing Date Letters of Credit are concurrently therewith being returned undrawn and cancelled. (ii) Request for Issuance of Letter of Credit. (a) Letters of Credit to Replace Closing Date Letters of Credit. After the issuance of any Closing Date Letter of Credit, whenever Borrowers desire to have Issuing Lender issue a Letter of Credit to extend or replace such outstanding Closing Date Letter of Credit (or, in the case of a Back-Up Closing Date Letter of Credit, to replace such Back-Up Closing Date Letter of Credit and the corresponding DIP Tranche A L/C or DIP Tranche B L/C), or Administrative Agent requests (with a copy of such request to Company) that Issuing Lender issue a Letter of Credit to extend or to replace such outstanding Closing Date Letter of Credit (or, in the case of a Back-Up Closing Date Letter -65- of Credit, to replace such Back-Up Closing Date Letter of Credit and the corresponding DIP Tranche A L/C or DIP Tranche B L/C), Borrowers shall deliver to Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) a Request for Issuance no later than 12:00 Noon (Chicago 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, which Request for Issuance shall describe the relevant Closing Date Letter of Credit and the verbatim text of the Letter of Credit proposed to be issued or of such extension, as the case may be, and shall specify such proposed date of issuance or extension; provided, that Borrowers shall not request that Issuing Lender issue or extend (and Issuing Lender shall not issue or extend) any such Letter of Credit: (1) if the underlying Contractual Obligation to provide any such Closing Date Letter of Credit or a replacement thereto to the beneficiary thereof (or, in the case of a Back-Up Closing Date Letter of Credit, the beneficiary of the DIP Tranche A L/C or DIP Tranche B L/C to which such Back-Up Closing Date Letter of Credit corresponds) has terminated, and/or the beneficiary of such Closing Date Letter of Credit (or, in the case of a Back-Up Closing Date Letter of Credit, the beneficiary of the DIP Tranche A L/C or DIP Tranche B L/C to which such Back-Up Closing Date Letter of Credit corresponds) has otherwise returned the same for cancellation without the expectation that a Letter of Credit will be issued contemporaneously with such cancellation in substitution therefor; (2) if the terms of such Letter of Credit as so replaced or extended (other than the stated amount and expiration date thereof) are not substantially identical to the terms of the corresponding Closing Date Letter of Credit being replaced or extended (it being agreed and understood that any such Letter of Credit issued to replace a Back-Up Closing Date Letter of Credit and the DIP Tranche A L/C or DIP Tranche B L/C to which it corresponds shall have as its beneficiary the beneficiary of such DIP Tranche A L/C or DIP Tranche B L/C but shall otherwise comply with the requirements of this clause (2)); or (3) if the stated amount of such Letter of Credit as so replaced or extended exceeds the stated amount of the corresponding Closing Date Letter of Credit being replaced or extended, as the case may be. (b) Letters of Credit Not to Replace Closing Date Letters of Credit. Whenever Borrowers desire the issuance of a Letter of Credit (other than a Closing Date Letter of Credit), they shall deliver to Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) a Request for Issuance no later than 12:00 Noon (Chicago 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. Upon receipt by Issuing Lender (and Administrative Agent, -66- if Administrative Agent is not such Issuing Lender) of a Request for Issuance pursuant to this subsection 3.1B(ii)(b) requesting the issuance of a Letter of Credit, Issuing Lender shall be the Issuing Lender with respect thereto. In respect of a Letter of Credit requested pursuant to this subsection 3.1B(ii)(b), Issuing Lender, 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 so long as any such changes do not conflict with the applicable requirements of the Contractual Obligation to provide such Letter of Credit. Letters of Credit requested pursuant to this subsection 3.1B(ii)(b) shall be used solely for general corporate purposes. No Letter of Credit requested pursuant to this subsection 3.1B(ii)(b) 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 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 Issuing Lender) on such Business Day. (iii) Recertification. Borrowers shall notify Issuing Lender (and Administrative Agent, if Administrative Agent is not such Issuing Lender) prior to the issuance or extension of any 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 or extension of such Letter of Credit, and upon the issuance or extension of any Letter of Credit Borrowers shall be deemed to have re-certified, as of the date of such issuance or extension, as to the matters to which Borrowers are required to certify in the applicable Request for Issuance (except to the extent such requirement to re-certify as to such matters shall have been waived in accordance with subsection 10.6 hereof). (iv) Issuance of Letter of Credit. Upon satisfaction or waiver (in accordance with subsection 10.6) of the conditions set forth in subsection 4.3, Issuing Lender shall issue the requested Letter of Credit in accordance with 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, Issuing Lender shall notify Administrative Agent in writing of the date on which 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 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 -67- 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 Letter of Credit, each Letter of Credit Lender shall be deemed to, and hereby agrees to, have irrevocably purchased from Issuing Lender a participation in such Letter of Credit and any drawings honored thereunder in an amount equal to such Letter of Credit Lender's Pro Rata Share (with respect to Letter of Credit Exposure) of the maximum amount which is or at any time may become available to be drawn thereunder. 3.2. LETTER OF CREDIT FEES. Borrowers jointly and severally agree to pay, (i) with respect to each Letter of Credit, a letter of credit fee, payable to Administrative Agent for the account of Administrative Agent and Lenders (with the allocation among Administrative Agent and Lenders to be as set forth in the Inter-Lender Agreement and the allocation among Lenders to be in proportion to their respective Pro Rata Shares), equal to 6.50% per annum (expressed as a daily rate) multiplied by the daily amount available to be drawn under such Letter of Credit, each such letter of credit fee to be payable in arrears on and to (but excluding) the last day of each fiscal quarter and computed on the basis of a 360-day year, for the actual number of days elapsed, and (ii) with respect to the issuance, negotiation, amendment or transfer of each Letter of Credit and each payment of a drawing made thereunder (without duplication of the fees payable under clause (i) above), Borrowers jointly and severally agree to pay customary processing documentation and other like charges payable directly to Issuing Lender (and, if applicable, to any confirming bank) for its own account in accordance with Issuing Lender's (and, if applicable, such confirming bank'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 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 (ii) of this subsection 3.2 with respect to a Letter of Credit, Administrative Agent shall distribute to each Lender its Pro Rata Share of such amount. All fees referenced in this subsection 3.2 shall be earned when payable and shall be non-refundable. Upon the occurrence and during the continuation of any Event of Default and notice from Administrative Agent to Borrowers, all fees set forth in this subsection 3.2 shall accrue at a rate that is 2.00% per annum in excess of the rate otherwise set forth in this subsection and shall, if Administrative Agent so requests, be payable upon demand. Payment or acceptance of the increased rates provided for in this paragraph shall not -68- constitute a waiver of any Event of Default or otherwise prejudice or limit any rights or remedies of Administrative Agent or any Lender. 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, 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 OF AMOUNTS PAID UNDER LETTERS OF CREDIT. In the event Issuing Lender has determined to honor a drawing under a Letter of Credit issued by it, Issuing Lender shall immediately notify Borrowers and Borrowers shall reimburse 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. 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 Issuing Lender as provided in subsection 3.3B in an amount equal to the amount of any payment by Issuing Lender under a Letter of Credit issued by it, 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 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 the aggregate principal amount of all participations funded by a Lender with respect to Letters of Credit shall in no event exceed the amount of such Lender's Letter of Credit Commitment. Each Lender shall make available to Issuing Lender an amount equal to its respective participation, in Dollars and in same day funds, at the office of Issuing Lender specified in such notice, not later than 12:00 Noon (Chicago time) on the first Business Day (under the laws of the jurisdiction in which such office of Issuing Lender is located) after the date notified by Administrative Agent. In the event that any Lender fails to make available to 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, Issuing Lender shall be entitled to recover such amount on demand from such Lender together with interest thereon at the rate customarily used by Issuing Lender for the correction of errors among banks for 3 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 Issuing Lender any amounts made available by such Lender to Issuing Lender pursuant to this subsection 3.3C in the -69- 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 Issuing Lender in respect of which payment was made by such Lender constituted gross negligence or willful misconduct on the part of Issuing Lender. (ii) Distribution to Lenders of Reimbursements Received From Borrowers. In the event Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of any payment by Issuing Lender under a Letter of Credit issued by it, 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 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 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 at a rate equal to (1) for the period from the date such drawing is honored to but excluding the Reimbursement Date, the Base Rate plus the Base Rate Margin per annum and (2) thereafter, a rate which is 2% per annum in excess of the rate of interest set forth in the foregoing clause (i)(1). 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 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. Payment or acceptance of the increased rates of interest provided for in this subsection 3.3D 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. (ii) Distribution of Interest Payments by Issuing Lender. Promptly upon receipt by 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 Issuing Lender in respect of the period from the date such drawing is honored to but excluding the date on which Issuing Lender is reimbursed for the amount of such payment, the amount that such other Lender would -70- 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 Issuing Lender shall have been reimbursed by other Lenders pursuant to subsection 3.3C(i) for all or any portion of such payment, 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 Issuing Lender in respect of that portion of such payment so reimbursed by other Lenders for the period from the date on which 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 Issuing Lender for payments under the Letters of Credit issued by it 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), 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 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 (including CPIH Subsidiaries); -71- (vi) any breach of this Agreement or any other Credit 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 Issuing Lender under the applicable Letter of Credit shall not have constituted gross negligence or willful misconduct of Issuing Lender under the circumstances in question (as determined by a final judgment of a court of competent jurisdiction). 3.5. NATURE OF ISSUING LENDER'S 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 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 Issuing Lender may incur or be subject to as a consequence, direct or indirect, of (i) the issuance of any Letter of Credit by Issuing Lender, other than as a result of (a) the gross negligence or willful misconduct of 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 Issuing Lender of a proper demand for payment made under any Letter of Credit issued by it or (ii) the failure of 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 LENDER'S DUTIES. As between Borrowers and Issuing Lender, Borrowers assume all risks of the acts and omissions of, or misuse of the Letters of Credit issued by Issuing Lender by, the respective beneficiaries of such Letters of Credit. In furtherance and not in limitation of the foregoing, 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 -72- 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 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 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 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 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 Issuing Lender for any liability arising solely out of the gross negligence or willful misconduct of Issuing Lender, as determined by a final judgment of a court of competent jurisdiction. 3.6. CASH COLLATERAL FOR LETTERS OF CREDIT. A. RELEASES OF CASH COLLATERAL. If (i) (a) the underlying Contractual Obligation to provide a Letter of Credit or a replacement thereto to the beneficiary thereof has terminated (other than by drawing under such Letter of Credit), and/or (b) the beneficiary of such Letter of Credit has otherwise returned the same for cancellation without the expectation that a Letter of Credit will be issued contemporaneously with such cancellation in substitution for such cancelled Letter of Credit, and/or the maximum amount available for drawing under a Letter of Credit is permanently reduced (other than such a reduction concurrently with a reissuance or replacement of the relevant reduced portion of a Closing Date Letter of Credit pursuant to subsection 3.1(B)(ii)(a)), and (ii) the Letter of Credit Commitments are permanently reduced by the amount of such Letter of Credit or such reduction in the stated amount of such Letter of Credit, as the case may be, then, to the extent that the amount of cash collateral securing the Letter of Credit Exposure pursuant to the Collateral Account Agreement exceeds 105% of the Letter of Credit Commitments then in effect after such permanent reduction, the excess cash collateral shall be applied to the payment to or upon the order of Borrowers or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, except to the extent that the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 3.6A. B. CASH COLLATERAL ON THE MATURITY DATE. On the Maturity Date, any outstanding Letter of Credit Exposure shall be cash collateralized in an amount equal to 105% of the amount thereof by Borrowers or otherwise supported, in either case in a manner satisfactory to the Lenders. -73- SECTION 4. CONDITIONS 4.1. CONDITIONS TO CLOSING DATE. The obligations of Lenders with respect to their respective Commitments and to make any Revolving Loans to be made on the Closing Date, and the issuance of any Letters of Credit to be issued on the Closing Date, are, in addition to the conditions precedent specified in subsections 4.2 and 4.3 (as applicable), subject to prior or concurrent satisfaction of the following conditions: A. CREDIT PARTY DOCUMENTS. On or before the Closing Date, Borrowers shall, and shall cause each other Credit 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 Credit 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 Credit 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; (ii) Resolutions of the Governing Body of such Person approving and authorizing the execution, delivery and performance of the Credit Documents to which it is a party 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 Credit Documents to which it is a party; (iv) Executed originals of the Credit 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 out of Debtors' estates to Administrative Agent, for distribution (as appropriate) to Administrative Agent, Issuing Lender and Lenders, any 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 Administrative Agent incurred in connection with the negotiation, preparation, recordation, execution and -74- completion of the Credit Documents and the transactions contemplated thereby, including such fees and expenses of counsel to Administrative Agent. C. CORPORATE AND CAPITAL STRUCTURE; MANAGEMENT; OWNERSHIP. (i) Corporate Structure. DHC shall own all of the issued and outstanding Capital Stock of Company. The corporate organizational structure of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto. (ii) Capital Structure and Ownership. DHC shall have made a cash equity contribution to Company of not less than $30,000,000 (including cash equity contributed in connection with the "Lake Transaction" (as defined in the DIP Credit Agreement)). The capital structure and ownership of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto. (iii) Management. The Governing Bodies, officers and management structure of Company and its Subsidiaries (including CPIH Subsidiaries) on the Closing Date, after giving effect to the Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Plan of Reorganization and the Disclosure Statement related thereto and shall be as set forth on Schedule 4.1C annexed hereto. Lenders shall have received copies of, and Requisite Lenders shall be satisfied with the form and substance of, any employment agreements with and any incentive arrangements for senior management of Company and its Subsidiaries. D. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company shall have delivered to Administrative Agent an Officer's Certificate, in form and substance satisfactory to Administrative Agent, 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. -75- E. PLAN OF REORGANIZATION; CONFIRMATION ORDER; DISCHARGE OF EXISTING CREDIT FACILITIES. (i) Plan of Reorganization. The Plan of Reorganization and all amendments, modifications, revisions and restatements thereof, if any, shall have been approved by the creditors of Borrowers (including the DIP Lenders and the Prepetition Lenders) in requisite number and percentage and confirmed by the Bankruptcy Court pursuant to the Confirmation Order and delivered to Administrative Agent (the "APPROVED PLAN OF REORGANIZATION"). Except as set forth in modifications filed with the Bankruptcy Court and approved by Administrative Agent, there shall have been no modifications, amendments, revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Company or any of its Subsidiaries in the Approved Plan of Reorganization shall be accurate, true, correct and complete in all material respects as of the Closing Date. The Approved Plan of Reorganization (a) shall provide for the payments on the Closing Date described in subsection 4.1T, the corporate reorganization described in subsection 4.1S, and the making of Revolving Loans and the issuance of the Letters of Credit under this Agreement and the Indebtedness described in subsection 4.1F; and (b) upon satisfaction of all conditions to the effectiveness of this Agreement, shall become effective in accordance with its terms without waiver of any condition to such effectiveness that, in Administrative Agent's reasonable judgment, is material. (ii) Confirmation Order. The Confirmation Order shall have been delivered to Lenders, shall address the matters set forth in subsections 4.1F, 4.1S and 4.1T, the issuance of the Letters of Credit under this Agreement and the terms hereof and the granting of all Liens and consents required under this Agreement and the other Credit Documents and otherwise be in form and substance satisfactory to Requisite Lenders. The Confirmation Order shall be in full force and effect and no portion thereof shall have been stayed pending any appeal or petition for review or for rehearing, and Administrative Agent shall have received evidence satisfactory to each demonstrating such facts. Debtors' Second Amended Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code and the Liquidation Plan Supplement to Debtors' Second Amended Joint Plan of Liquidation, as filed with the Bankruptcy Court on December 18, 2003 and February 18, 2004, respectively, and as amended, supplemented or otherwise modified from time to time thereafter to the extent permitted under the DIP Credit Agreement, shall have been confirmed by the Bankruptcy Court pursuant to an order in form and substance satisfactory to Requisite Lenders. (iii) Approval of Fees Related to Exit Financing. The Bankruptcy Court order approving the fees payable to Administrative Agent and the Lenders described in subsection 4.1B shall be in full force and effect, without modification or amendment except to the extent approved by Administrative Agent. (iv) Material Agreements. The terms and conditions of any Material Contracts to be entered into by the Borrowers or any of their Subsidiaries pursuant to -76- the Approved Plan of Reorganization shall be in form and substance satisfactory to Requisite Lenders and Administrative Agent. F. MATTERS RELATING TO EXISTING INDEBTEDNESS. (i) Termination of DIP Credit Agreement and Related Liens. (a) Indebtedness consisting of funded amounts outstanding under the DIP Credit Agreement on the Closing Date shall have been repaid in full in cash, (b) all undrawn DIP Tranche A L/Cs and DIP Tranche B L/Cs (other than the Existing Detroit L/Cs) shall be replaced (or any further drawings thereunder shall be fully supported) with letters of credit issued under this Agreement, (c) the Existing Detroit L/Cs shall be replaced with Letters of Credit issued under the Detroit L/C Facility Agreement, (d) each letter of credit (if any) issued or deemed issued under the DIP Credit Agreement other than the DIP Tranche A L/Cs and DIP Tranche B L/Cs shall have been cash collateralized pursuant to arrangements reasonably satisfactory to the issuer of such letter of credit, or cancelled and returned undrawn, or reimbursed, (e) all commitments to lend or make other extensions of credit under the DIP Credit Agreement shall have terminated (except that the participations of DIP Lenders purchased in the letters of credit, if any, referred to in clause (d) above shall continue), and (f) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries (including CPIH Subsidiaries) under the DIP Credit Agreement shall have been delivered to Administrative Agent to the extent required by Administrative Agent. (ii) Termination of Prepetition Credit Agreement, 9.25% Debentures and Related Liens. (a) Indebtedness consisting of the 9.25% Debentures and the Prepetition Obligations on the Closing Date shall be satisfied by application of the High Yield Notes and the CPIH Term Loans and by application of Cash On Hand of Borrowers (as described in subsection 4.1T), and (b) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries (including CPIH Subsidiaries) under the Prepetition Credit Agreement and the 9.25% Debentures shall have been delivered to Administrative Agent to the extent required by the Administrative Agent. (iii) CPIH Facilities. Indebtedness under the CPIH Revolver Agreement and Indebtedness under the CPIH Term Loan Agreement shall be secured as set forth in the CPIH Revolver Documents and the CPIH Term Loan Documents and shall be non-recourse to the Borrowers or their assets other than pursuant to the CPIH Stock Pledge Agreement. The CPIH Revolver Documents and the CPIH Term Loan Documents shall be in full force and effect, the "Closing Date" as defined in each of the CPIH Revolver Documents and the CPIH Term Loan Documents shall have occurred, and the CPIH Revolver Documents and the CPIH Term Loan Documents shall provide for $10,000,000 in revolving loan commitments and $90,000,000 in term loans (subject to increase to up to $95,000,000 pursuant to and in accordance with the Approved Plan of Reorganization), respectively, and shall otherwise be in form and substance satisfactory to Requisite Lenders. -77- (iv) Existing Indebtedness to Remain Outstanding. After giving effect to the Approved Plan of Reorganization, the Indebtedness and Contingent Obligations of Borrowers (other than Indebtedness under the Credit Documents) shall consist of (a) the Detroit L/C Facility Documents, which shall provide for maximum aggregate commitments of $138,191,554.19 for the issuance of letters of credit to be issued on the Closing Date to replace the Existing Detroit L/Cs and for other specified uses, shall have a final maturity date of 5 years from the Closing Date, shall provide for fees on undrawn outstanding letters of credit at a rate no greater than 2.50% per annum, and upfront fees not greater than 1.0% of the entire amount of letter of credit commitments, and shall be secured by a senior Lien on the Collateral, (b) $205,000,000 in aggregate initial principal amount of High Yield Notes, (c) a note issued by Company in a principal amount not to exceed $35,000,000 (the "TAX NOTE"), representing the back tax liability of Company and its Subsidiaries as of the Closing Date, which Tax Note shall be unsecured and unguarantied, shall have a final maturity date of 6 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize on a 30-year schedule for the first 5 years after the issuance thereof with the balance due at maturity, (d) "Class 6 Unsecured Notes" (as defined in the Approved Plan of Reorganization) in the aggregate principal amount of $4,000,000 and subordinated notes issued by Company (the "UNSECURED CREDITOR NOTES") in an aggregate principal amount equal to the amount of "Operating Company Unsecured Claims" that are "Allowed" (as such terms are defined in the Approved Plan of Reorganization), which Unsecured Creditor Notes shall be unsecured and unguarantied, shall have a final maturity date of 8 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize in an amount not to exceed $3,900,000 annually commencing on the second anniversary of the Closing Date with the remainder due at final maturity, (e) outstanding Indebtedness described in Schedule 7.1(vi) and Schedule 7.1(ix) annexed hereto, and (f) Indebtedness and Contingent Obligations under the CPIH Stock Pledge Agreement, and outstanding Contingent Obligations described in Schedule 7.4(iv) and Schedule 7.4(vi) annexed hereto. The terms and conditions of all such Indebtedness and Contingent Obligations (including payment terms, covenants, representations and warranties, defaults and, in the case of the Unsecured Notes, payment subordination provisions), and the definitive documentation therefor, shall be in form and in substance satisfactory to Requisite Lenders. (v) Related Agreements in Full Force and Effect. Lenders shall have received a fully executed or conformed copy of the Detroit L/C Facility Documents, the CPIH Revolver Documents, the CPIH Term Loan Documents, the CPIH Stock Pledge Agreement, the High Yield Indenture and the High Yield Notes, the Tax Note, the Unsecured Creditor Notes, the Unsecured Creditor Notes Indenture, the Intercreditor Agreement and any documents executed in connection therewith, each such Related Agreement, the Unsecured Creditor Notes, the CPIH Term Loan Documents, the CPIH Revolver Documents, the Intercreditor Agreement and the Unsecured Creditor Notes Indenture shall be in full force and effect and no provision -78- thereof shall have been modified or waived in any respect determined by Administrative Agent to be material. G. FINANCIAL STATEMENTS; PROJECTIONS. On or before the Closing Date, Lenders shall have received the unaudited consolidated financial statements of Company and its Subsidiaries for the Fiscal Quarters ended June 30, 2003 and September 30, 2003, all in reasonable detail and certified by the chief executive officer or chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as of 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. Company shall have delivered to Administrative Agent and Lenders such projected financial statements as Administrative Agent may reasonably request for the period from the Closing Date through December 31, 2008, including the budget of monthly and quarterly cash receipts and expenditures for Fiscal Year 2004 and annual net cash flow for Fiscal Years 2005, 2006, 2007 and 2008 attached hereto as Schedule 1.1C, which budget and other projections shall be satisfactory to Administrative Agent and Requisite Lenders and shall be accompanied by a certificate from the chief executive officer or chief financial officer of Company certifying that they are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made. H. SOLVENCY ASSURANCES. On the Closing Date, Administrative Agent and Lenders shall have received an Officer's Certificate dated the Closing Date, substantially in the form of Exhibit IX annexed hereto and with appropriate attachments, demonstrating that, after giving effect to the consummation of the transactions contemplated by the Credit Documents, Borrowers, taken as a whole, and Company will be Solvent. I. OPINIONS OF COUNSEL TO CREDIT PARTIES. Lenders shall have received originally executed copies of one or more favorable written opinions of Cleary, Gottlieb, Steen & Hamilton, LeBoeuf, Lamb, Greene & McRae, Morris, James, Hitchens & Williams LLP and Nixon Peabody LLP, counsel for Borrowers, and of Skadden, Arps, Slate, Meagher & Flom LLP and affiliates, counsel for DHC, in form and substance reasonably satisfactory to Administrative Agent and its counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit X annexed hereto and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request (this Agreement constituting a written request by Borrowers to such counsel to deliver such opinions to Administrative Agent and Lenders). J. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS AND OTHER DOCUMENTS. Administrative Agent and its counsel shall have received copies of the opinions of counsel delivered to the parties under the Related Agreements, the CPIH Revolver Documents, the CPIH Term Loan Documents, the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and Borrowers shall have made reasonable efforts to obtain from each such counsel letters authorizing Lenders to rely on such opinions to the same extent as though such opinions were addressed to Lenders. -79- K. 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 Collateral Agent and/or 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. L. 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 Credit 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 Administrative Agent in support thereof. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Credit Documents or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable Government Authority to take action to set aside its consent on its own motion shall have expired. M. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent not otherwise satisfied pursuant to subsection 4.1N, Administrative Agent shall have received evidence satisfactory to it that Credit Parties (except as otherwise contemplated in subsection 5.18 hereof) 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 Collateral Agent, for the benefit of Secured Parties, a valid and perfected security interest in the entire personal and mixed property Collateral, with the priority set forth in the Collateral Documents (it being understood that such actions by DHC shall relate solely to its pledge of the Capital Stock of Company). Such actions shall include the following: (i) Stock Certificates and Instruments. Delivery to Collateral 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 Collateral 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 Collateral Agent) evidencing any Collateral; -80- (ii) Lien Searches and UCC Termination Statements. Delivery to Collateral Agent of (a) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Borrower and of all effective UCC financing statements which may have been made with respect to Capital Stock of Borrowers or any Subsidiaries of any Borrower, in each case together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement); (iii) UCC Financing Statements and Fixture Filings. Delivery to Collateral Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Borrower with respect to all personal and mixed property Collateral of such Borrower and by DHC with respect to the Capital Stock of Company, in each case for filing in all jurisdictions as may be necessary or in the opinion of Collateral Agent desirable to perfect the security interests in favor of Collateral Agent created in such Collateral pursuant to the Collateral Documents; (iv) PTO Cover Sheets, Etc. Delivery to Collateral Agent of all cover sheets or other documents or instruments Collateral Agent may reasonably request to be filed with the PTO in order to evidence Liens in favor of Collateral Agent in respect of any IP Collateral; and (v) Control Agreements. Delivery to Collateral Agent of such Control Agreements with financial institutions and other Persons in order to perfect Liens in respect of Deposit Accounts, Securities Accounts and other Collateral pursuant to the Collateral Documents; (vi) Certificate. Delivery to Administrative Agent and Collateral Agent of an Officer's Certificate certifying that, as of the Closing Date, the foreign patent registrations held by Company and its Subsidiaries are not, individually or in the aggregate, material to the business of Company and its Subsidiaries as a whole. N. CLOSING DATE MORTGAGES; CLOSING DATE MORTGAGE POLICIES; ETC. Collateral Agent shall have received from each applicable Borrower: (i) Closing Date Mortgages. Fully executed and notarized Mortgages (each a "CLOSING DATE MORTGAGE" and, collectively, the "CLOSING DATE MORTGAGES"), in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering each Real Property Asset listed in Schedule 4.1N annexed hereto (each a "CLOSING DATE MORTGAGED PROPERTY" and, collectively, the "CLOSING DATE MORTGAGED PROPERTIES" (it being understood and agreed that (a) no Leasehold Property that is not a Material Leasehold Property shall be required to be a Closing -81- Date Mortgaged Property, and (b) no Real Property Asset the pledge of which would constitute a material violation of (1) 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 (2) applicable law affecting the Borrower holding such Real Property Asset, shall be required to be a Closing Date Mortgaged Property)); (ii) Opinions of Local Counsel. An opinion of counsel (which counsel shall be reasonably satisfactory to Administrative Agent) in each state in which a Closing Date Mortgaged Property is located with respect to the enforceability of the form(s) of Closing Date Mortgages to be recorded in such state and such other matters as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent; (iii) Landlord Consents and Estoppels; Recorded Leasehold Interests. In the case of each Closing Date Mortgaged Property consisting of a Leasehold Property, (a) a Landlord Consent and Estoppel with respect thereto, and (b) evidence that such Leasehold Property is a Recorded Leasehold Interest; (iv) Title Insurance. (a) ALTA mortgagee title insurance policies or unconditional commitments therefor (the "CLOSING DATE MORTGAGE POLICIES") issued by the Title Company with respect to the Closing Date Mortgaged Properties listed in Part A of Schedule 4.1N annexed hereto, in amounts not less than the respective amounts designated therein with respect to any particular Closing Date Mortgaged Properties, insuring fee simple title to, or a valid leasehold interest in, each such Closing Date Mortgaged Property vested in such Borrower and assuring Collateral Agent that the applicable Closing Date Mortgages create valid and enforceable First Priority mortgage Liens on the respective Closing Date Mortgaged Properties encumbered thereby, subject only to a standard survey exception, which Closing Date Mortgage Policies (1) shall include an endorsement for mechanics' liens, for future advances under this Agreement and for any other matters reasonably requested by Collateral Agent and (2) shall provide for affirmative insurance and such reinsurance as Collateral Agent may reasonably request, all of the foregoing in form and substance reasonably satisfactory to Collateral Agent; and (b) evidence satisfactory to Collateral Agent that such Borrower has (i) delivered to the Title Company all certificates and affidavits required by the Title Company in connection with the issuance of the Closing Date Mortgage Policies and (ii) paid to the Title Company or to the appropriate governmental authorities all expenses and premiums of the Title Company in connection with the issuance of the Closing Date Mortgage Policies and all recording and stamp taxes (including mortgage recording and intangible taxes) payable in connection with recording the Closing Date Mortgages in the appropriate real estate records; (v) Title Reports. With respect to each Closing Date Mortgaged Property listed in Part B of Schedule 4.1N annexed hereto, a title report issued by the Title -82- Company with respect thereto, dated not more than 30 days prior to the Closing Date and satisfactory in form and substance to Administrative Agent; (vi) Copies of Documents Relating to Title Exceptions. Copies of all recorded documents listed as exceptions to title or otherwise referred to in the Closing Date Mortgage Policies or in the title reports delivered pursuant to subsection 4.1N(iv); and (vii) Matters Relating to Flood Hazard Properties. (a) Evidence, which may be in the form of a letter from an insurance broker or a municipal engineer, as to whether (1) any Closing Date Mortgaged Property is a Flood Hazard Property and (2) the community in which any such Flood Hazard Property is located is participating in the National Flood Insurance Program, (b) if there are any such Flood Hazard Properties, such Borrower's written acknowledgement of receipt of written notification from Administrative Agent (1) as to the existence of each such Flood Hazard Property and (2) as to whether the community in which each such Flood Hazard Property is located is participating in the National Flood Insurance Program, and (c) in the event any such Flood Hazard Property is located in a community that participates in the National Flood Insurance Program, evidence that Company has obtained flood insurance in respect of such Flood Hazard Property to the extent required under the applicable regulations of the Board of Governors of the Federal Reserve System. O. [INTENTIONALLY OMITTED]. P. CASH MANAGEMENT SYSTEM. The cash management system of Company and its Subsidiaries shall be as set forth on Schedule 4.1P annexed hereto. Q. [INTENTIONALLY OMITTED]. R. GEOTHERMAL SALE. Company shall have consummated the Geothermal Sale on terms and conditions and pursuant to documentation in form and substance satisfactory to the Requisite DIP Lenders. S. CPIH REORGANIZATION. On the Closing Date, (i) Company shall own directly or indirectly 100% of the outstanding Capital Stock of CEA, (ii) CEA shall own 100% of the outstanding common stock of CPIH, which shall own the Capital Stock of all Persons (including Persons holding the equity interests in other Persons) holding the assets and operations of the IPP International Business to the extent described in the Approved Plan of Reorganization and the Disclosure Statement related thereto, (iii) all relevant operating and administrative expenses associated with the IPP International Business shall be transferred into CPIH in accordance with the Management Services and Reimbursement Agreement, and (iv) not less than $5,000,000 of cash for working capital shall have been transferred from Company and its Subsidiaries to the CPIH Borrowers as an equity contribution. -83- T. DISTRIBUTION. All unrestricted Cash On Hand (including, without limitation, net sale proceeds from the Geothermal Sale) of Borrowers remaining prior to the equity contribution referred to in subsection 4.1C(ii) but after (i) the transfer of working capital amounts to CPIH as described in subsection 4.1S, (ii) the payment of the fees referred to in subsection 4.1B, (iii) the disposition of those letters of credit referred to in subsection 4.1F(i)(d), (iv) the payment of allowed administrative expenses, (v) the reimbursement of reasonable accrued fees and expenses of DHC not to exceed $4,000,000 in the aggregate and reasonable accrued fees and expenses of D.E. Shaw not to exceed $350,000 in the aggregate, and (vi) the payment of funded outstanding obligations under the DIP Credit Agreement (if any) and (without duplication of clauses (i) through (vi)) the payment of other "Exit Costs" (as defined in the Approved Reorganization Plan), subject to an amount of cash (which amount shall be determined in accordance with the terms set forth in the draft Plan of Reorganization attached (on the date of execution thereof) to the Investment and Purchase Agreement dated as of December 2, 2003 between DHC and Company) to be retained in the domestic Cash Management System by Company and its Subsidiaries (collectively, such Cash On Hand, net of such transferred amount, such payments and reimbursements, such retained amount and such reserves, is referred to herein as "DISTRIBUTABLE CASH"), shall have been distributed as follows: first, to the extent of the first $60,000,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims that are Lenders on the Closing Date, on account of their allowed pre-petition exposure, in accordance with the Approved Plan of Reorganization, second, to the extent of the next $7,200,000 of such Distributable Cash, for the benefit of those holders of Prepetition Secured Claims that are not Lenders on the Closing Date, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization, and third, to the extent of 25% of any remaining Distributable Cash, to Company (the amount of Distributable Cash so distributed to Company being referred to herein as the "CLOSING DATE RETAINED AMOUNT"), and to the extent of the remaining 75%, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization. U. NOL AVAILABILITY. Company, its independent advisers, Administrative Agent and Administrative Agent's counsel shall have determined to their respective sole satisfaction that the net operating losses disclosed to Administrative Agent and Lenders prior to the Closing Date as being held by DHC are available and accessible to Company and its Subsidiaries. V. LITIGATION. On the Closing Date, there shall be no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect the Approved Plan of Reorganization, any of the Credit Documents or any of the CPIH Term Loan Documents that could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Approved Plan of Reorganization, any of the Credit Documents or any of the CPIH Term Loan Documents. W. 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 Administrative Agent, -84- acting on behalf of Lenders, and their counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. Each Lender, by delivering to Administrative Agent a signed counterpart to this Agreement, shall be deemed (unless such Lender indicates otherwise in writing to Administrative Agent and Company) to have acknowledged receipt of, and to have consented to, approved and be satisfied with, the documents, agreements, instruments or information which require approval, consent or satisfaction of the Lenders or Requisite Lenders, as applicable, in order for the conditions precedent contained in this subsection 4.1 to be satisfied. Notwithstanding anything in this Section 4 to the contrary, it is understood and agreed that the conditions of subsection 4.1A(i) shall be deemed satisfied notwithstanding (i) failure to deliver all of the certificates or other evidence of good standing described in subsection 4.1A(i), (a) so long as Administrative Agent is notified which certificates or other evidence shall not have been delivered and, in its sole discretion, agrees that such certificates or other evidence may be delivered with respect to the relevant Persons after the Closing Date and (b) it being agreed and understood that failure to deliver all of the certificates or other evidence of good standing described in subsection 4.1A(i) on or prior to the date which is 90 days after the Closing Date shall constitute an immediate Event of Default on such date (unless such failure is due to failure to pay franchise taxes full payment of which has been tendered by such date), or (ii) failure to deliver all or any portion of the title insurance-related documents and instruments described in subsection 4.1N with respect to the Real Property Asset located in Lassen County, California, provided, that failure to deliver all of such documents and instruments with respect to such property on or prior to the date which is 360 days after the Closing Date shall constitute an immediate Event of Default on such date. 4.2. CONDITIONS TO ALL REVOLVING LOANS. The obligations of Lenders to make Revolving Loans on each Funding Date are subject to the following further conditions precedent: A. Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by a duly authorized Officer of Borrowers. B. As of that Funding Date: (i) The representations and warranties contained herein (except, as of the Closing Date only, the representation and warranty set forth in the first sentence of Section 5.4 hereof) and in the other Credit 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 -85- 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) No unstayed order, judgment or decree of any arbitrator or Government Authority (including the Bankruptcy Court) shall enjoin or restrain any Lender from making the Revolving Loans to be made by it on that Funding Date; and (iv) After giving effect to the proposed borrowing, (1) the aggregate principal amount of all outstanding Revolving Loans shall not exceed the Revolving Loan Commitments then in effect and (2) the aggregate Credit Utilization then in effect shall not exceed the aggregate Letter of Credit Commitments then in effect. 4.3. CONDITIONS TO LETTERS OF CREDIT. The issuance of any Letter of Credit hereunder is subject to the following conditions precedent: A. On or before the date of issuance of such Letter of Credit, Administrative Agent shall have received, in accordance with the provisions of subsection 3.1B, 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 and such other documents or information as Issuing Lender may reasonably require in connection with the issuance of such Letter of Credit. B. On the date of issuance of such Letter of Credit, all conditions precedent described in subsection 4.2B (other than subdivision (iv) thereof) shall be satisfied to the same extent as if the issuance of such Letter of Credit were the making of a Revolving Loan and the date of issuance of such Letter of Credit were a Funding Date. C. As of the date of issuance of such Letter of Credit, after giving effect to the proposed issuance of such Letter of Credit, the aggregate Credit Utilization then in effect shall not exceed the aggregate Letter of Credit Commitments then in effect. SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Revolving Loans, to induce Issuing Lender 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 the Closing Date, on each Funding Date and on the date of issuance of each Letter of Credit, that the following statements are true, correct and complete: -86- 5.1. ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND SUBSIDIARIES. A. ORGANIZATION AND POWERS. Each Credit 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 (provided, however, that failure of any Credit Party to be in good standing in the relevant jurisdiction shall not be deemed a breach of this representation if (x) such failure is due solely to failure to pay franchise taxes and (y) full payment of such franchise taxes has been tendered no later than the date which is 90 days after the Closing Date). Each Credit 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 Credit Documents to which it is a party and to carry out the transactions contemplated thereby. Each Credit Party is in compliance with all material terms of its Organizational Documents. B. QUALIFICATION AND GOOD STANDING. Each Credit Party is qualified to do business and in good standing in every jurisdiction 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 7.11. D. SUBSIDIARIES. All of the Subsidiaries of Company as of the Closing Date and their jurisdictions of organization are identified in Schedule 5.1 annexed hereto. The Capital Stock of each of the Subsidiaries of Company identified in Schedule 5.1 annexed hereto 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 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 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 correctly sets forth, as of the Closing Date, 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 Credit Documents have been duly authorized by all necessary action on the part of each Credit Party that is a party thereto. -87- B. NO CONFLICT. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit 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 of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries, other than any Liens created under any of the Credit Documents in favor of Collateral Agent on behalf of Secured Parties, 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. C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by Credit Parties of the Credit Documents to which they are parties and the consummation of the transactions contemplated by the Credit Documents do not and will not require any Governmental Authorization, except for the entry of the Confirmation Order and except for filings expressly contemplated by the Credit Documents and those Governmental Authorizations which have been obtained. D. BINDING OBLIGATION. Each of the Credit Documents has been duly executed and delivered by each Credit Party that is a party thereto and is the legally valid and binding obligation of such Credit Party, enforceable against such Credit 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. 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 (i) prohibitions or restrictions existing under or by reason of (a) this Agreement and the other Credit Documents, (b) applicable law, (c) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices, and (d) any documents or instruments governing the terms of any Indebtedness or other obligations secured by Liens permitted by subsection 7.2A, provided, that such prohibitions or restrictions apply only to the assets subject to such Liens, and (ii) restrictions described in clauses (a) through (d) of subsection 7.2D. 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, 2002 and (ii) the unaudited consolidated financial statements of Company and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 -88- and September 30, 2003. 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 Borrower 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 (a) those liabilities reflected on the Schedules to this Agreement and (b) Performance Guaranties and Contingent Obligations that are permitted to be incurred under subsection 7.4) 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 December 31, 2002, no event or change has occurred (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) that has resulted in or evidences, either in any case or in the aggregate, a Material Adverse Effect. Since the Petition 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 DIP 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 Borrower is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. As of the Closing Date, except as specified in Schedule 5.5B annexed hereto, each agreement listed -89- 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 Borrower, enforceable against such Borrower 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 (other than taxes represented by the Tax Note) 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 Company or its Subsidiaries dispute or disagree with, 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. -90- 5.8. PERFORMANCE OF AGREEMENTS; MATERIAL CONTRACTS. A. Except as set forth on Schedule 5.8A annexed hereto, after giving effect to the Approved Plan of Reorganization, 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 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 (i) any agreements or instruments the performance of which, in the ordinary course, would reasonably be expected to result in a Material Adverse Effect, or (ii) 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 after giving effect to the Approved Plan of Reorganization. 5.9. GOVERNMENTAL REGULATION. Neither Company nor any of its Subsidiaries is subject to regulation under (i) the Public Utility Holding Company Act of 1935, (ii) the Federal Power Act (other than as a "qualifying small power production facility", as such term is defined in PURPA), (iii) the Interstate Commerce Act, (iv) the Investment Company Act of 1940, or (v) any other federal or state statute or regulation 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 Revolving 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 material compliance with all applicable provisions and requirements of ERISA, the regulations and -91- published interpretations thereunder and other applicable law with respect to each Employee Benefit Plan, and have performed all of their material obligations under each Employee Benefit Plan. Company and each of its Subsidiaries are in material compliance with all applicable laws and orders of foreign Government Authorities with respect to each of its pension plans and employee benefit plans for foreign employees, and have performed all of their material obligations under each such pension plan and employee benefit plan. Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such 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 (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates of Company or any of its Subsidiaries). D. As of January 1 of each year (based on, with respect to the Covanta Energy Pension Plan, the actuarial valuation as of such January 1 and, with respect to the SEIU Pension Plan, the actuarial valuation as of the immediately preceding June 1), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including, where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000, in the event the applicable law (including statutorily prescribed actuarial assumptions) used in determining such unfunded benefit liabilities (the "ASSUMPTIONS") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. E. To each Borrower's knowledge, 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 -92- 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 $7,500,000. F. Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of its Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company or any of its Subsidiaries (including CPIH Subsidiaries, to the extent such CPIH Subsidiaries are ERISA Affiliates of 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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; -93- D. Except as set forth in Schedule 5.13 annexed hereto, (i) neither Company nor any of its Subsidiaries (including, solely with respect to periods prior to the Closing Date, CPIH Subsidiaries) nor, to Company's knowledge, any predecessor of Company or any of its Subsidiaries (including, solely with respect to periods prior to the Closing Date, CPIH 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 execution and delivery of the Collateral Documents by Credit Parties, together with (x) the actions taken on or prior to the date hereof pursuant to subsections 4.1M, 4.1N, 6.8, 6.9 and 6.11 and (y) the delivery to Collateral Agent of any Pledged Collateral of the Credit Parties not delivered to Collateral 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 Collateral Agent, for the benefit of Secured Parties, a Lien on all of the Collateral of the Credit Parties (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 Collateral 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 Collateral Agent. 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 Credit Party of the Liens purported to be created in favor of Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral 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 -94- 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 Credit Party which is subject to regulation under the Federal Power Act pursuant to Section 210(e)(2) of PURPA. C. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 5.15A and to evidence Liens permitted pursuant to subsection 7.2, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. 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. E. INFORMATION REGARDING COLLATERAL. All information supplied to Collateral Agent by any Credit Party (including its officers, employees, agents, advisors, representatives or counsel) 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 (including CPIH Subsidiaries) contained in any Credit Document or in any other certificate or written statement (excluding the projections, pro forma financial statements and forward looking statements contained therein and the estimates contained in such projections, pro forma financial statements and forward looking statements) furnished to Lenders by Company or any of its Subsidiaries (including CPIH Subsidiaries), including any such Person's officers, employees, agents, advisors, representatives or counsel, for use in connection with the transactions contemplated by this Agreement contained as of the date such representation or warranty was made any untrue statement of a material fact or omitted to state a material fact 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 and in light of such representations and warranties and all such prior representations and warranties, taken as a whole. Any projections and pro forma financial information contained in such materials 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. -95- 5.17. CASH MANAGEMENT SYSTEM. The summary of the Cash Management System attached hereto as Schedule 4.1P 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 has any Deposit Account which is not described in Schedule 4.1P other than Deposit Accounts permitted to be owned after the Closing Date pursuant to subsection 6.10. There has been no change to the Cash Management System since the Closing Date except such changes as are permitted under subsection 6.10 and such other changes as have been disclosed to Lenders in writing and approved by Administrative Agent. 5.18. MATTERS RELATING TO CREDIT PARTIES. A. CREDIT PARTIES. Neither Company nor any of its Subsidiaries owns any interest in any Subsidiary which is not a Borrower (other than Excluded Subsidiaries). B. DOMESTIC SUBSIDIARY ASSETS. Each Subsidiary which is a Borrower has granted a Lien in favor of Collateral Agent on substantially all of its property (other than the Capital Stock of CPIH) pursuant to the Collateral Documents except in any case where the grant of such Lien would constitute a material violation of 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. C. SUBSIDIARY CAPITAL STOCK. The Capital Stock of each Subsidiary which is directly owned by any Borrower has been pledged to Collateral Agent pursuant to the Collateral Documents, except for the Capital Stock of those 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 Borrower or such Subsidiary. 5.19. INVESTIGATION. All obligations in existence immediately after the Closing Date (other than obligations that do not, in the aggregate, exceed $2,000,000) to extend credit or credit support or obtain the extension of credit or credit support or to make investments or expenditures with respect to existing or future Projects of any Borrower or any Subsidiary of any Borrower that are contained in Contractual Obligations or of which Borrowers are otherwise aware have been disclosed to Administrative Agent prior to the Closing Date. Borrowers have made such inquiry and investigation as is necessary to enable Borrowers to make the representation contained in the preceding sentence. -96- 5.20. MATTERS RELATING TO BANKRUPTCY PROCEEDINGS. A. PLAN OF REORGANIZATION. As of the Closing Date, there have been no material modifications, amendments revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Borrowers or any Subsidiary in the Approved Plan of Reorganization is accurate, true and correct in all material respects as of the Closing Date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were accurate, true and correct in all material respects as of such earlier date). B. CONFIRMATION ORDER. The Confirmation Order has been entered by the Bankruptcy Court at least 11 days prior to the Closing Date. The Confirmation Order has not been stayed pending any appeal or petition for review or for rehearing. 5.21. SUBORDINATED INDEBTEDNESS. The Obligations constitute senior indebtedness that is entitled to the benefits of the subordination provisions, if any, of all Indebtedness of Company and its Subsidiaries under the Unsecured Creditor Notes. 5.22. REPORTING TO IRS. Company does not intend to treat the Revolving Loans and Letters of Credit, and related transactions, as being a "reportable transaction" (within the meaning of Treasury Regulation Section 1.6011-4). In the event Company determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof. Company acknowledges that one or more Lenders may treat their Revolving Loans and Letters of Credit as part of a transaction that is subject to Treasury Regulation section 1.6011-4 or section 301.6112-1, and Administrative Agent and such Lender or Lenders, as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations. 5.23. SOLVENCY. Borrowers (taken as a whole) and Company are, and, upon the incurrence of any Obligations by such Borrowers on any date on which this representation is made, will be, Solvent. SECTION 6. COMPANY'S AFFIRMATIVE 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 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 6. -97- 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) Budget Report; Budget Update: as soon as available and in any event no later than the 15th Business Day of each month commencing with the 15th Business Day of April 2004, (a) for the month most recently ended, a report in form satisfactory to Administrative Agent reflecting the actual cash receipts and disbursements of Company and its Subsidiaries for the preceding month with respect to each line item described in the Budget for the current Fiscal Year and the percentage and dollar variance of such amounts from the projected amounts therefor set forth in (x) such Budget and (y) the Budget for the current Fiscal Year as delivered pursuant to subsection 6.1(xvi), accompanied by an Officer's Certificate from the chief financial officer of Company certifying that such report accurately presents, in all material respects, cash receipts and cash expenditures of Company and its Subsidiaries for the periods indicated, and (b) a supplement to the Budget for the current Fiscal Year, in the form of such Budget, reflecting projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter remaining in the current Fiscal Year with respect to each line item described in such Budget, which supplement shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such supplement are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (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; -98- (iii) Quarterly Financials: as soon as available and in any event within 45 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 90 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 independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall (with respect to the audits for all Fiscal Years after 2003) be unqualified, shall express no doubts, assumptions or qualifications concerning the ability of Company and its Subsidiaries to continue as a going concern, and shall (with respect to the audits for all Fiscal Years including 2003) 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; 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); -99- (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: other than the fresh start adjustments required under SOP 90-7, 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) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iv) above, a written statement by the independent certified public accountants giving the report thereon stating that in connection with their audit, nothing came to their attention that caused them to believe that Company failed to comply with the terms, provisions or conditions of subsection 7.6, insofar as they relate to financial and accounting matters, or, if such a failure to comply has come to their attention, -100- specifying the nature and period of existence thereof (it being understood that their audit is not directed primarily toward obtaining knowledge of non-compliance and that such accountants shall not be liable by reason of any failure to obtain knowledge of any such non-compliance that would not be disclosed in the course of their audit); (viii) Accountants' Reports: promptly upon request of Administrative 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, or to contest or challenge the legality, validity or enforceability 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 20 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 -101- Administrative Agent to enable Administrative Agent and its counsel to evaluate any of such Proceedings; (xi) ERISA Events: with reasonable promptness upon becoming aware of the occurrence of or forthcoming occurrence of (a) any ERISA Event or (b) any event that would constitute an ERISA Event but for the requirements (in order for such event to constitute an ERISA Event) that a Lien or liability imposed as a result thereof be material, that the error giving rise thereto be in bad faith, and/or that such event would reasonably be expected to result in a Material Adverse Effect, 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 (it being agreed that commencing on the Closing Date, on an annual basis Borrowers shall request information from each Multiemployer Plan in accordance with section 4221 of ERISA to determine the potential withdrawal liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan); (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) 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; (xvi) Budget: no later than the 15th day of December of each year commencing with December 15, 2004, a budget for the next Fiscal Year, in the form of the Budget for the current Fiscal Year, reflecting (a) projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter in the next Fiscal Year and (b) projected net cash flows of Company and its Subsidiaries for each Fiscal Year following the next Fiscal Year and ending with 2009, in each case with respect to each line item described in the Budget for the -102- current Fiscal Year, which budget shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such budget are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (xvii) New Restricted Accounts: promptly upon opening any Restricted Account after the Closing Date that is required to be opened by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person, a written notice setting forth in reasonable detail (a) the Project or obligation to which such account relates, (b) a description of the Contractual Obligation requiring such account to be opened and (c) the provisions of this Agreement permitting such account to be opened and maintained (it being understood that such written notice shall be deemed to supplement Schedule 2.3A(i)(f) annexed hereto for all purposes of this Agreement); (xviii) 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 Administrative Agent or Requisite Lenders (or by any Lender so long as such request is made through Administrative Agent (and Administrative Agent shall be required to request from Borrowers any such information and data reasonably requested by a Lender)); and (xix) Notices from Holders of Subordinated Indebtedness: promptly, upon receipt, copies of all notices from holders of Subordinated Indebtedness or a trustee, agent or other representative of such a holder. 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 the existence of any such Subsidiary or 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. 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 tax, assessment, charge or claim need be -103- 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 tax, assessment, 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. 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 and, for not less than one year following the Closing Date, of CPIH Subsidiaries (provided, that Company shall not be required to maintain such insurance with respect to CPIH Subsidiaries to the extent such insurance is not commercially available to Company) 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 Collateral Agent for the benefit of Secured Parties 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 Collateral Agent for the benefit of Secured Parties as the loss payee thereunder for any covered loss in excess of $1,000,000 and provides for at least -104- 30 days prior written notice to Collateral 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 Collateral Agent on behalf of Secured Parties 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 or Potential 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 (b) if an Event of Default or Potential 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 or Collateral Agent. Upon receipt by Administrative Agent or Collateral Agent, as the case may be, of any Net Insurance/Condemnation Proceeds, (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 or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, 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 or Collateral Agent, as the case may be, shall deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under this Agreement and (2) Company shall, or -105- shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 or Collateral Agent, as the case may be, of such Net Insurance/Condemnation Proceeds, Administrative Agent or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, 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 or arising under the documentation for Limited Recourse Debt permitted to be incurred under this Agreement) 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. Notwithstanding anything in this Agreement to the contrary, in the event of any conflict or inconsistency between subsection 6.4C and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 6.5. INSPECTION RIGHTS; LENDER MEETING. A. INSPECTION RIGHTS. Borrowers shall, and shall cause each of their respective Subsidiaries to, permit any authorized representatives designated by any Lender, at such Lender's expense, 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 visits, inspections and audits as Administrative Agent or Requisite Lenders may deem necessary or advisable, at any time or from time to time, all at Borrowers' expense. B. LENDER MEETING. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. -106- 6.6. COMPLIANCE WITH LAWS, ETC. Borrowers shall comply, and shall cause each of their Subsidiaries (including CPIH 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 Administrative 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 Administrative 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 Administrative 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 Administrative 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 Administrative 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 -107- 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 Administrative 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 Administrative Agent; (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 Administrative 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 Administrative 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 Administrative Agent; and (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 (including, solely with -108- respect to periods prior to the Closing Date, CPIH 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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 BORROWER JOINDER AGREEMENT AND PERSONAL PROPERTY COLLATERAL DOCUMENTS AFTER THE CLOSING DATE. A. EXECUTION OF BORROWER JOINDER AGREEMENT AND PERSONAL PROPERTY COLLATERAL DOCUMENTS. In the event that any 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 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 Borrower Joinder Agreement and counterparts of the Security Agreement and the Intercreditor 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 4.1M) as may be necessary or, in the opinion of Administrative Agent, desirable to create in favor of Collateral Agent, for the benefit of Secured Parties, a valid and perfected First Priority security interest in all of the personal and mixed property assets of such Subsidiary described in the applicable forms of Collateral Documents, subject to any Liens in existence on the date such 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, subject to the terms of the Intercreditor Agreement, direct Collateral Agent (without need for any further consent from any Lender or Lenders) to release any Liens on a Subsidiary's assets and/or release a Subsidiary from this Agreement solely to the extent required by the terms of any such sales permitted under this Agreement; provided, however, that no Capital Stock of any Subsidiary that meets the criteria set forth in subsections 5.18C(i) or 5.18C(ii) shall be required to be pledged as Collateral pursuant to this subsection. B. SUBSIDIARY ORGANIZATIONAL DOCUMENTS, LEGAL OPINIONS, ETC. Company shall deliver to Administrative Agent, together with the relevant Credit Documents, (i) certified copies of Organizational Documents of each Subsidiary which is becoming a Borrower pursuant to subsection 6.8A (each, an "ADDITIONAL SUBSIDIARY BORROWER"), 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 -109- 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 Credit 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 Credit 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 Credit Documents, (c) the enforceability of such Credit 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 Credit 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. 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 Capital Stock of any Subsidiary of a Borrower, (ii) entry into a Borrower Joinder Agreement by a Subsidiary which is not already a Borrower, or (iii) granting a Lien on substantially all of the assets of a 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. 6.9. MATTERS RELATING TO ADDITIONAL REAL PROPERTY COLLATERAL. From and after the Closing Date, in the event that any Borrower acquires any fee interest in real property or any Material Leasehold Property, such Borrower shall, as soon as practicable after such Person acquires such real property or Material Leasehold Property, 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, including, without limitation, deliver to Collateral Agent in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Borrower in such mortgaged property; and such opinions, appraisal, documents, title insurance, environmental reports that would have been delivered on the Closing Date if such mortgaged were a Closing Date Mortgaged Property, and to assure, convey, assign, transfer and confirm unto Collateral Agent, for the benefit of the Secured Parties, 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. -110- 6.10. DEPOSIT ACCOUNTS. Borrowers shall, and shall cause each of their Subsidiaries (other than Bankrupt Subsidiaries) to, maintain the Cash Management System as described in Schedule 4.1P, as said Schedule 4.1P may be supplemented from time to time pursuant to clause (i)(c) below, 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, except that (i) Company and its Subsidiaries may open and maintain funds in Deposit Accounts with Collateral Agent or other depository institutions after the Closing Date so long as (a) concurrently with the opening of any such account with a depository institution other than Collateral Agent, Borrowers shall deliver to Collateral Agent a Control Agreement with respect to such account (unless after giving effect to such opening Borrowers would not be in breach of the requirement set forth in clause (i)(b)), (b) the aggregate amount on deposit at any time in all Deposit Accounts maintained with depository institutions other than Collateral Agent for which Control Agreements have not been delivered to Collateral Agent shall not exceed $1,000,000, and (c) concurrently with the opening of any such account, Borrowers shall deliver to Administrative Agent a written notice setting forth the account number and the name of the relevant depository institution (it being understood that such written notice shall be deemed to supplement Schedule 4.1P annexed hereto for all purposes of this Agreement) and, if applicable, the Project to which such account relates and the primary purpose of such account, and (ii) after the Closing Date Company and its Subsidiaries may open and maintain funds in Restricted Accounts that are required to be opened by Company or any of its Subsidiaries pursuant to a Contractual Obligation binding on such Person so long as promptly upon opening any such account, a written notice setting forth in reasonable detail (a) the Project or obligation to which such account relates, (b) a description of the Contractual Obligation requiring such account to be opened, and (c) the provisions of this Agreement permitting such account to be opened and maintained (it being understood that such written notice shall be deemed to supplement Schedule 2.4A(iii)(f) annexed hereto for all purposes of this Agreement). 6.11. FURTHER ASSURANCES. A. ASSURANCES. Without expense or cost to Administrative Agent 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 Credit Documents and the Confirmation Order, including to subject any Collateral, intended to now or hereafter be covered, to the Liens created by the Collateral Documents and the Confirmation Order, to perfect and maintain such Liens, and to assure, convey, assign, transfer and confirm unto Collateral 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 Collateral Agent or for carrying -111- out the intention of or facilitating the performance of the terms of this Agreement, any other Credit Documents or the Confirmation Order, registering or recording this Agreement or any other Credit Document. Without limiting the generality of the foregoing, Borrowers shall deliver to Collateral 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 Collateral Agent to perfect Collateral 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 Credit Document, including any instrument of further assurance described in subsection 6.11A, 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 Credit Document, including any instrument of further assurance described in subsection 6.11A, or by reason of its interest in, or measured by amounts payable under, the Notes, the Mortgages or any other Credit Document, including any instrument of further assurance described in subsection 6.11A, (excluding income, franchise and doing business Taxes), and shall pay all stamp Taxes and other Taxes required to be paid on any Credit 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 5 days' prior notice to Borrowers, (i) appear in and defend any action or proceeding, in the name and on behalf of Administrative Agent, Lenders or any Borrower, in which Administrative 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 Credit Document and (ii) institute any action or proceeding which Administrative Agent reasonably determines should be instituted to protect the interest or rights of Administrative Agent and Lenders in any Mortgaged Property or other Collateral or under this Agreement or any other Credit 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. -112- 6.12. HIGH YIELD NOTES. Company shall obtain no later than three months after the Closing Date, ratings of the High Yield Notes from S&P and/or Moody's; provided, however, that if such ratings shall not have been obtained by such date solely due to inaction or a refusal to act by any such rating agency that is, in either case, beyond the control of Borrowers (as determined in the reasonable judgment of Administrative Agent), Borrowers shall not be in breach of this subsection 6.12 so long as Borrowers shall take all steps Administrative Agent reasonably requests from time to time to obtain such ratings. 6.13. MOST FAVORED NATIONS PAYMENTS. Company shall, and shall cause each of its Subsidiaries to, extend any fees or pricing increases, to the extent such fees or pricing increases are the direct obligation of Company or its Subsidiaries, resulting from the amendment, waiver or modification, after the Closing Date, of the Detroit L/C Facility Documents, on an equivalent basis (based in the case of fees on the respective amounts of Letter of Credit Exposure outstanding (on one hand) and the credit exposure under the Detroit L/C Facility Documents (on the other hand)) to the Lenders regardless of whether a particular Lender has participated in or consented to a corresponding amendment, waiver or modification (if any) of the Credit Documents, and any such payment of equivalent fees shall be paid in cash concurrently with the fees giving rise to such equivalent fees. 6.14. MONTGOMERY CLOSING DATE LETTER OF CREDIT CANCELLATION. No later than 20 Business Days after Company receives a rating with respect to its senior debt and subordinated debt of at least "BBB" from S&P and at least "Baa" from Moody's, Company shall cause the Montgomery Closing Date Letter of Credit to be returned undrawn to Company for cancellation; provided, however, that if Company is unable to obtain the return of the Montgomery Closing Date Letter of Credit by such date as a result of inaction or refusal by the beneficiary of the Montgomery Closing Date Letter of Credit, Borrowers shall not be in breach of this subsection 6.14 so long as Borrowers shall prior thereto or promptly thereafter initiate appropriate Proceedings with appropriate Government Authorities to obtain the return of the Montgomery Closing Date Letter of Credit. 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 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. -113- 7.1. INDEBTEDNESS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, create, incur or assume, 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 and Indebtedness under the Detroit L/C Facility Documents, the High Yield Notes, the Tax Note and the Unsecured Creditor Notes, and Subsidiaries of Borrowers may become and remain liable with respect to Indebtedness under the Tax Note; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations and Performance Guaranties permitted by subsection 7.4 and, upon any matured obligations actually arising pursuant thereto, any Indebtedness created as a result thereof; (iii) Borrowers may become and remain liable with respect to Indebtedness to any other Borrowers; provided, that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (iv) Subsidiaries of Company other than Borrowers may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company so long as the proceeds of such Indebtedness are applied to working capital, capital expenditure, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of the Subsidiaries incurring such Indebtedness; provided, that (a) no such Indebtedness may be incurred at any time that Borrowers shall not be in compliance with subsection 7.6E, (b) no such Indebtedness may be incurred to make capital expenditures if after giving effect to such expenditures Borrowers would not be in pro forma compliance with subsection 7.6F, and (c) all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (v) Subsidiaries of Company may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company the proceeds of which are applied to Development Expenses; provided, that Development Expenses for all Projects of Company's Subsidiaries at any time after the Closing Date, net of any such Development Expenses that have theretofore been reimbursed after the Closing Date by the client of the relevant Project, shall not exceed on any date of determination an amount equal to (a) $3,000,000 plus (b) the product of $3,000,000 multiplied by the number of Fiscal Years that have commenced following January 31, 2004 but prior to such date of determination; and provided, further, that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; -114- (vi) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness outstanding on the Closing Date and described in Schedule 7.1(vi) annexed hereto; (vii) Subsidiaries of Company may become and remain liable with respect to Indebtedness to Company or any of its Subsidiaries the proceeds of which are applied to make Expansions permitted under subsection 7.3(vi) or 7.3(vii); provided, that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (viii) Subsidiaries of Company may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by Company or another Subsidiary of Company in such Subsidiaries, provided, that the underlying equity Investment was permitted under this Agreement at the time of such conversion; (ix) Company and its Subsidiaries may become and remain liable with respect to Indebtedness under (a) Capital Leases in existence as of the Closing Date and described in Schedule 7.1(ix) and (b) Capital Leases entered into after the Closing Date, so long as the aggregate amount of Indebtedness outstanding at any time with respect to Capital Leases under clause (b) of this subsection 7.1(ix) shall not exceed $5,000,000; (x) Company or any Subsidiary of Company may become and remain liable with respect to Indebtedness incurred to refinance, replace, renew or extend, in whole or in part, Indebtedness of such Person permitted to remain outstanding under subsection 7.1(vi); provided, that in each case (a) the terms (excluding the interest rate and fees payable with respect thereto, so long as such interest and fees on such Indebtedness are not borne directly or indirectly by Company or any of its Subsidiaries, whether through an offset to or deduction against service or operating agreement fees to Company or its Subsidiaries or otherwise) of such Indebtedness as refinanced, replaced, renewed or extended, taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such refinancing, replacement, renewal, or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Indebtedness relates), shall not be more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the Indebtedness so refinanced, replaced, renewed or extended, (b) the principal amount of the Indebtedness as refinanced, replaced, renewed or extended shall not exceed 110% of the principal amount of the Indebtedness so refinanced, replaced, renewed or extended (provided, that such limitation shall not apply with respect to Indebtedness that an existing client (if such client is a Government Authority) of a Project undertakes to service through the principal lease, service or operating agreement of the applicable Project), (c) no obligee or beneficiary of such Indebtedness after such refinancing, replacement, renewal or extension shall have greater recourse to Persons for the payment or collection of such Indebtedness than the obligee or beneficiary of the Indebtedness so refinanced, replaced, renewed or extended had immediately prior to such transaction -115- and (d) Company shall provide to Administrative Agent reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (xi) Subsidiaries of Company that are obligated with respect to Limited Recourse Debt on the Closing Date relating to waste-to-energy Projects may, after the Closing Date, become and remain liable with respect to Limited Recourse Debt relating to such waste-to-energy Projects, so long as (a) all or substantially all the proceeds of such Limited Recourse Debt are applied to Expansions of such waste-to-energy Projects permitted under subsection 7.3(vii) or to ensure compliance with applicable laws and regulatory requirements and (b) the incurrence by such Subsidiary of such Limited Recourse Debt is required by the existing client (if such client is a Government Authority) of the relevant Project and Company shall have delivered to Administrative Agent an Officer's Certificate to the foregoing effect; provided, that after the occurrence and during the continuation of an Event of Default, neither Company nor any of its Subsidiaries shall enter into a contractual commitment to incur any such Limited Recourse Debt; (xii) Company may become and remain liable with respect to Indebtedness consisting solely of its obligations under Insurance Premium Financing Arrangements, which obligations shall not exceed at any time $30,000,000 in the aggregate; (xiii) Borrowers may become and remain liable with respect to Indebtedness incurred to refinance, replace, defease, renew or extend, in whole or in part, the High Yield Notes issued on the Closing Date; provided, that (a) the fees, interest rates and pricing terms of such Indebtedness as refinanced, replaced, defeased, renewed or extended, taken as a whole (considering any extension of the term of such Indebtedness), shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent) than the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (b) no scheduled installment of principal shall be required on earlier dates than the maturity date of the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (c) the other terms (including the redemption and repayment terms, representations and warranties, covenants and events of default) of such Indebtedness as refinanced, replaced, defeased, renewed or extended, taken as a whole, shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent) than the High Yield Notes so refinanced, replaced, defeased, renewed or extended, (d) the principal amount of the Indebtedness as refinanced, replaced, defeased, renewed or extended shall not exceed the sum of (1) 110% of the principal amount of the Indebtedness so refinanced, replaced, defeased, renewed or extended, (2) interest accrued and unpaid on such principal amount immediately prior to such refinancing, replacement, defeasance, renewal or extension, and (3) premiums required to be paid upon such refinancing, replacement, defeasance, renewal or extension pursuant to the documentation for the High Yield -116- Notes so refinanced, replaced, defeased, renewed or extended, (e) the obligations under (and the Liens securing) such Indebtedness as refinanced, replaced, defeased, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the High Yield Notes refinanced, replaced, defeased, renewed or extended thereby, and (f) Company shall provide to Administrative Agent reasonable prior advance written notice of such proposed refinancing, replacement, defeasance, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (xiv) Company may become and remain liable with respect to Subordinated Indebtedness to Persons other than Company and its Subsidiaries in an aggregate amount at any time outstanding not to exceed $10,000,000; provided, that (a) such Indebtedness shall be unsecured and unguarantied, (b) no cash interest or cash principal payments shall be required on such Indebtedness until the Obligations are paid in full, (c) the interest rates maturities, amortization schedules covenants defaults, remedies, subordination provisions and other terms of such Indebtedness are satisfactory to Administrative Agent and Requisite Lenders, (d) the proceeds of such Indebtedness shall not be applied to any purpose prohibited under this Agreement, and (e) after giving effect to the incurrence of such Indebtedness, Borrowers shall be in pro forma compliance with subsection 7.6B; (xv) Bankrupt Subsidiaries may become and remain liable under intercompany loans by Company and its Subsidiaries (other than Bankrupt Subsidiaries) to such Bankrupt Subsidiaries to the extent such loans are permitted under subsection 7.3(xi); (xvi) CEA may become and remain liable with respect to Indebtedness under the CPIH Stock Pledge Agreement; (xvii) Company and its Subsidiaries may become and remain liable with respect to their obligations to pay for services rendered by DHC to them under and in accordance with the Corporate Services Reimbursement Agreement; and (xviii) Company and its Subsidiaries may become and remain liable with respect to other unsecured Indebtedness in an aggregate amount at any time outstanding not to exceed $7,500,000. 7.2. LIENS AND RELATED MATTERS. A. PROHIBITION ON LIENS. Borrowers shall not, and shall not permit 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 of their respective Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or authorize the filing of, or permit to remain in effect, any effective financing -117- 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, except: (i) Permitted Encumbrances; (ii) Liens granted pursuant to the Collateral Documents to secure the Obligations, the obligations of Borrowers under the Detroit L/C Facility Documents, the obligations under the High Yield Notes and the obligations to the cash management bank with respect to the Cash Management System; (iii) Liens existing on the Closing Date and described in Schedule 7.2 annexed hereto; (iv) Liens on assets of any Subsidiary of Company and/or on the stock or other equity interests of such Subsidiary, in each case to the extent such Liens secure Limited Recourse Debt of such Subsidiary permitted by subsection 7.1(xi); (v) Liens on assets of Company or any Subsidiary of Company securing refinancing Indebtedness permitted by subsection 7.1(x), 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, if applicable, assets the acquisition of which was financed with the proceeds of such refinancing Indebtedness permitted by subsection 7.1(x); (vi) Liens securing debt service reserve funds, completion obligations and similar accounts and obligations (other than Indebtedness) of Subsidiaries of Company to Persons other than Company and its Subsidiaries and their respective Affiliates, so long as (a) each such obligation is associated with a Project, (b) such Lien is limited to (1) assets associated with such Project (which in any event shall not include assets held by any Borrower other than a Borrower whose sole business is the ownership and/or operation of such Project and substantially all of whose assets are associated with such Project) and/or (2) the equity interests in such Subsidiary, but in the case of clause (2) 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, and (c) such obligation is otherwise permitted under this Agreement; (vii) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 7.4(ix), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (viii) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 7.4(x), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the -118- underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (ix) Liens on cash collateral of Company and its Subsidiaries securing Contingent Obligations permitted under subsection 7.4(xi); (x) Liens created pursuant to Insurance Premium Financing Arrangements otherwise permitted under this Agreement, so long as such Liens attach only to gross unearned premiums for the insurance policies; (xi) Liens on cash collateral of Company securing insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 6.4B; (xii) Liens on all or substantially all of the assets of the Bankrupt Subsidiaries to the extent such Liens secure the obligations of such Bankrupt Subsidiaries under loans made to them and permitted under subsection 7.3(xi); (xiii) Liens securing Indebtedness permitted under subsection 7.1(ix)(b), so long as such Liens extend only to the assets subject to the relevant Capital Lease; (xiv) Liens on the Capital Stock of CPIH pledged by CEA under the CPIH Stock Pledge Agreement; and (xv) Other Liens on assets of any Subsidiary of Company securing Indebtedness in an aggregate amount not exceeding $2,500,000. B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Borrowers or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 7.2A and Liens created or assumed on properties or assets on which First Priority Liens created under the Collateral Documents are attached and perfected at the time of such creation or assumption, the Borrowers hereby agree that (i) they will be deemed to have automatically and without further action secured the Obligations with such Lien equally and ratably with any and all other Indebtedness, Contingent Obligations or any other obligations or debt (as defined in the Bankruptcy Code) secured thereby, and (ii) they shall take or cause to be taken such actions as Administrative Agent or Requisite Lenders deem necessary or advisable to evidence such equal and ratable Lien; provided, that notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A, and the creation or assumption of any such Lien not permitted by the provisions of subsection 7.2A shall constitute an Event of Default. C. NO FURTHER NEGATIVE PLEDGES. Neither Company nor any of its Subsidiaries shall enter into any agreement (other than this Agreement, the Credit Documents, the Detroit L/C Facility Documents and the High Yield Indenture) on or after -119- 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 (i) specific property encumbered by a Lien permitted hereunder to secure payment of particular Indebtedness permitted to be incurred under subsection 7.1(vii), 7.1(x) (but only to the extent that the Indebtedness being refinanced was subject to a negative pledge on the same assets), 7.1(xi) or 7.1(xii) or a Lien permitted under subsection 7.2A(vi), 7.2A(vii), 7.2A(viii), 7.2A(ix), 7.2A(xi), 7.2A(xii) or 7.2A(xiv), or by a Lien permitted under subsection 7.2A(xv) to the extent such Lien secures obligations permitted hereunder that are incurred to finance the acquisition of such specific property, (ii) specific property to be sold pursuant to an executed agreement with respect to an Asset Sale which is permitted hereunder, (iii) specific property that is leased pursuant to a lease permitted hereunder, (iv) provisions in the principal lease, service and operating agreements pertaining to Projects or the partnership and financing agreements relating to Projects, so long as in each case such lease, service, operating, partnership or financing agreement is an extension, renewal or replacement of such agreement in effect as of the Closing Date, is otherwise permitted to be entered into hereunder and contains no more restrictive provisions relating to prohibiting the creation or assumption of any Lien upon the properties or assets of the relevant Subsidiary than the lease, service, operating, partnership or financing agreement so extended, renewed or replaced, and (v) provisions contained in any Detroit L/C Facility Agreement described in and permitted under clause (ii) of the definition of Detroit L/C Facility Agreement. D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY 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 other 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 Credit Documents, (b) those encumbrances or restrictions applicable to Subsidiaries of Company to the extent created under documentation in existence on the Closing Date, under the Detroit L/C Facility Documents or under the High Yield Indenture, (c) as may be provided in an executed agreement with respect to an Asset Sale which is permitted hereunder, and (d) provisions in the principal lease, service or operating agreements, partnership agreements and financing agreements pertaining to Projects, so long as such lease, service or operating agreements, partnership agreements and financing agreements are extensions, renewals or replacements of such agreements in effect as of the Closing Date, are otherwise permitted to be entered into hereunder and in each case contain no more restrictive provisions relating to the ability of the relevant Subsidiary to take the actions described in clauses (i) through (iv) than the agreement so extended, renewed or replaced. 7.3. INVESTMENTS; ACQUISITIONS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, make or own any Investment in any Person, including any Joint -120- 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 Subsidiaries may make and own Investments in Domestic Cash Equivalents and in such investments as are permitted or imposed under the terms of any cash collateral or debt service reserve agreement (including pursuant to the terms of any Project bond indenture) permitted hereunder; (ii) Borrowers may make and own additional equity Investments in other Borrowers, so long as no such Investment shall be made by one Borrower in another Borrower if (a) the latter is subject to restrictions of the type described in subsection 7.2D more adverse than restrictions of such type that are applicable to the Borrower making such Investment, or (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment; and Subsidiaries that are not Borrowers may make and own additional equity Investments in Borrowers other than Company, so long as no such Investment shall be made if (a) the applicable Subsidiary is subject to restrictions of the type described in subsection 7.2D more adverse than restrictions of such type that are applicable to the applicable Borrower, (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) of such Subsidiary having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment, or (c) such Investment shall have any adverse effect on the Collateral for the Obligations; (iii) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsections 7.1(iii) and 7.1(vii); (iv) Company and its Subsidiaries may make Consolidated Facilities Capital Expenditures permitted by subsection 7.6; (v) Company and its Subsidiaries may continue to own the Investments owned by them on the Closing Date and described in Schedule 7.3(v) annexed hereto; (vi) Company and its Subsidiaries may make Expansions which Company and its Subsidiaries are committed as of the Closing Date to make in those waste-to-energy Projects set forth in Schedule 7.3(vi) annexed hereto; provided, that each such Investment (or commitment to make the same) made in connection with such Projects shall be of a type described on such Schedule and shall be in an amount not exceeding the amount set forth on such Schedule; (vii) Company and its Subsidiaries may make Expansions (and may enter into contractual commitments to make such Investments) with respect to existing -121- waste-to-energy Projects to the extent such Expansions are publicly financed, so long as (a) Company shall provide to Administrative Agent reasonable prior advance written notice of each such Investment and Expansion and copies of all material contracts or other agreements being entered into in connection with such Investment and Expansion, (b) such Expansion is not otherwise prohibited under this Agreement, (c) such Expansions are required by the existing client (if such client is a Government Authority) of the relevant Project and the amounts required therefor are advanced to Company and its Subsidiaries or paid directly by such client, and (d) such Investment (or such contractual commitment, as the case may be) shall not breach any other provision of this Agreement; provided, that after the occurrence and during the continuation of an Event of Default, neither Company nor any of its Subsidiaries shall enter into a contractual commitment for any such Investment; (viii) Company and its Subsidiaries may, after the Closing Date, make and own Investments in any other Subsidiary of Company (to the extent in existence on the Closing Date) the proceeds of which are applied to working capital, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of Subsidiaries other than Borrowers; provided, that no such Investment may be made at any time that Borrowers shall not be in compliance with subsection 7.6E; (ix) Company and its Subsidiaries may, after the Closing Date, make and own Investments in any other Subsidiary of Company (to the extent in existence on the Closing Date) the proceeds of which are applied to Development Expenses; provided, that Development Expenses for all Projects of Company's Subsidiaries at any time after the Closing Date, net of any such Development Expenses that have theretofore been reimbursed after the Closing Date by the client of the relevant Project, shall not exceed on any date of determination an amount equal to (a) $3,000,000 plus (b) the product of $3,000,000 multiplied by the number of Fiscal Years that have commenced following January 31, 2004 but prior to such date of determination; (x) Borrowers and their Subsidiaries may own Investments in the form of non-cash consideration received in connection with (a) Asset Sales permitted under subsection 7.7(iii) or 7.7(iv) or (b) settlements of disputes, to the extent such settlements occur in the ordinary course of business; (xi) Company and its Subsidiaries may make Investments after the Closing Date consisting of intercompany loans to the Bankrupt Subsidiaries, so long as (a) the proceeds of such loans are applied to working capital, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business of such Bankrupt Subsidiaries, (b) the aggregate amount of such intercompany loans outstanding to the Bankrupt Subsidiaries at any time shall not exceed $2,000,000, (c) such loans shall have, pursuant to an order of the Bankruptcy Court in form and substance satisfactory to Administrative Agent, no less favorable payment priority and lien priority than the payment priority and lien priority of such Bankrupt Subsidiaries' obligations under the DIP Credit Agreement immediately prior to the Closing Date, and shall be secured by -122- substantially the same assets of such Bankrupt Subsidiary as such obligations under the DIP Credit Agreement immediately prior to the Closing Date, and (d) such loans shall be evidenced by promissory notes that shall be pledged to secure the Obligations; (xii) Borrowers may make payments to the extent contractually obligated pursuant to the terms of the Existing IPP International Project Guaranties; (xiii) Subject to the Intercreditor Agreement, Borrowers may reimburse drawings made under Letters of Credit issued hereunder that support obligations with respect to the IPP International Business; and (xiv) CEA may make payments on account of Indebtedness of CPIH to the extent such payments are made solely from the proceeds of sales of Capital Stock of CPIH. 7.4. CONTINGENT OBLIGATIONS; PERFORMANCE GUARANTIES. Company shall not, and shall not permit any of its 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 or to post cash collateral to secure any obligation, except: (i) Borrowers may become and remain liable (a) with respect to Contingent Obligations in respect of the Obligations and under the Credit Documents, (b) with respect to Contingent Obligations under guarantees of the High Yield Notes, and (c) with respect to Contingent Obligations under the Detroit L/C Facility Documents and the CPIH Stock Pledge Agreement; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations in respect of Letters of Credit; (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 permitted under this Agreement; (iv) Company and its Subsidiaries may become and remain liable with respect to (a) Performance Guaranties in existence on the Closing Date and described on Schedule 7.4(iv) annexed hereto, (b) Performance Guaranties replacing, renewing or extending Performance Guaranties described in clause (a), and (c) Performance Guaranties entered into in connection with a Bankrupt Subsidiary ceasing to be a Bankrupt Subsidiary, for the purpose of replacing a Performance Guaranty relating to such Bankrupt Subsidiary that was in effect immediately prior to the Closing Date but was terminated on the Closing Date, so long as no Persons enter into any such -123- replacement Performance Guaranty as obligors other than the obligors under the Performance Guaranty being so replaced; provided, that no such replacement, renewed or extended Performance Guaranty referred to in clause (b) or (c) (x) taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such replacement, renewal or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Performance Guaranty relates), shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Performance Guaranty so replaced, renewed or extended or (y) shall be secured or guarantied; (v) Company and its Subsidiaries may become and remain liable with respect to Performance Guaranties or Contingent Obligations supporting Expansions of waste-to-energy Projects permitted pursuant to subsection 7.3(vii), provided, that (a) the terms of any such Performance Guaranty or Contingent Obligation shall be generally consistent with past practice of Company and its Subsidiaries, (b) in no event shall any such Performance Guaranty or Contingent Obligation be secured by collateral, (c) no Borrower or Subsidiary other than a Person already liable under a substantially similar Contingent Obligation with respect to such Project shall become liable under any such Contingent Obligation, (d) no Borrower or Subsidiary other than a Person already liable under a substantially similar Performance Guaranty with respect to such Project shall become liable under any such Performance Guaranty, and (e) after the occurrence and during the continuation of an Event of Default, neither Company nor any if its Subsidiaries shall enter into any such Performance Guaranty or Contingent Obligation or enter into a contractual commitment to provide any such Performance Guaranty or Contingent Obligation; (vi) Company and its Subsidiaries, as applicable, may become and remain liable with respect to (a) Contingent Obligations (other than the Existing IPP International Project Guaranties) in existence on the Closing Date and described in Schedule 7.4(vi) annexed hereto, and (b) Contingent Obligations replacing, renewing or extending Contingent Obligations described in clause (a); provided, that no such replacement, renewed or extended Contingent Obligation, taken as a whole, shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Contingent Obligations so replaced, renewed or extended; (vii) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with arrangements made with third parties to obtain surety bonds, bid bonds and other similar security required to be delivered or posted in connection with (i) additions or improvements to existing facilities to increase the capacity, efficiency, performance or profitability of the applicable Project, so long as such additions or improvements are not Expansions, are required pursuant to binding Contractual Obligations of Company or its Subsidiaries and are in compliance with subsection 7.6F, and (ii) Expansions of existing Projects, to the extent such Expansions are otherwise permitted under subsection 7.3(vii) and the other provisions of this Agreement; -124- (viii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations which Company and its Subsidiaries are contractually committed as of the Closing Date to incur with respect to those Projects set forth on Schedule 7.3(vi) annexed hereto; provided, that each such Contingent Obligation (or commitment to incur the same) incurred in connection with such Projects shall be of a type described on such Schedule and shall be in an amount not exceeding the amount set forth on such Schedule; (ix) 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; (x) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations constituting Hedge Agreements; (xi) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations incurred in exchange (or in consideration) for (a) the release of cash collateral pledged by Company or its Subsidiaries or (b) the return and cancellation of undrawn letters of credit for which Company or its Subsidiaries are liable for reimbursement; provided, that in each case the maximum amount of the Contingent Obligations so incurred shall not exceed 110% of the amount of cash collateral released or the face amount of the letters of credit returned and cancelled, as the case may be; (xii) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 6.4B; and (xiii) Company and its Subsidiaries, as applicable, may remain liable with respect to the Existing IPP International Project Guaranties, as such guaranties are in effect on the Closing Date. 7.5. RESTRICTED PAYMENTS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided, however, that (i) so long as no Event of Default shall have occurred and be continuing, Borrowers may make regularly scheduled payments of principal and interest in respect of any Subordinated Indebtedness (other than the Tax Note) in accordance with the terms of, and only to the extent required by, and subject to the subordination provisions contained in, the indenture or other agreement pursuant to which such Subordinated Indebtedness was issued, as such indenture or other agreement may be amended from time to -125- time to the extent permitted under subsection 7.12, provided, that so long as Borrowers may elect to pay all or any portion of such interest in kind rather than in cash, Borrowers shall elect to pay in kind the maximum portion of such interest with respect to which Borrowers can make such election; (ii) Company and its Subsidiaries may make payments of principal, interest and other amounts in respect of the Tax Note and Indebtedness permitted under subsections 7.1(vi), 7.1(ix), 7.1(x), 7.1(xi), 7.1(xii), 7.1(xiv) and 7.1(xviii), in accordance with the terms of, and only to the extent required by, the Tax Note or the indentures or other agreements pursuant to which such Indebtedness was issued, as the case may be, as such Tax Note, indentures or other agreements may be amended from time to time to the extent permitted hereunder, provided, however, that during the continuance of an Event of Default, notwithstanding anything to the contrary in this Agreement, neither Company nor any Subsidiary shall fund, contribute or otherwise advance amounts for payment of Indebtedness permitted under subsections 7.1(vi), 7.1(x) and 7.1(xi) related to Projects unless it has an irrevocable Contractual Obligation to make such payments; (iii) so long as no Event of Default shall have occurred and be continuing, Subsidiaries of Company may, at the time Indebtedness is refinanced or replaced as permitted under subsection 7.1 by other Indebtedness permitted under such subsection, pay principal, accrued interest and other amounts owing on such refinanced Indebtedness at such time, provided, that such payments may be made with respect to Limited Recourse Debt during the continuance of an Event of Default so long as such payments are from the proceeds of Limited Recourse Debt permitted to be incurred hereunder and such proceeds are required to be applied to make such payments under a binding Contractual Obligation to a third party; (iv) Company and its Subsidiaries may pay any fees required to be paid to Administrative Agent and Lenders hereunder; (v) so long as no failure to pay any amount when due shall have occurred and be continuing under this Agreement, Company may make payments to DHC to the extent required under the Corporate Services Reimbursement Agreement; (vi) Company and its Subsidiaries may make payments required under the DHC Tax Sharing Agreement; (vii) Company and its Subsidiaries may make payments to Persons in accordance with the Approved Plan of Reorganization to the extent such payments are made from funds held in reserves established pursuant to the Approved Plan of Reorganization, provided, that Borrowers shall not, and shall not permit their respective Subsidiaries to, deposit any amounts in such reserves in excess of the amounts established prior to the Closing Date pursuant to the Approved Plan of Reorganization and (viii) Company and its Subsidiaries may apply cash in an amount not exceeding, in the aggregate, 105% of the stated amount of the Greenway L/C to cash collateralize or otherwise support the Greenway L/C as contemplated under subsection 4.1F(i)(d) and/or to reimburse drawings thereunder. In addition, in any case where a Borrower or Subsidiary is a Joint Venture, Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except a dividend payable solely in shares of that class of stock to the holders of that class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of Capital Stock of such Joint Venture held by Persons -126- other than Borrowers or any Subsidiaries of Borrowers, or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except in each case to the extent the relevant action described in clause (a), (b) or (c) is required pursuant to a binding Contractual Obligation in effect as of the Closing Date or pursuant to an extension, renewal or replacement of such a Contractual Obligation so long as such extension, renewal or replacement is otherwise permitted to be entered into hereunder and contains provisions no less favorable to Company and its Subsidiaries than the relevant Contractual Obligations so extended, renewed or replaced. 7.6. FINANCIAL COVENANTS. A. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the ratio of (i) Adjusted EBITDA to (ii) Consolidated Cash Interest Expense, in each case for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter set forth below, to be less than the correlative ratio indicated:
MINIMUM INTEREST FISCAL QUARTER COVERAGE RATIO -------------- -------------- FQ2 2004 1.15:1.00 FQ3 2004 1.15:1.00 FQ4 2004 1.15:1.00 FQ1 2005 1.15:1.00 FQ2 2005 1.20:1.00 FQ3 2005 1.20:1.00 FQ4 2005 1.25:1.00 FQ1 2006 1.25:1.00 FQ2 2006 1.30:1.00 FQ3 2006 1.30:1.00 FQ4 2006 1.30:1.00 FQ1 2007 1.30:1.00 FQ2 2007 1.35:1.00 FQ3 2007 1.35:1.00 FQ4 2007 1.35:1.00 FQ1 2008 1.35:1.00 FQ2 2008 1.40:1.00 FQ3 2008 1.40:1.00 FQ4 2008 and thereafter 1.40:1.00
-127- B. MAXIMUM CONSOLIDATED LEVERAGE RATIO. Company shall not permit the Consolidated Leverage Ratio as at any date on or after the end of the most recently ended Fiscal Quarter set forth in the table below to exceed the correlative ratio indicated:
MAXIMUM CONSOLIDATED FISCAL QUARTER LEVERAGE RATIO -------------- -------------- FQ2 2004 7.00:1.00 FQ3 2004 7.00:1.00 FQ4 2004 7.00:1.00 FQ1 2005 7.00:1.00 FQ2 2005 6.75:1.00 FQ3 2005 6.75:1.00 FQ4 2005 6.50:1.00 FQ1 2006 6.50:1.00 FQ2 2006 6.25:1.00 FQ3 2006 6.25:1.00 FQ4 2006 6.25:1.00 FQ1 2007 6.25:1.00 FQ2 2007 6.00:1.00 FQ3 2007 6.00:1.00 FQ4 2007 6.00:1.00 FQ1 2008 6.00:1.00 FQ2 2008 5.75:1.00 FQ3 2008 5.75:1.00 FQ4 2008 and thereafter 5.75:1.00
C. MINIMUM CONSOLIDATED NET WORTH. Company shall not permit Consolidated Net Worth on any date of determination after the Closing Date to be less than (i) Consolidated Net Worth as of the Closing Date, if such date of determination occurs during 2004, or (ii) the sum of (a) Consolidated Net Worth as of the Closing Date plus (b) the product of $7,000,000 multiplied by the number of Fiscal Quarters that have ended -128- after December 31, 2004 but prior to such date of determination, if such date of determination occurs after 2004. D. MINIMUM ADJUSTED EBITDA. Company shall not permit Adjusted EBITDA for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter set forth below to be less than the correlative amount indicated:
MINIMUM ADJUSTED FISCAL QUARTER EBITDA -------------- ------ FQ2 2004 $40,000,000 FQ3 2004 $40,000,000 FQ4 2004 $40,000,000 FQ1 2005 $40,000,000 FQ2 2005 $40,000,000 FQ3 2005 $40,000,000 FQ4 2005 $45,000,000 FQ1 2006 $45,000,000 FQ2 2006 $45,000,000 FQ3 2006 $45,000,000 FQ4 2006 $45,000,000 FQ1 2007 $45,000,000 FQ2 2007 $45,000,000 FQ3 2007 $45,000,000 FQ4 2007 $45,000,000 FQ1 2008 $45,000,000 FQ2 2008 $45,000,000 FQ3 2008 $45,000,000 FQ4 2008 and thereafter $45,000,000
E. MINIMUM NON-BORROWER CASH FLOW. Company shall not permit Non-Borrower Cash Flow for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter, to be less than zero. F. MAXIMUM CONSOLIDATED FACILITIES CAPITAL EXPENDITURES. Borrowers shall not, and shall not permit their respective Subsidiaries to, make or incur Consolidated Facilities Capital Expenditures during any Fiscal Year in excess of the Maximum Consolidated Facilities Capital Expenditures Amount for such Fiscal Year. For purposes of -129- this subsection 7.6F, the "MAXIMUM CONSOLIDATED FACILITIES CAPITAL EXPENDITURES AMOUNT" for Fiscal Year 2004 shall equal $25,000,000 and for each Fiscal Year thereafter shall equal $20,000,000; provided, however, that the Maximum Consolidated Facilities Capital Expenditures Amount for any Fiscal Year after 2004 shall be increased by an amount equal to 25% of the excess, if any, of the Maximum Consolidated Facilities Capital Expenditures Amount for the previous Fiscal Year (prior to giving effect to this proviso) over the actual amount of Consolidated Facilities Capital Expenditures made or incurred during such previous Fiscal Year; and provided further, however, that Company may elect by written notice to Administrative Agent to increase the Maximum Consolidated Facilities Capital Expenditures Amount for any Fiscal Year by an amount not more than $5,000,000 by decreasing the Maximum Consolidated Facilities Capital Expenditures Amount for the subsequent Fiscal Year by an amount equal to the amount of such increase. G. CERTAIN CALCULATIONS. Notwithstanding any provision of this Agreement to the contrary, (i) for purposes of calculating Adjusted EBITDA for any four-Fiscal Quarter period ending prior to the first Fiscal Quarter of 2005, Adjusted EBITDA for the third and fourth Fiscal Quarters of 2003 and the first Fiscal Quarter of 2004 shall be deemed to be equal to the correlative amounts set forth opposite such Fiscal Quarters on Schedule 7.6G annexed hereto; and (ii) for purposes of determining compliance with subsection 7.6A for any four-Fiscal Quarter period ending prior to the last Fiscal Quarter of 2004, Consolidated Cash Interest Expense shall equal the product of (a) actual Consolidated Cash Interest Expense during the period from the Closing Date to the end of such four-Fiscal Quarter period multiplied by (b) the ratio of (1) 365 divided by (2) the number of days in such period; and (iii) for purposes of determining compliance with each of the covenants in this subsection 7.6, each of Adjusted EBITDA, Consolidated Cash Interest Expense, Consolidated Net Worth, Non-Borrower Cash Flow and Consolidated Facilities Capital Expenditures shall not include any portion thereof attributable to the results of operations or financial position, as the case may be, of CPIH Subsidiaries for the relevant period or as of the relevant date of determination. 7.7. RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES. Borrowers shall not, and shall not permit 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 Borrower may be merged with or into a 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 a Borrower; provided, that no such transaction shall result in -130- the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; (ii) (a) any Subsidiary of Company that is not a Borrower may be merged with or into any other Subsidiary of Company that is not a 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 another Subsidiary that is not a Borrower, provided, that no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; and (b) any Immaterial Foreign Subsidiary may be merged with or into any 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 a Borrower, provided, that (1) no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) of such Immaterial Foreign Subsidiary having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction and (2) the relevant Borrower shall be a surviving entity in any such transaction; (iii) 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; and (iv) Company and its Subsidiaries may make 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) not less than 90% of the consideration received (other than any consideration consisting of the assumption of liabilities related to such assets) in any such Asset Sale shall be cash (it being agreed that cash the receipt of which may by the relevant terms of such Asset Sale be deferred more than six months after the date of consummation of such Asset Sale shall not be considered cash for purposes of this clause (b)); (c) not more than 10% of the cash consideration received by Company and its Subsidiaries in any such Asset Sale shall be received after the date of consummation of such Asset Sale; (d) any Indebtedness in relation to the assets sold in any such Asset Sale shall be repaid and the related letters of credit shall be cancelled and returned to the issuers thereof; (e) the Net Asset Sale Proceeds of such Asset Sales shall be applied as Mandatory Payments to the extent required under subsection 2.4A; and (f) in the event that the Net Asset Sale Proceeds from any Asset Sale, when added to the aggregate Net Asset Sale Proceeds from all other Asset Sales after the Closing Date, would exceed $10,000,000, Company and its Subsidiaries -131- shall not be permitted to consummate such Asset Sale without the prior written consent of Requisite Lenders. 7.8. TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Company shall not, and shall not permit any of its 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 among Company and its Subsidiaries or among Subsidiaries of Company, (ii) reasonable and customary salaries and fees paid to current officers and members of the Governing Bodies of Company and its Subsidiaries, provided, that such salary and fee arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iii) reasonable and customary indemnifications and insurance arrangements for the benefit of Persons that are officers or members of the Governing Bodies of Company and its Subsidiaries on or after the Closing Date, whether such Persons are current or former officers or members at the time such indemnifications or arrangements are entered into, provided, that such indemnifications and arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iv) any employment agreements or benefits arrangements entered into on or after the Closing Date by Company and its Subsidiaries with employees at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (v) payments (and other transactions) made in accordance with the terms of the Management Services and Reimbursement Agreement, the DHC Tax Sharing Agreement, the Corporate Services Reimbursement Agreement and the other Related Agreements, (vi) transactions occurring on the Closing Date and described on Schedule 7.8 annexed hereto, and (vii) 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. 7.9. 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 for equipment (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 -132- consecutive calendar months shall not exceed $3,000,000; provided, however, that this subsection 7.9 shall not prohibit Company or its Subsidiaries from incurring obligations pursuant to the renewal, extension or replacement of leases in effect at the Closing Date so long as such leases as renewed, extended or replaced are not more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the leases so renewed, extended or replaced. 7.10. [Intentionally Omitted] 7.11. 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 energy, water and waste management businesses of the type in which they are engaged on the Closing Date and other activities to the extent incidental or reasonably related to such businesses. 7.12. AMENDMENTS TO RELATED AGREEMENTS, DEBT DOCUMENTATION AND ORGANIZATIONAL DOCUMENTS. Company shall not, and shall not permit any of its Subsidiaries to, amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of (i) the Management Services and Reimbursement Agreement or the other Related Agreements (other than the Detroit L/C Facility Documents), in each case if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) except as otherwise permitted under subsection 7.1(xiii), is to impose additional material obligations on, or confer material additional rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, or (b) is otherwise adverse to the interests of the Lenders in a manner deemed material in the judgment of Administrative Agent; (ii) the Organizational Documents of Company and its Subsidiaries, if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, is adverse to the interests of the Lenders in a manner deemed material in the judgment of Administrative Agent; (iii) the Subordinated Indebtedness, if the effect thereof would be to (a) change to earlier dates the dates on which any payments of principal or interest are due thereon, (b) increase the interest rate, or the portion thereof payable on a current basis in cash, applicable thereto, (c) change any event of default with respect thereto in any manner adverse to the interests of the Lenders, (d) change the redemption, prepayment or defeasance provisions thereof, (e) change the subordination provisions thereof (or of any guaranty thereof or intercreditor arrangement with respect thereto), (f) change any collateral therefor (other than to release such collateral), or (g) change any other term or provision thereof, if the effect of such change, together with all other changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Indebtedness that would be materially adverse (in the judgment of Administrative Agent or Requisite Lenders so notifying Administrative Agent or Company) to Company, Administrative Agent or the Lenders, without the prior written consent of Requisite Lenders; (iv) the principal documents relating -133- to Limited Recourse Debt with respect to a Project if such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications and waivers made, would reasonably be expected to have a Material Adverse Effect; or (v) the Detroit L/C Facility Documents, unless (a) the terms of the Detroit L/C Facility Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent) than the Detroit L/C Facility Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend letters of credit under the Detroit L/C Facility Documents shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Administrative Agent), (b) the aggregate amount of Indebtedness and letters of credit outstanding and additional Commitments to extend credit, if any, under the Detroit L/C Facility Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the Detroit L/C Facility Documents on the Closing Date (or, if less, the amount of such commitments in effect immediately prior to such amendment, restatement, modification or waiver), plus $5,000,000, (c) the credit available under the Detroit L/C Facility Documents as so amended, restated, modified or waived is limited to letters of credit issuable in connection with the Project to which the Existing Detroit L/Cs relate (provided, that the requirements of this clause (c) shall not apply with respect to credit extended pursuant to the $5,000,000 additional amount described at the end of the foregoing clause (b)), (d) the obligations under (and the Liens securing) the Detroit L/C Facility Documents as so amended, restated, modified or waived are subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the Detroit L/C Facility Documents in effect on the Closing Date, and (e) Company provides to Administrative Agent reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith). 7.13. END OF FISCAL YEARS; FISCAL QUARTERS. 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. 7.14. AMENDMENT TO PENSION PLANS. Borrowers shall not amend or modify any Pension Plan after the Closing Date in any manner that results in or would reasonably be expected to result in an increase in the amount of unfunded benefit liabilities (as such unfunded benefit liabilities are determined in accordance with subsection 5.11D hereof), unless such amendment or modification is required under applicable law. SECTION 8. EVENTS OF DEFAULT If any of the following conditions or events ("EVENT OF DEFAULT") shall occur: -134- 8.1. FAILURE TO MAKE PAYMENTS WHEN DUE. Failure by Borrowers to pay the principal amount of any Revolving 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 Issuing Lender in reimbursement of any drawing under a Letter of Credit; failure by Borrowers to pay any Mandatory Payment when due; or failure by Borrowers to pay any interest or any fee or any other amount due under this Agreement within 5 days after the date due; or 8.2. DEFAULT IN OTHER AGREEMENTS. (i) Failure of Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) to pay when due any principal of or interest on or any other amount payable in respect of (a) the Detroit L/C Facility Documents or the High Yield Notes, (b) any one or more items of Indebtedness (other than Indebtedness referred to in subsection 8.1 or in clause (a) above or clause (c) below) or Contingent Obligations or Performance Guaranties, in each case in the principal amount of $5,000,000 or more, individually or in the aggregate, or (c) Limited Recourse Debt of Subsidiaries of Company (other than the Bankrupt Subsidiaries) in the principal amount of $10,000,000 or more, individually or in the aggregate (provided, that Limited Recourse Debt incurred in connection with one or more Projects to which less than $2,000,000 in the aggregate of the operating income of Company and its Subsidiaries (on a consolidated basis) 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 (c)), in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries (other than the Bankrupt Subsidiaries) with respect to any other material term of (a) the Detroit L/C Facility Documents, the High Yield Indenture or the High Yield Notes, (b) one or more items of Indebtedness (other than Limited Recourse Debt) or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (c) 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); or 8.3. BREACH OF CERTAIN COVENANTS. Failure of any Borrower to perform or comply with any term or condition contained in subsection 6.2 or Section 7 of this Agreement; or -135- 8.4. BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by Company or any of its Subsidiaries in any Credit 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 CREDIT DOCUMENTS. Any Credit Party shall default in the performance of or compliance with any term contained in this Agreement or any of the other Credit 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 Credit Party becoming aware of such default or (ii) receipt by Company or such Credit Party of notice from Administrative Agent or any Lender of such default; or 8.6. INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 8.7. VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries) shall have an order for relief entered with respect to it or -136- commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries) shall make any assignment for the benefit of creditors; or (ii) DHC, Company or any of Company's Subsidiaries shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Governing Body of DHC, Company or any of Company's Subsidiaries (other than the Bankrupt Subsidiaries), or any committee thereof, shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 8.8. JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving (a) in any individual case an amount in excess of $5,000,000 or (b) in the aggregate at any time an amount in excess of $5,000,000 (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 (other than the Bankrupt 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 5 days prior to the date of any proposed sale thereunder); or 8.9. 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 8.10. EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events that individually or in the aggregate result 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 $5,000,000 during the term of this Agreement; or there shall exist as of January 1 of any year (based on, with respect to the Covanta Energy Pension Plan, the actuarial valuation as of such January 1 and, with respect to the SEIU Pension Plan, the actuarial valuation as of the immediately preceding June 1), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including, where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of -137- such computation any Pension Plans with respect to which assets exceed benefit liabilities), in excess of (i) $20,000,000, in the event Assumptions are generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000, in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans; or 8.11. MATERIAL ADVERSE EFFECT. Any event or change shall occur after the Closing Date that has caused or evidences, either in any case or in the aggregate, a Material Adverse Effect; or 8.12. CHANGE IN CONTROL. A Change in Control shall have occurred; or 8.13. INVALIDITY OF INTERCREDITOR AGREEMENT; FAILURE OF SECURITY; REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Intercreditor Agreement 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) any Collateral Document (with respect to the obligations thereunder of Company or any Material Subsidiary (other than any Bankrupt Subsidiary)) 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 satisfaction in full of the Secured Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Collateral 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 Collateral Agent or any Lender to take any action within its control, or (iii) any Credit Party shall contest the validity or enforceability of any Credit Document in writing or deny in writing that it has any further liability, including with respect to future advances by Lenders, under any Credit Document to which it is a party; or 8.14. TERMINATION OF MATERIAL CONTRACTS. Any Material Contract of the type described in clause (i) of the definition of Material Contract, or any power purchase agreement to which Company or any of its Subsidiaries is a party relating to a Project, 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, unless (a) such Material Contract is replaced within 10 days after such termination with a contract that is reasonably acceptable to the Requisite Lenders and on substantially the same economic terms as the relevant Material Contract being terminated, (b) the Subsidiary of Company party to such Material Contract or power purchase agreement, as the case may be, is a Bankrupt Subsidiary and such termination would not reasonably be expected to have a -138- Material Adverse Effect, or (c) the termination of such Material Contract occurs pursuant to the exercise by the counterparty or counterparties thereto of a contractual right to terminate such Material Contract for convenience and such termination would not reasonably be expected to have a Material Adverse Effect; or 8.15. NOL TREATMENT. Any Capital Stock of Company of any of its Subsidiaries shall be issued, or any equity contribution shall be made to Company or any of its Subsidiaries, if (i) such issuance or equity contribution would reasonably be expected to have a material adverse effect on the availability or accessibility to Company and its Subsidiaries of the net operating losses disclosed to Administrative Agent and Lenders prior to the Closing Date as being held by DHC, or (ii) the proceeds of such issuance or equity contribution are applied to any purpose prohibited under this Agreement: THEN (i) upon the occurrence of any Event of Default described in subsection 8.6 or 8.7, each of (a) the unpaid principal amount of and accrued interest on the Revolving Loans, (b) an amount equal to 105% of 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 obligation of Administrative Agent and any Lender to make any Revolving Loan and the obligation of Issuing Lender to issue, renew or extend any Letter of Credit shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, 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 any Lender to make any Revolving Loan and the obligation of Issuing Lender to issue, renew or extend any Letter of Credit hereunder shall thereupon terminate. Any amounts described in clause (b) above, when received by Collateral Agent, shall be held by Collateral Agent pursuant to the terms of the Security Agreement and shall be applied as therein provided (subject to the terms of the Intercreditor Agreement). Further upon the occurrence and during the continuance of any Event of Default, subject to the Intercreditor Agreement, Administrative Agent and Collateral Agent may, and upon the written request of Requisite Lenders shall, (i) exercise all rights and remedies of Administrative Agent or Collateral 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 or Collateral Agent has an interest. The enumeration of the foregoing rights and remedies is not intended to be exhaustive and the -139- 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. SECTION 9. ADMINISTRATIVE AGENT 9.1. APPOINTMENT. A. APPOINTMENT OF ADMINISTRATIVE AGENT. Bank One is hereby appointed Administrative Agent hereunder and under the other Credit Documents. Each Lender hereby authorizes Administrative Agent to act as its agent in accordance with the terms of this Agreement and the other Credit Documents. Administrative Agent agrees to act upon the express conditions contained in this Agreement and the other Credit Documents, as applicable. The provisions of this Section 9 are solely for the benefit of Administrative Agent and Lenders and no Credit 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 Credit Party. B. CONTROL. Each Lender and Administrative Agent hereby appoint each other Lender as agent for the purpose of perfecting Collateral Agent's security interest in assets that, in accordance with the UCC, can be perfected by possession or control. 9.2. POWERS AND DUTIES; GENERAL IMMUNITY. A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes Administrative Agent to take such action on such Lender's behalf and to exercise such powers, rights and remedies hereunder and under the other Credit Documents as are specifically delegated or granted to Administrative Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. Administrative Agent shall have only those duties and responsibilities that are expressly specified in this Agreement and the other Credit Documents. Administrative Agent may exercise such powers, rights and remedies and perform such duties by or through its Affiliates, agents or employees. Administrative Agent shall not have, by reason of this Agreement or any of the other Credit Documents, a fiduciary relationship in respect of any Lender or any Borrower; and nothing in this Agreement or any of the other Credit Documents, expressed or implied, is intended to or shall be so construed as to impose upon Administrative Agent any obligations in respect of this Agreement or any of the other Credit Documents except as expressly set forth herein or therein. B. NO RESPONSIBILITY FOR CERTAIN MATTERS. Administrative Agent shall not be responsible to any Lender for the execution, effectiveness, genuineness, validity, enforceability, collectibility or sufficiency of this Agreement or any other Credit 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 Administrative Agent to Lenders -140- or by or on behalf of any Borrower to Administrative Agent or any Lender in connection with the Credit 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 Administrative 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 Credit Documents or as to the use of the proceeds of the Revolving 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 the Letter of Credit Usage or the component amounts thereof. C. EXCULPATORY PROVISIONS. Neither Administrative Agent nor any of its officers, directors, employees or agents shall be liable to Lenders for any action taken or omitted by Administrative Agent under or in connection with any of the Credit Documents except to the extent caused by Administrative Agent's gross negligence or willful misconduct. Administrative 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 Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until Administrative 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), Administrative 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) Administrative 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 Administrative Agent as a result of Administrative Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Credit 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. ADMINISTRATIVE AGENT 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, Administrative Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Revolving Loans and the Letters of Credit, Administrative 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 Administrative Agent in its individual -141- capacity. Administrative 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 Revolving 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. Administrative Agent shall not 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 any Revolving Loan or the issuance of any Letter of Credit or at any time or times thereafter, and Administrative Agent shall not 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 Administrative Agent and its officers, directors, employees, agents, attorneys, professional advisors and affiliates 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 Administrative Agent) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Administrative Agent or other such Persons in exercising the powers, rights and remedies of Administrative Agent or performing duties of Administrative Agent hereunder or under the other Credit Documents or otherwise in its capacity as Administrative Agent in any way relating to or arising out of this Agreement or the other Credit 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 Administrative Agent resulting from Administrative Agent's gross negligence or willful misconduct. If any indemnity furnished to Administrative Agent or any other such Person for any purpose shall, in the opinion of Administrative Agent, be insufficient or become impaired, Administrative Agent may call for additional indemnity and cease, or not commence, to do the acts indemnified against until such additional indemnity is furnished. -142- 9.5. SUCCESSOR ADMINISTRATIVE AGENTS. Administrative Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Borrowers, and Administrative 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. If Bank One is an Issuing Lender, any such resignation or removal of Bank One as Administrative Agent shall also constitute its resignation or removal as Issuing Lender. Upon any such notice of resignation or any such removal, Requisite Lenders shall have the right, upon 5 Business Days' notice to Borrowers, to appoint a successor Administrative Agent. If, within 30 days after the date of Administrative Agent's notice of its intention to resign, no successor Administrative Agent shall have been so appointed by Requisite Lenders, then the Administrative Agent's resignation shall become effective on such date without the need for any further action and the Lenders shall be deemed to have been appointed as successor to Administrative Agent hereunder and shall thereafter perform all of the duties of Administrative Agent hereunder and/or under any other Credit Document until the appointment by Requisite Lenders of such other successor Administrative Agent. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, including the Lenders as successor to Administrative Agent (who shall be deemed to have accepted such appointment pursuant to this subsection 9.5), such successor Administrative Agent shall thereupon succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (and, if the removed Agent is an Issuing Lender, all the rights, powers, privileges and duties of an Issuing Lender), the retiring or removed Administrative Agent shall be discharged from its duties and obligations under this Agreement, and, if the retiring or removed Agent is an Issuing Lender, such retiring or removed Issuing Lender shall be discharged from its duties and obligations under this Agreement, without any other or further act or deed on the part of such retiring or removed Issuing Lender or any other Lender; provided, however, that the successor Issuing Lender shall be obligated to issue Letters of Credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or to make other arrangements satisfactory to the retiring or removed Issuing Lender to effectively assume the obligations of such retiring or removed Issuing Lender with respect to such outstanding Letters of Credit, and such retiring or removed Issuing Lender shall continue to have all rights of an Issuing Lender with respect to such outstanding Letters of Credit until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder. After any retiring or removed Administrative Agent's resignation or removal hereunder as Administrative 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 Administrative Agent under this Agreement and the other Credit Documents. 9.6. INTERCREDITOR AGREEMENT. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into and to be the agent for and representative of Lenders under the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement; provided, that Administrative Agent shall not (i) enter into or -143- consent to any material amendment, modification, termination or waiver of any provision contained in the Intercreditor Agreement 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). Anything contained in any of the Credit 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, it being understood and agreed that all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent for the benefit of Secured Parties in accordance with the terms thereof and of the Intercreditor Agreement, and (2) in the event of a foreclosure by Collateral 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 any Obligation 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 any 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 Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of Lenders and Administrative Agent and their agents and counsel and all other amounts due Lenders and Administrative Agent under subsections 2.2, 3.2 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 -144- due for the reasonable compensation, expenses, disbursements and advances of Administrative Agent and their agents and counsel, and any other amounts due Administrative Agent under subsections 2.3, 3.2 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 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 relevant Letter of Credit Commitment 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 Administrative Agent 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 2.4 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 Credit Exposure of the assigning Lender and the assignee subject to each such assignment shall not be less than $5,000,000, determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent or, if a trade date is specified in -145- the Assignment Agreement, as of such trade date, unless Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed, (b) such assignment shall consist of corresponding amounts of the Letter of Credit Commitment of such Lender and the portion of such Letter of Credit Commitment that is available for the making of Revolving Loans (for example, if such assignment includes 20% of the Letter of Credit Commitment of such Lender it shall also include 20% of the portion of such Letter of Credit Commitment that is available for the making of Revolving Loans), (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, and the Eligible Assignee, if it shall not be a Lender prior to such assignment, shall deliver to Administrative Agent a counterpart to the Intercreditor Agreement and such 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) except in the case of an assignment to another Lender, Administrative Agent and Issuing Lender shall have consented thereto (which consents shall not be unreasonably withheld or delayed (it being understood that nothing in this clause (c) shall affect the requirement that the relevant assignee meet the requirements in the definition of Eligible Assignee and any other applicable requirements of this Agreement)), (e) 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 Revolving Loans and participations in Letters of Credit and (f) unless an Event of Default or Potential Event of Default then exists, Borrowers shall have consented to any such assignment (such consent not to be unreasonably withheld or delayed). 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 "Creditor Party" thereunder (as such term is 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 Credit Documents to -146- the contrary notwithstanding (but subject to subsection 9.5), if such Lender is the Issuing Lender such Lender shall continue to have all rights and obligations of Issuing Lender with respect to any Letters of Credit issued by it until the cancellation or expiration of such Letters of Credit and the reimbursement of any amounts drawn thereunder). The assigning Lender of any Revolving Loan Commitments and/or Revolving Loans shall, upon the effectiveness of such assignment or as promptly thereafter as practicable, surrender its Revolving Notes, if any, to Administrative Agent for cancellation, and thereupon new Revolving 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 II annexed hereto, with appropriate insertions, to reflect the new Revolving Loan Commitments and/or outstanding Revolving 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, as between Agents and such Lender, or as between Issuing Lender 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 Letter of Credit Commitment, 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 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 and Issuing Lenders have consented to the assignment evidenced thereby (to the extent each 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 -147- 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 Maturity Date or (ii) a reduction of the principal amount of or the rate of interest payable on any Obligation 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 the 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 (including CPIH Subsidiaries) in the possession of that Lender from time to time to assignees and participants (including prospective assignees and participants), subject to subsection 10.20. F. AGREEMENTS OF LENDERS. Each Lender listed on the signature pages hereof hereby agrees, and each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree, (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 or purchasing of loans such as the Revolving Loans and in the funding of or purchasing participations of the type purchased in the Letters of Credit; and (iii) that it will make or purchase Revolving Loans and fund or purchase such participations for its own account in the ordinary course of its business and without a view to distribution thereof 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 -148- Revolving Loans or participations or any interests therein shall at all times remain within its exclusive control). G. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 10.1, any Lender may assign and pledge all or any portion of the Obligations owed to such Lender hereunder to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided, that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 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 Credit Documents and any consents, amendments, waivers or other modifications thereto; (ii) all the costs of furnishing all opinions by counsel for Credit Parties (including any opinions requested by Administrative Agent 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 Credit Documents including with respect to confirming compliance with environmental and insurance requirements; (iii) the reasonable fees, expenses and disbursements of advisors and counsel to Administrative Agent (including Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz, Ltd.) in connection with the negotiation, preparation, execution, interpretation or administration of the Credit 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 Collateral Agent on behalf of Secured Parties 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 Collateral Agent and of counsel providing any opinions that Administrative Agent 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 Administrative Agent 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 Administrative Agent in connection with the syndication of the Commitments; and (viii) all the actual costs and reasonable expenses, including reasonable attorneys' fees and costs of settlement, incurred by Administrative Agent, Issuing Lender and Lenders in enforcing any Obligations of or in collecting any payments due from any Credit Party hereunder or under the other Credit -149- Documents (including in connection with the sale of, collection from, or other realization upon any of the Collateral) 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. 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 Administrative Agent, Issuing Lender and Lenders, and the officers, directors, employees, agents and affiliates of Administrative Agent, Issuing Lender and Lenders (collectively called the "INDEMNITEES"), including Issuing Lenders, 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 Credit Documents and the Chapter 11 Cases (it being understood that such Indemnified Liabilities arising out of the Chapter 11 Cases shall apply solely to Indemnitees in their capacities as Administrative Agent, Lenders and Issuing Lender or officers, directors, employees, agents and affiliates of Administrative Agent, Lenders or Issuing Lender, and not in any other capacities) or the transactions contemplated hereby or thereby (including Lenders' agreement to make the Revolving 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 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 Credit Documents (including any sale of, collection from, or other realization upon any of the Collateral)), (ii) the statements contained in the commitment letter delivered by any Lender with respect thereto, or (iii) any -150- 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 (including, solely with respect to periods prior to the Closing Date, CPIH 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, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by each Borrower at any time or from time to time, without notice to each Borrower 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 any Borrower or any other Credit Party against and on account of the obligations and liabilities of any Borrower or any other Credit 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 Credit 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 Credit Document, irrespective of whether or not (i) any Agent or any Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Revolving 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. Each Borrower hereby further grants to Administrative Agent and each Lender a security interest in all deposits and accounts maintained with Administrative Agent or such Lender as security for the Obligations. 10.5. RATABLE SHARING. A. Subject at all times to their obligations under the Intercreditor Agreement, Lenders hereby agree among themselves that if any of them shall, whether by voluntary payment or mandatory payment (other than a payment or prepayment of the Revolving 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 Credit 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 and other amounts payable in respect of Revolving Loans, Letters of -151- Credit, fees and other amounts then due and owing to that Lender hereunder or under the other Credit Documents with respect to the Obligations (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) that is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall (i) notify Administrative Agent and each other 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 Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided, that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing 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 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 Lender and each selling Lender agree to enter into an assignment agreement at the request of a selling Lender or a purchasing Lender, as the case may be, in form and substance reasonably satisfactory to each such Lender and to Administrative Agent. B. Notwithstanding anything in this subsection 10.5 to the contrary, in the event any one or more Lenders (for purposes of this subsection 10.5, "ENFORCING LENDERS") receives any amounts that are subject to the sharing provisions of subsection 10.5A as a result of such Enforcing Lender or Enforcing Lenders, but not Administrative Agent or all Lenders, commencing Proceedings to recover such amounts, no Lender that is not an Enforcing Lender shall be entitled to the benefits of subsection 10.5A with respect to the amounts received by such Enforcing Lenders (i) unless and until such Lender has paid its Pro Rata Share of the out-of-pocket costs and expenses (including legal fees and expenses of counsel to such Enforcing Lenders) incurred by such Enforcing Lenders in connection with such Proceedings or (ii) in any greater amount at any time than such Lender would be entitled to receive under such subsection if all Lenders paid their Pro Rata Shares of such costs and expenses. 10.6. AMENDMENTS AND WAIVERS. No amendment, modification, termination or waiver of any provision of this Agreement or of the Notes or the Credit 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 Revolving Loan or any funded amount with respect to a participation in a Letter of Credit, -152- (2) increase the maximum aggregate amount of such Lender's Revolving Loan Commitment, Letter of Credit Commitment or Letters of Credit, (3) postpone the Maturity Date or any other scheduled payment date with respect to the principal balance of the Revolving Loans, (4) postpone the date on which any interest or any fees are payable, (5) decrease the interest rate borne by any funded amount with respect to a participation in a Letter of Credit or any Revolving Loan (other than any waiver of any increase in the interest rate applicable pursuant to subsection 2.2E, the penultimate sentence of subsection 3.2 or subsection 6.13) or the amount of any fees payable hereunder, (6) reduce the amount or postpone the due date of any reimbursement of a drawing (other than from a Mandatory Payment) in respect of any Letter of Credit, (7) extend the expiration date of any Letter of Credit beyond the Maturity Date, (8) change in any manner the obligations of Lenders relating to the purchase of participations in Letters of Credit, or (9) change in any manner or waive the provisions contained in subsection 8.1; (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 Letter of Credit 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) release any Lien granted in favor of Administrative Agent or Collateral Agent with respect to all or substantially all of the Collateral or release any substantial portion of Borrowers from their obligations under this Agreement, in each case other than in accordance with the terms of the Credit Documents, or (4) change in any manner or waive the provisions contained in subsection 10.6; (c) Administrative Agent and Issuing Lender, change in any manner the definition of "Eligible Assignee"; (d) Administrative Agent, affect the rights or duties of Administrative Agent (in its capacity as Administrative Agent) under this Agreement or any other Credit Document; and (e) Issuing Lender, affect the rights or duties of Issuing Lender (in its capacity as Issuing Lender) under this Agreement or any other Credit Document. In addition, (i) 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, (ii) no amendment, modification, termination or waiver of any provision of Section 3 shall be effective without the written concurrence of Administrative Agent and, with respect to the purchase of participations in Letters of Credit, without the written concurrence of Issuing Lender, (iii) 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 shall be effective without the written concurrence of Administrative Agent, as the case may be and (iii) no amendment, modification, termination or waiver of any provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Issuing Lender shall be effective without the written concurrence of Issuing Lender. 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 -153- 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. 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 or (subject to the following paragraph of this subsection 10.8) electronic mail and shall be deemed to have been given (a) when delivered in person or by courier service, (b) upon receipt of telefacsimile in complete and legible form, (c) 3 Business Days after depositing it in the United States mail with postage prepaid and properly addressed, or (d) in the case of communications delivered by electronic mail to the extent provided in the following paragraph of this subsection 10.8, as provided pursuant to such paragraph; provided, that notices to Administrative Agent and 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. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent; provided, that the foregoing shall not apply to notices to any Lender pursuant to Section 2 or Section 3 hereof if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it; provided, that approval of such procedures may be limited to particular notices or communications. Credit Documents and notices under the Credit 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 Credit Parties, Administrative Agent and -154- 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 or in any other Credit Document shall survive the execution and delivery of this Agreement 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, 10.19 and 10.20 and the agreements of Lenders set forth in subsections 9.2C, 9.4, 10.5, 10.19 and 10.20 shall survive the payment of the Revolving 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 Administrative Agent or any Lender in the exercise of any power, right or privilege hereunder or under any other Credit 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 Credit Documents are cumulative to, and not exclusive of, any rights or remedies otherwise available. 10.11. MARSHALLING; PAYMENTS SET ASIDE. Neither Administrative 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 Administrative Agent 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. -155- 10.12. 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. 10.13. 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 Letter of Credit Commitments of any other Lender hereunder. Nothing contained herein or in any other Credit 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, any other Credit Document, any transaction contemplated by the Credit Documents, any Letter of Credit or Revolving Loan or the use of proceeds of drawings thereunder. 10.14. RELEASE OF SECURITY INTEREST. Upon the proposed sale or other disposition of any Collateral that is permitted by this Agreement or to which Requisite Lenders have otherwise consented, for which a Credit Party desires to obtain a security interest release from Collateral Agent, such Credit Party shall deliver to Administrative Agent and Collateral Agent an Officer's Certificate (i) stating that the Collateral or the Capital Stock subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Credit Documents and (ii) specifying the Collateral or Capital Stock being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at such Credit Party's expense, so long as Collateral Agent (a) believes in good faith that the facts stated in such Officer's Certificate are true and correct and (b) if the sale or other disposition of such item of Collateral or Capital Stock constitutes an Asset Sale, shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds if and as required by subsection 2.4, execute and deliver such releases of its security interest in such Collateral as may be reasonably requested by such Credit Party. In the event of any conflict or inconsistency between this subsection 10.14 and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. -156- 10.15. 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. 10.16. APPLICABLE LAW. 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. 10.17. 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. 10.18. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY BORROWER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER CREDIT 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 OF ADMINISTRATIVE AGENT, ANY 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 -157- 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 COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.18 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. 10.19. 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 CREDIT DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS CREDIT 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 10.19 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 CREDIT DOCUMENTS OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE CREDIT EXTENDED HEREUNDER. In the event of litigation, this Agreement may be filed as a written consent to a trial by the court. -158- 10.20. 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 Obligations 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 (including CPIH Subsidiaries). Notwithstanding anything herein to the contrary, information required to be treated as confidential by reason of the foregoing shall not include, and Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the respective partners, directors, officers, employees, agents, advisors and other representatives of each of the foregoing and their respective Affiliates) (collectively, the "LENDER PARTIES") may disclose to any and all Persons, without limitation of any kind, (x) any information with respect to United States federal and state income tax treatment and United States federal income tax structure of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other non-public business or financial information that is unrelated to such tax treatment or facts, and (y) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Lender Parties. 10.21. NO FIDUCIARY DUTY. Neither Administrative Agent nor any Lender has or shall have, by reason of this Agreement or any of the Credit Documents, a fiduciary relationship in respect of, or a fiduciary duty to, any Borrower, Borrowers, any other Credit Party or Credit Parties, and the relationship between Administrative Agent and Lenders, on one hand, and each Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. -159- 10.22. 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. 10.23. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express 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 Indemnitees and Released Parties related to Administrative Agent, and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. [Remainder of page intentionally left blank] -160- 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 Borrower By:_______________________________________________ Title:____________________________________________ EACH OF THE ENTITIES NAMED ON SCHEDULE A ANNEXED HERETO, as a Borrower By:_______________________________________________ Title:____________________________________________ Notice Address for each Borrower: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, NJ 07007 Attn: Jeffrey Horowitz, Esq. S-1 ADMINISTRATIVE AGENT AND LENDERS: BANK ONE, NA, as Administrative Agent and as Issuing Lender By:_______________________________________________ Name:__________________________________________ Title:_________________________________________ Notice Address: 120 South LaSalle Street 8th Floor Chicago, IL 60603 Attn: Douglas Boersma Facsimile: (312) 661-7352 SZ INVESTMENTS, L.L.C., as a Lender By:_______________________________________________ Name:__________________________________________ Title:_________________________________________ Notice Address: Two North Riverside Plaza Suite 600 Chicago, Illinois 60606 Attention:Donald J. Liebentritt and Philip G. Tinkler Facsimile: (312) 454-0335 S-2 D. E. SHAW LAMINAR PORTFOLIOS, L.L.C., as a Lender By:_______________________________________________ Name:__________________________________________ Title:_________________________________________ Notice Address: 120 West Forty-Fifth Street Floor 39, Tower 45 New York, NY 10036 Attention: Max Holmes Facsimile: (212) 478-0100 with a copy to: Willkie Farr & Gallagher 787 Seventh Avenue New York, NY 10019 Attention: Steven Wilamowsky, Esq. Facsimile: (212) 728-8111 THIRD AVENUE TRUST, ON BEHALF OF THE THIRD AVENUE VALUE FUND SERIES, as a Lender By:_______________________________________________ Name:__________________________________________ Title:_________________________________________ Notice Address: 622 Third Avenue New York, NY 10017 Attention: General Counsel Facsimile: (212) 735-0003 with a copy to: Pillsbury Winthrop LLP One Battery Park Plaza New York, NY 10004 Attention: Richard Epling, Esq. Facsimile: (212) 858-1500 S-3 EX-10.1.T 11 y95330exv10w1wt.txt CREDIT AGREEMENT CREDIT AGREEMENT DATED AS OF MARCH 10, 2004 AMONG COVANTA POWER INTERNATIONAL HOLDINGS, INC. AND EACH OF ITS SUBSIDIARIES PARTY HERETO, THE LENDERS LISTED HEREIN, AS LENDERS, BANK OF AMERICA, N.A., AS ADMINISTRATIVE AGENT, AND DEUTSCHE BANK SECURITIES, INC. AS DOCUMENTATION AGENT BANK OF AMERICA, N.A. AND DEUTSCHE BANK SECURITIES, INC. AS CO-LEAD ARRANGERS TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS............................................................................... 1 1.1 Certain Defined Terms......................................................................... 1 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement............ 30 1.3 Other Definitional Provisions and Rules of Construction....................................... 30 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS................................................ 30 2.1 Commitments; Making of Loans; the Register; Optional Notes.................................... 30 2.2 Interest on the Loans......................................................................... 32 2.3 Fees.......................................................................................... 33 2.4 Repayments, Prepayments; General Provisions Regarding Payments; Application of Proceeds of Collateral.................................................................................... 33 2.5 Use of Proceeds............................................................................... 36 2.6 Increased Costs; Taxes; Capital Adequacy...................................................... 37 2.7 Statement of Lenders; Obligation of Lenders to Mitigate....................................... 40 2.8 Joint and Several Liability; Payment Indemnifications......................................... 41 2.9 Rights of Subrogation, Contribution, Etc...................................................... 41 SECTION 3. CONDITIONS TO LOANS....................................................................... 42 3.1 Conditions to Closing Date.................................................................... 42 SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES.................................................. 51 4.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries................. 51 4.2 Authorization of Borrowing, etc............................................................... 52 4.3 Financial Condition........................................................................... 53 4.4 No Material Adverse Change; No Restricted Payments............................................ 53 4.5 Title to Properties; Liens; Real Property; Intellectual Property.............................. 54 4.6 Litigation; Adverse Facts..................................................................... 54 4.7 Payment of Taxes.............................................................................. 55 4.8 Performance of Agreements; Material Contracts................................................. 55 4.9 Governmental Regulation....................................................................... 55 4.10 Securities Activities......................................................................... 56 4.11 Employee Benefit Plans........................................................................ 56
-i- TABLE OF CONTENTS (Continued)
PAGE 4.12 Certain Fees.................................................................................. 57 4.13 Environmental Protection...................................................................... 57 4.14 Employee Matters.............................................................................. 58 4.15 Matters Relating to Collateral................................................................ 58 4.16 Disclosure.................................................................................... 59 4.17 Cash Management System........................................................................ 60 4.18 Matters Relating to Loan Parties.............................................................. 60 4.19 Investigation................................................................................. 61 4.20 Matters Relating to Bankruptcy Proceedings.................................................... 61 4.21 Subordinated Indebtedness..................................................................... 61 4.22 Reporting to IRS.............................................................................. 61 SECTION 5. COMPANY'S AFFIRMATIVE COVENANTS........................................................... 62 5.1 Financial Statements and Other Reports........................................................ 62 5.2 Existence, etc................................................................................ 67 5.3 Payment of Taxes and Claims; Tax.............................................................. 67 5.4 Maintenance of Properties; Insurance; Application of Net Insurance/Condemnation Proceeds...... 68 5.5 Inspection Rights; Lender Meeting............................................................. 70 5.6 Compliance with Laws, etc..................................................................... 70 5.7 Environmental Matters......................................................................... 70 5.8 Execution of the Personal Property Collateral Documents After the Closing Date................ 72 5.9 Matters Relating to Real Property Collateral.................................................. 73 5.10 Deposit Accounts; Repatriation of Foreign Cash................................................ 73 5.11 Further Assurances............................................................................ 74 5.12 Most Favored Nations Payments................................................................. 75 SECTION 6. BORROWERS' NEGATIVE COVENANTS............................................................. 76 6.1 Indebtedness.................................................................................. 76 6.2 Liens and Related Matters..................................................................... 78 6.3 Investments; Acquisitions..................................................................... 80 6.4 Contingent Obligations; Performance Guaranties................................................ 81
-ii- TABLE OF CONTENTS (Continued)
PAGE 6.5 Restricted Payments........................................................................... 82 6.6 Financial Covenants........................................................................... 83 6.7 Restriction on Fundamental Changes; Asset Sales............................................... 84 6.8 Transactions with Shareholders and Affiliates................................................. 86 6.9 Restriction on Leases......................................................................... 86 6.10 [Intentionally Omitted]....................................................................... 87 6.11 Conduct of Business........................................................................... 87 6.12 Amendments to Related Agreements, Debt Documentation and Organizational Documents............. 87 6.13 End of Fiscal Years; Fiscal Quarters.......................................................... 88 6.14 Amendment to Pension Plans.................................................................... 88 SECTION 7. EVENTS OF DEFAULT......................................................................... 88 7.1 Failure to Make Payments When Due............................................................. 88 7.2 Default in Other Agreements................................................................... 89 7.3 Breach of Certain Covenants................................................................... 89 7.4 Breach of Warranty............................................................................ 89 7.5 Other Defaults Under Loan Documents........................................................... 90 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc.......................................... 90 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc............................................ 90 7.8 Judgments and Attachments..................................................................... 91 7.9 Dissolution................................................................................... 91 7.10 Employee Benefit Plans........................................................................ 91 7.11 Material Adverse Effect....................................................................... 91 7.12 Change in Control............................................................................. 92 7.13 Invalidity of Intercreditor Agreement; Failure of Security; Repudiation of Obligations........ 92 7.14 Termination of Material Contracts............................................................. 92 7.15 Default under Existing IPP International Project Guaranties................................... 92 SECTION 8. ADMINISTRATIVE AGENT...................................................................... 93 8.1 Appointment................................................................................... 93 8.2 Powers and Duties; General Immunity........................................................... 93
-iii- TABLE OF CONTENTS (Continued)
PAGE 8.3 Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness..... 95 8.4 Right to Indemnity............................................................................ 95 8.5 Successor Agents.............................................................................. 96 8.6 Collateral Documents and Intercreditor Agreement.............................................. 96 8.7 Administrative Agent May File Proofs of Claim................................................. 97 SECTION 9. MISCELLANEOUS............................................................................. 97 9.1 Successors and Assigns; Assignments and Participations in Loans............................... 97 9.2 Expenses...................................................................................... 101 9.3 Indemnity..................................................................................... 101 9.4 Set-Off....................................................................................... 102 9.5 Ratable Sharing............................................................................... 103 9.6 Amendments and Waivers........................................................................ 104 9.7 Independence of Covenants..................................................................... 105 9.8 Notices; Effectiveness of Signatures.......................................................... 105 9.9 Survival of Representations, Warranties and Agreements........................................ 106 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative......................................... 106 9.11 Marshalling; Payments Set Aside............................................................... 106 9.12 Severability.................................................................................. 107 9.13 Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver..................... 107 9.14 Release of Security Interest.................................................................. 107 9.15 Headings...................................................................................... 108 9.16 Applicable Law................................................................................ 108 9.17 Construction of Agreement..................................................................... 108 9.18 Consent to Jurisdiction and Service of Process................................................ 108 9.19 Waiver of Jury Trial.......................................................................... 109 9.20 Confidentiality............................................................................... 110 9.21 Release of Parties; Waivers................................................................... 110 9.22 No Fiduciary Duty............................................................................. 111 9.23 Counterparts; Effectiveness................................................................... 111
-iv- TABLE OF CONTENTS (Continued)
PAGE 9.24 No Third Party Beneficiaries.................................................................. 112 9.25 Disbursing Agents; Non-Confirming Holders..................................................... 112
-v- EXHIBITS I. FORM OF NOTE II. FORM OF COMPLIANCE CERTIFICATE III. FORM OF ASSIGNMENT AGREEMENT IV. [INTENTIONALLY OMITTED] V. [INTENTIONALLY OMITTED] VI. FORM OF OPINIONS OF LOAN PARTIES' COUNSEL VII. FORM OF SECURITY AGREEMENT VIII. FORM OF CEA STOCK PLEDGE AGREEMENT IX. FORM OF INTERCREDITOR AGREEMENT X. FORM OF MORTGAGE XI. FORM OF LENDER ACKNOWLEDGMENT -vi- SCHEDULES 1.1A PRINCIPAL LEASE, SERVICE AND OPERATING AGREEMENTS 1.1B BUDGET 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 3.1C CORPORATE STRUCTURE 3.1P CASH MANAGEMENT SYSTEM 4.1 COMPANY AND SUBSIDIARIES 4.5B REAL PROPERTY 4.5C INTELLECTUAL PROPERTY 4.6 LITIGATION 4.8A CERTAIN ALLEGED DEFAULTS 4.8C MATERIAL CONTRACTS 4.11 MATTERS RELATING TO EMPLOYEE BENEFIT PLANS 4.13 ENVIRONMENTAL MATTERS 4.14 EMPLOYEE MATTERS (BATAAN) 6.1(v) CERTAIN EXISTING INDEBTEDNESS 6.2 CERTAIN EXISTING LIENS 6.3(v) CERTAIN EXISTING INVESTMENTS 6.4(iii) CERTAIN EXISTING CONTINGENT OBLIGATIONS 6.6E STIPULATED ADJUSTED EBITDA 6.8 CERTAIN TRANSACTIONS WITH AFFILIATES -vii- COVANTA POWER INTERNATIONAL HOLDINGS, INC. CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of March 10, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("COMPANY" or "CPIH"); EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (each such Subsidiary and Company individually referred to herein as a "BORROWER" and, collectively (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 PERSONS IDENTIFIED ON THE SIGNATURE PAGES HEREOF AS LENDERS (each individually referred to herein as a "LENDER" and collectively as "LENDERS"); DEUTSCHE BANK SECURITIES, INC. ("DEUTSCHE BANK"), as documentation agent for Lenders (in such capacity, "DOCUMENTATION AGENT"); and BANK OF AMERICA, N.A. ("BANK OF AMERICA"), 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"), Covanta Energy Corporation, a Delaware corporation ("COVANTA"), and certain of its Domestic Subsidiaries, including Borrowers (collectively, the "DEBTORS"), filed voluntary petitions for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (such proceedings being jointly administered under Case Nos. 02-40826 through 02-40949, 02-16322, 03-13679 through 03-13685, and 03-13687 through 03-13709 are hereinafter referred to as the "CHAPTER 11 CASES"), and each Borrower has operated its businesses and managed its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, the Debtors have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; WHEREAS, pursuant to the Plan of Reorganization, certain outstanding pre-Petition Date secured indebtedness shall be refinanced in full under this Agreement with Loans deemed made hereunder; 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 INTEREST LOANS" has the meaning assigned to that term in subsection 2.2B. "ADJUSTED EBITDA" means, for any period, (i) without duplication, the aggregate amount derived by combining the amounts for such period of (a) "Operating income (loss)", plus (b) Net Depreciation and Amortization Expense, minus (ii) the amount (expressed as a positive number) for such period of "Minority interests", as each such line item referred to in clause (i)(a) and clause (ii) is reflected in Company's consolidated statement of income prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled. "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 8.5. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or 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. "AGGREGATE AMOUNTS DUE" has the meaning assigned to that term in subsection 9.5. "AGREEMENT" means this Credit Agreement dated as of March 10, 2004, as it may be amended, restated, supplemented or otherwise modified from time to time. "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. "APPROVED PLAN OF REORGANIZATION" has the meaning assigned to that term in subsection 3.1E. "ASSET SALE" means (A) the sale by CEA of any of the Capital Stock of Company to any Person or (B) the sale by Company or any of its Subsidiaries to any Person of (i) any of the Capital 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, in each case so long as not less than 90% of the consideration received for such assets shall be cash); provided, however, that Asset Sales shall not include (1) 2 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 (provided, that sales and discounts of not more than $2,000,000 in face value of accounts receivable may be excluded from Asset Sales pursuant to this clause (1), and the sole consideration received in connection with any such sale of accounts receivable shall be cash), (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 120 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 (provided, that any cash received in connection with any such sale or exchange that is not expended as part of such sale or exchange to obtain such replacement items of equipment, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus property in the ordinary course of business (provided, that not less than 75% of the consideration, if any, received in connection with any such disposal shall be cash, and any such cash received, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (4) any discount or compromise of notes or accounts receivable for less than the face value thereof, to the extent Company deems necessary in order to resolve disputes that occur in the ordinary course of business, or (5) any sale of shares in the Madurai Project Entity permitted under subsection 6.7(vi). "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit III annexed hereto. "ASSUMPTIONS" has the meaning assigned to that term in subsection 4.11D. "AVAILABLE CASH" has the meaning given to that term in subsection 2.4(A)(ii). "BANK OF AMERICA" has the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. "BORROWERS" has the meaning assigned to that term in the introduction to this Agreement. "BUDGET" means (i) with respect to Fiscal Year 2004, the budget delivered by Company to Lenders on or prior to the Closing Date pursuant to subsection 3.1G, setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and each Fiscal Quarter from the Closing Date through December 31, 2004, and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2007, as such budget may be supplemented pursuant to subsection 5.1(i), and (ii) with respect to each Fiscal Year after 2004, the budget delivered by Company to Lenders pursuant to subsection 5.1(xvi), setting forth projected cash receipts and expenditures for 3 Company and its Subsidiaries for each calendar month and Fiscal Quarter during such Fiscal Year and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2007, as such budget may be supplemented pursuant to subsection 5.1(i). "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, the State of Texas or the State of California or is a day on which banking institutions located in any such state are authorized or required by law or other governmental action to close. "CANADIAN LENDERS" means Non-US Lenders, if any, that are (i) Lenders on the Closing Date in addition to being Canadian Loss Sharing Lenders (as defined in the Existing Intercreditor Agreement) immediately prior to the Closing Date or (ii) Non-US Lenders domiciled in Canada that (a) hold Loan Exposure originally held on the Closing Date by one or more Non-US Lenders referred to in clause (i) and (b) received such Loan Exposure directly from another Canadian Lender. Each reference herein to Canadian Lenders shall be a reference to such Persons solely with respect to Commitments and Loan Exposure held by such Canadian Lenders on the Closing Date. "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. "CASH MANAGEMENT SYSTEM" means the cash management system of Company and its Subsidiaries in the United States described in Schedule 3.1P annexed hereto, as such Cash Management System may be modified pursuant to subsection 5.10. "CASH ON HAND" means, as of any date of determination, the aggregate amounts on deposit in the Cash Management System in the United States as of the close of business on the preceding Business Day. "CEA" means Covanta Energy Americas, Inc., a Delaware corporation. "CEA STOCK PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by CEA on the Closing Date, substantially in the form of Exhibit VIII annexed hereto (it being understood that such Pledge Agreement shall contain a covenant requiring CEA to pay to Collateral Agent any proceeds received by it from or in connection with the sale of any of the common stock of Company to any Person), as such Pledge Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "CHANGE IN CONTROL" means the occurrence of any one or more of the following: (i) DHC shall cease to own, directly, 80% or more of the outstanding Capital Stock of Covanta; 4 (ii) Covanta shall cease to own, directly or indirectly, 100% of the outstanding Capital Stock of CEA; (iii) CEA shall cease to own, directly, 100% of the outstanding common stock of Company; or (iv) the occurrence of a change in the composition of the Governing Body of Company such that less than one of the members of such Governing Body is a Continuing Member. "CHAPTER 11 CASES" has the meaning assigned to that term in the recitals to this Agreement. "CLOSING DATE" means the date on which each of the conditions described in subsection 3.1 have been satisfied or waived by Agents and Requisite Lenders (or such other Lenders as may be required under subsection 9.6). "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, as security for the Obligations. "COLLATERAL AGENT" means Bank of America, in its capacity as Collateral Agent under the Intercreditor Agreement and the Collateral Documents. "COLLATERAL DOCUMENTS" means the Security Agreement, the CEA Stock Pledge Agreement, the Foreign Pledge Agreements, the Control Agreements, the Mortgages and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Loan Party pursuant to this Agreement or any of the other Loan Documents, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time. "COMMITMENT" means the commitment of a Lender to convert certain outstanding pre-Petition Date secured claims into Loans pursuant to subsection 2.1A, and "COMMITMENTS" means such commitments of all Lenders in the aggregate. The original amount of each Lender's Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original amount of the Commitments is $90,000,000; provided, however, that the Commitment of each Lender shall be increased by the amount of any Loan deemed made by it on or after the Closing Date pursuant to subsection 2.1A(ii); and provided further, however, that the Commitments of Lenders shall be adjusted to give effect to any assignments of the Commitments pursuant to subsection 9.1B. "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. 5 "COMPETITOR" means any Person (and its Affiliates) primarily engaged in the business of (i) the generation and sale of electricity or (ii) municipal waste management. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit II annexed hereto. "CONFIRMATION ORDER" means the Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March 5, 2004 in the Chapter 11 Cases, without modification, revision or amendment. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period to the extent paid or payable in cash. "CONSOLIDATED FACILITIES CAPITAL EXPENDITURES" means, for any period, the aggregate of all cash expenditures by Company and its Subsidiaries during that period 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 that or any other period. "CONSOLIDATED INTEREST EXPENSE" means, for any period, (i) total interest expense, net of interest income, of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries to the extent such Indebtedness is or is required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP, but excluding any Indebtedness consisting of Non Recourse Debt, and (ii) to the extent not included in the calculation of the amount described in clause (i), all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, from clauses (i) and (ii) any amounts referred to in subsection 2.3 payable to Agents and Lenders on or before the Closing Date. "CONSOLIDATED LEVERAGE RATIO" means, as at any date of determination, the ratio of (a) Total Debt as at such date to (b) Adjusted EBITDA for the four-Fiscal Quarter period most recently ended prior to such 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, or (iii) under Hedge Agreements. 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 6 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. "CONTINUING MEMBER" means, as of any date of determination, any member of the Governing Body of Company who (i) is the member of the Governing Body on the Closing Date that was acceptable to Agents as indicated to Company by Agents, or (ii) if the Person referred to in clause (i) is no longer a member of the Governing Body of Company, is acceptable to Agents and Requisite Lenders as indicated to Company by Agents and Requisite Lenders. "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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Administrative Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, is maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "CORPORATE SERVICES REIMBURSEMENT AGREEMENT" means the corporate services reimbursement agreement entered into by DHC and Covanta on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "COVANTA" has the meaning assigned to such term in the recitals to this Agreement. "CPIH" has the meaning assigned to that term in the introduction to this Agreement. 7 "CPIH REVOLVER AVAILABILITY" means, as at any date of determination, the sum of (i) the CPIH Revolver Loan Commitments of all CPIH Revolver Lenders minus (ii) the aggregate principal amount of all CPIH Revolving Loans. "CPIH REVOLVER CREDIT AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Borrowers, as borrowers, and the Investor Parties and the other financial institutions listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness thereunder (provided, that (a) the terms of such credit agreement and such Indebtedness as so refinanced, replaced, renewed or extended shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents or Requisite Lenders so notifying Agents or Company) than the CPIH Revolver Credit Agreement in effect on the Closing Date, (b) the aggregate amount of Indebtedness outstanding, and additional commitments to extend credit, if any, under the CPIH Revolver Credit Agreement as refinanced, replaced, renewed or extended, shall not exceed the aggregate amount of the commitments to extend credit in effect under the CPIH Revolver Credit Agreement on the Closing Date, (c) the obligations under (and the Liens securing) such credit agreement as refinanced, replaced, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the CPIH Revolver Credit Agreement on the Closing Date, and (d) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith), in the case of clause (i) or (ii) as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. "CPIH REVOLVER DOCUMENTS" means the "Loan Documents" as defined in the CPIH Revolver Credit Agreement. "CPIH REVOLVER LENDERS" means the "Lenders" as defined in the CPIH Revolver Credit Agreement. "CPIH REVOLVER LOAN COMMITMENT" means, as at any date of determination, the commitment of a CPIH Revolver Lender to make CPIH Revolver Loans to Borrowers pursuant to subsection 2.1A of the CPIH Revolver Credit Agreement. "CPIH REVOLVER LOAN EXPOSURE" means, with respect to any CPIH Revolver Lender as of any date of determination (i) prior to the termination of the CPIH Revolver Loan Commitments, that CPIH Revolver Lender's CPIH Revolver Loan Commitment, and (ii) after the termination of the CPIH Revolver Loan Commitments, the aggregate outstanding principal amount of the CPIH Revolver Loans of that CPIH Revolver Lender. "CPIH REVOLVER LOANS" means the loans made (or deemed made) by CPIH Revolver Lenders to Borrowers pursuant to subsection 2.1A of the CPIH Revolver Credit Agreement. 8 "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. "D.E. SHAW" means D.E. Shaw Laminar Portfolios, L.L.C. a Delaware limited liability company. "DEBTORS" has the meaning assigned to that term in the recitals to this Agreement. "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. "DETROIT L/Cs" means the letters of credit issued under the Detroit L/C Credit Agreement on the Closing Date. "DETROIT L/C CREDIT AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Domestic Borrowers, as borrowers, the Detroit L/C Lenders, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, and (ii) any credit agreement entered into by Domestic Borrowers to refinance, replace, renew or extend in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder as permitted pursuant to the New L/C Facility Agreement, in each case as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time. "DETROIT L/C LENDERS" means the "Lenders" under and as defined in the Detroit L/C Credit Agreement. "DEUTSCHE BANK" has the meaning assigned to that term in the introduction to this Agreement. "DHC" means Danielson Holding Corporation, a Delaware corporation. "DIP AGENTS" means the Persons identified as "Agents" under the DIP Credit Agreement, in their capacities as agents for DIP Lenders under the DIP Credit Agreement. "DIP CREDIT AGREEMENT" means that certain Debtor-In-Possession Credit Agreement dated as April 1, 2002, by and among Covanta and certain of its Subsidiaries, as debtors and debtors-in-possession, the financial institutions listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such agreement is in effect immediately prior to the Closing Date. "DIP CREDIT DOCUMENTS" means the "Loan Documents" as defined in the DIP Credit Agreement. "DIP LENDER" means each of the "Lenders" under the DIP Credit Agreement on the Closing Date, in its capacity as a lender under the DIP Credit Agreement. 9 "DISTRIBUTABLE CASH" has the meaning assigned to that term in subsection 3.1T. "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 8.5. "DOLLARS" and the sign "$" mean the lawful money of the United States. "DOMESTIC BORROWERS" means Covanta and the Subsidiaries thereof party from time to time to the Detroit L/C Credit Agreement and New L/C Facility Agreement. "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 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 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 LOAN DOCUMENTS" means the "Credit Documents" as defined in each of the Detroit L/C Credit Agreement and New L/C Facility Agreement. "DOMESTIC SUBSIDIARY" means any Subsidiary of any Borrower that is incorporated or organized under the laws of the United States, any state thereof or in the District of Columbia. "ELIGIBLE ASSIGNEE" means (i) any Person that 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 (or other evidences of debt) as one of its 10 businesses; (ii) any Person that is a Lender at the time of the relevant assignment; 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. "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. "EMPLOYMENT AGREEMENTS" means those employment agreements entered into on the Closing Date by Company with such Persons as Agents shall approve prior to the Closing Date, in each case providing for the exclusive employment of such Persons by Company and its Subsidiaries, in the form provided to Agents pursuant to subsection 3.1C on or prior to the Closing Date. "ENFORCING LENDERS" has the meaning assigned to that term in subsection 9.5B. "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. "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) that would reasonably be expected to have a Material Adverse Effect; (ii) the failure 11 to meet the minimum funding standard of Section 412 of the Internal Revenue Code with respect to any Pension Plan (whether or not waived in accordance with Section 412(d) of the Internal Revenue Code) or the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (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 material current 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 material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (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 (in excess of the contribution that would otherwise have been due absent such withdrawal), or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (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 if such assertion or the liability with respect thereto would reasonably be expected to have a Material Adverse Effect; (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, in either case if such failure would reasonably be expected to have a Material Adverse Effect; or (x) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "EVENT OF DEFAULT" has the meaning assigned to that term in Section 7. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. 12 "EXISTING DETROIT L/Cs" means, collectively, (i) Irrevocable Standby Letter of Credit Number SBY501806 issued by UBS Bank, in the available amount of $96,731,392.81 as of the Closing Date, for the benefit of PMCC Leasing Corporation and Resource Recovery Business Trust - A, and (ii) Irrevocable Standby Letter of Credit Number SBY501835 issued by UBS Bank, in the available amount of $41,460,161.38 as of the Closing Date for the benefit of Aircraft Services Corporation and Resource Recovery Business Trust - B. "EXISTING INTERCREDITOR AGREEMENT" means the "Intercreditor Agreement" as defined in the DIP Credit Agreement on the Closing Date, as such "Intercreditor Agreement" is in effect on the Closing Date. "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means, collectively, (i) the existing guaranty by Covanta Energy Group of the obligations of certain Subsidiaries of Company under certain agreements relating to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the existing guaranty by Covanta Projects, Inc. of the obligations of certain Subsidiaries of Company under certain agreements relating to the Quezon Project, and (iii) the existing guaranty by Covanta of certain Subsidiaries of Company under certain agreements relating to the Balaji/Madurai Project and the LICA Project, as each such guaranty may be amended, restated, supplemented or otherwise modified to the extent permitted hereunder. "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, by any of their respective predecessors or by any Person who is an Affiliate of Borrower or any of its Subsidiaries prior to the Closing Date. "FIFRA" means the Federal Insecticide, Fungicide, and Rodenticide Act, as amended (7 U.S.C. Section 136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien is perfected and has priority over any other Lien on such Collateral (other than Liens permitted pursuant to subsections 6.2A(iii) through (vi)) and (ii) such Lien is the only Lien (other than Liens permitted pursuant to subsection 6.2) to which such Collateral is subject. "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 13 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 5.8 by Company or any Domestic Subsidiary that owns Capital Stock of one or more Foreign Subsidiaries organized in such country, in form and substance satisfactory to Collateral 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 901 Main St., 14th Floor, Mc: TX1-492-14-11, Dallas, Texas 75202 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 2.8C. "GAAP" means, subject to the limitations on the application thereof set forth in subsection 1.2, accounting principles generally accepted in the United States 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. "GEOTHERMAL SALE" means (i) the sale or other disposition by Covanta and its Subsidiaries of all or substantially all of their respective (1) Capital Stock in Heber Geothermal Company, Heber Field Company and Second Imperial Geothermal Company, L.P., and (2) Capital Stock in non-debtor Affiliate Mammoth-Pacific L.P., which entities own or lease geothermal plants and facilities in California (the "GEOTHERMAL BUSINESS"), and (ii) the assumption and/or assignment by Covanta and its Subsidiaries of certain contracts related to the Geothermal Business, in the case of both clauses (i) and (ii) occurring prior to or concurrently with the consummation of the Plan of Reorganization. "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. 14 "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. "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 (i) an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively, or (ii) a forward agreement or arrangement designed to hedge against fluctuation in electricity rates pertaining to electricity produced by a Project so long as the contractual arrangements relating to such Project contemplate that Company or its Subsidiaries shall deliver such electricity to third parties. 15 "HIGH YIELD INDENTURE" means (i) the indenture pursuant to which the High Yield Notes are issued and (ii) any replacement indenture entered into in connection with a refinancing, renewal, replacement or extension of the High Yield Notes permitted under the Detroit L/C Credit Agreement and New L/C Facility Agreement, in each case as such indenture or replacement indenture may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under the Detroit L/C Credit Agreement. "HIGH YIELD NOTES" means (i) the $230,000,000 in aggregate principal amount at maturity of 8.25% Senior Notes due 2010 of Covanta issued pursuant to the High Yield Indenture, and (ii) any Indebtedness incurred to refinance, renew, replace or extend the High Yield Notes permitted to be incurred under the Detroit L/C Credit Agreement; provided, that the initial principal amount (and issue price) of such High Yield Notes on the Closing Date shall be $205,000,000. "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 (and Hedge Agreements that protect against fluctuation in electricity rates) 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 Non Recourse Debt of such partnership or joint venture. "INDEMNIFIED LIABILITIES" has the meaning assigned to that term in subsection 9.3. "INDEMNITEE" has the meaning assigned to that term in subsection 9.3. "INSURANCE PREMIUM FINANCERS" means Persons who are non-Affiliates of Company that advance insurance premiums for Company and its Subsidiaries pursuant to Insurance Premium Financing Arrangements. "INSURANCE PREMIUM FINANCING ARRANGEMENTS" means, collectively, such agreements as Company and its Subsidiaries shall enter into after the Closing Date with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries. Such Insurance Premium 16 Financing Arrangements (i) shall provide for the benefit of such Insurance Premium Financers a security interest in no property of Company or any of its Subsidiaries other than gross unearned premiums for the insurance policies, (ii) shall not purport to prohibit any portion of the Liens created in favor of Collateral Agent (for the benefit of Secured Parties) pursuant to the Collateral Documents, and (iii) shall not contain any provision or contemplate any transaction prohibited by this Agreement and shall otherwise be in form and substance reasonably satisfactory to Agents. "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 MASTER NOTE" means a promissory note evidencing Indebtedness of Company and each of its Subsidiaries which (a) to the extent the Indebtedness evidenced thereby is owed to any Borrower, is pledged pursuant to the Collateral Documents, and (b) to the extent the Indebtedness evidenced thereby is owed by a Subsidiary of Company, 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 Borrower 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 such note. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement executed and delivered on the Closing Date by Borrowers, CEA, Lenders, Agents, Collateral Agent, CPIH Revolver Lenders, the agents under the CPIH Revolver Documents, in the form of Exhibit IX annexed hereto, as it may thereafter be amended, restated, supplemented or otherwise modified from time to time. "INTEREST PAYMENT DATE" means the last Business Day of each month, commencing on the first such date to occur after the Closing Date. "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. "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 17 indebtedness and accounts receivable from that other Person that are not current assets or did not arise from sales or services 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 not constituting Hedge 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. No account receivable owed by a Person to Company or any of its Subsidiaries that on the relevant date of determination constitutes a current asset and arose from sales or services to such Person in the ordinary course of business shall constitute an Investment on such date. "INVESTOR PARTIES" means D.E. Shaw, SZ Investments, LLC, a Delaware limited liability company, and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series. "IP COLLATERAL" means, collectively, the Intellectual Property that constitutes Collateral. "IPP INTERNATIONAL BUSINESS" means the assets and operations of the business of Covanta and its Subsidiaries referred to by Covanta as the "IPP International business" prior to the Closing Date, including the Haripur Project, the Samalpatti Project, the Trezzo Project, the Quezon Project, the Balaji/Madurai Project, the Linasa Project, the Don Pedro Project, the Rio Volcan Project, the Bataan Project, the Magellan Project, the Linan Project, the Huantai Project, the Yanjiang Project and the Island Power Project. "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 Borrower 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 9.1 or subsection 9.25. "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. "LOAN" or "LOANS" means one or more of the Loans made or deemed made by Lenders pursuant to subsection 2.1A and any Additional Interest Loan made pursuant to subsection 2.2B. "LOAN DOCUMENTS" means this Agreement, the Notes, the Collateral Documents, the Intercreditor Agreement and all amendments, waivers and consents relating thereto. "LOAN EXPOSURE" means, with respect to any Lender as of any date of determination, the aggregate outstanding principal amount of the Loan of that Lender. 18 "LOAN PARTY" means each Borrower and CEA, and "LOAN PARTIES" means all such Persons, collectively. "MADURAI PROJECT ENTITY" has the meaning assigned to that term in subsection 6.7(vi). "MAGELLAN SUBSIDIARY" means Magellan Cogeneration, Inc., a Philippines corporation. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by Company, Covanta and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to the Agents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 6.12. "MANDATORY PAYMENT" means any amount described in subsections 2.4A(ii)(a)-(e) to be applied as a prepayment of the Loans and/or the CPIH Revolver Loans and/or a permanent reduction of the CPIH Revolver Commitments, as determined pursuant to subsection 2.4A. "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 Loan Parties taken as a whole to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "MATERIAL CONTRACT" means (i) the principal service or operating agreement, if any, with respect to each waste-to-energy Project and the principal power sales 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 1.1A 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, with respect to any Person, any Subsidiary of such Person now existing or hereafter acquired or formed by such Person which, on a consolidated basis for such Subsidiary and all of its Subsidiaries, (i) for the most recent fiscal year of such Person accounted for more than 1% of the consolidated revenues of such Person and its Subsidiaries, (ii) as at the end of such fiscal year, was the owner of more than 1% of the 19 consolidated assets of such Person and its Subsidiaries, or (iii) is capitalized with more than $500,000 of equity. "MATURITY DATE" means March 10, 2007. "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 X 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 5.9, 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 eighteen months from the date of such Asset Sale and (b) the Maturity Date 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) actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to such Asset Sale or pursuant to applicable law) and payable immediately upon consummation of such Asset Sale to employees of Company and its Subsidiaries that are terminated as a result thereof) paid to Persons other than Company and its Subsidiaries and their respective Affiliates 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 Loans) that is (x) secured by a valid, enforceable and perfected Lien on the stock or assets in question that is permitted under subsection 6.2 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 DEPRECIATION AND AMORTIZATION EXPENSE" means, for any period, the sum (expressed as a positive number) of (i) "Depreciation" for such period plus (ii) "Amortization" for such period, as each such line item referred to in clauses (i) and (ii) is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as 20 the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled. "NET INDEBTEDNESS 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)) from the incurrence of Indebtedness by Company or any of its Subsidiaries. "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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) the Maturity Date as a result of the receipt of such payments of proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or relating to the payment referred to in clause (i) or (ii) above or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have been terminated as a result of the relevant loss, taking or sale) paid to Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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, 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. "NEW L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among the Domestic Borrowers, as borrowers, and the Investor Parties and the other financial institutions listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Domestic Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder as permitted under the Detroit L/C Credit Agreement, in each case as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time. "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such term is defined in the Approved Plan of REORGANIZATION. "NON 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 21 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. "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. "NOTES" means any promissory notes of Borrowers issued pursuant to subsection 2.1D to evidence the Loans of any Lenders, substantially in the form of Exhibit I annexed hereto, as they may be amended, restated, supplemented or otherwise modified from time to time. "OBLIGATIONS" means all obligations of every nature of Loan Parties under the Loan Documents, including any liability of such Loan Party on any claim arising out of or relating to the Loan Documents, 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. 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 (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Loan Party, whether or not allowed in such case or proceeding), 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(ii)(f) or 5.1(v) shall be executed by a senior financial officer of Company reasonably acceptable to Administrative Agent. "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. 22 "PARTICIPANT" means a purchaser of a participation in the rights and obligations under this Agreement pursuant to subsection 9.1C. "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 agreement entered into by Company or any of its Subsidiaries under which Company or any such Subsidiary guarantees the performance of a Subsidiary of Company under a principal lease, service or operating agreement relating to a Project. "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 5.3; (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 7.8; (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 23 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 6.2A. "PERMITTED SUPPLEMENTAL LOAN AMOUNT" means, on and as of the "Determination Date" (as defined in the Approved Plan of Reorganization), the excess of (i) the aggregate amount of "New CPIH Funded Debt" (as defined in the Approved Plan of Reorganization) that shall be issued by "Reorganized Covanta" (as defined in the Approved Plan of Reorganization), after giving effect to the adjustment described in the first proviso to the definition of such term in the Approved Plan of Reorganization, over (ii) $90,000,000. "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 24 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. "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "PLEDGED COLLATERAL" means the "Pledged Collateral" as defined in each of the Security Agreement and the CEA Stock Pledge Agreement. "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 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 Bank of America, as Administrative Agent, as amended, restated, supplemented or otherwise modified through the Closing Date and as it may hereafter be amended, restated, supplemented or otherwise modified. "PREPETITION CREDIT DOCUMENTS" means all "Loan Documents" as defined in the Prepetition Credit Agreement. "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 OBLIGATIONS" means all "Obligations" as defined in the Prepetition Credit Agreement. "PREPETITION SECURED CLAIMS" means, collectively, the "Secured Bank Claims" and the "9.25% Debenture Claims", as such terms are defined in the Approved Plan of Reorganization. "PREPETITION UNSECURED CLAIMS" means "Parent and Holding Company Unsecured Claims" that are "Allowed," as such terms are defined in the Approved Plan of Reorganization. "PROCEEDINGS" means any action, suit, proceeding (whether administrative, judicial or otherwise), governmental investigation or arbitration. "PROJECT" means any waste-to-energy facility, electrical generation plant, cogeneration plant, water treatment facility or other facility for the generation of electricity or 25 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "PRO RATA SHARE" means with respect to all payments, computations and other matters relating to the Commitment of any Lender or any Loans deemed made by any Lender, the percentage obtained by dividing (i) the Loan Exposure of that Lender by (ii) the aggregate Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by assignments permitted pursuant to subsection 9.1. The initial Pro Rata Share of each Lender 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. "PUHCA" has the meaning assigned to that term in subsection 4.9. "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. Section 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 Borrower in any real property. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "REGISTER" has the meaning assigned to that term in subsection 2.1C. "RELATED AGREEMENTS" means the CPIH Revolver Documents, the Management Services and Reimbursement Agreement, the Existing IPP International Project Guaranties and 26 the Tax Sharing Agreement, as such agreements and instruments may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. "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. "REQUISITE DIP LENDERS" means DIP Lenders having or holding more than 50% of the aggregate credit exposure under the "Tranche A L/Cs" and the "Tranche B L/Cs" (as such terms are defined in the DIP Credit Agreement). "REQUISITE LENDERS" means Lenders having or holding more than 50% of the aggregate Loan Exposure of all Lenders; provided, however, that prior to the Closing Date, for purposes of this definition, the Loan Exposure of each Lender shall equal the original Commitment of such Lender on the Closing Date. "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 Company and its Subsidiaries other than (a) the Obligations, (b) Indebtedness owed by a Subsidiary to a Borrower, (c) payments under the CPIH Revolver Credit Agreement and (d) other amounts required to be paid under this Agreement. "SECURED OBLIGATIONS" means the obligations secured by the Collateral pursuant to the Collateral Documents. "SECURED PARTIES" means the "Secured Parties" as defined in the Intercreditor Agreement. "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. 27 "SECURITIES ACT" means the Securities Act of 1933, as amended from time to time, and any successor statute. "SECURITIES ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Closing Date by Borrowers, substantially in the form of Exhibit VII annexed hereto, as such Security Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "SOLVENT" means, with respect to any Person, that as of the date of determination, in light of all of the facts and circumstances existing at such time, (i) the then fair saleable value of the property of such Person is (a) greater than the total amount of liabilities (including contingent liabilities) of such Person and (b) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and due considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBORDINATED INDEBTEDNESS" means, collectively, (i) Indebtedness under the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture and (ii) any other Indebtedness of Company or any of its Subsidiaries incurred from time to time and subordinated by its terms in right of payment to the Obligations. "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. Unless otherwise specified herein or unless the context otherwise requires, any reference to a "Subsidiary" contained herein means a Subsidiary of Company. "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). 28 "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. "TAX NOTE" has the meaning assigned to that term in subsection 3.1F(iv). "TAX SHARING AGREEMENT" means the tax sharing agreement entered into by DHC, Covanta and Company on the Closing Date, in form and substance satisfactory to the Agents, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. "TOTAL DEBT" means, as at any date of determination, (i) the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, minus (ii) the amounts of "Current portion of project debt" and "Project Debt", whether such line items are so titled or otherwise titled, as such line items are or would be reflected in Company's consolidated balance sheet as at such date prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amounts in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, minus (iii) any portion of Indebtedness of Company and its Subsidiaries under the Tax Sharing Agreement included in the amount described in clause (i) above. "TREASURY REGULATIONS" means the Treasury Regulations promulgated under the Internal Revenue Code. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C. Section 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "UBS BANK" means UBS AG, Stamford Branch. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNITED STATES" means the United States of America. "UNSECURED CREDITOR NOTES" has the meaning assigned to that term in subsection 3.1F(iv). "UNSECURED CREDITOR NOTES INDENTURE" means the Indenture pursuant to which the Unsecured Creditor Notes are issued. 29 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 5.1 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 5.1(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 4.3. 