8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

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

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

COVANTA ENERGY CORPORATION

(Exact name of Registrant as Specified in Its Charter)

Delaware	1-3122	13-5549268
(State or Other Jurisdiction	(Commission	(I.R.S. Employer
of	File Number)	Identification No.)
Incorporation)

40 Lane Road
Fairfield, New Jersey	07004
(Address of principal executive offices)	(Zip Code)

(973) 882-9000

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

TABLE OF CONTENTS

Danielson Holding Corp. Equity Award Plan for Employees and Officers

Form of Danielson Holding Corp. Restricted Stock Award Agreement

Form of Danielson Holding Corp. Stock Option Agreement

Employment Agreement - Anthony J. Orlando

Employment Agreement - Craig D. Abolt

Employment Agreement - Timothy J. Simpson

Employment Agreement - John Klett

Employment Agreement - Scott Whitney

Employment Agreement - Seth Myones

Item 1.01. Entry into a Material Definitive Agreement.

     On October 5, 2004, the stockholders of Danielson Holding Corporation (“Danielson”), and the parent of Covanta Energy Corporation (the “Company”), at Danielson’s 2004 Annual Meeting of Stockholders approved the Danielson Holding Corporation Equity Award Plan for Employees and Officers (“Employees Plan”). Executive officers of the Company received or will receive grants and awards under the Employees Plan. In addition, on the same date, six executive officers of the Company each entered into an employment agreement, a restricted stock agreement, and an option agreement with the Company and/or Danielson, as the case may be.

Plan Principal Features of the Employees Plan

     A summary description of the Employees Plan is set forth in the section entitled “Approval of the Equity Award Plan for Employees and Officers – Plan Principal Features” contained in the Danielson’s Definitive Proxy Statement on Schedule 14A, as filed with the Securities and Exchange Commission on September 7, 2004, and is incorporated by reference herein. This summary contained therein and incorporated by reference herein is qualified by the terms of the Employees Plan, a copy of which is attached to this Report on Form 8-K as Exhibit 10.1.

Restricted Stock Award Agreement and Stock Option Agreement

     Copies of Danielson’s form of Restricted Stock Award Agreement (“Restricted Stock Agreement”) and form of Stock Option Agreement (“Option Agreement”) that implement the terms of the Plans are attached hereto as Exhibit 10.2 and Exhibit 10.3, respectively, and are incorporated by reference herein.

Employment Agreements

     In addition, reflecting the successful integration of the Company with Danielson, in order to further enhance the long-term stability of the Company’s management team and culminating discussions that began prior to the acquisition of the Company by Danielson, six members of the senior management team of the Company entered into employment arrangements with the Company, following the approval by the Danielson stockholders of the Employees Plan at the Danielson annual meeting of stockholders. Accordingly, on October 5, 2004, Anthony J. Orlando, Craig D. Abolt, Timothy J. Simpson, John M. Klett, Scott Whitney and Seth Myones, all executive officers of the Company, each entered into an employment agreement, a Restricted Stock Agreement, and an Option Agreement with the Company and/or Danielson, as described in Item 5.02 of this Current Report on Form 8-K, and such description is incorporated by reference herein.

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

Mr. Orlando’s Employment Agreement

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

     The Company and Danielson entered into a five year employment agreement with Mr. Orlando, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Orlando is entitled to a base salary of $400,000 per year and an annual target bonus of 80% of his base salary, depending upon the Company’s achievement of certain financial targets and other criteria approved by the Board of Directors of Danielson. Mr. Orlando is also entitled to receive a grant of 49,656 shares of restricted stock, valued at $360,000, and options to purchase 200,000 shares of Danielson’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as Mr. Orlando is employed by the Company and Danielson, and 50% vesting in accordance with the Company’s achievement of certain operating cash flow or other performance-based metrics of the Company as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Orlando’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Orlando is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 36 months if such termination occurs in the first three years of his employment contract, or (ii) 24 months if such termination occurs in the last two years of his employment contract. Upon termination other than for “cause,” Mr. Orlando shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of Danielson and/or the Company. The summary set forth above is qualified by reference to Mr. Orlando’s employment agreement, a copy of which is attached hereto as Exhibit 10.4 and incorporated by reference herein.

     Mr. Orlando has served as the President and Chief Executive Officer of the Company since November 2003. From March 2003 to November 2003, he served as Senior Vice President, Business and Financial Management of the Company. From January 2001 until March 2003, Mr. Orlando served as the Company’s Senior Vice President, Waste to Energy.

Previously he served as Executive Vice President of Covanta Energy Group, Inc., a subsidiary of the Company (“CEG”). Mr. Orlando joined the Company in 1987.

Mr. Abolt’s Employment Agreement

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

     The Company and Danielson entered into a five year employment agreement with Mr. Abolt, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Abolt is entitled to a base salary of $325,000 per year and an annual target bonus of 55% of his base salary, depending upon the Company’s achievement of certain financial targets and other criteria approved by the Board of Directors of Danielson. Mr. Abolt is also entitled to receive a grant of 20,690 shares of restricted stock, valued at $150,000, and options to purchase 85,000 shares of Danielson’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as Mr. Abolt is employed by the Company and Danielson, and 50% vesting in accordance with the Company’s achievement of certain operating cash flow or other performance-based metrics of the Company as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Abolt’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Abolt is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 24 months if such termination occurs in the first two years of his employment contract, or (ii) 18 months if such termination occurs in the last three years of his employment contract. Upon termination other than for “cause,” Mr. Abolt shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of Danielson and/or the Company. The summary set forth above is qualified by reference to Mr. Abolt’s employment agreement, a copy of which is attached hereto as Exhibit 10.5 and incorporated by reference herein.

     Mr. Abolt has served as the Senior Vice President and Chief Financial Officer of the Company since June, 2004. Prior to joining the Company, Mr. Abolt served as chief financial officer of DIRECTV Latin America, a majority-owned subsidiary of Hughes Electronics Corporation. In this position, he had financial and operational responsibilities for the multi-

national DTG television and multimedia organization. From 1991 to 2001, Mr. Abolt was employed by Walt Disney Company in several executive finance positions.

Mr. Simpson’s Employment Agreement

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

     The Company and Danielson entered into a five year employment agreement with Mr. Simpson, commencing October 5, 2004. Pursuant to his employment agreement, Mr. Simpson is entitled to a base salary of $240,180 per year and an annual target bonus of 45% of his base salary, depending upon the Company’s achievement of certain financial targets and other criteria approved by the Board of Directors of Danielson. Mr. Simpson is also entitled to receive a grant of 17,242 shares of restricted stock, valued at $125,000, and options to purchase 75,000 shares of Danielson’s common stock at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as Mr. Simpson is employed by the Company and Danielson, and 50% vesting in accordance with the Company’s achievement of certain operating cash flow or other performance-based metrics of the Company as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. Mr. Simpson’s employment is subject to non-compete, non-solicitation, and confidentiality provisions as set forth in the employment agreement. In the event that Mr. Simpson is terminated for any reason other than for “cause,” he shall be entitled to payment of his average annual compensation, consisting of his then current annual base salary plus his average annual target bonus, for (i) 24 months if such termination occurs in the first two years of his employment contract, or (ii) 18 months if such termination occurs in the last three years of his employment contract. Upon termination other than for “cause,” Mr. Simpson shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of his termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of Danielson and/or the Company. The summary set forth above is qualified by reference to Mr. Simpson’s employment agreement, a copy of which is attached hereto as Exhibit 10.6 and incorporated by reference herein.

     Mr. Simpson has served as the Senior Vice President, General Counsel and Secretary of the Company since March, 2003. From June 2001 to March 2004, Mr. Simpson served as Vice President, Associate General Counsel and Assistant Secretary of the Company. Prior thereto he

served as Senior Vice President, Associate General Counsel and Assistant Secretary of CEG. Mr. Simpson joined Covanta in 1992.

Employment Agreements of Messrs. Klett, Whitney and Myones

     Mr. Klett, 58, is currently the Company’s Senior Vice President, Domestic Operations, a position he has held since March 2003. Prior thereto he served as Executive Vice President of CEG, for more than five years. Mr. Klett joined the Company in 1986.

     Mr. Whitney, 46, is currently the Company’s Senior Vice President, Business Development and Construction, a position he has held since February 2004. Previously he served as Vice President, Business Development for CEG. Mr. Whitney joined the Company in 1987.

     Mr. Myones, 46, is currently the Company’s Senior Vice President, Business Management, a position he has held since 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.

     Messrs. Klett, Whitney and Myones shall each continue to serve in their current positions until such time as their successor shall be duly elected and qualified, their removal, or their resignation, whichever is earlier. Other than the employment agreements and compensation matters described below, none of these officers have engaged in any reportable transactions with the Company or Danielson or any of its subsidiaries during Danielson’s last fiscal year, and none are a party to any currently proposed transactions with the Company or Danielson. Neither of Messrs. Klett, Whitney nor Myones have any family relationship with any other executive officer or director of the Company or Danielson.

     The Company entered into five year employment agreements with each of Messrs. Klett, Whitney and Myones, each commencing October 5, 2004. Pursuant to their employment agreements, Messrs. Klett, Whitney and Myones are entitled to base salaries of $276,340, $215,050, and $207,900, respectively, per year and an annual target bonus of 50%, 45%, and 45%, respectively, of their base salary, depending upon the Company’s achievement of certain financial targets and other criteria approved by the Board of Directors of Danielson. Messrs. Klett, Whitney and Myones are also entitled to receive a grant of restricted stock, valued at $140,000, $110,000, and $110,000, respectively, and options to purchase 75,000, 65,000, and 65,000 shares of Danielson’s common stock, respectively, at a price of $7.43 per share pursuant to the Danielson Holding Corporation Equity Award Plan for Employees and Officers. The restricted stock shall be eligible to vest in equal installments over three years, with 50% of such shares vesting in three equal annual installments commencing February 28, 2005, so long as the recipient is employed by the Company, and 50% vesting in accordance with the Company’s achievement of certain operating cash flow or other performance-based metrics of the Company as approved by the Board of Directors, commencing February 28, 2005. The options shall vest over three years in equal installments, commencing February 28, 2006. The employment of each of Messrs. Klett, Whitney and Myones is subject to non-compete, non-solicitation, and

confidentiality provisions as set forth in each of their employment agreements. In the event that Messrs. Klett, Whitney, or Myones is terminated for any reason other than for “cause,” such officer shall be entitled to payment of their average annual compensation, consisting of their then current annual base salary plus their average annual target bonus, for (i) 24 months if such termination occurs in the first two years of his employment contract, or (ii) 18 months if such termination occurs in the last three years of their employment contract. Upon termination other than for “cause,” such officer shall forfeit all rights and interests to any unvested equity awards, except for those equity awards that would otherwise vest within three months of the date of their termination. The employment agreement also provides for the acceleration of the vesting of the equity awards in the event of a change in control of the Company. The summary set forth above is qualified by reference to the employment agreement of each of Messrs. Klett, Whitney and Myones, copies of which are attached hereto as Exhibit 10.7, 10.8, and 10.9, respectively, and each is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits.

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

Exhibit No.	Exhibit
10.1	Danielson Holding Corporation Equity Award Plan for Employees and Officers.
10.2	Form of Danielson Holding Corporation Restricted Stock Award Agreement.
10.3	Form of Danielson Holding Corporation Stock Option Agreement.
10.4	Employment Agreement, dated October 5, 2004, by and between Anthony J. Orlando and Danielson Holding Corporation and Covanta Energy Corporation.
10.5	Employment Agreement, dated October 5, 2004, by and between Craig D. Abolt and Danielson Holding Corporation and Covanta Energy Corporation.
10.6	Employment Agreement, dated October 5, 2004, by and between Timothy J. Simpson and Danielson Holding Corporation and Covanta Energy Corporation.
10.7	Employment Agreement, dated October 5, 2004, by and between John Klett and Covanta Energy Corporation.
10.8	Employment Agreement, dated October 5, 2004, by and between Scott Whitney and Covanta Energy Corporation.
10.9	Employment Agreement, dated October 5, 2004, by and between Seth Myones and Covanta Energy Corporation.

SIGNATURES

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

Date: October 7, 2004

COVANTA ENERGY CORPORATION
(Registrant)

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

COVANTA ENERGY CORPORATION

EXHIBIT INDEX

Exhibit No.	Exhibit
10.1	Danielson Holding Corporation Equity Award Plan for Employees and Officers.
10.2	Form of Danielson Holding Corporation Restricted Stock Award Agreement.
10.3	Form of Danielson Holding Corporation Stock Option Agreement.
10.4	Employment Agreement, dated October 5, 2004, by and between Anthony J. Orlando and Danielson Holding Corporation and Covanta Energy Corporation.
10.5	Employment Agreement, dated October 5, 2004, by and between Craig D. Abolt and Danielson Holding Corporation and Covanta Energy Corporation.
10.6	Employment Agreement, dated October 5, 2004, by and between Timothy J. Simpson and Danielson Holding Corporation and Covanta Energy Corporation.
10.7	Employment Agreement, dated October 5, 2004, by and between John Klett and Covanta Energy Corporation.
10.8	Employment Agreement, dated October 5, 2004, by and between Scott Whitney and Covanta Energy Corporation.
10.9	Employment Agreement, dated October 5, 2004, by and between Seth Myones and Covanta Energy Corporation.

EX-10.1

EXHIBIT 10.1

DANIELSON HOLDING CORPORATION
EQUITY AWARD PLAN FOR EMPLOYEES AND OFFICERS

TABLE OF CONTENTS

		Page
SECTION 1.	Purpose; Definitions		1
(a)	“Administrator”		1
(b)	“Affiliate”		1
(c)	“Applicable Laws”		1
(d)	“Award”		1
(e)	“Award Agreement”		1
(f)	“Board”		1
(g)	“Cause”		1
(h)	“Code”		2
(i)	“Committee”		2
(j)	“Common Stock”		2
(k)	“Company”		2
(l)	“Director”		2
(m)	“Disability”		2
(n)	“Effective Date”		2
(o)	“Employee”		2
(p)	“Exchange Act”		2
(q)	“Fair Market Value”		2
(r)	“Incentive Stock Option”		3
(s)	“Mature Shares”		3
(t)	“Non-Qualified Stock Option”		3
(u)	“Officer”		3
(v)	“Option”		3
(w)	“Participant”		3
(x)	“Performance Award”		3
(y)	“Plan”		3
(z)	“Recipient”		3
(aa)	“Restricted Stock”		3
(bb)	“Retirement”		3
(cc)	“Service Provider”		4
(dd)	“Stock Appreciation Right”		4
(ee)	Share		4
(ff)	“Subsidiary”		4
SECTION 2.	Stock Subject to the Plan		4
SECTION 3.	Administration of the Plan		5

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TABLE OF CONTENTS
(Continued)

		Page
(a)	Administration		5
(b)	Powers of the Committee		5
SECTION 4.	Eligibility for Awards		5
SECTION 5.	Limitations on Options		6
SECTION 6.	Term of Plan		6
SECTION 7.	Term of Option		6
SECTION 8.	Option Exercise Price and Consideration		6
(a)	Exercise Price		6
(b)	Waiting Period and Exercise Dates		7
(c)	Form of Consideration		7
SECTION 9.	Exercise of Option		8
(a)	Procedure for Exercise; Rights as a Stockholder		8
(b)	Termination of Relationship as Employee or Officer		8
(c)	Disability of Recipient		9
(d)	Death of Recipient		9
(e)	Retirement of Recipient		10
(f)	Cash out Provisions		10
SECTION 10.	Restricted Stock		11
(a)	Awards of Restricted Stock		11
(b)	Awards and Certificates		11
(c)	Terms and Conditions		12
(d)	Other Provisions		13
SECTION 11.	Deferral of Stock Award		13
SECTION 12.	Other Awards		13
(a)	Stock Appreciation Right		13
(b)	Performance Award		14
(c)	Other Stock-Based Awards		14
SECTION 13.	Non-Transferability of Awards		14
SECTION 14.	Adjustments Upon Changes in Capitalization		15
SECTION 15.	Date of Grant		15
SECTION 16.	Term; Amendment and Termination of the Plan		15
(a)	Amendment and Termination		15
(b)	Stockholder Approval		16
(c)	Effect of Amendment or Termination		16
SECTION 17.	Conditions Upon Issuance of Shares		16

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TABLE OF CONTENTS
(Continued)

		Page
(a)	Legal Compliance		16
(b)	Withholding Obligations		16
(c)	Inability to Obtain Authority		16
(d)	Grants Exceeding Allotted Shares		17
SECTION 18.	General Provisions		17
(a)	Term of Plan		17
(b)	No Contract of Employment		17
(c)	Severability		17
(d)	Governing Law		17
(e)	Dividends		17
(f)	Prohibition on Loans to Participants		17
(g)	Performance-Based Compensation		17
(h)	Unfunded Status of Plan		18
(i)	Liability of Committee Members		18

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DANIELSON HOLDING CORPORATION EQUITY AWARD PLAN FOR
EMPLOYEES AND OFFICERS

SECTION 1. Purpose; Definitions.