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 5.1(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 severally agrees (i) that a portion of its outstanding Prepetition Secured Claims equal to the amount set forth opposite its name on Schedule 2.1 annexed hereto shall be converted to (and shall be deemed to be a loan made by such Lender as) a Loan on the Closing Date, and (ii) that on the "Determination Date" (as defined in the Approved Plan of Reorganization), a portion of its outstanding Prepetition Secured Claims equal to its Pro Rata Share of any Permitted 30 Supplemental Loan Amount shall be converted to (and shall be deemed to be a loan made by such Lender as) a Loan pursuant to Section 4.3 of the Approved Plan of Reorganization. The amount of each Lender's Pro Rata Share of the Loans is set forth opposite its name on Schedule 2.1 annexed hereto. The aggregate original principal amount of the Loans of all Lenders is $90,000,000, and the aggregate principal amount of the Loans of all Lenders shall increase from time to time by the principal amount of any Permitted Supplemental Loans. Loans deemed made under this subsection 2.1A and subsequently repaid or prepaid may not be reborrowed. All Loans and all other amounts owed hereunder with respect to the Loans shall be paid in full no later than the Maturity Date. Loans shall include any Additional Interest Loans added to the principal balance thereof pursuant to subsection 2.2B. Borrowers hereby jointly and severally agree to the foregoing and promise to repay such Loans in accordance with the terms of this Agreement. B. NO DISBURSEMENT OF FUNDS. All Loans described in clause (i) of subsection 2.1A shall, upon satisfaction or waiver of the conditions precedent specified in subsection 3.1, be deemed made (without any funding of any amounts therefor) on the Closing Date by Lenders simultaneously in the respective amounts set forth on Schedule 2.1 annexed hereto. All Loans described in clause (ii) of subsection 2.1A shall be deemed made (without any funding of any amounts therefor) by Lenders simultaneously and proportionately to their respective Pro Rata Shares on the date the relevant Permitted Supplemental Loan Amount is permitted to be converted to a Loan pursuant to the Approved Plan of Reorganization. C. 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 9.3), 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 9.8 a register for the recordation of, and shall record, the names and addresses of Lenders and the Commitment and 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. D. 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 31 subsection 9.1) 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) a promissory note or promissory notes to evidence such Lender's Loan, substantially in the form of Exhibit I annexed hereto, with appropriate insertions. 2.2 INTEREST ON THE LOANS. A. RATE OF INTEREST. Subject to the provisions of subsections 2.2C, 2.2E and 2.6, each Loan shall bear interest on the unpaid principal amount thereof from the date made or deemed made until repayment in full at the rate of 10.50% per annum. B. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2C, 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). All interest payments on the Loans will be made pro rata in accordance with the outstanding principal balance under each Loan. On each Interest Payment Date, (i) interest accruing on the principal amount of the Loans at a rate of 6% per annum shall be payable in cash and (ii) Borrowers shall apply all Available Cash first to the payment of the remaining interest accruing on the Loans (other than any Additional Interest Loans) at a rate of 4.50% per annum to the full extent of such Available Cash and second, to the extent of any excess, to the payment of interest accruing on all Additional Interest Loan at a rate of 4.50% per annum; provided that if the amount of Available Cash on such Interest Payment Date is insufficient to pay the accrued interest on the Loans under this clause (ii) then the difference between the interest then due and payable under this clause (ii) with respect to the Loans and the interest actually paid in cash with respect to the Loans under this clause (ii) shall be added to the principal amount of the Loans on such Interest Payment Date (any and all such amounts that have been added to the principal amount of outstanding Loans, are referred to herein as the "ADDITIONAL INTEREST LOANS"). C. 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, shall thereafter bear interest (including post petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is 2.00% per annum in excess of the interest rate otherwise payable under this Agreement for Loans. Payment or acceptance of the increased rates of interest provided for in this subsection 2.2C 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. D. COMPUTATION OF INTEREST. Interest on the Loans and other amounts bearing interest hereunder shall be computed on the basis of a 365-day or 366-day year, as the case may be. In computing interest on any Loan, the date of the making of such Loan shall be included; and the date of payment of such Loan shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one day's interest shall be paid on that Loan or funded drawing. 32 E. 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 exceed the maximum rate of interest permitted to be charged under applicable law. 2.3 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; GENERAL PROVISIONS REGARDING PAYMENTS; APPLICATION OF PROCEEDS OF COLLATERAL. A. PREPAYMENTS AND REDUCTIONS IN COMMITMENTS. (i) Voluntary Prepayments. Borrowers may, upon not less than one Business Day's prior written or telephonic notice 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, who will promptly notify each Lender whose Loans are to be prepaid of such prepayment, 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 $1,000,000 and integral multiples of $500,000 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). 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(iii). (ii) Mandatory Payments. 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(iii), except to the extent the Intercreditor Agreement requires application thereof in a different manner than as set forth in this subsection 2.4A(ii) or subsection 2.4A(iii): (a) Net Asset Sale Proceeds. No later than two days after the date of receipt by CEA, Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale, Company shall make a Mandatory Payment in an aggregate amount equal to the remaining amount of such Net Asset Sale Proceeds. (b) 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 5.4C, Company shall make a Mandatory Payment in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds. 33 (c) Issuance of Indebtedness. On the date of receipt of the Net Indebtedness Proceeds from the issuance of any Indebtedness of Company or any of its Subsidiaries after the Closing Date, other than Indebtedness permitted pursuant to subsections 6.1(i) through (vii), Company shall make a Mandatory Payment in an aggregate amount equal to such Net Indebtedness Proceeds. (d) Tax Refunds. If after the Closing Date, Company or any of its Subsidiaries receives any payment of a cash refund or rebate of any Tax, 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, except to the extent such application would constitute a material violation of a valid Contractual Obligation in connection with a Project of Company or any of its Subsidiaries to remit such refund or rebate to the client of such Project. (e) Excess Cash. If as of the last Business Day of any calendar month the sum of (1) Cash On Hand (after giving effect to the aggregate interest to be paid on such date pursuant to subsection 2.2C) plus (2) CPIH Revolver Availability (after giving effect to any voluntary repayment of outstanding CPIH Revolver Loans to be made on such date that are made on such date), exceeds $10,000,000, then Borrowers shall apply an amount equal to such excess (provided, that, in the event that such application would cause Cash On Hand to be less than $6,000,000, then such excess amount so applied shall be reduced such that Cash On Hand is not less than $6,000,000) (the amount so applied as it may be adjusted pursuant to the foregoing proviso, "AVAILABLE CASH")): first, to the payment of interest due and payable on the Loans pursuant to clause subsection 2.2B(ii); and second, to repay outstanding Loans. (f) 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(ii)(a) - (e), 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 Indebtedness Proceeds, cash in the Cash Management System or 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. (iii) Application of Prepayments. Except as provided in subsection 2.4C and to the extent the Intercreditor Agreement requires application of any Mandatory Payment in a different manner than as set forth in this sentence, (1) any voluntary prepayments pursuant to subsection 2.4A(i) shall be applied to repay outstanding Loans, and (2) any 34 Mandatory Payment made pursuant to subsections 2.4A(ii)(a) - (d) shall be applied to repay Loans and/or to permanently reduce Commitments in accordance with the provisions of the Intercreditor Agreement, and the application of Mandatory Payments to Loans and/or Commitments required under the terms of the Intercreditor Agreement shall apply as if set forth herein. (iv) Application of Payments to Loans. Any payments of the Loans, whether by voluntary prepayment, mandatory prepayment, scheduled payments or otherwise shall be applied: first, to all Loans (other than Additional Interest Loans); and second, to all Additional Interest Loans. 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 when due in accordance with the terms hereof. (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 payments of principal and interest 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. (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. (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 35 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. Except to the extent the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 2.4C, 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 Mandatory Payments or other payments received on account of the Obligations, whether from any Borrower, 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 8.4, 9.2 and 9.3 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 Obligations, for the ratable benefit of the holders thereof (subject to the provisions of subsection 2.4B(ii) hereof); and (iii) 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. 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. 36 2.6 INCREASED COSTS; TAXES; CAPITAL ADEQUACY. A. COMPENSATION FOR INCREASED COSTS. Subject to the provisions of subsection 2.6B (which shall be controlling with respect to the matters covered thereby), in the event that any 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 (other than any withholding tax with respect to which subsection 2.6B applies) with respect to this Agreement or any of its obligations hereunder (including with respect to 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; or (iii) imposes any other condition (other than with respect to Taxes) on or affecting such Lender or its obligations hereunder; 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 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 2.7A, 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 on an after-tax basis 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 or any political subdivision in or of the United States 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 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 37 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 (it being understood and agreed that no such notice shall be required with respect to Canadian Lenders, if any); (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 2.6B(iii), a "NON-US LENDER") shall (1) to the extent such Non-US Lender is not a Canadian Lender, 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, and (2) to the extent such Non-US Lender is a Canadian Lender, deliver to Administrative Agent and to Company, on or prior to the Closing Date 38 (in the case of each Canadian Lender listed on the signature pages hereof) or on or prior to the date of the Assignment Agreement pursuant to which it becomes a Canadian Lender (in the case of each other Canadian 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 any forms, properly completed and duly executed by such Lender, required under the Internal Revenue Code or the regulations issued thereunder to establish that such Canadian Lender is eligible for a reduced withholding tax rate under the "Convention Between the United States of America and Canada with Respect to Taxes on Income and Capital" or any successor thereto. (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, if such Lender is a Canadian Lender, to confirm or establish that such Lender is eligible for the relevant reduced withholding tax rate) 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 2.6B(ii) if such Lender shall have failed to satisfy the requirements of clause (a) or (b)(1) of this subsection 2.6B(iii); provided that if such Lender shall have satisfied the requirements of subsection 2.6B(iii)(a) on the date such Lender became a Lender, nothing in this subsection 2.6B(iii)(c) shall relieve Borrowers of their obligation to pay any amounts pursuant to subsection 2.6B(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 2.6B(iii)(a) (or, to the extent such Lender is a Canadian Lender, establishing the fact that such Lender is eligible for the relevant reduced withholding tax rate). (d) Notwithstanding anything contained in this subsection to the contrary, Borrowers shall be required to pay additional amounts to each Canadian Lender under clause (c) of subsection 2.6B(ii) with respect to any Loan Exposure held by such Canadian Lender in its capacity as a Canadian Lender notwithstanding that such Lender fails to deliver forms, certificates or other evidence establishing the fact that such Lender is not subject to withholding as described in subsection 2.6B(iii)(a)(1). 39 (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 or any political subdivision in or of the United States 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 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 2.6B) that Borrowers are required to pay pursuant to subsection 2.6B(ii) but were 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, 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 2.7A, 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. 2.7 STATEMENT OF LENDERS; OBLIGATION OF LENDERS TO MITIGATE. A. STATEMENTS. Each Lender claiming compensation or reimbursement pursuant to subsection 2.6 or 2.7B 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 2.6B(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 agrees that, as promptly as practicable after the officer of such Lender responsible for administering the Loans of such Lender becomes aware of the occurrence of an event or the existence of a condition that would entitle such Lender to receive payments under subsection 2.6 (other than subsection 2.6B(ii)), it will use reasonable 40 efforts to make, issue, fund or maintain the Commitments of such Lender or the Loans of such Lender through another lending office of such Lender, if (i) as a result thereof the additional amounts which would otherwise be required to be paid to such Lender pursuant to subsection 2.6 would be materially reduced and (ii) as determined by such Lender in its sole discretion, such action would not otherwise be disadvantageous to such Lender; provided that such Lender will not be obligated to utilize such other lending office pursuant to this subsection 2.7B unless Borrowers agree to pay, on a joint and several basis, all incremental expenses incurred by such Lender as a result of utilizing such other lending office as described above. 2.8 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 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. 2.9 RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Except as prohibited under applicable law, Company hereby waives any claim, right or remedy, direct or indirect, that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations in connection with this Agreement or the performance by Company 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 (a) any right of subrogation, reimbursement or indemnification that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that any Agent or Lender now has or may hereafter have against any other Borrower or any guarantor of the Obligations, and 41 (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by any Agent or Lender. In addition, until the Obligations shall have been indefeasibly paid in full, Company shall withhold exercise of any right of contribution Company may have against any other Borrower or Loan Party. Company 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 Company may have against any other Borrower or Loan Party or against any collateral or security shall be junior and subordinate to any rights any Agent or Lender may have against any other Borrower, to all right, title and interest any Agent or Lender may have in any such collateral or security, and to any right any Agent or Lender may have against such Loan Party. If any amount shall be paid to Company on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Obligations shall not have been paid in full, such amount shall be held in trust for Administrative Agent on behalf of Agents and Lenders and shall forthwith be paid over to Administrative Agent for the benefit of Agents and Lenders to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms hereof. SECTION 3. CONDITIONS TO LOANS The obligations of Lenders to make (or to be deemed to make) Loans hereunder are subject to the satisfaction of the following conditions. 3.1 CONDITIONS TO CLOSING DATE. The obligations of Lenders with respect to their respective Commitments and to make any Loans to be made (or to be deemed made) on the Closing Date, are 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; (ii) Resolutions of the Governing Body of such Person approving and authorizing the execution, delivery and performance of the Loan Documents to which it 42 is a party 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 out of Debtors' estates to Administrative Agent, (i) for distribution (as appropriate) to Agents, 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 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, and (ii) for distribution (as appropriate) to DIP Lenders and DIP Agents, all unpaid interest and fees accrued under the DIP Credit Agreement on or before the Closing Date, and all reasonable and documented costs and expenses of DIP Agents and DIP Lenders owed pursuant to subsection 10.2 of the DIP Credit Agreement. Borrowers shall have paid out of Debtors' estates to D.E. Shaw an arrangement fee of $450,000, unless Borrowers have previously paid out of Debtors' estates to D.E. Shaw the commitment fee required pursuant to the "Commitment Letter" (as defined in the Order Pursuant to Section 363 of the Bankruptcy Code Authorizing Debtors to Enter into Letter Agreement with D.E. Shaw Laminar Portfolios, L.L.C. as Additional New Lender and Make Certain Payments in Connection Therewith entered by the Bankruptcy Court on November 21, 2003). C. CORPORATE AND CAPITAL STRUCTURE; MANAGEMENT; OWNERSHIP. (i) Corporate Structure. DHC shall own all of the issued and outstanding Capital Stock of Covanta. CEA shall own all of the issued and outstanding common stock of Company. The corporate organizational structure of Company and its Subsidiaries on the Closing Date, after giving effect to the Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto. (ii) Capital Structure and Ownership. DHC shall have made a cash equity contribution to Covanta of not less than $30,000,000 (including cash equity contributed in connection with the "Lake Transaction" (as defined in the DIP Credit Agreement). The capital structure and ownership of Company and its Subsidiaries on the Closing Date, after giving effect to the Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto. 43 (iii) Management. The Governing Bodies, officers and management structure of Covanta, Company and its Subsidiaries on the Closing Date, after giving effect to the Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto and shall be as set forth on Schedule 3.1C annexed hereto. Lenders shall have received copies of, and Requisite Lenders shall be satisfied with the form and substance of, the Employment Agreements and any other employment agreements with and any incentive arrangements for senior management of Company and its Subsidiaries. One member of the Governing Body of Company on the Closing Date shall have been indicated as acceptable by Agents to Company. D. 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 4 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. E. PLAN OF REORGANIZATION; CONFIRMATION ORDER; DISCHARGE OF EXISTING CREDIT FACILITIES. (i) Plan of Reorganization. The Plan of Reorganization and all amendments, modifications, revisions and restatements thereof, if any, shall have been approved by the creditors of Borrowers (including the DIP Lenders and the Prepetition Lenders) in requisite number and percentage, and confirmed by the Bankruptcy Court pursuant to the Confirmation Order and delivered to Agents (the "APPROVED PLAN OF REORGANIZATION"). Except as set forth in modifications filed with the Bankruptcy Court and approved by Agents, there shall have been no modifications, amendments, revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Covanta or any of its Subsidiaries in the Approved Plan of Reorganization shall be accurate, true, correct and complete in all material respects as of the Closing Date. The Approved Plan of Reorganization (a) shall provide for the payments on the Closing Date described in subsection 3.1T, the corporate reorganization described in subsection 3.1S, the making of the Loans under this Agreement and the Indebtedness described in subsection 3.1F; and (b) upon satisfaction of all conditions to the effectiveness of this Agreement, shall become effective in accordance with its terms without waiver of any condition to such effectiveness that, in Agents' reasonable judgment, is material. (ii) Confirmation Order. The Confirmation Order shall have been delivered to Lenders, shall address the matters set forth in subsections 3.1F, 3.1S and 3.1T, the making of the Loans and Commitments under this Agreement and the terms hereof and the granting of all Liens and consents required under this Agreement and the other Loan Documents and otherwise be in form and substance satisfactory to Requisite Lenders. The Confirmation Order shall be in full force and effect and no portion thereof shall have 44 been stayed pending any appeal or petition for review or for rehearing, and Agents shall have received evidence satisfactory to each demonstrating such facts. Debtors' Second Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code and the Liquidation Plan Supplement to Debtors' Second Joint Plan of Liquidation, as filed with the Bankruptcy Court on December 18, 2003 and February 18, 2004, respectively, and as amended, supplemented or otherwise modified from time to time thereafter to the extent permitted under the DIP Credit Agreement, shall have been confirmed by the Bankruptcy Court pursuant to an order in form and substance satisfactory to Requisite Lenders. (iii) Approval of Fees Related to Exit Financing. The Bankruptcy Court order approving the fees payable to Agents and the Lenders described in subsection 3.1B shall be in full force and effect, without modification or amendment except to the extent approved by Agents. (iv) Material Contracts. The terms and conditions of any Material Contracts to be entered into by the Borrowers or any of their Subsidiaries pursuant to the Approved Plan of Reorganization shall be in form and substance satisfactory to Requisite Lenders and Agents. F. MATTERS RELATING TO EXISTING INDEBTEDNESS. (i) Termination of DIP Credit Agreement and Related Liens. (a) Indebtedness consisting of funded amounts outstanding under the DIP Credit Agreement on the Closing Date shall have been repaid in full in cash, (b) all undrawn "Tranche A L/Cs" and "Tranche B L/Cs" under the DIP Credit Agreement (other than the Existing Detroit L/Cs) shall be replaced (or any further drawings thereunder shall be fully supported pursuant to arrangements satisfactory to DIP Lenders and the issuers thereof) with letters of credit issued under the New L/C Facility Agreement, (c) the Existing Detroit L/Cs shall be replaced with letters of credit issued under the Detroit L/C Credit Agreement as the Detroit L/Cs, (d) each letter of credit (if any) issued or deemed issued under the DIP Credit Agreement other than the "Tranche A L/Cs" and "Tranche B L/Cs" shall have been cash collateralized pursuant to arrangements reasonably satisfactory to the issuer of such letter of credit, or cancelled and returned undrawn, or reimbursed, (e) all commitments to lend or make other extensions of credit under the DIP Credit Agreement shall have terminated (except that the participations of DIP Lenders purchased in the letters of credit, if any, referred to in clause (d) above shall continue), and (f) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries under the DIP Credit Agreement shall have been delivered to Administrative Agent to the extent required by Administrative Agent. (ii) Termination of Prepetition Credit Agreement, 9.25% Debentures and Related Liens. (a) Indebtedness consisting of the 9.25% Debentures and the Prepetition Obligations on the Closing Date shall be satisfied by application of the High Yield Notes and the Loans and by application of Cash On Hand of Borrowers (as described in subsection 3.1T), and (b) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries under the 45 Prepetition Credit Agreement and the 9.25% Debentures shall have been delivered to Administrative Agent to the extent required by Administrative Agent. (iii) Domestic Facilities. Indebtedness under the Detroit L/C Credit Agreement, the New L/C Facility Agreement and the High Yield Notes shall be secured as set forth in the Domestic Loan Documents and High Yield Indenture and shall be non-recourse to the Borrowers or their assets. The Domestic Loan Documents, High Yield Notes and High Yield Indenture shall be in full force and effect, the "Closing Date" as defined in each of the Domestic Loan Documents, High Yield Notes, and High Yield Indenture shall have occurred, and the Domestic Loan Documents, High Yield Notes and High Yield Indenture shall be in form and substance satisfactory to Requisite Lenders. (iv) Existing Indebtedness to Remain Outstanding. After giving effect to the Approved Plan of Reorganization, the Indebtedness of Domestic Borrowers and Borrowers (other than Indebtedness under the Loan Documents, the Domestic Loan Documents, and the CPIH Revolver Documents) shall consist of (a) $205,000,000 in aggregate initial principal amount of High Yield Notes, (b) a note issued by Covanta in a principal amount not to exceed $35,000,000 (the "TAX NOTE"), representing the back tax liability of Covanta and its Subsidiaries as of the Closing Date, which Tax Note shall be unsecured and unguarantied, shall have a final maturity date of 6 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize on a 30-year schedule for the first 5 years after the issuance thereof with the balance due at maturity, (c) "Class 6 Unsecured Notes" (as defined in the Approved Plan of Reorganization) in the aggregate principal amount of $4,000,000 and subordinated notes issued by Covanta (the "UNSECURED CREDITOR NOTES") in an aggregate principal amount equal to the amount of "Operating Company Unsecured Claims" that are "Allowed" (as such terms are defined in the Approved Plan of Reorganization), which Unsecured Creditor Notes shall be unsecured and unguarantied, shall have a final maturity date of 8 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize in an amount not to exceed $3,900,000 annually commencing on the second anniversary of the Closing Date with the remainder due at final maturity, (d) outstanding Indebtedness described in Schedule 6.1(v) annexed hereto, and (e) Indebtedness under the CEA Stock Pledge Agreement. The terms and conditions of all such Indebtedness (including payment terms, covenants, representations and warranties, defaults and, in the case of the Unsecured Creditor Notes, payment subordination provisions), and the definitive documentation therefor, shall be in form and in substance satisfactory to Requisite Lenders. (v) Related Agreements in Full Force and Effect. Lenders shall have received a fully executed or conformed copy of the Domestic Loan Documents, CPIH Revolver Documents, the High Yield Indenture and the High Yield Notes, the Management Services and Reimbursement Agreement, the Corporate Services Reimbursement Agreement, the Tax Note, the Unsecured Creditor Notes, the Unsecured Creditor Notes Indenture, the Employment Agreements, the Intercreditor Agreement and any documents executed in connection therewith, each such Related Agreement, the Domestic Loan Documents, the High Yield Notes, the Unsecured Creditor Notes, the Employment 46 Agreements, the Intercreditor Agreement, the High Yield Indenture, the Management Services and Reimbursement Agreement, the Corporate Services Reimbursement Agreement and the Unsecured Creditor Notes Indenture shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by either Agent to be material. G. FINANCIAL STATEMENTS; PROJECTIONS. On or before the Closing Date, Lenders shall have received (i) the audited consolidated financial statements of Covanta and its Subsidiaries for the Fiscal Year ended December 31, 2002 delivered pursuant to clause (i) of subsection 4.1G of the Domestic Credit Agreement, (ii) the unaudited consolidated financial statements of Covanta and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 delivered pursuant to clause (ii) of subsection 4.1G of the Domestic Credit Agreement, and (iii) financial statements with respect to Company and its Subsidiaries derived from the financial statements described in clauses (i) and (ii) above in form satisfactory to Agents, all in reasonable detail and (in the case of the financial statements described in clause (iii)) certified by the chief executive officer or chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as of 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. Company shall have delivered to Agents and Lenders such projected financial statements as Agents may reasonably request for the period from the Closing Date through December 31, 2007, including the budget of monthly and quarterly cash receipts and expenditures for Fiscal Year 2004 and annual net cash flow for Fiscal Years 2005, 2006 and 2007 attached hereto as Schedule 1.1B, which budget and other projections shall be satisfactory to Agents and Requisite Lenders and shall be accompanied by a certificate from the chief executive officer or chief financial officer of Company certifying that they are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made. H. SOLVENCY ASSURANCES. On the Closing Date, Administrative Agent and Lenders shall have received an Officer's Certificate from Covanta dated the Closing Date, substantially in the form delivered under subsection 4.1H of the Domestic Credit Agreement and with appropriate attachments, demonstrating that, after giving effect to the consummation of the transactions contemplated by the Domestic Loan Documents, Domestic Borrowers, taken as a whole, and Covanta will be Solvent. I. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders shall have received originally executed copies of one or more favorable written opinions of (a) Cleary, Gottlieb, Steen & Hamilton, (b) LeBoeuf, Lamb, Greene & McRae, (c) Morris, James, Hitchens & Williams LLP and (d) Nixon Peabody, LLP, counsel for Borrowers, 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 VI 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). J. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS AND OTHER DOCUMENTS. Administrative Agent and its counsel shall have received copies of the opinions of 47 counsel delivered to the parties under the Related Agreements, the Domestic Loan Documents, the High Yield Note, the High Yield Indenture, the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and Borrowers shall have made reasonable efforts to obtain from each such counsel letters authorizing Lenders to rely on such opinions to the same extent as though such opinions were addressed to Lenders. K. EVIDENCE OF INSURANCE. Administrative Agent shall have received a certificate from Covanta's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 5.4 is in full force and effect and that Collateral Agent and/or Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 5.4. L. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Covanta and its Subsidiaries 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 Covanta, 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. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Loan Documents or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable Government Authority to take action to set aside its consent on its own motion shall have expired. M. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. 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 Collateral Agent, for the benefit of Secured Parties, a valid and perfected security interest in the entire personal and mixed property Collateral, with the priority set forth in the Collateral Documents (it being understood that such actions by CEA shall relate solely to its pledge of the common stock of Company). Such actions shall include the following: (i) Stock Certificates and Instruments. Delivery to Collateral 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 Collateral 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 Collateral Agent) evidencing any Collateral; 48 (ii) Lien Searches and UCC Termination Statements. Delivery to Collateral Agent of (a) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Borrower and of all effective UCC financing statements which may have been made with respect to Capital Stock of Company, in each case, together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement); (iii) UCC Financing Statements and Fixture Filings. Delivery to Collateral Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Borrower with respect to all personal and mixed property Collateral of such Borrower and by CEA with respect to the common stock of Company, in each case, for filing in all jurisdictions as may be necessary or in the opinion of Collateral Agent desirable to perfect the security interests in favor of Collateral Agent created in such Collateral pursuant to the Collateral Documents; (iv) PTO Cover Sheets, Etc. Delivery to Collateral Agent of all cover sheets or other documents or instruments Collateral Agent may reasonably request to be filed with the PTO in order to evidence Liens in favor of Collateral Agent in respect of any IP Collateral; and (v) Control Agreements. Delivery to Collateral Agent of Control Agreements with financial institutions and other Persons in order to perfect Liens in respect of Deposit Accounts, Securities Accounts and other Collateral pursuant to the Collateral Documents; N. [INTENTIONALLY OMITTED]. O. NO MATERIAL ADVERSE CHANGE. Agents (in their sole discretion) shall be satisfied that there has been no material adverse change (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) since December 31, 2002 in the business, property, assets, operations, financial condition or prospects of Company and its Subsidiaries taken as a whole, and Company shall have delivered to Agents an Officer's Certificate to the foregoing effect. P. CASH MANAGEMENT SYSTEM. The cash management system of Company and its Subsidiaries shall be as set forth on Schedule 3.1P annexed hereto. Q. [INTENTIONALLY OMITTED]. R. GEOTHERMAL SALE. Covanta shall have consummated the Geothermal Sale on terms and conditions and pursuant to documentation in form and substance satisfactory to the Requisite DIP Lenders. 49 S. COMPANY REORGANIZATION. On the Closing Date, (i) Covanta shall own, directly or indirectly, 100% of the outstanding Capital Stock of CEA, (ii) CEA shall own 100% of the outstanding common stock of Company, which shall own the Capital Stock of all Persons (including Persons holding the equity interests in other Persons) holding the assets and operations of the IPP International Business to the extent described in the Approved Plan of Reorganization and the Disclosure Statement related thereto, (ii) all relevant operating and administrative expenses associated with the IPP International Business shall be transferred into Company in accordance with the Management Services and Reimbursement Agreement, and (iii) not less than $5,000,000 of cash for working capital shall have been transferred from Covanta and its Subsidiaries (other than Borrowers) to the Borrowers as an equity contribution. T. DISTRIBUTION. All unrestricted Cash On Hand (including, without limitation, net sale proceeds from the Geothermal Sale) of Covanta and its Subsidiaries remaining prior to the equity contribution referred to in subsection 3.1C(ii) but after (i) the transfer of working capital amounts to Company as described in subsection 3.1S, (ii) the payment of the fees referred to in subsection 3.1B, (iii) the disposition of those letters of credit referred to in subsection 3.1F(i)(c), (iv) the payment of allowed administrative expenses, (v) the reimbursement of reasonable accrued fees and expenses of DHC not to exceed $4,000,000 in the aggregate and reasonable accrued fees and expenses of D.E. Shaw not to exceed $350,000 in the aggregate, and (vi) payment of funded outstanding obligations under the DIP Credit Agreement (if any) and (without duplication of clauses (i) through (vi)) the payment of other "Exit Costs" (as defined in the Approved Reorganization Plan), subject to an amount of cash (which amount shall be determined in accordance with terms set forth in the draft Plan of Reorganization attached (on the date of execution thereof) to the Investment and Purchase Agreement dated as of December 2, 2003 between DHC and Covanta) (plus reserves required to address timing issues associated with the Geothermal Sale and emergence from the Chapter 11 Cases (in an aggregate amount satisfactory to the DIP Lenders)) to be retained in the Cash Management System in the United States by Covanta and its Subsidiaries (collectively, such Cash On Hand, net of such transferred amount, such payments and reimbursements, such retained amount and such reserves, is referred to herein as "DISTRIBUTABLE CASH"), shall have been distributed as follows: first, to the extent of the first $60,000,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims that are Detroit L/C Lenders on the Closing Date, on account of their allowed pre-petition exposure, in accordance with the Approved Plan of Reorganization second, to the extent of the next $7,200,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization, and third, to the extent of 25% of any remaining Distributable Cash, to Covanta, and to the extent of the remaining 75%, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization. U. NOL AVAILABILITY. Covanta, its independent advisers, Agents and Agents' counsel shall have determined to their respective sole satisfaction that the net operating losses disclosed to Agents and Lenders prior to the Closing Date as being held by DHC are available and accessible to Covanta and its Subsidiaries. V. LITIGATION. On the Closing Date, there shall be no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect the Approved Plan of Reorganization, any of 50 the Loan Documents, any of the Domestic Loan Documents, the High Yield Notes or the High Yield Indenture that could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Approved Plan of Reorganization, or any of the Loan Documents, or any of the Domestic Loan Documents. W. 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. Each Lender, by delivering to Agents a signed counterpart to this Agreement, shall be deemed (unless such Lender indicates otherwise in writing to Agents and Company) to have acknowledged receipt of, and to have consented to, approved and be satisfied with, the documents, agreements, instruments or information which require approval, consent or satisfaction of the Lenders or Requisite Lenders, as applicable, in order for the conditions precedent contained in this subsection 3.1 to be satisfied. Notwithstanding anything in this Section 3 to the contrary, it is understood and agreed that the conditions of subsection 3.1A(i) shall be deemed satisfied notwithstanding failure to deliver all of the certificates or other evidence of good standing described in subsection 3.1A(i), so long as (i) Administrative Agent is notified which certificates or other evidence shall not have been delivered and, in its sole discretion, agrees that such certificates or other evidence may be delivered with respect to the relevant Persons after the Closing Date, (ii) failure to deliver all of the certificates or other evidence of good standing described in subsection 3.1A(i) on or prior to the date which is 60 days after the Closing Date shall constitute an immediate Event of Default on such date. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, Borrowers represent and warrant to each Lender, on the date of this Agreement and on the Closing Date, that the following statements are true, correct and complete: 4.1 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 4.1 annexed hereto. 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 all material terms of its Organizational Documents. B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do business and in good standing in every jurisdiction necessary to carry out its business and 51 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 6.11. D. SUBSIDIARIES. All of the Subsidiaries of Company as of the Closing Date and their jurisdictions of organization are identified in Schedule 4.1 annexed hereto. The Capital Stock of Company and each of its Subsidiaries identified in Schedule 4.1 annexed hereto is duly authorized, validly issued, fully paid and nonassessable and none of such Capital Stock constitutes Margin Stock. CEA, Company and each of its Subsidiaries identified in Schedule 4.1 annexed hereto 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 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 4.1 annexed hereto correctly sets forth, as of the Closing Date, the ownership interest of CEA, Company and each of its Subsidiaries in Company and each of its Subsidiaries identified therein. 4.2 AUTHORIZATION OF BORROWING, ETC. A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action on the part of each Loan Party that is a party thereto. 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 CEA, Company or any of its Subsidiaries, the Organizational Documents of CEA, Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on CEA, Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of CEA, Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Covanta or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Collateral Agent on behalf of Secured Parties), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Covanta 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. 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 Confirmation Order and except for filings expressly 52 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 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 Company or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from one Borrower to another, other than (i) prohibitions or restrictions existing under or by reason of (a) this Agreement and the other Loan Documents, (b) applicable law, (c) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices, and (d) any documents or instruments governing the terms of any Indebtedness or other obligations secured by Liens permitted by subsection 6.2A, provided that such prohibitions or restrictions apply only to the assets subject to such Liens, and (ii) restrictions described in clauses (a) through (d) of subsection 6.2D. 4.3 FINANCIAL CONDITION. Company has heretofore delivered to Lenders, pursuant to subsection 3.1G, (i) statements of income, balance sheets and statements of cash flows with respect to Company and its Subsidiaries for the Fiscal Year ended December 31, 2002 and (ii) statements of income, balance sheets and statements of cash flows with respect to Company and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 and September 30, 2003. 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 Borrower 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 date subsequent to the Closing Date, is not reflected in the most recent financial statements delivered to Lenders pursuant to subsection 5.1 or the notes thereto (other than (a) those liabilities reflected on the Schedules to this Agreement and (b) Performance Guaranties and Contingent Obligations that are permitted to be incurred under subsection 6.4) 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. 4.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED PAYMENTS. Since December 31, 2002, no event or change has occurred (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) that has resulted in or evidences, either in any case or in the aggregate, a Material Adverse Effect. Since 53 the Petition 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 6.5, and (ii) as was permitted by subsection 7.5 of the DIP Credit Agreement. 4.5 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 4.3 or in the most recent financial statements delivered pursuant to subsection 5.1, 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 6.7. 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 4.5B 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 Borrower 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 4.5B 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 Borrower, enforceable against such Borrower 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 4.5C 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. 4.6 LITIGATION; ADVERSE FACTS. Except as set forth in Schedule 4.6 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 54 (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. 4.7 PAYMENT OF TAXES. Except to the extent permitted by subsection 5.3, 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 (other than taxes represented by the Tax Note) 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 Company or its Subsidiaries dispute or disagree with, 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. 4.8 PERFORMANCE OF AGREEMENTS; MATERIAL CONTRACTS. A. Except as set forth on Schedule 4.8A annexed hereto, after giving effect to the Approved Plan of Reorganization, 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 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 (i) any agreements or instruments, the performance of which, in the ordinary course, would reasonably be expected to result in a Material Adverse Effect, or (ii) 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 4.8C contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date after giving effect to the Approved Plan of Reorganization. Except as described on Schedule 4.8C, all such Material Contracts are in full force and effect and no material defaults currently exist thereunder. 4.9 GOVERNMENTAL REGULATION. Neither Company nor any of its Subsidiaries is subject to regulation under (i) the Public Utility Holding Company Act of 1935 ("PUHCA") (other than as an "exempt wholesale generator" or as a "foreign utility company", as such terms are defined in PUHCA), (ii) the Federal Power Act (other than as a "qualifying small power production facility", as such term is 55 defined in PURPA), (iii) the Interstate Commerce Act, (iv) the Investment Company Act of 1940, or (v) any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 4.10 SECURITIES ACTIVITIES. A. Neither CEA nor 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 the making (or deemed making) of the Loans, 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 6.2 or 6.7 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 7.2, will be Margin Stock. 4.11 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 material compliance with all applicable provisions and requirements of ERISA, the regulations and published interpretations thereunder and other applicable law with respect to each Employee Benefit Plan, and have performed all of their material obligations under each Employee Benefit Plan. Company and each of its Subsidiaries are in material compliance with all applicable laws and orders of foreign Government Authorities with respect to each of its pension plans and employee benefit plans for foreign employees, and have performed all of their material obligations under each such pension plan and employee benefit plan. Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such 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 4.11 annexed hereto or in the financial statements delivered to Lenders pursuant to subsection 3.1 or 5.1 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 January 1 of each year (based on, with respect to each Pension Plan, the actuarial valuation as of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as of which the valuation was so performed), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, 56 including where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000, in the event the applicable law (including statutorily prescribed actuarial assumptions) used in determining such unfunded benefit liabilities (the "ASSUMPTIONS") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000 in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. E. To each Borrower's knowledge, 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 $7,500,000. F. Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of its Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company or any of its Subsidiaries. 4.12 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. 4.13 ENVIRONMENTAL PROTECTION. A. Except as set forth in Schedule 4.13 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 4.13 annexed hereto, neither Covanta 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 57 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 4.13 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 4.13 annexed hereto, (i) neither Covanta nor any of its Subsidiaries nor, to Company's knowledge, any predecessor of Covanta 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. 4.14 EMPLOYEE MATTERS. Except as described in Schedule 4.14 annexed hereto with respect to the Bataan Project, there is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect. 4.15 MATTERS RELATING TO COLLATERAL. A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery of the Collateral Documents by Loan Parties, together with (x) the actions taken on or prior to the date hereof pursuant to subsections 3.1M, 3.1N, 5.8, 5.9 and 5.11 and (y) the delivery to Collateral Agent of any Pledged Collateral of the Loan Parties not delivered to Collateral 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 Collateral Agent, for the benefit of Secured Parties, a Lien on all of the Collateral of the Loan Parties (which Lien has priority over any other Lien on such Collateral, subject to Permitted Encumbrances and Liens permitted under subsection 6.2A), 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 Collateral 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 Collateral Agent. 58 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 Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral 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 4.15A, (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. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 4.15A and to evidence Liens permitted pursuant to subsection 6.2, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. 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. E. INFORMATION REGARDING COLLATERAL. All information supplied to Collateral Agent or Administrative Agent by any Loan Party (including its officers, employees, agents, advisors, representatives or counsel) 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. 4.16 DISCLOSURE. No representation or warranty of Company or any of its Subsidiaries contained in any Loan Document or in any other certificate or written statement (excluding the projections, pro forma financial statements and forward looking statements contained therein and the estimates contained in such projections, pro forma financial statements and forward looking statements) furnished to Lenders by Covanta or any of its Subsidiaries, including any such Person's officers, employees, agents, advisors, representatives or counsel, for use in connection with the transactions contemplated by this Agreement, contained as of the date such representation or warranty was made any untrue statement of a material fact or omitted to state a material fact 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 and in light of such representations and warranties and all such prior representations and warranties, taken as a whole. Any projections and pro forma financial information contained in such materials 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 59 assumptions are correct, that the projections will be achieved or that the forward looking statements expressed in such information will correspond to actual results. 4.17 CASH MANAGEMENT SYSTEM. The summary of the Cash Management System attached hereto as Schedule 3.1P 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 has any Deposit Account which is not described in Schedule 3.1P other than Deposit Accounts permitted to be owned after the Closing Date pursuant to subsection 5.10. There has been no change to the Cash Management System since the Closing Date except such changes as are permitted under subsection 5.10 and such other changes as have been disclosed to Lenders in writing and approved by Administrative Agent. 4.18 MATTERS RELATING TO LOAN PARTIES. A. LOAN PARTIES. Neither Company nor any of its Subsidiaries owns any interest in any Domestic Subsidiary which is not a Borrower. B. DOMESTIC SUBSIDIARY ASSETS. Each Domestic Subsidiary has granted a Lien in favor of Collateral Agent on substantially all of its property pursuant to the Collateral Documents. C. DOMESTIC SUBSIDIARY CAPITAL STOCK. The Capital Stock of each Domestic Subsidiary which is directly owned by any Loan Party has been pledged to Collateral Agent pursuant to the Collateral Documents, except for the Capital Stock of those Domestic Subsidiaries (other than Borrowers) (i) which is subject to a Lien permitted under subsection 6.2A securing Indebtedness permitted under subsection 6.1, 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. D. FOREIGN SUBSIDIARY CAPITAL STOCK. 65% of the Capital Stock of each Foreign Subsidiary which is a Material Subsidiary and is directly owned by Borrowers (or such lesser percentage as is owned by Borrowers ) 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 Borrower or such Foreign Subsidiary. E. COMPANY CAPITAL STOCK. The outstanding common stock of Company has been pledged to Collateral Agent pursuant to the CEA Stock Pledge Agreement. No Contractual Obligations are in effect which would be violated by a pledge of the common stock of Company pursuant to the CEA Stock Pledge Agreement. 60 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 4.18B, 4.18C and 4.18D 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 5.8 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 3.1. 4.19 INVESTIGATION. All obligations in existence immediately after the Closing Date (other than obligations that do not, in the aggregate, exceed $2,000,000) to extend credit or credit support or obtain the extension of credit or credit support or to make investments or expenditures with respect to existing or future Projects of any Borrower or any Subsidiary of any Borrower that are contained in Contractual Obligations or of which Borrowers are otherwise aware have been disclosed to Agents and the DIP Lenders prior to the Closing Date. Borrowers have made such inquiry and investigation as is necessary to enable Borrowers to make the representation contained in the preceding sentence. 4.20 MATTERS RELATING TO BANKRUPTCY PROCEEDINGS. A. PLAN OF REORGANIZATION. There have been no material modifications, amendments revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Covanta or any of its Subsidiaries in the Approved Plan of Reorganization is accurate, true and correct in all material respects as of the Closing Date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were accurate, true and correct in all material respects as of such earlier date). B. CONFIRMATION ORDER. The Confirmation Order has been entered by the Bankruptcy Court at least 11 days prior to the Closing Date. The Confirmation Order has not been stayed pending any appeal or petition for review or for rehearing. 4.21 SUBORDINATED INDEBTEDNESS. The Obligations constitute senior indebtedness that is entitled to the benefits of the subordination provisions, if any, of all Indebtedness of Company and its Subsidiaries under the Unsecured Creditor Notes. 4.22 REPORTING TO IRS. Company does not intend to treat the Loans and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation section 1.6011-4). In the event Company determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof. Company acknowledges that one or more Lenders may treat their Loans as part of a transaction that is subject to Treasury Regulation section 1.6011-4 61 or section 301.6112-1, and Administrative Agent and such Lender or Lenders, as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations. SECTION 5. COMPANY'S AFFIRMATIVE 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 Obligations, 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 5. 5.1 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, except as expressly provided below, promptly after receipt thereof Administrative Agent will deliver a copy to each Lender): (i) Budget Report; Budget and Asset Sale Update: as soon as available and in any event no later than the 15th Business Day of each month commencing with the 15th Business Day of April 2004, (a) for the month most recently ended, a report in form satisfactory to Administrative Agent reflecting the actual cash receipts and disbursements of Company and its Subsidiaries for the preceding month with respect to each line item described in the Budget for the current Fiscal Year and the percentage and dollar variance of such amounts from the projected amounts therefor set forth in (x) such Budget and (y) the Budget for the current Fiscal Year as delivered pursuant to subsection 5.1(xvi), accompanied by an Officer's Certificate from the chief financial officer of Company certifying that such report accurately presents, in all material respects, cash receipts and cash expenditures of Company and its Subsidiaries for the periods indicated, (b) a supplement to the Budget for the current Fiscal Year, in the form of such Budget, reflecting projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter remaining in the current Fiscal Year with respect to each line item described in such Budget, which supplement shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such supplement are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made, and (c) a report on all Asset Sales consummated prior to such date, describing in reasonable detail the properties sold, the consideration received and the expenses deducted from Gross Receipts therefor to calculate Net Asset Sale Proceeds, together with a progress report in reasonable detail describing efforts being made to sell additional assets of Company and its Subsidiaries (such progress report described in this clause (c) to be provided solely to Administrative Agent and Documentation Agent); (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 62 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 7.2, (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 45 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 Covanta files a quarterly report on Form 10Q with the Securities and Exchange Commission for any Fiscal Quarter containing consolidating financial statements for Company and its Subsidiaries, Borrowers shall be required to deliver a copy of such quarterly report in lieu of the financial statements described in this subsection 5.1(iii); (iv) Year-End Financials: as soon as available and in any event within 90 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 independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall (with respect to the audits for all Fiscal Years after 2003) be unqualified, shall express no doubts, assumptions or qualifications concerning the ability of Company and its Subsidiaries to continue as a going concern, and shall (with respect to the audits for all Fiscal Years including 2003) state that in the opinion of such certified public accountants 63 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; provided, however, that so long as Covanta files an annual report on Form 10K with the Securities and Exchange Commission containing consolidating financial statements for Company and its Subsidiaries, 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; (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 6, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; and (c) a certificate of the chief financial officer of Company stating that Company and its Subsidiaries have transferred to Deposit Accounts of Company located in the United States in the Cash Management System all funds of Company and its Subsidiaries on deposit in accounts located outside the United States that are required to be transferred pursuant to subsection 5.10B; (vi) Reconciliation Statements: other than the fresh start adjustments required under SOP 90-7, 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 4.3, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (iii) or (iv) of this subsection 5.1 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 5.1 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 5.1 following such change, if required pursuant to subsection 1.2, a 64 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 6.6) which would have resulted if such financial statements had been prepared without giving effect to such change; (vii) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iv) above, a written statement by the independent certified public accountants giving the report thereon stating that in connection with their audit, nothing came to their attention that caused them to believe that Company failed to comply with the terms, provisions or conditions of subsection 6.6, insofar as they relate to financial and accounting matters, or, if such a failure to comply has come to their attention, specifying the nature and period of existence thereof (it being understood that their audit is not directed primarily toward obtaining knowledge of non-compliance and that such accountants shall not be liable by reason of any failure to obtain knowledge of any such non-compliance that would not be disclosed in the course of their audit); (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 Covanta 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 Covanta 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): (I) 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 65 (II) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, or to contest or challenge the legality, validity or enforceability 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: with reasonable promptness upon becoming aware of the occurrence of or forthcoming occurrence of (a) any ERISA Event or (b) any event that would constitute an ERISA Event but for the requirements (in order for such event to constitute an ERISA Event) that a Lien or liability imposed as a result thereof be material, that the error giving rise thereto be in bad faith, and/or that such event would reasonably be expected to result in a Material Adverse Effect, 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 (it being agreed that commencing on the Closing Date, on an annual basis Borrowers shall request information from each Multiemployer Plan in accordance with section 4221 of ERISA to determine the potential withdrawal liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan); (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) 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; 66 (xvi) Budget: no later than the 15th day of December of each year commencing with December 15, 2004, a budget for the next Fiscal Year, in the form of the Budget for the current Fiscal Year, reflecting (a) projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter in the next Fiscal Year and (b) projected net cash flows of Company and its Subsidiaries for each Fiscal Year following the next Fiscal Year and ending with 2007, in each case with respect to each line item described in the Budget for the current Fiscal Year, which budget shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such budget are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (xvii) 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)); and (xviii) Notices from Holders of Subordinated Indebtedness: promptly, upon receipt, copies of all notices from holders of Subordinated Indebtedness or a trustee, agent or other representative of such a holder. 5.2 EXISTENCE, ETC. Except as permitted under subsection 6.7, 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 the existence of any such Subsidiary or 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. 5.3 PAYMENT OF TAXES AND CLAIMS; TAX. A. 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 tax, assessment, 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 tax, assessment, 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. 67 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). 5.4 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 Non 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 Collateral Agent for the benefit of Secured Parties 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 Collateral Agent for the benefit of Secured Parties 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 Collateral 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 5.4 is in full force and effect and that Collateral Agent on behalf of Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 5.4. 68 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 or Potential 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 (b) if an Event of Default or Potential 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 or Collateral Agent. Upon receipt by Administrative Agent or Collateral Agent, as the case may be, 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 or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, 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 or Collateral Agent, as the case may be, shall deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under this Agreement and (2) Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 or Collateral Agent, as the case may be, of such Net Insurance/Condemnation Proceeds, Administrative Agent or Collateral Agent, as the case may be, shall, and Company hereby authorizes 69 Administrative Agent or Collateral Agent, as the case may be, 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 or arising under the documentation for Non Recourse Debt permitted to be incurred under this Agreement) 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. Notwithstanding anything in this Agreement to the contrary, in the event of any conflict or inconsistency between subsection 5.4C and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 5.5 INSPECTION RIGHTS; LENDER MEETING. A. INSPECTION RIGHTS. Borrowers shall, and shall cause each of their respective Subsidiaries to, permit any authorized representatives designated by any Lender, at such Lender's expense, 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 visits, inspections, and audits as Administrative Agent or Requisite Lenders may deem necessary or advisable, at any time from time to time, all at Borrowers' expense. B. LENDER MEETING. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Agents and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 5.6 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. 5.7 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 70 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; (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 71 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; and (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 5.7B, 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. 5.8 EXECUTION OF THE PERSONAL PROPERTY COLLATERAL DOCUMENTS AFTER THE CLOSING DATE. A. 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 72 all Foreign Subsidiaries which are Material Subsidiaries and are directly owned by any Borrower (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 for which the required consents have not been obtained or (2) applicable law affecting such Borrower 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 Borrower 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 Borrower, and (ii) such Foreign Subsidiary is organized with respect to customary matters regarding enforceability, validity and perfection of such pledge. B. 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 a pledge of the Capital Stock of any Subsidiary of a Borrower. 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. 5.9 MATTERS RELATING TO REAL PROPERTY COLLATERAL. From and after the Closing Date, in the event that any Borrower acquires any fee interest in real property or any Material Leasehold Property, such Borrower shall, as soon as practicable after such Person acquires such real property or Material Leasehold Property, 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, including, without limitation, deliver to Collateral Agent in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Borrower in such mortgaged property; and such opinions, appraisal, documents, title insurance, environmental reports and other documents as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent, and to assure, convey, assign, transfer and confirm unto Collateral Agent, for the benefit of the Secured Parties, 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. 5.10 DEPOSIT ACCOUNTS; REPATRIATION OF FOREIGN CASH. A. DOMESTIC DEPOSIT ACCOUNTS. Borrowers shall, and shall cause each of their Subsidiaries to, maintain the Cash Management System as described in Schedule 3.1P, as said Schedule 3.1P may be supplemented from time to time pursuant to clause (c) below, and Company and its Subsidiaries shall not open or close Deposit Accounts in the United States or 73 make other changes to the Cash Management System in the United States without the written consent of Administrative Agent, except that Company and its Subsidiaries may open and maintain funds in Deposit Accounts with Collateral Agent or other depository institutions after the Closing Date so long as (a) concurrently with the opening of any such account with a depository institution other than Collateral Agent, Borrowers shall deliver to Administrative Agent a Control Agreement with respect to such account (unless after giving effect to such opening Borrowers would not be in breach of the requirement set forth in clause (b)), (b) the aggregate amount on deposit at any time in all Deposit Accounts in the United States maintained with depository institutions other than Collateral Agent for which Control Agreements have not been delivered to Administrative Agent shall not exceed $50,000, and (c) concurrently with the opening of any such account, Borrowers shall deliver to Administrative Agent a written notice setting forth the account number and the name of the relevant depository institution (it being understood that such written notice shall be deemed to supplement Schedule 3.1P annexed hereto for all purposes of this Agreement) and, if applicable, the Project to which such account relates and the primary purpose of such account. B. REPATRIATION OF FOREIGN CASH. At all times Company shall, and shall cause each of its Subsidiaries to, transfer to Deposit Accounts of Company located in the United States in the Cash Management System all funds of Company and its Subsidiaries on deposit in accounts located outside the United States that can be so transferred, to the extent such transfer (i) would not constitute a violation of (a) a valid Contractual Obligation in favor of or for the benefit 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 the relevant Foreign Subsidiary or Project, and (ii) would not result in material adverse tax liabilities for Company and its Subsidiaries; provided, however, that Company and its Subsidiaries may maintain funds that would otherwise be required to be transferred pursuant to the foregoing provision so long as (1) such funds so maintained are applied to working capital, capital expenditure, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business and (2) the aggregate amount of such funds so maintained at any time does not exceed $2,000,000 in the aggregate. 5.11 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 and the Confirmation Order, including to subject any Collateral, intended to now or hereafter be covered, to the Liens created by the Collateral Documents and the Confirmation Order, to perfect and maintain such Liens, and to assure, convey, assign, transfer and confirm unto Collateral 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 Collateral Agent or for carrying out the intention of or facilitating the performance of the terms of this Agreement, any other Loan Documents or the Confirmation Order, registering 74 or recording this Agreement or any other Loan Document. Without limiting the generality of the foregoing, Borrowers shall deliver to Collateral 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 Collateral Agent to perfect Collateral 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 5.11A, 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 5.11A, 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 5.11A, (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 9.2 hereof. 5.12 MOST FAVORED NATIONS PAYMENTS. Company shall, and shall cause each of its Subsidiaries to, extend any fees or pricing increases, to the extent such fees or pricing increases are the direct obligation of Company or its Subsidiaries, resulting from the amendment, waiver or modification, after the Closing Date, of 75 the CPIH Revolver Documents, on an equivalent basis (based in the case of fees on the respective amounts of Loan Exposure outstanding (on one hand) and the credit exposure under the CPIH Revolver Documents (on the other hand)) to the Lenders regardless of whether a particular Lender has participated in or consented to a corresponding amendment, waiver or modification (if any) of the Loan Documents, and any such payment of equivalent fees shall be paid in cash concurrently with the fees giving rise to such equivalent fees. SECTION 6. 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 Obligations 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 6. 6.1 INDEBTEDNESS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, create, incur or assume, 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 and obligations under the CPIH Revolver Credit Agreement; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations and Performance Guaranties permitted by subsection 6.4 and, upon any matured obligations actually arising pursuant thereto, any Indebtedness created as a result thereof; (iii) Borrowers may become and remain liable with respect to Indebtedness to any other Borrowers; provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (iv) Subsidiaries of Company may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company so long as the proceeds of such Indebtedness are applied to Investments permitted under subsection 6.3(vi) to be made by Company or any of its Subsidiaries in the Subsidiaries incurring such Indebtedness; provided that (a) no such Indebtedness may be incurred to make capital expenditures if after giving effect to such expenditures Borrowers would not be in pro forma compliance with subsection 6.6D, and (b) any such Indebtedness to any Borrower shall be evidenced by the Intercompany Master Note; (v) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness outstanding on the Closing Date and described in Schedule 6.1(v); (vi) Subsidiaries of Company may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by Company or another 76 Subsidiary of Company in such Subsidiaries, provided that the underlying equity Investment was permitted under this Agreement at the time of such conversion; (vii) Any Subsidiary of Company may become and remain liable with respect to Indebtedness incurred to refinance, replace, renew or extend, in whole or in part, Indebtedness of such Subsidiary permitted to remain outstanding under subsection 6.1(v); provided, that in each case (a) the terms (excluding the interest rate and fees payable with respect thereto, so long as such interest and fees on such Indebtedness are not borne directly or indirectly by Company or any of its Subsidiaries, whether through an offset to or deduction against service or operating agreement fees to Company or its Subsidiaries or otherwise) of such Indebtedness as refinanced, replaced, renewed or extended, taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such refinancing, replacement, renewal or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Indebtedness relates), shall not be more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the Indebtedness so refinanced, replaced, renewed or extended, (b) the principal amount of the Indebtedness as refinanced, replaced, renewed or extended shall not exceed 110% of the principal amount of the Indebtedness so refinanced, replaced, renewed or extended (provided that such limitation shall not apply with respect to Indebtedness that an existing client (if such client is a Government Authority) of a Project undertakes to service through the principal lease, service or operating agreement of the applicable Project), (c) no obligee or beneficiary of such Indebtedness after such refinancing, replacement, renewal or extension shall have greater recourse to Persons for the payment or collection of such Indebtedness than the obligee or beneficiary of the Indebtedness so refinanced, replaced, renewed or extended had immediately prior to such transaction, and (d) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (viii) Company may become and remain liable with respect to Indebtedness consisting solely of its obligations under Insurance Premium Financing Arrangements, which obligations shall not exceed at any time $5,000,000 in the aggregate; (ix) Borrowers may become and remain liable with respect their obligations to pay for services rendered to them and certain payments made by Covanta and its Subsidiaries (other than Company and its Subsidiaries), in each case under and in accordance with the Management Services and Reimbursement Agreement; and (x) Company and its Subsidiaries may, after the Closing Date, become and remain liable with respect to Indebtedness to any Subsidiary so long as the proceeds of such Indebtedness are applied to make Investments permitted under subsection 6.3(ix); provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note. 77 6.2 LIENS AND RELATED MATTERS. A. PROHIBITION ON LIENS. Borrowers shall not, and shall not permit 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 of their respective Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or authorize the filing of, or permit to remain in effect, any effective 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, except: (i) Permitted Encumbrances; (ii) subject to the provisions of the Intercreditor Agreement, Liens granted pursuant to the Collateral Documents to secure the Obligations, the obligations of Borrowers under the CPIH Revolver Credit Agreement and the obligations to the cash management bank with respect to the Cash Management System; (iii) Liens existing on the Closing Date and described in Schedule 6.2 annexed hereto; (iv) Liens on assets of Company or any Subsidiary of Company securing refinancing Indebtedness permitted by subsection 6.1(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, if applicable, assets the acquisition of which was financed with the proceeds of such refinancing Indebtedness permitted by subsection 6.1(vii); (v) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 6.4(v), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (vi) Liens on cash collateral of Company securing insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 5.4B; (vii) Liens securing debt service reserve funds, completion obligations and similar accounts and obligations (other than Indebtedness) of Subsidiaries of Company to Persons other than Company and its Subsidiaries and their respective Affiliates, so long as (a) each such obligation is associated with a Project, (b) such Lien is limited to (1) assets associated with such Project (which in any event shall not include assets held by any Borrower other than a Borrower whose sole business is the ownership and/or operation of such Project and substantially all of whose assets are associated with such Project) and/or (2) the equity interests in such Subsidiary, but in the case of clause (2) only if such Subsidiary's sole business is the ownership and/or operation of such Project 78 and substantially all of such Subsidiary's assets are associated with such Project, and (c) such obligation is otherwise permitted under this Agreement; (viii) Liens created pursuant to Insurance Premium Financing Arrangements otherwise permitted under this Agreement, so long as such Liens attach only to gross unearned premiums for the insurance policies; (ix) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 6.4(iv), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; and (x) Other Liens on assets of any Subsidiary of Company securing Indebtedness in an aggregate amount not exceeding $1,000,000. B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Borrowers or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 6.2A and Liens created or assumed on properties or assets on which First Priority Liens created under the Collateral Documents are attached and perfected at the time of such creation or assumption, the Borrowers hereby agree that (i) they will be deemed to have automatically and without further action secured the Obligations with such Lien equally and ratably with any and all other Indebtedness, Contingent Obligations or any other obligations or debt (as defined in the Bankruptcy Code) secured thereby, and (ii) they shall take or cause to be taken such actions as Agents or Requisite Lenders deem necessary or advisable to evidence such equal and ratable Lien; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 6.2A, and the creation or assumption of any such Lien not permitted by the provisions of subsection 6.2A shall constitute an Event of Default. C. NO FURTHER NEGATIVE PLEDGES. Neither Company nor any of its Subsidiaries shall enter into any agreement (other than this Agreement, the Loan Documents and the CPIH Revolver 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 (i) specific property encumbered by a Lien permitted hereunder to secure payment of particular Indebtedness permitted to be incurred under subsection 6.1(vii) (but only to the extent that the Indebtedness being refinanced was subject to a negative pledge on the same assets), or by a Lien permitted under subsection 6.2A(v), 6.2A(vi), 6.2A(vii) or 6.2A(ix), or by a Lien permitted under subsection 6.2A(x) to the extent such Lien secures obligations incurred to finance the acquisition of such specific property, (ii) specific property to be sold pursuant to an executed agreement with respect to an Asset Sale which is permitted hereunder, (iii) specific property that is leased pursuant to a lease permitted hereunder, and (iv) provisions in the principal lease, service and operating agreements pertaining to Projects, or the partnership and financing agreements relating to Projects, so long as in each case such lease, service, operating, partnership or financing agreement is an extension, renewal or replacement of such agreement in effect as of the Closing Date, is otherwise permitted to be entered into hereunder and contains no 79 more restrictive provisions relating to prohibiting the creation or assumption of any Lien upon the properties or assets of the relevant Subsidiary than the lease, service, operating, partnership or financing agreement so extended, renewed or replaced. D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY 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 other 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, (b) those encumbrances or restrictions applicable to Subsidiaries of Company to the extent created under documentation in existence on the Closing Date or under the CPIH Revolver Documents, (c) as may be provided in an executed agreement with respect to an Asset Sale which is permitted hereunder, and (d) provisions in the principal lease, service or operating agreements, partnership agreements and financing agreements pertaining to Projects, so long as such lease, service or operating agreements, partnership agreements and financing agreements are extensions, renewals or replacements of such agreements in effect as of the Closing Date, are otherwise permitted to be entered into hereunder and in each case contain no more restrictive provisions relating to the ability of the relevant Subsidiary to take the actions described in clauses (i) through (iv) than the agreement so extended, renewed or replaced. 6.3 INVESTMENTS; ACQUISITIONS. Borrowers shall not, and shall not permit 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 or imposed under the terms of any cash collateral or debt service reserve agreement (including pursuant to the terms of any Project bond indenture) permitted hereunder; and Company's Foreign Subsidiaries may make and own Investments in Foreign Cash Equivalents to the extent permitted under subsection 5.10; (ii) Borrowers may make and own additional equity Investments in other Borrowers, so long as no such Investment shall be made by one Borrower in another Borrower if (a) the latter is subject to restrictions of the type described in subsection 6.2D more adverse than restrictions of such type that are applicable to the Borrower making such Investment, or (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment; 80 (iii) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsection 6.1(iii); (iv) Company and its Subsidiaries may make Consolidated Facilities Capital Expenditures permitted by subsection 6.6D; (v) Company and its Subsidiaries may continue to own the Investments owned by them on the Closing Date and described in Schedule 6.3(v) annexed hereto; (vi) (a) Company may make and own Investments consisting of intercompany loans to its Subsidiaries (to the extent such Subsidiaries are in existence on the Closing Date) in an aggregate amount not in excess of $1,000,000 outstanding at any time and (b) Subsidiaries may make and own Investments consisting of intercompany loans to other Subsidiaries (in each case to the extent such Subsidiaries are in existence on the Closing Date), so long as the proceeds of such loans are applied to working capital, capital expenditure, maintenance and payroll requirements in the ordinary course of business of such Subsidiaries (provided that the aggregate amount of loans outstanding pursuant to this clause (b) shall not at any time exceed $2,000,000); (vii) Borrowers and their Subsidiaries may own Investments in the form of non-cash consideration received in connection with (a) Asset Sales permitted under subsection 6.7(iii) or 6.7(iv) or (b) settlements of disputes, to the extent such settlements occur in the ordinary course of business; (viii) Subject to the Intercreditor Agreement, Borrowers may make payments under the Management Services and Reimbursement Agreement to the extent contractually obligated pursuant to the terms thereof; and (ix) Company and its Subsidiaries may make and own Investments consisting of cash equity contributions made after the Closing Date (a) in the aggregate amount of approximately $360,000 (it being understood that such amount is the approximate Dollar equivalent of an estimate as of November 15, 2003 of the required foreign currency contribution, and thus may change based on fluctuations in currency exchange rates) in the Madurai Project (b) in an aggregate amount not to exceed $130,000 in the Samalpatti Project, and (c) in an aggregate amount not to exceed $1,600,000 in the Trezzo waste-to-energy Project, in each case so long as (1) such contributions are required to be made pursuant to the terms of a binding Contractual Obligation of Company and its Subsidiaries in effect on the Closing Date, and (2) any Capital Stock resulting from such contributions and held directly by any Borrower shall be pledged as Collateral under the Collateral Documents. 6.4 CONTINGENT OBLIGATIONS; PERFORMANCE GUARANTIES. Company shall not, and shall not permit any of its 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 or to post cash collateral to secure any obligation, except: 81 (i) Borrowers may become and remain liable (a) with respect to Contingent Obligations in respect of the Obligations, and (b) with respect to Contingent Obligations under the Management Services and Reimbursement Agreement; (ii) 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 permitted under this Agreement; (iii) Company and its Subsidiaries, as applicable, may become and remain liable with respect to (a) Contingent Obligations in existence on the Closing Date and described in Schedule 6.4(iii) annexed hereto, and (b) Contingent Obligations replacing, renewing or extending Contingent Obligations described in clause (a); provided that no such replacement, renewed or extended Contingent Obligation, taken as a whole, shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Contingent Obligations so replaced, renewed or extended; (iv) 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; (v) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations constituting Hedge Agreements; (vi) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 5.4B; and (vii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under the Management Services and Reimbursement Agreement. 6.5 RESTRICTED PAYMENTS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided, however, that (i) Subsidiaries of Company may make payments of principal, interest and other amounts in respect of Indebtedness permitted under subsections 6.1(v) and 6.1(vii) related to Projects, in accordance with the terms of, and only to the extent required by, the indentures or other agreements pursuant to which such Indebtedness was issued, as such indentures or other agreements may be amended from time to time to the extent permitted hereunder, provided, however, that during the continuance of an Event of Default, notwithstanding anything to the contrary in this Agreement, neither Company nor any Subsidiary 82 shall fund, contribute or otherwise advance amounts for payment of Indebtedness permitted under subsections 6.1(v) and 6.1(vii) related to Projects unless it has an irrevocable Contractual Obligation to make such payments; (ii) so long as no Event of Default shall have occurred and be continuing, Subsidiaries of Company may, at the time Indebtedness is refinanced or replaced as permitted under subsection 6.1 by other Indebtedness permitted under such subsection, pay principal, accrued interest and other amounts owing on such refinanced Indebtedness at such time, provided that such payments may be made with respect to Non Recourse Debt during the continuance of an Event of Default so long as such payments are from the proceeds of Non Recourse Debt permitted to be incurred hereunder and such proceeds are required to be applied to make such payments under a binding Contractual Obligation to a third party; (iii) Company and its Subsidiaries may pay any fees required to be paid to the Agents and Lenders hereunder; and (iv) Company and its Subsidiaries may make payments under and in accordance with the terms of, and only to the extent required by, the Management Services and Reimbursement Agreement and the Tax Sharing Agreement. In addition, in any case where a Borrower or Subsidiary is a Joint Venture, Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except a dividend payable solely in shares of that class of stock to the holders of that class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except in each case to the extent the relevant action described in clause (a), (b) or (c) is required pursuant to a binding Contractual Obligation in effect as of the Closing Date or pursuant to an extension, renewal or replacement of such a Contractual Obligation so long as such extension, renewal or replacement is otherwise permitted to be entered into hereunder and contains provisions no less favorable to Company and its Subsidiaries than the relevant Contractual Obligations so extended, renewed or replaced. 6.6 FINANCIAL COVENANTS. A. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the ratio of (i) Adjusted EBITDA to (ii) Consolidated Cash Interest Expense, in each case for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter commencing after March 31, 2004 to be less than 3.00:1.00. B. MAXIMUM CONSOLIDATED LEVERAGE RATIO. Company shall not permit the Consolidated Leverage Ratio as at any date on or after June 30, 2004 to exceed 5.00:1.00. C. [INTENTIONALLY OMITTED]. D. CONSOLIDATED FACILITIES CAPITAL EXPENDITURES. Borrowers shall not, and shall not permit their respective Subsidiaries to, make or incur Consolidated Facilities Capital 83 Expenditures after the Closing Date if the aggregate amount of such expenditures financed by contributions, loans or advances from Company would exceed $1,000,000 in the aggregate. E. CERTAIN CALCULATIONS. Notwithstanding any provision of this Agreement to the contrary, (i) for purposes of calculating Adjusted EBITDA for any four-Fiscal Quarter period ending prior to the first Fiscal Quarter of 2005, Adjusted EBITDA for the third and fourth Fiscal Quarters of 2003 and the first Fiscal Quarter of 2004 shall be deemed to be equal to the correlative amounts set forth opposite such Fiscal Quarters on Schedule 6.6E annexed hereto; and (ii) for purposes of determining compliance with subsection 6.6A for any four-Fiscal Quarter period ending prior to the last Fiscal Quarter of 2004, Consolidated Cash Interest Expense shall equal the product of (a) actual Consolidated Cash Interest Expense during the period from the Closing Date to the end of such four-Fiscal Quarter period multiplied by (b) the ratio of (1) 365 divided by (2) the number of days in such period. 6.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES. Borrowers shall not, and shall not permit 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 Borrower may be merged with or into a 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 a Borrower; provided that, no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; (ii) any Subsidiary of Company that is not a Borrower may be merged with or into any other Subsidiary of Company that is not a 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 another Subsidiary that is not a Borrower; provided further, that, no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; (iii) 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; 84 (iv) Company and its Subsidiaries may make 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) not less than 90% of the consideration received (other than any consideration consisting of the assumption of liabilities related to such assets) in any such Asset Sale shall be cash (it being agreed that cash the receipt of which may by the relevant terms of such Asset Sale be deferred more than six months after the date of consummation of such Asset Sale shall not be considered cash for purposes of this clause (b)); (c) not more than 10% of the cash consideration received by Company and its Subsidiaries in any such Asset Sale shall be received after the date of consummation of such Asset Sale; (d) any non-cash consideration received shall be reasonably satisfactory to Agents; (e) the principal documentation for each such Asset Sale shall have been delivered in advance to Agents; (f) upon consummation of each such Asset Sale, neither Company nor any of its Subsidiaries shall have any debts or obligations, contingent or otherwise, relating to the sold entities or assets (other than customary indemnification obligations and purchase price adjustment obligations incurred in connection with such Asset Sale); (g) any Indebtedness in relation to such assets shall be repaid and the related letters of credit shall be cancelled and returned to the issuers thereof; (h) any Asset Sale or series of related Asset Sales (1) in which the consideration to be received (other than the assumption of liabilities related to such assets) exceeds $15,000,0000 shall require the prior written consent of the Requisite Lenders, (2) of the Quezon Project or involving any assets or property comprising the Quezon Project shall require the prior written consent of Requisite Lenders and (3) in which the consideration to be received (other than the assumption of liabilities related to such assets) exceeds $5,000,000 shall require the delivery no later than 30 days prior to the consummation of such Asset Sale or Asset Sales of an independent appraisal of the fair market value of such assets subject thereto which appraisal shall be performed by an appraiser satisfactory to Agents and shall be in form and substance satisfactory in all respects to Agents and (i) the Net Asset Sale Proceeds of such Asset Sales shall be applied as Mandatory Payments to the extent required under subsection 2.4A; (v) Any Subsidiary of Company may, if its Board of Directors 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) (1) if such Subsidiary is a Borrower, such Subsidiary shall have executed such documents as Administrative Agent reasonably deems necessary to ensure that such Subsidiary continues to be bound as a Borrower under the Loan Documents after such change and (2) 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; and (vi) Covanta Energy India (Balaji) Ltd. may sell approximately 372,860 shares held by it on the Closing Date in the Madurai Project entity, Madurai Power Corp. Pvt. Ltd. (the "MADURAI PROJECT ENTITY"), to the Indian local partner with respect to the 85 Madurai Project for approximately $575,000 (it being understood that such amount is the approximate Dollar equivalent of an estimate as of November 15, 2003 of the proceeds from such sale, and thus may change based on fluctuations in currency exchange rates), to the extent such local partner requires such sale so that such local partner will hold, after giving effect to such sale, up to 25.2% of the issued and outstanding Capital Stock of the Madurai Project Entity. 6.8 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Company shall not, and shall not permit any of its 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 6.1 among Company and its Subsidiaries or among Subsidiaries of Company, (ii) reasonable and customary salaries and fees paid to current officers and members of the Governing Bodies of Company and its Subsidiaries, provided that such salary and fee arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iii) reasonable and customary indemnifications and insurance arrangements for the benefit of Persons that are officers or members of the Governing Bodies of Company and its Subsidiaries on or after the Closing Date, whether such Persons are current or former officers or members at the time such indemnifications or arrangements are entered into, provided that such indemnifications and arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iv) the Employment Agreements in effect on the Closing Date, and any other employment agreements or benefits arrangements entered into on or after the Closing Date by Company and its Subsidiaries with employees at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (v) payments (and other transactions) made in accordance with the terms of the Management Services and Reimbursement Agreement, the Tax Sharing Agreement and the other Related Agreements, (vi) transactions occurring on the Closing Date and described on Schedule 6.8 annexed hereto, (vii) services rendered by certain Subsidiaries for the benefit of other Subsidiaries pursuant to the terms of the intercompany service agreements described on Schedule 6.8 annexed hereto, and (viii) 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. 6.9 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 for equipment (other than intercompany leases between 86 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 $1,000,000; provided, however, that this subsection 6.9 shall not prohibit Company or its Subsidiaries from incurring obligations pursuant to the renewal, extension or replacement of leases in effect at the Closing Date so long as such leases as renewed, extended or replaced are not more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the leases so renewed, extended or replaced. 6.10 [INTENTIONALLY OMITTED]. 6.11 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 energy and waste management businesses of the type in which they are engaged on the Closing Date and other activities to the extent incidental or reasonably related to such businesses. 6.12 AMENDMENTS TO RELATED AGREEMENTS, DEBT DOCUMENTATION AND ORGANIZATIONAL DOCUMENTS. Company shall not, and shall not permit any of its Subsidiaries to, amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of (i) the Management Services and Reimbursement Agreement or the other Related Agreements (other than the CPIH Revolver Documents), in each case if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) is to impose additional material obligations on, or confer additional material rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, or (b) is otherwise adverse to the interests of the Lenders in a manner deemed material in the judgment of Agents or Requisite Lenders so notifying Agents or Company; (ii) the Organizational Documents of Company and its Subsidiaries, if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, is adverse to the interests of the Lenders in a manner deemed material in the judgment of Agents or Requisite Lenders; (iii) the Subordinated Indebtedness, if the effect thereof would be to (a) change to earlier dates the dates on which any payments of principal or interest are due thereon, (b) increase the interest rate, or the portion thereof payable on a current basis in cash, applicable thereto, (c) change any event of default with respect thereto in any manner adverse to the interests of the Lenders, (d) change the redemption, prepayment or defeasance provisions thereof, (e) change the subordination provisions thereof (or of any guaranty thereof or intercreditor arrangement with respect thereto), (f) change any collateral therefor (other than to release such collateral), or (g) change any other term or provision thereof, if the effect of such change, together with all other changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Indebtedness that would be materially adverse (in the judgment of Agents or Requisite Lenders so notifying Agents or Company) to Company, Agents or the Lenders, without the prior written consent of Requisite Lenders; (iv) the principal 87 documents relating to Non Recourse Debt with respect to a Project if such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications and waivers made, would reasonably be expected to have a Material Adverse Effect; or (v) the CPIH Revolver Documents, unless (a) the terms of the CPIH Revolver Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Agents or Requisite Lenders so notifying Agents or Company) than the CPIH Revolver Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of increasing the amount of, or reducing, delaying or waiving any otherwise required reduction in the amount of, any commitment to extend loans under the CPIH Revolver Documents shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Agents or Requisite Lenders), (b) the aggregate amount of Indebtedness outstanding, and additional commitments to extend credit, if any, under the CPIH Revolver Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the CPIH Revolver Documents on the Closing Date, (c) the obligations under (and the Liens securing) such CPIH Revolver Documents as so amended, restated, modified or waived are subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the CPIH Revolver Documents on the Closing Date, and (d) Company provides to Agents reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith). 6.13 END OF FISCAL YEARS; FISCAL QUARTERS. 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. 6.14 AMENDMENT TO PENSION PLANS. Borrowers shall not amend or modify any Pension Plan after the Closing Date in any manner that results in or would reasonably be expected to result in an increase in the amount of unfunded benefit liabilities (as such unfunded benefit liabilities are determined in accordance with subsection 4.11D hereof), unless such amendment or modification is required under applicable law. SECTION 7. EVENTS OF DEFAULT If any of the following conditions or events ("EVENT OF DEFAULT") shall occur: 7.1 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 any Mandatory Payment when due; or 88 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 7.2 DEFAULT IN OTHER AGREEMENTS. (i) Failure of Company or any of its Subsidiaries (other than the Magellan Subsidiary) to pay when due any principal of or interest on or any other amount payable in respect of (a) the CPIH Revolver Documents, (b) the Management Services and Reimbursement Agreement, (c) any one or more items of Indebtedness (other than Indebtedness referred to in subsection 7.1 or in clause (a) above or clause (d) below) 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 (d) Non Recourse Debt of Subsidiaries of Company in the principal amount of $6,000,000 or more, individually or in the aggregate (provided that Non Recourse Debt incurred in connection with one or more Projects to which less than $2,000,000 in the aggregate of the operating income of Company and its Subsidiaries (on a consolidated basis) 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 Non Recourse Debt solely for purposes of this clause (d)), in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other material term of (a) the CPIH Revolving Documents or the Management Services and Reimbursement Agreement, (b) one or more items of Indebtedness (other than Non Recourse Debt) or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (c) 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), or 7.3 BREACH OF CERTAIN COVENANTS. Failure of any Borrower to perform or comply with any term or condition contained in subsection 2.5 or 5.2 or Section 6 of this Agreement; or 7.4 BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by CEA or Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by CEA or 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 89 7.5 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 7, 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 7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall make any assignment for the benefit of creditors; or (ii) CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall be unable, or shall fail generally, or shall admit in writing its inability, 90 to pay its debts as such debts become due; or the Governing Body of Company or any of its Subsidiaries (other than the Magellan Subsidiary) (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 7.8 JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving (a) in any individual case an amount in excess of $2,000,000 or (b) in the aggregate at any time an amount in excess of $2,000,000 (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 (other than the Magellan Subsidiary) 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 7.9 DISSOLUTION. Any order, judgment or decree shall be entered against CEA or Company or any of its Material Subsidiaries decreeing the dissolution or split up of CEA or Company or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 7.10 EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events that individually or in the aggregate result 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 $5,000,000 during the term of this Agreement; or there shall exist as of January 1 of any year (based on, with respect to each Pension Plan, the actuarial valuation as of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as of which the valuation was so performed), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), in excess of (i) $20,000,000 in the event the Assumptions are generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000 in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans; or 7.11 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 91 7.12 CHANGE IN CONTROL. A Change in Control shall have occurred; or 7.13 INVALIDITY OF INTERCREDITOR AGREEMENT; FAILURE OF SECURITY; REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Intercreditor Agreement 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) any Collateral Document (with respect to the obligations thereunder of CEA, Company or any Material Subsidiary of Company) 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 satisfaction in full of the Secured Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien (with the priority set forth in subsection 4.15A) in any Collateral purported to be covered thereby, in each case for any reason other than the failure of Collateral Agent or any Lender to take any action within its control, or (iii) 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 7.14 TERMINATION OF MATERIAL CONTRACTS. Any Material Contract of the type described in clause (i) of the definition of Material Contract, or any power purchase agreement to which Company or any of its Subsidiaries is a party relating to a Project (other than the power purchase agreement relating to the Magellan Project unless the termination of such agreement would result in a Material Adverse Effect), 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, unless such Material Contract is replaced within ten (10) days after such termination with a contract that is reasonably acceptable to the Requisite Lenders and on substantially the same economic terms as the relevant Material Contract being terminated; or 7.15 DEFAULT UNDER EXISTING IPP INTERNATIONAL PROJECT GUARANTIES. Failure by Covanta or any of its Subsidiaries to pay when due any principal of, interest on or any other amount payable in respect of any Existing IPP International Project Guaranty (other than the failure to pay amounts that are being actively contested by such Person in good faith by appropriate proceedings, so long as the beneficiary of such Existing IPP International Project Guaranty has not exercised any remedy against Company or any of its Subsidiaries thereunder, under applicable law or otherwise as a result of such failure): THEN (i) upon the occurrence of any Event of Default described in subsection 7.6 or 7.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, and (b) 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 92 each Borrower, and the obligation of each Lender to make any Loan shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, 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 hereunder shall thereupon terminate. Any amounts described in clause (b) above, when received by Collateral Agent, shall be held by Collateral Agent pursuant to the terms of the Security Agreement and shall be applied as therein provided (subject to the terms of the Intercreditor Agreement). Further upon the occurrence and during the continuance of any Event of Default, subject to the Intercreditor Agreement, Administrative Agent and Collateral Agent may, and upon the written request of Requisite Lenders shall, (i) exercise all rights and remedies of Administrative Agent or Collateral 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 or Collateral Agent has an interest. 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. SECTION 8. ADMINISTRATIVE AGENT 8.1 APPOINTMENT. A. APPOINTMENT OF ADMINISTRATIVE AGENT. Bank of America 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 8 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 2.1C) 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. CONTROL. Each Lender and Administrative Agent hereby appoint each other Lender as agent for the purpose of perfecting Collateral Agent's security interest in assets that, in accordance with the UCC, can be perfected by possession or control. 8.2 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 93 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 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 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 9.6) 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 9.6). 94 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, 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. The Lenders acknowledge that, pursuant to such activities, Deutsche Bank or Bank of America or their respective Affiliates may receive information regarding a Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that the relevant Agent shall be under no obligation to provide such information to them. 8.3 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 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. 8.4 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 95 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. 8.5 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. If, within 30 days after the date of an Agent's notice of its intention to resign, no successor to such Agent shall have been so appointed by Requisite Lenders, then such Agent's resignation shall become effective on such date without the need for any further action and the Lenders shall be deemed to have been appointed as successor to such Agent hereunder and shall thereafter perform all the duties of such Agent hereunder and/or under any other Loan Document until the appointment by Requisite Lenders of some other successor to such Agent. Upon the acceptance of any appointment as an Agent hereunder by a successor to an Agent, including, the Lenders as successor to an Agent (who shall be deemed to have accepted such appointment pursuant to this subsection 8.5), such successor to such 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 8 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. 8.6 COLLATERAL DOCUMENTS AND INTERCREDITOR AGREEMENT. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into and to be the agent for and representative of Lenders under the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the Intercreditor Agreement; provided that Administrative Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in the Intercreditor Agreement 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 9.6, all Lenders). 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, it being understood and agreed that all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent for the benefit of Lenders in accordance with the terms thereof and of the Intercreditor Agreement, and (2) in the event of a foreclosure by Collateral 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 96 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. 8.7 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 9.2) 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 9.2. 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 9. MISCELLANEOUS 9.1 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS IN LOANS. 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 9.1). 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). Nothing in this Agreement, expressed or 97 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 $2,500,000, determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent or, if a trade date is specified in the Assignment Agreement, as of such trade date, unless Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed, (b) 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, and the Eligible Assignee, if it shall not be a Lender prior to such assignment, shall deliver to Administrative Agent a counterpart to the Intercreditor Agreement and such 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 2.6B(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 9.1B(ii), (c) except in the case of an assignment to another Lender, Administrative Agent shall have consented thereto (which consent shall not be unreasonably withheld or delayed (it being understood that nothing in this clause (c) shall affect the requirement that the relevant assignee meet the requirements in the definition of Eligible Assignee and any other applicable requirements of this Agreement)), and (d) any assignment of Loan Exposure of the assigning Lender shall also constitute and be deemed to be an assignment of a ratable portion of the assigning Lender's right after such assignment is consummated to have a portion of its outstanding Prepetition Secured Claims equal to its Pro Rata Share of any Permitted Supplemental Loan Amount converted to (and deemed to be a loan made by such assigning Lender as) a Loan pursuant to subsection 2.1A(ii). 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 98 to it pursuant to such Assignment Agreement, shall have the rights and obligations of a "Creditor Party" thereunder (as such term is 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 9.9B) 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 9.9). The assigning Lender of any Commitments and/or Loans 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 2.1D, be issued to the assignee and/or to the assigning Lender, substantially in the form of Exhibit I annexed hereto, as the case may be, with appropriate insertions, to reflect the new outstanding Loans, as the case may be, of the assignee and/or the assigning Lender. Other than as provided in subsection 9.5, any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection 9.1B 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 9.1C. Except as otherwise provided in this subsection 9.1, no Lender shall, as between Borrowers and such Lender, or as between Agents 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, 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 and the processing and recordation fee referred to in subsection 9.1B(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 2.6B(iii), Administrative Agent shall, if Administrative Agent has consented to the assignment evidenced thereby (to the extent such consent is required pursuant to subsection 9.1B(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 9.1B(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, Agents and Lenders 99 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 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 9.1C, each Borrower agrees that each Participant shall be entitled to the benefits of subsection 2.6 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection 9.1B. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 9.4 as though it were a Lender; provided that such Participant agrees to be subject to subsection 9.5 as though it were a Lender. A Participant shall not be entitled to receive any greater payment under subsection 2.6 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 2.6. 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 9.20. F. AGREEMENTS OF LENDERS. Each Lender listed on the signature pages hereof hereby agrees, and each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree, (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 or purchasing loans such as the Loans; and (iii) that it will make or purchase 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 9.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). G. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 9.1, any Lender may assign and pledge all or any portion of the Loans or any other Obligations owed to such Lender hereunder, and its one or more Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between 100 Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 9.2 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) 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 Collateral Agent on behalf of Secured Parties 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 Collateral 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 (including Ernst & Young Corporate Finance LLC) 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 the actual costs and reasonable 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 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. 9.3 INDEMNITY. In addition to the payment of expenses pursuant to subsection 9.2, 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, and the officers, directors, employees, agents and affiliates of Agents and Lenders (collectively called the "INDEMNITEES"), from and against any and all Indemnified 101 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 and the Chapter 11 Cases (it being understood that such Indemnified Liabilities arising out of the Chapter 11 Cases shall apply solely to Indemnitees in their capacities as Agents and Lenders or officers, directors, employees, agents and affiliates of Agents or Lenders, and not in any other capacities) 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 any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral), (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 9.3 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. 9.4 SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by each Borrower at any time or from time to time, without notice to any Borrower 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 any 102 Borrower or any other Loan Party against and on account of the obligations and liabilities of any Borrower 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, and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, or any other Loan Document, irrespective of whether or not (i) any Agent or any Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Each Borrower hereby further grants to Administrative Agent and each Lender a security interest in all deposits and accounts maintained with Administrative Agent or such Lender as security for the Obligations. 9.5 RATABLE SHARING. A. Subject at all times to their obligations under the Intercreditor Agreement, Lenders hereby agree among themselves that if any of them shall, whether by voluntary or involuntary payment or mandatory payment (other than a payment or 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 Loans, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents with respect to Obligations (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) that is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall, unless such proportionately greater payment is required by the terms of this Agreement (i) notify Administrative Agent and each other 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 Aggregate Amounts Due to the other Lenders so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing 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 Lender had complied with the provisions of subsection 9.1B 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 Lender and each selling Lender agree to enter into an assignment agreement at the request of a selling Lender or a purchasing Lender, as the case may be, in form and substance reasonably satisfactory to each such Lender and to Administrative Agent. B. COSTS OF COLLECTION. Notwithstanding anything in this subsection 9.5 to the contrary, in the event any one or more Lenders (for purposes of this subsection 9.5B, "ENFORCING 103 LENDERS") receives any amounts that are subject to the sharing provisions of subsection 9.5A as a result of such Enforcing Lender or Enforcing Lenders, but not any Agents or all Lenders, commencing Proceedings to recover such amounts, no Lender that is not an Enforcing Lender shall be entitled to the benefits of subsection 9.5A with respect to the amounts received by such Enforcing Lenders (i) unless and until such Lender has paid its Pro Rata Share of the out-of-pocket costs and expenses (including legal fees and expenses of counsel to such Enforcing Lenders) incurred by such Enforcing Lenders in connection with such Proceedings or (ii) in any greater amount at any time than such Lender would be entitled to receive under such subsections if all Lenders paid their Pro Rata Shares of such costs and expenses. 9.6 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 such Lender's Commitment, (3) postpone the scheduled final maturity date of the Loans, (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 2.2C) or the amount of any fees payable hereunder, or (6) change in any manner or waive the provisions contained in subsection 7.1; (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) release any Lien granted in favor of Administrative Agent or Collateral Agent with respect to all or substantially all of the Collateral (except that such Lien may be released on all or substantially all Collateral to the extent such release is required in connection with an Asset Sale or Asset Sales permitted under this Agreement), or release any substantial portion of Borrowers from their obligations under this Agreement (except that all or any number of Borrowers may be released from such obligations to the extent such release is required in connection with an Asset Sale or Asset Sales permitted under this Agreement), or (4) change in any manner or waive the provisions contained in subsection 9.6; (c) Administrative Agent and Documentation Agent, change in any manner the definition of "Eligible Assignee"; and (d) the relevant Agent, affect the rights or duties of such Agent (in its capacity as such Agent) under this Agreement or any other Loan Document; and provided, however, that no concurrence of any Lender or Lenders shall be required (I) for any amendment, modification, termination or waiver of any provision of subsection 9.25 that only affects the rights and obligations of Debenture Disbursing Agent under this Agreement and the Loan Documents, so long as Agents and Borrowers (and, after execution hereof, the Debenture Disbursing Agent) approve such amendment, modification, termination or waiver; and (II) for any amendment, modification, termination or waiver of any provision of subsection 9.25 that only affects the rights and obligations of Allowed Class 6 Disbursing Agent under this Agreement and the Loan Documents, so long as Agents and Borrowers (and, after execution 104 hereof, the Allowed Class 6 Disbursing Agent) approve such amendment, modification, termination or waiver. In addition, (i) 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; and (ii) 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. 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 9.6 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. 9.7 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. 9.8 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 or (subject to the following paragraphs in this subsection 9.8) electronic mail and shall be deemed to have been given (a) when delivered in person or by courier service, (b) upon receipt of telefacsimile in complete and legible form, (c) three Business Days after depositing it in the United States mail with postage prepaid and properly addressed, or (d) in the case of communications delivered by electronic mail to the extent provided in the following paragraph, as provided pursuant to such paragraph; provided that notices to Administrative Agent 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. 105 Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 hereof if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. 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. 9.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. A. All representations, warranties and agreements made herein or in any other Loan Document shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Borrowers set forth in subsections 2.6, 9.2, 9.3, 9.4, 9.19 and 9.20 and the agreements of Lenders set forth in subsections 8.2C, 8.4, 9.5, 9.19 and 9.20 shall survive the payment of the Loans, 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 9.1B). 9.10 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. 9.11 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 106 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. 9.12 SEVERABILITY. In case any provision in or obligation under this Agreement or the Notes 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. 9.13 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, any other Loan Document, any transaction contemplated by the Loan Documents, any Loan or the use of proceeds thereof. 9.14 RELEASE OF SECURITY INTEREST . Upon the proposed sale or other disposition of any Collateral that is permitted by this Agreement and the Intercreditor Agreement or, subject to the Intercreditor Agreement, to which Requisite Lenders have otherwise consented, for which a Loan Party desires to obtain a security interest release from Collateral Agent, such Loan Party shall deliver to Administrative Agent and Collateral Agent an Officer's Certificate (i) stating that the Collateral subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Loan Documents and (ii) specifying the Collateral being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at such Loan Party's expense, so long as Collateral Agent (a) believes in good faith that the facts stated in such Officer's Certificate are true and correct and (b), if the sale or other disposition of such item of Collateral constitutes an Asset Sale, shall have received evidence satisfactory to it 107 that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds if and as required by subsection 2.4, execute and deliver such releases of its security interest in such Collateral, as may be reasonably requested by such Loan Party. In the event of any conflict or inconsistency between this subsection 9.14 and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 9.15 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. 9.16 APPLICABLE LAW. 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. 9.17 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. 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. 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; 108 (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 9.8; (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 COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 9.18 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. 9.19 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 9.19 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. 109 9.20 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. Notwithstanding anything herein to the contrary, information required to be treated as confidential by reason of the foregoing shall not include, and Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the respective partners, directors, officers, employees, agents, advisors and other representatives of each of the foregoing and their respective Affiliates) (collectively, the "LENDER PARTIES") may disclose to any and all Persons, without limitation of any kind, (x) any information with respect to United States federal and state income tax treatment and United States federal income tax structure of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other non-public business or financial information that is unrelated to such tax treatment or facts, and (y) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Lender Parties. 9.21 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 or depository and in any other capacity under or in connection with the Prepetition Credit Documents or the DIP Credit Documents), each other Prepetition Lender and DIP Lender (in its capacity as a lender, collateral agent or depository and in any other capacity under or in connection with the Prepetition Credit Documents or the DIP Credit Documents), and each of their respective employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, 110 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, and DIP Credit Documents 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. 9.22 NO FIDUCIARY DUTY. No Agent nor any Lender has or shall have, by reason of this Agreement or any of the Loan 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 each Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. 9.23 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; provided, however, that notwithstanding a failure by one or more Lenders to execute a counterpart hereof, this Agreement shall become effective on the Closing Date so long as all Agents and Borrowers shall have executed and delivered a counterpart hereof and all conditions described in subsection 4.1 have been satisfied or waived in accordance with the terms hereof. Notwithstanding anything to the contrary contained herein, but subject to the 111 provisions of subsection 9.25, the Loan of any Lender that fails to execute a counterpart hereof on the Closing Date shall not be distributed to such Lender until such Lender executes a counterpart of this Agreement and of the Intercreditor Agreement. 9.24 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement, express 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 Indemnitees and Released Parties related to Agents, and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. 9.25 DISBURSING AGENTS; NON-CONFIRMING HOLDERS. A. PROVISIONS APPLICABLE TO NON-CONFIRMING HOLDERS AND DISBURSING AGENTS. Anything contained in this Agreement or the other Loan Documents to the contrary notwithstanding, the provisions of this subsection 9.25 shall apply with respect to (I) each Non-Confirming Holder (this and other capitalized terms used in this subsection 9.25 and not otherwise defined in this Agreement are used as defined in subsection 9.25B), (II) each of the Disbursing Agents, and (III) each Loan that would, but for this subsection 9.25, be held by each Non-Confirming Holder on the Closing Date. (i) Notwithstanding anything in subsection 2.1A to the contrary, on the Closing Date and the Determination Date, a portion of the Loans equal to the percentage of all Loans reflected on Schedule 2.1 opposite the name of the Allowed Class 6 Disbursing Agent shall be allocable to the Allowed Class 6 Disbursing Agent subject the terms and conditions set forth in this subsection 9.25, and a portion of the Loans equal to the percentage of all Loans reflected on Schedule 2.1 opposite the name of the Debenture Disbursing Agent shall be allocable to the Debenture Disbursing Agent subject to the terms and conditions set forth in this subsection 9.25 (including any adjustments as a result of any deemed assignments of such Loans by the Debenture Disbursing Agent pursuant to this subsection 9.25). Notwithstanding that the Loans referenced in the preceding sentence are reflected on Schedule 2.1 as being allocable to Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent, as the case may be, none of the Debenture Disbursing Agent, the Allowed Class 6 Disbursing Agent nor any of the Non-Confirming Holders shall receive any Loans (and each of such Loans and the status (and rights and obligations) of any such Persons as a Lender or as a holder of Debenture Interests or Allowed Class 6 Interests shall be suspended) until (a) in the case of the Debenture Disbursing Agent and the Non-Confirming Holders with respect to Debenture Interests, the Debenture Closing Date, or (b) in the case of the Allowed Class 6 Disbursing Agent and the Non-Confirming Holders with respect to Allowed Class 6 Interests, the Allowed Class 6 Closing Date; provided, however, that the foregoing provisions of this sentence shall cease to apply with respect to any Non-Confirming Holder that becomes a Lender in accordance with clause (iii) of this subsection 9.25A. On the Debenture Closing Date and the Determination Date (if the Debenture Closing Date shall have occurred prior to the Determination Date), the portion of the Loan allocable to the Debenture Disbursing Agent as aforesaid, the delivery of which at such 112 time remains suspended pursuant to the preceding sentence, shall be distributed to the Debenture Disbursing Agent; and on the Allowed Class 6 Closing Date and the Determination Date (if the Allowed Class 6 Closing Date shall have occurred prior to the Determination Date), the portion of the Loan allocable to the Allowed Class 6 Disbursing Agent as aforesaid, the delivery of which at such time remains suspended pursuant to the preceding sentence, shall be distributed to the Allowed Class 6 Disbursing Agent. All Loans that would otherwise be distributed on the Allowed Class 6 Closing Date or the Determination Date (if the Allowed Class 6 Closing Date shall have occurred prior to the Determination Date) on account of Allowed Class 6 Interests shall be held on such date by the Allowed Class 6 Disbursing Agent; and all Loans that would otherwise be distributed on the Debenture Closing Date or the Determination Date (if the Debenture Closing Date shall have occurred prior to the Determination Date) on account of 9.25% Debentures shall be held on such date by the Debenture Disbursing Agent. (ii) For so long as Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent holds Loans that would otherwise have been Loans deemed made directly by or distributed directly to Non-Confirming Holders, such Disbursing Agent shall be the Lender of record with respect to such Loans held by it (and the corresponding Commitments and Loan Exposure), except that no Disbursing Agent shall be deemed a "Lender" for purposes of voting on any matters (including the granting of any approvals, consents or waivers) with respect to any of the Loan Documents; provided, however, that this clause (ii) shall not be construed as permitting, without the prior written consent of the relevant Non-Confirming Holder, (a) modification of the rights, duties or obligations under the Loan Documents (other than with respect to voting on any matters) of any Disbursing Agent or of the Non-Confirming Holders for whom such Disbursing Agent serves as record Lender, without concurrent and corresponding modification of the rights, duties and obligations of Lenders other than such Disbursing Agent, (b) the Loan Documents to be modified to require that any Disbursing Agent or Non-Confirming Holder make any loan, advance or other extension of credit to, or incur any additional obligation to, any Borrower or any other Person on or after the Closing Date, other than the Loans and monetary obligations pursuant to the provisions of the Credit Documents in effect on the Closing Date, or (c) modification of the provisions of this subsection 9.25 in a manner that is adverse in any material respect to the Disbursing Agents or the Non-Confirming Holders. For the avoidance of any doubt, the Loans, Commitments and Loan Exposure of each Disbursing Agent shall be excluded in calculating the number or percentage of Loans, Commitments, Loan Exposure and/or Lenders whose votes are required and obtained (or not obtained, as the case may be) for purposes of voting on any matters with respect to any of the Loan Documents. (iii) Each Non-Confirming Holder shall hold a Debenture Interest or an Allowed Class 6 Interest, as applicable, and shall not be deemed a Lender for any purpose under this Agreement, except that a Non-Confirming Holder may elect to become a Lender solely with respect to its Debenture Interest by executing and delivering to Administrative Agent and Disbursing Agent a Lender Acknowledgement and satisfying the other applicable requirements for becoming a Lender set forth in this subsection 9.25; provided, that a Non-Confirming Holder shall not be permitted at any time to become a Lender with respect to its Allowed Class 6 Interest, and a Non- 113 Confirming Holder may not execute and deliver to Administrative Agent a Lender Acknowledgement with respect to the Debenture Interest held by it except during the following periods: (a) the 45-day period commencing with the Closing Date, (b) the 30-day period after the date of delivery to the Debenture Disbursing Agent of any notice described in clause (v) of this subsection 9.25A, and (c) solely in the case of a Non-Confirming Holder who is not a Non-Confirming Holder as of the Debenture Closing Date, the 30-day period after such Non-Confirming Holder validly receives a Debenture Interest by assignment or purchase from another Non-Confirming Holder. Each Lender Acknowledgement shall apply with respect to all Debenture Interests of such Non-Confirming Holder, and upon receipt by Administrative Agent of such executed Lender Acknowledgement (together with, if such Non-Confirming Holder was not a Non-Confirming Holder on the Debenture Closing Date, a representation that such Non-Confirming Holder is an Eligible Assignee and payment of a processing and recordation fee to Administrative Agent of $5,000 (in addition to any fee payable to the Debenture Disbursing Agent)), any forms, certificates or other evidence with respect to United States federal income tax withholding matters that an assignee of Loans would be required to deliver to Administrative Agent pursuant to subsection 9.1B(i), and the ratable portion of the Agent Indemnification Amount (if any) owed with respect to the Loans to be deemed assigned by the Debenture Disbursing Agent to such Non-Confirming Holder, Administrative Agent shall accept such Lender Acknowledgment, the Debenture Disbursing Agent shall confirm to Administrative Agent the amount of the Debenture Interest held by such Non-Confirming Holder, such Non-Confirming Holder shall cease to be a Non-Confirming Holder and shall thereupon become a Lender for all purposes under the Loan Documents holding a Loan and Commitment in amounts equal to the amounts so confirmed by the Debenture Disbursing Agent, the Debenture Disbursing Agent shall be deemed to have assigned such Loan and Commitment to such Lender on such date for all purposes of this Agreement, and Administrative Agent shall record such assignment information in the Register. (iv) The disbursing agreement entered into by the Debenture Disbursing Agent shall establish the procedures and conditions regarding the sale, assignment or transfer by Non-Confirming Holders of the Debenture Interests, and the Debenture Disbursing Agent shall not amend, modify or waive such procedures and conditions and shall not permit Non-Confirming Holders to sell, assign or transfer such interests without complying with such procedures and conditions, and shall not recognize any purported sale, assignment or transfer that fails to so comply. (v) Borrowers shall notify Administrative Agent and the Debenture Disbursing Agent in writing not less than 30 days prior to seeking any amendment, waiver or other modification to the Loan Documents that would require the approval or concurrence of all Lenders. Any notice provided pursuant to this clause (v) shall be provided by facsimile transmission and shall be deemed to have been given upon receipt of such facsimile by Administrative Agent and the Debenture Disbursing Agent in complete and legible form. Promptly after receipt of such notice, the Debenture Disbursing Agent shall notify the relevant Non-Confirming Holders promptly in accordance with its procedures established for such purposes. No such amendment, 114 waiver or modification shall be deemed to be effective prior to the expiration of such 30-day period. (vi) Until such time as the Indemnity Shortfall (as defined below), if any, of a Disbursing Agent shall have been reduced to zero, any payment of amounts with respect to the Loan of such Disbursing Agent shall be applied first to pay such Disbursing Agent's unpaid portion of the Agent Indemnification Amount (as defined below), so as to reduce the Indemnity Shortfall of such Disbursing Agent, and Administrative Agent shall make such application prior to paying any amounts with respect to the Loans of such Disbursing Agent. (vii) No Disbursing Agent shall be entitled after the Closing Date to receive any non-public information obtained pursuant to the requirements of this Agreement that has been identified by Company as confidential, no Agent shall be required to provide any such information to any of the Disbursing Agents. Nothing in this Agreement, express or implied, shall be construed to confer upon any Non-Confirming Holder that does not become a Lender any legal or equitable right, remedy or claim under or by reason of this Agreement; no Agent shall have, by reason of this Agreement or any of the other Loan Documents, a fiduciary relationship in respect of any Disbursing Agent or any Non-Confirming Holder; 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 to any Disbursing Agent or any Non-Confirming Holder in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. (viii) All payments required to be made pursuant to any provision of the Loan Documents on account of the Loans held by a Disbursing Agent shall be made to such Disbursing Agent (a) in the case of payments to the Debenture Disbursing Agent, for distribution by the Debenture Disbursing Agent to Non-Confirming Holders on account of Debenture Interests, and (b) in the case of payments to the Allowed Class 6 Disbursing Agent, for distribution by the Allowed Class 6 Disbursing Agent to Non-Confirming Holders on account of Allowed Class 6 Interests. (ix) No recourse shall be had for the payment of any of the Agent Indemnification Obligations against any Disbursing Agent or any Non-Confirming Holder individually or personally, or any successor or Affiliate of such Disbursing Agent or such Non-Confirming Holder, or any of the assets of any of the aforesaid Persons, it being understood that the sole remedy available to Agents pursuant to the Loan Documents with respect to the Agent Indemnification Amount owed by Non-Confirming Holders shall be deduction of the amount of the Indemnity Shortfall from payments otherwise required to be made to such Disbursing Agents pursuant to the Loan Documents, as set forth in clause (vi) above and in the Intercreditor Agreement. (x) Each Disbursing Agent shall maintain (and make available for inspection by Administrative Agent upon reasonable prior notice at reasonable times) a register for the recordation of, and shall record, the names and addresses of each Non-Confirming Holder and the Debenture Interest or Allowed Class 6 Interest (to the extent 115 determinable), as the case may be, of such Non-Confirming Holder from time to time. Administrative Agent and Disbursing Agent shall deem and treat the Persons listed as Non-Confirming Holders in such register as the holders and owners of the corresponding Debenture Interests or Allowed Class 6 Interests listed therein for all purposes hereof, and any such recordation shall be conclusive and binding on Agents and Borrowers, and each Agent shall be entitled to rely, and shall be fully protected in relying, upon such register. Failure to make any such recordation, or any error in such recordation, shall not affect any Debenture Interest or Allowed Class 6 Interest. B. DEFINITIONS. As used in this subsection 9.25, the following terms have the following meanings: "AGENT INDEMNIFICATION AMOUNT" means, as of any date, the aggregate cumulative amount for which Agents and/or Collateral Agent have requested compensation, reimbursement or indemnification from Lenders under the Loan Documents. "ALLOWED CLASS 6 CLAIMS" has the meaning assigned to that term in the Approved Plan of Reorganization. "ALLOWED CLASS 6 CLOSING DATE" means the date on which the Bankruptcy Court shall have entered the Allowed Class 6 Disbursing Agent Authorization Order. "ALLOWED CLASS 6 DISBURSING AGENT" means U.S. Bank National Association, in its capacity as disbursing agent for the holders of the Allowed Class 6 Claims under the Approved Plan of Reorganization, the Confirmation Order, the Allowed Class 6 Disbursing Agent Authorization Order and the agency agreement relating thereto to be entered into on or after the Closing Date. "ALLOWED CLASS 6 DISBURSING AGENT AUTHORIZATION ORDER" means an order or orders of the Bankruptcy Court authorizing U.S. Bank National Association to enter into this Agreement as a Lender and to serve as the Allowed Class 6 Disbursing Agent with respect to Loans allocable to the Allowed Class 6 Disbursing Agent as described in the first sentence of subsection 9.25A(i) above. "ALLOWED CLASS 6 INTEREST" means, with respect to any Non-Confirming Holder, (i) prior to the Closing Date, an Allowed Class 6 Claim of such Non-Confirming Holder, and (ii) on and after the Closing Date, the interest held by such Non-Confirming Holder in any Loan distributed on the Allowed 6 Closing Date or the Determination Date to the Allowed Class 6 Disbursing Agent. "DEBENTURE DISBURSING AGENT AUTHORIZATION ORDER" means an order or orders of the Bankruptcy Court authorizing Wells Fargo Bank, N.A. to enter into this Agreement as a Lender and to serve as the Debenture Disbursing Agent with respect to Loans allocable to the Debenture Disbursing Agent as described in the first sentence of subsection 9.25A(i) above. 116 "DEBENTURE DISBURSING AGENT" means Wells Fargo Bank, N.A., in its capacity as disbursing agent for the holders of the 9.25% Debentures under the Approved Plan of Reorganization, the Confirmation Order, the Debenture Disbursing Agent Authorization Order and the disbursing agreement relating thereto to be entered into on or after the Closing Date. "DEBENTURE INTEREST" means, with respect to any Non-Confirming Holder, (i) prior to the Debenture Closing Date, the claim in respect of the 9.25% Debentures held by such Non-Confirming Holder, and (ii) on and after the Debenture Closing Date, the interest held by such Non-Confirming Holder in any Loan distributed on the Debenture Closing Date or the Determination Date to the Debenture Disbursing Agent; provided, however, that any Debenture Interest shall cease to be a Debenture Interest at such time that the Non-Confirming Holder with respect thereto shall become a Lender in accordance with subsection 9.25. "DETERMINATION DATE" has the meaning assigned to that term in the Approved Plan of Reorganization. "DISBURSING AGENT" means either Debenture Holder Disbursing Agent or Allowed Class 6 Disbursing Agent, and "DISBURSING AGENTS" means each of them. "INDEMNITY SHORTFALL" means, at any date, with respect to any Disbursing Agent, the excess, if any, of (i) the lesser of (x) such Disbursing Agent's applicable Pro Rata Share of the Agent Indemnification Amount (calculated as if no Lender had funded its Pro Rata Share of such amount) and (y) the principal amount of the Loan(s) of such Disbursing Agent, over (ii) the aggregate of all amounts paid (whether through direct payment or through deduction by Administrative Agent as described in subsection 9.25A(vi)) by such Disbursing Agent, in respect of the Loan of such Disbursing Agent, on account of amounts for which Agents and/or Collateral Agent have requested compensation, reimbursement or indemnification from Lenders under the Loan Documents. "LENDER ACKNOWLEDGMENT" means an acknowledgement and counterpart to this Agreement and to the Intercreditor Agreement in substantially the form of Exhibit XI annexed hereto. "NON-CONFIRMING HOLDER" means, on any date of determination, a Person that holds on such date a Debenture Interest or an Allowed Class 6 Interest in Loans initially allocable in accordance with subsection 9.25A(i) to the Debenture Disbursing Agent or the Allowed Class 6 Disbursing Agent, respectively. "DEBENTURE CLOSING DATE" means the date on which the Bankruptcy Court shall have entered the Debenture Disbursing Agent Authorization Order. "SETTLEMENT DISTRIBUTION" has the meaning assigned to that term in the Approved Plan of Reorganization. 117 C. EXECUTION AND DELIVERY; AUTHORITY. The Debenture Holder Disbursing Agent is executing and delivering this Agreement and the Intercreditor Agreement as the agent for the Non-Confirming Holders on account of the 9.25% Debentures under the Approved Plan of Reorganization, the Confirmation Order and pursuant the Authorization Order. The Allowed Class 6 Disbursing Agent is executing and delivering this Agreement and the Intercreditor Agreement as the agent for the Non-Confirming Holders holding Loans originally representing Allowed Class 6 Claims under the Approved Plan of Reorganization and the Confirmation Order. D. OTHER PROVISIONS UNAFFECTED. Except as expressly set forth in this subsection 9.25, the terms, provisions and conditions of this Agreement and the other Loan Documents applicable to Lenders and the Loans are applicable to the Disbursing Agents and their respective Loans. [Remainder of page intentionally left blank] 118 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 POWER INTERNATIONAL HOLDINGS, INC., as Borrower By: __________________________________ Name: Ashish Sarkar Title: Authorized Officer Notice Address for Borrower: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson COVANTA POWER DEVELOPMENT, INC. COVANTA POWER DEVELOPMENT OF BOLIVIA, INC. COVANTA WASTE TO ENERGY OF ITALY, INC. OPI QUEZON, INC., as Borrowers By: __________________________________ Name: Anthony Orlando Title: Authorized Officer Notice Address for Borrowers: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Administrative Agent By:___________________________________ Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A., as Administrative Agent 555 So. Flower Street, 17th Floor CA9-706-17-54 Los Angeles, California 90071 Attention: David Price, Vice President Voice: (213) 345-1300 Fax: (415) 503-5011 email: david.price@bankofamerica.com For all operational issues for Loans: Bank of America, N.A., as Administrative Agent 901 Main St., 14th Floor MC: TX1-492-14-11 Dallas, Texas 75202 Phone: 214-209-0987 Fax: 214-290-8370 Attention: Richard A. Piland E-mail: richard.a.piland@bankofamerica.com BANK OF AMERICA, N.A., as Co-Arranger and as a Lender By:_______________________________ Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A. 555 California Street San Francisco, CA 94104-1503 Phone: 415-622-4438 Fax: 415-622-0234 Attention: Henry Yu Email: henry.yu@bankofamerica.com DEUTSCHE BANK SECURITIES, INC., as Documentation Agent and Co-Arranger By:_______________________________ Name: Title: By:_______________________________ Name: Title: Notice Address: Attention: Deutsche Bank Securities, Inc. 60 Wall Street New York, NY 10005 BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Lender By:_______________________________ Name: Title: BANK OF TOKYO MITSUBISHI (CANADA), as a Lender By:_______________________________ Name: Angelo Bisutti Title: Senior Vice President BAYERISCHE HYPO-UND VEREINSBANK AG, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: BEAR STEARNS & CO. INC., as a Lender By:______________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Lender By:______________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, as a Lender By:_______________________________ Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH, as a Lender By:_______________________________ Name: Keith Braun Title: Director By:_______________________________ Name: Patrick Dowling Title: Vice President HSBC BANK USA, as a Lender By:_______________________________ Name: Title: IIB BANK LIMITED, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: JPMORGAN CHASE BANK (FORMERLY KNOWN AS THE CHASE MANHATTAN BANK), as a Lender By:_______________________________ Name: Michael Lancia Title: Vice President KBC BANK NV, NEW YORK BRANCH, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: Notice Address: Attention: Rose Pagan KBC Bank NV, New York Branch 125 West 55th Street New York, NY 10019 Telephone No.: (212) 541-0657 Fax No.: (212) 956-5581 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: Notice Address: 420 Fifth Avenue New York, New York 10018 Attention: Structured Finance Telephone: 212-703-5303 Telecopier: 212-703-5262 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as a Lender By:_______________________________ Name: Title: MINTO APARTMENTS LIMITED, as a Lender By:_______________________________ Name: Title: QUANTUM PARTNERS LDC C/O SOROS FUND MANAGEMENT LLC, as a Lender By:_______________________________ Name: Title: SPECIAL SITUATIONS INVESTING GROUP, as a Lender By:_______________________________ Name: Title: SUNTRUST BANK, as a Lender By:_______________________________ Name: Title: TD SECURITIES (USA) INC., as a Lender By:_______________________________ Name: Title: THE BANK OF NEW YORK, as a Lender By:_______________________________ Name: Title: THE TORONTO-DOMINION BANK, as a Lender By:_______________________________ Name: Title: THE TORONTO-DOMINION BANK, as a Lender(1) By:_______________________________ Name: Title: - ------------- (1) With respect to the interest acquired from Sun Life Assurance Company of Canada (formerly known as Clarica Life Insurance Company) and HSBC Bank Canada on October 28, 2003 by assignment. UBS LOAN FINANCE LLC, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION (FORMERLY KNOWN AS FIRSTAR BANK, N.A.), as a Lender By:_______________________________ Name: Alan R. Milster Title: Vice President WACHOVIA BANK, NATIONAL ASSOCIATION, as a Lender By:_______________________________ Name: Joel Thomas Title: Director WESTLB AG (FORMERLY KNOWN AS WESTDEUTSCHE LANDESBANK GIROZENTRALE), NEW YORK BRANCH, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: 2005646 ONTARIO INC., as a Lender By:_______________________________ Name: Title: 4212657 CANADA INC., SUCCESSOR TO DRESDNER BANK CANADA, as a Lender By:_______________________________ Name: Title: By:_______________________________ Name: Title: EX-10.1.U 12 y95330exv10w1wu.txt CREDIT AGREEMENT CREDIT AGREEMENT DATED AS OF MARCH 10, 2004 AMONG COVANTA POWER INTERNATIONAL HOLDINGS, INC. AND EACH OF ITS SUBSIDIARIES PARTY HERETO, THE LENDERS LISTED HEREIN, AS LENDERS, DEUTSCHE BANK AG, NEW YORK BRANCH AS ADMINISTRATIVE AGENT TABLE OF CONTENTS
PAGE SECTION 1. DEFINITIONS.................................................................... 1 1.1 Certain Defined Terms.............................................................. 1 1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations Under Agreement.................................................................... 30 1.3 Other Definitional Provisions and Rules of Construction............................ 31 SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS..................................... 31 2.1 Commitments; Making of Loans; the Register; Optional Notes......................... 31 2.2 Interest on the Loans.............................................................. 34 2.3 Fees............................................................................... 36 2.4 Repayments, Prepayments and Reductions in Commitments; General Provisions Regarding Payments; Application of Proceeds of Collateral and Payments Under CPIH Guaranty................................................... 37 2.5 Use of Proceeds.................................................................... 41 2.6 Special Provisions Governing Eurodollar Rate Loans................................. 42 2.7 Increased Costs; Taxes; Capital Adequacy........................................... 44 2.8 Statement of Lenders; Obligation of Lenders to Mitigate............................ 47 2.9 Defaulting Lender.................................................................. 48 2.10 Joint and Several Liability; Payment Indemnifications.............................. 49 2.11 Rights of Subrogation, Contribution, Etc........................................... 49 SECTION 3. CONDITIONS TO LOANS............................................................ 50 3.1 Conditions to Closing Date......................................................... 50 3.2 Conditions to All Loans............................................................ 59 SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES....................................... 60 4.1 Organization, Powers, Qualification, Good Standing, Business and Subsidiaries....................................................................... 60 4.2 Authorization of Borrowing, etc.................................................... 61 4.3 Financial Condition................................................................ 62 4.4 No Material Adverse Change; No Restricted Payments................................. 63 4.5 Title to Properties; Liens; Real Property; Intellectual Property................... 63 4.6 Litigation; Adverse Facts.......................................................... 64 4.7 Payment of Taxes................................................................... 64
-i- TABLE OF CONTENTS (continued)
PAGE 4.8 Performance of Agreements; Material Contracts...................................... 64 4.9 Governmental Regulation............................................................ 65 4.10 Securities Activities.............................................................. 65 4.11 Employee Benefit Plans............................................................. 65 4.12 Certain Fees....................................................................... 66 4.13 Environmental Protection........................................................... 67 4.14 Employee Matters................................................................... 67 4.15 Matters Relating to Collateral..................................................... 67 4.16 Disclosure......................................................................... 68 4.17 Cash Management System............................................................. 69 4.18 Matters Relating to Loan Parties................................................... 69 4.19 Investigation...................................................................... 70 4.20 Matters Relating to Bankruptcy Proceedings......................................... 70 4.21 Subordinated Indebtedness.......................................................... 71 4.22 Reporting to IRS................................................................... 71 SECTION 5. COMPANY'S AFFIRMATIVE COVENANTS................................................ 71 5.1 Financial Statements and Other Reports............................................. 71 5.2 Existence, etc..................................................................... 76 5.3 Payment of Taxes and Claims; Tax................................................... 77 5.4 Maintenance of Properties; Insurance; Application of Net Insurance/ Condemnation Proceeds................................................... 77 5.5 Inspection Rights; Lender Meeting.................................................. 79 5.6 Compliance with Laws, etc.......................................................... 80 5.7 Environmental Matters.............................................................. 80 5.8 Execution of the Personal Property Collateral Documents After the Closing Date....................................................................... 82 5.9 Matters Relating to Real Property Collateral....................................... 82 5.10 Deposit Accounts; Repatriation of Foreign Cash..................................... 83 5.11 Further Assurances................................................................. 83 5.12 Most Favored Nations Payments...................................................... 85 SECTION 6. BORROWERS' NEGATIVE COVENANTS.................................................. 85
-ii- TABLE OF CONTENTS (continued)
PAGE 6.1 Indebtedness....................................................................... 85 6.2 Liens and Related Matters.......................................................... 87 6.3 Investments; Acquisitions.......................................................... 89 6.4 Contingent Obligations; Performance Guaranties..................................... 91 6.5 Restricted Payments................................................................ 92 6.6 Financial Covenants................................................................ 93 6.7 Restriction on Fundamental Changes; Asset Sales.................................... 93 6.8 Transactions with Shareholders and Affiliates...................................... 95 6.9 Restriction on Leases.............................................................. 96 6.10 [Intentionally Omitted]............................................................ 96 6.11 Conduct of Business................................................................ 96 6.12 Amendments to Related Agreements, Debt Documentation and Organizational Documents........................................................... 96 6.13 End of Fiscal Years; Fiscal Quarters............................................... 97 6.14 Amendment to Pension Plans......................................................... 98 SECTION 7. EVENTS OF DEFAULT.............................................................. 98 7.1 Failure to Make Payments When Due.................................................. 98 7.2 Default in Other Agreements........................................................ 98 7.3 Breach of Certain Covenants........................................................ 99 7.4 Breach of Warranty................................................................. 99 7.5 Other Defaults Under Loan Documents................................................ 99 7.6 Involuntary Bankruptcy; Appointment of Receiver, etc............................... 99 7.7 Voluntary Bankruptcy; Appointment of Receiver, etc................................. 100 7.8 Judgments and Attachments.......................................................... 100 7.9 Dissolution........................................................................ 100 7.10 Employee Benefit Plans............................................................. 100 7.11 Material Adverse Effect............................................................ 101 7.12 Change in Control.................................................................. 101 7.13 Invalidity of Intercreditor Agreement; Failure of Security; Repudiation of Obligations........................................................................ 101 7.14 Termination of Material Contracts.................................................. 101
-iii- TABLE OF CONTENTS (continued)
PAGE 7.15 Default under Existing IPP International Project Guaranties........................ 102 SECTION 8. ADMINISTRATIVE AGENT........................................................... 102 8.1 Appointment........................................................................ 102 8.2 Powers and Duties; General Immunity................................................ 103 8.3 Independent Investigation by Lenders; No Responsibility For Appraisal of Creditworthiness................................................................... 104 8.4 Right to Indemnity................................................................. 105 8.5 Successor Agents................................................................... 105 8.6 Collateral Documents and Intercreditor Agreement................................... 105 8.7 Administrative Agent May File Proofs of Claim...................................... 106 SECTION 9. MISCELLANEOUS.................................................................. 107 9.1 Successors and Assigns; Assignments and Participations in Loans.................... 107 9.2 Expenses........................................................................... 110 9.3 Indemnity.......................................................................... 111 9.4 Set-Off............................................................................ 112 9.5 Ratable Sharing.................................................................... 112 9.6 Amendments and Waivers............................................................. 113 9.7 Independence of Covenants.......................................................... 114 9.8 Notices; Effectiveness of Signatures............................................... 114 9.9 Survival of Representations, Warranties and Agreements............................. 115 9.10 Failure or Indulgence Not Waiver; Remedies Cumulative.............................. 115 9.11 Marshalling; Payments Set Aside.................................................... 116 9.12 Severability....................................................................... 116 9.13 Obligations Several; Independent Nature of Lenders' Rights; Damage Waiver............................................................................. 116 9.14 Release of Security Interest....................................................... 116 9.15 Headings........................................................................... 117 9.16 Applicable Law..................................................................... 117 9.17 Construction of Agreement.......................................................... 117 9.18 Consent to Jurisdiction and Service of Process..................................... 117 9.19 Waiver of Jury Trial............................................................... 118
-iv- TABLE OF CONTENTS (continued)
PAGE 9.20 Confidentiality.................................................................... 119 9.21 Release of Parties; Waivers........................................................ 119 9.22 No Fiduciary Duty.................................................................. 120 9.23 Counterparts; Effectiveness........................................................ 120 9.24 No Third Party Beneficiaries....................................................... 121
-v- EXHIBITS I. FORM OF NOTE II. FORM OF COMPLIANCE CERTIFICATE III. FORM OF ASSIGNMENT AGREEMENT IV. FORM OF NOTICE OF BORROWING V. FORM OF NOTICE OF CONVERSION/CONTINUATION VI. FORM OF OPINIONS OF LOAN PARTIES' COUNSEL VII. FORM OF SECURITY AGREEMENT VIII. FORM OF CEA STOCK PLEDGE AGREEMENT IX. FORM OF INTERCREDITOR AGREEMENT X. FORM OF MORTGAGE vi SCHEDULES 1.1A PRINCIPAL LEASE, SERVICE AND OPERATING AGREEMENTS 1.1B BUDGET 2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES 3.1C CORPORATE STRUCTURE 3.1P CASH MANAGEMENT SYSTEM 4.1 COMPANY AND SUBSIDIARIES 4.5B REAL PROPERTY 4.5C INTELLECTUAL PROPERTY 4.6 LITIGATION 4.8A CERTAIN ALLEGED DEFAULTS 4.8C MATERIAL CONTRACTS 4.11 MATTERS RELATING TO EMPLOYEE BENEFIT PLANS 4.13 ENVIRONMENTAL MATTERS 4.14 EMPLOYEE MATTERS (BATAAN) 6.1(v) CERTAIN EXISTING INDEBTEDNESS 6.2 CERTAIN EXISTING LIENS 6.3(v) CERTAIN EXISTING INVESTMENTS 6.4(iii) CERTAIN EXISTING CONTINGENT OBLIGATIONS 6.6E STIPULATED ADJUSTED EBITDA 6.8 CERTAIN TRANSACTIONS WITH AFFILIATES vii COVANTA POWER INTERNATIONAL HOLDINGS, INC. CREDIT AGREEMENT This CREDIT AGREEMENT is dated as of March 10, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("COMPANY" or "CPIH"); EACH OF COMPANY'S SUBSIDIARIES LISTED ON THE SIGNATURE PAGES HEREOF (each such Subsidiary and Company individually referred to herein as a "BORROWER" and, collectively (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 PERSONS IDENTIFIED ON THE SIGNATURE PAGES HEREOF AS LENDERS (each individually referred to herein as a "LENDER" and collectively as "Lenders"); DEUTSCHE BANK AG, NEW YORK BRANCH ("DEUTSCHE BANK"), as administrative agent for Lenders (in such capacity, "ADMINISTRATIVE AGENT" or "AGENT"). R E C I T A L S WHEREAS, on April 1, 2002 (the "PETITION DATE"), Covanta Energy Corporation, a Delaware corporation ("COVANTA"), and certain of its Domestic Subsidiaries, including Borrowers (collectively, the "DEBTORS"), filed voluntary petitions for relief under the Bankruptcy Code with the United States Bankruptcy Court for the Southern District of New York (such proceedings being jointly administered under Case Nos. 02-40826 through 02-40949, 02-16322, 03-13679 through 03-13685, and 03-13687 through 03-13709 are hereinafter referred to as the "CHAPTER 11 CASES"), and each Borrower has operated its businesses and managed its properties as a debtor-in-possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; WHEREAS, the Debtors have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; WHEREAS, in connection with the Plan of Reorganization, Borrowers have requested that certain of the Lenders provide priority secured credit facilities on a post-bankruptcy basis on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, Borrowers, Lenders and Administrative Agent agree as follows: SECTION 1. DEFINITIONS 1.1 CERTAIN DEFINED TERMS. The following terms used in this Agreement shall have the following meanings: "ADJUSTED EBITDA" means, for any period, (i) without duplication, the aggregate amount derived by combining the amounts for such period of (a) "Operating income (loss)", plus (b) Net Depreciation and Amortization Expense, minus (ii) the amount (expressed as a positive number) for such period of "Minority interests", as each such line item referred to in clause (i)(a) and clause (ii) is reflected in Company's consolidated statement of income prepared 1 in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled. "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 8.5. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or a Project manager or operator), whether through the ownership of voting securities or by contract or otherwise. "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 8.5. "AGGREGATE AMOUNTS DUE" has the meaning assigned to that term in subsection 9.5. "AGREEMENT" means this Credit Agreement dated as of March 10, 2004, as it may be amended, restated, supplemented or otherwise modified from time to time. "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. "APPROVED PLAN OF REORGANIZATION" has the meaning assigned to that term in subsection 3.1E. "ASSET SALE" means (A) the sale by CEA of any of the Capital Stock of Company to any Person or (B) the sale by Company or any of its Subsidiaries to any Person of (i) any of the Capital 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, in each case so long as not less than 90% of the consideration received for such assets shall be cash); 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 (provided, that sales and discounts of not more than $2,000,000 in face value of accounts receivable may be excluded from Asset Sales pursuant to this clause (1), and the sole consideration received in 2 connection with any such sale of accounts receivable shall be cash), (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 120 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 (provided, that any cash received in connection with any such sale or exchange that is not expended as part of such sale or exchange to obtain such replacement items of equipment, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus property in the ordinary course of business (provided, that not less than 75% of the consideration, if any, received in connection with any such disposal shall be cash, and any such cash received, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (4) any discount or compromise of notes or accounts receivable for less than the face value thereof, to the extent Company deems necessary in order to resolve disputes that occur in the ordinary course of business, or (5) any sale of shares in the Madurai Project Entity permitted under subsection 6.7(vi). "ASSIGNMENT AGREEMENT" means an Assignment Agreement in substantially the form of Exhibit III annexed hereto. "ASSUMPTIONS" has the meaning assigned to that term in subsection 4.11D. "AVAILABLE CASH" has the meaning given to that term in subsection 2.4A(iii). "BANK OF AMERICA" means Bank of America, N.A. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. "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 7.00%. "BORROWERS" has the meaning assigned to that term in the introduction to this Agreement. "BUDGET" means (i) with respect to Fiscal Year 2004, the budget delivered by Company to Lenders on or prior to the Closing Date pursuant to subsection 3.1G, setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar 3 month and each Fiscal Quarter from the Closing Date through December 31, 2004, and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2007, as such budget may be supplemented pursuant to subsection 5.1(i), and (ii) with respect to each Fiscal Year after 2004, the budget delivered by Company to Lenders pursuant to subsection 5.1(xvi), setting forth projected cash receipts and expenditures for Company and its Subsidiaries for each calendar month and Fiscal Quarter during such Fiscal Year and projected net cash flows for Company and its Subsidiaries for each Fiscal Year thereafter through December 31, 2007, as such budget may be supplemented pursuant to subsection 5.1(i). "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York or is a day on which banking institutions located in such state are authorized or required by law or other governmental action to close. "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. "CASH MANAGEMENT SYSTEM" means the cash management system of Company and its Subsidiaries in the United States described in Schedule 3.1P annexed hereto, as such Cash Management System may be modified pursuant to subsection 5.10. "CASH ON HAND" means, as of any date of determination, the aggregate amounts on deposit in the Cash Management System in the United States as of the close of business on the preceding Business Day. "CEA" means Covanta Energy Americas, Inc., a Delaware corporation. "CEA STOCK PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by CEA on the Closing Date, substantially in the form of Exhibit VIII annexed hereto (it being understood that such Pledge Agreement shall contain a covenant requiring CEA to pay to Collateral Agent any proceeds received by it from or in connection with the sale of any of the common stock of Company to any Person), as such Pledge Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "CERCLA" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "CHANGE IN CONTROL" means the occurrence of any one or more of the following: (i) DHC shall cease to own, directly, 80% or more of the outstanding Capital Stock of Covanta; (ii) Covanta shall cease to own, directly or indirectly, 100% of the outstanding Capital Stock of CEA; (iii) CEA shall cease to own, directly, 100% of the outstanding common stock of Company; or (iv) the occurrence of a change in the composition of the Governing Body of 4 Company such that less than one of the members of such Governing Body is a Continuing Member. "CHAPTER 11 CASES" has the meaning assigned to that term in the recitals to this Agreement. "CLOSING DATE" means the date on which each of the conditions described in subsection 3.1 have been satisfied or waived by Administrative Agent and Requisite Lenders (or such other Lenders as may be required under subsection 9.6). "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, as security for the Obligations. "COLLATERAL AGENT" means Bank of America, in its capacity as Collateral Agent under the Intercreditor Agreement and the Collateral Documents. "COLLATERAL DOCUMENTS" means the Security Agreement, the CEA Stock Pledge Agreement, the Foreign Pledge Agreements, the Control Agreements, the Mortgages and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Loan Party pursuant to this Agreement or any of the other Loan Documents, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time. "COMMITMENT" means the commitment of a Lender to make Loans to Borrowers pursuant to subsection 2.1A, and "COMMITMENTS" means such commitments of all Lenders in the aggregate. "COMMITMENT FEE PERCENTAGE" means, on any date of determination, a per annum rate equal to 0.50%. "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 (i) the generation and sale of electricity or (ii) municipal waste management. "COMPLIANCE CERTIFICATE" means a certificate substantially in the form of Exhibit II annexed hereto. 5 "CONFIRMATION ORDER" means the Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March 5, 2004 in the Chapter 11 Cases, without modification, revision or amendment. "CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, Consolidated Interest Expense for such period to the extent paid or payable in cash. "CONSOLIDATED FACILITIES CAPITAL EXPENDITURES" means, for any period, the aggregate of all cash expenditures by Company and its Subsidiaries during that period 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 that or any other period. "CONSOLIDATED INTEREST EXPENSE" means, for any period, (i) total interest expense, net of interest income, of Company and its Subsidiaries on a consolidated basis with respect to all outstanding Indebtedness of Company and its Subsidiaries to the extent such Indebtedness is or is required to be reflected on the consolidated balance sheet of Company and its Subsidiaries in conformity with GAAP, but excluding any Indebtedness consisting of Non Recourse Debt, and (ii) to the extent not included in the calculation of the amount described in clause (i), all commissions, discounts and other fees and charges owed with respect to letters of credit and bankers' acceptance financing and net costs under Interest Rate Agreements, but excluding, however, from clauses (i) and (ii) any amounts referred to in subsection 2.3 payable to Administrative Agent and Lenders on or before the Closing Date. "CONSOLIDATED LEVERAGE RATIO" means, as at any date of determination, the ratio of (a) Total Debt as at such date to (b) Adjusted EBITDA for the four-Fiscal Quarter period most recently ended prior to such 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, or (iii) under Hedge Agreements. 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 6 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. "CONTINUING MEMBER" has the meaning assigned to that term in the CPIH Term Loan Agreement. "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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Administrative Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, is maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "CORPORATE SERVICES REIMBURSEMENT AGREEMENT" means the corporate services reimbursement agreement entered into by DHC and Covanta on the Closing Date, as such agreement may be amended, restated, supplemented or otherwise modified from time to time. "COVANTA" has the meaning assigned to such term in the recitals to this Agreement. "CPIH" has the meaning assigned to that term in the introduction to this Agreement. "CPIH TERM LOAN AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Borrowers, as borrowers, and the other Persons listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness thereunder (provided, that (a) the terms of such credit agreement, such Indebtedness so refinanced, replaced, renewed or extended shall not be more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent or Requisite Lenders so notifying Administrative Agent or Company) 7 than the CPIH Term Loan Agreement in effect on the Closing Date, (b) the aggregate amount of Indebtedness outstanding, and additional commitments to extend credit, if any, under the CPIH Term Loan Agreement as refinanced, replaced, renewed or extended, shall not exceed the aggregate amount of the commitments to extend credit in effect under the CPIH Term Loan Agreement on the Closing Date, (c) the obligations under (and the Liens securing) such credit agreement as refinanced, replaced, renewed or extended shall be subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the CPIH Term Loan Agreement on the Closing Date, and (d) Company shall provide to Agents reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith), in the case of clause (i) or (ii) as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. "CPIH TERM LOAN DOCUMENTS" means the "Loan Documents" as defined in the CPIH Term Loan Agreement. "CPIH TERM LOAN LENDERS" means the "Lenders" as defined in the CPIH Term Loan Agreement. "CPIH TERM LOAN EXPOSURE" means, with respect to any CPIH Term Loan Lender as of any date of determination, the aggregate outstanding principal amount of the CPIH Term Loans of that CPIH Term Loan Lender. "CPIH TERM LOANS" means the loans made (or deemed made) by CPIH Term Loan Lenders to Borrowers pursuant to subsection 2.1A of the CPIH Term Loan Agreement. "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. "D.E. SHAW" means D.E. Shaw Laminar Portfolios, L.L.C. a Delaware limited liability company. "DEBTORS" has the meaning assigned to that term in the recitals to this Agreement. "DEFAULTED LOAN" 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. 8 "DETROIT L/Cs" means the letters of credit issued under the Detroit L/C Credit Agreement on the Closing Date. "DETROIT L/C CREDIT AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Domestic Borrowers, as borrowers, the Detroit L/C Lenders, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, and (ii) any credit agreement entered into by Domestic Borrowers to refinance, replace, renew or extend in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder as permitted pursuant to the New L/C Facility Agreement, in each case as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time. "DETROIT L/C LENDERS" means the "Lenders" under and as defined in the Detroit L/C Credit Agreement. "DEUTSCHE BANK" has the meaning assigned to that term in the introduction to this Agreement. "DHC" means Danielson Holding Corporation, a Delaware corporation. "DIP AGENTS" means the Persons identified as "Agents" under the DIP Credit Agreement, in their capacities as agents for DIP Lenders under the DIP Credit Agreement. "DIP CREDIT AGREEMENT" means that certain Debtor-In-Possession Credit Agreement dated as April 1, 2002, by and among Covanta and certain of its Subsidiaries, as debtors and debtors-in-possession, the financial institutions listed on the signature pages thereof, as lenders, and Bank of America and Deutsche Bank, as agents for such lenders, as such agreement is in effect immediately prior to the Closing Date. "DIP CREDIT DOCUMENTS" means the "Loan Documents" as defined in the DIP Credit Agreement. "DIP LENDER" means each of the "Lenders" under the DIP Credit Agreement on the Closing Date, in its capacity as a lender under the DIP Credit Agreement. "DISTRIBUTABLE CASH" has the meaning assigned to that term in subsection 3.1T. "DOLLARS" and the sign "$" mean the lawful money of the United States. "DOMESTIC BORROWERS" means Covanta and the Subsidiaries thereof party from time to time to the Detroit L/C Credit Agreement and New L/C Facility Agreement. "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 or any political subdivision of any such state or any public instrumentality 9 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 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 Administrative Agent may agree on from time to time. "DOMESTIC LOAN DOCUMENTS" means the "Credit Documents" as defined in each of the Detroit L/C Credit Agreement and New L/C Facility Agreement. "DOMESTIC SUBSIDIARY" means any Subsidiary of any Borrower that is incorporated or organized under the laws of the United States, any state thereof or in the District of Columbia. "ELIGIBLE ASSIGNEE" means (i) any Person that 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 Person that is a Lender at the time of the relevant assignment; or (iii) any other Person designated as an Eligible Assignee pursuant to the prior written consent of Administrative Agent 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. "EMPLOYMENT AGREEMENTS" means those employment agreements entered into on the Closing Date by Company with such Persons as Agent shall approve prior to the Closing Date, in each case providing for the exclusive employment of such Persons by Company and its Subsidiaries, in the form provided to Administrative Agent pursuant to subsection 3.1C on or prior to the Closing Date. 10 "ENFORCING LENDERS" has the meaning assigned to that term in subsection 9.5B. "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. "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) that would reasonably be expected to have a Material Adverse Effect; (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 imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 412(n) of the Internal Revenue Code, except any such failure or imposition attributable to an error made in good faith which results in the imposition of liability or a Lien on Company and its Subsidiaries and their respective ERISA Affiliates of an immaterial amount, so long as such error, failure and imposition are promptly corrected after discovery of such error by Company or any of its Subsidiaries, or the failure to make by its due date a required installment of a material amount under Section 412(m) of the Internal Revenue Code with respect to any Pension Plan or the failure to make any required contribution of a material amount to a Multiemployer Plan; (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 11 sponsors or the termination of any such Pension Plan resulting in material current liability of Company or any of its Subsidiaries pursuant to Section 4063 or 4064 of ERISA; (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 material current liability on Company, any of its Subsidiaries or any of their respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by reason of the application of Section 4212(c) of ERISA; (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 (in excess of the contribution that would otherwise have been due absent such withdrawal), or the receipt by Company, any of its Subsidiaries or any of their respective ERISA Affiliates of notice from any Multiemployer Plan that it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to terminate or has terminated under Section 4041A or 4042 of ERISA; (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 if such assertion or the liability with respect thereto would reasonably be expected to have a Material Adverse Effect; (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, in either case if such failure would reasonably be expected to have a Material Adverse Effect; or (x) the imposition of a Lien on the property of Company or any of its Subsidiaries pursuant to Section 401(a)(29) of the Internal Revenue Code or pursuant to ERISA with respect to any Pension Plan. "EURODOLLAR RATE" means, for any Interest Rate Determination Date with respect to an Interest Period for a Eurodollar Rate Loan, the rate per annum that is the higher of (x) the rate 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); and (y) 2.00%. "EURODOLLAR RATE LOANS" means Revolving 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 8.00%. 12 "EVENT OF DEFAULT" has the meaning assigned to that term in Section 7. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended from time to time, and any successor statute. "EXISTING DETROIT L/Cs" means, collectively, (i) Irrevocable Standby Letter of Credit Number SBY501806 issued by UBS Bank, in the available amount of $96,731,392.81 as of the Closing Date, for the benefit of PMCC Leasing Corporation and Resource Recovery Business Trust - A, and (ii) Irrevocable Standby Letter of Credit Number SBY501835 issued by UBS Bank, in the available amount of $41,460,161.38 as of the Closing Date for the benefit of Aircraft Services Corporation and Resource Recovery Business Trust - B. "EXISTING INTERCREDITOR AGREEMENT" means the "Intercreditor Agreement" as defined in the DIP Credit Agreement on the Closing Date, as such "Intercreditor Agreement" is in effect on the Closing Date. "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means, collectively, (i) the existing guaranty by Covanta Energy Group of the obligations of certain Subsidiaries of Company under certain agreements relating to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the existing guaranty by Covanta Projects, Inc. of the obligations of certain Subsidiaries of Company under certain agreements relating to the Quezon Project, and (iii) the existing guaranty by Covanta of certain Subsidiaries of Company under certain agreements relating to the Balaji/Madurai Project and the LICA Project, as each such guaranty may be amended, restated, supplemented or otherwise modified to the extent permitted hereunder. "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, by any of their respective predecessors or by any Person who is an Affiliate of Borrower or any of its Subsidiaries prior to the Closing Date. "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. Section 136 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "FIRST PRIORITY" means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that (i) such Lien is perfected and has priority over any other Lien on such Collateral (other than Liens permitted pursuant to subsections 6.2A(iii) through (vi)) and (ii) such Lien is the only Lien (other than Liens permitted pursuant to subsection 6.2) to which such Collateral is subject. 13 "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 5.8 by Company or any Domestic Subsidiary that owns Capital Stock of one or more Foreign Subsidiaries organized in such country, in form and substance satisfactory to Collateral 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 60 Wall Street, New York, NY 10005 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 2.10C. "FUNDING DATE" means the date of 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 set forth in opinions 14 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. "GEOTHERMAL SALE" means (i) the sale or other disposition by Covanta and its Subsidiaries of all or substantially all of their respective (1) Capital Stock in Heber Geothermal Company, Heber Field Company and Second Imperial Geothermal Company, L.P., and (2) Capital Stock in non-debtor Affiliate Mammoth-Pacific L.P., which entities own or lease geothermal plants and facilities in California (the "GEOTHERMAL BUSINESS"), and (ii) the assumption and/or assignment by Covanta and its Subsidiaries of certain contracts related to the Geothermal Business, in the case of both clauses (i) and (ii) occurring prior to or concurrently with the consummation of the Plan of Reorganization. "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. "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 15 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 (i) an Interest Rate Agreement or a Currency Agreement designed to hedge against fluctuations in interest rates or currency values, respectively, or (ii) a forward agreement or arrangement designed to hedge against fluctuation in electricity rates pertaining to electricity produced by a Project so long as the contractual arrangements relating to such Project contemplate that Company or its Subsidiaries shall deliver such electricity to third parties. "HIGH YIELD INDENTURE" means (i) the indenture pursuant to which the High Yield Notes are issued and (ii) any replacement indenture entered into in connection with a refinancing, renewal, replacement or extension of the High Yield Notes permitted under the Detroit L/C Credit Agreement and New L/C Facility Agreement, in each case as such indenture or replacement indenture may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under the Detroit L/C Credit Agreement. "HIGH YIELD NOTES" means (i) the $230,000,000 in aggregate principal amount at maturity of 8.25% Senior Notes due 2010 of Covanta issued pursuant to the High Yield Indenture, and (ii) any Indebtedness incurred to refinance, renew, replace or extend the High Yield Notes permitted to be incurred under the Detroit L/C Credit Agreement; provided, that the initial principal amount (and issue price) of such High Yield Notes on the Closing Date shall be $205,000,000. "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 (and Hedge Agreements that protect against fluctuation in electricity rates) 16 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 Non Recourse Debt of such partnership or joint venture. "INDEMNIFIED LIABILITIES" has the meaning assigned to that term in subsection 9.3. "INDEMNITEE" has the meaning assigned to that term in subsection 9.3. "INSURANCE PREMIUM FINANCERS" means Persons who are non-Affiliates of Company that advance insurance premiums for Company and its Subsidiaries pursuant to Insurance Premium Financing Arrangements. "INSURANCE PREMIUM FINANCING ARRANGEMENTS" means, collectively, such agreements as Company and its Subsidiaries shall enter into after the Closing Date with Insurance Premium Financers pursuant to which such Insurance Premium Financers shall advance insurance premiums for Company and its Subsidiaries. Such Insurance Premium Financing Arrangements (i) shall provide for the benefit of such Insurance Premium Financers a security interest in no property of Company or any of its Subsidiaries other than gross unearned premiums for the insurance policies, (ii) shall not purport to prohibit any portion of the Liens created in favor of Collateral Agent (for the benefit of Secured Parties) pursuant to the Collateral Documents, and (iii) shall not contain any provision or contemplate any transaction prohibited by this Agreement and shall otherwise be in form and substance reasonably satisfactory to Agent. "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 MASTER NOTE" means a promissory note evidencing Indebtedness of Company and each of its Subsidiaries which (a) to the extent the Indebtedness evidenced thereby is owed to any Borrower, is pledged pursuant to the Collateral Documents, and (b) to the extent the Indebtedness evidenced thereby is owed by a Subsidiary of Company, 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 Borrower 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 such note. "INTERCREDITOR AGREEMENT" means that certain Intercreditor Agreement executed and delivered on the Closing Date by Borrowers, CEA, Lenders, Administrative Agent, Collateral Agent, CPIH Term Loan Lenders, the agents under the CPIH Term Loan Documents, in the form of Exhibit IX annexed hereto, as it may thereafter be amended, restated, supplemented or otherwise modified from time to time. 17 "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; provided that in the case of each Interest Period of longer than one month "Interest Payment Date" shall also include each date that is a multiple of one month after the commencement of such Interest Period. "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" means, with respect to any Interest Period, the second Business Day prior to the first day of such Interest Period. "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 or services 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 not constituting Hedge 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. No account receivable owed by a Person to Company or any of its Subsidiaries that on the relevant date of determination constitutes a current asset and arose from sales or services to such Person in the ordinary course of business shall constitute an Investment on such date. "INVESTOR PARTIES" means D.E. Shaw, SZ Investments, LLC, a Delaware limited liability company, and Third Avenue Trust, on behalf of the Third Avenue Value Fund Series. "IP COLLATERAL" means, collectively, the Intellectual Property that constitutes Collateral. "IPP INTERNATIONAL BUSINESS" means the assets and operations of the business of Covanta and its Subsidiaries referred to by Covanta as the "IPP International business" prior to the Closing Date, including the Haripur Project, the Samalpatti Project, the Trezzo Project, the Quezon Project, the Balaji/Madurai Project, the Linasa Project, the Don Pedro Project, the Rio 18 Volcan Project, the Bataan Project, the Magellan Project, the Linan Project, the Huantai Project, the Yanjiang Project and the Island Power Project. "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 Borrower 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 9.1. "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. "LOAN" or "LOANS" means one or more of the Loans made by Lenders pursuant to subsection 2.1A. "LOAN DOCUMENTS" means this Agreement, the Notes, the Collateral Documents, the Intercreditor Agreement and all amendments, waivers and consents relating thereto. "LOAN EXPOSURE" means, with respect to any Lender as of any date of determination (i) prior to the termination of the Commitments, that Lender's Commitment, and (ii) after the termination of the Commitments, the aggregate outstanding principal amount of the Revolving Loans of that Lender. "LOAN PARTY" means each Borrower and CEA, and "LOAN PARTIES" means all such Persons, collectively. "MADURAI PROJECT ENTITY" has the meaning assigned to that term in subsection 6.7(vi). "MAGELLAN SUBSIDIARY" means Magellan Cogeneration, Inc., a Philippines corporation. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by Company, Covanta and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to the Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and under subsection 6.12. "MANDATORY PAYMENT" means any amount described in subsections 2.4A(iii)(a)-(e) to be applied as a prepayment of the Loans and/or the CPIH Term Loans and/or a permanent reduction of the Commitments, as determined pursuant to subsection 2.4A. 19 "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 Loan Parties taken as a whole to perform, or of Administrative Agent or Lenders to enforce, the Obligations. "MATERIAL CONTRACT" means (i) the principal service or operating agreement, if any, with respect to each waste-to-energy Project and the principal power sales 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 1.1A 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, with respect to any Person, any Subsidiary of such Person now existing or hereafter acquired or formed by such Person which, on a consolidated basis for such Subsidiary and all of its Subsidiaries, (i) for the most recent fiscal year of such Person accounted for more than 1% of the consolidated revenues of such Person and its Subsidiaries, (ii) as at the end of such fiscal year, was the owner of more than 1% of the consolidated assets of such Person and its Subsidiaries, or (iii) is capitalized with more than $500,000 of equity. "MATURITY DATE" means March 10, 2007. "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 X 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 5.9, 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. 20 "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 eighteen months from the date of such Asset Sale and (b) the Maturity Date 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) actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to such Asset Sale or pursuant to applicable law) and payable immediately upon consummation of such Asset Sale to employees of Company and its Subsidiaries that are terminated as a result thereof) paid to Persons other than Company and its Subsidiaries and their respective Affiliates 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 Loans) that is (x) secured by a valid, enforceable and perfected Lien on the stock or assets in question that is permitted under subsection 6.2 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 DEPRECIATION AND AMORTIZATION EXPENSE" means, for any period, the sum (expressed as a positive number) of (i) "Depreciation" for such period plus (ii) "Amortization" for such period, as each such line item referred to in clauses (i) and (ii) is reflected in Company's consolidated statement of cash flows prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amount in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, whether such line items are so titled or otherwise titled. "NET INDEBTEDNESS 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)) from the incurrence of Indebtedness by Company or any of its Subsidiaries. "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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) the Maturity Date as a result of the receipt of such payments of proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or 21 relating to the payment referred to in clause (i) or (ii) above or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have been terminated as a result of the relevant loss, taking or sale) paid to Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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, 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. "NEW L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among the Domestic Borrowers, as borrowers, and the Investor Parties and the other financial institutions listed on the signature pages thereof, as lenders, and (ii) any credit agreement entered into by Domestic Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the Indebtedness and letters of credit issued thereunder as permitted under the Detroit L/C Credit Agreement, in each case as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time. "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such term is defined in the Approved Plan of Reorganization. "NON 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. "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. "NOTES" means any promissory notes of Borrowers issued pursuant to subsection 2.1E to evidence the Loans of any Lenders, substantially in the form of Exhibit I annexed hereto, as they may be amended, restated, supplemented or otherwise modified from time to time. "NOTICE OF BORROWING" means a notice substantially in the form of Exhibit IV annexed hereto. "NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in the form of Exhibit V annexed hereto. 22 "OBLIGATIONS" means all obligations of every nature of Loan Parties under the Loan Documents, including any liability of such Loan Party on any claim arising out of or relating to the Loan Documents, 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. 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 (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Loan Party, whether or not allowed in such case or proceeding), 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 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)(g) or 5.1(v) shall be executed by a senior financial officer of Company reasonably acceptable to Administrative Agent. "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 9.1C. "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 agreement entered into by Company or any of its Subsidiaries under which Company or any such Subsidiary guarantees the performance of a Subsidiary of Company under a principal lease, service or operating agreement relating to a Project. 23 "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 5.3; (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 7.8; (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 24 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 6.2A. "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. "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "PLEDGED COLLATERAL" means the "Pledged Collateral" as defined in each of the Security Agreement and the CEA Stock Pledge Agreement. "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 CREDIT AGREEMENT" means the Revolving Credit and Participation Agreement dated as of March 14, 2001, among Company, certain of its Subsidiaries, the 25 financial institutions listed on the signature pages thereof, Deutsche Bank, as Documentation Agent, and Bank of America, as Administrative Agent, as amended, restated, supplemented or otherwise modified through the Closing Date and as it may hereafter be amended, restated, supplemented or otherwise modified. "PREPETITION CREDIT DOCUMENTS" means all "Loan Documents" as defined in the Prepetition Credit Agreement. "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 OBLIGATIONS" means all "Obligations" as defined in the Prepetition Credit Agreement. "PREPETITION SECURED CLAIMS" means, collectively, the "Secured Bank Claims" and the "9.25% Debenture Claims", as such terms are defined in the Approved Plan of Reorganization. "PREPETITION UNSECURED CLAIMS" means "Parent and Holding Company Unsecured Claims" that are "Allowed," as such terms are defined in the Approved Plan of Reorganization. "PRIME RATE" means the rate that Deutsche Bank 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. Deutsche Bank 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, electrical generation plant, cogeneration plant, water treatment facility 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "PRO RATA SHARE" means with respect to all payments, computations and other matters relating to the Commitment of any Lender or any Loans deemed made by any Lender, the percentage obtained by dividing (i) the Loan Exposure of that Lender by (ii) the aggregate Loan Exposure of all Lenders, in any such case as the applicable percentage may be adjusted by 26 assignments permitted pursuant to subsection 9.1. The initial Pro Rata Share of each Lender 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. "PUHCA" has the meaning assigned to that term in subsection 4.9. "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. Section 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 Borrower in any real property. "RECORDED LEASEHOLD INTEREST" means a Leasehold Property with respect to which a Record Document (as hereinafter defined) has been recorded in all places necessary or desirable, in Administrative Agent's reasonable judgment, to give constructive notice of such Leasehold Property to third-party purchasers and encumbrancers of the affected real property. For purposes of this definition, the term "RECORD DOCUMENT" means, with respect to any Leasehold Property, (a) the lease evidencing such Leasehold Property or a memorandum thereof, executed and acknowledged by the owner of the affected real property, as lessor, or (b) if such Leasehold Property was acquired or subleased from the holder of a Recorded Leasehold Interest, the applicable assignment or sublease document, executed and acknowledged by such holder, in each case in form sufficient to give such constructive notice upon recordation and otherwise in form reasonably satisfactory to Administrative Agent. "REGISTER" has the meaning assigned to that term in subsection 2.1D. "RELATED AGREEMENTS" means the CPIH Term Loan Documents, the Management Services and Reimbursement Agreement, the Existing IPP International Project Guaranties, and the Tax Sharing Agreement, as such agreements and instruments may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. "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. "REQUISITE DIP LENDERS" means DIP Lenders having or holding more than 50% of the aggregate credit exposure under the "Tranche A L/Cs" and the "Tranche B L/Cs" (as such terms are defined in the DIP Credit Agreement). 27 "REQUISITE LENDERS" means Lenders having or holding more than 50% of the aggregate Loan Exposure of all Lenders; provided, however, that prior to the Closing Date, for purposes of this definition, the Loan Exposure of each Lender shall equal the original Commitment of such Lender on the Closing Date. "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 Company and its Subsidiaries other than (a) the Obligations, (b) Indebtedness owed by a Subsidiary to a Borrower, (c) payments under the CPIH Term Loan Agreement and (d) other amounts required to be paid under this Agreement. "SECURED OBLIGATIONS" means the obligations secured by the Collateral pursuant to the Collateral Documents. "SECURED PARTIES" means the "Secured Parties" as defined in the Intercreditor Agreement. "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. "SECURITIES ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered on the Closing Date by Borrowers, substantially in the form of Exhibit VII annexed hereto, as such Security Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time. "SOLVENT" means, with respect to any Person, that as of the date of determination, in light of all of the facts and circumstances existing at such time, (i) the then fair saleable value 28 of the property of such Person is (a) greater than the total amount of liabilities (including contingent liabilities) of such Person and (b) not less than the amount that will be required to pay the probable liabilities on such Person's then existing debts as they become absolute and due considering all financing alternatives and potential asset sales reasonably available to such Person; (ii) such Person's capital is not unreasonably small in relation to its business or any contemplated or undertaken transaction; and (iii) such Person does not intend to incur, or believe (nor should it reasonably believe) that it will incur, debts beyond its ability to pay such debts as they become due. For purposes of this definition, the amount of any contingent liability at any time shall be computed as the amount that, in light of all of the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability. "SUBORDINATED INDEBTEDNESS" means, collectively, (i) Indebtedness under the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture and (ii) any other Indebtedness of Company or any of its Subsidiaries incurred from time to time and subordinated by its terms in right of payment to the Obligations. "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. Unless otherwise specified herein or unless the context otherwise requires, any reference to a "Subsidiary" contained herein means a Subsidiary of Company. "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. "TAX NOTE" has the meaning assigned to that term in subsection 3.1F(iv). "TAX SHARING AGREEMENT" means the tax sharing agreement entered into by DHC, Covanta and Company on the Closing Date, in form and substance satisfactory to the Administrative Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 6.12. 29 "TOTAL DEBT" means, as at any date of determination, (i) the aggregate stated balance sheet amount of all Indebtedness of Company and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, minus (ii) the amounts of "Current portion of project debt" and "Project Debt", whether such line items are so titled or otherwise titled, as such line items are or would be reflected in Company's consolidated balance sheet as at such date prepared in conformity with GAAP and reported in a manner consistent with Company's reporting of such amounts in its quarterly or annual report (as the case may be) on Form 10Q or 10K, respectively, prior to the Closing Date, minus (iii) any portion of Indebtedness of Company and its Subsidiaries under the Tax Sharing Agreement included in the amount described in clause (i) above. "TOTAL UTILIZATION OF COMMITMENTS" means, as at any date of determination, the aggregate principal amount of all outstanding Revolving Loans. "TREASURY REGULATIONS" means the Treasury Regulations promulgated under the Internal Revenue Code. "TSCA" means the Toxic Substances Control Act of 1976, as amended (15 U.S.C. Section 2601 et seq.), or any successor statute, and all implementing regulations promulgated thereunder. "UBS BANK" means UBS AG, Stamford Branch. "UCC" means the Uniform Commercial Code (or any similar or equivalent legislation) as in effect in any applicable jurisdiction. "UNITED STATES" means the United States of America. "UNSECURED CREDITOR NOTES" has the meaning assigned to that term in subsection 3.1F(iv). "UNSECURED CREDITOR NOTES INDENTURE" means the Indenture pursuant to which the Unsecured Creditor Notes are issued. 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 5.1 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 5.1(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 4.3. 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, 30 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 5.1(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 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 Maturity Date an aggregate amount not exceeding its Pro Rata Share of the aggregate amount of the Commitments to be used for the purposes identified in subsection 2.5A. The original amount of each Lender's Commitment is set forth opposite its name on Schedule 2.1 annexed hereto and the aggregate original principal amount of the Commitments is $10,000,000; provided, however, that the Commitments of Lenders shall be adjusted to give effect to any assignments of the Commitments pursuant to subsection 9.1B and shall be reduced from time to time by the amount of any reductions thereto made pursuant to subsection 2.4. Each Lender's Commitment shall expire on the day before the Maturity Date and all Loans and all other amounts owed hereunder with respect to the Loans and the Commitments shall be paid in full no later than the Maturity Date. Amounts borrowed under this subsection 2.1A may be repaid and reborrowed up to but excluding the Maturity Date. Anything contained in this Agreement to the contrary notwithstanding, in no event shall the Total Utilization of Commitments at any time exceed the Commitments then in effect. B. BORROWING MECHANICS. Loans made on any Funding Date 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 31 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 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 2.1B; 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 2.1B 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 2.1B, 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. C. DISBURSEMENT OF FUNDS. All 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 a Loan requested hereunder nor shall the Commitment of any Lender to make a 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 32 pursuant to subsection 2.1B (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 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. Upon satisfaction or waiver of the conditions precedent specified in subsections 3.1 (in the case of Loans made on the Closing Date) and 3.2 (in the case of all Loans), Administrative Agent shall make the proceeds of such 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 Loans received by Administrative Agent from Lenders to be credited to the account of Borrowers at the Funding and Payment Office. Unless Administrative Agent shall have been notified by any Lender prior to a Funding Date 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 2.1C 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. D. 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 9.3), 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 9.8 a register for the recordation of, and shall record, the names and addresses of Lenders and the Commitment and 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 33 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. E. 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 9.1) 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) a promissory note or promissory notes to evidence such Lender's Loan, substantially in the form of Exhibit I annexed hereto, with appropriate insertions, including the principal amount of that Lender's 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 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 2.1B), 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 2.1B). 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: (i) if a Base Rate Loan, then at the sum of the Base Rate plus the Base Rate Margin; or (ii) 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-, two-, three- or six-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; 34 (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 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 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. Administrative Agent shall promptly notify each Lender of any Loan subject to the Notice of Conversion/Continuation. 35 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, shall thereafter bear interest (including post petition interest in any proceeding under the Bankruptcy Code or other applicable bankruptcy laws) payable upon demand at a rate that is (i) in the case of Loans, 2.00% per annum in excess of (a) the interest rate otherwise payable under this Agreement for Base Rate Loans or (b) the interest rate otherwise payable under this Agreement with respect to such Loans, if such Loans are Eurodollar Rate Loans, the Interest Period in effect at the time of the relevant Event of Default has not yet expired, and such interest rate otherwise payable with respect to such Loans is greater than the interest rate otherwise payable under this Agreement for Base Rate Loans, or (ii) in the case of fees and other amounts, 2.00% 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 and other amounts bearing interest with reference to the Base Rate, 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, the date of the making of such Loan 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 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 is repaid on the same day on which it is made, one day's interest shall be paid on that Loan. 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 exceed the maximum rate of interest permitted to be charged under applicable law. 2.3 FEES. A. AGENCY FEE; FACILITY FEES. Borrowers, jointly and severally, agree to pay to Administrative Agent (i) on the Closing Date and each anniversary of the Closing Date (excluding the Maturity Date), for Administrative Agent's own account and in advance for the forthcoming year, an annual agency fee in an amount equal to $30,000 (which fee shall be fully earned and non-refundable when due), and (ii) on the Closing Date, for distribution to each Lender, a facility fee in an amount equal to 2.0% of the Commitment of such Lender as of the Closing Date. B. COMMITMENT FEES. Borrowers, jointly and severally, agree to pay to Administrative Agent, for distribution to each Revolving Lender in proportion to that Lender's 36 Pro Rata Share of the Commitments, commitment fees for the period from and including the Closing Date to but excluding the Maturity Date equal to (i) the daily excess of the Commitments over the Total Utilization of Commitments, multiplied by (ii) the Commitment Fee Percentage then in effect, expressed as a daily rate. Such commitment fees shall be payable in arrears on and to (but excluding) the last day of each month and on the Maturity 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 Administrative Agent such fees in the amounts and at the times separately agreed upon between Company and Administrative Agent. 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 CPIH 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, who will promptly notify each Lender whose Loans are to be prepaid of such prepayment, 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 $1,000,000 and integral multiples of $500,000 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, at any time and from time to time, terminate in whole or permanently reduce in part, without premium or penalty, the Commitments in an amount up to the amount by which the Commitments exceed the aggregate Loans outstanding at the time of such proposed termination or reduction; provided that any such partial reduction of either the Commitments shall be in an aggregate minimum amount of $1,000,000 and integral multiples of $1,000,000 in excess of that amount. Borrowers' notice to Administrative Agent (who shall promptly notify each Revolving Lender of such notice) 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 37 shall reduce the 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 the Commitments being less than the Total Utilization of Commitments. (iii) Mandatory Payments. 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), except to the extent the Intercreditor Agreement requires application thereof in a different manner than as set forth in this subsection 2.4A(iii) or subsection 2.4A(iv): (a) Net Asset Sale Proceeds. No later than two days after the date of receipt by CEA, Company or any of its Subsidiaries of any Net Asset Sale Proceeds in respect of any Asset Sale, Company shall make a Mandatory Payment in an aggregate amount equal to the remaining amount of such Net Asset Sale Proceeds. (b) 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 5.4C, Company shall make a Mandatory Payment in an aggregate amount equal to the amount of such Net Insurance/Condemnation Proceeds. (c) Issuance of Indebtedness. On the date of receipt of the Net Indebtedness Proceeds from the issuance of any Indebtedness of Company or any of its Subsidiaries after the Closing Date, other than Indebtedness permitted pursuant to subsections 6.1(i) through (vii), Company shall make a Mandatory Payment in an aggregate amount equal to such Net Indebtedness Proceeds. (d) Tax Refunds. If after the Closing Date, Company or any of its Subsidiaries receives any payment of a cash refund or rebate of any Tax, 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, except to the extent such application would constitute a material violation of a valid Contractual Obligation in connection with a Project of Company or any of its Subsidiaries to remit such refund or rebate to the client of such Project. (e) Excess Cash. If as of the last Business Day of any calendar month the sum of (1) Cash On Hand (after giving effect to the aggregate interest to be paid on such date pursuant to subsection 2.2C) plus (2) the aggregate Commitments minus (3) the Total Utilization of Commitments (after giving effect to any voluntary repayment of outstanding Loans to be made on such date that are made on such date) exceeds $10,000,000, then Borrowers shall apply an amount equal to such excess (provided, that, in the event that such application would cause Cash On Hand to be less than $6,000,000, then such excess amount so applied shall be reduced such that Cash On Hand is not less than $6,000,000) (the 38 amount so applied as it may be adjusted pursuant to the foregoing proviso, "AVAILABLE CASH")) to the payment of outstanding Term Loans. (f) Prepayments Due to Reductions or Restrictions of Commitments. Borrowers shall from time to time prepay the Loans to the extent necessary to give effect to the limitations set forth in the last sentence of subsection 2.1A. Without limiting the preceding sentence, if at any time and from time to time after the Closing Date the outstanding principal amount of Loans shall exceed the Commitments then in effect Borrowers shall promptly prepay Loans in an aggregate amount equal to the amount of any such excess. (g) 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) - (e), 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 Indebtedness Proceeds, cash in the Cash Management System or 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. (iv) Application of Prepayments. (a) Application of Prepayments. Except as provided in subsection 2.4C and to the extent the Intercreditor Agreement requires application of any Mandatory Payment in a different manner than as set forth in this sentence, (1) any voluntary prepayments pursuant to subsection 2.4A(i) shall be applied to repay outstanding Loans, and (2) any Mandatory Payment made pursuant to subsections 2.4A(iii)(a) - (d) shall be applied to repay Loans and/or to permanently reduce Commitments in accordance with the provisions of the Intercreditor Agreement, and the application of Mandatory Payments to Loans and/or Commitments required under the terms of the Intercreditor Agreement shall apply as if set forth herein. (b) Application of Prepayments to Base Rate Loans and Eurodollar Rate Loans. Any prepayment of Loans 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. (v) 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 39 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. 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 when due in accordance with the terms hereof. (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 payments of principal and interest 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 40 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. Except to the extent the Intercreditor Agreement requires application in a different manner than as set forth in this subsection 2.4C, 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 Mandatory Payments or other payments received on account of the Obligations, whether from any Borrower, 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 Administrative Agent is 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 8.4, 9.2 and 9.3 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 Obligations, for the ratable benefit of the holders thereof (subject to the provisions of subsection 2.4B(ii) hereof); and (iii) 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. LOANS. The proceeds of any Loans shall be applied by Borrowers to fund working capital requirements and general corporate purposes relating to Borrowers' post-Closing Date operations and other expenditures; provided that no portion of the Loans shall be used, directly or indirectly, to (a) finance or make any Restricted Payment or other payment or prepayment prohibited under subsection 6.5, or (b) make any payment or prepayment (including by way of an Investment) to any Person that is otherwise prohibited under this Agreement. 41 Borrowers shall use the entire amount of the proceeds of each Loan in accordance with this subsection 2.5A. B. 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. On each Interest Rate Determination Date, Administrative Agent shall determine in accordance with the terms of this Agreement (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 42 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. Administrative Agent shall promptly notify each other Lender of the receipt of such notice. 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. Administrative Agent shall promptly notify each other Lender of the receipt of such notice. 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. 43 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 3.2 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 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 (other than any withholding tax with respect to which subsection 2.7B applies) with respect to this Agreement or any of its obligations hereunder (including with respect to 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; 44 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 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 on an after-tax basis 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 or any political subdivision in or of the United States 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 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. 