     The purposes of this Plan are to promote the interests of the Company (including any Subsidiaries and Affiliates) and its stockholders by using equity interests in the Company to attract, retain and motivate its management and other eligible persons and to encourage and reward their contributions to the Company’s performance and profitability.

     The following capitalized terms shall have the following respective meanings when used in this Plan:

     (a) “Administrator” means the Board or any one of its Committees as shall be administering the Plan, in accordance with Section 3 of the Plan.

     (b) “Affiliate” means any corporation or other entity controlled by the Company and designated by the Committee as such.

     (c) “Applicable Laws” means the legal requirements relating to the administration of plans providing one or more of the types of Awards described in the Plan and the issuance of Shares thereunder pursuant to U.S. state corporate laws, U.S. federal and state securities laws, the Code and the applicable laws of any foreign country or jurisdiction where Awards are, or will be, granted under the Plan.

     (d) “Award” means a grant of an Option, Restricted Stock, stock appreciation right or other stock-based Award under the Plan, all on a stand alone, combination or tandem basis, as described in or granted under the Plan.

     (e) “Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Award. The Award Agreement is subject to the terms and conditions of the Plan.

     (f) “Board” means the Board of Directors of the Company.

     (g) “Cause” shall mean, unless otherwise determined by the Committee, (i) the conviction of the Recipient for committing, or entering a plea of nolo contendere by the Recipient with respect to, a felony under federal or state law or a crime involving moral turpitude; (ii) the commission of an act of personal dishonesty or fraud involving personal profit in connection with the Recipient’s employment by the Company; (iii) the willful misconduct, gross negligence or deliberate failure on the part of the Recipient to perform his or her employment duties with the Company in any material respect; or (iv) the failure to comply with Company policies or agreements with the Company, in any material respect.

     (h) “Code” means the Internal Revenue Code of 1986, as amended or replaced from time to time.

     (i) “Committee” means the Compensation Committee of the Board, or another committee appointed by the Board to administer the Plan, in accordance with Section 3 of the Plan.

     (j) “Common Stock” means the common stock, par value $.10, of the Company.

     (k) “Company” means Danielson Holding Corporation, a Delaware corporation.

     (l) “Director” means a director serving on the Board of the Company who is not also an employee of the Company or any Subsidiary or Affiliate thereof; who has not been an employee of the Company during the taxable year or an officer of the Company at any time; and who has been duly elected to the Board by the stockholders of the Company or by the Board under applicable corporate law. Neither service as a Director nor payment of a director’s fee by the Company shall, without more, constitute “employment” by the Company.

     (m) “Disability” means permanent and total disability as determined under procedures established by the Committee for the purposes of the Plan.

     (n) “Effective Date” means the date described in Section 18(a) of the Plan.

     (o) “Employee” means any common-law employee of the Company or a Subsidiary or Affiliate of the Company, including Officers employed by the Company or any Subsidiary or Affiliate of the Company. Neither service as a Director nor payment of a director’s fee by the Company shall, without more, constitute “employment” by the Company.

     (p) “Exchange Act” means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto, or the rules and regulations promulgated thereunder.

     (q) “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(A)	If the Common Stock is listed on the American Stock Exchange Composite Tape, its Fair Market Value shall be either the mean of the highest and lowest reported sale prices of the stock (or, if no sales were reported, the average of the closing bid and asked price) or the last reported sales price of the stock, as determined by the Committee in its discretion, on the American Stock Exchange for any given day or, if not listed on such exchange, on any other national securities exchange on which the Common Stock is listed or on the NASDAQ Stock Market as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(B)	If the Common Stock is regularly quoted by a recognized securities dealer but selling prices are not reported, the Fair Market Value of a Share of Common Stock shall be either the mean between the high bid and low asked prices or the last asked price, as determined by the Committee for the Common Stock on any given day, as reported in The Wall Street Journal or such other source as the Committee deems reliable;
(C)	In the absence of an established regular public market for the Common Stock, the Fair Market Value shall be determined in good faith by the Committee and, with respect to an Incentive Stock Option, in accordance with such regulations as may be issued under the Code; provided that with respect to an individual described in Section 8(a)(i)(A) hereof, this Section 1(q)(iii) shall not be available if the resulting price fails to represent the Fair Market Value of the stock on the date of grant as determined in accordance with Sections 1(q)(i) or (ii) above.

     (r) “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

     (s) “Mature Shares” means any shares held by the Recipient for a minimum period of 6 months.

     (t) “Non-Qualified Stock Option” means any Option that is not an Incentive Stock Option.

     (u) “Officer” unless otherwise noted herein, means a person who is an officer of the Company or a Subsidiary or Affiliate.

     (v) “Option” means a stock option granted pursuant to the Plan.

     (w) “Participant” means an Employee or Officer who holds an outstanding Award.

     (x) “Performance Award” means an Award granted pursuant to Section 11(b) of the Plan.

     (y) “Plan” means this Equity Award Plan.

     (z) “Recipient” means an Employee or Officer who holds an outstanding Award.

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     (aa) “Restricted Stock” means shares of Common Stock acquired pursuant to an Award granted pursuant to Section 10 of the Plan.

     (bb) “Retirement” means a Service Provider’s retirement from active employment with the Company or any Subsidiary or Affiliate as determined under a pension plan of the Company or any Subsidiary or Affiliate applicable to the Service Provider; or the Service Provider’s termination of employment at or after age 55 under circumstances that the Committee, in its sole discretion, deems equivalent to retirement.

     (cc) “Service Provider” means an Employee or Officer. A Service Provider who is an Employee shall not cease to be a Service Provider (i) during any leave of absence approved by the Company; provided that, for purposes of Incentive Stock Options, no such leave may exceed ninety (90) days, unless reemployment upon expiration of such leave is guaranteed by statute or contract; or (ii) as a result of transfers between locations of the Company or between the Company and any Subsidiary or Affiliate. If reemployment upon expiration of a leave of absence approved by the Company is not guaranteed by statute or contract, then on the 91st day of such leave any Incentive Stock Option held by the Recipient shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option.

     (dd) “Stock Appreciation Right” means an Award granted pursuant to Section 11(a) of the Plan.

     (ee) “Share” means a share of the Common Stock, as adjusted in accordance with Section 14 of the Plan.

     (ff) “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

SECTION 2. Stock Subject to the Plan.

     Subject to the provisions of Section 14 of the Plan, the maximum aggregate number of Shares available for grants of Awards under the Plan is 4,000,000 Shares. The maximum aggregate number of Incentive Stock Options that may be issued under the Plan is 4,000,000. The Shares subject to an Award under the Plan may be authorized but unissued, or reacquired Common Stock or treasury shares. Except as otherwise provided in Section 14 of the Plan, no Recipient may be granted Awards in any calendar year with respect to more than 300,000 Shares. In determining the number of Shares with respect to which a Recipient may be granted an Award in any calendar year, any Award which is cancelled shall count against the maximum number of Shares for which an Award may be granted to a Recipient.

     If an Award expires or becomes unexercisable without having been exercised in full, the unpurchased Shares which were subject thereto shall become available for future grant or sale under the Plan (unless the Plan has terminated); provided, however, that Shares that have actually been issued under the Plan, whether upon exercise of an Option or other Award, shall not be returned to the Plan and shall not become available for future distribution under the Plan, except that if Shares of Restricted Stock are repurchased by the Company at their original purchase price, and the original Recipient of such Shares did not receive any benefits of ownership of such Shares, such Shares shall become available for future grant under the Plan. For purposes of the preceding sentence, voting rights shall not be considered a benefit of Share ownership.