45 (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 Administrative Agent 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 or any political subdivision in or of the United States or any other 46 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 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) that Borrowers are required to pay pursuant to subsection 2.7B(ii) but were paid by Administrative Agent 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, 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 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 agrees that, as promptly as practicable after the officer of such Lender responsible for administering the Loans of such Lender becomes aware of the occurrence of an event or the existence of a condition that would cause such Lender to become an Affected Lender or that would entitle such Lender to receive payments under subsection 2.7 (other than subsection 2.7B(ii)), it will use reasonable efforts to make, fund or maintain the Commitments of such Lender or the Loans of such Lender through another lending office of such 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 47 be required to be paid to such Lender pursuant to subsection 2.7 would be materially reduced and (ii) as determined by such Lender in its sole discretion, such action would not otherwise be disadvantageous to such Lender; provided that such Lender will not be obligated to utilize such other lending 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 as a result of utilizing such other lending office as described above. 2.9 DEFAULTING 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 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 Commitment, or an extension of the Maturity 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 shall be applied first, to amounts funded by Administrative Agent 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 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 Commitment, Loans and Pro Rata Share 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, and such Defaulting Lender shall not be entitled to receive any such commitment 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 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 of such Defaulting Lender or by the non-pro rata application of any payments of amounts with respect to the Loans in accordance with the terms hereof or any combination thereof), and (2) such Defaulting Lender shall have delivered to Company and Administrative Agent 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 and Administrative Agent 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 48 applicable Pro Rata Share of the aggregate outstanding principal amount of Loans of all Lenders (calculated as if all Defaulting Lenders (other than such Defaulting Lender) had funded all of their respective Defaulted Loans) over (y) the aggregate outstanding principal amount of Loans of such Defaulting Lender. 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 Administrative Agent or any Lender may have against such Defaulting Lender with respect to any Funding Default. 2.10 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 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. 2.11 RIGHTS OF SUBROGATION, CONTRIBUTION, ETC. Except as prohibited under applicable law, Company hereby waives any claim, right or remedy, direct or indirect, that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations in connection with this Agreement or the performance by Company of its obligations hereunder, in each case whether such claim, right or 49 remedy arises in equity, under contract, by statute, under common law or otherwise and including (a) any right of subrogation, reimbursement or indemnification that Company now has or may hereafter have against any other Borrower or any guarantor of the Obligations, (b) any right to enforce, or to participate in, any claim, right or remedy that Agent or Lender now has or may hereafter have against any other Borrower or any guarantor of the Obligations, and (c) any benefit of, and any right to participate in, any collateral or security now or hereafter held by Agent or Lender. In addition, until the Obligations shall have been indefeasibly paid in full and the Commitments shall have terminated, Company shall withhold exercise of any right of contribution Company may have against any other Borrower or Loan Party. Company 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 Company may have against any other Borrower or Loan Party or against any collateral or security shall be junior and subordinate to any rights Agent or Lender may have against any other Borrower, to all right, title and interest Agent or Lender may have in any such collateral or security, and to any right Agent or Lender may have against such Loan Party. If any amount shall be paid to Company on account of any such subrogation, reimbursement, indemnification or contribution rights at any time when all Obligations shall not have been paid in full, such amount shall be held in trust for Administrative Agent on behalf of Administrative Agent and Lenders and shall forthwith be paid over to Administrative Agent for the benefit of Administrative Agent and Lenders to be credited and applied against the Obligations, whether matured or unmatured, in accordance with the terms hereof. SECTION 3. CONDITIONS TO LOANS The obligations of Lenders to make Loans hereunder are subject to the satisfaction of the following conditions. 3.1 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 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 50 taxing authority of each of such jurisdictions, each dated a recent date prior to 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 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 out of Debtors' estates to Administrative Agent, (i) for distribution (as appropriate) to Administrative Agent, 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 Administrative Agent 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 Administrative Agent, and Ernst & Young Corporate Finance LLC, and (ii) for distribution (as appropriate) to DIP Lenders and DIP Agents, all unpaid interest and fees accrued under the DIP Credit Agreement on or before the Closing Date, and all reasonable and documented costs and expenses of DIP Agents and DIP Lenders owed pursuant to subsection 10.2 of the DIP Credit Agreement. Borrowers shall have paid out of Debtors' estates to D.E. Shaw an arrangement fee of $450,000, unless Borrowers have previously paid out of Debtors' estates to D.E. Shaw the commitment fee required pursuant to the "Commitment Letter" (as defined in the Order Pursuant to Section 363 of the Bankruptcy Code Authorizing Debtors to Enter into Letter Agreement with D.E. Shaw Laminar Portfolios, L.L.C. as Additional New Lender and Make Certain Payments in Connection Therewith entered by the Bankruptcy Court on November 21, 2003). C. CORPORATE AND CAPITAL STRUCTURE; MANAGEMENT; OWNERSHIP. (i) Corporate Structure. DHC shall own all of the issued and outstanding Capital Stock of Covanta. CEA shall own all of the issued and outstanding common stock of Company. The corporate organizational structure of Company and its Subsidiaries on the Closing Date, after giving effect to the Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto. (ii) Capital Structure and Ownership. DHC shall have made a cash equity contribution to Covanta of not less than $30,000,000. The capital structure and ownership of Company and its Subsidiaries on the Closing Date, after giving effect to the 51 Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto. (iii) Management. The Governing Bodies, officers and management structure of Covanta, Company and its Subsidiaries on the Closing Date, after giving effect to the Approved Plan of Reorganization, shall be satisfactory to Requisite Lenders, shall be consistent in all material respects with the Approved Plan of Reorganization and the Disclosure Statement related thereto and shall be as set forth on Schedule 3.1C annexed hereto. Lenders shall have received copies of, and Requisite Lenders shall be satisfied with the form and substance of, the Employment Agreements and any other employment agreements with and any incentive arrangements for senior management of Company and its Subsidiaries. D. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company shall have delivered to Administrative Agent an Officer's Certificate, in form and substance satisfactory to Administrative Agent, to the effect that the representations and warranties in Section 4 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. E. PLAN OF REORGANIZATION; CONFIRMATION ORDER; DISCHARGE OF EXISTING CREDIT FACILITIES. (i) Plan of Reorganization. The Plan of Reorganization and all amendments, modifications, revisions and restatements thereof, if any, shall have been approved by the creditors of Borrowers (including the DIP Lenders and the Prepetition Lenders) in requisite number and percentage, and confirmed by the Bankruptcy Court pursuant to the Confirmation Order and delivered to Administrative Agent (the "APPROVED PLAN OF REORGANIZATION"). Except as set forth in modifications filed with the Bankruptcy Court and approved by Administrative Agent, there shall have been no modifications, amendments, revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Covanta or any of its Subsidiaries in the Approved Plan of Reorganization shall be accurate, true, correct and complete in all material respects as of the Closing Date. The Approved Plan of Reorganization (a) shall provide for the payments on the Closing Date described in subsection 3.1T, the corporate reorganization described in subsection 3.1S, the making of the Loans under this Agreement and the Indebtedness described in subsection 3.1F; and (b) upon satisfaction of all conditions to the effectiveness of this Agreement, shall become effective in accordance with its terms without waiver of any condition to such effectiveness that, in Administrative Agent's reasonable judgment, is material. 52 (ii) Confirmation Order. The Confirmation Order shall have been delivered to Lenders, shall address the matters set forth in subsections 3.1F, 3.1S and 3.1T, the making of the Loans and Commitments under this Agreement and the terms hereof and the granting of all Liens and consents required under this Agreement and the other Loan Documents and otherwise be in form and substance satisfactory to Requisite Lenders. The Confirmation Order shall be in full force and effect and no portion thereof shall have been stayed pending any appeal or petition for review or for rehearing, not less than 11 days shall have elapsed since entry of the Confirmation Order and Administrative Agent shall have received evidence satisfactory to each demonstrating such facts. Debtors' Second Joint Plan of Liquidation under Chapter 11 of the Bankruptcy Code and the Liquidation Plan Supplement to Debtors' Second Joint Plan of Liquidation, as filed with the Bankruptcy Court on December 18, 2003 and February 18, 2004, respectively, and as amended, supplemented or otherwise modified from time to time thereafter to the extent permitted under the DIP Credit Agreement, shall have been confirmed by the Bankruptcy Court pursuant to an order in form and substance satisfactory to Requisite Lenders. (iii) Approval of Fees Related to Exit Financing. The Bankruptcy Court order approving the fees payable to Administrative Agent and the Lenders described in subsection 3.1B shall be in full force and effect, without modification or amendment except to the extent approved by Administrative Agent. (iv) Material Contracts. The terms and conditions of any Material Contracts to be entered into by the Borrowers or any of their Subsidiaries pursuant to the Approved Plan of Reorganization shall be in form and substance satisfactory to Requisite Lenders and Administrative Agent. F. MATTERS RELATING TO EXISTING INDEBTEDNESS. (i) Termination of DIP Credit Agreement and Related Liens. (a) Indebtedness consisting of funded amounts outstanding under the DIP Credit Agreement on the Closing Date shall have been repaid in full in cash, (b) all undrawn "Tranche A L/Cs" and "Tranche B L/Cs" under the DIP Credit Agreement (other than the Existing Detroit L/Cs) shall be replaced (or any further drawings thereunder shall be fully supported pursuant to arrangements satisfactory to DIP Lenders and the issuers thereof) with letters of credit issued under the New L/C Facility Agreement, (c) the Existing Detroit L/Cs shall be replaced with letters of credit issued under the Detroit L/C Credit Agreement as the Detroit L/Cs, (d) each letter of credit (if any) issued or deemed issued under the DIP Credit Agreement other than the "Tranche A L/Cs" and "Tranche B L/Cs" shall have been cash collateralized pursuant to arrangements reasonably satisfactory to the issuer of such letter of credit, or cancelled and returned undrawn, or reimbursed, (e) all commitments to lend or make other extensions of credit under the DIP Credit Agreement shall have terminated (except that the participations of DIP Lenders purchased in the letters of credit, if any, referred to in clause (d) above shall continue), and (f) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries under the DIP Credit Agreement shall have been delivered to Administrative Agent to the extent required by Administrative Agent. 53 (ii) Termination of Prepetition Credit Agreement, 9.25% Debentures and Related Liens. (a) Indebtedness consisting of the 9.25% Debentures and the Prepetition Obligations on the Closing Date shall be satisfied by application of the High Yield Notes and the Loans and by application of Cash On Hand of Borrowers (as described in subsection 3.1T), and (b) all documents or instruments necessary to release all Liens securing Indebtedness or other obligations of Borrowers and their Subsidiaries under the Prepetition Credit Agreement and the 9.25% Debentures shall have been delivered to Administrative Agent to the extent required by Administrative Agent. (iii) Domestic Facilities. Indebtedness under the Detroit L/C Credit Agreement, the New L/C Facility Agreement and the High Yield Notes shall be secured as set forth in the Domestic Loan Documents and High Yield Indenture and shall be non-recourse to the Borrowers or their assets. The Domestic Loan Documents, High Yield Notes and High Yield Indenture shall be in full force and effect, the "Closing Date" as defined in each of the Domestic Loan Documents, High Yield Notes, and High Yield Indenture shall have occurred, and the Domestic Loan Documents, High Yield Notes and High Yield Indenture and shall be in form and substance satisfactory to Requisite Lenders. (iv) Existing Indebtedness to Remain Outstanding. After giving effect to the Approved Plan of Reorganization, the Indebtedness of Domestic Borrowers and Borrowers (other than Indebtedness under the Loan Documents, the Domestic Loan Documents, and the CPIH Term Loan Documents) shall consist of (a) $205,000,000 in aggregate initial principal amount of High Yield Notes, (b) a note issued by Covanta in a principal amount not to exceed $35,000,000 (the "TAX NOTE"), representing the back tax liability of Covanta and its Subsidiaries as of the Closing Date, which Tax Note shall be unsecured and unguarantied, shall have a final maturity date of 6 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize on a 30-year schedule for the first 5 years after the issuance thereof with the balance due at maturity, (c) "Class 6 Unsecured Notes" (as defined in the Approved Plan of Reorganization) in the aggregate principal amount of $4,000,000 and subordinated notes issued by Covanta (the "UNSECURED CREDITOR NOTES") in an aggregate principal amount equal to the amount of "Operating Company Unsecured Claims" that are "Allowed" (as such terms are defined in the Approved Plan of Reorganization), which Unsecured Creditor Notes shall be unsecured and unguarantied, shall have a final maturity date of 8 years from the Closing Date, shall bear interest payable in arrears at a rate no greater than 7.5% per annum, and shall amortize in an amount not to exceed $3,900,000 annually commencing on the second anniversary of the Closing Date with the remainder due at final maturity, (d) outstanding Indebtedness described in Schedule 6.1(v) annexed hereto, and (e) Indebtedness under the CEA Stock Pledge Agreement. The terms and conditions of all such Indebtedness (including payment terms, covenants, representations and warranties, defaults and, in the case of the Unsecured Creditor Notes, payment subordination provisions), and the definitive documentation therefor, shall be in form and in substance satisfactory to Requisite Lenders. 54 (v) Related Agreements in Full Force and Effect. Lenders shall have received a fully executed or conformed copy of the Domestic Loan Documents, CPIH Term Loan Documents, the High Yield Indenture and the High Yield Notes, the Management Services and Reimbursement Agreement, the Corporate Services Reimbursement Agreement, the Tax Note, the Unsecured Creditor Notes, the Unsecured Creditor Notes Indenture, the Employment Agreement, the Intercreditor Agreement and any documents executed in connection therewith, each such Related Agreement, the Domestic Loan Documents, the High Yield Notes, the Unsecured Creditor Notes, the Employment Agreements, the Intercreditor Agreement, the High Yield Indenture, the Management Services and Reimbursement Agreement, the Corporate Services Reimbursement Agreement and the Unsecured Creditor Notes Indenture shall be in full force and effect and no provision thereof shall have been modified or waived in any respect determined by either Agent to be material. G. FINANCIAL STATEMENTS; PROJECTIONS. On or before the Closing Date, Lenders shall have received (i) the audited consolidated financial statements of Covanta and its Subsidiaries for the Fiscal Year ended December 31, 2002 delivered pursuant to clause (i) of subsection 4.1G of the Domestic Credit Agreement, (ii) the unaudited consolidated financial statements of Covanta and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 and September 30, 2003 delivered pursuant to clause (ii) of subsection 4.1G of the Domestic Credit Agreement, and (iii) financial statements with respect to Company and its Subsidiaries derived from the financial statements described in clauses (i) and (ii) above in form satisfactory to Administrative Agent, all in reasonable detail and (in the case of the financial statements described in clause (iii)) certified by the chief executive officer or chief financial officer of Company that they fairly present, in all material respects, the financial condition of Company and its Subsidiaries as of 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. Company shall have delivered to Administrative Agent and Lenders such projected financial statements as Administrative Agent may reasonably request for the period from the Closing Date through December 31, 2007, including the budget of monthly and quarterly cash receipts and expenditures for Fiscal Year 2004 and annual net cash flow for Fiscal Years 2005, 2006 and 2007 attached hereto as Schedule 1.1B, which budget and other projections shall be satisfactory to Administrative Agent and Requisite Lenders and shall be accompanied by a certificate from the chief executive officer or chief financial officer of Company certifying that they are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made. H. SOLVENCY ASSURANCES. On the Closing Date, Administrative Agent and Lenders shall have received an Officer's Certificate from Covanta dated the Closing Date, substantially in the form delivered under subsection 4.1H of the Domestic Credit Agreement and with appropriate attachments, demonstrating that, after giving effect to the consummation of the transactions contemplated by the Domestic Loan Documents, Domestic Borrowers, taken as a whole, and Covanta will be Solvent. I. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders shall have received originally executed copies of one or more favorable written opinions of (a) Cleary, Gottlieb, Steen & Hamilton, (b) LeBoeuf, Lamb, Greene & McRae, (c) Morris, James, Hitchens & Williams LLP 55 and (d) Nixon Peabody, LLP, counsel for Borrowers, in form and substance reasonably satisfactory to Administrative Agent and their counsel, dated as of the Closing Date and setting forth substantially the matters in the opinions designated in Exhibit VI annexed hereto and as to such other matters as Administrative Agent acting on behalf of Lenders may reasonably request (this Agreement constituting a written request by Borrowers to such counsel to deliver such opinions to Administrative Agent and Lenders). J. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS AND OTHER DOCUMENTS. Administrative Agent and its counsel shall have received copies of the opinions of counsel delivered to the parties under the Related Agreements, the Domestic Loan Documents, the High Yield Note, the High Yield Indenture, the Unsecured Creditor Notes and the Unsecured Creditor Notes Indenture, and Borrowers shall have made reasonable efforts to obtain from each such counsel letters authorizing Lenders to rely on such opinions to the same extent as though such opinions were addressed to Lenders. K. EVIDENCE OF INSURANCE. Administrative Agent shall have received a certificate from Covanta's insurance broker or other evidence satisfactory to it that all insurance required to be maintained pursuant to subsection 5.4 is in full force and effect and that Collateral Agent and/or Administrative Agent on behalf of Lenders has been named as additional insured and/or loss payee thereunder to the extent required under subsection 5.4. L. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS. Covanta and its Subsidiaries 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 Covanta, 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 Administrative Agent in support thereof. All applicable waiting periods shall have expired without any action being taken or threatened by any competent authority that would restrain, prevent or otherwise impose adverse conditions on the transactions contemplated by the Loan Documents or the financing thereof. No action, request for stay, petition for review or rehearing, reconsideration, or appeal with respect to any of the foregoing shall be pending, and the time for any applicable Government Authority to take action to set aside its consent on its own motion shall have expired. M. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. 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 Collateral Agent, for the benefit of Secured Parties, a valid and perfected security interest in the entire 56 personal and mixed property Collateral, with the priority set forth in the Collateral Documents (it being understood that such actions by CEA shall relate solely to its pledge of the common stock of Company). Such actions shall include the following: (i) Stock Certificates and Instruments. Delivery to Collateral 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 Collateral 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 Collateral Agent) evidencing any Collateral; (ii) Lien Searches and UCC Termination Statements. Delivery to Collateral Agent of (a) the results of a recent search, by a Person satisfactory to Collateral Agent, of all effective UCC financing statements and fixture filings and all judgment and tax lien filings which may have been made with respect to any personal or mixed property of any Borrower and of all effective UCC financing statements which may have been made with respect to Capital Stock of Company, in each case, together with copies of all such filings disclosed by such search, and (b) UCC termination statements duly executed by all applicable Persons for filing in all applicable jurisdictions as may be necessary to terminate any effective UCC financing statements or fixture filings disclosed in such search (other than any such financing statements or fixture filings in respect of Liens permitted to remain outstanding pursuant to the terms of this Agreement); (iii) UCC Financing Statements and Fixture Filings. Delivery to Collateral Agent of UCC financing statements and, where appropriate, fixture filings, duly executed by each applicable Borrower with respect to all personal and mixed property Collateral of such Borrower and by CEA with respect to the common stock of Company, in each case, for filing in all jurisdictions as may be necessary or in the opinion of Collateral Agent desirable to perfect the security interests in favor of Collateral Agent created in such Collateral pursuant to the Collateral Documents; (iv) PTO Cover Sheets, Etc. Delivery to Collateral Agent of all cover sheets or other documents or instruments Collateral Agent may reasonably request to be filed with the PTO in order to evidence Liens in favor of Collateral Agent in respect of any IP Collateral; and (v) Control Agreements. Delivery to Collateral Agent of Control Agreements with financial institutions and other Persons in order to perfect Liens in respect of Deposit Accounts, Securities Accounts and other Collateral pursuant to the Collateral Documents; N. [INTENTIONALLY OMITTED]. O. NO MATERIAL ADVERSE CHANGE. Administrative Agent (in its sole discretion) shall be satisfied that there has been no material adverse change (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) since December 31, 2002 in the business, property, assets, operations, financial condition or prospects of Company 57 and its Subsidiaries taken as a whole, and Company shall have delivered to Administrative Agent an Officer's Certificate to the foregoing effect. P. CASH MANAGEMENT SYSTEM. The cash management system of Company and its Subsidiaries shall be as set forth on Schedule 3.1P annexed hereto. Q. [INTENTIONALLY OMITTED]. R. GEOTHERMAL SALE. Covanta shall have consummated the Geothermal Sale on terms and conditions and pursuant to documentation in form and substance satisfactory to the Requisite DIP Lenders. S. COMPANY REORGANIZATION. On the Closing Date, (i) Covanta shall own, directly or indirectly, 100% of the outstanding Capital Stock of CEA, (ii) CEA shall own 100% of the outstanding common stock of Company, which shall own the Capital Stock of all Persons (including Persons holding the equity interests in other Persons) holding the assets and operations of the IPP International Business to the extent described in the Approved Plan of Reorganization and the Disclosure Statement related thereto, (ii) all relevant operating and administrative expenses associated with the IPP International Business shall be transferred into Company in accordance with the Management Services and Reimbursement Agreement, and (iii) not less than $5,000,000 of cash for working capital shall have been transferred from Covanta and its Subsidiaries (other than Borrowers) to the Borrowers as an equity contribution. T. DISTRIBUTION. All unrestricted Cash On Hand (including, without limitation, net sale proceeds from the Geothermal Sale) of Covanta and its Subsidiaries remaining prior to the equity contribution referred to in subsection 3.1C(ii) but after (i) the transfer of working capital amounts to Company as described in subsection 3.1S, (ii) the payment of the fees referred to in subsection 3.1B, (iii) the disposition of those letters of credit referred to in subsection 3.1F(i)(c), (iv) the payment of allowed administrative expenses, (v) the reimbursement of reasonable accrued fees and expenses of DHC not to exceed $4,000,000 in the aggregate and reasonable accrued fees and expenses of D.E. Shaw not to exceed $350,000 in the aggregate, and (vi) payment of funded outstanding obligations under the DIP Credit Agreement (if any) and (without duplication of clauses (i) through (vi)) the payment of other "Exit Costs" (as defined in the Approved Reorganization Plan), subject to an amount of cash (which amount shall be determined in accordance with terms set forth in the draft Plan of Reorganization attached (on the date of execution thereof) to the Investment and Purchase Agreement dated as of December 2, 2003 between DHC and Covanta) (plus reserves required to address timing issues associated with the Geothermal Sale and emergence from the Chapter 11 Cases (in an aggregate amount satisfactory to the DIP Lenders)) to be retained in the Cash Management System in the United States by Covanta and its Subsidiaries (collectively, such Cash On Hand, net of such transferred amount, such payments and reimbursements, such retained amount and such reserves, is referred to herein as "DISTRIBUTABLE CASH"), shall have been distributed as follows: first, to the extent of the first $60,000,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims that are Detroit L/C Lenders on the Closing Date, on account of their allowed pre-petition exposure, in accordance with the Approved Plan of Reorganization second, to the extent of the next $7,200,000 of such Distributable Cash, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the 58 Approved Plan of Reorganization, and third, to the extent of 25% of any remaining Distributable Cash, to Covanta, and to the extent of the remaining 75%, for the benefit of the holders of Prepetition Secured Claims, on account of any remaining allowed pre-Petition Date exposure, in accordance with the Approved Plan of Reorganization. U. NOL AVAILABILITY. Covanta, its independent advisers, Administrative Agent and Administrative Agent's counsel shall have determined to their respective sole satisfaction that the net operating losses disclosed to Administrative Agent and Lenders prior to the Closing Date as being held by DHC are available and accessible to Covanta and its Subsidiaries. V. LITIGATION. On the Closing Date, there shall be no action, suit, investigation, litigation or proceeding pending or threatened in any court or before any arbitrator or governmental instrumentality that purports to affect the Approved Plan of Reorganization, any of the Loan Documents, any of the Domestic Loan Documents, the High Yield Notes or the High Yield Indenture that could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Approved Plan of Reorganization, or any of the Loan Documents, or any of the Domestic Loan Documents. W. 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 Administrative Agent, acting on behalf of Lenders, and their counsel shall be satisfactory in form and substance to Administrative Agent and such counsel, and Administrative Agent and such counsel shall have received all such counterpart originals or certified copies of such documents as Administrative Agent may reasonably request. Each Lender, by delivering to Administrative Agent a signed counterpart to this Agreement, shall be deemed (unless such Lender indicates otherwise in writing to Administrative Agent and Company) to have acknowledged receipt of, and to have consented to, approved and be satisfied with, the documents, agreements, instruments or information which require approval, consent or satisfaction of the Lenders or Requisite Lenders, as applicable, in order for the conditions precedent contained in this subsection 3.1 to be satisfied. Notwithstanding anything in this Section 3 to the contrary, it is understood and agreed that the conditions of subsection 3.1A(i) shall be deemed satisfied notwithstanding failure to deliver all of the certificates or other evidence of good standing described in subsection 3.1A(i), so long as (i) Administrative Agent is notified which certificates or other evidence shall not have been delivered and, in its sole discretion, agrees that such certificates or other evidence may be delivered with respect to the relevant Persons after the Closing Date, (ii) failure to deliver all of the certificates or other evidence of good standing described in subsection 3.1A(i) on or prior to the date which is 60 days after the Closing Date shall constitute an immediate Event of Default on such date. 3.2 CONDITIONS TO ALL LOANS. The obligations of Lenders to make Loans on each Funding Date are subject to the following further conditions precedent: 59 A. Administrative Agent shall have received before that Funding Date, in accordance with the provisions of subsection 2.1B, an originally executed Notice of Borrowing, in each case signed by a duly authorized Officer of Borrowers. 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) After giving effect to the proposed borrowing, the aggregate principal amount of all outstanding Loans shall not exceed the Commitments then in effect; (vi) Company shall have delivered to Administrative Agent an Officer's Certificate (together with such supporting calculations as Administrative Agent 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 6.6; and (vii) The aggregate amount of Cash On Hand shall not exceed $2,000,000. SECTION 4. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Agreement and to make the Loans, Borrowers represent and warrant to each Lender, on the date of this Agreement, on the Closing Date and on each Funding Date, that the following statements are true, correct and complete: 4.1 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 4.1 annexed hereto. Each Loan 60 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 all material terms of its Organizational Documents. B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do business and in good standing in every jurisdiction 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 6.11. D. SUBSIDIARIES. All of the Subsidiaries of Company as of the Closing Date and their jurisdictions of organization are identified in Schedule 4.1 annexed hereto. The Capital Stock of Company and each of its Subsidiaries identified in Schedule 4.1 annexed hereto is duly authorized, validly issued, fully paid and nonassessable and none of such Capital Stock constitutes Margin Stock. CEA, Company and each of its Subsidiaries identified in Schedule 4.1 annexed hereto 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 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 4.1 annexed hereto correctly sets forth, as of the Closing Date, the ownership interest of CEA, Company and each of its Subsidiaries in Company and each of its Subsidiaries identified therein. 4.2 AUTHORIZATION OF BORROWING, ETC. A. AUTHORIZATION OF BORROWING. The execution, delivery and performance of the Loan Documents have been duly authorized by all necessary action on the part of each Loan Party that is a party thereto. 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 CEA, Company or any of its Subsidiaries, the Organizational Documents of CEA, Company or any of its Subsidiaries or any order, judgment or decree of any court or other Government Authority binding on CEA, Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of CEA, Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Covanta or any of its Subsidiaries (other than any Liens created under any of the Loan Documents in favor of Collateral Agent on behalf of Secured Parties), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual 61 Obligation of Covanta 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. 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 Confirmation 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 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 Company or any of its Subsidiaries which prohibit or otherwise restrict the transfer of cash or other assets from one Borrower to another, other than (i) prohibitions or restrictions existing under or by reason of (a) this Agreement and the other Loan Documents, (b) applicable law, (c) customary non-assignment provisions entered into in the ordinary course of business and consistent with past practices, and (d) any documents or instruments governing the terms of any Indebtedness or other obligations secured by Liens permitted by subsection 6.2A, provided that such prohibitions or restrictions apply only to the assets subject to such Liens, and (ii) restrictions described in clauses (a) through (d) of subsection 6.2D. 4.3 FINANCIAL CONDITION. Company has heretofore delivered to Lenders, pursuant to subsection 3.1G, (i) statements of income, balance sheets and statements of cash flows with respect to Company and its Subsidiaries for the Fiscal Year ended December 31, 2002 and (ii) statements of income, balance sheets and statements of cash flows with respect to Company and its Subsidiaries for the Fiscal Quarters ended March 31, 2003, June 30, 2003 and September 30, 2003. 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 Borrower 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 date subsequent to the Closing Date, is not reflected in the most recent financial statements delivered to Lenders pursuant to subsection 5.1 or the notes thereto (other than (a) those liabilities reflected on the Schedules to this Agreement and (b) Performance Guaranties and Contingent Obligations that are permitted to be incurred under subsection 6.4) 62 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. 4.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED PAYMENTS. Since December 31, 2002, no event or change has occurred (other than as disclosed in reports delivered pursuant to subsection 6.1(i) of the DIP Credit Agreement) that has resulted in or evidences, either in any case or in the aggregate, a Material Adverse Effect. Since the Petition 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 6.5, and (ii) as was permitted by subsection 7.5 of the DIP Credit Agreement. 4.5 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 4.3 or in the most recent financial statements delivered pursuant to subsection 5.1, 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 6.7. 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 4.5B 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 Borrower is the landlord or tenant (whether directly or as an assignee or successor in interest) under such lease, sublease or assignment. As of the Closing Date, except as specified in Schedule 4.5B 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 Borrower, enforceable against such Borrower 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 4.5C 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. 63 4.6 LITIGATION; ADVERSE FACTS. Except as set forth in Schedule 4.6 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. 4.7 PAYMENT OF TAXES. Except to the extent permitted by subsection 5.3, 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 (other than taxes represented by the Tax Note) 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 Company or its Subsidiaries dispute or disagree with, 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. 4.8 PERFORMANCE OF AGREEMENTS; MATERIAL CONTRACTS. A. Except as set forth on Schedule 4.8A annexed hereto, after giving effect to the Approved Plan of Reorganization, 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 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 (i) any agreements or instruments, the performance of which, in the ordinary course, would reasonably be expected to result in a Material Adverse Effect, or (ii) any charter or other internal restrictions which, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. 64 C. Schedule 4.8C contains a true, correct and complete list of all the Material Contracts in effect on the Closing Date after giving effect to the Approved Plan of Reorganization. 4.9 GOVERNMENTAL REGULATION. Neither Company nor any of its Subsidiaries is subject to regulation under (i) the Public Utility Holding Company Act of 1935 ("PUHCA") (other than as an "exempt wholesale generator" or as a "foreign utility company", as such terms are defined in PUHCA), (ii) the Federal Power Act (other than as a "qualifying small power production facility", as such term is defined in PURPA), (iii) the Interstate Commerce Act, (iv) the Investment Company Act of 1940, or (v) any other federal or state statute or regulation which may limit its ability to incur Indebtedness or which may otherwise render all or any portion of the Obligations unenforceable. 4.10 SECURITIES ACTIVITIES. A. Neither CEA nor 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 the 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 6.2 or 6.7 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 7.2, will be Margin Stock. 4.11 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 material compliance with all applicable provisions and requirements of ERISA, the regulations and published interpretations thereunder and other applicable law with respect to each Employee Benefit Plan, and have performed all of their material obligations under each Employee Benefit Plan. Company and each of its Subsidiaries are in material compliance with all applicable laws and orders of foreign Government Authorities with respect to each of its pension plans and employee benefit plans for foreign employees, and have performed all of their material obligations under each such pension plan and employee benefit plan. Each Employee Benefit Plan that is intended to qualify under Section 401(a) of the Internal Revenue Code has received, or has timely taken all action necessary to receive, a favorable determination letter from the Internal Revenue Service to such effect and no event has occurred (other than the enactment of legislation for which the remedial amendment period has not expired) that would reasonably be expected to affect adversely such 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 4.11 annexed hereto or in the financial statements 65 delivered to Lenders pursuant to subsection 3.1 or 5.1 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 January 1 of each year (based on, with respect to each Pension Plan, the actuarial valuation as of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as of which the valuation was so performed), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), does not exceed (i) $20,000,000, in the event the applicable law (including statutorily prescribed actuarial assumptions) used in determining such unfunded benefit liabilities (the "ASSUMPTIONS") is generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000 in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans. E. To each Borrower's knowledge, 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 $7,500,000. F. Neither Company nor any Subsidiary has incurred or is reasonably expected to incur any material liability pursuant to Title IV of ERISA with respect to any employee benefit plan of an entity that was formerly an ERISA Affiliate of Company or any of its Subsidiaries or with respect to any employee benefit plan that was previously maintained by Company or any of its Subsidiaries. 4.12 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. 66 4.13 ENVIRONMENTAL PROTECTION. A. Except as set forth in Schedule 4.13 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 4.13 annexed hereto, neither Covanta 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 4.13 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 4.13 annexed hereto, (i) neither Covanta nor any of its Subsidiaries nor, to Company's knowledge, any predecessor of Covanta 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. 4.14 EMPLOYEE MATTERS. Except as described in Schedule 4.14 annexed hereto with respect to the Bataan Project, there is no strike or work stoppage in existence or threatened involving Company or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect. 4.15 MATTERS RELATING TO COLLATERAL. A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and delivery of the Collateral Documents by Loan Parties, together with (x) the actions taken on or prior to the date hereof pursuant to subsections 3.1M, 3.1N, 5.8, 5.9 and 5.11 and (y) the delivery to 67 Collateral Agent of any Pledged Collateral of the Loan Parties not delivered to Collateral 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 Collateral Agent, for the benefit of Secured Parties, a Lien on all of the Collateral of the Loan Parties (which Lien has priority over any other Lien on such Collateral, subject to Permitted Encumbrances and Liens permitted under subsection 6.2A), 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 Collateral 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 Collateral Agent. 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 Collateral Agent pursuant to any of the Collateral Documents or (ii) the exercise by Collateral 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 4.15A, (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. ABSENCE OF THIRD-PARTY FILINGS. Except such as may have been filed in favor of Collateral Agent as contemplated by subsection 4.15A and to evidence Liens permitted pursuant to subsection 6.2, (i) no effective UCC financing statement, fixture filing or other instrument similar in effect covering all or any part of the Collateral is on file in any filing or recording office, and (ii) no effective filing covering all or any part of the IP Collateral is on file in the PTO. D. 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. E. INFORMATION REGARDING COLLATERAL. All information supplied to Collateral Agent or Administrative Agent by any Loan Party (including its officers, employees, agents, advisors, representatives or counsel) 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. 4.16 DISCLOSURE. No representation or warranty of Company or any of its Subsidiaries contained in any Loan Document or in any other certificate or written statement (excluding the projections, pro forma financial statements and forward looking statements contained therein and the estimates contained in such projections, pro forma financial statements and forward looking statements) furnished to Lenders by Covanta or any of its Subsidiaries, including any such 68 Person's officers, employees, agents, advisors, representatives or counsel, for use in connection with the transactions contemplated by this Agreement, contained as of the date such representation or warranty was made any untrue statement of a material fact or omitted to state a material fact 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 and in light of such representations and warranties and all such prior representations and warranties, taken as a whole. Any projections and pro forma financial information contained in such materials 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. 4.17 CASH MANAGEMENT SYSTEM. The summary of the Cash Management System attached hereto as Schedule 3.1P 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 has any Deposit Account which is not described in Schedule 3.1P other than Deposit Accounts permitted to be owned after the Closing Date pursuant to subsection 5.10. There has been no change to the Cash Management System since the Closing Date except such changes as are permitted under subsection 5.10 and such other changes as have been disclosed to Lenders in writing and approved by Administrative Agent. 4.18 MATTERS RELATING TO LOAN PARTIES. A. LOAN PARTIES. Neither Company nor any of its Subsidiaries owns any interest in any Domestic Subsidiary which is not a Borrower. B. DOMESTIC SUBSIDIARY ASSETS. Each Domestic Subsidiary has granted a Lien in favor of Collateral Agent on substantially all of its property pursuant to the Collateral Documents. C. DOMESTIC SUBSIDIARY CAPITAL STOCK. The Capital Stock of each Domestic Subsidiary which is directly owned by any Loan Party has been pledged to Collateral Agent pursuant to the Collateral Documents, except for the Capital Stock of those Domestic Subsidiaries (other than Borrowers) (i) which is subject to a Lien permitted under subsection 6.2A securing Indebtedness permitted under subsection 6.1, 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. D. FOREIGN SUBSIDIARY CAPITAL STOCK. 65% of the Capital Stock of each Foreign Subsidiary which is a Material Subsidiary and is directly owned by Borrowers (or such 69 lesser percentage as is owned by Borrowers) 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 Borrower or such Foreign Subsidiary. E. COMPANY CAPITAL STOCK. The outstanding common stock of Company has been pledged to Collateral Agent pursuant to the CEA Stock Pledge Agreement. No Contractual Obligations are in effect which would be violated by a pledge of the common stock of Company pursuant to the CEA Stock Pledge Agreement. 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 4.18B, 4.18C and 4.18D 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 5.8 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 3.1. 4.19 INVESTIGATION. All obligations in existence immediately after the Closing Date (other than obligations that do not, in the aggregate, exceed $2,000,000) to extend credit or credit support or obtain the extension of credit or credit support or to make investments or expenditures with respect to existing or future Projects of any Borrower or any Subsidiary of any Borrower that are contained in Contractual Obligations or of which Borrowers are otherwise aware have been disclosed to Administrative Agent and the DIP Lenders prior to the Closing Date. Borrowers have made such inquiry and investigation as is necessary to enable Borrowers to make the representation contained in the preceding sentence. 4.20 MATTERS RELATING TO BANKRUPTCY PROCEEDINGS. A. PLAN OF REORGANIZATION. As of the Closing Date, there have been no material modifications, amendments revisions or restatements of the Approved Plan of Reorganization. Any representation and warranty made by Covanta or any of its Subsidiaries in the Approved Plan of Reorganization is accurate, true and correct in all material respects as of the Closing Date (or, to the extent such representations and warranties specifically relate to an earlier date, that such representations and warranties were accurate, true and correct in all material respects as of such earlier date). B. CONFIRMATION ORDER. The Confirmation Order has been entered by the Bankruptcy Court at least 11 days prior to the Closing Date. The Confirmation Order has not been stayed pending any appeal or petition for review or for rehearing. 70 4.21 SUBORDINATED INDEBTEDNESS. The Obligations constitute senior indebtedness that is entitled to the benefits of the subordination provisions, if any, of all Indebtedness of Company and its Subsidiaries under the Unsecured Creditor Notes. 4.22 REPORTING TO IRS. Company does not intend to treat the Loans and related transactions as being a "reportable transaction" (within the meaning of Treasury Regulation section 1.6011-4). In the event Company determines to take any action inconsistent with such intention, it will promptly notify Administrative Agent thereof. Company acknowledges that one or more Lenders may treat their Loans as part of a transaction that is subject to Treasury Regulation section 1.6011-4 or section 301.6112-1, and Administrative Agent and such Lender or Lenders, as applicable, may file such IRS forms or maintain such lists and other records as they may determine is required by such Treasury Regulations. SECTION 5. COMPANY'S AFFIRMATIVE 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 Obligations, 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 5. 5.1 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, except as expressly provided below, promptly after receipt thereof Administrative Agent will deliver a copy to each Lender): (i) Budget Report; Budget and Asset Sale Update: as soon as available and in any event no later than the 15th Business Day of each month commencing with the 15th Business Day of April 2004, (a) for the month most recently ended, a report in form satisfactory to Administrative Agent reflecting the actual cash receipts and disbursements of Company and its Subsidiaries for the preceding month with respect to each line item described in the Budget for the current Fiscal Year and the percentage and dollar variance of such amounts from the projected amounts therefor set forth in (x) such Budget and (y) the Budget for the current Fiscal Year as delivered pursuant to subsection 5.1(xvi), accompanied by an Officer's Certificate from the chief financial officer of Company certifying that such report accurately presents, in all material respects, cash receipts and cash expenditures of Company and its Subsidiaries for the periods indicated, (b) a supplement to the Budget for the current Fiscal Year, in the form of such Budget, reflecting projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter remaining in the current Fiscal Year with respect to each line item described in such Budget, which supplement shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the 71 projections contained in such supplement are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made, and (c) a report on all Asset Sales consummated prior to such date, describing in reasonable detail the properties sold, the consideration received and the expenses deducted from Gross Receipts therefor to calculate Net Asset Sale Proceeds, together with a progress report in reasonable detail describing efforts being made to sell additional assets of Company and its Subsidiaries (such progress report described in this clause (c) to be provided solely to Administrative Agent); (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 7.2, (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 45 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 Covanta files a quarterly report on Form 10Q with the Securities and Exchange Commission for any Fiscal Quarter containing consolidating financial statements for Company and its Subsidiaries, Borrowers shall be required to deliver a copy of such quarterly report in lieu of the financial statements described in this subsection 5.1(iii); (iv) Year-End Financials: as soon as available and in any event within 90 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 72 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 independent certified public accountants of recognized national standing selected by Company and satisfactory to Administrative Agent, which report shall (with respect to the audits for all Fiscal Years after 2003) be unqualified, shall express no doubts, assumptions or qualifications concerning the ability of Company and its Subsidiaries to continue as a going concern, and shall (with respect to the audits for all Fiscal Years including 2003) 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; provided, however, that so long as Covanta files an annual report on Form 10K with the Securities and Exchange Commission containing consolidating financial statements for Company and its Subsidiaries, 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; (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 6, in each case to the extent compliance with such restrictions is required to be tested at the end of the applicable accounting period; and (c) a certificate of the chief financial officer of Company stating that Company and its Subsidiaries have transferred to Deposit Accounts of Company located in the United States in the Cash Management System all funds of Company and its Subsidiaries on deposit in accounts located outside the United States that are required to be transferred pursuant to subsection 5.10B; (vi) Reconciliation Statements: other than the fresh start adjustments required under SOP 90-7, 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 73 subsection 4.3, the consolidated financial statements of Company and its Subsidiaries delivered pursuant to subdivisions (iii) or (iv) of this subsection 5.1 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 5.1 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 5.1 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 6.6) which would have resulted if such financial statements had been prepared without giving effect to such change; (vii) Accountants' Certification: together with each delivery of consolidated financial statements of Company and its Subsidiaries pursuant to subdivision (iv) above, a written statement by the independent certified public accountants giving the report thereon stating that in connection with their audit, nothing came to their attention that caused them to believe that Company failed to comply with the terms, provisions or conditions of subsection 6.6, insofar as they relate to financial and accounting matters, or, if such a failure to comply has come to their attention, specifying the nature and period of existence thereof (it being understood that their audit is not directed primarily toward obtaining knowledge of non-compliance and that such accountants shall not be liable by reason of any failure to obtain knowledge of any such non-compliance that would not be disclosed in the course of their audit); (viii) Accountants' Reports: promptly upon request of 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 Covanta 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 Covanta or any of its Subsidiaries to the public concerning material developments in the business of Company or any of its Subsidiaries; 74 (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): (I) 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 (II) seeks to enjoin or otherwise prevent the consummation of, or to recover any damages or obtain relief as a result of, or to contest or challenge the legality, validity or enforceability 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: with reasonable promptness upon becoming aware of the occurrence of or forthcoming occurrence of (a) any ERISA Event or (b) any event that would constitute an ERISA Event but for the requirements (in order for such event to constitute an ERISA Event) that a Lien or liability imposed as a result thereof be material, that the error giving rise thereto be in bad faith, and/or that such event would reasonably be expected to result in a Material Adverse Effect, 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 (it being agreed that commencing on the Closing Date, on an annual basis Borrowers shall request information from each Multiemployer Plan in accordance with section 4221 of ERISA to determine the potential withdrawal liability of Company, its Subsidiaries and their respective ERISA Affiliates for a complete withdrawal from such Multiemployer Plan); 75 (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) 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; (xvi) Budget: no later than the 15th day of December of each year commencing with December 15, 2004, a budget for the next Fiscal Year, in the form of the Budget for the current Fiscal Year, reflecting (a) projected cash receipts and disbursements of Company and its Subsidiaries for each month and each Fiscal Quarter in the next Fiscal Year and (b) projected net cash flows of Company and its Subsidiaries for each Fiscal Year following the next Fiscal Year and ending with 2007, in each case with respect to each line item described in the Budget for the current Fiscal Year, which budget shall be accompanied by an Officer's Certificate from the chief financial officer of Company certifying that the projections contained in such budget are based upon good faith estimates and assumptions believed by Company to be reasonable at the time made; (xvii) 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 Agent or Requisite Lenders (or by any Lender so long as such request is made through Administrative Agent (and Administrative Agent shall be required to request from Borrowers any such information and data reasonably requested by a Lender)); and (xviii) Notices from Holders of Subordinated Indebtedness: promptly, upon receipt, copies of all notices from holders of Subordinated Indebtedness or a trustee, agent or other representative of such a holder. 5.2 EXISTENCE, ETC. Except as permitted under subsection 6.7, 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 the existence of any such Subsidiary or 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. 76 5.3 PAYMENT OF TAXES AND CLAIMS; TAX. A. 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 tax, assessment, 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 tax, assessment, 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). 5.4 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 Non 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 77 judgment. Unless prohibited by contractual or other legal requirement, such policy of insurance shall (a) name Collateral Agent for the benefit of Secured Parties 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 Collateral Agent for the benefit of Secured Parties 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 Collateral 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 5.4 is in full force and effect and that Collateral Agent on behalf of Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 5.4. 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 or Potential 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 (b) if an Event of Default or Potential 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 or Collateral Agent. Upon receipt by Administrative Agent or Collateral Agent, as the case may be, 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 or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, 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 or Collateral Agent, as the case may be, shall 78 deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under this Agreement and (2) Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 or Collateral Agent, as the case may be of such Net Insurance/Condemnation Proceeds, Administrative Agent or Collateral Agent, as the case may be, shall, and Company hereby authorizes Administrative Agent or Collateral Agent, as the case may be, 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 or arising under the documentation for Non Recourse Debt permitted to be incurred under this Agreement) 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. Notwithstanding anything in this Agreement to the contrary, in the event of any conflict or inconsistency between subsection 5.4C and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 5.5 INSPECTION RIGHTS; LENDER MEETING. A. INSPECTION RIGHTS. Borrowers shall, and shall cause each of their respective Subsidiaries to, permit any authorized representatives designated by any Lender, at such Lender's expense, 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 visits, inspections, and audits as Administrative Agent or Requisite Lenders may deem necessary or advisable, at any time from time to time, all at Borrowers' expense. B. LENDER MEETING. Company will, upon the request of Administrative Agent or Requisite Lenders, participate in a meeting of Administrative Agent and Lenders once during each Fiscal Year to be held at Company's corporate offices (or at such other location as may be agreed to by Company and Administrative Agent) at such time as may be agreed to by Company and Administrative Agent. 79 5.6 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. 5.7 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 80 Hazardous Materials Activity that could reasonably be expected to have a Material Adverse Effect or impose liability on any Lender or Agent; (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; and (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 5.7B, 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 81 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. 5.8 EXECUTION OF THE PERSONAL PROPERTY COLLATERAL DOCUMENTS AFTER THE CLOSING DATE. A. 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 (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 for which the required consents have not been obtained or (2) applicable law affecting such Borrower 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 Borrower 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 Borrower, and (ii) such Foreign Subsidiary is organized with respect to customary matters regarding enforceability, validity and perfection of such pledge. B. 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 a pledge of the Capital Stock of any Subsidiary of a Borrower. 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. 5.9 MATTERS RELATING TO REAL PROPERTY COLLATERAL. From and after the Closing Date, in the event that any Borrower acquires any fee interest in real property or any Material Leasehold Property, such Borrower shall, as soon as practicable after such Person acquires such real property or Material Leasehold Property, 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, including, without limitation, deliver to Collateral Agent in proper form for recording in all appropriate places in all applicable jurisdictions, encumbering the interest of such Borrower in such mortgaged property; and such opinions, appraisal, documents, title 82 insurance, environmental reports and other documents as Administrative Agent may reasonably request, in each case in form and substance reasonably satisfactory to Administrative Agent, and to assure, convey, assign, transfer and confirm unto Collateral Agent, for the benefit of the Secured Parties, 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. 5.10 DEPOSIT ACCOUNTS; REPATRIATION OF FOREIGN CASH. A. DOMESTIC DEPOSIT ACCOUNTS. Borrowers shall, and shall cause each of their Subsidiaries to, maintain the Cash Management System as described in Schedule 3.1P, as said Schedule 3.1P may be supplemented from time to time pursuant to clause (c) below, and Company and its Subsidiaries shall not open or close Deposit Accounts in the United States or make other changes to the Cash Management System in the United States without the written consent of Administrative Agent, except that Company and its Subsidiaries may open and maintain funds in Deposit Accounts with Collateral Agent or other depository institutions after the Closing Date so long as (a) concurrently with the opening of any such account with a depository institution other than Collateral Agent, Borrowers shall deliver to Administrative Agent a Control Agreement with respect to such account (unless after giving effect to such opening Borrowers would not be in breach of the requirement set forth in clause (b)), (b) the aggregate amount on deposit at any time in all Deposit Accounts in the United States maintained with depository institutions other than Collateral Agent for which Control Agreements have not been delivered to Administrative Agent shall not exceed $50,000, and (c) concurrently with the opening of any such account, Borrowers shall deliver to Administrative Agent a written notice setting forth the account number and the name of the relevant depository institution (it being understood that such written notice shall be deemed to supplement Schedule 3.1P annexed hereto for all purposes of this Agreement) and, if applicable, the Project to which such account relates and the primary purpose of such account. B. REPATRIATION OF FOREIGN CASH. At all times Company shall, and shall cause each of its Subsidiaries to, transfer to Deposit Accounts of Company located in the United States in the Cash Management System all funds of Company and its Subsidiaries on deposit in accounts located outside the United States that can be so transferred, to the extent such transfer (i) would not constitute a violation of (a) a valid Contractual Obligation in favor of or for the benefit 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 the relevant Foreign Subsidiary or Project, and (ii) would not result in material adverse tax liabilities for Company and its Subsidiaries; provided, however, that Company and its Subsidiaries may maintain funds that would otherwise be required to be transferred pursuant to the foregoing provision so long as (1) such funds so maintained are applied to working capital, capital expenditure, maintenance, operation, payroll and other liquidity requirements in the ordinary course of business and (2) the aggregate amount of such funds so maintained at any time does not exceed $2,000,000 in the aggregate. 5.11 FURTHER ASSURANCES. A. ASSURANCES. Without expense or cost to Administrative Agent or Lenders, each Borrower shall from time to time hereafter execute, acknowledge, file, record, do and 83 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 and the Confirmation Order, including to subject any Collateral, intended to now or hereafter be covered, to the Liens created by the Collateral Documents and the Confirmation Order, to perfect and maintain such Liens, and to assure, convey, assign, transfer and confirm unto Collateral 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 Collateral Agent or for carrying out the intention of or facilitating the performance of the terms of this Agreement, any other Loan Documents or the Confirmation Order, registering or recording this Agreement or any other Loan Document. Without limiting the generality of the foregoing, Borrowers shall deliver to Collateral 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 Collateral Agent to perfect Collateral 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 5.11A, 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 5.11A, 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 5.11A, (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 Agent, Lenders or any Borrower, in which 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, 84 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 Administrative Agent 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 9.2 hereof. 5.12 MOST FAVORED NATIONS PAYMENTS. Company shall, and shall cause each of its Subsidiaries to, extend any fees or pricing increases, to the extent such fees or pricing increases are the direct obligation of Company or its Subsidiaries, resulting from the amendment, waiver or modification, after the Closing Date, of the CPIH Term Loan Documents, on an equivalent basis (based in the case of fees on the respective amounts of Loan Exposure outstanding (on one hand) and the credit exposure under the CPIH Term Loan Documents (on the other hand)) to the Lenders regardless of whether a particular Lender has participated in or consented to a corresponding amendment, waiver or modification (if any) of the Loan Documents, and any such payment of equivalent fees shall be paid in cash concurrently with the fees giving rise to such equivalent fees. SECTION 6. 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 Obligations 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 6. 6.1 INDEBTEDNESS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, create, incur or assume, 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 and obligations under the CPIH Term Loan Agreement; (ii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations and Performance Guaranties permitted by subsection 6.4 and, upon any matured obligations actually arising pursuant thereto, any Indebtedness created as a result thereof; (iii) Borrowers may become and remain liable with respect to Indebtedness to any other Borrowers; provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note; (iv) Subsidiaries of Company may, after the Closing Date, become and remain liable with respect to Indebtedness to Company or any Subsidiary of Company so long as the proceeds of such Indebtedness are applied to Investments permitted under subsection 85 6.3(vi) to be made by Company or any of its Subsidiaries in the Subsidiaries incurring such Indebtedness; provided that (a) no such Indebtedness may be incurred to make capital expenditures if after giving effect to such expenditures Borrowers would not be in pro forma compliance with subsection 6.6D, and (b) any such Indebtedness to any Borrower shall be evidenced by the Intercompany Master Note; (v) Company and its Subsidiaries, as applicable, may remain liable with respect to Indebtedness outstanding on the Closing Date and described in Schedule 6.1(v); (vi) Subsidiaries of Company may become and remain liable with respect to Indebtedness consisting of a converted equity Investment by Company or another Subsidiary of Company in such Subsidiaries, provided that the underlying equity Investment was permitted under this Agreement at the time of such conversion; (vii) Any Subsidiary of Company may become and remain liable with respect to Indebtedness incurred to refinance, replace, renew or extend, in whole or in part, Indebtedness of such Subsidiary permitted to remain outstanding under subsection 6.1(v); provided, that in each case (a) the terms (excluding the interest rate and fees payable with respect thereto, so long as such interest and fees on such Indebtedness are not borne directly or indirectly by Company or any of its Subsidiaries, whether through an offset to or deduction against service or operating agreement fees to Company or its Subsidiaries or otherwise) of such Indebtedness as refinanced, replaced, renewed or extended, taken as a whole (considering the economic benefits and disadvantages to Company and its Subsidiaries from such refinancing, replacement, renewal or extension, as well as the economic benefits and disadvantages to Company and its Subsidiaries of the Project to which such Indebtedness relates), shall not be more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the Indebtedness so refinanced, replaced, renewed or extended, (b) the principal amount of the Indebtedness as refinanced, replaced, renewed or extended shall not exceed 110% of the principal amount of the Indebtedness so refinanced, replaced, renewed or extended (provided that such limitation shall not apply with respect to Indebtedness that an existing client (if such client is a Government Authority) of a Project undertakes to service through the principal lease, service or operating agreement of the applicable Project), (c) no obligee or beneficiary of such Indebtedness after such refinancing, replacement, renewal or extension shall have greater recourse to Persons for the payment or collection of such Indebtedness than the oblige or beneficiary of the Indebtedness so refinanced, replaced, renewed or extended had immediately prior to such transaction, and (d) Company shall provide to Administrative Agent reasonable prior advance written notice of such proposed refinancing, replacement, renewal or extension and copies of all material contracts or other agreements being entered into in connection therewith; (viii) Company may become and remain liable with respect to Indebtedness consisting solely of its obligations under Insurance Premium Financing Arrangements, which obligations shall not exceed at any time $5,000,000 in the aggregate; 86 (ix) Borrowers may become and remain liable with respect their obligations to pay for services rendered to them and certain payments made by Covanta and its Subsidiaries (other than Company and its Subsidiaries), in each case under and in accordance with the Management Services and Reimbursement Agreement; and (x) Company and its Subsidiaries may, after the Closing Date, become and remain liable with respect to Indebtedness to any Subsidiary so long as the proceeds of such Indebtedness are applied to make Investments permitted under subsection 6.3(ix); provided that all such intercompany Indebtedness shall be evidenced by the Intercompany Master Note. 6.2 LIENS AND RELATED MATTERS. A. PROHIBITION ON LIENS. Borrowers shall not, and shall not permit 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 of their respective Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom, or file or authorize the filing of, or permit to remain in effect, any effective 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, except: (i) Permitted Encumbrances; (ii) subject to the provisions of the Intercreditor Agreement, Liens granted pursuant to the Collateral Documents to secure the Obligations, the obligations of Borrowers under the CPIH Term Loan Agreement and the obligations to the cash management bank with respect to the Cash Management System; (iii) Liens existing on the Closing Date and described in Schedule 6.2 annexed hereto; (iv) Liens on assets of Company or any Subsidiary of Company securing refinancing Indebtedness permitted by subsection 6.1(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, if applicable, assets the acquisition of which was financed with the proceeds of such refinancing Indebtedness permitted by subsection 6.1(vii); (v) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 6.4(v), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; (vi) Liens on cash collateral of Company securing insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance 87 arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 5.4B; (vii) Liens securing debt service reserve funds, completion obligations and similar accounts and obligations (other than Indebtedness) of Subsidiaries of Company to Persons other than Company and its Subsidiaries and their respective Affiliates, so long as (a) each such obligation is associated with a Project, (b) such Lien is limited to (1) assets associated with such Project (which in any event shall not include assets held by any Borrower other than a Borrower whose sole business is the ownership and/or operation of such Project and substantially all of whose assets are associated with such Project) and/or (2) the equity interests in such Subsidiary, but in the case of clause (2) 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, and (c) such obligation is otherwise permitted under this Agreement; (viii) Liens created pursuant to Insurance Premium Financing Arrangements otherwise permitted under this Agreement, so long as such Liens attach only to gross unearned premiums for the insurance policies; (ix) Liens on cash collateral of Subsidiaries of Company securing Contingent Obligations permitted under subsection 6.4(iv), so long as such cash is provided from funds that would not otherwise be available (due to prohibitions in the underlying agreements relating to Projects) for making dividends and distributions to Company and its other Subsidiaries; and (x) Other Liens on assets of any Subsidiary of Company securing Indebtedness in an aggregate amount not exceeding $1,000,000. B. EQUITABLE LIEN IN FAVOR OF LENDERS. If any Borrowers or any of its Subsidiaries shall create or assume any Lien upon any of its properties or assets, whether now owned or hereafter acquired, other than Liens excepted by the provisions of subsection 6.2A and Liens created or assumed on properties or assets on which First Priority Liens created under the Collateral Documents are attached and perfected at the time of such creation or assumption, the Borrowers hereby agree that (i) they will be deemed to have automatically and without further action secured the Obligations with such Lien equally and ratably with any and all other Indebtedness, Contingent Obligations or any other obligations or debt (as defined in the Bankruptcy Code) secured thereby, and (ii) they shall take or cause to be taken such actions as Administrative Agent or Requisite Lenders deem necessary or advisable to evidence such equal and ratable Lien; provided that, notwithstanding the foregoing, this covenant shall not be construed as a consent by Requisite Lenders to the creation or assumption of any such Lien not permitted by the provisions of subsection 6.2A, and the creation or assumption of any such Lien not permitted by the provisions of subsection 6.2A shall constitute an Event of Default. C. NO FURTHER NEGATIVE PLEDGES. Neither Company nor any of its Subsidiaries shall enter into any agreement (other than this Agreement, the Loan Documents and the CPIH Term 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 88 with respect to (i) specific property encumbered by a Lien permitted hereunder to secure payment of particular Indebtedness permitted to be incurred under subsection 6.1(vii) (but only to the extent that the Indebtedness being refinanced was subject to a negative pledge on the same assets), or by a Lien permitted under subsection 6.2A(v), 6.2A(vi), 6.2A(vii) or 6.2A(ix), or by a Lien permitted under subsection 6.2A(x) to the extent such Lien secures obligations incurred to finance the acquisition of such specific property, (ii) specific property to be sold pursuant to an executed agreement with respect to an Asset Sale which is permitted hereunder, (iii) specific property that is leased pursuant to a lease permitted hereunder, and (iv) provisions in the principal lease, service and operating agreements pertaining to Projects, or the partnership and financing agreements relating to Projects, so long as in each case such lease, service, operating, partnership or financing agreement is an extension, renewal or replacement of such agreement in effect as of the Closing Date, is otherwise permitted to be entered into hereunder and contains no more restrictive provisions relating to prohibiting the creation or assumption of any Lien upon the properties or assets of the relevant Subsidiary than the lease, service, operating, partnership or financing agreement so extended, renewed or replaced. D. NO RESTRICTIONS ON SUBSIDIARY DISTRIBUTIONS TO COMPANY 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 other 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, (b) those encumbrances or restrictions applicable to Subsidiaries of Company to the extent created under documentation in existence on the Closing Date or under the CPIH Term Documents, (c) as may be provided in an executed agreement with respect to an Asset Sale which is permitted hereunder, and (d) provisions in the principal lease, service or operating agreements, partnership agreements and financing agreements pertaining to Projects, so long as such lease, service or operating agreements, partnership agreements and financing agreements are extensions, renewals or replacements of such agreements in effect as of the Closing Date, are otherwise permitted to be entered into hereunder and in each case contain no more restrictive provisions relating to the ability of the relevant Subsidiary to take the actions described in clauses (i) through (iv) than the agreement so extended, renewed or replaced. 6.3 INVESTMENTS; ACQUISITIONS. Borrowers shall not, and shall not permit 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 or imposed under the terms of any cash collateral or debt service reserve agreement (including pursuant to 89 the terms of any Project bond indenture) permitted hereunder; and Company's Foreign Subsidiaries may make and own Investments in Foreign Cash Equivalents to the extent permitted under subsection 5.10; (ii) Borrowers may make and own additional equity Investments in other Borrowers, so long as no such Investment shall be made by one Borrower in another Borrower if (a) the latter is subject to restrictions of the type described in subsection 6.2D more adverse than restrictions of such type that are applicable to the Borrower making such Investment, or (b) such Investment shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such Investment; (iii) Company and its Subsidiaries may make intercompany loans to the extent permitted under subsection 6.1(iii); (iv) Company and its Subsidiaries may make Consolidated Facilities Capital Expenditures permitted by subsection 6.6D; (v) Company and its Subsidiaries may continue to own the Investments owned by them on the Closing Date and described in Schedule 6.3(v) annexed hereto; (vi) (a) Company may make and own Investments consisting of intercompany loans to its Subsidiaries (to the extent such Subsidiaries are in existence on the Closing Date) in an aggregate amount not in excess of $1,000,000 outstanding at any time and (b) Subsidiaries may make and own Investments consisting of intercompany loans to other Subsidiaries (in each case to the extent such Subsidiaries are in existence on the Closing Date), so long as the proceeds of such loans are applied to working capital, capital expenditure, maintenance and payroll requirements in the ordinary course of business of such Subsidiaries (provided that the aggregate amount of loans outstanding pursuant to this clause (b) shall not at any time exceed $2,000,000); (vii) Borrowers and their Subsidiaries may own Investments in the form of non-cash consideration received in connection with (a) Asset Sales permitted under subsection 6.7(iii) or 6.7(iv) or (b) settlements of disputes, to the extent such settlements occur in the ordinary course of business; (viii) Subject to the Intercreditor Agreement, Borrowers may make payments under the Management Services and Reimbursement Agreement to the extent contractually obligated pursuant to the terms thereof; and (ix) Company and its Subsidiaries may make and own Investments consisting of cash equity contributions made after the Closing Date (a) in the aggregate amount of approximately $360,000 (it being understood that such amount is the approximate Dollar equivalent of an estimate as of November 15, 2003 of the required foreign currency contribution, and thus may change based on fluctuations in currency exchange rates) in the Madurai Project, (b) in an aggregate amount not to exceed $130,000 in the Samalpatti Project, and (c) in an aggregate amount not to exceed $1,600,000 in the Trezzo waste-to- 90 energy Project, in each case so long as (1) such contributions are required to be made pursuant to the terms of a binding Contractual Obligation of Company and its Subsidiaries in effect on the Closing Date, and (2) any Capital Stock resulting from such contributions and held directly by any Borrower shall be pledged as Collateral under the Collateral Documents. 6.4 CONTINGENT OBLIGATIONS; PERFORMANCE GUARANTIES. Company shall not, and shall not permit any of its 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 or to post cash collateral to secure any obligation, except: (i) Borrowers may become and remain liable (a) with respect to Contingent Obligations in respect of the Obligations, and (b) with respect to Contingent Obligations under the Management Services and Reimbursement Agreement; (ii) 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 permitted under this Agreement; (iii) Company and its Subsidiaries, as applicable, may become and remain liable with respect to (a) Contingent Obligations in existence on the Closing Date and described in Schedule 6.4(iii) annexed hereto, and (b) Contingent Obligations replacing, renewing or extending Contingent Obligations described in clause (a); provided that no such replacement, renewed or extended Contingent Obligation, taken as a whole, shall be more disadvantageous in any material respect to Company and its Subsidiaries than the Contingent Obligations so replaced, renewed or extended; (iv) 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; (v) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations constituting Hedge Agreements; (vi) Company and its Subsidiaries may become and remain liable with respect to usual and customary Contingent Obligations incurred in connection with insurance deductibles or self-insurance retentions required by third party insurers in connection with insurance arrangements entered into by Company and its Subsidiaries with such insurers in compliance with subsection 5.4B; and 91 (vii) Company and its Subsidiaries may become and remain liable with respect to Contingent Obligations under the Management Services and Reimbursement Agreement. 6.5 RESTRICTED PAYMENTS. Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for any Restricted Payment; provided, however, that (i) Subsidiaries of Company may make payments of principal, interest and other amounts in respect of Indebtedness permitted under subsections 6.1(v) and 6.1(vii) related to Projects, in accordance with the terms of, and only to the extent required by, the indentures or other agreements pursuant to which such Indebtedness was issued, as such indentures or other agreements may be amended from time to time to the extent permitted hereunder, provided, however, that during the continuance of an Event of Default, notwithstanding anything to the contrary in this Agreement, neither Company nor any Subsidiary shall fund, contribute or otherwise advance amounts for payment of Indebtedness permitted under subsections 6.1(v) and 6.1(vii) related to Projects unless it has an irrevocable Contractual Obligation to make such payments; (ii) so long as no Event of Default shall have occurred and be continuing, Subsidiaries of Company may, at the time Indebtedness is refinanced or replaced as permitted under subsection 6.1 by other Indebtedness permitted under such subsection, pay principal, accrued interest and other amounts owing on such refinanced Indebtedness at such time, provided that such payments may be made with respect to Non Recourse Debt during the continuance of an Event of Default so long as such payments are from the proceeds of Non Recourse Debt permitted to be incurred hereunder and such proceeds are required to be applied to make such payments under a binding Contractual Obligation to a third party; (iii) Company and its Subsidiaries may pay any fees required to be paid to the Administrative Agent and Lenders hereunder; and (iv) Company and its Subsidiaries may make payments under and in accordance with the terms of, and only to the extent required by, the Management Services and Reimbursement Agreement and the Tax Sharing Agreement. In addition, in any case where a Borrower or Subsidiary is a Joint Venture, Borrowers shall not, and shall not permit their respective Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart any sum for (a) any dividend or other distribution, direct or indirect, on account of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except a dividend payable solely in shares of that class of stock to the holders of that class, (b) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, or (c) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of Capital Stock of such Joint Venture held by Persons other than Borrowers or any Subsidiaries of Borrowers, except in each case to the extent the relevant action described in clause (a), (b) or (c) is required pursuant to a binding Contractual Obligation in effect as of the Closing Date or pursuant to an extension, renewal or replacement of such a Contractual Obligation so long as such extension, renewal or replacement is otherwise permitted to be entered into hereunder and contains provisions no less favorable to Company and its Subsidiaries than the relevant Contractual Obligations so extended, renewed or replaced. 92 6.6 FINANCIAL COVENANTS. A. MINIMUM INTEREST COVERAGE RATIO. Company shall not permit the ratio of (i) Adjusted EBITDA to (ii) Consolidated Cash Interest Expense, in each case for any four-Fiscal Quarter period ending at the end of any Fiscal Quarter commencing after March 31, 2004 to be less than 3.00:1.00. B. MAXIMUM CONSOLIDATED LEVERAGE RATIO. Company shall not permit the Consolidated Leverage Ratio as at any date on or after June 30, 2004 to exceed 5.00:1.00. C. [INTENTIONALLY OMITTED]. D. CONSOLIDATED FACILITIES CAPITAL EXPENDITURES. Borrowers shall not, and shall not permit their respective Subsidiaries to, make or incur Consolidated Facilities Capital Expenditures after the Closing Date if the aggregate amount of such expenditures financed by contributions, loans or advances from Company would exceed $1,000,000 in the aggregate. E. CERTAIN CALCULATIONS. Notwithstanding any provision of this Agreement to the contrary, (i) for purposes of calculating Adjusted EBITDA for any four-Fiscal Quarter period ending prior to the first Fiscal Quarter of 2005, Adjusted EBITDA for the third and fourth Fiscal Quarters of 2003 and the first Fiscal Quarter of 2004 shall be deemed to be equal to the correlative amounts set forth opposite such Fiscal Quarters on Schedule 6.6E annexed hereto; and (ii) for purposes of determining compliance with subsection 6.6A for any four-Fiscal Quarter period ending prior to the last Fiscal Quarter of 2004, Consolidated Cash Interest Expense shall equal the product of (a) actual Consolidated Cash Interest Expense during the period from the Closing Date to the end of such four-Fiscal Quarter period multiplied by (b) the ratio of (1) 365 divided by (2) the number of days in such period. 6.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES. Borrowers shall not, and shall not permit 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 Borrower may be merged with or into a 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 a Borrower; provided that, no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; 93 (ii) any Subsidiary of Company that is not a Borrower may be merged with or into any other Subsidiary of Company that is not a 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 another Subsidiary that is not a Borrower; provided further, that, no such transaction shall result in the obligee or beneficiary of any Indebtedness or Contingent Obligation (other than the Obligations) having greater recourse to assets or Persons for the payment or collection of such Indebtedness or Contingent Obligation than such obligee or beneficiary had immediately prior to such transaction; (iii) 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; (iv) Company and its Subsidiaries may make 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) not less than 90% of the consideration received (other than any consideration consisting of the assumption of liabilities related to such assets) in any such Asset Sale shall be cash (it being agreed that cash the receipt of which may by the relevant terms of such Asset Sale be deferred more than six months after the date of consummation of such Asset Sale shall not be considered cash for purposes of this clause (b)); (c) not more than 10% of the cash consideration received by Company and its Subsidiaries in any such Asset Sale shall be received after the date of consummation of such Asset Sale; (d) any non-cash consideration received shall be reasonably satisfactory to Administrative Agent; (e) the principal documentation for each such Asset Sale shall have been delivered in advance to Administrative Agent; (f) upon consummation of each such Asset Sale, neither Company nor any of its Subsidiaries shall have any debts or obligations, contingent or otherwise, relating to the sold entities or assets (other than customary indemnification obligations and purchase price adjustment obligations incurred in connection with such Asset Sale); (g) any Indebtedness in relation to such assets shall be repaid and the related letters of credit shall be cancelled and returned to the issuers thereof; (h) any Asset Sale or series of related Asset Sales (1) in which the consideration to be received (other than the assumption of liabilities related to such assets) exceeds $15,000,0000 shall require the prior written consent of the Requisite Lenders, (2) of the Quezon Project or involving any assets or property comprising the Quezon Project shall require the prior written consent of Requisite Lenders and (3) in which the consideration to be received (other than the assumption of liabilities related to such assets) exceeds $5,000,000 shall require the delivery no later than 30 days prior to the consummation of such Asset Sale or Asset Sales of an independent appraisal of the fair market value of such assets subject thereto which appraisal shall be performed by an appraiser satisfactory to Administrative Agent and shall be in form and substance satisfactory in all respects to Administrative Agent and (i) the Net Asset Sale Proceeds of such Asset Sales shall be applied as Mandatory Payments to the extent required under subsection 2.4A; (v) Any Subsidiary of Company may, if its Board of Directors determines that doing so is in the best interests of such Subsidiary, change its legal form of organization 94 to a limited liability company, a corporation or a limited partnership; provided that (a) (1) if such Subsidiary is a Borrower, such Subsidiary shall have executed such documents as Administrative Agent reasonably deems necessary to ensure that such Subsidiary continues to be bound as a Borrower under the Loan Documents after such change and (2) 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; and (vi) Covanta Energy India (Balaji) Ltd. may sell approximately 372,860 shares held by it on the Closing Date in the Madurai Project entity, Madurai Power Corp. Pvt. Ltd. (the "MADURAI PROJECT ENTITY"), to the Indian local partner with respect to the Madurai Project for approximately $575,000 (it being understood that such amount is the approximate Dollar equivalent of an estimate as of November 15, 2003 of the proceeds from such sale, and thus may change based on fluctuations in currency exchange rates), to the extent such local partner requires such sale so that such local partner will hold, after giving effect to such sale, up to 25.2% of the issued and outstanding Capital Stock of the Madurai Project Entity. 6.8 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Company shall not, and shall not permit any of its 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 6.1 among Company and its Subsidiaries or among Subsidiaries of Company, (ii) reasonable and customary salaries and fees paid to current officers and members of the Governing Bodies of Company and its Subsidiaries, provided that such salary and fee arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iii) reasonable and customary indemnifications and insurance arrangements for the benefit of Persons that are officers or members of the Governing Bodies of Company and its Subsidiaries on or after the Closing Date, whether such Persons are current or former officers or members at the time such indemnifications or arrangements are entered into, provided that such indemnifications and arrangements are entered into at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (iv) the Employment Agreements in effect on the Closing Date, and any other employment agreements or benefits arrangements entered into on or after the Closing Date by Company and its Subsidiaries with employees at arms' length and on terms that are no less favorable to Company or that Subsidiary, as the case 95 may be, than those that would have been obtained at the relevant time from Persons who are not such a holder or Affiliate, (v) payments (and other transactions) made in accordance with the terms of the Management Services and Reimbursement Agreement, the Tax Sharing Agreement and the other Related Agreements, (vi) transactions occurring on the Closing Date and described on Schedule 6.8 annexed hereto, (vii) services rendered by certain Subsidiaries for the benefit of other Subsidiaries pursuant to the terms of the intercompany service agreements described on Schedule 6.8 annexed hereto, and (viii) 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. 6.9 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 for equipment (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 $1,000,000; provided, however, that this subsection 6.9 shall not prohibit Company or its Subsidiaries from incurring obligations pursuant to the renewal, extension or replacement of leases in effect at the Closing Date so long as such leases as renewed, extended or replaced are not more disadvantageous in any material respect to Company and its Subsidiaries and the Lenders than the leases so renewed, extended or replaced. 6.10 [INTENTIONALLY OMITTED]. 6.11 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 energy and waste management businesses of the type in which they are engaged on the Closing Date and other activities to the extent incidental or reasonably related to such businesses. 6.12 AMENDMENTS TO RELATED AGREEMENTS, DEBT DOCUMENTATION AND ORGANIZATIONAL DOCUMENTS. Company shall not, and shall not permit any of its Subsidiaries to, amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of (i) the Management Services and Reimbursement Agreement or the other Related Agreements (other than the CPIH Term Loan Documents), in each case if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) is to impose additional material obligations on, or confer additional material rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, or (b) is otherwise adverse to the interests of the Lenders in a manner deemed material in the judgment of Administrative Agent or Requisite Lenders so notifying Agent or Company; (ii) the 96 Organizational Documents of Company and its Subsidiaries, if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, is adverse to the interests of the Lenders in a manner deemed material in the judgment of Administrative Agent or Requisite Lenders; (iii) the Subordinated Indebtedness, if the effect thereof would be to (a) change to earlier dates the dates on which any payments of principal or interest are due thereon, (b) increase the interest rate, or the portion thereof payable on a current basis in cash, applicable thereto, (c) change any event of default with respect thereto in any manner adverse to the interests of the Lenders, (d) change the redemption, prepayment or defeasance provisions thereof, (e) change the subordination provisions thereof (or of any guaranty thereof or intercreditor arrangement with respect thereto), (f) change any collateral therefor (other than to release such collateral), or (g) change any other term or provision thereof, if the effect of such change, together with all other changes made, is to increase materially the obligations of the obligor thereunder or to confer any additional rights on the holders of such Indebtedness that would be materially adverse (in the judgment of Administrative Agent or Requisite Lenders so notifying Agent or Company) to Company, Administrative Agent or the Lenders, without the prior written consent of Requisite Lenders; (iv) the principal documents relating to Non Recourse Debt with respect to a Project if such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications and waivers made, would reasonably be expected to have a Material Adverse Effect or (v) the CPIH Term Loan Documents, unless (a) the terms of the CPIH Term Loan Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Lenders (in a manner deemed material by Administrative Agent or Requisite Lenders so notifying Administrative Agent or Company) than the CPIH Term Loan Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of increasing the amount of, or reducing, delaying or waiving any otherwise required reduction in the amount of, any commitment to extend loans under the CPIH Term Loan Documents shall be deemed to be more disadvantageous for purposes of this clause (a) without further notice or other action by Agent or Requisite Lenders), (b) the aggregate amount of Indebtedness outstanding, and additional commitments to extend credit, if any, under the CPIH Term Loan Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the CPIH Term Loan Documents on the Closing Date, (c) the obligations under (and the Liens securing) such CPIH Term Loan Documents as so amended, restated, modified or waived are subject to the Intercreditor Agreement on terms substantively identical to the terms applicable to the obligations in effect under the CPIH Term Loan Documents on the Closing Date, and (d) Company provides to Administrative Agent reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith). 6.13 END OF FISCAL YEARS; FISCAL QUARTERS. 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. 97 6.14 AMENDMENT TO PENSION PLANS. Borrowers shall not amend or modify any Pension Plan after the Closing Date in any manner that results in or would reasonably be expected to result in an increase in the amount of unfunded benefit liabilities (as such unfunded benefit liabilities are determined in accordance with subsection 4.11D hereof), unless such amendment or modification is required under applicable law. SECTION 7. EVENTS OF DEFAULT If any of the following conditions or events ("EVENT OF DEFAULT") shall occur: 7.1 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 any Mandatory Payment when due; 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 7.2 DEFAULT IN OTHER AGREEMENTS. (i) Failure of Company or any of its Subsidiaries (other than the Magellan Subsidiary) to pay when due any principal of or interest on or any other amount payable in respect of (a) the CPIH Term Loan Documents, (b) Management Services and Reimbursement Agreement, (c) any one or more items of Indebtedness (other than Indebtedness referred to in subsection 7.1 or in clause (a) above or clause (d) below) 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 (d) Non Recourse Debt of Subsidiaries of Company in the principal amount of $6,000,000 or more, individually or in the aggregate (provided that Non Recourse Debt incurred in connection with one or more Projects to which less than $2,000,000 in the aggregate of the operating income of Company and its Subsidiaries (on a consolidated basis) 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 Non Recourse Debt solely for purposes of this clause (d)), in each case beyond the end of any grace period provided therefor; or (ii) breach or default by Company or any of its Subsidiaries with respect to any other material term of (a) the CPIH Term Loan Documents or Management Services and Reimbursement Agreement, (b) one or more items of Indebtedness (other than Non Recourse Debt) or Contingent Obligations in the individual or aggregate principal amounts referred to in clause (i) above or (c) 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 98 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), or 7.3 BREACH OF CERTAIN COVENANTS. Failure of any Borrower to perform or comply with any term or condition contained in subsection 2.5 or 5.2 or Section 6 of this Agreement; or 7.4 BREACH OF WARRANTY. Any representation, warranty, certification or other statement made by CEA or Company or any of its Subsidiaries in any Loan Document or in any statement or certificate at any time given by CEA or 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 7.5 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 7, 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 7.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) A court having jurisdiction in the premises shall enter a decree or order for relief in respect of CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) in an involuntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal or state law; or (ii) an involuntary case shall be commenced against CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary), or over all or a substantial part of its property, shall have been entered; or there shall have occurred the involuntary appointment of an interim receiver, trustee or other custodian of CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) for all or a substantial part of its property; or a warrant of attachment, execution or similar process shall have been issued against any substantial part of the property of CEA or Company or any of its Subsidiaries (other than the 99 Magellan Subsidiary), and any such event described in this clause (ii) shall continue for 60 days unless dismissed, bonded or discharged; or 7.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC. (i) CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property; or CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall make any assignment for the benefit of creditors; or (ii) CEA or Company or any of its Subsidiaries (other than the Magellan Subsidiary) shall be unable, or shall fail generally, or shall admit in writing its inability, to pay its debts as such debts become due; or the Governing Body of Company or any of its Subsidiaries (other than the Magellan Subsidiary) (or any committee thereof) shall adopt any resolution or otherwise authorize any action to approve any of the actions referred to in clause (i) above or this clause (ii); or 7.8 JUDGMENTS AND ATTACHMENTS. Any money judgment, writ or warrant of attachment or similar process involving (a) in any individual case an amount in excess of $2,000,000 or (b) in the aggregate at any time an amount in excess of $2,000,000 (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 (other than the Magellan Subsidiary) 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 7.9 DISSOLUTION. Any order, judgment or decree shall be entered against CEA or Company or any of its Material Subsidiaries decreeing the dissolution or split up of CEA or Company or that Subsidiary and such order shall remain undischarged or unstayed for a period in excess of 30 days; or 7.10 EMPLOYEE BENEFIT PLANS. There shall occur one or more ERISA Events that individually or in the aggregate result 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 $5,000,000 during the term of this Agreement; or there shall exist as of January 1 of any year (based on, with respect to each Pension Plan, the actuarial valuation as of such January 1, or if no such valuation was performed as of such January 1 but was performed within the preceding 12 months, the date as of which the 100 valuation was so performed), 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 a Pension Plan (as set forth in Section 412 of the Internal Revenue Code, including where applicable, the interest rate assumptions set forth in Section 412(l) of the Internal Revenue Code)), in the aggregate for all Pension Plans (excluding for purposes of such computation any Pension Plans with respect to which assets exceed benefit liabilities), in excess of (i) $20,000,000 in the event the Assumptions are generally as favorable as the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans, or (ii) $26,000,000 in the event the Assumptions are generally less favorable than the Assumptions used in the 2003 plan year valuations with respect to such Pension Plans; or 7.11 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 7.12 CHANGE IN CONTROL. A Change in Control shall have occurred; or 7.13 INVALIDITY OF INTERCREDITOR AGREEMENT; FAILURE OF SECURITY; REPUDIATION OF OBLIGATIONS. At any time after the execution and delivery thereof, (i) the Intercreditor Agreement 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) any Collateral Document (with respect to the obligations thereunder of CEA, Company or any Material Subsidiary of Company) 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 satisfaction in full of the Secured Obligations or any other termination of such Collateral Document in accordance with the terms hereof or thereof) or shall be declared null and void, or Collateral Agent shall not have or shall cease to have a valid and perfected Lien (with the priority set forth in subsection 4.15A) in any Collateral purported to be covered thereby, in each case for any reason other than the failure of Collateral Agent or any Lender to take any action within its control, or (iii) 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 7.14 TERMINATION OF MATERIAL CONTRACTS. Any Material Contract of the type described in clause (i) of the definition of Material Contract, or any power purchase agreement to which Company or any of its Subsidiaries is a party relating to a Project (other than the power purchase agreement relating to the Magellan Project unless the termination of such agreement would result in a Material Adverse Effect), 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, unless such Material Contract is replaced within ten (10) days after such termination with a contract that is reasonably acceptable to the 101 Requisite Lenders and on substantially the same economic terms as the relevant Material Contract being terminated; or 7.15 DEFAULT UNDER EXISTING IPP INTERNATIONAL PROJECT GUARANTIES. Failure by Covanta or any of its Subsidiaries to pay when due any principal of, interest on or any other amount payable in respect of any Existing IPP International Project Guaranty (other than the failure to pay amounts that are being actively contested by such Person in good faith by appropriate proceedings, so long as the beneficiary of such Existing IPP International Project Guaranty has not exercised any remedy against Company or any of its Subsidiaries thereunder, under applicable law or otherwise as a result of such failure: THEN (i) upon the occurrence of any Event of Default described in subsection 7.6 or 7.7, each of (a) the unpaid principal amount of and accrued interest on the Loans, and (b) 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 shall thereupon terminate, and (ii) upon the occurrence and during the continuation of any other Event of Default, Administrative Agent shall, 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 hereunder shall thereupon terminate. Any amounts described in clause (b) above, when received by Collateral Agent, shall be held by Collateral Agent pursuant to the terms of the Security Agreement and shall be applied as therein provided (subject to the terms of the Intercreditor Agreement). Further upon the occurrence and during the continuance of any Event of Default, subject to the Intercreditor Agreement, Administrative Agent and Collateral Agent may, and upon the written request of Requisite Lenders shall, (i) exercise all rights and remedies of Administrative Agent or Collateral 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 or Collateral Agent has an interest. 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. SECTION 8. ADMINISTRATIVE AGENT 8.1 APPOINTMENT. A. APPOINTMENT OF ADMINISTRATIVE AGENT. Deutsche Bank is hereby appointed Administrative Agent under the other Loan Documents. 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 8 are solely for the 102 benefit of Administrative Agent 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 2.1C) 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. CONTROL. Each Lender and Administrative Agent hereby appoint each other Lender as agent for the purpose of perfecting Collateral Agent's security interest in assets that, in accordance with the UCC, can be perfected by possession or control. 8.2 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 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 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 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 103 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 9.6) 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 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 9.6). D. ADMINISTRATIVE AGENT 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, Agent in its individual capacity as a Lender hereunder. With respect to its participation in the Loans, 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. The Lenders acknowledge that, pursuant to such activities, Deutsche Bank or its respective Affiliates may receive information regarding a Borrower or its Affiliates (including information that may be subject to confidentiality obligations in favor of such Borrower or such Affiliate) and acknowledge that Administrative Agent shall be under no obligation to provide such information to them. 8.3 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 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. 104 8.4 RIGHT TO INDEMNITY. Each Lender, in proportion to its Pro Rata Share, severally agrees to indemnify Administrative Agent 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 Administrative Agent) or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Agent or and other such Persons in exercising the powers, rights and remedies of Agent or performing duties of 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 Agent resulting from such Agent's gross negligence or willful misconduct. If any indemnity furnished to 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. 8.5 SUCCESSOR AGENTS. Agent may resign at any time by giving 30 days' prior written notice thereof to Lenders and Borrowers, and Agent may be removed at any time with or without cause by an instrument or concurrent instruments in writing delivered to Borrowers and 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 to Agent. If, within 30 days after the date of the Agent's notice of its intention to resign, no successor to Agent shall have been so appointed by Requisite Lenders, then the Agent's resignation shall become effective on such date without the need for any further action and the Lenders shall be deemed to have been appointed as successor to Agent hereunder and shall thereafter perform all the duties of the Agent hereunder and/or under any other Loan Document until the appointment by Requisite Lenders of some other successor to Agent. Upon the acceptance of any appointment as Agent hereunder by a successor to Agent, including, the Lenders as successor to Agent (who shall be deemed to have accepted such appointment pursuant to this subsection 8.5), such successor to 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 Agent, the provisions of this Section 8 shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement and the other Loan Documents. 8.6 COLLATERAL DOCUMENTS AND INTERCREDITOR AGREEMENT. Each Lender hereby further authorizes Administrative Agent, on behalf of and for the benefit of Lenders, to enter into and to be the agent for and representative of Lenders under the Intercreditor Agreement, and each Lender agrees to be bound by the terms of the 105 Intercreditor Agreement; provided that Administrative Agent shall not (i) enter into or consent to any material amendment, modification, termination or waiver of any provision contained in the Intercreditor Agreement 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 9.6, all Lenders). 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, it being understood and agreed that all powers, rights and remedies under the Collateral Documents may be exercised solely by Collateral Agent for the benefit of Lenders in accordance with the terms thereof and of the Intercreditor Agreement, and (2) in the event of a foreclosure by Collateral 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. 8.7 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 Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of Lenders and Administrative Agent and their agents and counsel and all other amounts due Lenders and Administrative Agent under subsections 2.3 and 9.2) 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 Administrative Agent and 106 their agents and counsel, and any other amounts due Administrative Agent under subsections 2.3 and 9.2. 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 9. MISCELLANEOUS 9.1 SUCCESSORS AND ASSIGNS; ASSIGNMENTS AND PARTICIPATIONS IN LOANS. 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 9.1). 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). 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 Administrative Agent 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, determined as of the date the Assignment Agreement with respect to such assignment is delivered to Administrative Agent or, if a trade date is specified in the Assignment Agreement, as of such trade date, unless Administrative Agent otherwise consents, such consent not to be unreasonably withheld or delayed, (b) 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, and the Eligible Assignee, if it shall not be a Lender prior to such assignment, shall deliver to Administrative Agent a counterpart to the Intercreditor Agreement and such documents and information reasonably requested by Administrative Agent, including such forms, certificates or other evidence, if any, 107 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 2.6B(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 9.1B(ii), (c) except in the case of an assignment to another Lender, Administrative Agent shall have consented thereto (which consent shall not be unreasonably withheld or delayed (it being understood that nothing in this clause (c) shall affect the requirement that the relevant assignee meet the requirements in the definition of Eligible Assignee and any other applicable requirements of this Agreement)), and (d) 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. 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 "Creditor Party" thereunder (as such term is 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 9.9B) 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 9.9). The assigning Lender of any Commitments and/or Loans 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 2.1D, be issued to the assignee and/or to the assigning Lender, substantially in the form of Exhibit I annexed hereto, as the case may be, with appropriate insertions, to reflect the new outstanding Loans, as the case may be, of the assignee and/or the assigning Lender. Other than as provided in subsection 9.5, any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection 9.1B 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 9.1C. Except as otherwise provided in this subsection 9.1, no Lender shall, as between Borrowers and such Lender, or as between Administrative Agent 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, 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 and the processing and recordation fee referred to in subsection 9.1B(i) and any forms, certificates or other evidence with respect 108 to United States federal income tax withholding matters that such assignee may be required to deliver to Administrative Agent pursuant to subsection 2.6B(iii), Administrative Agent shall, if Administrative Agent has consented to the assignment evidenced thereby (to the extent such consent is required pursuant to subsection 9.1B(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 9.1B(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 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 9.1C, each Borrower agrees that each Participant shall be entitled to the benefits of subsection 2.6 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to subsection 9.1B. To the extent permitted by law, each Participant also shall be entitled to the benefits of subsection 9.4 as though it were a Lender; provided that such Participant agrees to be subject to subsection 9.5 as though it were a Lender. A Participant shall not be entitled to receive any greater payment under subsection 2.6 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 2.6. 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 9.20. 109 F. AGREEMENTS OF LENDERS. Each Lender listed on the signature pages hereof hereby agrees, and each Lender that becomes a party hereto pursuant to an Assignment Agreement shall be deemed to agree, (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 or purchasing loans such as the Loans; and (iii) that it will make or purchase 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 9.1, the disposition of such Loans or any interests therein shall at all times remain within its exclusive control). G. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the assignments and participations permitted under the foregoing provisions of this subsection 9.1, any Lender may assign and pledge all or any portion of the Loans or any other Obligations owed to such Lender hereunder, and its one or more Notes to any Federal Reserve Bank as collateral security pursuant to Regulation A of the Board of Governors of the Federal Reserve System and any operating circular issued by such Federal Reserve Bank; provided that (i) no Lender shall, as between Company and such Lender, be relieved of any of its obligations hereunder as a result of any such assignment and pledge and (ii) in no event shall such Federal Reserve Bank be considered to be a "Lender" or be entitled to require the assigning Lender to take or omit to take any action hereunder. 9.2 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 Administrative Agent 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 Administrative Agent (including O'Melveny & Myers LLP, counsel to Administrative Agent, and Ernst & Young Corporate Finance LLC) 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 Collateral Agent on behalf of Secured Parties 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 Collateral Agent and of counsel providing any opinions that Administrative Agent 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 (including Ernst & Young Corporate Finance LLC) employed or retained by Administrative Agent or their counsel; (vi) all the actual costs and reasonable expenses incurred in connection with the custody or 110 preservation of any of the Collateral; (vii) all other actual and reasonable costs and expenses incurred by Administrative Agent in connection with the syndication of the Commitments; and (viii) all the actual costs and reasonable expenses, including reasonable attorneys' fees and costs of settlement, incurred by Administrative Agent 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 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. 9.3 INDEMNITY. In addition to the payment of expenses pursuant to subsection 9.2, 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 Administrative Agent and Lenders, and the officers, directors, employees, agents and affiliates of Administrative Agent 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 and the Chapter 11 Cases (it being understood that such Indemnified Liabilities arising out of the Chapter 11 Cases shall apply solely to Indemnitiees in their capacities as Administrative Agent and Lenders or officers, directors, employees, agents and affiliates of Administrative Agent or Lenders, and not in any other capacities) 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 any enforcement of any of the Loan Documents (including any sale of, collection from, or other realization upon any of the Collateral), (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. 111 To the extent that the undertakings to defend, indemnify, pay and hold harmless set forth in this subsection 9.3 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. 9.4 SET-OFF. In addition to any rights now or hereafter granted under applicable law and not by way of limitation of any such rights, upon the occurrence and during the continuance of any Event of Default each Lender is hereby authorized by each Borrower at any time or from time to time, without notice to any Borrower 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 any Borrower or any other Loan Party against and on account of the obligations and liabilities of any Borrower 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, and the other Loan Documents, including all claims of any nature or description arising out of or connected with this Agreement, or any other Loan Document, irrespective of whether or not (i) Agent or any Lender shall have made any demand hereunder or (ii) the principal of or the interest on the Loans or any other amounts due hereunder shall have become due and payable pursuant to Section 7 and although said obligations and liabilities, or any of them, may be contingent or unmatured. Each Borrower hereby further grants to Administrative Agent and each Lender a security interest in all deposits and accounts maintained with Administrative Agent or such Lender as security for the Obligations. 9.5 RATABLE SHARING. A. Subject at all times to their obligations under the Intercreditor Agreement, Lenders hereby agree among themselves that if any of them shall, whether by voluntary or involuntary payment or mandatory payment (other than a payment or 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 Loans, fees and other amounts then due and owing to that Lender hereunder or under the other Loan Documents with respect to Obligations (collectively, the "AGGREGATE AMOUNTS DUE" to such Lender) that is greater than the proportion received by any other Lender in respect of the Aggregate Amounts Due to such other Lender, then the Lender receiving such proportionately greater payment shall, unless such proportionately greater payment is required by the terms of this Agreement (i) notify Administrative Agent and each other 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 Aggregate Amounts Due to the other Lenders 112 so that all such recoveries of Aggregate Amounts Due shall be shared by all Lenders in proportion to the Aggregate Amounts Due to them; provided that if all or part of such proportionately greater payment received by such purchasing Lender is thereafter recovered from such Lender, those purchases shall be rescinded and the purchase prices paid for such assignments shall be returned to such purchasing 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 Lender had complied with the provisions of subsection 9.1B 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 Lender and each selling Lender agree to enter into an assignment agreement at the request of a selling Lender or a purchasing Lender, as the case may be, in form and substance reasonably satisfactory to each such Lender and to Administrative Agent. B. COSTS OF COLLECTION. Notwithstanding anything in this subsection 9.5 to the contrary, in the event any one or more Lenders (for purposes of this subsection 9.5B, "ENFORCING LENDERS") receives any amounts that are subject to the sharing provisions of subsection 9.5A as a result of such Enforcing Lender or Enforcing Lenders, but not Administrative Agent or all Lenders, commencing Proceedings to recover such amounts, no Lender that is not an Enforcing Lender shall be entitled to the benefits of subsection 9.5A with respect to the amounts received by such Enforcing Lenders (i) unless and until such Lender has paid its Pro Rata Share of the out-of-pocket costs and expenses (including legal fees and expenses of counsel to such Enforcing Lenders) incurred by such Enforcing Lenders in connection with such Proceedings or (ii) in any greater amount at any time than such Lender would be entitled to receive under such subsections if all Lenders paid their Pro Rata Shares of such costs and expenses. 9.6 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 such Lender's Commitment, (3) postpone the scheduled final maturity date of the Loans, (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 2.2C) or the amount of any fees payable hereunder, or (6) change in any manner or waive the provisions contained in subsection 7.1; (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) release any Lien granted in favor of Administrative Agent or Collateral Agent with respect to all or substantially all of the Collateral (except that such Lien may be released on all or substantially all Collateral to the extent such release is required in connection with an Asset Sale or Asset Sales permitted 113 under this Agreement), or release any substantial portion of Borrowers from their obligations under this Agreement (except that all or any number of Borrowers may be released from such obligations to the extent such release is required in connection with an Asset Sale or Asset Sales permitted under this Agreement), or (4) change in any manner or waive the provisions contained in subsection 9.6; (c) Administrative Agent, change in any manner the definition of "Eligible Assignee"; and (d) Administrative Agent, affect the rights or duties of Administrative Agent (in its capacity as Administrative Agent) under this Agreement or any other Loan Document. In addition, (i) 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; and (ii) 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 shall be effective without the written concurrence of Administrative Agent, as the case may be. 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 9.6 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. 9.7 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. 9.8 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 or (subject to the following paragraphs in this subsection 9.8) electronic mail and shall be deemed to have been given (a) when delivered in person or by courier service, (b) upon receipt of telefacsimile in complete and legible form, (c) three Business Days after depositing it in the United States mail with postage prepaid and properly addressed, or (d) in the case of communications delivered by electronic mail to the extent provided in the following paragraph, as provided pursuant to such paragraph; provided that notices to Administrative Agent 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 114 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. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 hereof if such Lender has notified Administrative Agent that it is incapable of receiving notices under such Section by electronic communication. Administrative Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. 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, Administrative Agent 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. 9.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. A. All representations, warranties and agreements made herein or in any other Loan Document shall survive the execution and delivery of this Agreement and the making of the Loans hereunder. B. Notwithstanding anything in this Agreement or implied by law to the contrary, the agreements of Borrowers set forth in subsections 2.6, 9.2, 9.3, 9.4, 9.19 and 9.20 and the agreements of Lenders set forth in subsections 8.2C, 8.4, 9.5, 9.19 and 9.20 shall survive the payment of the Loans, 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 9.1B). 9.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or delay on the part of 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. 115 9.11 MARSHALLING; PAYMENTS SET ASIDE. Neither 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 Administrative Agent 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. 9.12 SEVERABILITY. In case any provision in or obligation under this Agreement or the Notes 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. 9.13 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, any other Loan Document, any transaction contemplated by the Loan Documents, any Loan or the use of proceeds thereof. 9.14 RELEASE OF SECURITY INTEREST . Upon the proposed sale or other disposition of any Collateral that is permitted by this Agreement and the Intercreditor Agreement or, subject to the Intercreditor Agreement, to which Requisite Lenders have otherwise consented, for which a Loan Party desires to obtain a security interest release from Collateral Agent, such Loan Party shall deliver to Administrative Agent and Collateral Agent an Officer's Certificate (i) stating that the Collateral subject to such 116 disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Loan Documents and (ii) specifying the Collateral being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at such Loan Party's expense, so long as Collateral Agent (a) believes in good faith that the facts stated in such Officer's Certificate are true and correct and (b), if the sale or other disposition of such item of Collateral constitutes an Asset Sale, shall have received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds if and as required by subsection 2.4, execute and deliver such releases of its security interest in such Collateral, as may be reasonably requested by such Loan Party. In the event of any conflict or inconsistency between this subsection 9.14 and the terms of the Intercreditor Agreement, the terms of the Intercreditor Agreement shall prevail. 9.15 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. 9.16 APPLICABLE LAW. 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. 9.17 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. 9.18 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. 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 117 (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 9.8; (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 COURTS OF ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 9.18 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. 9.19 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 9.19 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, 118 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. 9.20 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. Notwithstanding anything herein to the contrary, information required to be treated as confidential by reason of the foregoing shall not include, and Administrative Agent, each Lender and the respective Affiliates of each of the foregoing (and the respective partners, directors, officers, employees, agents, advisors and other representatives of each of the foregoing and their respective Affiliates) (collectively, the "LENDER PARTIES") may disclose to any and all Persons, without limitation of any kind, (x) any information with respect to United States federal and state income tax treatment and United States federal income tax structure of the transactions contemplated hereby and any facts that may be relevant to understanding such tax treatment, which facts shall not include for this purpose the names of the parties or any other Person named herein, or information that would permit identification of the parties or such other Persons, or any pricing terms or other non-public business or financial information that is unrelated to such tax treatment or facts, and (y) all materials of any kind (including opinions or other tax analyses) relating to such tax treatment or facts that are provided to any of the Lender Parties. 9.21 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 or depository and 119 in any other capacity under or in connection with the Prepetition Credit Documents or the DIP Credit Documents), each other Prepetition Lender and DIP Lender (in its capacity as a lender, collateral agent or depository and in any other capacity under or in connection with the Prepetition Credit Documents or the DIP Credit Documents), 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, and DIP Credit Documents 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. 9.22 NO FIDUCIARY DUTY. No Agent nor any Lender has or shall have, by reason of this Agreement or any of the Loan 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 and Lenders, on one hand, and each Borrower, on the other hand, in connection herewith or therewith is solely that of debtor and creditor. 9.23 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 120 Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 9.24 NO THIRD PARTY BENEFICIARIES Nothing in this Agreement, express 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 Indemnitees and Released Parties related to Administrative Agent, and Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement. [Remainder of page intentionally left blank] 121 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. [Remainder of page intentionally left blank] BORROWERS: COVANTA POWER INTERNATIONAL HOLDINGS, INC., as a Borrower By:______________________________________ Name: Ashish D. Sarkar Title: Authorized Officer Notice Address for Borrower: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson COVANTA POWER DEVELOPMENT, INC. COVANTA POWER DEVELOPMENT OF BOLIVIA, INC. COVANTA WASTE TO ENERGY OF ITALY, INC. OPI QUEZON, INC., as Borrowers By:______________________________________ Name: Anthony Orlando Title: Authorized Officer Notice Address for Borrower: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson DEUTSCHE BANK AG, NEW YORK BRANCH By: DB Service New Jersey, Inc. as Administrative Agent and Lender By:______________________________________ Name: Title: By:______________________________________ Name: Title: Notice Address: Attention: Troy Ennico Deutsche Bank AG, New York Branch 60 Wall Street New York, NY 10005 EX-10.1.V 13 y95330exv10w1wv.txt INTERCREDITOR AGREEMENT Exhibit 10.1(v) INTERCREDITOR AGREEMENT This INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, herein called this "AGREEMENT") is dated as of March 10, 2004 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware corporation ("Covanta" or "COMPANY"), and THE SUBSIDIARIES OF COVANTA LISTED ON THE SIGNATURE PAGES HEREOF AS DETROIT L/C BORROWERS (together with Company and any Additional Detroit L/C Borrowers (as hereinafter defined; this and other capitalized terms used herein without definition being used as defined in subsection 1.1), collectively, "DETROIT L/C BORROWERS" and each a "DETROIT L/C BORROWER") and THE SUBSIDIARIES OF COVANTA LISTED ON THE SIGNATURE PAGES HEREOF AS NEW L/C BORROWERS (together with Company and any Additional New L/C Borrowers, collectively, "NEW L/C BORROWERS" and each a "NEW L/C BORROWER"; the Detroit L/C Borrowers together with the New L/C Borrowers, collectively, "BORROWERS" and each a "BORROWER"); THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF AS DETROIT L/C LENDERS (each, in its capacity as a Detroit L/C Lender, together with any other Person that become a party hereto as a Detroit L/C Lender pursuant to subsection 6.1(f), individually referred to herein as a "DETROIT L/C LENDER" and collectively as "DETROIT L/C Lenders"); THE ENTITIES LISTED ON THE SIGNATURE PAGES HEREOF AS NEW L/C LENDERS (each, in its capacity as a New L/C Lender, together with any other Person that becomes a party hereto as a New L/C Lender pursuant to subsection 6.1(f), individually referred to herein as "NEW L/C LENDER" and collectively as "NEW L/C LENDERS"); BANK OF AMERICA, N.A. ("BANK OF AMERICA"), as administrative agent for Detroit L/C Lenders (and any successor administrative agent for Detroit L/C Lenders pursuant to the Detroit L/C Agreement, in such capacity "DETROIT L/C FACILITY AGENT"), as Collateral Agent and Cash Management Bank, BANK ONE, NA, as administrative agent for New L/C Lenders (and any successor administrative agent for New L/C Lenders pursuant to the New L/C Facility Agreement, in such capacity "NEW L/C Agent"); DEUTSCHE BANK SECURITIES, INC. ("DEUTSCHE BANK"), as Documentation Agent for Detroit L/C Lenders (and any successor documentation agent for Detroit L/C Lenders pursuant to the Detroit L/C Agreement in such capacity "DETROIT L/C DOCUMENTATION AGENT"); DANIELSON HOLDING CORPORATION, a Delaware corporation ("DHC"); U.S. BANK NATIONAL ASSOCIATION, in its capacity as trustee under the High Yield Indenture (in such capacity, the "HIGH YIELD TRUSTEE"); THE COMPANIES LISTED ON THE SIGNATURE PAGES HEREOF AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES (the "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES"); and the other Persons who may become parties to this Agreement from time to time pursuant to and in accordance with subsections 6.1(f) and 6.1(l) of this Agreement. R E C I T A L S WHEREAS, the Borrowers have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; WHEREAS, in connection with the Plan of Reorganization, simultaneously herewith the Borrowers have received financing pursuant to the Detroit L/C Facility Agreement, New L/C Facility Agreement and High Yield Indenture; WHEREAS, it is a condition precedent to (i) the obligations of the Detroit L/C Lenders to enter into and extend credit under the Detroit L/C Facility Agreement, (ii) the obligations of the New L/C Lenders to enter into and extend credit under the New L/C Facility Agreement, (iii) the obligations of the holders of the High Yield Notes to accept the High Yield Notes in exchange for certain pre-existing claims against Loan Parties (other than DHC) and (iv) the effectiveness of the Plan of Reorganization, as applicable, that each Creditor Party, High Yield Trustee and each Borrower shall have executed and delivered this Agreement to the Collateral Agent; WHEREAS, on the date hereof Loan Parties have executed and delivered to Collateral Agent the Collateral Documents pursuant to which Loan Parties granted a security interest in the Collateral as security for (i) in the case of Detroit L/C Borrowers, all Obligations of Detroit L/C Borrowers under and in respect of the Detroit L/C Facility Agreement and all other Detroit L/C Facility Documents to which Detroit L/C Borrowers are a party to from time to time, in each case as described therein, (ii) in the case of New L/C Borrowers, all Obligations of New L/C Borrowers under and in respect of the New L/C Facility Agreement and all other New L/C Facility Documents to which New L/C Borrowers are party to from time to time, in each case as described therein, and (iii) in the case of Company and High Yield Guarantors, all Obligations of Company and High Yield Guarantors under and in respect of the High Yield Notes and High Yield Indenture; WHEREAS, Creditor Parties and High Yield Trustee desire to set forth certain provisions regarding the appointment, duties and responsibilities of Collateral Agent and to set forth certain other provisions concerning the obligations of Loan Parties to Creditor Parties and High Yield Noteholders under the agreements referred to in the foregoing recitals; and WHEREAS, Creditor Parties and High Yield Trustee wish to set forth their mutual intentions as to certain matters relating to the exercise of remedies with respect to the Collateral and payments made by or for the account of the applicable Loan Parties under the Credit Documents as more fully set forth herein. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION I 1.1 DEFINITIONS. Terms used in the Agreement have the meanings set forth in the introduction and recitals hereto. In addition, the following terms shall have the following meanings: 2 "ADDITIONAL DETROIT L/C BORROWER" means any Person that becomes an "Additional Subsidiary Borrower" after the date hereof pursuant to and as such term is defined in the Detroit L/C Facility Agreement. "ADDITIONAL NEW L/C BORROWER" means any Person that becomes an "Additional Subsidiary Borrower" after the date hereof pursuant to and as such term is defined in the New L/C Facility Agreement. "AGENTS" means Collateral Agent, Detroit L/C Agents and New L/C Agent. "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or Project manager or operator), whether through the ownership of voting securities or by contract or otherwise. "ANNUAL FREE CASH FLOW" shall have the meaning assigned to that term in the each Facility Agreement as in effect on the Closing Date. "BANK OF AMERICA" shall have the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. "BANKRUPTCY EVENT" means any of one or more of the following events regardless of the reason therefor: (a) (i) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of any Loan Party in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal, or state law; or (ii) an involuntary case shall be commenced against any Loan Party under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Loan Party, or over all or a substantial part of its property, shall have been entered; or the involuntary appointment of an interim receiver, trustee or other custodian of any Loan Party for all or a substantial part of its property; or the issuance of a warrant of attachment, execution or similar process against 3 any substantial part of the property of any Loan Party, and the continuance of any such event in clause (ii) for 60 days unless dismissed, bonded or discharged; or (b) (i) any Loan Party shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, or shall make any assignment for the benefit of creditors; or (ii) the inability or failure of any Loan Party, or the admission by any Loan Party in writing of its inability, to pay its debts as such debts become due; or the Governing Body (or any committee thereof) of any Loan Party adopts any resolution or otherwise authorizes action to approve any of the actions referred to in clause (i) or this clause (ii); or (c) any order, judgment or decree shall be entered against any Loan Party decreeing the dissolution, winding up or split up of that Loan Party and such order shall remain undischarged or unstayed for a period in excess of 30 days. "BANKRUPTCY PROCEEDING" means any case or proceeding of the type described in the definition of "Bankruptcy Event" with respect to any Loan Party. "BORROWER" and BORROWERS" shall have the meaning assigned to such terms in the introduction to this Agreement. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, the State of Texas or the State of California or is a day on which banking institutions located in any such state are authorized or required by law or other governmental action to close. "CAPITAL STOCK" means the capital stock or other equity interests of a Person. "CASH COLLATERAL ACCOUNTS" means the Detroit L/C Cash Collateral Account and the New L/C Cash Collateral Account. "CASH MANAGEMENT BANK" shall have the meaning assigned to that term in the definition of "Cash Management System". "CASH MANAGEMENT OBLIGATIONS" means the obligations of Borrowers to the Cash Management Bank arising from or relating to the Cash Management System, including any liability of Borrower on any claim arising out of or relating to the Cash Management System, 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. 4 "CASH MANAGEMENT SYSTEM" means the cash management system of Company and its Subsidiaries in the United States maintained with Bank of America (in such capacity, "CASH MANAGEMENT BANK") as described in Schedule 4.1P annexed to the Detroit L/C Facility Agreement and the New L/C Facility Agreement, as such Cash Management System may be modified pursuant to subsection 6.10 of the Detroit L/C Facility Agreement and the New L/C Facility Agreement, and any other related services provided by Cash Management Bank to Company and its Subsidiaries, including treasury, depositary and cash management services or in connection with automated clearing house transfers of funds. "CHAPTER 11 CASE" means the chapter 11 cases of Covanta Energy Corporation, a Delaware corporation, and certain of its Subsidiaries, including Borrowers, jointly administered under Case Nos. 02-40826 through 02-40949, 02-16322, 03-13679 through 03-13685, and 03-13687 through 03-13709. "CLOSING DATE" means March 10, 2004. "COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) and interests in property now owned or hereafter acquired by any Loan Party in or upon which a security interest, Lien or mortgage is granted or purported to be granted to Collateral Agent pursuant to the Collateral Documents, including all Proceeds thereof, but in no event shall Collateral include the Capital Stock of CPIH pledged pursuant to the CPIH Stock Pledge Agreement (as defined in the Facility Agreements). For the avoidance of doubt, "Collateral" shall not include any New Investor Assurances. "COLLATERAL AGENT" shall have the meaning assigned to that term in subsection 2.1. "COLLATERAL DOCUMENTS" means the Security Agreement, DHC Pledge Agreement, Control Agreements, Mortgages (as defined in the Facility Agreements) and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Loan Party pursuant to the Detroit L/C Facility Documents, New L/C Facility Documents or the High Yield Indenture in each case in order to grant to Collateral Agent a Lien on any real, personal or mixed property as security for any or all of the Obligations, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "COMPANY" shall have the meaning assigned to that term in the introduction to this Agreement. "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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Detroit L/C Facility Agent and New L/C Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, 5 is maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "COUNTERPART" shall have the meaning assigned to that term in subsection 6.1(l). "COVANTA" shall have the meaning assigned to that term in the introduction to this Agreement. "CPIH" means Covanta Power International Holdings, Inc., a Delaware corporation, and its successors and assigns. "CPIH SUBSIDIARIES" means, on and after the Closing Date, CPIH and its Subsidiaries. "CREDIT DOCUMENTS" means, collectively, (i) the New L/C Facility Agreement and the other New L/C Facility Documents, (ii) the Detroit L/C Facility Agreement and the other Detroit L/C Facility Documents, and (iii) the High Yield Notes and the High Yield Indenture, in each case as they may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5. "CREDITOR PARTIES" means Detroit L/C Lenders, New L/C Lenders, Detroit L/C Agents, New L/C Agent, Cash Management Bank and Collateral Agent. "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. "DETROIT L/C" or "DETROIT L/CS" means letters of credit issued or to be issued from time to time under the Detroit L/C Facility Agreement, including amendments thereto. "DETROIT L/C AGENTS" means the Detroit L/C Facility Agent and Detroit L/C Documentation Agent. "DETROIT L/C BORROWER" shall have the meaning assigned to that term in the introduction to this Agreement. "DETROIT L/C CASH COLLATERAL ACCOUNT" means the cash collateral account maintained with Collateral Agent pursuant to the Security Agreement to secure the obligations of Detroit L/C Borrowers with respect to Detroit L/C Exposure. "DETROIT L/C COMMITMENT" means the commitment of a Detroit L/C Lender to purchase and fund participations in Detroit L/Cs pursuant to the Detroit L/C Facility Agreement. 6 "DETROIT L/C DOCUMENTATION AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "DETROIT L/C EVENT OF DEFAULT" means an "Event of Default" under and as defined in the Detroit L/C Facility Agreement. "DETROIT L/C EXPOSURE" means, with respect to any Detroit L/C Lender as of any date of determination, the sum of (a) in the event that Detroit L/C Lender is a Detroit L/C Issuing Lender, the aggregate Detroit L/C Usage in respect of all Detroit L/Cs issued by that Detroit L/C Lender (in each case net of any participations purchased by other Detroit L/C Lenders in such Detroit L/Cs or in any drawings thereunder not theretofore reimbursed by Detroit L/C Borrowers) plus (b) the aggregate amount of all participations purchased by that Detroit L/C Lender in any other outstanding Detroit L/Cs or any drawings under any such other Detroit L/Cs not theretofore reimbursed by Detroit L/C Borrowers. "DETROIT L/C FACILITY AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "DETROIT L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among Covanta and the other Detroit L/C Borrowers, as borrowers, the Detroit L/C Lenders and Detroit L/C Agents, and (ii) any credit agreement entered into by Detroit L/C Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the indebtedness and letters of credit issued thereunder to the extent permitted pursuant to the New L/C Facility Agreement and the High Yield Indenture, in the case of clause (i) or (ii), as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 2.5. "DETROIT L/C FACILITY DOCUMENTS" means the "Credit Documents" as defined in the Detroit L/C Facility Agreement (or any comparable term with respect to any replacement Detroit L/C Facility Agreement not prohibited hereunder). "DETROIT L/C ISSUING LENDER" means, with respect to any Detroit L/C, the Detroit L/C Lender that has issued such Detroit L/C pursuant to the Detroit L/C Facility Agreement. "DETROIT L/C LENDER" shall have the meaning assigned to that term in the introduction to this Agreement. "DETROIT L/C OBLIGATIONS" means any and all Obligations to the extent arising under or with respect to the Detroit L/C Commitments or the Detroit L/Cs, including fees and other amounts accruing or otherwise owed with respect to the Detroit L/C Exposure, and any drawings (and interest accrued thereon) under Detroit L/Cs not reimbursed by Detroit L/C Borrowers; provided, however, that Obligations of any Loan Party (other than DHC) for interest or letter of credit fees with respect to Detroit L/Cs and Detroit L/C Commitments that accrue or may be incurred under any Detroit L/C Facility Document after the commencement by or against any Loan Party of a Bankruptcy Proceeding shall be included in Detroit L/C Obligations solely to the extent recoverable from such Loan Party or its estate in such proceeding. 7 "DETROIT L/C 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 Detroit L/Cs then outstanding plus (ii) the aggregate amount of all drawings under Detroit L/Cs honored by the applicable Detroit L/C Issuing Lender and not theretofore reimbursed by Detroit L/C Borrowers. "DEUTSCHE BANK" shall have the meaning assigned to that term in the introduction to this Agreement. "DHC" shall have the meaning assigned to that term in the introduction to this Agreement. "DHC PLEDGE AGREEMENT" means the pledge agreement executed and delivered by DHC on the Closing Date, substantially in the form of Exhibit XI annexed to the Detroit L/C Facility Agreement, as such pledge agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "DISTRIBUTION" means, with respect to any Secured Obligation, (a) any payment or distribution by Company or any of its Subsidiaries (including CPIH Subsidiaries) of cash, securities or other assets and properties of any kind whatsoever, real or personal, tangible or intangible, or mixed, whether now owned or existing or hereafter acquired or arising and wheresoever located, by set-off or otherwise, on account of such Secured Obligation, (b) any redemption, purchase or other acquisition of such Secured Obligation by Company or any of its Subsidiaries (including CPIH Subsidiaries) or (c) the granting of any Lien to or for the benefit of the holders of such Secured Obligation in or upon any or all assets and properties of any kind whatsoever, real or personal, tangible or intangible, or mixed, whether now owned or existing or hereafter acquired or arising and wheresoever located of Company or any of its Subsidiaries (including CPIH Subsidiaries). "ENFORCEMENT ACTION" shall mean the exercise by any Secured Party of any of the enforcement rights and remedies under, and subject to the provisions of, the Collateral Documents at any time on or after an Event of Default, including any or all of the following: any motion to vacate any stay on enforcement of the Liens on the Collateral, solicitation of bids from third parties to conduct the liquidation of Collateral, the engagement or retention of third parties for the purposes of marketing, promoting or selling all or any Collateral, the commencement of any action to foreclose on the Liens on any of the Collateral, notification of account debtors to make payments to any Secured Party or its agents, any action to take possession of any Collateral or the commencement of any legal proceedings or actions seeking payment of any Secured Obligations or otherwise in connection with the preservation or protection of any of the Collateral, its value or any rights or remedies therein or otherwise or as may be deemed necessary or appropriate to enhance the likelihood or maximize the repayment of the Secured Obligations. "EVENT OF DEFAULT" means a Detroit L/C Event of Default and/or a New L/C Event of Default and/or a High Yield Event of Default. 8 "FACILITY AGREEMENTS" means the New L/C Facility Agreement and Detroit L/C Facility Agreement. "FISCAL YEAR" means the fiscal year of the Company and its Subsidiaries ending on December 31st of each calendar year. "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. "HIGH YIELD EVENT OF DEFAULT" means an "Event of Default" under and as defined in the High Yield Indenture. "HIGH YIELD GUARANTORS" means the Subsidiaries of Company party from time to time to the High Yield Indenture as guarantors thereunder. "HIGH YIELD INDENTURE" means (i) the indenture pursuant to which the High Yield Notes are issued and (ii) any replacement indenture entered into in connection with a refinancing, defeasance, renewal, replacement or extension of the High Yield Notes permitted under the Facility Agreements, in the case of clause (i) or (ii), as such indenture or replacement indenture may be amended, supplemented or otherwise modified from time to time to the extent permitted under the Facility Agreements. "HIGH YIELD NOTEHOLDERS" means the holders from time to time of the High Yield Notes. "HIGH YIELD NOTES" means (i) the $230,000,000 in aggregate principal amount at maturity of 8.25% Senior Notes due 2010 of Company issued pursuant to the High Yield Indenture, and (ii) any indebtedness incurred to refinance, renew, replace or extend the High Yield Notes permitted to be incurred under the Facility Agreements; provided, that the initial principal amount (and issue price) of such High Yield Notes on the Closing Date shall be $205,000,000. "HIGH YIELD OBLIGATIONS" means the obligations of Company and High Yield Guarantors under the High Yield Indenture and the High Yield Notes, as applicable. "HIGH YIELD TRUSTEE" shall have the meaning assigned to that term in the introduction to this Agreement. "IPP INTERNATIONAL SALES" means one or more sales or dispositions of (i) the assets and/or operations of CPIH and its Subsidiaries and/or (ii) the Capital Stock of CPIH or any of its Subsidiaries. "JUNIOR CREDITOR" shall have the meaning assigned to that term in subsection 4.2(f). "LENDERS" means New L/C Lenders and Detroit L/C Lenders. 9 "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. "LOAN PARTIES" means Company, the other Borrowers, DHC, and High Yield Guarantors. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by CPIH, Company and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to the Detroit L/C Agents and New L/C Agent as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5(c). "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES" shall have the meaning assigned to that term in the introduction to this Agreement. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS" means the "CPIH Entities" as such term is defined in the Management Services and Reimbursement Agreement. "MANDATORY PAYMENTS" means any amount described in subsections 2.3A(i)(a)-(f) of the Detroit L/C Facility Agreement or 2.4A(iii)(a)-(g) of the New L/C Facility Agreement to be applied as a Mandatory Payment (as such term is defined in each Facility Agreement). "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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) March 10, 2009 as a result of the receipt of such payments of proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or relating to the payment referred to in clause (i) or (ii) hereof or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have been terminated as a result of the relevant loss, taking or sale) paid to Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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 Contractual Obligations in effect on the 10 Closing Date, 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. "NEW INVESTOR ASSURANCES" means any collateral, insurance policy, letter of credit or other financial assurances provided by any New Investor or any of its Affiliates (other than Company or any of its Subsidiaries (including CPIH Subsidiaries)) to New L/C Lenders in connection with the New L/C Facility Agreement. "NEW INVESTORS" means D.E. Shaw Laminar Portfolios, L.L.C., a Delaware limited liability company, SZ Investments, L.L.C., a Delaware limited liability company, and Third Avenue Trust, on behalf of Third Avenue Value Fund Series. "NEW L/C" or "NEW L/CS" means letters of credit issued or to be issued (or deemed issued) by New L/C Issuing Lender pursuant to the New L/C Facility Agreement, including amendments thereto. "NEW L/C AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "NEW L/C AGGREGATE COMMITMENT" means one or more of the New Revolving Loan Commitment or the New L/C Commitment or any combination thereof. "NEW L/C AGGREGATE EXPOSURE" means, with respect to any New L/C Lender as of any date of determination, the sum of (i) that New L/C Lenders' New Revolving Loan Exposure and (ii) that New L/C Lender's New L/C Exposure. "NEW L/C BORROWERS" shall have the meaning assigned to that term in the introduction to this Agreement. "NEW L/C CASH COLLATERAL ACCOUNT" means the cash collateral account maintained with Collateral Agent pursuant to the Security Agreement to secure the obligations of New L/C Borrowers with respect to New L/C Exposure. "NEW L/C COMMITMENT" means the commitment of a New L/C Lender to purchase and fund participations in New L/Cs pursuant to the New L/C Facility Agreement. "NEW L/C EVENT OF DEFAULT" means an "Event of Default" under and as defined in the New L/C Facility Agreement. "NEW L/C EXPOSURE" with respect to any New L/C Lender, means, as of any date of determination, the sum of (a) in the event that New L/C Lender is a New L/C Issuing Lender, the aggregate New L/C Usage in respect of all New L/Cs issued by that New L/C Lender (in each case net of any participations purchased by other New L/C Lenders in such New L/Cs or in any drawings thereunder not theretofore reimbursed by New L/C Borrowers) plus (b) the aggregate amount of all participations purchased by that New L/C Lender in any other outstanding New L/Cs or any drawings under any such other New L/Cs not theretofore reimbursed by New L/C Borrowers. 11 "NEW L/C FACILITY AGREEMENT" means (i) that certain credit agreement dated as of the date hereof by and among New L/C Borrowers, New L/C Lenders and New L/C Agent, and (ii) any credit agreement entered into by New L/C Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the indebtedness and letters of credit issued thereunder to the extent permitted pursuant to the Detroit L/C Facility Agreement and the High Yield Indenture, in the case of clause (i) or (ii), as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted under subsection 2.5. "NEW L/C FACILITY DOCUMENTS" means the "Credit Documents" as defined in the New L/C Facility Agreement (or any comparable term with respect to any replacement New L/C Facility Agreement not prohibited hereunder). "NEW L/C ISSUING LENDER" means, with respect to any New L/C, the New L/C Lender that agrees or is otherwise obligated to issue such New L/C, determined as provided in the New L/C Facility Agreement. "NEW L/C LENDER" shall have the meaning assigned to that term in the introduction to this Agreement. "NEW L/C OBLIGATIONS" means any and all Obligations to the extent arising under or with respect to the New L/C Aggregate Commitments, New Revolving Loans or the New L/Cs, including principal and interest on any New Revolving Loans and the fees and other amounts accruing or otherwise owed with respect to the New L/C Aggregate Exposure, and any drawings (and interest accrued thereon) under New L/Cs not reimbursed by New L/C Borrowers; provided, however, that Obligations of any Loan Party (other than DHC) for interest, commitment fees or letter of credit fees with respect to the New L/Cs, New Revolving Loans or New L/C Aggregate Commitments and that accrue or may be incurred under any New L/C Facility Document after the commencement by or against any Loan Party (other than DHC) of a Bankruptcy Proceeding shall be included in New L/C Obligations solely to the extent recoverable from such Loan Party or its estate in such proceeding. "NEW L/C 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 New L/Cs then outstanding plus (ii) the aggregate amount of all drawings under New L/Cs honored by Issuing Lenders and not theretofore reimbursed by New L/C Borrowers. "NEW REVOLVING LOAN COMMITMENT" means the commitment of a New L/C Lender to make New Revolving Loans to the New L/C Borrowers pursuant to the New L/C Facility Agreement. "NEW REVOLVING LOAN EXPOSURE" with respect to any New L/C Lender, means, as of any date of determination (i) prior to the termination of the New Revolving Loan Commitments, that New L/C Lender's Revolving Loan Commitment, and (ii) after the termination of the New Revolving Loan Commitments, the aggregate outstanding principal amount of the New Revolving Loans of that New L/C Lender. 12 "NEW REVOLVING LOANS" means loans made from time to time by New L/C Lenders to New L/C Borrowers as "Revolving Loans" under and as defined in the New L/C Facility Agreement. "OBLIGATIONS" means all obligations of every nature of Loan Parties under the Credit Documents, including any liability of such Loan Party on any claim arising out of or relating to the Credit Documents, 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. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Credit Documents include (a) the obligation to pay principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Loan Party, whether or not allowed in such case or proceeding), charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Borrower and any other Loan Party under any Credit 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; provided, that nothing in this definition shall be construed as creating any obligations of DHC under the Credit Documents that are not expressly set forth in such Credit Documents. "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. "PAYMENT IN FULL" and "PAID IN FULL" means (a) as to the Detroit L/C Obligations, the payment and satisfaction in full in immediately available funds of all of such funded Detroit L/C Obligations and either (i) the termination of the Detroit L/C Commitments and the receipt by Collateral Agent of cash collateral in the Detroit L/C Cash Collateral Account in an amount equal to one hundred five (105%) percent of the aggregate Detroit L/C Usage then outstanding or (ii) if the Detroit L/C Commitments have not been terminated, the receipt by Collateral Agent of cash collateral in the Detroit L/C Cash Collateral Account in an amount equal to 105% of the Detroit L/C Commitments of all Detroit L/C Lenders, (b) as to the New L/C Obligations, the payment and satisfaction in full in immediately available funds of all of such funded New L/C Obligations and either (i) the termination of the New L/C Aggregate Commitments and the receipt by Collateral Agent of cash collateral in the New L/C Cash Collateral Account in an amount equal to one hundred five (105%) percent of the aggregate New L/C Usage then outstanding or (ii) if the New L/C Aggregate Commitments have not been terminated, the receipt by Collateral Agent of cash collateral in the New L/C Cash Collateral Account in an amount equal to 105% of the New L/C Commitments of all New L/C Lenders, (c) as to the High Yield Obligations, the payment and satisfaction in full in immediately available funds of all of such High Yield Obligations and the termination or defeasance (whether legally or as to covenants only) of the financing arrangements provided by any High Yield Noteholder to the Loan Parties (other than DHC) with respect thereto, and (d) as to any other Secured 13 Obligations, the payment and satisfaction in full in immediately available funds of all such Secured Obligations then due and payable. If after receipt of any payment of, or Proceeds of Collateral applied to the payment of, any of the Secured Obligations, Collateral Agent or any other Secured Party, as applicable, is required to surrender or return such payment or Proceeds to any Person for any reason, then the Secured Obligations intended to be satisfied by such payment or Proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or Proceeds had not been received by Collateral Agent or such other Secured Party, as the case may be. "PARTIES" means the High Yield Trustee, Loan Parties, and the Creditor Parties from time to time party to this Agreement. "PERSON" or "PERSONS" means and include natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures (as defined in the Facility Agreements), 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. "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "POTENTIAL EVENT OF DEFAULT" means a "Potential Event of Default" under and as defined in the Detroit L/C Facility Agreement, a "Potential Event of Default" under and as defined in the New L/C Facility Agreement or a "Default" under and as defined in the High Yield Indenture. "PROCEEDS" means "proceeds", as such term is defined in the UCC and, in any event, shall include (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any of the Loan Parties or Collateral Agent from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any of the Loan Parties from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), and (iii) any and all other consideration (in any form whatsoever) or other amounts from time to time paid or payable under or in connection with any of the Collateral upon disposition or otherwise. "PROJECT" means any waste-to-energy facility, electrical generation plant, cogeneration plant, water treatment facility 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 (including CPIH Subsidiaries) was, is or will be (as the case may be) an owner, operator, manager or builder, and 14 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "REQUISITE DETROIT L/C LENDERS" means Detroit L/C Lenders having or holding more than 50% of the Detroit L/C Exposure of all Detroit L/C Lenders; provided, however, that prior to the Closing Date, for purposes of this definition the Detroit L/C Exposure of each Detroit L/C Lender shall equal the original Detroit L/C Commitment of such Detroit L/C Lender on the Closing Date. "REQUISITE NEW L/C LENDERS" means New L/C Lenders having or holding more than 50% of the New L/C Aggregate Exposure of all New L/C Lenders; provided, however, that prior to the Closing Date, for purposes of this definition the New L/C Aggregate Exposure of each New L/C Lender shall equal the original New L/C Commitment of such New L/C Lender on the Closing Date. "REQUISITE OBLIGEES" means, (i) until such time as all Detroit L/C Obligations are Paid in Full under clause (a)(i) of the definition thereof and no Detroit L/Cs or other Detroit L/C Obligations are outstanding, for purposes of any exercise of any Enforcement Action or other rights with respect to the Detroit L/C Cash Collateral Account and any Collateral from time to time on deposit therein (including any application thereof), Requisite Detroit L/C Lenders; (ii) until such time as all New L/C Obligations are Paid in Full and no New L/Cs or other New L/C Obligations are outstanding, for purposes of any exercise of any Enforcement Action or other rights with respect to the New L/C Cash Collateral Account and any Collateral from time to time on deposit therein (including any application thereof), Requisite New L/C Lenders; (iii) subject to clauses (i) and (ii) above, until Payment in Full of all Detroit L/C Obligations, (a) for so long as no drawing has occurred under any Detroit L/C, no Event of Default has occurred and is continuing under subsection 8.1 of the Detroit L/C Facility Agreement and no Bankruptcy Proceeding has been commenced by or against any Loan Party, Lenders having or holding of more than 50% of the sum of (1) the aggregate Detroit L/C Exposure of all Detroit L/C Lenders and (2) the aggregate New L/C Aggregate Exposure of all New L/C Lenders, and (b) from and after the occurrence of any drawing under any Detroit L/C which is not reimbursed in full by Detroit L/C Borrowers, the occurrence and continuance of a Detroit L/C Event of Default under subsection 8.1 of the Detroit L/C Facility Agreement or the commencement of a Bankruptcy Proceeding by or against any Loan Party, Requisite Detroit L/C Lenders; 15 (iv) subject to clauses (i) and (ii) above, from and after Payment in Full of all Detroit L/C Obligations and until Payment in Full of all New L/C Obligations, Requisite New L/C Lenders; and (v) subject to clauses (i) and (ii) above, from and after Payment in Full of all Detroit L/C Obligations and New L/C Obligations, holders of more than 50% of the aggregate outstanding principal amount of the High Yield Notes. "SECURED PARTIES" means the Creditor Parties, the High Yield Noteholders and the High Yield Trustee. "SECURED OBLIGATIONS" means the collective reference to all Detroit L/C Obligations, all New L/C Obligations, all High Yield Obligations and all Obligations owing to Collateral Agent hereunder or under any Collateral Document, and all Cash Management Obligations. "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 ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered by Borrowers on the Closing Date pursuant to the Detroit L/C Facility Agreement, New L/C Facility Agreement and High Yield Indenture, as such agreement may from time to time hereafter be amended, restated, supplemented or otherwise modified to the extent permitted pursuant to subsection 2.4. "SENIOR AGENT" means, (i) until Payment in Full of all Detroit L/C Obligations, Detroit L/C Facility Agent and (ii) from and after Payment in Full of all Detroit L/C Obligations and until Payment in Full of all New L/C Obligations, New L/C Agent, and (iii) after Payment in Full of all Detroit L/C Obligations and New L/C Obligations, High Yield Trustee. "SENIOR CREDITOR" shall have the meaning assigned to that term in subsection 4.2(f). "SUBJECT FISCAL YEAR" shall have the meaning assigned to that term in subsection 4.1(b). "SUBSIDIARY" means, with respect to any Person, any corporation, partnership, trust, limited liability company, association, joint venture or other business entity of which more 16 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. Any reference contained herein to one or more Subsidiaries of Company shall, unless otherwise expressly indicated, not include CPIH or any of its Subsidiaries. "SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term in subsection 6.1(c). "THIRD-PARTY GUARANTY" shall have the meaning assigned to that term in subsection 4.2(i). "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, the priority of any Secured Party's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such priority and for purposes of definitions related to such provisions. "UNITED STATES" means the United States of America. 1.2 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 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. (d) In the event of any refinancing, replacement or extension of any Facility Agreement, references in this Agreement to sections or subsections of such Facility Agreement shall refer to the functionally equivalent sections or subsections in such refinanced, replaced or extended agreement as the context requires. SECTION II 2.1 APPOINTMENT AS COLLATERAL AGENT. Each Creditor Party executing this Agreement, and High Yield Trustee and each High Yield Noteholder, by its acceptance of the 17 benefits of the Collateral Documents and of this Agreement, (i) appoints Bank of America to serve as collateral agent and representative of each such Secured Party (to the extent applicable) under this Agreement and each of the Collateral Documents (in such capacity, together with its successors in such capacity, the "COLLATERAL AGENT") and (ii) irrevocably authorizes Collateral Agent to act as agent for the Secured Parties for the purpose of executing and delivering, on behalf of all such Secured Parties, the Collateral Documents and, subject to the provisions of this Agreement, for the purpose of exercising such powers, rights and remedies hereunder and under the other Collateral Documents as are specifically delegated or granted to Collateral Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. For the avoidance of doubt, it is understood and agreed that the Collateral Agent is the "Secured Party" or, as the case may be, the "Mortgagee" referred to in the Collateral Documents. Each Creditor Party and Collateral Agent, and High Yield Trustee and each High Yield Noteholder, by its acceptance of the benefits of the Collateral Documents and this Agreement, hereby appoint each other Secured Party as agent for the purpose of perfecting Collateral Agent's security interest in Collateral that, in accordance with the UCC, can be perfected by possession or control. 2.2 DECISIONS RELATING TO ENFORCEMENT ACTIONS AND OTHER MATTERS VESTED IN REQUISITE OBLIGEES. (a) Collateral Agent agrees to take such Enforcement Actions and all such actions with respect to Collateral which is perfected only by control of such Collateral, in each case as may be directed by Requisite Obligees (it being understood and agreed that if at any time Collateral Agent determines that the requisite percentages constituting Requisite Obligees shall have been obtained, the Collateral Agent may and shall be fully authorized, as of such time and without the need for further direction from any Secured Party, to take or not take such action as the Requisite Obligees direct); provided, however, that notwithstanding anything in this Agreement to the contrary, Collateral Agent shall not be required to take any action that is in its judgment contrary to law or to the terms of this Agreement or any or all of the Collateral Documents or which would in its opinion subject it or any of its officers, employees or directors to liability, and Collateral Agent shall not be required to take any action under this Agreement or any or all of the Collateral Documents unless and until Collateral Agent shall be indemnified to its satisfaction by the relevant Parties against any and all losses, costs, expenses or liabilities in connection therewith. (b) Each Creditor Party executing this Agreement or an acknowledgment hereto, and the High Yield Trustee and each holder of a High Yield Note, by its acceptance of the benefits hereof and of the Collateral Documents, agree that Collateral Agent may act as Requisite Obligees may request (regardless of whether any individual Party or any other Secured Party (including the holders of the High Yield Notes) agrees, disagrees or abstains with respect to such request), that Collateral Agent shall have no liability for acting in accordance with such request (provided such action does not conflict with the express terms of this Agreement) and that no Secured Party shall have any liability to any other Secured Party for any such request, except, in each case, liability arising from the gross negligence or willful misconduct of such Person. Collateral Agent shall give prompt notice to all Creditor Parties and the High Yield 18 Trustee of actions taken pursuant to the instructions of Requisite Obligees; provided, however, that the failure to give any such notice shall not impair the right of Collateral Agent to take any such action or the validity or enforceability under this Agreement and the applicable Collateral Documents of the action so taken. (c) Collateral Agent may at any time request directions from the Requisite Obligees with respect to the Collateral Documents as to any course of action or other matter relating hereto or to the Collateral Documents. Except as otherwise provided in the Collateral Documents, directions given by Requisite Obligees to Collateral Agent with respect to the Collateral and Collateral Documents shall be binding on all Secured Parties for all purposes (provided such directions do not conflict with the express terms of this Agreement). (d) Each Creditor Party, the High Yield Trustee, and each holder of a High Yield Note, by accepting the benefits hereof and of the Collateral Documents, agrees not to take any Enforcement Action whatsoever, in each case except through Collateral Agent in accordance with this Agreement; provided, however, that (i) Detroit L/C Agents and Detroit L/C Lenders may apply Collateral on deposit in the Detroit L/C Cash Collateral Account to the payment of the Detroit L/C Obligations and otherwise exercise rights of setoff with respect thereto, in each case in accordance with the terms of the Detroit L/C Facility Agreement and the Security Agreement and (ii) New L/C Agent and New L/C Lenders may apply Collateral on deposit in the New L/C Cash Collateral Account to the payment of the New L/C Obligations and otherwise exercise rights of setoff with respect thereto, in each case in accordance with the terms of the New L/C Facility Agreement and the Security Agreement. 2.3 NET INSURANCE/CONDEMNATION PROCEEDS. (a) Unless prohibited by contractual or other legal requirement, all policies of insurance required to be maintained under any Credit Document shall (a) name Collateral Agent, for the benefit of Secured Parties, 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 Detroit L/C Facility Agent and New L/C Agent, that names Collateral Agent for the benefit of Secured Parties 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 Collateral Agent of any modification or cancellation of such policy. As soon as practicable after the Closing Date, Company shall deliver to Agents a certificate from Borrowers' insurance broker(s) or other evidence satisfactory to it that all insurance required to be maintained pursuant to this subsection 2.3 is in full force and effect and that Collateral Agent on behalf of Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 2.3. (b) Upon receipt by Collateral 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) pursuant to the Detroit L/C Facility Agreement (or, if the Detroit L/C Obligations have 19 been Paid in Full, the New L/C Facility Agreement), Collateral Agent shall, and Company hereby authorizes Collateral Agent to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 4.1(a) or, to the extent applicable, subsection 4.2 and (b) to the extent the foregoing clause (a) does not apply, Collateral Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under the Facility Agreements and (2) Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 Senior 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 Collateral Agent of such Net Insurance/Condemnation Proceeds, Senior Agent may direct Collateral Agent, and Company hereby authorizes Senior Agent and Collateral Agent to apply such Net Insurance/Condemnation Proceeds as provided in subsection 4.1(a). 2.4 AMENDMENTS, MODIFICATIONS, WAIVERS AND RELEASES. Notwithstanding anything in the Facility Agreements, High Yield Indenture, Collateral Documents and other Credit Documents to the contrary: (a) except in connection with any Enforcement Action or the release of any cash on deposit in any Cash Collateral Account, the release of the Lien granted in favor of Collateral Agent on all or substantially all of the Collateral under the Collateral Documents shall require the prior written consent of, until Payment in Full of all Detroit L/C Obligations, each Detroit L/C Lender and, until Payment if Full of all New L/C Obligations, each New L/C Lender; provided that no such consent shall be required in connection with any IPP International Sale provided that the consideration received for the assets subject to such IPP International Sale shall be in an amount at least equal to the fair market value thereof; and (b) except as set forth in subsection 2.4(a), any amendment, modification, termination or waiver of, any Collateral Documents shall require the prior written consent of (i) until Payment in Full of all Detroit L/C Obligations, Requisite Detroit L/C Lenders, (ii) until Payment in Full of all New L/C Obligations, Requisite New L/C Lenders, and (iii) upon Payment in Full of all Detroit L/C Obligations and New L/C Obligations, holders of more than 50% of the principal amount of the High Yield Notes; provided, however, that (i) no such amendment, modification, termination or waiver shall, without the consent of Requisite Detroit L/C Lenders, amend, modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving, Section 12 (Detroit L/C Cash Collateral Account) of the Security Agreement or the rights of Collateral Agent and Detroit L/C Lenders under such Section or otherwise with respect to the Detroit L/C Cash Collateral Account or the Collateral on deposit therein from time to time, and (ii) no such amendment, modification, termination or waiver shall, without the consent of Requisite New L/C Lenders, amend, modify, terminate or waive, or have the effect of amending, 20 modifying, terminating or waiving, Section 13 (New L/C Cash Collateral Account) of the Security Agreement or the rights of Collateral Agent and New L/C Lenders under such Section or otherwise with respect to the New L/C Cash Collateral Account or the Collateral on deposit therein from time to time. 2.5 AMENDMENTS, MODIFICATIONS AND WAIVERS WITH RESPECT TO CREDIT Documents. Any amendment or modification of, or waiver of compliance with the terms of any Credit Document shall be subject to the following requirements: (a) Subject to the provisions of subsection 2.4, and until the termination of the Detroit L/C Facility Agreement and the Payment in Full of all Detroit L/C Obligations, without the prior written consent of Requisite Detroit L/C Lenders, New L/C Lenders may not amend, restate, modify or waive (or receive any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of the New L/C Facility Documents, unless (i) the terms of the New L/C Facility Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Detroit L/C Lenders (in a manner deemed material by Detroit L/C Agents) than the New L/C Facility Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of (1) increasing the maximum amount of any commitment to extend loans (as opposed to letters of credit) under the New L/C Facility Documents, or (2) reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend loans or letters of credit under the New L/C Facility Documents, shall be deemed to be more disadvantageous for purposes of this clause (i) without further notice or other action by Detroit L/C Agents), (ii) the aggregate amount of indebtedness and letters of credit outstanding, and additional commitments to extend credit, if any, under the New L/C Facility Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the New L/C Facility Documents on the Closing Date plus ---- $5,000,000, (iii) the obligations under (and the Liens securing) such New L/C Facility Documents as so amended, restated, modified or waived are subject to this Agreement on terms substantively identical to the terms applicable to the obligations in effect under the New L/C Facility Documents on the Closing Date , and (iv) Company provides to Detroit L/C Agents reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith. (b) Subject to the provisions of subsection 2.4, and until the termination of the New L/C Facility Agreement and the Payment in Full of all New L/C Obligations, without the prior written consent of Requisite New L/C Lenders, Detroit L/C Lenders may not amend, restate, modify or waive (or receive any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of the Detroit L/C Facility Documents, unless (i) the terms of the Detroit L/C Facility Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the New L/C Lenders (in a manner deemed material by New L/C Agent) than the Detroit L/C Facility Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver 21 having the effect of (1) increasing the maximum amount of any commitment to extend loans (as opposed to letters of credit) under the Detroit L/C Facility Documents, or (2) reducing, delaying or waiving any otherwise required reduction in the amount of any commitment to extend loans or letters of credit under the Detroit L/C Facility Documents, shall be deemed to be more disadvantageous for purposes of this clause (i) without further notice or other action by New L/C Agent), (ii) the aggregate amount of indebtedness and letters of credit outstanding, and additional commitments to extend credit, if any, under the Detroit L/C Facility Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the Detroit L/C Facility Documents on the Closing Date plus $5,000,000, (iii) the obligations under (and the Liens securing) such Detroit L/C Facility Documents as so amended, restated, modified or waived are subject to this Agreement on terms substantively identical to the terms applicable to the obligations in effect under the Detroit L/C Facility Documents on the Closing Date, and (iv) Company provides to New L/C Agent reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith. (c) Until (i) the termination of the Detroit L/C Facility Agreement and the Payment in Full of all Detroit L/C Obligations, without the prior written consent of Requisite Detroit L/C Lenders and (ii) the termination of the New L/C Facility Agreement and the Payment in Full of all New L/C Obligations, without the prior written consent of Requisite New L/C Lenders, Company shall not, and shall not permit any of its Subsidiaries (including CPIH Subsidiaries) to amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of the Management Services and Reimbursement Agreement if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) is to impose additional material obligations on, or confer material additional rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, (b) is otherwise adverse to the interests of the Detroit L/C Lenders in a manner deemed material in the judgment of Detroit L/C Agents or Requisite Detroit L/C Lenders so notifying Detroit L/C Agents or Company, or (c) is otherwise adverse to the interests of the New L/C Lenders in a manner deemed material in the judgment of New L/C Agent or Requisite New L/C Lenders so notifying New L/C Agents or Company. (d) Each Lender acknowledges and agrees that Borrowers have agreed to and are bound by the provisions of subsection 6.13 (Most Favored Nations Payments) of each Facility Agreement. SECTION III 3.1 PRIORITY OF LIENS. (a) Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a security interest in favor of Collateral Agent 22 in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Credit Document, the Secured Parties agree that, as among the Secured Parties the following Lien priorities shall strictly apply in defining the respective Lien priorities of each Secured Party in the Collateral (provided, however that, in the case of the Collateral held as cash collateral in the Detroit L/C Cash Collateral Account for the Detroit L/C Obligations and in the New L/C Cash Collateral Account for New L/C Obligations, such cash collateral shall have the priorities set forth in subsection 3.1(b) and 3.1(c), respectively, until released pursuant to subsection 4.2(c), in which case the following priorities apply): (1) first, the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the Collateral Agent, in its capacity as Collateral Agent, to the full extent thereof; (2) second: the Liens upon the Collateral in favor of Collateral Agent to the extent securing, on a pari passu basis, the Secured Obligations owing from time to time to the Detroit L/C Agents and New L/C Agent, in their capacities as Detroit L/C Agents and New L/C Agent, respectively, to the full extent thereof; (3) third: the Liens upon the Collateral in favor of Collateral Agent to the extent securing, on a pari passu basis, (i) the remaining Detroit L/C Obligations, and (ii) the Cash Management Obligations, in each case to the full extent thereof; (4) fourth: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the remaining New L/C Obligations to the full extent thereof; and (5) fifth: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the High Yield Obligations to the full extent thereof. (b) Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a security interest in favor of Collateral Agent in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Credit Document, the Secured Parties agree that, as among the Secured Parties the following Lien priorities shall strictly apply in defining the respective Lien priorities of each Secured Party in cash collateral held in the Detroit L/C Cash Collateral Account: (1) first, the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the Collateral Agent, in its capacity as Collateral Agent, to the full extent thereof; (2) second: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the Detroit L/C Agents, in their capacities as Detroit L/C Agents, to the full extent thereof; (3) third: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the remaining Detroit L/C Obligations to the full extent thereof; and 23 (4) fourth: the Liens upon the Collateral in favor of Collateral Agent in the order of priority provided for in subsection 3.1(a). (c) Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a security interest in favor of Collateral Agent in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Credit Document, the Secured Parties agree that, as among the Secured Parties the following Lien priorities shall strictly apply in defining the respective Lien priorities of each Secured Party in cash collateral held in the New L/C Cash Collateral Account: (1) first, the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the Collateral Agent, in its capacity as Collateral Agent, to the full extent thereof; (2) second: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the New L/C Agent, in their capacity as New L/C Agent, to the full extent thereof; (3) third: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the remaining New L/C Obligations to the full extent thereof; and (4) fourth: the Liens upon the Collateral in favor of Collateral Agent in the order of priority provided for in subsection 3.1(a). 3.2 PRIORITIES UNAFFECTED BY ACTION OR INACTION. The Lien priorities in subsection 3.1 shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of any of the Secured Obligations, nor by any action or inaction which Collateral Agent or any other Secured Party may take or fail to take in respect of the Collateral. SECTION IV 4.1 APPLICATION OF MANDATORY PREPAYMENTS UNDER FACILITY AGREEMENTS. Notwithstanding anything in the Credit Documents to the contrary but subject in all respects to subsection 4.2, so long as any Detroit L/C Obligations and New L/C Obligations are outstanding any Mandatory Payments made pursuant to subsections 2.3A(i)(a) - (g) of the Detroit L/C Facility Agreement and subsections 2.4A(iii)(a) - (g) of the New L/C Facility Agreement shall be applied as follows: (a) Any Mandatory Payments made pursuant to subsections 2.3A(i)(a) - (b) of the Detroit L/C Facility Agreement and subsections 2.4A(iii)(a) - (b) of the New L/C Facility Agreement shall be applied first, to repay funded amounts (if any) under the Detroit L/Cs and then to cash collateralize the Detroit L/Cs and the Detroit L/C Commitments under the Security Agreement in an amount, taken together with all then existing cash collateral on deposit in the Detroit L/C Cash Collateral Account for the 24 Detroit L/C Commitments, equal to 105% of the Detroit L/C Commitments and second, to reduce the New L/C Aggregate Exposure in accordance with subsection 4.1(e). (b) Any Mandatory Payments made pursuant to subsections 2.3A(i)(c) - (e) of the Detroit L/C Facility Agreement and subsections 2.4A(iii)(c) - (e) of the New L/C Facility Agreement shall be applied as follows: (i) an amount equal to 50% of such Mandatory Payment shall be applied to repay funded amounts (if any) under the Detroit L/Cs and then to cash collateralize the Detroit L/Cs and the Detroit L/C Commitments under the Security Agreement up to an amount, taken together with all then existing cash collateral on deposit in the Detroit L/C Cash Collateral Account for the Detroit L/C Commitments, equal to 105% of the Detroit L/C Commitments, (ii) an amount equal to 50% of such Mandatory Payment shall be applied to reduce the New L/C Aggregate Exposure in accordance with subsection 4.1(e) and (iii) if any proceeds of a Mandatory Prepayment remain after application as set forth in clause (i) or (ii), then such remaining proceeds shall be applied as if it were proceeds required to be applied pursuant to the other such clause. (c) Any Mandatory Payments made pursuant to subsections 2.3A(i)(f) of the Detroit L/C Facility Agreement and subsections 2.4A(iii)(f) of the New L/C Facility Agreement shall be applied as follows (i) an amount equal to 50% of such Mandatory Payment shall be applied to repay funded amounts (if any) under the Detroit L/Cs and then to cash collateralize the Detroit L/Cs and the Detroit L/C Commitments under the Security Agreement up to an amount, taken together with all then existing cash collateral on deposit in the Detroit L/C Cash Collateral Account for the Detroit L/C Commitments, equal to 105% of the Detroit L/C Commitments, (ii) an amount equal to 50% of such Mandatory Payment shall be applied to reduce the New L/C Aggregate Exposure in the following manner: first, to New L/C Exposure, with the amount applied to New L/C Exposure being applied to repay all funded amounts, if any, under the New L/Cs and then to cash collateralize the New L/C Exposure outstanding (after giving effect to the foregoing repayment) in an amount, taken together with all then existing cash collateral for such New L/C Exposure, equal to 105% of such New L/C Exposure; and second, to repay outstanding New Revolving Loans to the full extent thereof, and (iii) if any proceeds of a Mandatory Prepayment remain after application as set forth in clause (i) or (ii), then such remaining proceeds shall be applied as if it were proceeds required to be applied pursuant to the other such clause. Notwithstanding the foregoing, Borrowers and Lenders hereby agree that any cash applied to cash collateralize Detroit L/C Exposure or New L/C Exposure pursuant to this subsection 4.1(c) with respect to a cash balance on June 30 or December 31 of any Fiscal Year (the "SUBJECT FISCAL YEAR") shall, in the event that the amount of such cash applied to cash collateralize Detroit L/C Exposure and New L/C Exposure exceeds 50% of the Annual Free Cash Flow for the Subject Fiscal Year, be released to Borrowers to the extent of such excess, with the amount of cash so released being released pro rata from the amounts on deposit in the Detroit L/C Cash Collateral Account and New L/C Cash Collateral Account based on the amount of such excess applied to cash collateralize Detroit L/C Exposure and New L/C Exposure (but in no event shall more cash be so released from any Collateral Account than the aggregate amount applied pursuant to this subsection 4.1(c) with respect to the Subject Fiscal Year and deposited to such Collateral Account) after the 60th day of the following Fiscal Year, 25 promptly following Borrowers' certification of such excess; provided, however, that such release shall not be required if, at the time such release would otherwise be required, a Detroit L/C Event of Default or New L/C Event of Default shall have occurred and be continuing. (d) Any Mandatory Payments made pursuant to subsection 2.3A(i)(g) of the Detroit L/C Facility Agreement and subsection 2.4A(iii)(g) of the New L/C Facility Agreement shall be applied pursuant to subsection 4.2(a). (e) All Mandatory Prepayments of the New L/C Aggregate Exposure referenced in subsections 4.1(a) and 4.1(b) shall be applied in the following manner: first, to New L/C Exposure, with the amount applied to New L/C Exposure being applied to repay all funded amounts, if any, under the New L/Cs and then to cash collateralize the New L/C Exposure outstanding (after giving effect to the foregoing repayment) in an amount, taken together with all then existing cash collateral for such New L/C Exposure, equal to 105% of such New L/C Exposure, and, concurrently with any such repayment or cash collateralization of New L/C Exposure, effecting a permanent reduction in the New L/C Commitment by the amount of such repayment or cash collateralization of New L/C Exposure; second, to repay outstanding New Revolving Loans to the full extent thereof and to concurrently permanently reduce (x) the New L/C Commitments and (y) to the extent that any such reduction in New L/C Commitments would cause the New L/C Commitments to be less than the Revolver Loan Commitments then in effect, the Revolver Commitments by the amount of such difference; and third, to permanently reduce the unutilized New L/C Commitments and, to the extent that any reduction in New L/C Commitments would cause the New L/C Commitments to be less than the Revolver Loan Commitments then in effect, to permanently and concurrently reduce the Revolver Commitments by the amount of such difference. 4.2 APPLICATION OF PROCEEDS OF COLLATERAL, ETC. (a) Except as provided in subsection 4.2(c) and 4.2(d) below, upon the occurrence and during the continuation of an Event of Default or upon the termination of either the Detroit L/C Commitments or the New L/C Aggregate Commitments, if requested by Requisite Detroit L/C Lenders with respect to any Detroit L/C Event of Default or termination of Detroit L/C Commitments, or if requested by Requisite New L/C Lenders with respect to any New L/C Event of Default and termination of New L/C Aggregate Commitments, or holders of more than 50% of the High Yield Notes with respect to a High Yield Event of Default, (1) all Mandatory Payments or other payments received by any Agent or other Secured Party on account of the Obligations, whether from any Loan Party or otherwise, shall promptly be delivered to Collateral Agent and upon receipt by Collateral Agent, applied by Collateral Agent against the Secured Obligations and (2) all Proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral or other Enforcement Action may, in the discretion of Senior Agent upon written direction to Collateral Agent, be held by Collateral Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Collateral Agent against, the applicable 26 Secured Obligations, in each case under clauses (1) and (2) in the following order of priority: (i) First, to the payment of the costs and expenses of the exercise of rights and remedies and such sale, collection or other realization or Enforcement Action, including reimbursement of all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith (including, for reasonable cost, fees and expenses of counsel and other professionals and agents retained by the Collateral Agent) and all amounts for which Collateral Agent is entitled to compensation, reimbursement and indemnification under any Credit Document and any other amounts then owing to Collateral Agent, in its capacity as Collateral Agent, pursuant to the Collateral Documents; (ii) Second, to the extent proceeds remain after application as described in clause (i) above, pro rata among the following, based on the amounts outstanding as of any date of determination: all Secured Obligations owing to Detroit L/C Agents and New L/C Agent, in their capacities as Detroit L/C Agents and New L/C Agent, respectively; (iii) Third, to the extent proceeds remain after application as described in clauses (i) and (ii) above, pro rata among the following, based on the amounts outstanding as of any date of determination: (i) all remaining Detroit L/C Obligations, and (ii) all Cash Management Obligations until all Detroit L/C Obligations and Cash Management Obligations have been Paid in Full; (iv) Fourth, to the extent proceeds remain after application as described in clauses (i) through (iii) above, to the payment of the remaining New L/C Obligations until all New L/C Obligations have been Paid in Full; (v) Fifth, to the extent proceeds remain after application as described in clauses (i) through (iv) above, to the payment of the High Yield Note Obligations, until all such High Yield Note Obligations have been Paid in Full; and (vi) Sixth, after Payment in Full of all Secured Obligations under clauses (i) through (v) above, to Loan Parties (other than DHC) or their successors or assigns, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. (b) Notwithstanding anything in subsection 4.2(a) to the contrary, (i) in the event that no Detroit L/C Event of Default has occurred and is continuing under subsection 8.1 of the Detroit L/C Facility Agreement and no Bankruptcy Proceeding has been commenced by or against any Loan Party, the New L/C Lenders and New L/C Agent shall be entitled to receive payments of current interest and fees when due under the New L/C Facility Agreement; (ii) in the event that no Detroit L/C Event of Default has occurred and is continuing under subsection 8.1 of the Detroit L/C Facility Agreement and no New L/C Event of Default has occurred and is continuing under subsection 8.1 of the New L/C Facility Agreement and no Bankruptcy Proceeding has 27 been commenced by or against any Loan Party and subsection 8.1 of the Detroit L/C Facility Agreement and New L/C Facility Agreement, the High Yield Trustee, on behalf of the High Yield Noteholders, shall be entitled to receive payments of current interest and fees when due under the High Yield Indenture and High Yield Note; and (iii) in the event any Management Services Reimbursement Agreement Beneficiary receives any payment from any Management Services Agreement Obligors pursuant to subsection 4(b) of the Management Services Reimbursement Agreement with respect to any drawing of any New L/C that is honored by the New L/C Issuing Lender, then such Management Services Agreement Beneficiaries shall apply such payment to reimburse New L/C Issuing Lender (and any New L/C Lender that has funded its participation therein) for such honored drawing. (c) Cash collateral held by Collateral Agent pursuant to the Security Agreement shall be held for the purposes set forth therein. Notwithstanding anything in the other Credit Documents to the Company, if during any period in which the provisions of subsection 4.2(a) are applicable, (i) the Detroit L/C Commitments and the obligation of the Detroit L/C Lenders to issue and maintain Detroit L/Cs have terminated and all Detroit L/C Obligations have been fully satisfied in cash and no Detroit L/Cs are then outstanding, then any cash collateral held by Collateral Agent to cash collateralize Detroit L/C Obligations shall be applied in accordance with subsection 4.2(a); and (ii) the New L/C Aggregate Commitments and the obligation of the Issuing Lenders to issue or maintain New L/Cs have terminated and all New L/C Obligations have been fully satisfied in cash and no New L/Cs are then outstanding, then any cash collateral held by Collateral Agent to cash collateralize New L/C Obligations shall be applied in accordance with subsection 4.2(a). (d) Until Proceeds are applied as set forth in this subsection 4.2, Collateral Agent shall hold such Proceeds in its custody in accordance with its regular procedures for handling deposited funds. (e) Payments by Collateral Agent to the Detroit L/C Lenders in respect of the Detroit L/C Obligations shall be made to the Detroit L/C Facility Agent for distribution to the Detroit L/C Lenders in accordance with the Detroit L/C Facility Agreement and this Agreement; payments by Collateral Agent to the New L/C Lenders in respect of the New L/C Obligations shall be made to the New L/C Agent for distribution to the New L/C Lenders in accordance with the New L/C Facility Agreement and this Agreement; payments in respect of any High Yield Obligations shall be paid to the High Yield Trustee for the benefit of the holders of such High Yield Obligations; and payments in respect of the Cash Management Obligations shall be made to Cash Management Bank for the benefit of Cash Management Bank. (f) In the event that any Secured Party shall receive any Distribution that such Secured Party is not entitled to receive or retain under the provisions of this Agreement (in such capacity, each, a "JUNIOR CREDITOR"), such Junior Creditor shall hold any such Distribution so received in trust for the benefit of the holders of other Secured Obligations with the right to receive such Distribution under the provisions of this Agreement (in such capacity, each, a "SENIOR CREDITOR") and shall segregate such 28 Distribution from other assets held by such Junior Creditor; and shall forthwith turn over such Distribution (without liability for interest thereon, but with any appropriate endorsements or assignments, if necessary) to the holders of, or to Collateral Agent for the benefit of the holders of, such Secured Obligations in the form received (with any appropriate endorsement or assignment, if necessary) to be distributed in accordance with subsection 4.1 or 4.2, as applicable, and applied to such Secured Obligations. In the event of a failure of any Junior Creditor to make any such endorsement or assignment to Collateral Agent or Senior Creditors, as the case may be, Collateral Agent and such Senior Creditors are hereby irrevocably authorized on behalf of such Junior Creditor to make such endorsement or assignment, as applicable. (g) No payment or distribution to any Senior Creditor pursuant to the provisions of this Agreement shall entitle the applicable Junior Creditor or Junior Creditors to exercise any right of subrogation in respect thereof until (i) all Secured Obligations of such Senior Creditors (including with respect to any outstanding letters of credit) shall have been indefeasibly Paid in Full, or (ii) all of such Senior Creditors have consented in writing to the taking of such action. With respect to any subrogation claims, each Junior Creditor 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 Junior Creditor 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 Senior Creditors (or that representatives) may take in an effort to collect in respect of the Secured Obligations owed to such Senior Creditors. (h) In furtherance of, and without limiting, the priority provisions set forth in this subsection 4.2, but subject to the applicable voting provisions set forth in subsection 2.2, each Creditor Party and High Yield Trustee (and, by their acceptance of the benefits hereof and of the Collateral Documents, each High Yield Noteholder) agrees that, in order to enable Collateral Agent to enforce its rights hereunder in any Bankruptcy Proceeding, Collateral Agent is hereby irrevocably authorized and empowered in its sole and absolute discretion to receive and collect any and all dividends or other payments or disbursements made on account of Collateral Agent's Lien on the Collateral in whatever form the same may be paid or issued and to apply the same on account of any such Secured Obligations in accordance with the provisions of the Credit Documents and this Agreement. At any time, including but not limited to during any Bankruptcy Proceeding, Collateral Agent and each other Secured Party will refrain from taking any action which would contest or challenge in any administrative, legal or equitable action or otherwise the validity or enforceability of the terms of this Agreement, including the priority provisions contained in this subsection 4.2 and the Lien priority provisions contained in subsection 3.1. (i) Each Secured Party hereby covenants and agrees that (i) except for the guaranty of the High Yield Obligations by High Yield Guarantors pursuant to the High Yield Indenture and any New Investor Assurances, such Secured Party will not accept from any Person on behalf of the Borrowers any guarantee (a "THIRD-PARTY GUARANTY") of any Secured Obligations unless such guarantor simultaneously guarantees the payment 29 all Secured Obligations owed to each of the other Secured Parties (or, if such Third-Party Guaranty guarantees only a portion of the Obligations owing to such Secured Party, such Secured Party will not accept such Third-Party Guaranty unless such guarantor simultaneously guarantees the same proportion of Secured Obligations owing to the other Secured Parties), and (ii) such Secured Party will not take, accept or obtain any security interest in, or lien or encumbrance upon, any assets of any of the Borrowers or any Subsidiary (including any CPIH Subsidiary) or Affiliate thereof or any other Person to secure the payment and performance of the Obligations unless the Collateral Agent, for the benefit of all Secured Parties, is granted a pari passu security interest in, or lien upon, such assets, in either case, pursuant to documents in form and substance satisfactory to Detroit L/C Facility Agent and New L/C Agent. (j) Each Junior Creditor hereby waives any rights it may have under applicable law to assert the doctrine of marshalling or to otherwise require Collateral Agent or any Senior Creditors to marshal any property of the Loan Parties or any of their respective Affiliates for the benefit of such Junior Creditors. SECTION V 5.1 INFORMATION. From time to time, upon the request of Collateral Agent, each of the following Parties agrees to promptly provide to Collateral Agent the information described below: (a) Detroit L/C Facility Agent agrees promptly from time to time to (i) deliver to Collateral Agent a true, correct and complete copy of any amendment, waiver or modification of or supplement to any Detroit L/C Facility Documents upon execution and delivery to Detroit L/C Facility Agent thereof by the relevant parties thereto and (ii) notify Collateral Agent of: (A) the aggregate amount of principal of and interest on the relevant Detroit L/C Obligations (including the aggregate Detroit L/C Usage) as at such date as Collateral Agent may specify, (B) the current Detroit L/C Commitment under the Detroit L/C Facility Agreement, and (C) any payment received by Detroit L/C Facility Agent to be applied to the principal of or interest on the Obligations and (iv) the amount of any other fees or expenses outstanding under the Detroit L/C Facility Agreement (including fees and expenses of Detroit L/C Agents) and, in each case, Collateral Agent shall be entitled to rely conclusively upon such information. (b) New L/C Agent agrees promptly from time to time to (i) deliver to Collateral Agent a true, correct and complete copy of any amendment, waiver or modification of or supplement to any New L/C Facility Documents upon execution and delivery to New L/C Facility Agent thereof by the relevant parties thereto and (ii) notify Collateral Agent of: (A) the aggregate amount of principal of and interest on the New L/C Obligations (including the aggregate New L/C Usage) as at such date as Collateral Agent may specify, (B) the current New L/C Commitment under the New L/C Facility Agreement, (C) any payment received by New L/C Agent to be applied to the principal of or interest on the Obligations, and (D) the amount of any other fees or expenses outstanding under the New L/C Facility Agreement (including fees and expenses of New 30 L/C Agent) and, in each case, Collateral Agent shall be entitled to rely conclusively upon such information. (c) The High Yield Trustee agrees promptly from time to time to (i) deliver to Collateral Agent a true, correct and complete copy of any amendment, waiver or modification of or supplement to any High Yield Note or the High Yield Indenture upon execution thereof and (ii) notify Collateral Agent of: (A) the outstanding principal amount of the High Yield Notes and the amount of accrued but unpaid interest thereon, and (B) the amount of any other fees or expenses outstanding under the High Yield Indenture (including fees and expenses of High Yield Trustee) at such date as Collateral Agent may specify. The High Yield Trustee shall, or shall cause the registrar for the High Yield Notes to, provide a statement of such amount as reflected in the register maintained for such purpose by the High Yield Trustee or such registrar, as the case may be, and Collateral Agent shall be entitled to rely conclusively upon such statement. SECTION VI 6.1 DISCLAIMERS, SUPPLEMENTAL COLLATERAL AGENT, INDEMNITY, ETC. (a) Collateral Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Collateral Documents and Collateral Agent shall not by reason of this Agreement or the Collateral Documents be a trustee for any Secured Party or have any other fiduciary obligation to any Secured Party (including any obligation under the Trust Indenture Act of 1939, as amended). Collateral Agent shall not be responsible to any Secured Party for any recitals, statements, representations or warranties contained in this Agreement or any other Credit Document or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any Credit Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or any other document referred to or provided for therein or any Lien under the Collateral Documents or the perfection or priority of any such Lien or for any failure by any Loan Party to perform any of its respective obligations under this Agreement or any other Credit Document. Collateral Agent may exercise such powers, rights and remedies and perform such duties by or through its Affiliates, agents or employees. (b) Neither Collateral Agent nor any of its officers, directors, employees or agents shall be liable to any Secured Parties for any action taken or omitted by Collateral Agent under or in connection with this Agreement or any of the Collateral Documents or other Credit Documents except to the extent caused by Collateral Agent's gross negligence or willful misconduct. Collateral 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 Collateral Documents or other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until Collateral Agent shall have received instructions in respect thereof from Requisite Obligees (or such other Secured Parties as may be required to give such instructions under subsection 2.4(a)) and, upon receipt of such instructions from Requisite Obligees (or such other Secured Parties, as the case may be), Collateral Agent 31 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) Collateral 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 Secured Party shall have any right of action whatsoever against an Agent as a result of Collateral Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Collateral Documents or other Credit Documents in accordance with the instructions of Requisite Obligees (or such other Secured Parties as may be required to give such instructions under subsection 2.4(a)). (c) It is the purpose of this Agreement and the Collateral Documents and other Credit 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 Collateral Documents, and in particular in case of the enforcement of any of the Collateral Documents, or in case Collateral 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 Collateral Documents or other Credit Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Collateral 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 Collateral 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 Collateral Documents to be exercised by or vested in or conveyed to Collateral 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 Collateral Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Collateral Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Agreement that refer to Collateral Agent shall inure to the benefit of such Supplemental Collateral Agent and all references herein to Collateral Agent shall be deemed to be references to Collateral Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from any Loan Party be required by any Supplemental Collateral Agent so appointed by Collateral Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, 32 such Loan Party shall execute, acknowledge and deliver any and all such instruments promptly upon request by Collateral 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 Collateral Agent until the appointment of a new Supplemental Collateral Agent. (d) Each Detroit L/C Lender and New L/C Lender (other than New L/C Issuing Lender for so long as New L/C Issuing Lender does not have any New L/C Aggregate Commitments), ratably in accordance with the amount of the Secured Obligations of such Detroit L/C Lenders and all New L/C Lenders, secured by the Collateral Documents, severally agrees that it shall indemnify Collateral Agent and the officers, directors, employees, agents, attorneys, professional advisors and affiliates of Collateral Agent to the extent that any such Person is neither reimbursed by any Loan Party under any Loan Document nor reimbursed out of any Proceeds pursuant to clause First of subsection 4.2(a), for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements and fees and fees and disbursements of any advisor engaged by Collateral Agent) or disbursements of any kind and nature whatsoever which may be imposed on, incurred by or asserted against Collateral Agent or any such Person exercising the powers, rights and remedies of a Collateral Agent or performing duties of a Collateral Agent hereunder or under the other Collateral Documents or in any way relating to or arising out of this Agreement, any Collateral Document or any other Credit Document or any other documents contemplated hereby or thereby or referred to therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms of any thereof; provided, however, that no Detroit L/C Lender nor New L/C Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of Collateral Agent as determined by a final judgment of a court of competent jurisdiction. If for any reason a New L/C Lender shall fail to make any payment to Collateral Agent when due hereunder, then, without in anyway limiting any right or remedy Collateral Agent may have against such New L/C Lender with respect thereto, such New L/C Lender agrees that, as provided in subsection 4.2, deductions from distributions otherwise due with respect to the New L/C Obligations will be made so that all New L/C Lenders shall share with the Detroit L/C Lenders, ratably in accordance with the amount (without duplication) of such New L/C Obligations secured by the Collateral Documents, the payment of the amounts due under the preceding sentence. The High Yield Trustee, on behalf of the holders of the High Yield Obligations, agrees, by its acceptance of the benefits hereof, that, as provided in subsection 4.2, deductions from distributions otherwise due such holders of High Yield Obligations will be made so that such holders of High Yield Obligations shall share with the Detroit L/C Lenders and New L/C Lenders, ratably in accordance with the amount (without duplication) of such High Yield Obligations secured by the Collateral Documents, the payment of the amounts due under the first sentence of this subsection 6.1(d). No Detroit L/C Agent nor New L/C Agent, in their respective capacities as Detroit L/C Agents and New L/C Agent, shall have any liability to any Party under this subsection 6.1(d). 33 (e) 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, Collateral Agent in its individual capacity as a Detroit L/C Agent, Detroit L/C Lender, New L/C Lender or High Yield Noteholder, as the case may be, hereunder or under any Credit Document. With respect to its participation in the Detroit L/C Obligations, New L/C Obligations and High Yield Obligations, Collateral Agent shall have the same rights and powers hereunder as any other Secured Party and may exercise the same as though it were not performing the duties and functions delegated to it hereunder. Collateral 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 Loan Party for services in connection with this Agreement and otherwise without having to account for the same to Secured Parties. (f) Collateral Agent may deem and treat the payee of any promissory note or other evidence of indebtedness relating to the Secured Obligations as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof, signed by such payee and in form satisfactory to Collateral Agent, shall have been filed with Collateral Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any such note or other evidence of indebtedness shall be conclusive and binding on any subsequent holder, transferee or assignee of such note or other evidence of indebtedness and of any note or notes or other evidences of indebtedness issued in exchange therefor. Notwithstanding anything to the contrary contained in the Detroit L/C Facility Documents or the New L/C Facility Documents, (i) no assignment or transfer of any interest of any (A) Detroit L/C Lender in the Detroit L/C Exposure or Detroit L/Cs (including pursuant to any refinancing, restatement, replacement or extension of the Detroit L/C Facility Agreement not prohibited hereunder), and (B) no transfer of any interest of any New L/C Lender in the New L/C Aggregate Exposure or the New L/Cs (including pursuant to any refinancing, restatement, replacement or extension of the New L/C Facility Agreement not prohibited hereunder) and (ii) no appointment (A) of any successor Detroit L/C Facility Agent or Detroit L/C Document Agent under the Detroit L/C Facility Agreement (including pursuant to any refinancing, restatement, replacement or extension of the Detroit L/C Facility Agreement not prohibited hereunder), (B) any successor New L/C Agent under the New L/C Facility Agreement (including pursuant to any refinancing, restatement, replacement or extension of the New L/C Facility Agreement not prohibited hereunder); or (C) any successor High Yield Trustee pursuant to the High Yield Indenture may in any case be made unless such successor, transferee, assignee or any Person who became a lender pursuant to a refinancing, restatement, replacement or extension of the Detroit L/C Facility Agreement, New L/C Facility Agreement, or High Yield Indenture, as the case may be, executes an Assumption Agreement in the form of Annex 1 hereto shall be made unless the transferee executes an Assumption Agreement in the form of Annex 1 hereto. (g) Except as expressly provided herein and in the Collateral Documents, Collateral Agent shall have no duty to take any affirmative steps with respect to the 34 collection of amounts payable in respect of the Collateral. Collateral Agent shall incur no liability to any Secured Party as a result of any sale of any Collateral at any private sale. (h) Collateral Agent may resign at any time by giving at least 30 days' notice thereof to the Parties and Collateral Agent may be removed as Collateral Agent at any time by Requisite Obligees. In the event of such resignation or removal of Collateral Agent, Requisite Obligees shall thereupon have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed by Requisite Obligees within 30 days after the resigning Collateral Agent's giving notice of its intention to resign, then the resigning Collateral Agent may appoint, on behalf of Secured Parties, a successor Collateral Agent and Company hereby agrees to pay to such successor Collateral Agent, in addition to any other amounts payable to Collateral Agent hereunder and under the Collateral Documents, such reasonable annual fees in such amounts and at such times as may be requested by such successor Collateral Agent. (i) Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement and under the Collateral Documents. After any retiring or removed Collateral Agent's resignation or removal hereunder as Collateral Agent, the provisions of this subsection 6.1 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent. (j) In no event shall Collateral Agent or any Secured Party be liable or responsible for any funds or investments of funds held by any Loan Party. (k) Upon the proposed sale or other disposition of any Collateral that is permitted by the Facility Agreements and not prohibited by subsection 2.4(a) or to which Requisite Obligees have otherwise consented pursuant to an Enforcement Action, for which a Loan Party desires to obtain a security interest release from Collateral Agent, such Loan Party shall deliver an Officer's Certificate to Collateral Agent, Detroit L/C Agent and New L/C Agent (i) stating that the Collateral or the Capital Stock subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Facility Agreements and (ii) specifying the Collateral or Capital Stock being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at Loan Parties' (other than DHC's), joint and several expense, so long as Senior Agent has not informed Collateral Agent that it (a) has reason to believe that the facts stated in such Officer's Certificate are not true and correct and (b) if the sale or other disposition of such item of Collateral or Capital Stock constitutes an Asset Sale (as defined in each Facility Agreement), has not received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds (as defined in each Facility Agreement) if and as required by subsection 2.3 of the respective Facility Agreement, execute and deliver such releases of its security interest in such Collateral as may be reasonably requested by such Loan Party. In the event of any conflict or inconsistency between this subsection 6.1(k) and the terms of any other Credit Document, the terms of this Agreement shall prevail. 