SECTION 3. Administration of the Plan.

     (a) Administration. The Plan shall be administered by the Compensation Committee of the Board, or another Committee that may be appointed by the Board for this purpose in accordance with Applicable Laws. Such Committee shall consist of two or more members of the Board each of whom is a “disinterested person” as defined in Rule 16b-3(c)(2)(i) of the General Rules and Regulations promulgated under the Exchange Act; and all of whom, in addition, shall constitute “outside directors” for purposes of granting “performance-based compensation” awards under Treas. Reg. Sec. 1.162-27(e)(3) and Section 162(m)(4)(C) of the Code. (Such “outside directors” shall be appointed by, and may be removed by, such Board.) Committee members shall serve for such term(s) as the Board may determine, subject to removal by the Board at any time. The Committee shall act by a majority of its members,

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or if there are only two members of such Committee, by unanimous consent of both members. If at any time there is no Committee in office, the functions of the Committee specified in the Plan shall be carried out by the Board.

     (b) Powers of the Committee. Except for the terms and conditions explicitly set forth in the Plan, the Committee shall have exclusive authority, in its discretion, to determine the Fair Market Value of the Common Stock in accordance with Section 1(q) of the Plan and to determine all matters relating to Awards under the Plan, including the selection of individuals to be granted an Award, the type of Award, the number of shares of Common Stock subject to an Award, all terms, conditions, restrictions and limitations, if any, including, without limitation, vesting, acceleration of vesting, exercisability, termination, substitution, cancellation, forfeiture, or repurchase of an Award and the terms of any instrument that evidences the Award. The Committee shall also have exclusive authority to interpret the Plan and its rules and regulations, and to make all other determinations deemed necessary or advisable under or for administering the Plan, subject to Section 16 of the Plan. All actions taken and determinations made by the Committee pursuant to the Plan shall be conclusive and binding on all parties involved or affected. The Committee may, by a majority of its members then in office, authorize any one or more of its members or any Officer of the Company to execute and deliver documents on behalf of the Committee, or delegate to an Officer of the Company the authority to make decisions pursuant to Section 8 of the Plan, provided that the Committee may not delegate its authority with regard to the selection for participation of or the granting of Awards to persons subject to Section 16 of the Exchange Act.

SECTION 4. Eligibility for Awards.

     Non-Qualified Stock Options and other Awards may be granted to Employees and Officers who are Employees. In addition, an Award may be granted to a person who is offered employment by the Company, a Subsidiary or an Affiliate, provided that such Award shall be immediately forfeited if such person does not accept such offer of employment within such time period as the Company, Subsidiary or Affiliate may establish. If otherwise eligible, an Employee or Officer who has been granted an Option or other Award may be granted additional Options or other Awards.

SECTION 5. Limitations on Options.

     Each Option shall be designated in the written Award Agreement as either an Incentive Stock Option or a Non-Qualified Stock Option. However, notwithstanding such designation, to the extent that the Options are amended; the aggregate Fair Market Value of the Shares with respect to which Incentive Stock Options are exercisable for the first time by the Recipient during any calendar year (under all plans of the Company and any Subsidiary or Affiliate) exceeds $100,000; or other circumstances exist that would cause the Options to lose their status as Incentive Stock Options, such Options shall be treated as Non-Qualified Stock Options. For purposes of this Section 5, Incentive Stock Options shall be taken into account in the order in which they were granted. The Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted. If an Option is granted hereunder that is part Incentive Stock Option and part Non-Qualified Stock Option due to becoming first exercisable in any calendar year in excess of $100,000, the Incentive Stock Option portion of such Option shall become exercisable first in such calendar year, and the Non-Qualified Stock Option portion shall commence becoming exercisable once the $100,000 limit has been reached.

SECTION 6. Term of Plan.

     The Plan shall become effective upon the approval by the stockholders of the Company as described in Section 16 of the Plan. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

SECTION 7. Term of Option.

     The term of each Option shall be stated in the Award Agreement but shall be no longer than ten (10) years from the date of grant or such shorter term as may be provided in the Award Agreement. Moreover, in the case of an Incentive Stock Option granted to a Recipient who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any

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Subsidiary (taking into account the attribution rules under Section 424(d) of the Code), the term of the Incentive Stock Option shall be five (5) years from the date of grant or such shorter term as may be provided in the Award Agreement.

SECTION 8. Option Exercise Price and Consideration.

   (a) Exercise Price. The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be determined by the Committee, subject to the following:

(A) In the case of an Incentive Stock Option

(i)

granted to an Employee who, at the time the Incentive Stock Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Subsidiary (taking into account the attribution rules under Section 424(d) of the Code), the per Share exercise price shall be not less than 110% of the Fair Market Value per Share on the date of grant, or

(ii)

granted to any Employee other than an Employee described in paragraph (A) immediately above, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

(B) In the case of a Non-Qualified Stock Option, the per Share exercise price shall be not less than 100% of the Fair Market Value per Share on the date of grant.

   (b) Waiting Period and Exercise Dates. The Committee shall have the authority, subject to the terms of the Plan, to determine any vesting restriction or limitation or waiting period with respect to any Option granted to a Recipient or the Shares acquired pursuant to the exercise of such Option.

   (c) Form of Consideration. The Committee shall determine the acceptable form of consideration for exercising an Option, including the method of payment. In the case of an Incentive Stock Option, the Committee shall determine the acceptable form of consideration at the time of grant. Such consideration may consist entirely of:

(A)	cash (in the form of a certified or bank check or such other instrument as the Company may accept);
(B)	other Mature Shares owned on the date of exercise of the Option by the Recipient (and, in the case of the exercise of a Non-Qualified Stock Option, Restricted Stock subject to an Award hereunder) based on the Fair Market Value of the Common Stock on the date the Option is exercised; provided, however, that in the case of an Incentive Stock Option, the right to make a payment in the form of already owned Shares may be authorized only at the time the Option is granted; and provided that if payment is made in the form of Restricted Stock, the number of equivalent shares of Common Stock to be received shall be subject to the same forfeiture restrictions to which such Restricted Stock was subject, unless otherwise determined by the Committee;
(C)	any combination of (i) and (ii) above;
(D)	at the discretion of the Committee, by delivery of a properly executed exercise notice together with such other documentation as the Committee and a qualified broker, if applicable, shall require to effect an exercise of the Option, and delivery to the Company of the sale or loan proceeds required to pay the exercise price, subject, however, to Section 18(f) of the Plan; or
(E)	such other consideration and method of payment for the issuance of Shares to the extent permitted by the Committee and Applicable Laws.

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SECTION 9. Exercise of Option.

     (a) Procedure for Exercise; Rights as a Stockholder. Except as otherwise authorized by the Committee, any Option granted hereunder shall be exercisable according to the terms of the Plan and at such times and under such conditions as determined by the Committee and set forth in the Award Agreement. If the Committee provides that any Option is exercisable only in installments, the Committee may at any time waive such installment exercise provisions, in whole or in part, based on such factors as the Committee may determine. The Committee may at any time, in whole or in part, accelerate the exercisability of any Option.

     An Option shall be deemed exercised when the Company receives: (i) written notice of exercise (in accordance with the Award Agreement) from the person entitled to exercise the Option, and (ii) full payment for the Shares with respect to which the Option is exercised. Full payment may consist of any consideration and method of payment authorized by the Committee in accordance with Section 8(c) of the Plan and permitted by the Award Agreement and the Plan. Shares issued upon exercise of an Option shall be issued in the name of the Recipient. Until the stock certificate evidencing such Shares is issued (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to such Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such stock certificate promptly after the Option is exercised. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 14 of the Plan.