35 (l) Concurrently with any Subsidiary of Company becoming Additional Detroit L/C Borrower or Additional New L/C Borrower, such Subsidiary shall execute and deliver to Collateral Agent a counterpart to this Agreement in the form attached hereto as Annex 2 ("COUNTERPART"). Upon delivery of any such Counterpart to Collateral Agent, each such Additional Detroit L/C Borrower or Additional New L/C Borrower shall be a Detroit L/C Borrower or New L/C Borrower, as applicable, and shall be as fully a party hereto as if such Additional Detroit L/C Borrower or Additional New L/C Borrower were an original signatory hereto. Each Borrower expressly agrees that its obligations arising hereunder shall not be affected or diminished by the addition or release of any other Borrower hereunder, nor by any election of Collateral Agent or Secured Party not to cause any Subsidiary of Company to become an Additional Detroit L/C Borrower or Additional New L/C Borrower, as applicable, hereunder. This Agreement shall be fully effective as to any Borrower that is or becomes a party hereto regardless of whether any other Person becomes or fails to become or ceases to be a Borrower hereunder. SECTION VII 7.1 MISCELLANEOUS. (a) All notices and other communications provided for herein shall be in writing and may be personally served, or sent by telefacsimile or United States mail or courier service or electronic mail (as further provided in this clause (a)) and shall be deemed to have been given (i) when delivered in person or by courier service, (ii) upon receipt of telefacsimile in complete and legible form, (iii) three Business Days after deposit in the United States mail with postage prepaid and properly addressed, or (iv) in the case of electronic mail to the extent provided in this clause (a); provided that notices to Collateral Agent shall not be effective until received. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this subsection 7.1(a)) shall be as set forth under each party's name on the signature pages (including acknowledgments) hereof. Notices and other communications to the Lenders, Detroit L/C Agents and New L/C Agent hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Collateral Agent. Collateral Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. (b) No amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by any Party therefrom, shall in any event be effective without the written concurrence of Requisite Detroit L/C Lenders and Requisite New L/C Lenders; provided that (i) no such amendment, modification, termination or waiver shall, without the consent of each Lender with Secured Obligations directly affected thereby, amend, 36 modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving, the definition of "Requisite Obligees", (ii) no such amendment, modification, termination or waiver shall, without the consent of each Lender and Agent with Secured Obligations directly affected thereby, amend, modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving (A) subsection 3.1 or 4.2 or this subsection 7.1(a), or (B) any other provision of this Agreement in a manner that would impose any additional material obligations on any Lender or Agent or prejudice any material rights or remedies of such Lender or Agent, (iii) no amendment, modification, termination or waiver of any provision of subsection 2.1 or 2.2 or Section 5 or 6 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Collateral Agent shall be effective without the written concurrence of Collateral Agent; or (iv) no such amendment, modification, termination or waiver of this Agreement shall materially increase or materially adversely affect obligations of any Loan Party or adversely affect any rights of Loan Party under the other Credit Documents in each case without such loan party's prior consent; provided, further, that no amendment, modification, termination or waiver shall (1) reduce or otherwise adversely affect the right of the High Yield Trustee to request or direct Collateral Agent to take action on the terms set forth in subsection 2.1(a), or (2) subordinate in right of payment the High Yield Obligations, or (3) modify or otherwise alter in any manner adverse to the holders of the High Yield Notes the priority of such holders' Lien in the Collateral as provided in subsection 3.1 as in effect on the date hereof or the right of such holders to receive Proceeds in the amount and order of priority and under the circumstances described in subsections 4.1(a) and 4.2(a), as in effect on the date hereof. To the extent (if any) the provisions of this Agreement are inconsistent with the provisions set forth in any Facility Agreement or the High Yield Indenture in any particular circumstance, then the provisions set forth in this Agreement shall prevail to the extent necessary to eliminate or avoid such inconsistency in such circumstance. (c) Subject to the provisions of subsection 6.1(f), this Agreement shall be binding upon and inure to the benefit of Collateral Agent, each other Party and each Secured Party and their respective successors and assigns, including, subject to compliance with the provisions of subsection 6.1(f), successors to Detroit L/C Agents, New L/C Agent and any Lenders and High Yield Trustee under the Detroit L/C Facility Agreement, New L/C Facility, and High Yield Indenture, as applicable. (d) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (e) This Agreement shall become effective on the Closing Date and upon the execution of this Agreement by each Loan Party, New L/C Lender and Detroit L/C Lender and New L/C Agent, Detroit L/C Agents, High Yield Trustee and Collateral Agent. (f) The Collateral Agent may deem and treat the Secured Parties executing and delivering this Agreement and the High Yield Noteholders as the "Secured Parties" for all purposes hereof unless and until 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 subsection 6.1(f). The Company agrees that it will advise the Collateral Agent of any transfer by any Creditor Party of any Detroit L/C Exposure or New L/C Aggregate 37 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 Detroit L/C Exposure and New L/C Aggregate Exposure, the unpaid principal amount (or outstanding undrawn letters of credit with respect thereto) 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. (g) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OF THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT 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 AGREEMENT, EACH OF THE PARTIES IRREVOCABLY (I) ACCEPTS FOR ITSELF, IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID 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 PARTY HERETO AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 7.1(a) HEREOF, (IV) AGREES THAT SERVICE OF PROCESS AS PROVIDED IN CLAUSE (III) IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PERSON IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT, (V) AGREES THAT THE PARTIES HERETO RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH PARTY IN THE COURTS OF ANY OTHER JURISDICTION, AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 7.1(g) 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. (h) 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 DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE INTERCREDITOR 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 the waiver in entering into this Agreement, and that each will continue to rely on the waiver in their related future dealings. Each party hereto 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 38 WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, REPLACEMENTS, 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. (i) NO CLAIM MAY BE MADE BY ANY SECURED PARTY OR ANY OF THEIR RESPECTIVE AFFILIATES, PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS AGAINST ANY OTHER SECURED PARTY OR THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; AND EACH SECURED PARTY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. (j) 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. (k) All undertakings and agreements contained in this Agreement are solely for the benefit of the Secured Parties and there are no other Persons (other than Loan Parties to the extent expressly provided herein) who are intended to be benefited in any way by this Agreement. Each Loan Party agrees that no Secured Party shall have any liability to any of the Loan Parties for performing its obligations and responsibilities under this Agreement with respect to the other Secured Parties. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. LOAN PARTIES: COVANTA ENERGY CORPORATION By: -------------------------------------------- Name: Anthony Orlando Title: Authorized Officer Notice Address: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson EACH OF THE ENTITIES NAMED ON SCHEDULE A ANNEXED HERETO, AS DETROIT L/C BORROWERS, NEW L/C BORROWERS AND HIGH YIELD GUARANTORS By: -------------------------------------------- Name: Anthony Orlando Authorized Officer Notice Address: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson Schedule A 1. AMOR 14 Corporation 2. Burney Mountain Power 3. Covanta Acquisition, Inc. 4. Covanta Alexandria/Arlington, 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 Group, Inc. 11. Covanta Energy International, Inc. 12. Covanta Energy Resource Corp. 13. Covanta Energy Services, Inc. 14. Covanta Energy West, Inc. 15. Covanta Engineering Services, Inc. 16. Covanta Fairfax, Inc. 17. Covanta Geothermal Operations Holdings, Inc. 18. Covanta Geothermal Operations, Inc. 19. Covanta Haverhill Properties, Inc. 20. Covanta Haverhill, Inc. 21. Covanta Heber Field Energy, Inc. 22. Covanta Hennepin Energy Resource Co., Limited Partnership 23. Covanta Hillsborough, Inc. 24. Covanta Honolulu Resource Recovery Venture 25. Covanta Huntsville, Inc. 26. Covanta Hydro Energy, Inc. 27. Covanta Hydro Operations West, Inc. 28. Covanta Hydro Operations, Inc. 29. Covanta Imperial Power Services, Inc. 30. Covanta Indianapolis, Inc. 31. Covanta Kent, Inc. 32. Covanta Lancaster, Inc. 33. Covanta Lee, Inc. 34. Covanta Long Island, Inc. 35. Covanta Marion Land Corp. 36. Covanta Marion, Inc. 37. Covanta Mid-Conn., Inc. 38. Covanta Montgomery, Inc. 39. Covanta New Martinsville Hydroelectric Corporation 40. Covanta New Martinsville Hydro-Operations Corporation 41. Covanta Oahu Waste Energy Recovery, Inc. 42. Covanta Omega Lease, Inc. 43. Covanta Onondaga Operations, Inc. 44. Covanta Operations of Union, LLC 45. Covanta OPW Associates, Inc. 46. Covanta OPWH, Inc. 47. Covanta Pasco, Inc. 48. Covanta Plant Services of New Jersey, Inc. 49. Covanta Power Equity Corporation 50. Covanta Power Pacific, Inc. 51. Covanta Power Plant Operations 52. Covanta Projects of Hawaii, Inc. 53. Covanta Projects, Inc. 54. Covanta RRS Holdings, Inc. 55. Covanta Secure Services, Inc. 56. Covanta SIGC Energy, Inc. 57. Covanta SIGC Energy II, Inc. 58. Covanta SIGC Geothermal Operations, Inc. 59. Covanta Stanislaus, Inc. 60. Covanta Systems, LLC 61. Covanta Wallingford Associates, Inc. 62. Covanta Waste to Energy , LLC 63. Covanta Water Holdings, Inc. 64. Covanta Water Systems, Inc. 65. Covanta Water Treatment Services, Inc. 66. DSS Environmental, Inc. 67. ERC Energy II, Inc. 68. ERC Energy, Inc. 69. Haverhill Power, LLC 70. Heber Field Energy II, Inc. 71. Heber Loan Partners 72. LMI, Inc. 73. Mammoth Geothermal Company 74. Mammoth Power Company 75. Michigan Waste Energy, Inc. 76. Mt. Lassen Power 77. Pacific Geothermal Company 78. Pacific Oroville Power, Inc. 79. Pacific Wood Fuels Company 80. Pacific Wood Services Company 81. Three Mountain Operations, Inc. 82. Three Mountain Power, LLC MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES: COVANTA ENERGY CORPORATION By: -------------------------------------------- Name: Title: Notice Address: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson EACH OF THE ENTITIES NAMED ON SCHEDULE B ANNEXED HERETO, AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES By: -------------------------------------------- Name: Timothy J. Simpson Authorized Officer Notice Address for each Management Services Agreement Beneficiary: c/o Covanta Energy Group, Inc. 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson Schedule B 1. Covanta Energy Group, Inc. 2. Covanta Projects, Inc. DANIELSON: DANIELSON HOLDING CORPORATION By: __________________________ Name: Philip G. Tinkler Title: Chief Financial Officer Notice Address: Danielson Holding Corporation 2 North Riverside Plaza Suite 600 Chicago, Illinois 60606 Attention: Philip G. Tinkler Telephone: (312) 466-3842 Facsimile: (312) 470-1126 with copies to: Neal, Gerber & Eisenberg LLP Two North LaSalle Street Suite 2200 Chicago, Illinois 60602 Attention: David S. Stone Telephone: (312) 269-8000 Facsimile: (312) 269-1747 and Skadden, Arps, Slate, Meagher & Flom LLP 333 W. Wacker Drive, Suite 2100 Chicago, Illinois 60606 Attention: Peter C. Krupp Telephone: (312) 407-0855 Facsimile: (312) 407-0411 AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Collateral Agent and Detroit L/C Facility Agent By: ----------------------------------- Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A., as Administrative Agent 555 So. Flower Street, 17th Floor CA9-706-17-54 Los Angeles, California 90071 Attention: David Price, Vice President Voice: (213) 345-1300 Fax: (415) 503-5011 email: david.price@bankofamerica.com BANK OF AMERICA, N.A., as Cash Management Bank By: ----------------------------------- Name: Henry Y. Yu Title: Managing Director Notice Address: DEUTSCHE BANK SECURITIES, INC., as Detroit L/C Documentation Agent By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Notice Address: Attention: Deutsche Bank Securities, Inc. 60 Wall Street New York, NY 10005 BANK ONE, NA, as New L/C Agent and a New L/C Lender By: ----------------------------------- Name: Title: Notice Address: SZ INVESTMENTS, L.L.C., as a New L/C Lender By: ___________________________________ Name: Philip G. Tinkler Title: Treasurer Notice Address: Two North Riverside Plaza, Suite 600, Chicago, Illinois 60606 Attn: Donald J. Liebentritt THIRD AVENUE TRUST, ON BEHALF OF THIRD AVENUE VALUE FUND SERIES, as a New L/C Lender By: ___________________________________ Name: Title: Notice Address: 622 Third Avenue New York, NY 10017 Attn: General Counsel Facsimile: (212) 735-0003 with a copy to Pillsbury Winthrop LLP One Battery Park Plaza New York, NY 10004 Attn: Richard Epling, Esq. Facsimile: (212) 858-1500 D.E. SHAW LAMINAR PORTFOLIOS, L.L.C., as a New L/C Lender By: ___________________________________ Name: Title: Notice Address: BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Detroit L/C Lender By: ___________________________________ Name: Title: BAYERISCHE HYPO-UND VEREINSBANK AG, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: BEAR STEARNS & CO. INC., as a Detroit L/C Lender By: ___________________________________ Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH, as a Detroit L/C Lender By: ___________________________________ Name: Keith Braun Title: Director By: ___________________________________ Name: Patrick Dowling Title: Vice President IIB BANK LIMITED, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: KBC BANK, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: Notice Address: Attention: Rose Pagan KBC Bank NV, New York Branch 125 West 55th Street New York, NY 10019 Telephone No.: (212) 541-0657 Fax No.: (212) 956-5581 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: Notice Address: 420 Fifth Avenue New York, New York 10018 Attention: Structured Finance Telephone: 212-703-5303 Telecopier: 212-703-5262 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as a Detroit L/C Lender By: ___________________________________ Name: Title: THE BANK OF NEW YORK, as a Detroit L/C Lender By: ___________________________________ Name: Title: UBS AG, STAMFORD BRANCH, as issuer of Detroit L/Cs By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: UBS LOAN FINANCE LLC, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: U.S. BANK NATIONAL ASSOCIATION (FORMERLY KNOWN AS FIRSTAR BANK, N.A.), as a Detroit L/C Lender By: ___________________________________ Name: Alan R. Milster Title: Vice President WESTLB AG (FORMERLY KNOWN AS WESTDEUTSCHE LANDESBANK GIROZENTRALE), NEW YORK BRANCH, as a Detroit L/C Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: HIGH YIELD TRUSTEE: U.S. BANK NATIONAL ASSOCIATION, as Trustee By: ___________________________________ Name: Title: Notice Address: Annex 1 to Intercreditor Agreement ASSUMPTION AGREEMENT, dated as of __________, 200_, made by _________________ (the "ADDITIONAL SECURED PARTY"). W I T N E S S E T H : WHEREAS, Covanta Energy Corporation ("COVANTA") and the Subsidiaries of Covanta listed on the signature pages thereof (together with any other borrowers that subsequently become party thereto); certain entities listed on the signature pages thereof as New L/C Lenders ("NEW L/C LENDERS"); certain financial institutions listed on the signature pages thereof as Detroit L/C Lenders ("DETROIT L/C LENDERS"); Bank of America, N.A., as administrative agent for Detroit L/C Lenders and as collateral agent, and Deutsche Bank Securities, Inc., as documentation agent for and Detroit L/C Lenders, Bank One, NA, as administrative agent for the New L/C Lenders, Danielson Holding Corporation, the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Beneficiaries and U.S. Bank National Association, in its capacity as trustee under the High Yield Indenture are parties to that certain Intercreditor Agreement dated as of March 10, 2004 (as amended, supplemented or otherwise modified from time to time, the "INTERCREDITOR AGREEMENT"); WHEREAS, the Loan Parties have executed the Collateral Documents pursuant to which the Loan Parties party to each such document have granted to the Collateral Agent, for the benefit of the Secured Parties, a security interest in the Collateral to secure their respective obligations arising in connection with the Credit Document; WHEREAS, subsection 6.1(f) of the Intercreditor Agreement requires the Additional Secured Party to become a party to the Intercreditor Agreement; and WHEREAS, the Additional Secured Party has agreed to execute and deliver this Assumption Agreement in order to become a party to the Intercreditor Agreement; NOW, THEREFORE, IT IS AGREED: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Intercreditor Agreement and used herein shall have the meanings given to them in the Intercreditor Agreement. 2. Intercreditor Agreement. By executing and delivering this Assumption Agreement, the Additional Secured Party hereby becomes a party to the Intercreditor Agreement as [New L/C Agent] [Detroit L/C Facility Agent] [Detroit L/C Documentation Agent] [High Yield Trustee] [a Detroit L/C Lender] A-1-1 [a New L/C Lender] and Secured Party thereunder with the same force and effect as if originally named therein as [New L/C Agent] [Detroit L/C Facility Agent] [Detroit L/C Documentation Agent] [High Yield Trustee] [a Detroit L/C Lender] [a New L/C Lender] and Secured Party and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of [New L/C Agent] [Detroit L/C Facility Agent] [Detroit L/C Documentation Agent] [High Yield Trustee] [a Detroit L/C Lender] [a New L/C Lender] and a Secured Party thereunder and agrees to be bound by the terms thereof. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL SECURED PARTY] By:___________________________ Name: Title: A-1-2 Annex 2 to Intercreditor Agreement v1 COUNTERPART COUNTERPART (this "COUNTERPART"), dated as of _______, is delivered pursuant to subsection 6.1(l) of the Intercreditor Agreement referred to below. The undersigned hereby agrees that this Counterpart may be attached to the Intercreditor Agreement, dated as of March 10, 2004 (said Intercreditor Agreement, as it may heretofore have been and as it may hereafter be further amended, restated, supplemented or otherwise modified from time to time being the "INTERCREDITOR AGREEMENT"; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), among Covanta Energy Corporation ("COVANTA") and the subsidiaries of Covanta listed on the signature pages thereof (together with any other borrowers that subsequently become party thereto); certain entities listed on the signature pages thereof as New L/C Lenders ("NEW L/C LENDERS"); certain financial institutions listed on the signature pages thereof as Detroit L/C Lenders ("DETROIT L/C LENDERS"); Bank of America, N.A., as administrative agent for Detroit L/C Lenders and as collateral agent, and Deutsche Bank Securities, Inc., as documentation agent for Detroit L/C Lenders, Bank One, NA, as administrative agent for the New L/C Lenders, Danielson Holding Corporation, the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Beneficiaries and U.S. Bank National Association, in its capacity as trustee under the High Yield Indenture. The undersigned by executing and delivering this Counterpart hereby becomes a [New L/C Borrower][Detroit L/C Borrower] under the Intercreditor Agreement in accordance with subsection 6.1(l) thereof and agrees to be bound by all of the terms thereof. [NAME OF ADDITIONAL DETROIT L/C BORROWER/NEW L/C BORROWER] By: ___________________________ Name: Title: A-2-1 EX-10.1.W 14 y95330exv10w1ww.txt INTERCREDITOR AGREEMENT Exhibit 10.1(w) INTERCREDITOR AGREEMENT This INTERCREDITOR AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time in accordance with the terms hereof, herein called this "AGREEMENT") is dated as of March 10, 2004 and entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware corporation ("CPIH" or "COMPANY"), and THE SUBSIDIARIES OF CPIH LISTED ON THE SIGNATURE PAGES HEREOF AS REVOLVER BORROWERS (together with Company, collectively, "REVOLVER BORROWERS" and each a "REVOLVER BORROWER") and THE SUBSIDIARIES OF CPIH LISTED ON THE SIGNATURE PAGES HEREOF AS TERM LOAN BORROWERS (together with Company, collectively, "TERM LOAN BORROWERS" and each a "TERM LOAN BORROWER"; the Revolver Borrowers together with the Term Loan Borrowers, collectively, "BORROWERS" and each a "BORROWER"); COVANTA ENERGY AMERICAS, INC., a Delaware corporation ("CEA"); THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF AS REVOLVER LENDERS (each, in its capacity as a Revolver Lender, together with any other Person (this and other capitalized terms used herein without definition being used as defined in subsection 1.1) that becomes a party hereto as a Revolver Lender pursuant to subsection 6.1(f), individually referred to herein as a "REVOLVER LENDER" and collectively as "REVOLVER LENDERS"); THE PERSONS IDENTIFIED AS TERM LOAN LENDERS ON THE SIGNATURE PAGES HEREOF (each, in its capacity as a Term Loan Lender, together with any other Person that becomes a party hereto as a Term Loan Lender pursuant to subsection 6.1(f) or subsection 7.1(c), individually referred to herein as a "TERM LOAN LENDER" and collectively as "TERM LOAN LENDERS"); BANK OF AMERICA, N.A. ("BANK OF AMERICA"), as administrative agent for Term Loan Lenders (and any successor, administrative agent for Term Loan Lenders pursuant to the Term Loan Agreement, in such capacity "TERM LOAN AGENT"), as Collateral Agent and as Cash Management Bank; DEUTSCHE BANK SECURITIES, INC., as documentation agent for Term Loan Lenders (and any successor documentation agent for the Term Loan Lenders pursuant to the Term Loan Agreement, in such capacity "TERM LOAN DOCUMENTATION AGENT"); DEUTSCHE BANK AG, NEW YORK BRANCH, as administrative agent for Revolver Lenders (and any successor administrative agent for Revolver Lenders pursuant to the Revolver Credit Agreement, in such capacity "REVOLVER AGENT"); U.S. BANK NATIONAL ASSOCIATION, in its capacity as agent for the holders of the Prepetition Unsecured Claims Participation Interest pursuant to the Plan of Reorganization (in such capacity, the "PREPETITION UNSECURED CLAIMS Agent"); THE COMPANIES LISTED ON THE SIGNATURE PAGES HEREOF AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES (the "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES"); THE COMPANIES LISTED ON THE SIGNATURE PAGES HEREOF AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS (the "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS") and the other Persons who may become parties to this Agreement from time to time pursuant to and in accordance with subsections 6.1(f) of this Agreement; WELLS FARGO BANK, N.A., as Debenture Disbursing Agent; and U.S. BANK NATIONAL ASSOCIATION, as Allowed Class 6 Disbursing Agent. R E C I T A L S WHEREAS, the Borrowers have proposed, their creditors have approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization; WHEREAS, in connection with the Plan of Reorganization, simultaneously herewith the Borrowers have received financing pursuant to the Term Loan Agreement and Revolver Credit Agreement; WHEREAS, it is a condition precedent to (i) the obligations of Revolver Lenders to enter into and extend credit under the Revolver Credit Agreement, (ii) the obligations of Term Loan Lenders to enter into and extend credit under the Term Loan Agreement, (iii) the obligations of Management Services and Reimbursement Agreement Beneficiaries to enter into the Management Services and Reimbursement Agreement and (iv) the effectiveness of the Plan of Reorganization, as applicable, that each Party shall have executed and delivered this Agreement to the Collateral Agent; WHEREAS, on the date hereof Loan Parties have executed and delivered to Collateral Agent the Collateral Documents pursuant to which Loan Parties granted a security interest in the Collateral as security for (i) in the case of Revolver Borrowers, all Obligations of Revolver Borrowers under and in respect of the Revolver Credit Agreement and all other Revolver Documents to which Revolver Borrowers are a party to from time to time, in each case as described therein, and (ii) in the case of Term Loan Borrowers, all Obligations of Term Loan Borrowers under and in respect of the Term Loan Agreement and all other Term Loan Documents to which Term Loan Borrowers are party to from time to time, in each case as described therein; WHEREAS, Creditor Parties desire to set forth certain provisions regarding the appointment, duties and responsibilities of Collateral Agent and to set forth certain other provisions concerning the obligations of Loan Parties to Creditor Parties under the agreements referred to in the foregoing recitals; and WHEREAS, Creditor Parties wish to set forth their mutual intentions as to certain matters relating to the exercise of remedies with respect to the Collateral and payments made by or for the account of the applicable Loan Parties under the Credit Documents as more fully set forth herein. NOW, THEREFORE, the parties hereto hereby agree as follows: SECTION I 1.1 DEFINITIONS. Terms used in the Agreement have the meanings set forth in the introduction and recitals hereto. In addition, the following terms shall have the following meanings: "ADDITIONAL INTEREST LOANS" means "Additional Interest Loans" as such term is defined in the Term Loan Agreement. 2 "AFFILIATE", as applied to any Person, means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person (other than exclusively as a result of such Person's role as a senior executive of that Person or Project manager or operator), whether through the ownership of voting securities or by contract or otherwise. "AGENTS" means Collateral Agent, Term Loan Agents and Revolver Agent. "AGGREGATE NET SALES PROCEEDS" means (i) Net Asset Sales Proceeds and (ii) Proceeds received by Collateral Agent in connection with the foreclosure or other disposition of Collateral in connection with any Enforcement Action. "ALLOWED CLASS 6 CLAIMS" means "Allowed Class 6 Claims" as such term is defined in the Approved Plan of Reorganization. "ALLOWED CLASS 6 CLOSING DATE" means the date on which the Bankruptcy Court shall have entered the Allowed Class 6 Disbursing Agent Authorization Order. "ALLOWED CLASS 6 DISBURSING AGENT" means U.S. Bank National Association, in its capacity as disbursing agent for the holders of the Allowed Class 6 Claims, and each of its successors, under the Approved Plan of Reorganization, Confirmation Order, the Allowed Class 6 Disbursing Agent Authorization Order, and the agency agreement relating thereto to be entered into on or after the Closing Date. "ALLOWED CLASS 6 DISBURSING AGENT AUTHORIZATION ORDER" means an order or orders of the Bankruptcy Court authorizing U.S. Bank National Association to enter into this Agreement as a Term Loan Lender and to serve as the Allowed Class 6 Disbursing Agent with respect to Term Loans allocable to the Allowed Class 6 Disbursing Agent as described in the first sentence of subsection 9.25A(i) of the Term Loan Agreement. "ALLOWED CLASS 6 INTEREST" means, with respect to any Non-Confirming Holder, (i) prior to the Closing Date, an Allowed Class 6 Claim of such Non-Confirming Holder, and (ii) on and after the Closing Date, the interest held by such Non-Confirming Holder in any Term Loan distributed on the Allowed 6 Closing Date or the Determination Date to the Allowed Class 6 Disbursing Agent. "APPROVED OPERATING EXPENSES" means, as at any date of determination, the following operating expenses of Company and its Domestic Subsidiaries: (i) payments then due and payable by Company to Covanta pursuant Sections 2, 3, and 4(a) of the Management Services and Reimbursement Agreement, (ii) amounts then due and payable to DHC pursuant to Section 6 of the DHC Tax Sharing Agreement, and (iii) fees and expenses then due and payable to senior executive management of Company (including any success-based fees). "Approved Operating Expenses" shall not include any Management Services and Reimbursement Agreement Obligations or operating expenses directly related to any Project (other than 3 operating expenses related to a Project and payable to Management Services and Reimbursement Agreement Beneficiaries pursuant to the Management Services and Reimbursement Agreement). "APPROVED PLAN OF REORGANIZATION" means the Plan of Reorganization and all amendments, modifications, revisions and restatements thereof, if any, approved by the creditors of Borrowers in requisite number and percentage, and confirmed by the Bankruptcy Court pursuant to the Confirmation Order and delivered to Revolver Agents and Term Loan Agents. "ASSET SALE" means (A) the sale by CEA of any of the Capital Stock of Company to any Person or (B) the sale by Company or any of its Subsidiaries to any Person of (i) any of the Capital 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, in each case so long as not less than 90% of the consideration received for such assets shall be cash); 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 (provided, that sales and discounts of not more than $2,000,000 in the aggregate in face value of accounts receivable may be excluded from Asset Sales pursuant to this clause (1), and the sole consideration received in connection with any such sale of accounts receivable shall be cash), (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 120 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 (provided, that any cash received in connection with any such sale or exchange, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus property in the ordinary course of business (provided, that not less than 75% of the consideration, if any, received in connection with any such disposal shall be cash, and any such cash received, to the extent in excess of the amounts set forth in clause (b) of this definition, shall be deemed cash proceeds of an Asset Sale), or (4) any discount or compromise of notes or accounts receivable for less than the face value thereof, to the extent Company deems necessary in order to resolve disputes that occur in the ordinary course of business or (5) any sale of shares in the Madurai Project Entity permitted under subsection 6.7(vi) of each Credit Agreement. "BANK OF AMERICA" shall have the meaning assigned to that term in the introduction to this Agreement. "BANKRUPTCY CODE" means Title 11 of the United States Code entitled "Bankruptcy", as now and hereafter in effect, or any successor statute. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the Southern District of New York and any other court properly exercising jurisdiction over any relevant Chapter 11 Case. 4 "BANKRUPTCY EVENT" means any of one or more of the following events regardless of the reason therefor: (a) (i) a court having jurisdiction in the premises shall enter a decree or order for relief in respect of any Loan Party in an involuntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, which decree or order is not stayed; or any other similar relief shall be granted under any applicable federal, or state law; or (ii) an involuntary case shall be commenced against any Loan Party under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over any Loan Party, or over all or a substantial part of its property, shall have been entered; or the involuntary appointment of an interim receiver, trustee or other custodian of any Loan Party for all or a substantial part of its property; or the issuance of a warrant of attachment, execution or similar process against any substantial part of the property of any Loan Party, and the continuance of any such event in clause (ii) for 60 days unless dismissed, bonded or discharged; or (b) (i) any Loan Party shall have an order for relief entered with respect to it or commence a voluntary case under the Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, or shall make any assignment for the benefit of creditors; or (ii) the inability or failure of any Loan Party, or the admission by any Loan Party in writing of its inability, to pay its debts as such debts become due; or the Governing Body (or any committee thereof) of any Loan Party adopts any resolution or otherwise authorizes action to approve any of the actions referred to in clause (i) or this clause (ii); or (c) any order, judgment or decree shall be entered against any Loan Party decreeing the dissolution, winding up or split up of that Loan Party and such order shall remain undischarged or unstayed for a period in excess of 30 days. "BANKRUPTCY PROCEEDING" means any case or proceeding of the type described in the definition of "Bankruptcy Event" with respect to any Loan Party. "BORROWER" and "BORROWERS" shall have the meaning assigned to such terms in the introduction to this Agreement. "BUSINESS DAY" means any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, the State of Texas or the State of California or is a day on which banking institutions located in any such state are authorized or required by law or other governmental action to close. 5 "CAPITAL STOCK" means the capital stock or other equity interests of a Person. "CASH MANAGEMENT BANK" shall have the meaning assigned to that term in the definition of "Cash Management System". "CASH MANAGEMENT OBLIGATIONS" means the obligations of Borrowers to the Cash Management Bank arising from or relating to the Cash Management System including any liability of Borrower on any claim arising out of or relating to the Cash Management System, 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. "CASH MANAGEMENT SYSTEM" means the cash management system of Company and its Subsidiaries in the United States maintained with Bank of America (in such capacity, "CASH MANAGEMENT BANK") as described in Schedule 3.1P annexed to each Credit Agreement, as such Cash Management System may be modified pursuant to subsection 5.10 of each Credit Agreement, and any other related services provided by Cash Management Bank to Company and its Subsidiaries, including treasury, depositary and cash management services or in connection with automated clearing house transfers of funds. "CASH ON HAND" means, as of any date of determination, the aggregate amounts on deposit in the Cash Management System in the United States as of the close of business on the preceding Business Day. "CEA" shall have the meaning assigned to that term in the introduction to this Agreement. "CEA STOCK PLEDGE AGREEMENT" means the Pledge Agreement executed and delivered by CEA on the Closing Date, substantially in the form of Exhibit VIII annexed to the Term Loan Agreement (it being understood that such Pledge Agreement shall contain a covenant requiring CEA to pay to Collateral Agent any proceeds received by it from or in connection with the sale of any of the common stock of Company to any Person), as such Pledge Agreement may thereafter be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "CLOSING DATE" means March 10, 2004. "COLLATERAL" means, collectively, all of the real, personal and mixed property (including Capital Stock) and interests in property now owned or hereafter acquired by any Loan Party in or upon which a security interest, Lien or mortgage is granted or purported to be granted to Collateral Agent pursuant to the Collateral Documents, including Proceeds thereof. "COLLATERAL AGENT" shall have the meaning assigned to that term in subsection 2.1. "COLLATERAL DOCUMENTS" means the Security Agreement, any foreign pledge agreements, Control Agreements, Mortgages (as defined in the Credit Agreements), CEA Stock 6 Pledge Agreement and all other instruments or documents (pursuant to which a Lien to secure all or any portion of the Secured Obligations is purported or intended to be created, granted, evidenced or perfected) delivered from time to time by any Loan Party pursuant to the Credit Agreements or any other Revolver Document or Term Loan Document, in each case in order to grant to Collateral Agent a Lien on any real, personal or mixed property as security for any or all of the Secured Obligations, as such instruments and documents may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "COMPANY" shall have the meaning assigned to that term in the introduction to this Agreement. "CONFIRMATION ORDER" means the Findings of Fact, Conclusions of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March 5, 2004 in the Chapter 11 Cases, without modification, revision or amendment. "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. "CONTROL AGREEMENT" means an agreement, satisfactory in form and substance to Revolver Agent and Term Loan Agent and executed by the financial institution or securities intermediary at which a Deposit Account or a Securities Account, as the case may be, is maintained, pursuant to which such financial institution or securities intermediary confirms and acknowledges Collateral Agent's security interest in such account, and agrees that the financial institution or securities intermediary, as the case may be, will comply with instructions originated by Collateral Agent as to disposition of funds in such account, without further consent by Company or any Subsidiary, as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted pursuant to subsection 2.4. "COVANTA" means Covanta Energy Corporation, a Delaware corporation. "CREDIT AGREEMENTS" means the Term Loan Agreement and Revolver Credit Agreement. "CREDIT DOCUMENTS" means, collectively, (i) the Term Loan Agreement and the other Term Loan Documents, (ii) the Revolver Credit Agreement and the other Revolver Documents, and (iii) the Management Services and Reimbursement Agreement, in each case as they may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5. "CREDITOR OBLIGATIONS" means, collectively, the Approved Operating Expenses, Revolver Loan Obligations, Term Loan Obligations, Management Services and Reimbursement Agreement Obligations, Cash Management Obligations, and Prepetition Unsecured Claims Participation Interest. 7 "CREDITOR PARTIES" means Collateral Agent, Revolver Agent, Term Loan Agents, Revolver Lenders, Term Loan Lenders, Cash Management Bank, Prepetition Unsecured Claims Agent and Management Services and Reimbursement Agreement Beneficiaries. "DEBENTURE CLOSING DATE" means the date on which the Bankruptcy Court shall have entered the Debenture Disbursing Agent Authorization Order. "DEBENTURE DISBURSING AGENT" means Wells Fargo Bank, N.A., in its capacity as disbursing agent for the holders of the 9.25% Debentures, and each of its successors, under the Approved Plan of Reorganization, the Confirmation Order, the Debenture Disbursing Agent Authorization Order and the disbursing agreement relating thereto to be entered into on or after the Closing Date. "DEBENTURE DISBURSING AGENT AUTHORIZATION ORDER" means an order or orders of the Bankruptcy Court authorizing Wells Fargo Bank, N.A. to enter into this Agreement as a Term Loan Lender and to serve as the Debenture Disbursing Agent with respect to Term Loans allocable to the Debenture Disbursing Agent as described in the first sentence of subsection 9.25A(i) of the Term Loan Agreement. "DEBENTURE INTEREST" means, with respect to any Non-Confirming Holder, (i) prior to the Debenture Closing Date, the claim in respect of the 9.25% Debentures held by such Non-Confirming Holder, and (ii) on and after the Debenture Closing Date, the interest held by such Non-Confirming Holder in any Term Loan distributed on the Debenture Closing Date or the Determination Date to the Debenture Disbursing Agent; provided, however, that any Debenture Interest shall cease to be a Debenture Interest at such time that the Non-Confirming Holder with respect thereto shall become a Lender in accordance with subsection 9.25 of the Term Loan Agreement. "DETERMINATION DATE" means the "Determination Date" as defined in the Approved Plan of Reorganization. "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. "DHC" means Danielson Holding Corporation, a Delaware corporation. "DHC TAX SHARING AGREEMENT" means the tax sharing agreement entered into by DHC, Company and Covanta on the Closing Date, as such agreement may be amended, restated supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5(a). "DISBURSING AGENT" means either Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent, and "DISBURSING AGENTS" means each of them. "DISTRIBUTION" means, with respect to any Creditor Obligation, (a) any payment or distribution by Covanta or any of its Subsidiaries of cash, securities or other assets and properties of any kind whatsoever, real or personal, tangible or intangible, or mixed, whether 8 now owned or existing or hereafter acquired or arising and wheresoever located, by set-off or otherwise, on account of such Creditor Obligation, (b) any redemption, purchase or other acquisition of such Creditor Obligation by Covanta or any of its Subsidiaries or (c) the granting of any Lien to or for the benefit of the holders of such Creditor Obligation in or upon any or all assets and properties of any kind whatsoever, real or personal, tangible or intangible, or mixed, whether now owned or existing or hereafter acquired or arising and wheresoever located of Covanta or any of its Subsidiaries. "DOMESTIC SUBSIDIARY" means any Subsidiary of any Borrower that is incorporated or organized under the laws of the United States, any state thereof or in the District of Columbia. "ENFORCEMENT ACTION" shall mean the exercise by any Secured Party of any of the enforcement rights and remedies under, and subject to the provisions of, the Collateral Documents at any time on or after an Event of Default, including any or all of the following: any motion to vacate any stay on enforcement of the Liens on the Collateral, solicitation of bids from third parties to conduct the liquidation of Collateral, the engagement or retention of third parties for the purposes of marketing, promoting or selling all or any Collateral, the commencement of any action to foreclose on the Liens on any of the Collateral, notification of account debtors to make payments to any Secured Party or its agents, any action to take possession of any Collateral or otherwise in connection with the preservation or protection of any of the Collateral, its value or any rights or remedies therein or otherwise or as may be deemed necessary or appropriate to enhance the likelihood or maximize the repayment of the Secured Obligations. "EVENT OF DEFAULT" means a Revolver Event of Default and/or a Term Loan Event of Default. "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means, collectively, (i) the existing guaranty by Covanta Energy Group of the obligations of certain Subsidiaries of Company under certain agreements relating to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the existing guaranty by Covanta Projects, Inc. of the obligations of certain Subsidiaries of Company under certain agreements relating to the Quezon Project, and (iii) the existing guaranty by Covanta of the obligations certain Subsidiaries of Company under certain agreements relating to the Balaji/Madurai Project and the LICA Project, as each such guaranty may be amended, restated, supplemented or otherwise modified to the extent permitted pursuant to subsection 2.5(a). "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. "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 with such Asset Sale and is not prohibited under the Revolver Credit Agreement and Term Loan Agreement. 9 "JUNIOR CREDITOR" shall have the meaning assigned to that term in subsection 4.2(e). "LENDERS" means Term Loan Lenders and Revolver Lenders. "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. "LOAN PARTIES" means Company, the other Borrowers, CEA, and Management Services and Reimbursement Agreement Obligors. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the management services and reimbursement agreement entered into by Company and Covanta and certain of their respective Subsidiaries on the Closing Date, in form and substance satisfactory to Revolver Agent and Term Loan Agents as such agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5(a). "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT Beneficiaries" shall have the meaning assigned to that term in the introduction to this Agreement. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGATIONS" means, as at any date of determination, the obligations of Management Services and Reimbursement Agreement Obligors then due and payable under Section 4(b) of the Management Services and Reimbursement Agreement; provided, however, that no such obligations shall be included in "Management Services and Reimbursement Agreement Obligations" if such obligation arises as a result of (i) any action or inaction by Covanta or any of its Subsidiaries (other than Company and its Subsidiaries), not triggered by a failure to perform by Company or any of its Subsidiaries or (ii) the failure of any Management Services and Reimbursement Agreement Beneficiary to renew, replace or extend, or cause the renewal, replacement or extension of, a Letter of Credit (as defined in the Management Services and Reimbursement Agreement); provided, however that the letter of credit dated February 28, 1999 issued by Citibank, N.A. to secure an obligation of NEPC Consortium Ltd. under certain Haripur project documents, and any renewal, replacement or extension of such letter of credit, shall in each case be excluded under this clause (ii) to the extent such letter of credit is not renewed, replaced or extended as a result of (x) the refusal of the issuer thereof (or any other proposed issuer acceptable to the beneficiary thereof) to so renew, replace or extend such letter of credit on an unsecured basis or (y) the failure of any other account party thereunder to satisfy any condition precedent imposed by the issuer thereof (or any other proposed issuer acceptable to the beneficiary thereof) to such renewal, replacement or extension. "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS" shall have the meaning assigned to that term in the introduction to this Agreement. "MANDATORY PAYMENTS" means any amount described in subsections 2.4A(iii)(a)-(e) of the Revolver Credit Agreement and subsections 2.4A(ii)(a)-(e) of 10 the Term Loan Agreement to be applied as a prepayment of the Term Loans and/or the Revolver Loans and/or a permanent reduction of the Revolver Loan Commitments. "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 eighteen months from the date of such Asset Sale and (b) the Maturity Date 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) actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation of Company or any of its Subsidiaries in effect prior to such Asset Sale or pursuant to applicable law) and payable immediately upon consummation of such Asset Sale to employees of Company and its Subsidiaries that are terminated as a result thereof) paid to Persons other than Company and its Subsidiaries and their respective Affiliates 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 Revolver Loans and Term Loans) that is (x) secured by a valid, enforceable and perfected Lien on the stock or assets in question that is permitted under subsection 6.2 of each Credit Agreement 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 Credit 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 (a) income taxes reasonably estimated to be actually payable prior to the earlier of (1) the date which is eighteen months from the date of such receipt and (2) March 10, 2007 as a result of the receipt of such payments of proceeds and (b) any actual, reasonable and documented out-of-pocket fees and expenses (including reasonable legal fees, reasonable fees to advisors and severance costs that are due (pursuant to a Contractual Obligation, or written employment policy applicable to terminated employees generally, of Company or any of its Subsidiaries in effect prior to the event causing or relating to the payment referred to in clause (i) or (ii) hereof or pursuant to applicable law) and payable on or prior to the receipt of such payment or proceeds to employees of Company and its Subsidiaries that have been terminated as a result of the relevant loss, taking or sale) paid to Persons other than Company and its Subsidiaries and their respective Affiliates in connection with the relevant loss, taking or sale or 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 Contractual Obligations in effect on the Closing Date, 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 application pursuant to subsection 4.1(b). 11 "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such term is defined in the Approved Plan of Reorganization. "NON-CONFIRMING HOLDER" means, on any date of determination, a Person that holds on such date a Debenture Interest or an Allowed Class 6 Interest in Term Loans initially allocable in accordance with subsection 9.25A(i) of the Term Loan Agreement to the Debenture Disbursing Agent or the Allowed Class 6 Disbursing Agent, respectively. "OBLIGATIONS" means all obligations of every nature of Loan Parties under the Credit Documents, including any liability of such Loan Party on any claim arising out of or relating to the Credit Documents, 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. Without limiting the generality of the foregoing, the Obligations of the Loan Parties under the Credit Documents include (a) the obligation to pay principal, interest (including all interest which accrues after the commencement of any case or proceeding in bankruptcy after the insolvency of, or for the reorganization of, any Loan Party, whether or not allowed in such case or proceeding), charges, expenses, fees, attorneys' fees and disbursements, indemnities and other amounts payable by any Borrower and any other Loan Party under any Credit 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; provided, that nothing in this definition shall be construed as creating any obligations of DHC under the Credit Documents that are not expressly set forth in such Credit Documents. "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. "PAYMENT IN FULL" and "PAID IN FULL" means (i) as to the Revolver Loan Obligations, the payment and satisfaction in full in immediately available funds of all of such Revolver Loan Obligations and, other than for purposes of subsection 4.2(a), the termination of all Revolver Loan Commitments, (ii) as to the Term Loan Obligations, the payment and satisfaction in full in immediately available funds of all of such Term Loan Obligations and the termination of the Term Loan Commitments, (iii) as to the Approved Operating Expenses, the payment in full in immediately available funds of all such Approved Operating Expenses to the extent then due and payable, (iv) as to the Management Services and Reimbursement Agreement Obligations, the payment and satisfaction in full in immediately available funds of all of such Management Services and Reimbursement Agreement Obligations to the extent then due and payable pursuant to the Management Services and Reimbursement Agreement, (v) as to any amounts payable hereunder with respect to the Prepetition Unsecured Claims Participation Interest, the payment to Prepetition Unsecured Claims Agent of 5% of the aggregate cumulative amount of Aggregate Net Sales Proceeds not to exceed $4,000,000 and (vi) as to any other Secured Obligations, the payment and satisfaction in full in immediately available funds of all 12 such Secured Obligations then outstanding. If after receipt of any payment of, or Proceeds of Collateral applied to the payment of, any of the Creditor Obligations, Collateral Agent or any other Creditor Party, as applicable, is required to surrender or return such payment or Proceeds to any Person for any reason, then the Creditor Obligations intended to be satisfied by such payment or Proceeds shall be reinstated and continue and this Agreement shall continue in full force and effect as if such payment or Proceeds had not been received by Collateral Agent or such other Creditor Party, as the case may be. "PARTIES" means the Loan Parties, Secured Parties and Creditor Parties from time to time party to this Agreement. "PERMITTED ENCUMBRANCES" shall have the meaning assigned to that term in both the Term Loan Agreement and Revolver Credit Agreement as in effect on the date hereof. "PERSON" or "PERSONS" means and include natural persons, corporations, limited partnerships, general partnerships, limited liability companies, limited liability partnerships, joint stock companies, Joint Ventures (as defined in the Credit Agreements), 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" means April 1, 2002. "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the Bankruptcy Court on January 14, 2004 (and as revised and amended through March 2, 2004), together with the Reorganization Plan Supplement to Debtors' Second Joint Plan of Reorganization filed with the Bankruptcy Court on February 18, 2004 in connection therewith. "PREPETITION UNSECURED CLAIMS" means "Parent and Holding Company Unsecured Claims" that are "Allowed," as such terms are defined in the Approved Plan of Reorganization. "PREPETITION UNSECURED CLAIMS AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "PREPETITION UNSECURED CLAIMS PARTICIPATION INTEREST" means the right of holders of Allowed Class 6 Claims to receive 5% of the amount of Aggregate Net Sale Proceeds up to but not exceeding the total sum of $4,000,000 in the aggregate. "PROCEEDS" means "proceeds", as such term is defined in the UCC and, in any event, shall include (i) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to any of the Loan Parties or Collateral Agent from time to time with respect to any of the Collateral, (ii) any and all payments (in any form whatsoever) made or due and payable to any of the Loan Parties from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral, by any governmental body, authority, bureau or agency (or any person acting under color of governmental authority), 13 and (iii) any and all other consideration (in any form whatsoever) or other amounts from time to time paid or payable under or in connection with any of the Collateral upon disposition or otherwise. "PROJECT" means any waste-to-energy facility, electrical generation plant, cogeneration plant, water treatment facility 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 existing Investment on the Closing Date permitted under this Agreement; provided, however, that a Project shall cease to be a Project of Company and its Subsidiaries at such time that Company or any of its Subsidiaries ceases to have any existing or future rights or obligations (whether direct or indirect, contingent or matured) associated therewith. "REQUISITE OBLIGEES" means (i) until Payment in Full of all Revolver Loan Obligations, Requisite Revolver Lenders; and (ii) from and after Payment in Full of all Revolver Loan Obligations, Requisite Term Loan Lenders. "REQUISITE REVOLVER LENDERS" means Lenders having or holding more than 50% of the aggregate Revolver Loan Exposure of all Revolver Lenders; provided, however, that prior to the Closing Date, for purposes of this definition the Revolver Loan Exposure of each Revolver Loan Lender shall equal the original Revolver Loan Commitment of such Revolver Loan Lender on the Closing Date. "REQUISITE TERM LOAN LENDERS" means Lenders having or holding more than 50% of the aggregate Term Loan Exposure of all Term Loan Lenders; provided, however, that prior to the Closing Date, for purposes of this definition the Term Loan Exposure of each Term Loan Lender shall equal the original Term Loan Commitment of such Term Loan Lender on the Closing Date. "REVOLVER AGENT" shall have the meaning assigned to that term in the introduction hereto. "REVOLVER BORROWER" shall have the meaning assigned to that term in the introduction hereto. "REVOLVER CREDIT AGREEMENT" means that (i) certain credit agreement dated as of the date hereof by and among Company and the other Revolver Borrowers, Revolver Lenders and Revolver Agent, (ii) any credit agreement entered into by Revolver Borrowers to refinance, replace, renew or extend, in whole or in party, the credit agreement referenced in clause (i) and the indebtedness issued thereunder to the extent permitted pursuant to the Term Loan Agreement, in the case of clause (i) or (ii), as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5(b). 14 "REVOLVER DOCUMENTS" means the "Loan Documents" as such term is defined in the Revolver Credit Agreement (or any comparable term with respect to any replacement Revolver Credit Agreement not prohibited hereunder). "REVOLVER EVENT OF DEFAULT" means an "Event of Default" under and as defined in the Revolver Credit Agreement. "REVOLVER LENDER" shall have the meaning assigned to that term in the introduction to this Agreement. "REVOLVER LOAN" or "REVOLVER LOANS" means the loans made (or deemed made) by Revolver Lenders to Revolver Borrowers under the Revolver Credit Agreement. "REVOLVER LOAN COMMITMENT" means, as at any date of determination, the commitment of a Revolver Lender to make Revolver Loans to Revolver Borrowers pursuant to the Revolver Credit Agreement. "REVOLVER LOAN EXPOSURE" with respect to any Revolver Lender, means, as of any date of determination (i) prior to the termination of the Revolver Loan Commitments, that Revolver Lender's Revolver Loan Commitment, and (ii) after the termination of the Revolver Loan Commitments, the aggregate outstanding principal amount of the Revolver Loans of that Revolver Lender. "REVOLVER LOAN OBLIGATIONS" means any and all Obligations to the extent arising under or with respect to the Revolver Loan Commitments or the Revolver Loans, including principal and interest on any Revolver Loans and the fees and other amounts accruing or otherwise owed with respect to the Revolver Loan Exposure and all other Obligations of a Loan Party with respect to Revolver Loans; provided, however, that Obligations of any Loan Party for interest or commitment fees with respect to any Revolver Loan Document and Revolver Loan Commitments that accrue or may be incurred under any Revolver Loan Document after the commencement by or against any Loan Party of a Bankruptcy Proceeding shall be included in the Revolver Loan Obligations solely to the extent recoverable from such Loan Party or its estate in such proceeding. "SECURED PARTIES" means Term Loan Lenders, Revolver Lenders, Term Loan Agents, Revolver Agent, Cash Management Bank and Collateral Agent. "SECURED OBLIGATIONS" means all Obligations of Loan Parties from time to time under the Credit Agreements and the other Revolver Documents and Term Loan Documents and all obligations owing to Collateral Agent hereunder or under each Collateral Document, and all Cash Management Obligations. "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 15 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 ACCOUNT" means an account to which a financial asset is or may be credited in accordance with an agreement under which the Person maintaining the account undertakes to treat the Person for whom the account is maintained as entitled to exercise the rights that comprise the financial asset. "SECURITY AGREEMENT" means the Security Agreement executed and delivered by Borrowers on the Closing Date pursuant to the Revolver Credit Agreement and Term Loan Agreement, as such agreement may from time to time hereafter be amended, restated, supplemented or otherwise modified to the extent permitted pursuant to subsection 2.4. "SENIOR AGENT" means, (i) until Payment in Full of all Revolver Loan Obligations, Revolver Loan Agent and (ii) from and after Payment in Full of all Revolver Loan Obligations and until Payment in Full of all Term Loan Obligations, Term Loan Agent. "SENIOR CREDITOR" shall have the meaning assigned to that term in subsection 4.2(e). "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. "SUPERPRIORITY TERM LOAN OBLIGATIONS" means all Term Loan Obligations in respect of accrued and unpaid interest on the Term Loans (including, for the avoidance of doubt, accrued and unpaid interest on Additional Interest Loans; it being understood and agreed that, to the extent interest on the Term Loans is paid through the issuance of Additional Interest Loans pursuant to subsection 2.2B(ii) of the Term Loan Agreement, such interest shall be deemed paid for purposes of this definition). "SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that term in subsection 6.1(c). "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. "TERM LOAN" or "TERM LOANS" means the loans made (or deemed made) by Term Loan Lenders to Term Loan Borrowers pursuant to the Term Loan Agreement, including any Additional Interest Loans (as defined in the Term Loan Agreement) and loans deemed made after the Closing Date pursuant to subsection 2.1 of the Term Loan Agreement. 16 "TERM LOAN AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "TERM LOAN AGENTS" means Term Loan Agent and Term Loan Documentation Agent. "TERM LOAN AGREEMENT" means that (i) certain credit agreement dated as of the date hereof by and among Company and the other Term Loan Borrowers, Term Loan Lenders and the Term Loan Agents, (ii) any credit agreement entered into by the Term Loan Borrowers to refinance, replace, renew or extend, in whole or in part, the credit agreement referenced in clause (i) and the indebtedness thereunder to the extent permitted pursuant to the Revolver Credit Agreement, in the case of clause (i) or (ii), as such credit agreement may be amended, restated, supplemented or otherwise modified from time to time to the extent permitted thereunder and pursuant to subsection 2.5(c). "TERM LOAN BORROWERS" shall have the meaning assigned to that term in the introduction to this Agreement. "TERM LOAN COMMITMENT" means, as at any date of determination, the commitment of a Term Loan Lender to make Term Loans to Term Loan Borrowers pursuant to the Term Loan Agreement. "TERM LOAN DOCUMENTATION AGENT" shall have the meaning assigned to that term in the introduction to this Agreement. "TERM LOAN DOCUMENTS" means the "Loan Documents" as such term is defined in the Term Loan Agreement (or any comparable term with respect to any replacement Term Loan Agreement not prohibited hereunder). "TERM LOAN EVENT OF DEFAULT" means an "Event of Default" under and as defined in the Term Loan Agreement. "TERM LOAN EXPOSURE" with respect to any Term Loan Lender, means, as of any date of determination the aggregate outstanding principal amount of the Term Loans of that Term Loan Lender. "TERM LOAN LENDER" shall have the meaning assigned to that term in the introduction to this Agreement. "TERM LOAN OBLIGATIONS" means any and all Obligations to the extent arising under or with respect to the Term Loan Commitments or the Term Loans, including principal and interest on any Terms Loans and fees and other amounts accruing or otherwise owed with respect to the Term Loan Exposure; provided, however, that Obligations of any Loan Party for interest with respect to any Term Loan Document and Term Loan Commitments that accrue or may be incurred under any Term Loan Document after the commencement by or against any Loan Party of a Bankruptcy Proceeding shall be included in the Term Loan Obligations solely to the extent recoverable from such Loan Party or its estate in such proceeding. 17 "THIRD-PARTY GUARANTY" shall have the meaning assigned to that term in subsection 4.2(h). "UCC" means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, the priority of any Secured Party's security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term "UCC" means the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such priority and for purposes of definitions related to such provisions. "UNITED STATES" means the United States of America. 1.2 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 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. (d) In the event of any refinancing, replacement or extension of any Credit Agreement, references in this Agreement to sections or subsections of such Credit Agreement shall refer to the functionally equivalent sections or subsections in such refinanced, replaced or extended agreement as the context requires. SECTION II 2.1 APPOINTMENT AS COLLATERAL AGENT. Each Secured Party (i) appoints Bank of America to serve as collateral agent and representative of each such Secured Party (to the extent applicable) under this Agreement and each of the Collateral Documents (in such capacity, together with its successors in such capacity, the "COLLATERAL AGENT") and (ii) irrevocably authorizes Collateral Agent to act as agent for the Secured Parties for the purpose of executing and delivering, on behalf of all such Secured Parties, the Collateral Documents and, subject to the provisions of this Agreement, for the purpose of exercising such powers, rights and remedies hereunder and under the other Collateral Documents as are specifically delegated or granted to Collateral Agent by the terms hereof and thereof, together with such powers, rights and remedies as are reasonably incidental thereto. For the avoidance of doubt, it is understood and agreed that the Collateral Agent is the "Secured Party" or, as the case may be, the "Mortgagee" referred to in the Collateral Documents. Each Secured Party and Collateral Agent hereby appoints each other 18 Secured Party as agent for the purpose of perfecting Collateral Agent's security interest in Collateral that, in accordance with the UCC, can be perfected by possession or control. 2.2 DECISIONS RELATING TO ENFORCEMENT ACTIONS AND OTHER MATTERS VESTED IN REQUISITE OBLIGEES. (a) Collateral Agent agrees to take such Enforcement Actions and all such actions with respect to Collateral which is perfected only by control of such Collateral, in each case as may be directed by Requisite Obligees (it being understood and agreed that if, at any time Collateral Agent determines that the requisite percentages constituting Requisite Obligees shall have been obtained, the Collateral Agent may and shall be fully authorized, as of such time and without the need for further direction from any Secured Party, to take or not take such action as the Requisite Obligees direct); provided, however, that notwithstanding anything in this Agreement to the contrary, Collateral Agent shall not be required to take any action that is in its judgment contrary to law or to the terms of this Agreement or any or all of the Collateral Documents or which would in its opinion subject it or any of its officers, employees or directors to liability, and Collateral Agent shall not be required to take any action under this Agreement or any or all of the Collateral Documents unless and until Collateral Agent shall be indemnified to its satisfaction by the relevant Parties against any and all losses, costs, expenses or liabilities in connection therewith. (b) Each Secured Party agrees that Collateral Agent may act as Requisite Obligees may request (regardless of whether any individual Party or any other Secured Party agrees, disagrees or abstains with respect to such request), that Collateral Agent shall have no liability for acting in accordance with such request (provided such action does not conflict with the express terms of this Agreement) and that no Secured Party shall have any liability to any other Party for any such request, except, in each case, liability arising from the gross negligence or willful misconduct of such Person. Collateral Agent shall give prompt notice to all Secured Parties of actions taken pursuant to the instructions of Requisite Obligees; provided, however, that the failure to give any such notice shall not impair the right of Collateral Agent to take any such action or the validity or enforceability under this Agreement and the applicable Collateral Documents of the action so taken. (c) Collateral Agent may at any time request directions from the Requisite Obligees with respect to the Collateral Documents as to any course of action or other matter relating hereto or to the Collateral Documents. Except as otherwise provided in the Collateral Documents, directions given by Requisite Obligees to Collateral Agent with respect to the Collateral and Collateral Documents shall be binding on all Secured Parties for all purposes (provided such directions do not conflict with the express terms of this Agreement). (d) Each Secured Party, by accepting the benefits hereof and of the Collateral Documents, agrees not to take any Enforcement Action whatsoever, in each case except through Collateral Agent in accordance with this Agreement. 19 2.3 NET INSURANCE/CONDEMNATION PROCEEDS. (a) Unless prohibited by contractual or other legal requirement, all policies of insurance required to be maintained under any Credit Document shall (a) name Collateral Agent, for the benefit of Secured Parties, 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 Revolver Loan Agent and Term Loan Agent, that names Collateral Agent for the benefit of Secured Parties 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 Collateral Agent of any modification or cancellation of such policy. As soon as practicable after the Closing Date, Company shall deliver to Agents, a certificate from Borrowers' insurance broker(s) or other evidence satisfactory to it that all insurance required to be maintained pursuant to this subsection 2.3 is in full force and effect and that Collateral Agent on behalf of Secured Parties has been named as additional insured and/or loss payee thereunder to the extent required under this subsection 2.3. (b) Upon receipt by Collateral 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) pursuant to the Revolver Credit Agreement (or, if the Revolver Loan Obligations have been Paid in Full, the Term Loan Agreement), Collateral Agent shall, and Company hereby authorizes Collateral Agent to, apply such Net Insurance/Condemnation Proceeds as provided in subsection 4.1(b) or, to the extent applicable, subsection 4.2, and (b) to the extent the foregoing clause (a) does not apply, Collateral Agent shall deliver such Net Insurance/Condemnation Proceeds to Company, and (1) Company and its Subsidiaries may retain and apply any portion thereof that is business interruption insurance proceeds for working capital purposes or any other purposes not prohibited under the Credit Agreements and (2) Company shall, or shall cause one or more of its Subsidiaries to, promptly apply such Net Insurance/Condemnation Proceeds that are not business interruption insurance 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 Senior 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 Collateral Agent of such Net Insurance/Condemnation Proceeds, Senior Agent may direct Collateral Agent, and Company hereby authorizes Senior Agent and Collateral Agent to apply such Net Insurance/Condemnation Proceeds as provided in subsection 4.1(b). 2.4 AMENDMENTS, MODIFICATIONS, WAIVERS AND RELEASES. Notwithstanding anything in the Credit Agreements, Collateral Documents and other Credit Documents to the contrary (but subject to subsection 7.1(c)), (a) except in connection with any Enforcement Action, the release of the Lien granted in favor of Collateral Agent on all or substantially all of the Collateral under the Collateral Documents shall require the prior written consent of each Revolver Lender and 20 each Term Loan Lender; (except that such Lien may be released on all or substantially all Collateral to the extent such release is required in connection with an Asset Sale or Asset Sales permitted under the Credit Agreements); provided however, that, if prior to or concurrently with any such release the Revolver Loan Obligations are Paid in Full, then such release shall not require any Revolver Lender's consent; and (b) except as set forth in subsection 2.4(a), any amendment, modification, termination or waiver of, any Collateral Documents shall require the prior written consent of (i) until Payment in Full of all Revolver Loan Obligations, Requisite Revolver Lenders and (ii) until Payment in Full of all Term Loan Obligations, Requisite Term Loan Lenders. 2.5 AMENDMENTS, MODIFICATIONS AND WAIVERS WITH RESPECT TO CREDIT DOCUMENTS. Any amendment or modification of, or waiver of compliance with the terms of any Credit Document, shall (subject to subsection 7.1(c)) be subject to the following requirements: (a) Until (i) the termination of the Term Loan Agreement and the Payment in Full of all Term Loan Obligations, without the prior written consent of Requisite Term Loan Lenders, and (ii) the termination of the Revolver Credit Agreement and the Payment in Full of all Revolver Loan Obligations, without the prior written consent of Requisite Revolver Lenders, Company shall not, and shall not permit any of its Subsidiaries to amend, restate, modify or waive (or make any payment consistent with an amendment, restatement, modification or waiver of) any material provision of the Management Services and Reimbursement Agreement, the Existing IPP Project Guaranties, or the DHC Tax Sharing Agreement, in each case if the effect of such amendment, restatement, modification or waiver, together with all other amendments, restatements, modifications or waivers made, (a) is to impose additional material obligations on, or confer additional material rights to the holders thereof (or to other obligees with respect thereto) against, Company or any of its Subsidiaries, (b) is otherwise adverse to the interests of the Term Loan Lenders in a manner deemed material in the judgment of the Term Loan Agents or Requisite Term Loan Lenders so notifying Term Loan Agents or Company, or (c) is otherwise adverse to the interests of the Revolver Lenders in a manner deemed material in the judgment of the Revolver Agent or Requisite Revolver Lenders so notifying Revolver Agent or Company. (b) Subject to the provisions of subsection 2.4, and until the termination of the Term Loan Agreement and the Payment in Full of all Term Loan Obligations, without the prior written consent of Requisite Term Loan Lenders, Revolver Lenders may not amend, restate, modify or waive (or receive any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of the Revolver Documents, unless (i) the terms of the Revolver Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Term Loan Lenders (in a manner deemed material by Term Loan Agent or Requisite Term Loan Lenders so notifying Term Loan Agent or Company) than the Revolver Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of increasing the amount of, or reducing, delaying or waiving any otherwise required reduction in the 21 amount of, any commitment to extend loans under the Revolver Documents shall be deemed to be more disadvantageous for purposes of this clause (i) without further notice or other action by Term Loan Agents or Requisite Term Loan Lenders), (ii) the aggregate amount of indebtedness and additional commitments to extend credit, if any, under the Revolver Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the Revolver Documents on the Closing Date, (iii) the obligations under (and the Liens securing) such Revolver Documents as so amended, restated, modified or waived are subject to this Agreement on terms substantively identical to the terms applicable to the obligations in effect under the Revolver Documents on the Closing Date, and (iv) Company provides to Term Loan Agents reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith. (c) Subject to the provisions of subsection 2.4, and until the termination of the Revolver Credit Agreement and the Payment in Full of all Revolver Loan Obligations, without the prior written consent of Requisite Revolver Lenders, Term Loan Lenders may not amend, restate, modify or waive (or receive any payment consistent with an amendment, restatement, modification or waiver of) any material provision of any of the Term Loan Documents, unless (i) the terms of the Term Loan Documents as so amended, restated, modified or waived are not more disadvantageous to Company and its Subsidiaries and the Revolver Lenders (in a manner deemed material by Revolver Agent or Requisite Revolver Lenders so notifying Revolver Agent or Company) than the Term Loan Documents in effect on the Closing Date (it being understood and agreed that any amendment, restatement, modification or waiver having the effect of increasing the amount of, or reducing, delaying or waiving any otherwise required reduction in the amount of, any commitment to extend loans under the Term Loan Documents shall be deemed to be more disadvantageous for purposes of this clause (i), without further notice or other action by Revolver Agent or Requisite Revolver Lenders), (ii) the aggregate amount of indebtedness and additional commitments to extend credit, if any, under the Term Loan Documents as so amended, restated, modified or waived, do not exceed the aggregate amount of the commitments to extend credit in effect under the Term Loan Documents on the Closing Date plus the amount of any Additional Interest Loans and other Term Loans deemed made thereunder from time to time pursuant to subsections 2.2B and 2.1A of the Term Loan Agreement, respectively, (iii) the obligations under (and the Liens securing) such Term Loan Documents as so amended, restated, modified or waived are subject to this Agreement on terms substantively identical to the terms applicable to the obligations in effect under the Term Loan Documents on the Closing Date, and (iv) Company provides to Revolver Agent reasonable prior advance written notice of such proposed amendment, restatement, modification or waiver and copies of all material contracts or other agreements being entered into in connection therewith. (d) Each Lender acknowledges and agrees that Borrowers have agreed to and are bound by the provisions of subsection 5.12 (Most Favored Nations Payments) of each Credit Agreement. 22 SECTION III 3.1 PRIORITY OF LIENS. Notwithstanding the order or time of attachment, or the order, time or manner of perfection, or the order or time of filing or recordation of any document or instrument, or other method of perfecting a security interest in favor of Collateral Agent in any Collateral, and notwithstanding any conflicting terms or conditions which may be contained in any of the Credit Documents, the Secured Parties agree that as among the Secured Parties, the following Lien priorities shall strictly apply in defining the respective Lien priorities of each Secured Party in the Collateral: (a) first, the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Secured Obligations owing from time to time to the Collateral Agent, in its capacity as Collateral Agent, to the full extent thereof; (b) second: the Liens upon the Collateral in favor of Collateral Agent to the extent securing, on a pari passu basis, the Secured Obligations owing from time to time to the Term Loan Agents and Revolver Loan Agent, in their capacities as Term Loan Agents and Revolver Loan Agent, respectively, to the full extent thereof; (c) third: the Liens upon the Collateral in favor of Collateral Agent to the extent securing, on a pari passu basis, (i) the remaining Revolver Loan Obligations, and (ii) the Cash Management Obligations, in each case to the full extent thereof; and (d) fourth: the Liens upon the Collateral in favor of Collateral Agent to the extent securing the Term Loan Obligations to the full extent thereof. 3.2 PRIORITIES UNAFFECTED BY ACTION OR INACTION. The Lien priorities in subsection 3.1 shall not be altered or otherwise affected by any amendment, modification, supplement, extension, renewal, restatement or refinancing of any of the Secured Obligations, nor by any action or inaction which Collateral Agent or any other Secured Party may take or fail to take in respect of the Collateral. SECTION IV 4.1 APPLICATION OF MANDATORY PREPAYMENTS UNDER CREDIT AGREEMENTS AND NET ASSET SALE PROCEEDS. Notwithstanding anything in the Credit Documents to the contrary but subject in all respects to subsection 4.2, so long as any Creditor Obligations are outstanding (including any loans or any commitments to lend): (a) Any Mandatory Payments pursuant to subsection 2.4A(iii)(e) of the Revolver Credit Agreement and subsection 2.4A(ii)(e) of the Term Loan Agreement shall, in each case, be applied first, to the payment of any Approved Operating Expenses then due and payable to Management Services and Reimbursement Agreement Beneficiaries pursuant to the Management Services and Reimbursement Agreement; second, to the extent of any excess amounts remaining after application in clause first, to the payment of interest then due and payable on the Term Loans pursuant to subsection 2.2B(ii) of the Term Loan Agreement; third, to the extent of any excess amounts remaining after the application described in clauses first and second, to repay any 23 Management Services and Reimbursement Agreement Obligations then due and payable; and fourth to the extent of any excess amounts remaining after application in clauses first, second and third, to prepay outstanding Term Loans. (b) Any Mandatory Payments pursuant to subsections 2.4A(iii)(a) - (d) of the Revolver Credit Agreement and subsection 2.4A(ii)(a) - (d) of the Term Loan Agreement shall, in each case, be applied first, to the payment of any Approved Operating Expenses then due and payable to Management Services and Reimbursement Agreement Beneficiaries pursuant to the Management Services and Reimbursement Agreement, second, to the extent of any excess amounts remaining after the application described in clause first, (a) to reduce Revolver Loan Exposure in an amount equal to 50% of such excess amounts with such reduction in Revolver Loan Exposure to occur by repaying outstanding Revolver Loans to the full extent thereof and permanently reducing the Revolver Loan Commitments in the full amount of the portion of such payment so applied to reduce Revolver Loan Exposure (provided, however, that no such application shall reduce the Revolver Loan Commitments to the extent that the sum of any Cash On Hand plus the amount of Revolver Loan Commitments would be less than $10,000,000 after giving effect to such reduction), with any amounts so applied to Revolver Loan Exposure but not actually applied to repay Revolver Loans being retained by Revolver Borrowers, and (b) to repay any Management Services and Reimbursement Agreement Obligations then due and payable and outstanding Term Loans in an amount equal to 50% of such excess amounts, (with such amount being applied first to such Management Services and Reimbursement Agreement Obligations and then to prepay outstanding Term Loans); and third, if either (1) no Revolver Loans are outstanding and the sum of all Cash On Hand plus the amount of Revolver Loan Commitments is less than $10,000,000, or (2) no Management Services and Reimbursement Agreement Obligations and no Term Loans are outstanding, but both events described in clauses (1) and (2) shall not have occurred, to repay and reduce Revolver Loan Exposure by repaying Revolving Loans and permanently reducing Revolving Loan Commitment (with any amounts so applied to Revolver Loan Exposure but not actually applied to repay Revolver Loans being retained by Borrowers) or Management Services and Reimbursement Agreement Obligations and Term Loans (with amounts being applied first to Management Services and Reimbursement Agreement Obligations and then to Term Loans) to the extent required so that both such events shall occur; provided that, notwithstanding anything in the foregoing to the contrary, to the extent that any Mandatory Payment applied to prepay Term Loans pursuant to this subsection 4.1(b) constitutes Net Asset Sale Proceeds, 5% of the aggregate amount of such Net Asset Sale Proceeds shall be applied to the payment of Prepetition Unsecured Claims Participation Interest (provided, that the aggregate cumulative amount of all Net Asset Sale Proceeds so applied, when aggregated with all other Aggregate Net Sales Proceeds paid or distributed in respect of Prepetition Unsecured Claims Participation Interest, shall not exceed $4,000,000) and 95% of such amount shall be applied to prepay Term Loans). (c) In the event that at the time of receipt by Company or any of its Subsidiaries of any Net Asset Sale Proceeds, the Term Loan Obligations shall have been Paid in Full and the Prepetition Unsecured Claims Participation Interest shall not have been Paid in Full at such time, 5% of the aggregate amount of such Net Asset Sale 24 Proceeds shall be applied to the payment of the Prepetition Unsecured Claims Participation Interest until such time as the aggregate amount of such Net Asset Sale Proceeds applied to the payment of the Prepetition Unsecured Claims Participation Interest when aggregated with all other Aggregate Net Sale Proceeds paid or distributed in respect of the Prepetition Unsecured Claims Participation Interest, shall total $4,000,000. (d) All payments of Term Loans pursuant to this subsection 4.1 shall made to the Term Loan Agent for distribution to the Term Loan Lenders and the Disbursing Agents in accordance with the Term Loan Agreement, including subsection 9.25 thereof. 4.2 APPLICATION OF PROCEEDS OF COLLATERAL, ETC. (a) Except as provided in subsection 4.2(b) or 4.2(c) below, upon the occurrence and during the continuation of an Event of Default or the termination of the Revolver Loan Commitments (other than as a result of any voluntary termination of Revolver Loan Commitments by Revolver Borrowers pursuant to subsection 2.4A(ii) of the Revolver Credit Agreement), if requested by Requisite Revolver Lenders with respect to any Revolver Event of Default or termination of Revolver Loan Commitments, or if requested by Requisite Term Loan Lenders with respect to any Term Loan Event of Default, (1) all Mandatory Payments or other payments received by any Agent or other Creditor Party on account of the Creditor Obligations, whether from any Loan Party or otherwise, shall promptly be delivered to Collateral Agent and upon receipt by Collateral Agent, applied by Collateral Agent against the Creditor Obligations and (2) all Proceeds received by Collateral Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral or other Enforcement Action may, in the discretion of Senior Agent upon written direction to Collateral Agent, be held by Collateral Agent as Collateral for, and/or (then or at any time thereafter) applied in full or in part by Collateral Agent against, the applicable Creditor Obligations, in each case under clauses (1) and (2) in the following order of priority: (i) First, to the payment of the costs and expenses of the exercise of rights and remedies and such sale, collection or other realization or Enforcement Action, including reimbursement of all expenses, liabilities and advances made or incurred by Collateral Agent in connection therewith (including for reasonable cost, fees and expenses of counsel and other professionals and agents retained by the Collateral Agent) and all amounts for which Collateral Agent is entitled to compensation, reimbursement and indemnification under any Credit Document and any other amounts then owing to Collateral Agent, in its capacity as Collateral Agent, pursuant to the Collateral Documents; (ii) Second, to the extent proceeds remain after application as described in clause (i) above, pro rata among the following, based on the amounts outstanding as of any date of determination: all Secured Obligations owing to Term Loan Agents and Revolver Agent, in their capacities as Term Loan Agents and Revolver Agent, respectively; 25 (iii) Third, to the extent proceeds remain after application as described in clauses (i) and (ii) above, to the payment of Approved Operating Expenses until all Approved Operating Expenses have been Paid in Full; (iv) Fourth, to the extent proceeds remain after application as described in clauses (i) through (iii) above, pro rata among the following, based on the amounts outstanding as of any date of determination: (i) all Revolver Loan Obligations (with any payment of the Revolver Loans resulting in a corresponding permanent reduction in the Revolver Loan Commitments), and (ii) all Cash Management Obligations, until all such Revolver Loan Obligations and Cash Management Obligations have been Paid in Full; (v) Fifth, to the extent proceeds remain after application as described in clauses (i) through (iv) above, to the payment of the Superpriority Term Loan Obligations, until all Superpriority Term Loan Obligations have been Paid in Full; (vi) Sixth, to the extent proceeds remain after application as described in clauses (i) through (v) above, to the payment of the Management Services and Reimbursement Agreement Obligations then due and payable, until all Management Services and Reimbursement Agreement Obligations have been Paid in Full; (vii) Seventh, to the extent proceeds remain after application as described in clauses (i) through (vi) above, 5% of any such excess proceeds constituting Aggregate Net Sales Proceeds to the payment of the Prepetition Unsecured Claims Participation Interest in an aggregate cumulative amount which, when added to all other Aggregate Net Sale Proceeds paid or distributed in respect of the Prepetition Unsecured Claims Participation Interest, does not exceed $ 4,000,000; (viii) Eighth, to the extent proceeds remain after application as described in clauses (i) through (vii) above, to the payment of the remaining Term Loan Obligations, until all Term Loan Obligations have been Paid in Full; and (ix) Ninth, after application as described in clauses (i) through (viii) above and Payment in Full of all other Secured Obligations under the Revolver Credit Agreement, Term Loan Agreement, and all Secured Obligations then due and payable under the Management Services and Reimbursement Agreement, if any, and the termination of all Revolver Loan Commitments, to Loan Parties, or, subject to subsection 7.1(c), their successors or assigns, or to whosoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such Proceeds. (b) Notwithstanding anything in subsection 4.2(a) to the contrary, in the event that no Revolver Event of Default has occurred and is continuing under subsection 7.1 of the Revolver Credit Agreement and no Bankruptcy Proceeding has been commenced by or against any Loan Party, the Term Loan Lenders and Term Loan Agents shall be entitled to receive payments of current interest and fees with respect to the Term Loan Obligations when due under the Term Loan Agreement. 26 (c) Until Proceeds are applied as set forth in this subsection 4.2, Collateral Agent shall hold such Proceeds in its custody in accordance with its regular procedures for handling deposited funds. (d) Payments by Collateral Agent to the Revolver Lenders in respect of the Obligations shall be made to the Revolver Agent for distribution to the Revolver Lenders in accordance with the Revolver Credit Agreement and this Agreement; payments by Collateral Agent to the Term Loan Lenders in respect of the Obligations shall be made to the Term Loan Agent for distribution to the Term Loan Lenders and the Disbursing Agents in accordance with the Term Loan Agreement (including subsection 9.25 of the Term Loan Agreement) and this Agreement; any payments in respect of Approved Operating Expenses shall be made to such Persons as shall be directed in writing by Company pursuant to an Officer's Certificate delivered pursuant to subsection 5.1(c); any payments in respect of any Management Services and Reimbursement Agreement Obligations shall be paid to Covanta, for distribution to the applicable Management Services and Reimbursement Agreement Beneficiary; payments in respect of any Prepetition Unsecured Claims Participation Interest shall be paid to Prepetition Unsecured Claims Agent for distribution to the holders of the Prepetition Unsecured Claims Participation Interest; and payments in respect of the Cash Management Obligations shall be made to Cash Management Bank for the benefit of Cash Management Bank. (e) In the event that any Creditor Party shall receive any Distribution that such Creditor Party is not entitled to receive or retain under the provisions of this Agreement (in such capacity, each, a "JUNIOR CREDITOR"), such Junior Creditor shall hold any such Distribution so received in trust for the benefit of the holders of other Creditor Obligations with the right to receive such Distribution under the provisions of this Agreement (in such capacity, each, a "SENIOR CREDITOR") and shall segregate such Distribution from other assets held by such Junior Creditor; and shall forthwith turn over such Distribution (without liability for interest thereon, but with any appropriate endorsements or assignments, if necessary) to the holders of, or to Collateral Agent for the benefit of the holders of, such Creditor Obligations in the form received (with any appropriate endorsement or assignment, if necessary) to be distributed in accordance with subsection 4.1 or 4.2, as applicable, and applied to such Creditor Obligations. In the event of a failure of any Junior Creditor to make any such endorsement or assignment to Collateral Agent or Senior Creditors, as the case may be, Collateral Agent and such Senior Creditors are hereby irrevocably authorized on behalf of such Junior Creditor to make such endorsement or assignment, as applicable. For the avoidance of doubt, the provisions of this Agreement regarding Junior Creditors and Senior Creditors apply regardless of whether or not a Junior Creditor or Senior Creditor is a Secured Party. (f) No payment or distribution to any Senior Creditor pursuant to the provisions of this Agreement shall entitle the applicable Junior Creditor or Junior Creditors to exercise any right of subrogation in respect thereof until (i) all Creditor Obligations of such Senior Creditors shall have been indefeasibly Paid in Full, or (ii) all of such Senior Creditors have consented in writing to the taking of such action. With respect to any subrogation claims, each Junior Creditor hereby (to the extent permitted by 27 applicable law) waives, releases and discharges any and all rights, claims, causes of action, liabilities, claims and demands, in law or equity, which such Junior Creditor 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 Senior Creditors (or that representatives) may take in an effort to collect in respect of the Creditor Obligations owed to such Senior Creditors. (g) In furtherance of, and without limiting, the priority provisions set forth in this subsection 4.2, but subject to the applicable voting provisions set forth in subsection 2.2, each Secured Party agrees that, in order to enable Collateral Agent to enforce its rights hereunder in any Bankruptcy Proceeding, Collateral Agent is hereby irrevocably authorized and empowered in its sole and absolute discretion to receive and collect any and all dividends or other payments or disbursements made on account of Collateral Agent's Lien on the Collateral in whatever form the same may be paid or issued and to apply the same on account of any such Creditor Obligations in accordance with the provisions of the Credit Documents and this Agreement. At any time, including but not limited to during any Bankruptcy Proceeding, Collateral Agent and each other Party will refrain from taking any action which would contest or challenge in any administrative, legal or equitable action or otherwise the validity or enforceability of the terms of this Agreement, including the priority provisions contained in subsection 4.1 and this subsection 4.2 and the Lien priority provisions contained in subsection 3.1. (h) Each Secured Party hereby covenants and agrees that (i) such Secured Party will not accept from any Person on behalf of the Borrowers any guarantee (a "THIRD-PARTY GUARANTY") of any Obligations unless such guarantor simultaneously guarantees the payment of all Secured Obligations owed to each of the other Secured Parties (or, if such Third-Party Guaranty guarantees only a portion of the Obligations owing to such Secured Party, such Secured Party will not accept such Third-Party Guaranty unless such guarantor simultaneously guarantees the same proportion of Obligations owing to the other Secured Parties), and (ii) such Secured Party will not take, accept or obtain any security interest in, or lien or encumbrance upon, any assets of any of the Borrowers or any Subsidiary or Affiliate thereof or any other Person to secure the payment and performance of the Obligations unless the Collateral Agent, for the benefit of all Secured Parties, is granted a pari passu security interest in, or lien upon, such assets, in either case, pursuant to documents in form and substance satisfactory to the Revolver Agent and Term Loan Agent. (i) Each Junior Creditor hereby waives any rights it may have under applicable law to assert the doctrine of marshalling or to otherwise require Collateral Agent or any Senior Creditors to marshal any property of the Loan Parties or any of their respective Affiliates for the benefit of such Junior Creditors. (j) All payments of Term Loan Obligations pursuant to this subsection 4.2 (including Superpriority Term Loan Obligations) shall be made to the Term Loan Agent for distribution to the Term Loan Lenders and the Disbursing Agents in accordance with the Term Loan Agreement, including subsection 9.25 thereof. 28 SECTION V 5.1 INFORMATION. From time to time, upon the request of Collateral Agent, each of the following Parties agrees to promptly provide to Collateral Agent the information described below: (a) Revolver Agent agrees to promptly from time to time to (i) deliver to Collateral Agent a true, correct and complete copy of any amendment, waiver or modification of or supplement to any Revolver Document upon execution and delivery to Revolver Agent thereof by the relevant parties thereto and (ii) notify Collateral Agent of: (A) the aggregate amount of principal of and interest on the relevant Obligations arising under the Revolver Credit Agreement as at such date as Collateral Agent may specify, (B) the current Revolver Loan Commitment under the Revolver Credit Agreement, and (C) any payment received by Revolver Agent to be applied to the principal of or interest on the Obligations and (iii) the amount of any other fees or expenses outstanding under the Revolver Credit Agreement (including fees and expenses of Revolver Agent) and, in each case, Collateral Agent shall be entitled to rely conclusively upon such information. (b) Term Loan Agent agrees to promptly from time to time to (i) deliver to Collateral Agent a true, correct and complete copy of any amendment, waiver or modification of or supplement to any Term Loan Document upon execution and delivery to Term Loan Agent thereof by the relevant parties thereto and (ii) notify Collateral Agent of: (A) the aggregate amount of principal of and interest on the Obligations under the Term Loan Agreement as at such date as Collateral Agent may specify, (B) any payment received by Term Loan Agent to be applied to the principal of or interest on the Obligations and (C) the amount of any other fees or expenses outstanding under the Term Loan Agreement (including fees and expenses of Term Loan Agents) and, in each case, Collateral Agent shall be entitled to rely conclusively upon such information. (c) Company agrees promptly from time to time to (i) upon execution of any amendment, waiver, modification or supplement to the Management Services and Reimbursement Agreement, deliver to Collateral Agent an Officer's Certificate certifying that attached thereto is a true, correct and complete copy of any such amendment, waiver or modification or supplement and (ii) upon request of Collateral Agent, promptly deliver to Collateral Agent an Officer's Certificate certifying as to: (A) the outstanding amount of any claim or demand made against any Loan Party pursuant to the Management Services and Reimbursement Agreement and any other amounts owing thereunder, whether for Approved Operating Expenses, Management Services and Reimbursement Agreement Obligations or otherwise, at such date as Collateral Agent may specify, (B) the amount of any payment made pursuant to the Management Services and Reimbursement Agreement and received by any Management Services and Reimbursement Agreement Beneficiary and (C) the outstanding amount of, and applicable recipients of, any Approved Operating Expenses as at any date as Collateral Agent may specify, and, in each case, Collateral Agent shall be entitled to rely conclusively upon such certification. 29 SECTION VI 6.1 DISCLAIMERS, SUPPLEMENTAL COLLATERAL AGENT, INDEMNITY, ETC. (a) Collateral Agent shall have no duties or responsibilities except those expressly set forth in this Agreement and the Collateral Documents and Collateral Agent shall not by reason of this Agreement or the Collateral Documents be a trustee for any Party or have any other fiduciary obligation to any Party. Collateral Agent shall not be responsible to any Party for any recitals, statements, representations or warranties contained in this Agreement or any other Credit Document or in any certificate or other document referred to or provided for in, or received by any of them under, this Agreement or any other Credit Document, or for the value, validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Credit Document or any other document referred to or provided for therein or any Lien under the Collateral Documents or the perfection or priority of any such Lien or for any failure by any Loan Party to perform any of its respective obligations this Agreement or any other Credit Document. Collateral Agent may exercise such powers, rights and remedies and perform such duties by or through its Affiliates, agents or employees. (b) Neither Collateral Agent nor any of its officers, directors, employees or agents shall be liable to any Parties for any action taken or omitted by Collateral Agent under or in connection with this Agreement or any of the Collateral Documents or other Credit Documents except to the extent caused by Collateral Agent's gross negligence or willful misconduct. Collateral 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 Collateral Documents or other Credit Documents or from the exercise of any power, discretion or authority vested in it hereunder or thereunder unless and until Collateral Agent shall have received instructions in respect thereof from Requisite Obligees (or such other Secured Parties as may be required to give such instructions under subsection 2.4(a)) and, upon receipt of such instructions from Requisite Obligees (or such other Secured Parties, as the case may be), Collateral 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) Collateral 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 Party shall have any right of action whatsoever against an Agent as a result of Collateral Agent acting or (where so instructed) refraining from acting under this Agreement or any of the other Collateral Documents or other Credit Documents in accordance with the instructions of Requisite Obligees (or such other Secured Parties as may be required to give such instructions under subsection 2.4(a)). (c) It is the purpose of this Agreement and the Collateral Documents and other Credit Documents that there shall be no violation of any law of any jurisdiction 30 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 Collateral Documents or other Credit Documents, and in particular in case of the enforcement of any of the Collateral Documents, or in case Collateral 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 Collateral Documents or take any other action which may be desirable or necessary in connection therewith, it may be necessary that Collateral 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 Collateral 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 Collateral Documents to be exercised by or vested in or conveyed to Collateral 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 Collateral Documents and necessary to the exercise or performance thereof by such Supplemental Collateral Agent shall run to and be enforceable by either Collateral Agent or such Supplemental Collateral Agent, and (ii) the provisions of this Agreement that refer to Collateral Agent shall inure to the benefit of such Supplemental Collateral Agent and all references herein to Collateral Agent shall be deemed to be references to Collateral Agent and/or such Supplemental Collateral Agent, as the context may require. Should any instrument in writing from any Loan Party be required by any Supplemental Collateral Agent so appointed by Collateral Agent for more fully and certainly vesting in and confirming to him or it such rights, powers, privileges and duties, such Loan Party shall execute, acknowledge and deliver any and all such instruments promptly upon request by Collateral 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 Collateral Agent until the appointment of a new Supplemental Collateral Agent. (d) Each Lender ratably in accordance with the amount of the Creditor Obligations of such Lenders, severally agrees that it shall indemnify Collateral Agent and the officers, directors, employees, agents, attorneys, professional advisors and affiliates of Collateral Agent to the extent that any such Person is neither reimbursed by any Loan Party under any Loan Document nor reimbursed out of any Proceeds pursuant to clause First of subsection 4.2(a), for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses (including counsel fees and disbursements and fees and fees and disbursements of any advisor engaged by Collateral Agent) or disbursements of any kind and nature whatsoever which may be imposed on, 31 incurred by or asserted against Collateral Agent or any such Person exercising the powers, rights and remedies of a Collateral Agent or performing duties of a Collateral Agent hereunder or under the other Collateral Documents or in any way relating to or arising out of this Agreement, any Collateral Document or any other Credit Document or any other documents contemplated hereby or thereby or referred to therein or the transactions contemplated hereby or thereby or the enforcement of any of the terms of any thereof; provided, however, that no Lender shall be liable for any of the foregoing to the extent they arise from the gross negligence or willful misconduct of Collateral Agent as determined by a final judgment of a court of competent jurisdiction. No Revolver Agent or Term Loan Agent shall have any liability to any Party under this subsection 6.1(d). Obligations of Non-Confirming Holders and Disbursing Agents pursuant to this subsection 6.1(d) shall be subject to the provisions of subsection 9.25 of the Term Loan Agreement. (e) 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, Collateral Agent in its individual capacity as a Revolver Agent, Term Loan Agent or Term Loan Lender, as the case may be, hereunder or under any Credit Document. With respect to its participation in the Revolver Loan Obligations or Term Loan Obligations, Collateral Agent shall have the same rights and powers hereunder as any other Secured Party and may exercise the same as though it were not performing the duties and functions delegated to it hereunder. Collateral 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 Loan Party for services in connection with this Agreement and otherwise without having to account for the same to Creditor Parties. (f) Collateral Agent may deem and treat the payee of any promissory note or other evidence of indebtedness relating to the Creditor Obligations as the owner thereof for all purposes hereof unless and until a written notice of the assignment or transfer thereof, signed by such payee and in form satisfactory to Collateral Agent, shall have been filed with Collateral Agent. Any request, authority or consent of any Person who at the time of making such request or giving such authority or consent is the holder of any such note or other evidence of indebtedness shall be conclusive and binding on any subsequent holder, transferee or assignee of such note or other evidence of indebtedness and of any note or notes or other evidences of indebtedness issued in exchange therefor. Notwithstanding anything to the contrary contained in the Term Loan Documents, the Revolver Documents or Management Services and Reimbursement Agreement, (i) no assignment or transfer (including, without limitation, a refinancing or replacement) of any interest of (A) any Revolver Lender in the Revolver Loan Exposure or Revolver Loans (including pursuant to any refinancing, restatement, replacement or extension of the Revolver Credit Agreement not prohibited hereunder), or (B) any interest of any Term Loan Lender in the Term Loan or the Term Loans (including pursuant to any refinancing, restatement, replacement or extension of the Term Loan Agreement not prohibited hereunder), may in any case be made unless the transferee, assignee or any Person who became a lender pursuant to a refinancing, restatement, replacement or 32 extension of the Term Loan Agreement or Revolver Credit Agreement, as the case may be, executes an Assumption Agreement in the form of Annex 1 hereto, (ii) no appointment (A) of any successor Revolver Agent under the Revolver Credit Agreement (including pursuant to any refinancing, restatement, replacement or extension of the Revolver Credit Agreement not prohibited hereunder), (B) any successor Term Loan Agent or Term Loan Documentation Agent under the Term Loan Agreement (including pursuant to any refinancing, restatement, replacement or extension of the Term Loan Agreement not prohibited hereunder), or (C) any successor Prepetition Unsecured Claims Agent may in any case be made unless the successor executes an Assumption Agreement in the form of Annex 1 hereto and (iii) no Management Services and Reimbursement Agreement Beneficiary may assign or transfer any of its interest in the Management Services and Reimbursement Agreement without the prior written consent of Requisite Revolver Lenders and Requisite Term Loan Lenders. (g) Except as expressly provided herein and in the Collateral Documents, Collateral Agent shall have no duty to take any affirmative steps with respect to the collection of amounts payable in respect of the Collateral. Collateral Agent shall incur no liability to any Party as a result of any sale of any Collateral at any private sale. (h) Collateral Agent may resign at any time by giving at least 30 days' notice thereof to the Parties and Collateral Agent may be removed as Collateral Agent at any time by Requisite Obligees. In the event of such resignation or removal of Collateral Agent, Requisite Obligees shall thereupon have the right to appoint a successor Collateral Agent. If no successor Collateral Agent shall have been so appointed by Requisite Obligees within 30 days after the resigning Collateral Agent's giving notice of its intention to resign, then the resigning Collateral Agent may appoint, on behalf of Secured Parties, a successor Collateral Agent and Company hereby agrees to pay to such successor Collateral Agent, in addition to any other amounts payable to Collateral Agent hereunder and under the Collateral Documents, such reasonable annual fees in such amounts and at such times as may be requested by such successor Collateral Agent. (i) Upon the acceptance of any appointment as Collateral Agent hereunder by a successor Collateral Agent, such successor Collateral Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring or removed Collateral Agent under this Agreement and the Collateral Documents. After any retiring or removed Collateral Agent's resignation or removal hereunder as Collateral Agent, the provisions of this subsection 6.1 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Collateral Agent. (j) In no event shall Collateral Agent or any Secured Party be liable or responsible for any funds or investments of funds held by any Loan Party. (k) Upon the proposed sale or other disposition of any Collateral that is permitted by the Credit Agreements and is not prohibited by subsection 2.4(a) or has been consented to by Requisite Obligees in connection with an Enforcement Action, and for which a Loan Party desires to obtain a security interest release from Collateral Agent, 33 such Loan Party shall deliver an Officer's Certificate to Collateral Agent, Revolver Loan Agent and Term Loan Agent (i) stating that the Collateral or the Capital Stock subject to such disposition is being sold or otherwise disposed of in compliance with the terms hereof and of the Credit Agreements and (ii) specifying the Collateral or Capital Stock being sold or otherwise disposed of in the proposed transaction. Upon the receipt of such Officer's Certificate, Collateral Agent shall, at Loan Parties' joint and several expense, so long as Senior Agent has not informed Collateral Agent that it (a) has reason to believe that the facts stated in such Officer's Certificate are not true and correct and (b) if the sale or other disposition of such item of Collateral or Capital Stock constitutes an Asset Sale (as defined in each Credit Agreement) has not received evidence satisfactory to it that arrangements satisfactory to it have been made for delivery of the Net Asset Sale Proceeds (as defined in each Credit Agreement) if and as required by subsection 2.4 of the respective Credit Agreement, execute and deliver such releases of its security interest in such Collateral as may be reasonably requested by such Loan Party. In the event of any conflict or inconsistency between this subsection 6.1(k) and the terms of any other Credit Document, the terms of this Agreement shall prevail. SECTION VII 7.1 MISCELLANEOUS. (a) All notices and other communications provided for herein shall be in writing and may be personally served, or sent by telefacsimile or United States mail or courier service or electronic mail (as further provided in this clause (a)) and shall be deemed to have been given (i) when delivered in person or by courier service, (ii) upon receipt of telefacsimile in complete and legible form, (iii) three Business Days after deposit in the United States mail with postage prepaid and properly addressed, or (iv) in the case of electronic mail to the extent provided in this clause (a); provided that notices to Collateral Agent shall not be effective until received. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this subsection 7.1(a)) shall be as set forth under each party's name on the signature pages (including acknowledgments) hereof. Notices and other communications to the Lenders, Revolver Agent and Term Loan Agents hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by Collateral Agent. Collateral Agent or any Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications. (b) Subject to Section 7.1(c), no amendment, modification, termination or waiver of any provision of this Agreement, and no consent to any departure by any Party therefrom, shall in any event be effective without the written concurrence of Requisite Revolver Lenders and Requisite Term Loan Lenders; provided that (i) no such amendment, modification, termination or waiver shall, without the consent of each Secured Party with Secured Obligations directly affected thereby, amend, modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving, the definition of "Requisite Obligees" or subsection 3.1, (ii) no such amendment, 34 modification, termination or waiver shall, without the consent of each Creditor Party (other than Prepetition Unsecured Claims Agent) with Creditor Obligations directly affected thereby, amend, modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving (A) subsection 4.1 or 4.2 or this subsection 7.1(b), or (B) any other provision of this Agreement in a manner that would impose any additional material obligations on such Creditor Party or prejudice any material rights or remedies of such Creditor Party, (iii) no amendment, modification, termination or waiver of any provision of subsection 2.1 or 2.2 or Section 5 or 6 or of any other provision of this Agreement which, by its terms, expressly requires the approval or concurrence of Collateral Agent shall be effective without the written concurrence of Collateral Agent; and (iv) no such amendment, modification, termination or waiver of this Agreement shall materially increase or materially adversely affect obligations of any Loan Party or adversely affect any rights of a Loan Party under the other Credit Documents in each case without such Loan Party's prior written consent; provided, further, that, without the prior written consent of Prepetition Unsecured Claims Agent, no such amendment, modification, termination or waiver shall (x) modify or otherwise alter in any manner adverse to the holders of the Prepetition Unsecured Claims Participation Interest the right of such holders to receive Proceeds in the amount and order of priority and under the circumstances described in subsections 4.1(b), 4.1(c) and 4.2(a), as in effect on the date hereof, (y) impose any additional obligation on Prepetition Unsecured Claims Agent or (z) amend, modify, terminate or waive, or have the effect of amending, modifying, terminating or waiving the rights of Prepetition Unsecured Claims Agent under this subsection 7.1(b). To the extent (if any) the provisions of this Agreement are inconsistent with the provisions set forth in any Credit Agreement in any particular circumstance, then the provisions set forth in this Agreement shall prevail to the extent necessary to eliminate or avoid such inconsistency in such circumstance; provided further, however, that no concurrence of any Lender or Lenders shall be required (I) for any amendment, modification, termination or waiver of any provision of subsection 7.1(c) or any other section or provision herein that only affects the rights and obligations of Debenture Disbursing Agent under this Agreement, so long as Term Loan Agents and Term Loan Borrowers (and, after execution hereof, the Debenture Disbursing Agent) approve such amendment, modification, termination or waiver; and (II) for any amendment, modification, termination or waiver of any provision of subsection 7.1(c) or any other section or provision that only affects the rights and obligations of Allowed Class 6 Disbursing Agent under this Agreement, so long as Term Loan Agents and Term Loan Borrowers (and, after execution hereof, the Allowed Class 6 Disbursing Agent) approve such amendment, modification, termination or waiver. (c) All Term Loans that would otherwise be distributed on the Allowed Class 6 Closing Date or the Determination Date (if the Allowed Class 6 Closing Date shall have occurred prior to the Determination Date) on account of Allowed Class 6 Interests shall be held on such date by the Allowed Class 6 Disbursing Agent; and all Term Loans that would otherwise be distributed on the Debenture Closing Date or the Determination Date (if the Debenture Closing Date shall have occurred prior to the Determination Date) on account of 9.25% Debentures shall be held on such date by the Debenture Disbursing Agent. For so long as Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent holds Term Loans (subject to subsection 9.25 of the Term Loan 35 Agreement) that would otherwise have been Term Loans deemed made directly by or distributed directly to Non-Confirming Holders, such Disbursing Agent shall be the Term Loan Lender of record with respect to such Term Loan Loans held by it (and the corresponding Term Loan Commitments and Term Loan Exposure), except that no Disbursing Agent shall be deemed a "Term Loan Lender", "Creditor Party" or "Secured Party" for purposes of voting on any matters (including the granting of any approvals, consents or waivers) with respect to this Agreement; provided, however, that this clause (c) shall not be construed as permitting, without the prior written consent of the relevant Non-Confirming Holder, (a) modification of the rights, duties or obligations under the this Agreement (other than with respect to voting on any matters) of any Disbursing Agent or of the Non-Confirming Holders for whom such Disbursing Agent serves as record Term Loan Lender, without concurrent and corresponding modification of the rights, duties and obligations of Term Loan Lenders other than such Disbursing Agent, (b) this Agreement to be modified to require that any Disbursing Agent or Non-Confirming Holder make any loan, advance or other extension of credit to, or incur any additional obligation to, any Borrower or any other Person on or after the Closing Date, other than the Term Loans and monetary obligations pursuant to the provisions of the Term Loan Documents in effect on the Closing Date, or (c) modification of the provisions of this clause (c) in a manner that is adverse in any material respect to the Disbursing Agents or the Non-Confirming Holders. For the avoidance of any doubt, the Term Loans, Term Loan Commitments and Term Loan Exposure of each Disbursing Agent shall be excluded in calculating the number or percentage of Term Loans, Term Loan Commitments, Term Loan Exposure and/or Term Loan Lenders whose votes are required and obtained (or not obtained, as the case may be) for purposes of voting on any matters with respect to this Agreement. Any Non-Confirming Holder that executes and delivers to Collateral Agent, in accordance with subsection 9.25 of the Term Loan Agreement, an acknowledgment and counterpart, in substantially the form of Annex 2 hereto, shall cease to be a Non-Confirming Holder and shall thereupon become a "Term Loan Lender", "Creditor Party" and "Secured Party" for all purposes hereunder and such Non-Confirming Holder holding a Term Loan and Term Loan Commitments in amounts equal to the amounts so confirmed by the Debenture Disbursing Agent, the Debenture Disbursing Agent shall be deemed to have assigned such Term Loan and Term Loan Commitment to such Term Loan Lender on such date for all purposes of this Agreement (without having to execute an Assumption Agreement in the form of Annex 1 hereto notwithstanding subsection 6.1(f)). Nothing in this Agreement, express or implied, shall be construed to confer upon any Non-Confirming Holder that does not become a Term Loan Lender any legal or equitable right, remedy or claim under or by reason of this Agreement; Collateral Agent shall not have, by reason of this Agreement, a fiduciary relationship in respect of any Disbursing Agent or any Non-Confirming Holder; and nothing in this Agreement, expressed or implied, is intended to or shall be so construed as to impose upon Collateral Agent any obligations to any Disbursing Agent or any Non-Confirming Holder in respect of this Agreement except as expressly set forth herein. 36 Subject to the occurrence of the Debenture Closing Date, the Debenture Disbursing Agent shall execute and deliver this Agreement and the Term Loan Agreement as the agent for the Non-Confirming Holders on account of the 9.25% Debentures under the Approved Plan of Reorganization and the Confirmation Order. Subject to the occurrence of the Allowed Class 6 Closing Date, the Allowed Class 6 Disbursing Agent shall execute and deliver this Agreement and the Term Loan Agreement as the agent for the Non-Confirming Holders on account of the Allowed Class 6 Claims under the Approved Plan of Reorganization and the Confirmation Order. (d) Subject to the provisions of subsection 6.1(f), this Agreement shall be binding upon and inure to the benefit of Collateral Agent and each other Party and, other than with respect to the Management Services and Reimbursement Agreement Beneficiaries (except pursuant to a merger of Covanta otherwise permitted pursuant to the Credit Agreements), their respective successors and assigns, including successors to Revolver Agents and Revolver Lenders under the Revolver Loan Documents, Term Agents and Term Loan Lenders under the Term Loan Documents and Prepetition Unsecured Claims Agent. (e) This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart. (f) This Agreement shall become effective on the Closing Date and upon the execution of this Agreement by each Loan Party, each Term Loan Lender, each Revolver Lender, each Term Loan Agent, Revolver Agent, each Management Services and Reimbursement Agreement Beneficiary, Prepetition Unsecured Claims Agent and Collateral Agent. (g) The Collateral Agent may deem and treat the Secured Parties as the "Secured Parties" for all purposes hereof unless and until 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 subsection 6.1(f). The Company agrees that it will advise the Collateral Agent of any transfer by any Secured Party of any Revolver Loan Exposure or Term Loan Exposure held by such Secured 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 Secured Party) setting forth, for the Revolver Loan Exposure, Term Loan Exposure and Management Services and Reimbursement Agreement Obligations, 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. (h) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OF THE PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT 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 AGREEMENT, EACH OF THE PARTIES IRREVOCABLY (I) ACCEPTS FOR ITSELF, IN CONNECTION WITH ITS PROPERTIES, 37 GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID 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 PARTY HERETO AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH SUBSECTION 7.1(a) HEREOF, (IV) AGREES THAT SERVICE OF PROCESS AS PROVIDED IN CLAUSE (III) IS SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER SUCH PERSON IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT, (V) AGREES THAT THE PARTIES HERETO RETAIN THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH PARTY IN THE COURTS OF ANY OTHER JURISDICTION, AND (VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 7.1(h) 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. (i) 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 DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE INTERCREDITOR 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 the waiver in entering into this Agreement, and that each will continue to rely on the waiver in their related future dealings. Each party hereto 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 THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, REPLACEMENTS, 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. (j) NO CLAIM MAY BE MADE BY ANY CREDITOR PARTY OR ANY OF THEIR RESPECTIVE AFFILIATES, PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS AGAINST ANY OTHER CREDITOR PARTY OR THEIR RESPECTIVE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT OR DUTY IMPOSED BY LAW) IN CONNECTION WITH, 38 ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED AND RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; AND EACH CREDITOR PARTY HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. (k) 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. (l) All undertakings and agreements contained in this Agreement are solely for the benefit of the Creditor Parties and there are no other Persons (other than the Loan Parties to the extent expressly provided herein) who are intended to be benefited in any way by this Agreement. Each Loan Party agrees that no Creditor Party shall have any liability to any of the Loan Parties for performing its obligations and responsibilities under this Agreement with respect to the other Creditor Parties. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. LOAN PARTIES: COVANTA POWER INTERNATIONAL HOLDINGS, INC. By: _____________________________________ Name: Ashish Sarkar Title: Authorized Officer Notice Address: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson COVANTA ENERGY AMERICAS, INC. By: _____________________________________ Name: Anthony Orlando Title: Authorized Officer Notice Address: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson EACH OF THE ENTITIES NAMED ON SCHEDULE A ANNEXED HERETO, AS REVOLVER BORROWERS, TERM BORROWERS AND MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS By: _____________________________________ Name: Anthony Orlando Authorized Officer Notice Address for each Borrower and Management Services Agreement Obligor: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson Schedule A 1. Covanta Power Development, Inc. 2. Covanta Power Development of Bolivia, Inc. 3. Covanta Waste to Energy of Italy, Inc. 4. OPI Quezon, Inc. MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES: COVANTA ENERGY CORPORATION By: _____________________________________ Name: Anthony Orlando Title: Authorized Officer Notice Address: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson EACH OF THE ENTITIES NAMED ON SCHEDULE B ANNEXED HERETO, AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT BENEFICIARIES By: _____________________________________ Name: Timothy J. Simpson Authorized Officer Notice Address for each Management Services Agreement Beneficiary: c/o Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 Attn: Timothy J. Simpson Schedule B 1. Covanta Energy Group, Inc. 2. Covanta Projects, Inc. AGENTS AND LENDERS: BANK OF AMERICA, N.A., as Collateral Agent and Term Loan Agent By: ------------------------------------------------ Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A., as Administrative Agent 555 So. Flower Street, 17th Floor CA9-706-17-54 Los Angeles, California 90071 Attention: David Price, Vice President Voice: (213) 345-1300 Fax: (415) 503-5011 email: david.price@bankofamerica.com BANK OF AMERICA, N.A., as Term Loan Lender By: ------------------------------------------------ Name: Henry Y. Yu Title: Managing Director Notice Address: Bank of America, N.A. 555 California Street San Francisco, CA 94104-1503 Phone: 415-622-4438 Fax:415-622-0234 Attention: Henry Yu Email: henry.yu@bankofamerica.com BANK OF AMERICA, N.A., as Cash Management Bank By: --------------------------- Name: Henry Y. Yu Title: Managing Director Notice Address: DEUTSCHE BANK SECURITIES, INC., as Term Loan Documentation Agent By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Notice Address: Attention: Deutsche Bank Securities, Inc. 60 Wall Street New York, NY 10005 DEUTSCHE BANK AG, NEW YORK BRANCH, By: DB Services New Jersey, Inc. as Revolver Agent By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Notice Address: Attention: Keith Braun Deutsche Bank AG, New York Branch 60 Wall Street New York, NY 10005 DEUTSCHE BANK AG, NEW YORK BRANCH, By: DB Services New Jersey, Inc. as a Revolver Lender By: --------------------------------- Name: Title: By: --------------------------------- Name: Title: Notice Address: Attention: Troy Ennico Deutsche Bank AG, New York Branch 60 Wall Street New York, NY 10005 BANC OF AMERICA SECURITIES LLC, as Agent for BANK OF AMERICA, N.A., as a Term Loan Lender By: ___________________________________ Name: Title: BANK OF TOKYO MITSUBISHI (CANADA), as a Term Loan Lender By: ___________________________________ Name: Angelo Bisutti Title: Senior Vice President BAYERISCHE HYPO-UND VEREINSBANK AG, as a Term Loan Lender By: ___________________________________ Name: Title: By: ___________________________________ Name: Title: BEAR STEARNS & CO. INC., as a Term Loan Lender By: ___________________________________ Name: Title: CANADIAN IMPERIAL BANK OF COMMERCE, as a Term Loan Lender By: ___________________________________ Name: Title: CREDIT SUISSE FIRST BOSTON, as a Term Loan Lender By: ___________________________________ Name: Title: DEUTSCHE BANK AG, NEW YORK BRANCH, as a Term Loan Lender By: --------------------------------------- Name: Keith Braun Title: Director By: --------------------------------------- Name: Patrick Dowling Title: Vice President HSBC BANK USA, as a Term Loan Lender By: --------------------------------------- Name: Title: IIB BANK LIMITED, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: JPMORGAN CHASE BANK (FORMERLY KNOWN AS THE CHASE MANHATTAN BANK), as a Term Loan Lender By: --------------------------------------- Name: Michael Lancia Title: Vice President KBC BANK NV, NEW YORK BRANCH, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Notice Address: Attention: Rose Pagan KBC Bank NV, New York Branch 125 West 55th Street New York, NY 10019 Telephone No.: (212) 541-0657 Fax No.: (212) 956-5581 LANDESBANK HESSEN-THURINGEN GIROZENTRALE, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: Notice Address: 420 Fifth Avenue New York, New York 10018 Attention: Structured Finance Telephone: 212-703-5303 Telecopier: 212-703-5262 MERRILL LYNCH, PIERCE, FENNER & SMITH, INCORPORATED, as a Term Loan Lender By: --------------------------------------- Name: Title: MINTO APARTMENTS LIMITED, as a Term Loan Lender By: --------------------------------------- Name: Peter Goring Title: Senior Vice President By: --------------------------------------- Name: Steve Creighton Title: Senior Vice President QUANTUM PARTNERS LDC C/O SOROS FUND MANAGEMENT LLC, as a Term Loan Lender By: --------------------------------------- Name: Title: SPECIAL SITUATIONS INVESTING GROUP, as a Term Loan Lender By: --------------------------------------- Name: Title: SUNTRUST BANK, as a Term Loan Lender By: --------------------------------------- Name: Title: TD SECURITIES (USA) INC., as a Term Loan Lender By: --------------------------------------- Name: Title: THE BANK OF NEW YORK, as a Term Loan Lender By: --------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Term Loan Lender By: --------------------------------------- Name: Title: THE TORONTO-DOMINION BANK, as a Term Loan Lender(1) By: --------------------------------------- Name: Title: - ---------- (1) With respect to the interest acquired from Sun Life Assurance Company of Canada (formerly known as Clarica Life Insurance Company) and HSBC Bank Canada on October 28, 2003 by assignment. UBS LOAN FINANCE LLC, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: U.S. BANK NATIONAL ASSOCIATION (FORMERLY KNOWN AS FIRSTAR BANK, N.A.), as a Term Loan Lender By: --------------------------------------- Name: Alan R. Milster Title: Vice President WACHOVIA BANK, NATIONAL ASSOCIATION, as a Term Loan Lender By: --------------------------------------- Name: Joel Thomas Title: Director WESTLB AG (FORMERLY KNOWN AS WESTDEUTSCHE LANDESBANK GIROZENTRALE), NEW YORK BRANCH, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: 2005646 ONTARIO INC., as a Term Loan Lender By: --------------------------------------- Name: Title: 4212657 CANADA INC., SUCCESSOR TO DRESDNER BANK CANADA, as a Term Loan Lender By: --------------------------------------- Name: Title: By: --------------------------------------- Name: Title: PREPETITION UNSECURED CLAIMS AGENT: U.S. BANK NATIONAL ASSOCIATION, AS PREPETITION UNSECURED CLAIMS AGENT By: --------------------------------------- Name: Title: Notice Address: DEBENTURE DISBURSING AGENT: WELLS FARGO BANK, N.A., AS DEBENTURE DISBURSING AGENT By: --------------------------------------- Name: Title: Notice Address: ALLOWED CLASS 6 DISBURSING AGENT: U.S. BANK NATIONAL ASSOCIATION, AS ALLOWED CLASS 6 DISBURSING AGENT By: --------------------------------------- Name: Title: Notice Address: Annex 1 to Intercreditor Agreement ASSUMPTION AGREEMENT, dated as of __________, 200_, made by _________________ (the "ADDITIONAL CREDITOR PARTY"). W I T N E S S E T H : WHEREAS, Covanta Power International Holdings, Inc. ("COMPANY") and the Subsidiaries of Company listed on the signature pages thereof; Covanta Energy Americas, Inc., certain Persons listed on the signature pages thereof as Term Loan Lenders (together with any lenders that subsequently become party thereto, the "TERM LOAN LENDERS"); certain financial institutions listed on the signature pages thereof as Revolver Lenders (the "REVOLVER LENDERS"); Deutsche Bank AG, New York Branch, as administrative agent for Revolver Lenders, Bank of America, N.A., as administrative agent for Term Loan Lenders, as collateral agent, and cash management bank, Deutsche Bank Securities, Inc., as documentation agent for Term Loan Lenders, the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Beneficiaries, the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Obligors, U.S Bank National Association, as agent for the holders of the Prepetition Unsecured Claims Participation Interest, and Wells Fargo Bank, N.A., as Debenture Disbursing Agent, and U.S. Bank National Association, as Allowed Class 6 Disbursing Agent are parties to that certain Intercreditor Agreement dated as of March 10, 2004 (as amended, supplemented or otherwise modified from time to time (the "INTERCREDITOR AGREEMENT"); WHEREAS, the Loan Parties have executed the Collateral Documents pursuant to which the Loan Parties party to each such document have granted to the Collateral Agent, for the benefit of the Secured Parties, a security interest in the Collateral to secure their respective obligations arising in connection with the Credit Document; WHEREAS, subsection 6.1(f) of the Intercreditor Agreement requires the Additional Creditor Party to become a party to the Intercreditor Agreement; and WHEREAS, the Additional Creditor Party has agreed to execute and deliver this Assumption Agreement in order to become a party to the Intercreditor Agreement; NOW, THEREFORE, IT IS AGREED: 1. Defined Terms. Unless otherwise defined herein, terms defined in the Intercreditor Agreement and used herein shall have the meanings given to them in the Intercreditor Agreement. 2. Intercreditor Agreement. By executing and delivering this Assumption Agreement, the Additional Creditor Party hereby becomes a party to the Intercreditor Agreement as [Revolver Agent][Term Loan Agent][Term Loan Documentation Agent][a Revolver Lender][a Term Loan Lender][Prepetition Unsecured Claims Agent] and Secured Party thereunder with the same force and effect as if originally named therein as [Revolver A-1-1 Agent][Term Loan Agent][Term Loan Documentation Agent][a Revolver Lender][a Term Loan Lender][Prepetition Unsecured Claims Agent] and a Secured Party and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of [Revolver Agent][Term Loan Agent][Term Loan Documentation Agent][a Revolver Lender][a Term Loan Lender][Prepetition Unsecured Claims Agent] and a Secured Party thereunder and agrees to be bound by the terms thereof. 2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK. IN WITNESS WHEREOF, the undersigned has caused this Assumption Agreement to be duly executed and delivered as of the date first above written. [ADDITIONAL CREDITOR PARTY] By: ----------------------------- Name: Title: A-1-2 Annex 2 to Intercreditor Agreement ACKNOWLEDGMENT AND COUNTERPART ACKNOWLEDGMENT AND COUNTERPART (this "COUNTERPART"), dated as of _______, is entered into in connection with the Intercreditor Agreement dated as of March 10, 2004 (said Intercreditor Agreement, as it may heretofore have been and as it may hereafter be further amended, restated, supplemented or otherwise modified from time to time being the "INTERCREDITOR AGREEMENT"; capitalized terms used herein not otherwise defined herein shall have the meanings ascribed therein), by and among Covanta Power International Holdings, Inc. ("COMPANY") and the Subsidiaries of Company listed on the signature pages thereof, as Borrowers; Covanta Energy Americas, Inc.; certain Persons listed on the signature pages thereof as Term Loan Lenders (together with any other lenders that subsequently become party thereto, the "TERM LOAN LENDERS"); certain financial institutions listed on the signature pages thereof as Revolver Lenders; Deutsche Bank AG, New York Branch, as administrative agent for Revolver Lenders; Bank of America, N.A., as administrative agent for Term Loan Lenders, as collateral agent, and cash management bank; Deutsche Bank Securities, Inc., as documentation agent for Term Loan Lenders; the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Beneficiaries; the companies listed on the signature pages thereof as Management Services and Reimbursement Agreement Obligors; U.S. Bank National Association, as agent for the holders of the Prepetition Unsecured Claims Participation Interest, and Wells Fargo Bank, N.A., as Debenture Disbursing Agent, and U.S. Bank National Association, as Allowed Class 6 Disbursing Agent. The undersigned, by executing and delivering this Counterpart, hereby acknowledges and agrees (a) that upon acceptance of this Counterpart by Administrative Agent it shall become party to the Intercreditor Agreement as a "Term Loan Lender" in accordance with the terms thereof and shall have the rights and obligations of a Term Loan Lender under the Intercreditor Agreement, (b) that it shall be bound by all of the terms of the Intercreditor Agreement as a Term Loan Lender, and (c) that this Counterpart may be attached to the Intercreditor Agreement. The undersigned hereby further agrees that the address and facsimile number of the undersigned for notice purposes pursuant to Section 7.1(a) of the Intercreditor Agreement shall be initially as set forth below. [NAME OF TERM LOAN LENDER] By: ----------------------------- Name: Title: Notice Address: A-2-1 EX-10.4.A 15 y95330exv10w4wa.txt EMPLOYMENT STATUS AND CONSULTING AGREEMENT Exhibit 10.4(a) EMPLOYMENT STATUS AND CONSULTING AGREEMENT This EMPLOYMENT STATUS AND CONSULTING AGREEMENT (the "Agreement") is entered into as of this 5th day of November, 2003 by and between Covanta Energy Corporation, a Delaware corporation (together with all its subsidiaries, the "Company"), and Scott Mackin (the "Executive"). WITNESSETH: WHEREAS, the Company filed on September 8, 2003 a draft Plan of Reorganization and related documents, stating its intention to: (i) separate the international component of the Company's independent power production businesses into a separate business, Covanta Power International Holdings, Inc. ("CPIH") for financial purposes; (ii) sell its geothermal assets in order to provide liquidity for the Company's exit from bankruptcy; and (iii) further streamline its domestic operations, primarily to be comprised of the waste-to-energy business, thereby reducing costs wherever not directly applicable to the on-going operations of the Company following emergence from bankruptcy; and WHEREAS, Executive, having been employed by the Company in excess of seventeen years, has acquired an extensive background in the waste-to-energy business through, among other things, the negotiation of the numerous contracts underlying the Company's waste-to-energy business, the development of extensive relationships with the Company's client communities and in the waste-to-energy business generally and the assembly of the Company's current management team which is responsible for managing the Company's core waste-to-energy business; and WHEREAS, the Company has determined that the Executive's role and position should be changed such that (a) Executive will resign as President and Chief Executive Officer ("CEO") of the Company, (b) Executive will remain a member of the Board of Directors of the Company ("Board Member") until the effective date (the "Effective Date") of the Company's Plan of Reorganization (the "Plan," which term shall include any amendments and any subsequent Plan of Reorganization filed with and approved by the Bankruptcy Court in connection with the Company's ongoing bankruptcy proceedings), (c) the Executive will be retained as a consultant to the Company for a period ending on the second anniversary of his resignation so that the Company may be strengthened through continued exposure to the critical knowledge and insight of the waste-to-energy business that the Executive possesses, and (d) Executive will further agree to the extensive non-competition and non-solicitation restrictions outlined herein, and the Executive desires to serve in such capacities, and agree to such restrictions, on the terms and conditions set forth herein; and NOW, THEREFORE, in consideration of the premises and the mutual covenants and promises contained herein and for other good and valuable consideration, the Company and the Executive hereby agree as follows: 1. Term, Position and Responsibilities. (a) Term of Services. Upon the date that each of (i) approval of this Agreement by the court of competent jurisdiction, (ii) execution hereof by both parties hereto, and (iii) payment of all amounts to Executive set forth in paragraphs 2(a) and 4(c) below (such date, the "Resignation Date"), Executive shall resign as CEO of the Company, and the Company shall thereafter immediately be deemed to have accepted such resignation and shall engage the Executive as a consultant to the Company for a term ending on the second anniversary of the Resignation Date (the "Expiration Date" such consulting service period being referred to herein as the "Services Period"), on the terms and subject to the conditions of this Agreement. The Executive shall remain a member of the Board of Directors of the Company until the Effective Date. In the event that the Company terminates the Executive's engagement as a Consultant prior to the Expiration Date for any reason "Without Cause" (as defined in the Covanta Energy Corporation Key Employee Severance Plan, which defined term is incorporated herein, except that a termination due to the Executive's death or disability shall be considered "Without Cause") or if the Company removes Executive as a member of the Board of Directors prior to the Effective Date for any reason Without Cause, Executive will be entitled to receive as of the date of termination all of the unpaid compensation (set forth in Section 2 below), the employee benefits and perquisites (set forth in Section 3 below) and the benefits from the other agreements (set forth in Section 4 below), in the amounts and to the same extent as if such termination had not occurred. It is hereby agreed that the Executive's resignation pursuant to this agreement shall be an "Eligible Termination of Employment" as defined in the Covanta Energy Corporation Key Employee Severance Plan and a "resignation for Mutual Benefit" within the meaning of the Covanta Energy Corporation Long-Term Incentive Plan, but that his continued service as Board Member shall continue his qualification under the Covanta Energy Corporation Key Employee Retention Bonus Plan. It is also agreed that neither Executive's role as Board Member nor the Executive's engagement as consultant, nor both taken together, constitutes a reemployment of the Executive triggering the "Clawback" Requirement contained in Section 7(b) of the Long-Term Incentive Plan. Notwithstanding anything herein to the contrary, on and after the Effective Date, Executive's sole relationship with the Company shall be as consultant, subject to the terms and conditions hereof. (b) Position and Responsibilities. The Executive shall continue to serve as Board Member of the Company and its affiliates (collectively, the "Company Group") until the Effective Date and as consultant to the Company with respect to the waste-to-energy business during the Services Period. During the Services Period, the Executive shall have the duties and responsibilities that are customarily assigned to individuals serving in such position or positions as he may then hold and such other duties and responsibilities directly relating to his consulting service as the Board specifies from time to time including, without limitation, prior to the Effective Date, taking all steps necessary and desirable to achieve the most expeditious and beneficial recovery for creditors, with respect to the entire Services Period, providing, as the Company may from time to time reasonably request, consulting services to the Company regarding its waste-to-energy business with respect to all relevant matters within his knowledge and interacting on behalf of the Company with client communities in order to maintain and further develop positive relations with such client communities. During the Services Period, the Executive shall comply with all policies and procedures of the Company. 2. Compensation. (a) Board Member and Consulting Fee. For the services to be performed by the Executive during the Services Period and expressly in consideration of the covenants contained in Section 6, (i) Executive shall continue to qualify as a Tier I Employee under the Covanta Energy Group Key Employee Retention Bonus Plan and (ii) the Company shall pay to the Executive, in cash, a sum of $1,750,000 (the "Consulting Fee"), of which amount $1,000,000 shall be payable no later than the Resignation Date and the remaining amount of the Consulting Fee (i.e. $750,000) shall be payable pursuant to section 4(e) hereof. 3. Benefits. (a) Participation in Employee Benefit Plans. During the Services Period, other than as explicitly provided in this Agreement, the Executive shall not be eligible to participate in any of the employee benefit plans and programs maintained by the Company Group. Page 2 (b) SERP Benefit. On the Expiration Date, the Company shall pay to the Executive, in a lump sum, his vested benefits under the Supplementary Benefit Plan of Ogden Projects, Inc., in an amount determined as of October 31, 2003. (c) Medical, Dental and Life Insurance Benefits. For the period commencing on the Resignation Date and ending on the fourth anniversary thereof, the Executive (as well as his eligible dependents) shall continue to be eligible to receive family coverage pursuant to the medical, dental and life insurance benefit programs maintained by the Company Group from time to time for the Company's executives, in accordance with the terms and conditions thereof as in effect from time to time; provided that the Executive will be considered an executive of the Company for purposes of determining eligibility under such programs. (d) Business Expenses. During the Services Period, the Company shall reimburse the Executive for all reasonable, ordinary and necessary expenses incurred by the Executive in the performance of the Executive's duties hereunder, provided that the Executive accounts to the Company for such expenses in a manner reasonably prescribed by the Company. (e) Outplacement Services. At the Executive's request, the Company shall provide the Executive outplacement services selected by the Executive in an amount reasonable and customary for executives of a rank and status similar to the Executive. (f) Director and Officer Insurance. The Company jointly and severally agree to continue to maintain at no expense to Executive directors' and officers' liability and fiduciary insurance covering the Executive, to the extent commercially available on the same basis and terms as the Company provides for its active executives and directors (including so called "Side A: Executive Liability Coverage"), until such time as suits against the Executive with respect to his employment with, or services as a director to, the Company are no longer permitted by law, with such period not to exceed more than six years from the Effective Date. Such policy shall provide notice from the insurer to Executive if insurer intends to cancel or not renew said policy. 4. Other Agreements. (a) 2003 Annual Bonus. With respect to calendar year 2003, the Company shall pay to the Executive the incentive bonus for which Executive was entitled as if the Executive served as CEO for the full year 2003, based upon the Company's Annual Incentive Program, at a 100% target, on the date on which the Company pays annual bonuses to its other executives. (b) Retention Bonus. So long as Executive continues ready and willing to serve as Board Member until the Effective Date, the Company shall pay to the Executive a cash retention payment equal to $156,646, payable on the Effective Date under the terms and conditions of the Company's Key Employee Retention Bonus Plan. (c) Severance Payment. The Company shall pay to the Executive on the Resignation Date severance of $1,287,500.00 in full settlement and satisfaction of the Executive and the Company's rights and obligations with respect to severance under the Company's Key Employee Severance Plan. (d) LTIP Award. The Company shall pay to the Executive on the Effective Date the amount of $2,055,000.00, calculated as of the date hereof as an Alternative Transaction, in full settlement and satisfaction of the Executive's and the Company's rights and obligations with respect to payments under the Company's Long-Term Incentive Plan. (e) Remaining Consulting Fee. For the services to be performed by the Executive during the Services Period and expressly in consideration of the Page 3 covenants contained in Section 6, the Company shall pay to the Executive on the Effective Date the balance of the Consulting Fee (i.e. $750,000). (f) Corporate Indemnities. The Company jointly and severally agree to provide the Executive indemnification rights to the greatest extent permitted by applicable law and at a level at least as favorable to that which the Executive is currently entitled including, without limitation, the indemnification rights to which the Executive is currently entitled under Section 20 of the Company's Certificate of Incorporation and the indemnification rights to which he is entitled by reason of his service as a fiduciary, at the Company's request, to or with respect to any current or contemplated employee benefit plan of the Company. (g) No Other Benefits. Except as specifically set forth in this Section 4, the Executive shall not be entitled to receive any payments or benefits under any such plan, policy, program or practice providing any bonus or incentive compensation or severance compensation or benefits (and the provisions of this Section 4 shall supersede the provisions of any such plan, policy, program or practice), except that Executive shall remain fully entitled to any vested benefits under any tax-qualified plans maintained or contributed to by the Company Group or Section 4980B of the Code, the Covanta Energy Pension Plan and the Covanta Energy Savings Plan and shall receive on the Resignation Date his vested benefits under the Covanta Energy Select Plan. 5. Confidential Information/Intellectual Property/Cooperation/NonDisparagement. (a) Confidential Information. Executive agrees that, except otherwise permitted or directed by the Company, he will not appropriate for his own use, disclose, divulge, furnish or make available to any person any confidential or proprietary information concerning the Company Group, including without limitation any confidential or proprietary information concerning the operations, plans or methods of doing business of the Company Group (the "Information"); provided, that the term "Information" shall not include such information which is or becomes generally available to the public other than as a result of unauthorized or improper disclosure by the Executive. Notwithstanding the foregoing, the Executive may disclose Information to the extent he is compelled to do so by lawful service of process, subpoena, court order, or as he is otherwise compelled to do by law or the rules or regulations of any regulatory body to which he is subject, including full and complete disclosure in response thereto, in which event he agrees to provide the Company with a copy of the documents seeking disclosure of such information promptly upon receipt of such documents and prior to their disclosure of any such information, so that the Company may, upon notice to the Executive, take such action as the Company deems appropriate in relation to such subpoena or request and the Executive may not disclose any such information until the Company has had the opportunity to take such action. (b) Intellectual Property. Executive agrees that all right, title and interest to all works of whatever nature generated in the course of his employment with the Company Group resides with the Company Group. The Executive agrees that he will return to the Company, not later than the Expiration Date, all property, in whatever form (including computer files and other electronic data), of the Company Group in his possession, including without limitation, all copies (in whatever form) of all files or other information pertaining to the Company Group, its officers, directors, shareholders or customers, and any business or business opportunity of the Company Group. (c) Cooperation. The Executive agrees to reasonably cooperate (including attending meetings) with respect to any claim, arbitral hearing, lawsuit, action or governmental or internal investigation relating to the business of the Company Group prior to the Expiration Date. The Executive agrees to provide full and complete disclosure in response to any inquiry in connection Page 4 with any such matters. The Company agrees to reimburse the Executive for his reasonable expenses incurred in connection with such cooperation. (d) Non-Disparagement. The Executive shall not intentionally make any public statements, encourage others to make statements or release information intended to disparage or defame the Company Group or any of its directors or officers. The Company shall cause its senior executives not to intentionally make, or cause or encourage others to make, any public statements or release information intended to disparage or defame the Executive's reputation. Notwithstanding the foregoing, nothing in this Section 5(e) shall prohibit any person from making truthful statements when required by order of a court or other body having jurisdiction or as required by law. 6. Covenant Not to Compete/Non-Solicitation. (a) So long as the Company is not in default of a material obligation hereunder, the Executive agrees not to engage in any aspect of the Company Business (as hereinafter defined) other than as a consultant to the Company prior to the third anniversary of the Resignation Date (the "Restricted Period"). (b) The Executive shall be deemed to be engaging in Company Business if he: (i) directly or indirectly, whether or not for compensation, participates in the ownership, management, operation or control of any Competitor (as hereinafter defined) or is employed by or performs consulting services for any Competitor; (ii) directly or indirectly, whether or not for compensation, is employed by or performs consulting services for any client communities of a Company Business other than as contemplated herein; (iii) offers employment to any employee of the Company Group or attempts to solicit or hire or assist any other person or entity in soliciting or hiring any such employee to leave or cease their employment relationship with the Company Group for any reason whatsoever. (c) For purposes of this Section 6: (i) "Company Business" shall mean the development, design, construction, ownership and/or operation of waste-to-energy facilities and the operation of existing water facilities (including, without limitation, treatment, purification, collection, and/or distribution of water and wastewater) in the domestic United States. (ii) A "Competitor" is any corporation, firm, partnership, proprietorship or other entity that engages in any Company Business. 7. Company Property. The Executive hereby agrees to return to the Company and to cease using any property of the Company Group, including without limitation, security key cards, corporate credit cards, telephone calling cards or home office equipment provided by the Company Group and to return such property no later than the Expiration Date. Page 5 8. Reasonableness. The Executive acknowledges that the restrictions set forth in this Agreement are necessary to prevent the use and disclosure of Information and to otherwise protect the legitimate business interests of the Company Group. The Executive further acknowledges that all of the restrictions in this Agreement are reasonable in all respects, including without limitation duration, territory and scope of activity. The Executive agrees that the existence of any claim or cause of action by him against the Company Group, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and restrictions set forth in this Agreement, except the covenants and restrictions set forth in Section 6 above, as provided in Section 6(a). Furthermore, Executive acknowledges the significant sums to be paid hereunder for agreeing to and complying with such restrictions. 9. Irreparable Harm; Injunctive Relief. The parties hereto hereby declare that it is impossible to measure in money the damages that will accrue to the Company Group in the event that the Executive breaches any of the restrictive covenants provided in Sections 5 and 6 of this Agreement. In the event that the Executive breaches any such restrictive covenant, the Company shall be entitled to an injunction, a restraining order or such other equitable relief, including, but not limited to, specific performance (without the requirement to post bond) restraining such Executive from violating such restrictive covenant. If the Company shall institute any action or proceeding to enforce the restrictive covenant, such Executive hereby waives the claim or defense that the Company has an adequate remedy at law and agrees not to assert in any such action or proceeding the claim or defense that the Company has an adequate remedy at law. The foregoing shall not prejudice the Company's right to require such Executive to account for and pay over to the Company, and such Executive hereby agrees to account for and pay over, the compensation, earnings, profits, monies, accruals or other benefits derived or received by such Executive as a result of any transaction constituting a breach of any of the restrictive covenants provided in Sections 5 and 6 of this Agreement, and the parties hereby agree that the Company shall be entitled to an equitable accounting of all such compensation, earnings, profits, monies, accruals and other benefits. The parties hereby agree that the Restricted Period shall be extended by any period during which the Employee is found to be in violation of, or to have violated, Section 6 of this Agreement. 10. Court's Right to Modify Restrictions. The parties acknowledge and agree that (i) each of the restrictive covenants contained in Sections 5 and 6 of this Agreement shall be construed as a separate covenant with respect to each geographic area and each activity to which it applies, (ii) if, in any judicial proceeding, a court shall deem any of the restrictive covenants invalid, illegal or unenforceable because its scope is considered excessive, such restrictive covenant shall be modified so that the scope of the restrictive covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable, and (iii) if any restrictive covenant (or portion thereof) is deemed invalid, illegal or unenforceable in any jurisdiction, as to that jurisdiction such restrictive covenant (or portion thereof) shall be ineffective to the extent of such invalidity, illegality or unenforceability, without affecting in any way the remaining restrictive covenants (or portion thereof) in such jurisdiction or rendering that or any other restrictive covenant (or portion thereof) invalid, illegal, or unenforceable in any other jurisdiction. 11. Mutual Release of Claims. Notwithstanding anything in this Agreement to the contrary, upon the Effective Date, as a condition to the receipt of the payments and benefits described herein and the provision of consulting services pursuant hereto, the parties shall each be required to execute a Mutual Release of Claims Agreement in the form attached hereto as Exhibit A and such Mutual Release of Claims Page 6 Agreement shall have become effective and irrevocable in accordance with its terms. 12. Miscellaneous. (a) Integration. This Agreement constitutes the entire understanding of the Company and the Executive with respect to the subject matter hereof and supersedes all prior understandings, written or oral, including without limitation the Employment Agreement between the Executive and the Company dated as of October 1, 1998 and as amended November 26, 2001 (these were employment, not consulting agreements). A failure of the Company or the Executive to insist on strict compliance with any provision of this Agreement shall not be deemed a waiver of such provision or any other provision hereof. In the event that any provision of this Agreement is determined to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. (b) Binding Effect; Assignment, This Agreement shall be binding on and inure to the benefit of the Company and its successors and permitted assigns. This Agreement shall also be binding on and inure to the benefit of Executive and his heirs, executors, administrators and legal representatives. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties hereto, except as provided pursuant to this Section 12(b). The Company may effect such an assignment without prior written approval of the Executive upon the transfer of all or substantially all of its business and/or assets (by whatever means). (c) Choice of Law. This Agreement shall be construed, enforced and interpreted in accordance with and governed by the laws of the State of New Jersey, without regard to its choice of law provisions. (d) Successor. The rights and obligations of the Company under this Agreement shall be binding on and inure to the benefit of the Company, its successors and assigns. (e) Taxes. The Company may withhold from any payments made under this Agreement all applicable taxes, including but not limited to income, employment and social insurance taxes, as shall be required by law. (f) Modification. This Agreement may only be modified, amended or revised by a writing signed by both parties and approved by the bankruptcy court so long as such court has jurisdiction over this Agreement and the matters herein. (g) Severability. It is the intent of the parties that the provisions of this Agreement be enforced to the fullest extent permissible under applicable law. If any provision of this Agreement shall be adjudged by any court of competent jurisdiction to be invalid or unenforceable, such judgment shall not invalidate any other provision of this Agreement. The parties agree that if a court of competent jurisdiction adjudges any provision of this Agreement to be invalid or unenforceable, such court shall modify such provision so that it is enforceable to the extent permitted by applicable law and consistent with the parties' intent. (h) Notices. Any notice or other communication required or permitted to be delivered under this Agreement shall be (i) in writing, (ii) delivered personally, by courier service or by certified or registered mail, first-class postage prepaid and return receipt requested, (iii) deemed to have been received on the date of delivery or, if so mailed, on the third business day after the mailing thereof, and (iv) addressed as follows (or to such other address as the party entitled to notice shall hereafter designate in accordance with the terms hereof): Page 7 (i) If to the Company, to it at: General Counsel Covanta Energy Corporation 40 Lane Road Fairfield, NJ 07007 (ii) if to Executive, to him at his residential address as currently on file with the Company. Copies of any notices or other communications given under this Agreement shall also be given to: Cleary, Gottlieb, Steen & Hamilton One Liberty Plaza New York, New York 10006 Attention: A. Richard Susko, Esq. (i) Counterparts. This Agreement may be executed in any number of counterparts and by different parties on separate counterparts, each of which counterpart, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same Agreement. (j) Headings. The headings in this Agreement are included for convenience only and shall not constitute a part of this Agreement nor shall they affect its meaning, construction or effect. (k) Opportunity for Review. The Executive agrees and acknowledges that his execution of this Agreement is completely voluntary and that he has been advised to consult with an attorney prior to executing this Agreement to ensure that he fully and thoroughly understands its legal significance. IN WITNESS WHEREOF, the Company has duly executed this Agreement by its authorized representatives and Executive has hereunto set his hand, in each case effective as of the date first above written. COVANTA ENERGY CORPORATION By: /s/ Jeff Horowitz ------------------------------------- Name: Scott Mackin EXECUTIVE: /s/ Scott Mackin ------------------------------------- Name: Scott Mackin Page 8 EX-10.4.B 16 y95330exv10w4wb.txt AGREEMENT January 6, 2004 Bruce W. Stone 10 Old Jackson Avenue, #41 Hastings on Hudson, NY 10706 Dear Bruce: This will confirm your Separation from COVANTA ENERGY CORPORATION (herein the "Company") effective as of January 31, 2004 (hereafter the "Separation Date"). This letter agreement (the "Agreement and Release") describes your existing rights and obligations relating to your departure from the Company and offers you certain additional benefits. 1. Although you will no longer be employed by the Company after the Separation Date, certain of your obligations to the Company will continue. Those obligations are in addition to and not a limitation upon your confidentiality obligations under your Employee Confidential Disclosure Agreement dated May 22, 1987. To ensure that you are aware of your important obligations under the Employee Confidential Agreement, a copy is attached. If you receive a subpoena or other request for information, you agree to immediately notify COVANTA Energy Corporation's General Counsel. 2. Prior to the Separation Date, you must turn over to the Company, all documents, records and property including but not limited to computers, computer equipment, credit cards, keys, manuals, notebooks and all other data relating to the Company or any of its direct or indirect subsidiaries (each, a "COVANTA Company" and collectively, the "COVANTA Companies") in your possession or custody or under your control belonging to or in any way relating to the business of the Company, or any of the other COVANTA Companies or any of their respective customers. 3. Contingent upon the continued and faithful performance of your obligations as described herein and in consideration for the waiver/release described in this Agreement and Release, we agree to pay you the gross amount of $487,500 (such gross amount, hereafter the "Cash Separation Payment" and, together with the subsidized continuation of your group medical and dental insurance coverage described under Section 6 hereinafter the "Separation Payments") minus normal payroll taxes and normal deductions relating to benefits paid in the next payroll cycle after the expiration of the Revocation Period referred to in the Agreement. The Cash Separation Payment represents 78 weeks of base pay and will be paid pursuant to the terms and conditions of the COVANTA Energy Corporation Key Employee Severance Pay Plan (the "Plan"). In addition, as a participant in the COVANTA Energy Corporation Special Retention Bonus Plan (the "Retention Plan"), you will be entitled to a pro rata portion of your third installment 1 (the "Retention Bonus Award), payable at the time of the Company's emergence from bankruptcy, minus normal payroll taxes, in accordance with the terms of the Retention Plan. Finally, as a participant in the COVANTA Energy Corporation Long-Term Incentive Plan (the "LTIP"), on and subject to the terms and conditions of the LTIP, you will be entitled to an LTIP Award (as defined in the LTIP) as, to the extent, in the amount and at the time provided under the terms and conditions of the LTIP. In the event of your death before all the payments provided for in any of the preceding paragraphs of this Section 3 have been made to you, any amounts still due you will be paid to your estate. You hereby acknowledge and agree that, pursuant to the terms and conditions of the Plan, your right to receive any Separation Payments and the Company's obligation to pay or provide any Separation Payments to you is conditioned upon your execution and delivery of this Agreement and Release on or after your Separation Date, including, without limitation, the release of claims contained in Section 12 (the "Release"), and your refraining from revoking the Release as permitted in Section 18 herein. If you execute this Agreement and Release prior to your Separation Date, this Agreement and Release shall not be binding upon the Company and shall have no legal effect. 4. You agree that, during the period you are providing consulting services to any Covanta Company pursuant to the Consulting Agreement between you and the Company, dated as of March __, 2004, you shall not, directly or indirectly, for your own account or for the account of any individual, person, firm or other entity, (i) solicit for employment, employ or otherwise interfere with the employment relationship of any COVANTA Company with any natural person who is or was (at any time within the six month period immediately preceding any such solicitation, employment or other interference) employed by or otherwise engaged to perform services for any COVANTA Company, or (ii) solicit or otherwise attempt to establish any business relationship of a nature that is competitive with the business or relationship of any COVANTA Company with any individual, person, firm or other entity which is or was (at any time within the 12 month period immediately preceding such solicitation or other attempt) a customer, client or distributor of any Covanta Company. You further agree that you will be available to consult with us at reasonable times upon reasonable notice so long as such consultation does not unreasonably interfere with any other employment in which you may then be engaged. 5. While you may not be precluded from applying for and receiving state unemployment compensation benefits, if you do receive any such benefits for any of the 78 weeks immediately following your Separation Date (e.g., the weeks for which you are receiving Cash Separation Payments), you must promptly pay to the Company the aggregate amount of state unemployment compensation benefits received by you for any such weeks. 6. Any group accident insurance, short-term disability insurance, life insurance or long-term disability insurance coverage you have with the Company will terminate on the Separation Date. If enrolled, you may continue, decrease or stop contributions to your Health Care Account. Dependent Care Account contributions must be discontinued due to IRS regulations. Contact Sue Ryan at (973) 882-7140 for more information. 2 Under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA"), you may continue your group medical and dental insurance provided you timely elect continuation of such coverage. For the eighteen month period following your Separation Date or until the end of the month after the month in which you are offered or become eligible for such insurance coverage from a subsequent employer, whichever occurs first, the Company will pay the same portion of the cost of the medical and dental insurance elected under COBRA as it would if you remained an active employee of the Company, subject to your timely payment to the Company of all contributions, premiums, co-payments and deductibles required to be paid by active employees who participate in any such insurance plan. If you are still eligible for medical and dental insurance coverage under COBRA when the Company's obligation under this Section 6 to subsidize the cost of group medical and dental insurance you elected ends, you may continue such coverage in accordance with COBRA by paying the full COBRA premium. Coverage during the subsidized period under this Section 6 does not extend the period of coverage under COBRA. The Separation Date is the date of the "qualifying event" for COBRA purposes. CobraServ will send you information as it relates to the status of your benefits. If you have any have questions, you can contact Customer Service at (800) 877-7994. 7. If your rights under the Covanta Energy Pension Plan have vested, you will receive a letter containing an estimate of benefits payable and a description of the steps necessary to collect these benefits. If you are a participant in the Resource Recovery Pension Plan, you will receive an information package describing your distribution options in accordance with the Plan. If you are a participant in the Resource Recovery Senior Management Pension Plan, you will automatically receive a distribution (shortly after your Separation Date) in accordance with the election on file. 8. If enrolled in the Covanta Energy Savings Plan or the Power Savings Plan you may receive distribution of your account balance following your Separation Date by contacting T. Rowe Price at (800) 922-9945. If you are a participant in the Ogden Projects Profit Sharing Plan, you will receive an information package describing your distribution options. If your account balance in any of the Plans listed in this section is less than $5,000, your balance will be distributed to you automatically. 9. Any unused vacation pay accrued up through the Separation Date will be paid to you shortly after that date. Any personal advances due the Company or outstanding business-related expenses will be deducted from the cash amounts otherwise due you hereunder. 10. All payments being made to you under this Agreement and Release will be subject to withholding for federal income taxes and, where applicable, to withholding for Social Security, unemployment compensation and State, County and City taxes. 11. You acknowledge and agree that the contents of this Agreement and Release and all communications, oral or written, concerning or referred to in this Agreement and Release are confidential and that you may not disclose them to any third party except your immediate family, your financial advisor and attorney, and appropriate governmental agencies which may require this information. 12. By executing this Agreement and Release, you hereby, on your own behalf and on behalf of your agents, representatives, assigns, heirs, executors and administrators (collectively, the 3 "Employee Releasors") hereby fully and unconditionally release, remise, acquit and forever discharge each of the COVANTA Companies and each of their respective officers, directors, shareholders, members, agents, employees, consultants, independent contractors, attorneys, advisors, successors and assigns (collectively, the "COVANTA Releasees"), jointly and severally, from any and all claims, causes of action, charges, complaints, demands, costs, rights, losses, damages and other liability whatsoever, known or unknown (collectively, the "Claims"), which you have or may have against any COVANTA Releasee arising on or prior to the date you execute this Release, including but not limited to, Claims in respect of your employment with, or termination of employment from, any and all of the COVANTA Companies or your relationship with any of the COVANTA Companies, claims under any employment agreement with any Covanta Company, dismissal, redundancy, wrongful termination, breach of contract, fraud, deceit, negligence, misrepresentation, defamation, Disability, discrimination of any type, unlawful deduction from wages, breach of rights or entitlements under the United States Age Discrimination in Employment Act, the United States Americans with Disabilities Act of 1990, the United States Family and Medical Leave Act of 1993, Title VII of the United States Civil Rights Act of 1964, 42 U.S.C. Section 1981, the laws of the state of New Jersey, the laws of the United States, and any workers' compensation or disability claims or any other federal, state, local, common or other law, other than the Excluded Claims (as defined below). You further agree that you will not file or permit to be filed on your behalf any such Claim. Notwithstanding the preceding sentence or any other provision of this Agreement and Release, this Agreement and Release is not intended to interfere with your right to file a charge with the Equal Employment Opportunity Commission (the "EEOC") in connection with any Claim you believe you may have against any of the COVANTA Companies. However, by executing this Agreement and Release, you hereby waive the right to recover in any proceeding you may bring before the EEOC or any state human rights commission or in any proceeding brought by the EEOC or any state human rights commission on your behalf. Notwithstanding the preceding two sentences or any other provision hereof, this Release is for any relief, no matter how denominated, including, but not limited to, injunctive relief, wages, back pay, front pay, compensatory damages, and punitive damages. For purposes of this Agreement and Release, the term "Excluded Claims" shall mean claims to enforce any of your rights under or pursuant to this Agreement and Release or the LTIP and, with respect to your employment with a COVANTA Company prior to the Separation Date, claims for benefits accrued by and payable to you under the terms and conditions of any employee benefit plan of a COVANTA Company in which you were a participant prior to your Separation Date and which remain due and payable in accordance with the terms of such plan, as in effect from time to time; and claims for indemnification under indemnification agreements, COVANTA's Certificate of Incorporation or By-Laws or applicable law for actions taken while an employee of any COVANTA Company. You hereby acknowledge that the Separation Payments that you are receiving in connection with this Release are in addition to anything of value to which you are already entitled from the Company or any other COVANTA Releasee. 13. You recognize that the monies and benefits set forth in this Agreement and Release constitute consideration for this Release and you agree that you will not seek anything further from any COVANTA Releasees. You recognize that you are bound by this Agreement and Release and that anyone who succeeds to your rights and responsibilities, such as your heirs or the executor of your estate, is also bound. This Agreement and Release is made for the benefit of the COVANTA Releasees, including the individuals and 4 entities collectively described herein, as well as all who succeed to their rights and responsibilities, such as the successors and assigns of the corporate entities, and the heirs and executors of the estates of the individuals collectively referred to herein as Releases. 14. You agree not to make any derogatory, negative or defamatory statements in public or private regarding any COVANTA Company or any or their respective officers, directors or other key employees. The Company shall use its reasonable best efforts to cause its officers, directors and other key employees not to intentionally make any public statements intended to disparage or defame your reputation. Notwithstanding the foregoing, nothing contained in this paragraph shall prohibit any person from making truthful statements to the extent required by order of a court or in connection with a bona fide hearing, investigation or inquiry conducted by a court or other governmental body having jurisdiction or otherwise required by law. 15. You are strongly encouraged to consult an attorney regarding this Agreement and Release. 16. You hereby acknowledge that you are entering into this Agreement and Release voluntarily and, by your act of signing below, you agree to all of the terms and conditions of this Agreement and Release and intend to be legally bound thereby. 17. Acknowledgement of Your Rights to Consider and Revoke this Release; Effective Date of Release. (a) You understand, agree and acknowledge that: - you have been advised and encouraged by the Company to have this Agreement and Release reviewed by legal counsel of your own choosing and you have been given ample time to do so prior to signing this Agreement and Release; - you have been provided at least forty-five (45) days to consider this Agreement and Release and to decide whether to agree to the terms contained herein and you have been given the information required to be delivered pursuant to 29 USC Section 626(f)(1)(H), including information as to the class, unit or group of individuals whose employment is being terminated on the same terms and pursuant to the same employee reduction program as you, the eligibility terms and time limits applicable under such program and a list of the job titles and ages of all individuals eligible to participate in such program and the ages of all individuals having the same job classification but who are not eligible to participate in such program; - you have the right to revoke the Release contained in this Agreement and Release during the seven (7) day period following the date you sign this Agreement and Release (such 7 day period, the "Revocation Period") by giving written notice of such revocation to the Administrator, Stephen M. Gansler, Senior Vice President of Human Resources at 40 Lane Road CN-2615, Fairfield, NJ 07004 on or prior to the seventh day after the date you sign this Agreement and Release and if you exercise your right to revoke this Release, you will forfeit your right to receive any of the Separation Payments; 5 - the Separation Payments provided herein will not be paid to you until at least eight (8) days after you sign this Agreement and Release and will be paid only if you do not revoke the Release contained in this Agreement and Release pursuant to the paragraph above; and - by signing this Agreement and Release, you represent that you fully understand the terms and conditions of this Agreement and Release and you intend to be legally bound by them. You agree that this Agreement shall be interpreted and enforced under the laws of the State of New Jersey and that any controversy arising out of or relating to this Agreement and Release shall be governed by the Laws of the State of New Jersey. Any disputes between the parties relating to this Agreement and Release shall be determined in a court sitting in New Jersey. This Agreement and Release, together with the LTIP, represent the entire agreement between you and the Company concerning this matter. This Agreement and Release can be modified only in writing signed by both you and the Company. Any promises or representations, either oral or written, that are not contained in this Agreement and Release or the LTIP are not valid or binding upon the Releasees. 6 If any provision of this Agreement and Release, or the application of such provision to any person or circumstances, shall be held invalid or unenforceable, the remaining provisions of this Agreement and Release, and the application of such provision to persons or circumstances other than those to which it is held invalid or unenforceable, shall not be affected. You may formally accept the terms of this Agreement and Release by signing below on or after your Separation Date and then returning it to me. The enclosed duplicate may be retained by you. Very truly yours, COVANTA ENERGY CORPORATION By: ------------------------- Stephen M. Gansler Senior Vice President Enclosures I acknowledge that I have read, understand and agree to all the terms of this Agreement and Release and further acknowledge that I have had the opportunity to review it with an attorney and that I have signed this Agreement and Release on or after my Separation Date. Dated: _____________ By: -------------------------- Bruce W. Stone Sworn to and subscribed before me this ___ day of ________, 2004 ____________________________________ [Name of Notary Public] Notary Public of ___________________ My Commission Expires ______________ 7 EX-10.5.A 17 y95330exv10w5wa.txt TAX SHARING AGREEMENT TAX SHARING AGREEMENT THIS TAX SHARING AGREEMENT (this "AGREEMENT") is dated as of [MARCH 8, 2004] by and between Danielson Holding Corporation, a Delaware corporation (hereinafter referred to as "PARENT"), Covanta Energy Corp. ("COVANTA"), a Delaware corporation and, solely for purposes of Section 6 of this Agreement, Covanta Power International Holdings, Inc., a Delaware Corporation ("COVANTA INTERNATIONAL"). WITNESSETH WHEREAS, Parent is the common parent corporation of an "affiliated group" of corporations (as it may be constituted from time to time, the "AFFILIATED GROUP"), as defined in Section 1504 of the Internal Revenue Code of 1986, as amended (the "CODE"); and WHEREAS, Parent will file a U.S. consolidated federal income tax return on behalf of the Affiliated Group for the taxable year ending December 31, 2004, and generally will be required to file consolidated federal income tax returns for subsequent years, which will, beginning on [MARCH 9, 2004 (ONE DAY AFTER THE CLOSING DATE)], include Covanta and all of its current and future subsidiaries that would be treated as members of an affiliated group of corporations, as defined in Section 1504(a) of the Code, for which Covanta would be the common parent corporation if Covanta and such subsidiaries were not members of the Affiliated Group (each of such subsidiary and Covanta, a "SUBGROUP MEMBER," such affiliated group of Subgroup Members, "COVANTA SUBGROUP" as listed in Appendix A attached hereto); WHEREAS, Covanta International will not be a member of the Affiliated Group; and WHEREAS, it is the intent and desire of Parent and Covanta to enter into this Agreement, to provide, with respect to federal, state and local income taxes, for the amount and time of payments by Covanta to Parent and for the amount and time of payments by Parent to Covanta. NOW, THEREFORE, Parent and Covanta, intending to be legally bound hereby, and in consideration of the mutual covenants herein contained, agree as follows: 1. Consolidated Federal Return. A U.S. consolidated federal income tax return and estimated tax returns shall be prepared and filed by Parent for the taxable year ending December 31, 2004 (THE "2004 TAXABLE YEAR"), and for each subsequent taxable period in respect of which the Affiliated Group is required or permitted to file a consolidated federal income tax return. With respect to such tax return preparation, Parent shall act in good faith with regard to any and all Subgroup Members. All Subgroup Members shall cooperate with Parent in the preparation and filing of such tax return and shall provide such assistance and documents, without charge, as may be requested by 1 Parent for that purpose. Parent shall have the right with respect to any consolidated federal income tax returns to determine (a) the manner in which such returns, documents or statements shall be prepared and filed, including, without limitation, the manner in which any item of income, gain, loss, deduction or credit shall be reported, (b) whether any extensions should be requested, and (c) the elections that will be made by any Subgroup Member. In addition, Parent shall have the sole right to (x) contest, compromise, or settle any adjustments or deficiency proposed, asserted or assessed as a result of any audit of any consolidated tax return, (y) file, prosecute, compromise or settle any claim for refund, and (z) determine whether any refunds shall be received by way of refund or credited against tax liabilities. Each Subgroup Member and their respective counsel shall cooperate, to the extent reasonably practicable, in the contest or compromise of, or defense against any such suit, action or proceeding described above. Parent may, and shall cause Subgroup Members to, execute and file such consents, elections, and other documents as Parent determines are required or appropriate for the proper filing of such returns. 2. Allocation of Federal Tax Liability (a) Covanta agrees to pay to Parent, for each taxable year or portion thereof during the term of this Agreement, as the Covanta Subgroup's share of the tax liability of the Affiliated Group, an amount equal to the apportioned tax liability of the Covanta Subgroup determined under Regulation Section 1.1552-1(a)(1) with the modifications provided in Section 3 of this Agreement. For purposes of this Agreement, Covanta will be treated as the common parent corporation of the Covanta Subgroup. Accordingly, the Covanta Subgroup's proportionate share of the tax liability of the Affiliated Group shall be determined by multiplying the Affiliated Group's tax liability by a fraction, the numerator of which equals Covanta's Taxable Income (as defined below in Section 3), and the denominator of which equals the Affiliated Group's consolidated taxable income computed pursuant to Section 1552(a)(1) of the Code and Treasury Regulations Section 1.1552-1(a)(1). For purposes of this Agreement, tax liability shall include any liability for alternative minimum tax ("AMT"). The Covanta Subgroup shall compute its separate adjusted AMT in accordance with the principles of Proposed Treasury Regulations Sections 1.1552-1(g) and 1.1502-55(h)(6)(iv) as the excess (if any) of the AMT of the Affiliated Group over the AMT of the Affiliated Group as determined by excluding the Covanta Subgroup's income, gains, deductions and losses (with the modifications provided in Section 3 of this Agreement and assuming an AMT net operating loss as of the Closing Date of $556,399,000) and credits, and Covanta Subgroup's proportionate share of the AMT of the Affiliated Group shall be determined by multiplying the AMT of the Affiliated Group by a fraction, the numerator of which equals Covanta Subgroup's separate adjusted AMT and the denominator of which equals the sum of the separate adjusted AMT's of all members of the Affiliated Group (determined with the modifications provided in Section 3 of this Agreement and assuming an AMT net operating loss as of the Closing Date of $556,399,000); provided, however, Covanta shall pay Parent for any AMT liability actually incurred by Parent if such AMT liability would not have been incurred if in an earlier taxable year the Covanta Subgroup had computed its AMT liability under Section 55 et seq. of the Code (with the modifications provided in Section 3 of this Agreement and assuming an AMT net operating loss as of the Closing Date of $556,399,000) as if it had filed its own separate return as the common parent corporation of the Covanta Subgroup and had not been included in the U.S. consolidated federal 2 income tax return filed by Parent on behalf of the Affiliated Group, provided further however, that the amount of such payment shall not exceed the excess of the cumulative Covanta Subgroup separate adjusted AMT (as defined in Proposed Treasury Regulations Section 1.1502-55(h)(6)(iv) with the modifications provided in Section 3 of this Agreement and assuming an AMT net operating loss as of the Closing Date of $556,399,000) over the sum of (A) the cumulative AMT amount the Covanta Subgroup has paid under this Section 2(a) of this Agreement and (B) any reduction in Parent's AMT liability resulting from the inclusion of the Covanta Subgroup in Parent's Affiliated Group. (b) The Covanta Subgroup's allocable share of the U.S. consolidated federal income tax liability of Parent for each year beginning with the 2004 Taxable Year, determined as provided in Section 2(a) above, shall be further apportioned among the Subgroup Members, other than Covanta Warren Energy Resources Co., LP ("WARREN"), Covanta Equity of Stanislaus, Inc. ("STANISLAUS"), Covanta Equity of Alexandria/Arlington, Inc. ("ALEXANDRIA"), Covanta Tampa Construction, Inc. ("TAMPA CONSTRUCTION"), and Covanta Tampa Bay, Inc. ("TAMPA BAY") (together, the "REMAINING DEBTORS") in a manner consistent with the allocation method provided in Section 2(a) above. The Tax Sharing Agreement between Covanta, Warren, Stanislaus and Alexandria dated as of [ ], the Tax Sharing Agreement between Covanta and Tampa Construction dated as of [ ] and the Tax Sharing Agreement between Covanta and Tampa Bay provide, with respect to federal, state and local income taxes, for the amount of payments by Covanta to the Remaining Debtors and for the amount of payments by the Remaining Debtors to Covanta. (c) Covanta's payment of such apportioned tax liability shall constitute a complete settlement of the federal income tax liability of all Subgroup Members for such taxable year, except as otherwise provided in Section 9 of this Agreement. Parent shall indemnify and hold harmless Covanta against any liability for federal income tax (including alternative minimum tax and additional amounts) relating to taxable years during the term of this Agreement (including any liability for taxes attributable to other corporations for which a Subgroup Member is liable under Regulation Section 1.1502-6) other than such apportioned tax liability. All computations under this Agreement shall be made on the basis that each Subgroup Member is a member of the Affiliated Group and that such group files a consolidated return. 3. Taxable Income. For purposes of this Agreement, "Covanta's Taxable Income" shall be Covanta's taxable income computed in accordance with Regulation Section 1.1552-1(a)(1)(ii) (and shall not be negative), except that the following modifications will apply: (i) Covanta's Taxable Income shall be computed in accordance with Regulation Section 1.1552-1(a)(1)(ii), assuming Covanta's separate taxable income is the amount that would be shown on the consolidated return for the Covanta Subgroup, had Covanta filed such return as the common parent corporation of the Covanta Subgroup; (ii) for purposes of applying Regulation Section 1.1552-1(a)(1)(ii)(a), for each Taxable Year (beginning the day after the Closing Date), (A) the portion of the consolidated net operating loss deduction attributable to Covanta shall be deemed to be increased by the 3 Adjustment Amount (as defined below) and (B) the net operating loss deduction attributable to other members of the Affiliated Group shall be accordingly reduced; (iii) the "ADJUSTMENT AMOUNT" shall be the lesser of (A) the excess of Covanta's taxable income (computed as if Covanta had filed a separate return as the common parent of the Covanta Subgroup) over the portion of the consolidated net operating loss deduction attributable solely to the Covanta Subgroup and actually available to be used by the Affiliated Group and (B) the excess of $571,846,000 over: the sum of (i) the cumulative Adjustment Amount for all prior periods (beginning after the Closing Date); (ii) the cumulative amount of the consolidated net operating loss deduction utilized by affiliates of the Parent listed in Appendix B attached hereto for all prior periods (beginning after the Closing Date); and (iii) the sum of any net operating losses that (x) expired unused for such prior periods (except to the extent such expiration resulted from a current-year loss of a Parent Affiliate (other than a Subgroup Member) being used to offset Covanta's taxable income(computed as if Covanta had filed a separate return as the common parent of the Covanta Subgroup)) and (y) that would have expired unused for all such prior periods had the Covanta Subgroup and the affiliates of Parent listed in Appendix B been the only members of the Affiliated Group with Parent. For purposes of this clause (iii), the amount of net operating loss and time of expiration is as set forth on Appendix C (as adjusted due to a change in law). 4. Limitations on Attribute Use. Notwithstanding anything in this Agreement to the contrary, if Covanta realizes an item of income or gain as a result of any disposition of any of its assets that is subject to Section 384 of the Code, the portion of tax liability attributable to such item shall be paid in full by Covanta; provided, however, the amount of such payment shall not exceed the tax liability of Parent for such taxable year. Any remaining tax liability of the Affiliated Group shall be allocated pursuant to this Agreement without taking into account such item of income or gain. 5. No Current Payments for Utilization of Net Operating Losses. Neither Covanta nor any other Subgroup Member shall have any liability to make payments to Parent or to any other member of the Affiliated Group for the utilization by the Covanta Subgroup of net operating losses deemed to be attributable to Covanta pursuant to Section 3(ii) of this Agreement. 4 6. Covanta International. If the Affiliated Group or any member of the Affiliated Group is liable for any federal, state, local or foreign tax liability generated by Covanta International, or would be liable but for the use of any Affiliated Group attributes or offsets, then Covanta International will pay to Parent, on an after-tax basis, the amount of any such liability. 7. Payment of Tax. (a) Each Subgroup Member shall pay to Covanta no later than 4 business days before the date on which the Affiliated Group's consolidated federal income tax return is required to be filed (taking account of any extensions thereof) such Subgroup Member's separate return tax liability determined as provided under Section 2(b) above plus its "Equitable Share" (as defined below) of any interest or penalties shown on the Affiliated Group's consolidated federal income tax return. Any payments made by the Remaining Debtors under this Agreement will be counted towards their obligations under the Tax Sharing Agreement between Covanta, Warren, Stanislaus and Alexandria dated as of [ ], the Tax Sharing Agreement between Covanta and Tampa Construction dated as of [ ] and the Tax Sharing Agreement between Covanta and Tampa Bay dated as of [ ]. (b) Covanta shall pay to Parent no later than 2 business days before the date on which the Affiliated Group's consolidated federal income tax return is required to be filed (taking account of any extensions thereof) Covanta Subgroup's separate return tax liability determined as provided under Section 2 and 3 above plus its "Equitable Share" (as defined below) of any interest or penalties shown on the Affiliated Group's consolidated federal income tax return. (c) To the extent that the interest and penalties shown on a return are directly related to items of income, deduction, credit, etc. of a particular "member" of the Affiliated Group as defined in Section 1504(a) of the Code (a "MEMBER"), or such Member's delay in providing information to Parent as provided in Section 1 above, such Member's Equitable Share of such interest and penalties is 100%. Section 3(ii) shall not apply for purposes of determining whether a consolidated net operating loss deduction is directly related to Covanta. Each Member's Equitable Share of any interest and penalties shown on the return that are not directly related to the items or delay of a particular Member (and so allocated to that particular Member) will be a ratable share of any such interest or penalties, determined by multiplying such interest or penalties by a fraction, the numerator of which equals the portion of the Affiliated Group's tax liability allocated to such Member determined as provided under Section 2 above (before interest or penalties) and the denominator of which equals the Affiliated Group's tax liability (before interest or penalties). 8. Estimated Tax Payments. (a) If the Affiliated Group is required to make estimated federal income tax payments (including payments due at the time any extension of time is sought for the filing of 5 the Affiliated Group's federal income tax return), Covanta shall, if requested by Parent, pay to Parent, no later than 2 business days before the date each estimated tax payment is to be made by Parent, that percentage of the estimated tax payment that equals the percentage which the estimated separate return tax liability of Covanta Subgroup bears to the sum of the Parties' estimated separate return tax liabilities for the taxable year computed as provided under Sections 2 and 3 above. Parent shall reasonably determine such estimates. If Covanta is required to make a payment to Parent for estimated taxes as provided in the preceding sentence, each Subgroup Member shall, if requested by Covanta, pay to Covanta, no later than 2 business days before the date Covanta is required to make a payment to Parent, that percentage of such payment that equals the percentage which the estimated separate return tax liability of such Subgroup Member bears to the Covanta Subgroup's estimated separate return tax liability for the taxable year computed as provided under Sections 2 and 3 above. (b) Any estimated tax payments made by Covanta to Parent and by any Subgroup Member to Covanta under this Section 8 with respect to any taxable year shall be applied to reduce the amount, if any, owed by Covanta and the Subgroup Member, as applicable, under Section 7 hereof with respect to such year. Any excess of such estimated payments by Covanta and the Subgroup Member, as applicable, over the amount described in Section 7 for such year shall be repaid by Parent to Covanta and by Covanta to the Subgroup Member, as applicable, no later than 10 business days after the date of filing of the consolidated federal tax return for such taxable year or, to the extent such excess represents all or a part of a tax refund to be received by the Affiliated Group, no later than 10 business days after the receipt of the refund. 9. Adjustments to Tax Liability. (a) If the consolidated federal tax liability is adjusted for any taxable period, whether pursuant to an amended return, a claim for refund, a tax audit by the Internal Revenue Service or some other reason, the liability of the Parties and each Subgroup Member shall be recomputed to give effect to such adjustments. In the case of a refund, Parent shall make payment to Covanta, and Covanta shall make a payment to each Subgroup Member, for its share of the refund determined in the same manner as in Section 2 above, within 10 business days after the refund is received by Parent or Covanta, as applicable. In the case of an increase in tax liability, (i) each Subgroup Member shall pay to Covanta its allocable share of such increased tax liability (including its Equitable Share of any interest and penalties) within 5 business days after receiving notice of such liability from Covanta, and (ii) Covanta shall pay to Parent the Covanta Subgroup's share of such increase (including Covanta Subgroup's Equitable Share of any interest and penalties) within 10 business days after receiving notice of such liability from Parent. The Members recognize that a recomputation of the consolidated tax liability for any taxable year under this Section 9 is not necessarily the final liability for such year, and such liability may be recomputed more than once. (b) Each Subgroup Member or any Covanta Tax Affiliate (as defined in the Investment and Purchase Agreement) shall be responsible for its tax liability relating to periods prior to (and including) the Closing Date. Thus, if the Affiliated Group pays any such tax resulting from any final determination or settlement with the IRS, or any other taxing authority, 6 or any court decision relating to a tax period prior to the Closing Date, then such Subgroup Member shall reimburse Parent the amount of any tax, interest, penalties or other costs resulting from such final determination, settlement, or court decision. 10. Parent's Obligations. Parent shall: (a) timely file returns and other documents and take such other action as may be necessary and appropriate to carry out the purpose of this Agreement; and (b) subject to receipt by Parent of the payments required to be made pursuant to Section 7 of this Agreement, timely pay to the Internal Revenue Service the federal income taxes of the Affiliated Group, including deficiencies. 11. New Members of Affiliated Group. For all taxable periods or portions thereof during which this Agreement remains in effect, if Covanta acquires (directly or indirectly) or organizes another entity treated as a corporation for federal, state or local tax purposes that is required to be included in the Affiliated Group's consolidated federal income tax return, then such corporation shall join in and be bound by this Agreement. 12. Amendment and Termination of Agreement. (a) This Agreement may be amended or terminated in whole or in part only by a written instrument signed by all the parties hereto. (b) This Agreement shall not be automatically terminated because Covanta ceases to be included in the Affiliated Group. In such case, Covanta shall be liable to Parent for an amount determined by multiplying the Affiliated Group's tax liability (calculated assuming Covanta was still a member of the Affiliated Group) by a fraction, the numerator of which equals Covanta's Taxable Income, and the denominator of which equals the Affiliated Group's consolidated taxable income so computed pursuant to Section 1552(a)(1) of the Code and Treasury Regulations Section 1.1552-1(a)(1) and assuming Covanta was still a member of the Affiliated Group. Such payment by Covanta shall constitute a complete settlement of the federal income tax liability of all Subgroup Members for such taxable year, except as otherwise provided in Section 9 of this Agreement. Parent shall indemnify and hold harmless Covanta against any liability for federal income tax (including alternative minimum tax and additional amounts) relating to taxable years during the term of this Agreement other than such apportioned tax liability. 13. Audits and Refund Claims. Parent and a former Member shall also consult and furnish each other with information concerning the status of any tax audit or tax refund claim relating to a taxable year in which the former Member was included in the Affiliated Group and a consolidated federal income tax was filed. Parent shall have the right to make the final determination as to the 7 response of the Affiliated Group to any audit and shall have the sole right to control any contest of any change proposed and any proposed disallowance of a refund claim by the Internal Revenue Service through the Appeals Office of the Internal Revenue Service and the courts in connection with any taxable year for which this Agreement is in effect. Each Member shall bear an equitable share of the cost of any such contest (including fees and expenses of outside accountants, lawyers or other experts) 14. State and Local Income Taxes. The principles underlying the rights and obligations hereunder of the Members in respect of federal income taxes shall be applied in respect of any state or local tax (it being understood that the principles provided in Section 3(ii) of this Agreement shall apply only to the extent Parent has net operating losses for such applicable state and local taxes on the Closing Date) based on or measured by all or any part of the net income or loss of the Affiliated Group or several of its members (a "COMBINED TAX"). All of the procedural and timing requirements of this Agreement applicable to federal income taxes shall be equally applicable to any Combined Tax, with appropriate adjustments thereto to reflect the differences, if any, in corresponding provisions of the applicable income tax code, law or statute governing any such Combined Tax and any administrative provisions relating thereto. 15. Entire Agreement. This Agreement contains the entire understanding of the parties hereto with respect to the subject matter contained herein. 16. Successors. This Agreement shall be binding upon and inure to the benefit of any successor, whether by statutory merger, acquisition of assets, or otherwise, to any of the parties hereto, to the same extent as if the successor had been an original party to the agreement. 17. Choice of Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. 18. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 8 IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed by their duly authorized representatives on the first date mentioned herein. DANIELSON HOLDING CORPORATION By:________________________________________ Name: Title: COVANTA ENERGY CORP. By:________________________________________ Name: Title: COVANTA POWER INTERNATIONAL HOLDINGS, INC. By:________________________________________ Name: Title: APPENDIX A COVANTA SUBGROUP Greenway Insurance Company of Vermont DSS Environmental, Inc. Covanta Cunningham Environmental Support, Inc. Haverhill Power, Inc. LMI, Inc. Michigan Waste Energy, Inc. Covanta Oahu Waste Energy Recovery, Inc. Covanta Energy Group, Inc. Covanta Energy Resource Corp. Covanta Energy International, Inc. Covanta Energy West, Inc. Covanta Engineering Services, Inc. Covanta Haverhill Properties, Inc. Covanta Marion Land Corp. Covanta Alexandria/Arlington, Inc. Covanta Babylon, Inc. Covanta Bristol, Inc. Covanta Fairfax Inc. Covanta Haverhill, Inc. Covanta Hillsborough, Inc. Covanta Huntington Res. Rec. 1 Corp. Covanta Huntington Res. Rec. 7 Corp. Covanta Huntsville, Inc. Covanta Indianapolis, Inc. Covanta Kent, Inc. Covanta Lancaster, Inc. Covanta Lee, Inc. Covanta Long Island, Inc. Covanta Marion, Inc. Covanta Montgomery Inc. Covanta Onondaga Five Corp. Covanta Onondaga Four Corp. Covanta Onondaga Inc. 10 Covanta Onondaga Three Corp. Covanta Onondaga Two Corp. Covanta Pasco, Inc. Covanta Stanislaus, Inc. Covanta Tulsa, Inc. Covanta Union, Inc. Covanta Systems, Inc. Covanta Omega Lease, Inc. Covanta Plant Services of New Jersey, Inc. Covanta Projects of Hawaii, Inc. Covanta Projects, Inc. Covanta Energy Services, Inc. Covanta Wallingford Associates, Inc. Covanta Waste to Energy, Inc. Covanta Secure Services, Inc. Covanta Water Holdings, Inc. Covanta Water Systems, Inc. Covanta Warren Energy Resources Co, L.P. Covanta Water Treatment Services, Inc. Covanta Acquisition, Inc. Covanta Bessemer, Inc. Covanta Onondaga Operations, Inc. Covanta OPW Associates, Inc. Covanta OPWH, Inc. Covanta Mid-Conn, Inc. Covanta RRS Holdings, Inc. Olmec Insurance, Ltd. 8309 Tujunga Avenue Corp. Burney Mountain Power, Inc. Covanta New Martinsville Hydroelectric, Corporation ERC Energy, Inc. ERC Energy II, Inc. Covanta Geothermal Operations Holdings, Inc. Heber Field Energy II, Inc. Covanta Imperial Power Services, Inc. Mammoth Power Co. Mt. Lassen Power Covanta New Martinsville Hydro Operations 11 Corporation Covanta Geothermal Operations, Inc. Covanta Heber Field Energy, Inc. Covanta Hydro Energy, Inc. Covanta Hydro Operations, Inc. Covanta Power Equity Corp. Covanta Power Pacific, Inc. Covanta Power Plant Operations Covanta SIGC Geothermal Operations, Inc. Pacific Energy Resources, Inc. Pacific Hydropower Co. Pacific Oroville Power, Inc. Pacific Recovery Corp. Pacific Wood Fuels Co. Pacific Wood Services Co. Penstock Power Co. Covanta Energy Construction, Inc. Three Mountain Operations, Inc. Covanta Hydro Operations West, Inc. Covanta Tampa Bay, Inc. Three Mountain Power LLC Covanta Tampa Construction Covanta Equity of Stanislaus, Inc. Covanta Equity of Alexandria/Arlington, Inc. 12 APPENDIX B Danielson Insurance Co. (Mission Insurance Company Trust) Danielson Insurance Co. (Enterprise Insurance Company Trust) Danielson National Insurance Company (Mission National Insurance Company Trust) Danielson Indemnity Company (Holland-America Insurance Company Trust) Danielson Reinsurance Corporation (Mission Reinsurance Corporation Trust) 13 APPENDIX C Schedule of Expiring Net Operating Losses
Year of Expiration Amount Expiring - ------------------ --------------- 2004 $ 69,947,000 2005 106,225,000 2006 92,355,000 2007 89,790,000 2008 31,688,000 2009 39,665,000 2010 23,600,000 2011 19,755,000 2012 38,255,000 2019 33,635,000 2022 26,931,000 Total $ 571,846,000
14 EX-21 18 y95330exv21.txt SUBSIDIARIES EXHIBIT 21 Set forth below is a list of all direct and indirect subsidiaries of Covanta that exist upon consummation of the Reorganization Plan. Unless stated otherwise, each subsidiary is wholly owned, directly or indirectly, by Covanta or a subsidiary of Covanta.
Affiliate Jurisdiction of Incorporation or Organization --------- --------------------------------------------- 8309 Tujunga Avenue Corp. California Ambiente 2000 S.r.l (40% owned) Italy AMOR 14 Corporation Delaware Bal-Sam India Holdings Limited Mauritius Burney Mountain Power California Covanta Acquisition, Inc. Delaware Covanta Alexandria/Arlington, Inc. Virginia Covanta Babylon, Inc. New York Covanta Bangladesh Operating Limited Bangladesh Covanta Bangladesh Technical Services Aps Denmark Covanta Bessemer, Inc. Florida Covanta Bristol, Inc. Virginia Covanta Cayman (Sahacogen) Ltd. Cayman Islands Covanta Cayman (Rojana) Ltd. Cayman Islands Covanta Chinese Investments Limited Mauritius Covanta Cunningham Environmental Support, Inc. New York Covanta Energy Americas, Inc. Delaware Covanta Energy Asia Pacific Limited Hong Kong Covanta Energy China (Alpha) Ltd. Mauritius Covanta Energy China (Beta) Ltd. Mauritius Covanta Energy China (Delta) Ltd. Mauritius Covanta Energy China (Gamma) Ltd. Mauritius Covanta Energy Construction, Inc. Delaware Covanta Energy Europe Ltd. United Kingdom Covanta Energy Group, Inc. Delaware Covanta Energy India Investments Ltd. Mauritius Covanta Energy India (Balaji) Limited Mauritius Covanta Energy India CBM Limited Mauritius Covanta Energy India (Samalpatti) Limited Mauritius Covanta Energy India Private Limited India Covanta Energy International, Inc. Delaware Covanta Energy Philippines Holdings, Inc. Philippines Covanta Energy Resource Corporation Delaware Covanta Energy Services, Inc. Delaware Covanta Energy (Thailand) Limited Thailand Covanta Energy West, Inc. Delaware Covanta Engineering Services, Inc. New Jersey Covanta Equity of Alexandria/Arlington, Inc. Virginia Covanta Equity of Stanislaus, Inc. California Covanta Fairfax, Inc. Virginia Covanta Five Ltd. Mauritius Covanta Four Ltd. Mauritius Covanta Geothermal Operations Holdings, Inc. Delaware
Covanta Geothermal Operations, Inc. Delaware Covanta Haverhill Associates Massachusetts Covanta Haverhill, Inc. Massachusetts Covanta Haverhill Properties, Inc. Massachusetts Covanta Hennepin Energy Resource Co., Limited Partnership Delaware Covanta Heber Field Energy, Inc. Delaware Covanta Honolulu Resource Recovery Venture Hawaii Covanta Huntington Limited Partnership Delaware Covanta Hillsborough, Inc. Florida Covanta Huntington Resource Recovery One Corporation Delaware Covanta Huntington Resource Recovery Seven Corporation Delaware Covanta Huntsville, Inc. Alabama Covanta Hydro Energy, Inc. Delaware Covanta Hydro Operations West, Inc. Delaware Covanta Hydro Operations, Inc. Tennessee Covanta Imperial Power Services, Inc. California Covanta Indianapolis, Inc. Indiana Covanta India Operating Private Limited (90% owned) India Covanta Kent, Inc. Michigan Covanta Lake II, Inc. Florida Covanta Lancaster, Inc. Pennsylvania Covanta Lee, Inc. Florida Covanta Long Island, Inc. New York Covanta Marion Land Corporation Oregon Covanta Marion, Inc. Oregon Covanta Mid-Conn., Inc. Connecticut Covanta Montgomery, Inc. Maryland Covanta New Martinsville Hydroelectric Corporation Delaware Covanta New Martinsville Hydro-Operations Corporation West Virginia Covanta Oahu Waste Energy Recovery, Inc. California Covanta Omega Lease, Inc. Delaware Covanta One Limited Mauritius Covanta Onondaga Five Corporation Delaware Covanta Onondaga Four Corporation Delaware Covanta Onondaga Limited Partnership Delaware Covanta Onondaga Operations, Inc. Delaware Covanta Onondaga Three Corporation Delaware Covanta Onondaga Two Corporation Delaware Covanta Onondaga, Inc. New York Covanta Operations of Union, LLC New Jersey Covanta OPW Associates, Inc. Connecticut Covanta OPWH, Inc. Delaware Covanta Pasco, Inc. Florida Covanta Philippines Operating, Inc. Cayman Islands Covanta Plant Services of New Jersey, Inc. New Jersey Covanta Power Development of Bolivia, Inc. Delaware Covanta Power Development, Inc. Delaware Covanta Power Equity Corporation Delaware Covanta Power International Holdings, Inc. Delaware Covanta Power Plant Operations California Covanta Power Pacific, Inc. California
2 Covanta Projects of Hawaii, Inc. Hawaii Covanta Projects of Wallingford, L.P. Delaware Covanta Projects, Inc. Delaware Covanta RRS Holdings Inc. Delaware Covanta Samalpatti Operating Pvt. Ltd. India Covanta SBR Associates Massachusetts Covanta Secure Services, Inc. Delaware Covanta SIGC Energy, Inc. Delaware Covanta SIGC Energy II, Inc. California Covanta SIGC Geothermal Operations, Inc. California Covanta Stanislaus, Inc. California Covanta Systems, LLC Delaware Covanta Tampa Bay, Inc. Florida Covanta Tampa Construction, Inc. Delaware Covanta Three Limited Mauritius Covanta Two Limited Mauritius Covanta Union, Inc. New Jersey Covanta Wallingford Associates, Inc. Connecticut Covanta Warren Energy Resource Co., L.P. Delaware Covanta Waste to Energy of Italy, Inc. Delaware Covanta Waste to Energy, LLC Delaware Covanta Waste to Energy Asia Investments Mauritius Covanta Water Holdings, Inc. Delaware Covanta Water Systems, Inc. Delaware Covanta Water Treatment Services, Inc. Delaware DSS Environmental, Inc. (90% owned) New York Edison Bataan Cogeneration Corporation Philippines El Gorguel Energia S.L. Spain Enereurope Holdings III B.V. Netherlands ERC Energy II, Inc. Delaware ERC Energy, Inc. Delaware GBL Power Limited (49% owned) India Generating Resource Recovery Partners, L.P. (50% owned) California Goa Holdings Limited Mauritius Great Eastern Energy Corporation Limited (20% owned) Thailand Linan Ogden-Jinjiang Cogeneration Co., Ltd. (60% owned) China Haverhill Power, LLC Delaware Heber Field Energy II, Inc. Delaware Heber Loan Partners California Hidro Operaciones Don Pedro S.A. Costa Rica Hungarian-American Geothermal Limited Liability Company (37.5% owned) Hungary Island Power Corporation (20% owned) Philippines Koma Kulshan Associates (50% owned) California LINASA Cogeneracion y Asociados, S.L. (50% owned) Spain LMI, Inc. Massachusetts Madurai Power Corporation Pvt. Limited (76.6% owned) India Magellan Cogeneration, Inc. Philippines Mammoth Geothermal Company California Mammoth Power Associates, L.P. (50% owned) California Mammoth Power Company California
3 Michigan Waste Energy, Inc. Delaware Mt. Lassen Power California NEPC Consortium Power Limited (45.1% owned) Bangladesh Ogden Balaji O&M Services Private Limited (99.8% owned) India Ogden Energy of Bongaigaon Private Limited India Ogden Energy Gulf Limited Mauritius Ogden Energy India (Bakreshwar) Limited Mauritius Ogden Taiwan Investments Limited Mauritius Olmec Insurance Limited Bermuda OPDB Limited Cayman Islands Operaciones LICA S.L. Spain OPI Carmona Limited Cayman Islands OPI Carmona One Limited Cayman Islands OPI Quezon, Inc. Delaware Pacific Energy Operating Group, LP (50% owned) California Pacific Energy Resources, Inc. California Pacific Geothermal Company California Pacific Hydropower Company California Pacific Oroville Power, Inc. California Pacific Recovery Corporation California Pacific Wood Fuels Company California Pacific Wood Services Company California Pacific Ultrapower Chinese Station (50% owned) California Penstock Power Company California Power Operations and Maintenance Ltd Bermuda Prima S.r.1. (13% owned) Italy Quezon Equity Funding Ltd. (27.5% owned) Cayman Islands Quezon Power, Inc. (27.5% owned) Cayman Islands Quezon Power (Philippines) Limited (98% owned) Philippines Samalpatti Power Company Private Limited (60% owned) India Spectra Enterprises Association, L.P. Delaware South Fork II Associates, LP (50% owned) Washington Taixing Ogden-Yanjiang Cogeneration Co., Limited (96.2% owned) China Three Mountain Power, LLC Delaware Three Mountain Operations, Inc. Delaware Zibo Ogden-Bohui Cogeneration Co. Limited (60% owned) China
Set forth below is a list of all direct and indirect subsidiaries of Covanta or its subsidiaries that have been designated as liquidating entities pursuant to the Liquidation Plan. Substantially all of the assets of these liquidating entities have already been sold.
Affiliate Jurisdiction of Incorporation or Organization --------- --------------------------------------------- Alpine Food Products, Inc. Washington Americana Entertainment N.V. (80% owned) Aruba Arizona Big Frames Theatres, LLC Arizona Astoria Studios, LP New York BDC Liquidating Corp. Delaware Bouldin Development Corp California
4 Covanta Concerts Holdings, Inc. New Jersey Covanta Energy Group do Brasil Ltda. Brazil Covanta Energy Sao Jeronimo, Inc. Delaware Covanta Financial Services Inc. Delaware Covanta Huntington Inc. New York Covanta Key Largo, Inc. Florida Covanta Northwest Puerto Rico, Inc. Puerto Rico Covanta Oil & Gas Inc. Delaware Covanta Secure Services USA. Inc Delaware Covanta Tulsa, Inc. Oklahoma Covanta Waste Solutions, Inc. Delaware Doggie Diner, Inc. Delaware Estadio Olimpico de Sevilla, S.A. (15.9% owned) Spain Financiere Ogden France Greenway Insurance Company of Vermont Vermont Gulf Coast Catering Company, Inc. Los Angeles J.R. Jack's Construction Corp. Nevada Lenzar Electro-Optics, Inc. Delaware Logistics Operations, Inc. Virginia Mecaril, S.A. Uruguay Menesul, S.A. Uruguay Modigold, S.A. Uruguay Offshore Food Service, Inc. Los Angeles OFS Equity of Alexandria/Arlington, Inc. Virginia OFS Equity of Babylon, Inc. New York OFS Equity of Delaware, Inc. Delaware OFS Equity of Huntington, Inc. New York OFS Equity of Indianapolis, Inc Louisiana OFS Equity of Stanislaus, Inc. California Ogden Aeropuertos RD S.A. Uruguay Ogden Alimentos Comercio e Servicos Ltda. Brazil Ogden Allied Abatement & Decontamination Service, Inc. New York Ogden Allied Maintenance Corporation New York Ogden Allied Payroll Services, Inc. New York Ogden Allied Services GmbH Germany Ogden Attractions, Inc. Delaware Ogden Aviation Distributing Corp. New York Ogden Aviation Fueling Company of Virginia, Inc. Delaware Ogden Aviation, Inc. Delaware Ogden Aviation Security Services of Indiana, Inc. Indiana Ogden Aviation Service Company of Colorado, Inc. Colorado Ogden Aviation Service Company of Pennsylvania, Inc. Philadelphia Ogden Aviation Service International Corp. New York Ogden Cargo, Spain, Inc. Delaware Ogden Central and South America Inc. Delaware Ogden Cisco, Inc. Delaware Ogden Communications, Inc. Delaware Ogden Constructors Inc. Florida Ogden do Brasil Participacoes S/C Ltda. Brazil Ogden Entertainment Services de Mexico,
5 S.A. de C.V. Mexico Ogden Entertainment Services Spain, S.A. Spain Ogden Environmental & Energy Services Co. Inc. Delaware Ogden Facility Holdings, Inc. Delaware Ogden Facility Management Corporation of Anaheim California Ogden Facility Management Corporation of West Virginia West Virginia Ogden Film and Theatre, Inc. Delaware Ogden Firehole Entertainment Corp. Delaware Ogden Food Service Corporation Milwaukee Wisconsin Ogden Gaming of Ontario Limited Canada Ogden HCI Services (60% owned) Washington Ogden Holdings, S.A. Argentina Ogden Logistic Service Maryland Ogden International Europe, Inc. Delaware Ogden Leisure, Inc. Delaware Ogden Management Services, Inc. Delaware Ogden Martin Systems of Nova Scotia Limited Canada Ogden MEI, LLC Delaware Ogden New York Services, Inc. New York Ogden Pipeline Services Corporation Delaware Ogden Palladium Services, Inc. Canada Ogden Power Aqua y Energia Torre Pacheco, S.A. (83.3% owned) Spain Ogden Power Development - Cayman, Inc. Cayman Islands Ogden PS&M Entertainment Limited (50% owned) Brazil Ogden Services Corporation Delaware Ogden Servico de Atendimento Aeroterrestre Ltda. Brazil Ogden Spain, S.A. Spain Ogden Support Services, Inc. Delaware Ogden Technology Services Corporation Delaware Ogden Transition Corporation Delaware PA Aviation Fuel Holdings, Inc. Delaware Parque Isla Magica, S.A. (26.12% owned) Spain Rent LLC (.01% owned) New York SJ Investors Participacoes Ltda. (90% owned) Brazil The Victor/Victoria Company LP New York
6 EX-31.1 19 y95330exv31w1.txt CERTIFICATION OF CEO Exhibit 31.1 I, Anthony J. Orlando, certify that: 1. I have reviewed this annual report of Covanta Energy Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/ Anthony J. Orlando --------------------------- Anthony J. Orlando President and Chief Executive Officer EX-31.2 20 y95330exv31w2.txt CERTIFICATION OF PFO Exhibit 31.2 I, Anthony J. Orlando, certify that: 1. I have reviewed this annual report of Covanta Energy Corporation; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 29, 2004 /s/ Anthony J. Orlando --------------------------- Anthony J. Orlando Principal Financial Officer 2 EX-32.1 21 y95330exv32w1.txt SECTION 906 CERTIFICATION OF CEO Exhibit 32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Covanta Energy Corporation (the "Company") does hereby certify, to such officer's knowledge, that: The Annual Report on Form 10-K for the period ended December 31, 2003 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 29, 2004 /s/ Anthony J. Orlando ------------------------------------- Anthony J. Orlando President and Chief Executive Officer EX-32.2 22 y95330exv32w2.txt SECTION 906 CERTIFICATION OF PFO Exhibit 32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of Covanta Energy Corporation (the "Company") does hereby certify, to such officer's knowledge, that: The Annual Report on Form 10-K for the period ended December 31, 2003 (the "Form 10-K") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: March 29, 2004 /s/ Anthony J. Orlando ------------------------------------- Anthony J. Orlando Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----