     Exercising an Option in any manner shall decrease the number of Shares thereafter available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

     (b) Termination of Relationship as Employee or Officer. Except as otherwise authorized by the Committee, if a Recipient ceases to be a Service Provider, other than for Cause or upon the Recipient’s death, Disability or Retirement, the Recipient, subject to the restrictions of this Section 9(b), may exercise his or her Option within the time specified in this Section 9(b) to the extent that the Option is vested on the date of termination, including any acceleration of vesting granted by the Committee, and has not yet expired as set forth in the Award Agreement. Unless otherwise determined by the Committee, such Option may be exercised as follows: (i) if the Option is a Non-Qualified Stock Option, it shall remain exercisable for the lesser of the remaining term of the Option or twelve (12) months from the date of such termination of the relationship as a Service Provider; or (ii) if the Option is an Incentive Stock Option, it shall remain exercisable for the lesser of the term of the Option or three (3) months following the Recipient’s termination of his relationship as a Service Provider; provided, however, that if the Recipient dies within such three-month period, any unexercised Option held by such Recipient shall notwithstanding the expiration of such three-month period continue to be exercisable (to the extent to which it was exercisable at the time of death) for the lesser of a period of twelve (12) months from the date of such death; the expiration of the stated term of such Option; or the exercise period that applies for purposes of Section 422 of the Code. If, on the date of termination, the Recipient is not vested as to his or her entire Option and the Committee has not granted any acceleration of vesting, the Shares covered by the unvested portion of the Option shall revert to the Plan. If a Recipient ceases to be a Service Provider for Cause, the Option shall immediately terminate, and the Shares covered by such Option shall revert to the Plan. If, after termination, the Recipient does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

     Notwithstanding the above, in the event of a Recipient’s change in status from Employee to non-Employee Officer or Director, the Recipient shall not automatically be treated as if the Recipient terminated his relationship as a Service Provider, nor shall the Recipient be treated as ceasing to provide services to the Company solely as a result of such change in status. In the event a Recipient’s status changes from Employee to non-Employee Officer or Director, an Incentive Stock Option held by the Recipient shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Non-Qualified Stock Option three months and one day following such change of status.

     (c) Disability of Recipient. Except as otherwise authorized by the Committee, if, as a result of the Recipient’s Disability, a Recipient ceases to be a Service Provider, the Recipient may exercise his or her Option subject to the restrictions of this Section 9(c) and within the period of time specified herein to the extent the Option

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is vested on the date of termination, including any acceleration of vesting granted by the Committee, and has not yet expired as set forth in the Award Agreement. Unless otherwise determined by the Committee or specified in the Award Agreement, such Option shall be exercisable for the lesser of the remaining period of time specified in the Award Agreement or twelve (12) months from the date of such termination. If, on the date of termination, the Recipient is not vested as to his or her entire Option and the Committee has not granted any acceleration of vesting, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Recipient does not exercise his or her Option within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. In the event of termination of employment by reason of Disability, if an Incentive Stock Option is exercised after the expiration of the exercise periods applicable under Section 422 of the Code, such Option will thereafter be treated as a Non-Qualified Stock Option.

     (d) Death of Recipient. Except as otherwise authorized by the Committee, if a Recipient dies while an Employee, the Option may be exercised subject to the restrictions of this Section 9(d) and within such period of time as is specified in the Award Agreement (but in no event later than the earlier of twelve (12) months from the date of such death or the expiration of the term of such Option as set forth in the Award Agreement), but only to the extent that the Option is vested on the date of death, including any acceleration of vesting granted by the Committee, and has not yet expired as set forth in the Award Agreement. If, at the time of death, the Recipient is not vested as to his or her entire Option and the Committee has not granted any acceleration of vesting, the Shares covered by the unvested portion of the Option shall immediately revert to the Plan. The Option may be exercised by the executor or administrator of the Recipient’s estate or, if none, by the person(s) entitled to exercise the Option under the Recipient’s will or the applicable laws of descent or distribution. If the Option is not so exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan. In the event of termination of employment by reason of death, if an Incentive Stock Option is exercised after the expiration of the exercise periods that apply for purposes of Section 422 of the Code, such Option will thereafter be treated as a Non-Qualified Stock Option.

     (e) Retirement of Recipient.

(A)

Non-Qualified Stock Options. Except as otherwise authorized by the Committee, if, as a result of the Recipient’s Retirement, a Recipient ceases to be a Service Provider, the Recipient may, subject to the restrictions of this Section 9(e), exercise his or her Non-Qualified Stock Option within the time specified herein to the extent the Option is vested on the date of termination, including any acceleration of vesting granted by the Committee, and has not yet expired as set forth in the Award Agreement. Unless otherwise determined by the Committee, such Option may be exercised for the lesser of the remaining period of time specified in the Award Agreement or three (3) years following the Recipient’s Retirement. Notwithstanding the foregoing, if the Recipient dies within such three (3)-year (or shorter) period, any unexercised Non-Qualified Stock Option held by such Recipient shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of death or the expiration of the stated term of such Option, whichever period is shorter.

(B)

Incentive Stock Options. If the Recipient holds an Incentive Stock Option and ceases to be a Service Provider by reason of his or her Retirement, such Incentive Stock Option may continue to be exercisable by the Recipient to the extent to which it was exercisable at the time of Retirement for a period of three (3) months from the date of Retirement or the expiration of the stated term of such Option, whichever period is the shorter. Notwithstanding the foregoing, if the Recipient dies within such three-month period, any unexercised Incentive Stock Option held by such Recipient shall, notwithstanding the expiration of such period, continue to be exercisable to the extent to which it was exercisable at the time of death for a period of twelve (12) months from the date of such death; the expiration of the stated term of such Option; or the exercise period that applies for purposes of Section 422 of the Code, whichever period is the shorter.

     If, on the date of termination due to Retirement, the Recipient is not vested as to his or her entire Option and the Committee has not granted any acceleration of vesting, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination due to Retirement, the Option is not exercised within the time specified herein, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

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     (f) Cash out Provisions. On receipt of written notice of exercise, the Committee may elect, but shall not be required to, to cash out all or any part of the shares of Common Stock for which an Option is being exercised by paying the Recipient an amount, in cash, equal to the excess of the Fair Market Value of the Common Stock over the option price times the number of shares of Common Stock for which an Option is being exercised on the effective date of such cash out. Cash outs pursuant to this Section 9(f) relating to Options held by Recipients who are actually or potentially subject to Section 16(b) of the Exchange Act shall comply with the provisions of Section 16 of the Exchange Act and the rules promulgated thereunder, to the extent applicable.

SECTION 10. Restricted Stock.

     (a) Awards of Restricted Stock. Shares of Restricted Stock may be issued either alone, in addition to, or in tandem with other Awards granted under the Plan and/or cash awards made outside of the Plan. The Committee shall determine the individuals to whom it will award Restricted Stock under the Plan, and it shall advise the Recipient in writing, by means of an Award Agreement, of the terms, conditions and restrictions related to the Award, including the number of Shares to be awarded to the Recipient, the time or times within which such Awards may be subject to forfeiture and any other terms and conditions of the Awards, in addition to those contained in this Section 10. The Committee may condition the grant or vesting of Restricted Stock upon the attainment of specified performance goals of the Recipient or of the Company, Subsidiary or Affiliate for or within which the Recipient is primarily employed, or upon such other factors as the Committee shall determine. The provisions of an Award need not be the same with respect to each Recipient. The terms of the Award of Restricted Stock shall comply in all respects with Applicable Law and the terms of the Plan.

     (b) Awards and Certificates. Each Award shall be confirmed by, and subject to the terms of, an Award Agreement. Shares of Restricted Stock shall be evidenced in such manner as the Committee may deem appropriate, including book-entry registration or issuance of one or more stock certificates. The Committee may require that the certificates evidencing such Shares be held in custody by the Company until the restrictions thereon shall have lapsed and that, as a condition of any Award of Restricted Stock, the Recipient shall have delivered to the Company a stock power, endorsed in blank, relating to the Common Stock covered by such Award. Any certificate issued with respect to Shares of Restricted Stock shall be registered in the name of such Recipient and shall bear an appropriate legend referring to the terms, conditions and restrictions applicable to such Award, substantially in the following form:

     “The transferability of this certificate and the shares of Stock represented hereby are subject to the terms and conditions (including forfeiture) of the Danielson Holding Corporation Equity Award Plan for Employees and Officers and an Award Agreement. Copies of such Plan and Award Agreement are on file at the office of the Secretary of Danielson Holding Corporation.”

     If and when the Restriction Period (hereinafter defined) expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, the Recipient may request that unlegended certificates for such Shares be delivered to the Recipient.

     (c) Terms and Conditions. Shares of Restricted Stock shall be subject to the following terms and conditions:

(A) Restriction Period. Subject to the provisions of the Plan and the terms of the Award Agreement, during a period set by the Committee, commencing with the date of such Award (the “Restriction Period”), the Recipient shall not be permitted to sell, assign, transfer, pledge or otherwise encumber Shares of Restricted Stock (the “Restrictions”). The Committee may provide for the lapse of such Restrictions in installments or otherwise and may accelerate or waive such Restrictions, in whole or in part, in each case based on period of service, performance of the Recipient or of the Company, Subsidiary or Affiliate, division or department for which the Recipient is employed or such other factors or criteria as the Committee may determine. Notwithstanding the foregoing, if the Recipient of a Restricted Stock Award is subject to the provisions of Section 16 of the Exchange Act, shares of Common Stock subject to the grant may not, without the written consent of the Committee, be sold or otherwise disposed of within six (6) months following the date of grant. The Committee may, in its discretion, impose a limit on the

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	number of Shares that a Recipient may receive in any twelve (12)-month period in an Award of Restricted Stock.
(B)	Rights. Except as provided in Section 10(c) of the Plan, the applicable Award Agreement and Applicable Law, the Recipient shall have, with respect to the Shares of Restricted Stock, all of the rights of a stockholder of the Company holding the class or series of Common Stock that is the subject of the Award Agreement, including, if so provided in the Award Agreement, the right to vote the Shares and the right to receive any cash dividends. Unless otherwise determined by the Committee in the applicable Award Agreement and subject to Section 18(e) of the Plan, for the Restriction Period, (A) cash dividends on the Shares of Common Stock that are the subject of the Award Agreement shall be automatically deferred and reinvested in additional Restricted Stock and (B) dividends payable in Common Stock shall be paid in the form of Restricted Stock. If there is a pro rata distribution of warrants or other rights to acquire shares of Common Stock, then the Recipient shall have the right to participate in or receive such warrants or other rights, provided, however, that any shares of Common Stock acquired pursuant to the exercise of such warrants or other rights shall be subject to the same vesting requirements and restrictions as the underlying Common Stock.
(C)	Termination of Service Provider Relationship. Except to the extent otherwise provided in the applicable Award Agreement or the Plan, if a Recipient ceases to be a Service Provider for any reason during the Restriction Period, all Shares still subject to restriction shall be forfeited by the Recipient. Without limiting the foregoing, an Award Agreement may, at the Committee’s discretion, allow for vesting to continue after termination of employment with the Company, provided the Recipient remains an Employee of any Subsidiary or Affiliate of the Company.

   (d) Other Provisions. The Award Agreement shall contain such other terms, provisions and conditions not inconsistent with the Plan as may be determined by the Committee in its sole discretion, including, without limitation, provisions relating to tax matters including wage withholding requirements; prohibitions on elections by the Recipient under Section 83(b) of the Code; and “gross-up” payments to Recipients to satisfy tax liabilities. In addition, the terms of the Award Agreements for Restricted Stock need not be the same with respect to each Recipient.

SECTION 11. Deferral of Stock Award.

   (a) The Committee may, in its sole discretion, authorize an Employee or Officer to elect to defer the ownership of the Shares of Common Stock otherwise issuable pursuant to Section 10. Any such election shall be made in writing in the form prescribed by the Committee, and shall be subject to such rules and procedures as shall be determined by the Committee in its sole discretion. In no event, however, shall any deferral be permitted to the extent prohibited by Applicable Laws.

   (b) An election to defer pursuant to (a) above with respect to Shares of Restricted Stock issuable in a calendar year must be made on or prior to December 31st of the year that precedes the year in which such Restricted Stock would otherwise be issued. Notwithstanding the foregoing, an Employee or Officer may make an election to defer pursuant to this Section 11 no later than 30 days after the Effective Date, for the year in which the Employees Plan is first effective, or, if later, within 30 days after the date the Employee or Officer first becomes eligible to participate.

   (c) At the time of the deferral election described in this Section 11, the Employee or Officer may select the date for the issuance or receipt of the deferred Shares. If the Employee or Officer does not select a date for the issuance of deferred Shares, the deferred Shares will be issued upon termination of his or her service as an Employee or Officer.

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SECTION 12. Other Awards.

     The Committee, in its sole discretion, but subject to the terms of the Plan, may grant the following types of Awards (in addition to or in combination with the Awards of Options and Restricted Stock described above) under this Plan on a stand alone, combination or tandem basis:

     (a) Stock Appreciation Right. The Committee may grant a right to receive the excess of the Fair Market Value of a Share on the date the stock appreciation right is exercised over the Fair Market Value of a Share on the date the stock appreciation right was granted (the “Spread”). The Spread with respect to a stock appreciation right may be payable in cash, Shares with a total Fair Market Value equal to the Spread or a combination of these two. With respect to stock appreciation rights that are subject to Section 16 of the Exchange Act, however, the Committee shall retain sole discretion (i) to determine the form in which payment of the stock appreciation right will be made (cash, Shares or any combination thereof) or (ii) to approve an election by a Recipient to receive cash in full or partial settlement of stock appreciation rights. Each Award Agreement for stock appreciation rights shall provide that stock appreciation rights under the Plan may not be exercised earlier than six (6) months from the date of grant. The terms of the Award Agreements granting stock appreciation rights need not be the same with respect to each Recipient. A stock appreciation right shall be subject to adjustment as provided in Section 14 of the Plan.

     (b) Performance Award. The Committee may grant a Performance Award based on the performance of the Recipient over a specified performance period. A Performance Award may be awarded to an Employee contingent upon future performance of the Company or any Affiliate, Subsidiary, division or department thereof in which such Employee is employed, if applicable, during the performance period. The Committee shall establish the performance measures applicable to such performance prior to the beginning of the performance period, but subject to such later revisions as the Committee may deem appropriate to reflect significant, unforeseen events or changes. The Performance Award may consist of a right to receive Shares (or cash in an amount equal to the Fair Market Value thereof) or the right to receive an amount equal to the appreciation, if any, in the Fair Market Value of Shares over a specified period. Each Performance Award shall have a maximum value established by the Committee at the time such Award is made. In determining the value of Performance Awards, the Committee shall take into account the Recipient’s responsibility level, performance, potential, other Awards and such other considerations as it deems appropriate. Payment of a Performance Award may be made following the end of the performance period in cash, Shares (based on the Fair Market Value on the payment date) or a combination thereof, as determined by the Committee, and in a lump sum or installments as determined by the Committee. Except as otherwise provided in an Award Agreement or as determined by the Committee, a Performance Award shall terminate if the Recipient does not remain continuously in the employ of the Company at all times during the applicable performance period. The terms of the Award Agreements granting a Performance Award need not be the same with respect to each Recipient.

     (c) Other Stock-Based Awards. The Committee may, in its discretion, grant other Share-based Awards which are related to or serve a similar function to those Awards set forth in this Section 12.

SECTION 13. Non-Transferability of Awards.

     Unless otherwise specified by the Committee in the Award Agreement, an Award may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by (i) will or by the laws of descent or distribution or (ii) pursuant to a qualified domestic relations order (as defined in the Code or Title I of the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder). Options and other Awards may be exercised, during the lifetime of the Participant, only by the Participant or by the guardian or legal representative of the Participant or by an alternate payee pursuant to a qualified domestic relations order. If the Committee makes an Award transferable, such Award shall contain such additional terms and conditions as the Committee deems appropriate. Any attempt to assign, pledge or otherwise transfer any Award or of any right or privileges conferred thereby, contrary to the Plan, or the sale or levy or similar process upon the rights and privileges conferred hereby, shall be void.

SECTION 14. Adjustments Upon Changes in Capitalization.

     Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Award, and the number of shares of Common Stock which have been authorized for

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issuance under the Plan but as to which no Awards have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Award, as well as the price per share of Common Stock covered by each such outstanding Award, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that (a) conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration;” and (b) no adjustment shall be made below par value and no fractional shares of Common Stock shall be issued. Such adjustment shall be made by the Board in its sole discretion, whose determination in that respect shall be final, binding and conclusive. In the event of an extraordinary cash dividend, the Committee may, in its sole discretion, equitably adjust the aggregate number of Shares available under the Plan, as well as the exercise price, number of Shares and other appropriate terms of any outstanding Award in order to preserve the intended benefits of the Plan. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Award.

SECTION 15. Date of Grant.

     The date of grant of an Award shall be, for all purposes, the date on which the Committee makes the determination granting such Award, or such other later date as is determined by the Committee. Notice of the determination shall be provided to each Participant within a reasonable time after the date of such grant.

SECTION 16. Term; Amendment and Termination of the Plan.

     (a) Amendment and Termination. Subject to this Section 16 and Section 18(f), the Board may at any time amend, alter, suspend or terminate the Plan, including without limitation to provide for the transferability of any or all Options to comply with or take advantage of rules governing registration of shares. Subject to Section 18(f) and the other terms of the Plan, the Committee may amend the terms of any Option theretofore granted, prospectively or retroactively, but no such amendment shall impair the rights of any Recipient without the Recipient’s consent.

     (b) Stockholder Approval. The Company shall obtain stockholder approval of any material Plan amendment and any amendment to the extent necessary and desirable to comply with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or quoted). Such stockholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the Applicable Law, rule or regulation.

     (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any Recipient, unless mutually agreed otherwise between the Recipient and the Committee, which agreement must be in writing and signed by the Recipient and the Company.

SECTION 17. Conditions Upon Issuance of Shares.

     (a) Legal Compliance. Shares shall not be issued pursuant to the exercise of an Award unless the exercise of such Award and the issuance and delivery of such Shares shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, Applicable Laws, and the requirements of any stock exchange or quotation system upon which the Shares may then be listed or quoted and shall be further subject to the approval of counsel for the Company with respect to such compliance. The Committee may cause a legend or legends to be placed on any certificates for Shares or other securities delivered under the Plan as it may deem appropriate to make reference to such legal rules and restrictions, or to impose any restrictions on transfer.

     (b) Withholding Obligations. No later than the date as of which an amount first becomes includible in the gross income of the Recipient for federal income tax purposes with respect to any Award under the Plan, the Recipient shall pay to the Company, or make arrangements satisfactory to the Company regarding the payment of,

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any federal, state, local or foreign taxes of any kind required by law to be withheld with respect to such amount. Unless otherwise determined by the Committee, withholding obligations may be settled with vested Common Stock, including vested Common Stock that is part of the Award that gives rise to the withholding requirement. The obligations of the Company under the Plan shall be conditioned on such payment or arrangements, and the Company, its Subsidiaries and its Affiliates shall, to the extent permitted by law, have the right to deduct any such taxes from any payment otherwise due to the Recipient. The Committee may establish such procedures as it deems appropriate, including the making of irrevocable elections, for the settlement of withholding obligations with vested Common Stock.

     (c) Inability to Obtain Authority. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

     (d) Grants Exceeding Allotted Shares. If the Stock covered by an Award exceeds, as of the date of grant, the number of Shares which may be issued under the Plan without additional stockholder approval, such Award shall be void with respect to such excess Shares, unless stockholder approval of an amendment sufficiently increasing the number of Shares subject to the Plan is timely obtained in accordance with Applicable Law and Section 16(b) of the Plan.

SECTION 18. General Provisions.

     (a) Term of Plan. This Plan shall become effective upon its approval by the stockholders of the Company (“Effective Date”), subject to the approval of the Company’s stockholders on or before the first anniversary of the date of its adoption by the Board. Such stockholder approval shall be obtained in the manner and to the degree required under Applicable Laws and the rules of any stock exchange upon which the Common Stock is listed. It shall continue in effect for a term of ten (10) years unless terminated earlier under Section 16 of the Plan.

     (b) No Contract of Employment. Neither the Plan nor any Award hereunder shall confer upon an individual any right with respect to continuing such individual’s employment relationship with the Company, nor shall they interfere in any way with such individual’s right or the Company’s right to terminate such employment relationship at any time, with or without cause.

     (c) Severability. In the event that any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if the illegal or invalid provision had not been included.

     (d) Governing Law. The Plan and all Awards made and actions thereunder shall be governed by and construed in accordance with the laws of the state of Delaware.

     (e) Dividends. The reinvestment of dividends in additional Restricted Stock at the time of any dividend payment shall be permissible only if sufficient shares of Common Stock are available under the Plan for such reinvestment (taking into account then outstanding Options and other Awards).

     (f) Prohibition on Loans to Participants. The Company shall not lend funds to any Participant for the purpose of paying the exercise or base price associated with any Award or for the purpose of paying any taxes associated with the exercise or vesting of an Award.

     (g) Performance-Based Compensation. The Committee may designate any Award as “performance-based compensation” for purposes of Section 162(m) of the Code. Any Awards designated as “performance-based compensation” shall be conditioned on the achievement of one or more performance measures, and the measurement may be stated in absolute terms or relative to comparable companies.

     (h) Unfunded Status of Plan. It is intended that the Plan constitute an “unfunded” plan for incentive and deferred compensation. The Committee may authorize the creation of trusts or other arrangements to meet the

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obligations created under the Plan to deliver Common Stock or make payment; provided, however, that, unless the Committee otherwise determines, the existence of such trusts or other arrangements is consistent with the “unfunded” status of the Plan.

     (i) Liability of Committee Members. Except as provided under Applicable Law, no member of the Board or the Committee will be liable for any action or determination made in good faith by the Board or the Committee with respect to the Plan or any Award under it. Neither the Company, the Board of Directors nor the Committee, nor any Subsidiary or Affiliate, nor any directors, officers or employees thereof, shall be liable to any Participant or other person if it is determined for any reason by the Internal Revenue Service or any court that an Incentive Stock Option granted hereunder does not qualify for tax treatment as an “incentive stock option” under Section 422 of the Code.

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EX-10.2

Exhibit 10.2

DANIELSON HOLDING CORPORATION
RESTRICTED STOCK AWARD AGREEMENT

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

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

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

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

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

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

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

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

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

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

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

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

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

(c)

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

(d)

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

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

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

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

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

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

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

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

     10. Construction.

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

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

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

DANIELSON HOLDING CORPORATION
 

By:  

Title:  

Accepted this            day of
                              , 2004.

EMPLOYEE’S ADDRESS:

EX-10.3

Exhibit 10.3

DANIELSON HOLDING CORPORATION

STOCK OPTION AGREEMENT
FOR EMPLOYEES AND OFFICERS

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

W I T N E S S E T H:

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

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

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

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

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

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

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

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

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

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

     4. Vesting.

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

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

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

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

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

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

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

     7. Method of Exercising Options.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

* * *

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

DANIELSON HOLDING CORPORATION

By:

Its:

OPTIONEE:

OPTIONEE’S ADDRESS:

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EX-10.4

Exhibit 10.4

EMPLOYMENT AGREEMENT

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

Background

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

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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each of which shall be determined independently of the others:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

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     2. Employment and Duties.

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

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

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

     4. Compensation and Benefits.

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

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

7

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

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

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

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

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

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Exchange Act, and then only to the extent of owning not more than two percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

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

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

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

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company and shall be deemed to be a “trade secret.” In the event that any part of the Confidential Information becomes generally known to the public through legitimate origins (other than by the breach of this Agreement by Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

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          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

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

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

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

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

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     10. Indemnification.

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

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

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

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

     11. Miscellaneous.

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

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

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

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

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

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

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

With a copy to:

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

And to:

David S. Stone, Esq.

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

If to Executive:

Anthony Orlando

                                 

                                 

Telephone Number:                                  

With a copy to:

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

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

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

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

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

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

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

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

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

[signature page follows]

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

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

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EX-10.5

Exhibit 10.5

EMPLOYMENT AGREEMENT

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

Background

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

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

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notice of termination to Executive.

     2. Employment and Duties.

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

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

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

     4. Compensation and Benefits.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

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

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

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

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Exchange Act, and then only to the extent of owning not more than two

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

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

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

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of

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

          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

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copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’s rights hereunder shall not be limited to this country but shall extend to any country in the world and shall attach to each Invention notwithstanding that it is perfected, improved, reduced to specific form or used after termination Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’s request without charge in connection with any proceedings relating to such letters of patent, trade secrets, copyright or application thereof, as may be determined by the Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

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

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

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

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

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

     10. Indemnification.

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

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

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

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

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     11. Miscellaneous.

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

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

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

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

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

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

With a copy to:

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

And to:

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

If to Executive:

Craig D. Abolt
____________________
____________________
Telephone Number: ______________

With a copy to:

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

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

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

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

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

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

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

[signature page follows]

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

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

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EX-10.6

Exhibit 10.6

EMPLOYMENT AGREEMENT

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

Background

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

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

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     2. Employment and Duties.

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

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

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

     4. Compensation and Benefits.

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

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from time to time.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

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

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

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

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Exchange Act, and then only to the extent of owning not more than two

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

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

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

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Parent Company or the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Parent Company or the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of

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

          8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

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copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’s rights hereunder shall not be limited to this country but shall extend to any country in the world and shall attach to each Invention notwithstanding that it is perfected, improved, reduced to specific form or used after termination Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’s request without charge in connection with any proceedings relating to such letters of patent, trade secrets, copyright or application thereof, as may be determined by the Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

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

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

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

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

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

     10. Indemnification.

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

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

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

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

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     11. Miscellaneous.

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

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

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

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

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

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

With a copy to:

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

And to:

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

If to Executive:

Timothy J. Simpson
____________________
____________________
Telephone Number: ______________

With a copy to:

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

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

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

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

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

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

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

[signature page follows]

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

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

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EX-10.7

Exhibit 10.7

EMPLOYMENT AGREEMENT

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

Background

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

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

Agreement

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

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

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

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

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

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

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

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

        “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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either the Company or the Parent Company. For purposes of this definition, the term “Person” is used as such term is used Sections 13(d) and 14(d) of the Exchange Act;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

              (c) any removal by the Company of Executive from his position indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with (i) the reclassification or restructuring of Executive’s position on the Company’s senior management team in connection with the expansion or modification of the Company’s business, or (ii) the termination of Executive’s employment for Cause or Disability;

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

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

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

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

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

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

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

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

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

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

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the Annual Bonus that Executive would have been entitled to receive had he remained employed by the Company for the entire applicable Employment Year.

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

        “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

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     2. Employment and Duties.

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

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

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

     4. Compensation and Benefits.

        4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Two Hundred Seventy Six Thousand Three Hundred Forty Dollars ($276,340) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect from time to time.

        4.2 Annual Bonus. In addition to the Base Salary, Executive shall be eligible

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to receive an annual cash bonus from the Company (the “Annual Bonus”). For calendar year 2004, the Annual Bonus payable to Executive shall be based on the Company’s 2004 Cash Bonus Plan dated April 15, 2004 and approved by the Board (the “Covanta 2004 Cash Bonus Plan”). Thereafter, the Annual Bonus payable to Executive shall be based on the annual cash bonus program approved by the Board or the Compensation Committee thereof; provided, however, that Executive’s annual target bonus shall continue to be at least fifty percent (50%) of Executive’s Base Salary (the “Target Bonus”) for each subsequent Employment Year unless Executive receives written notice from the Board or the Compensation Committee thereof no later than March 1^st of any applicable Employment Year that the Board or the Compensation Committee thereof has decided to reduce the Target Bonus.

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

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

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

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(a)	25,000 Options as of the close of business on February 28, 2006;
(b)	25,000 Options as of the close of business on February 28, 2007; and
(c)	25,000 Options as of the close of business on February 28, 2008.

      4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing One Hundred Forty Thousand Dollars ($140,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to any shares of the Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

      (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 9,656 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

                 (i) 3,218 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

                 (ii) 3,219 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

                 (iii) 3,219 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

      (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 9,655 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

                 (i) First Tranche Amount. The “First Tranche Amount” consisting of 3,218 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of

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performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

                 (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 3,218 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

                 (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 3,219 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

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

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

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Agreement, the Stock Option Agreement or the Restricted Stock Agreement.

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

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

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

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

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

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

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     6. Termination.

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

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

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

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

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

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

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subsections to make severance payments or provide continued employee benefits will immediately cease.

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

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

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

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

        8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting

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

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

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

        8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or

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

        8.5 Return of Property. Upon termination of this Agreement for any reason, Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

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and to the Inventions, and otherwise aid and assist the Company so that the Company can prepare and present applications for copyright or letters patent therefor and can secure such copyright or letters patent wherever possible, as well as reissues, renewals, and extensions thereof, and can obtain the record title to such copyright or patents so that the Company shall be the sole and absolute owner thereof in all countries in which it may desire to have copyright or patent protection. Executive will, at the Company’s request, execute any and all assignment, patent or copyright forms and the like, deemed reasonably necessary by the Company. The Company’s rights hereunder shall not be limited to this country but shall extend to any country in the world and shall attach to each Invention notwithstanding that it is perfected, improved, reduced to specific form or used after termination Executive’s employment. Executive agrees to lend such assistance as he may be able, at the Company’s request without charge in connection with any proceedings relating to such letters of patent, trade secrets, copyright or application thereof, as may be determined by the Company to be reasonably necessary. Executive shall not be entitled to any additional or special compensation or reimbursement regarding any and all such writings, inventions, improvements, processes, procedures and techniques.

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

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

        8.9 Post-Termination Violations of this Agreement. In the event, and at the moment, that Executive violates any of his duties or obligations set forth in (i) Sections 8.1, 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs during the Term of Employment for any reason, or (ii) Sections 8.2, 8.3 or 8.4 of this Agreement that continue after any termination that occurs after the expiration of the Term of Employment, and notwithstanding any other provision in this Agreement, the Stock Option Agreement or the Restricted Stock

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Agreement to the contrary, (x) Executive shall immediately forfeit any right to exercise any unexercised Options that previously vested pursuant to the terms of this Agreement or the Stock Option Agreement, and (y) any unvested options, shares of restricted stock or other equity awards (including any unvested Options or shares of Restricted Stock) will immediately be cancelled and forfeited.

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

     10. Indemnification.

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

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

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

        10.4 The Company shall not settle any Proceeding or claim in any manner which would impose on Executive any penalty or limitation without Executive’s prior written consent.

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Neither the Company nor Executive will withhold consent to any proposed settlement unreasonably.

     11. Miscellaneous.

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

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

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

If to the Employer or the Company:

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

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With a copy to:

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

And to:

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

If to Executive:

John Klett
                                      

Telephone Number:                                       

With a copy to:

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

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

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

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this Agreement.

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

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

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

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

[signature page follows]

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

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
COMPANY:
Covanta Energy Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
/s/ John Klett
John Klett, Individually

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EX-10.8

Exhibit 10.8

EMPLOYMENT AGREEMENT

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

Background

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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

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

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

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

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

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

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

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

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

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

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hereof.

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

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

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

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

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

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

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

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

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

               (c) any removal by the Company of Executive from his position

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indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with (i) the reclassification or restructuring of Executive’s position on the Company’s senior management team in connection with the expansion or modification of the Company’s business, or (ii) the termination of Executive’s employment for Cause or Disability;

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

     2. Employment and Duties.

          2.1 Employment. The Company hereby employs Executive and Executive hereby accepts appointment or election as Senior Vice President, Business Development and Construction of the Company. Executive shall be responsible for all lawful duties and entitled to all authority customarily assigned to the position of Senior Vice President, Business Development and Construction, as well as those lawful duties specified by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. Executive shall render such services as are necessary and desirable to protect and advance the best interests of the Company,

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acting, in all instances, under the supervision of and in accordance with the lawful policies set by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. So long as Executive shall remain an employee of the Company, Executive’s entire working time, energy, skill and best efforts shall be devoted to the performance of Executive’s duties hereunder in a manner which will faithfully and diligently further the business and interests of the Company; provided, however, that Executive may serve on up to three (3) corporate, civic and charitable boards with the consent of the compensation committee of the Parent Company, which serves as the Company’s compensation committee (such committee, the “Compensation Committee”), and deliver lectures, fulfill speaking engagements or teach at educational institutions; provided, further, that such service does not conflict with or detract from the performance of his duties. Nothing in this Section 2.1 shall be deemed to limit Executive’s management of his personal passive investments.

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

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

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Two Hundred Fifteen Thousand and Fifty Dollars ($215,050) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect from time to time.

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

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Committee thereof has decided to reduce the Target Bonus.

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

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

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon approval of the 2004 Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Employees’ Plan”) by the stockholders of the Parent Company, the Parent Company shall grant to Executive options (the “Options”) to purchase an aggregate of 65,000 shares of common stock, par value $0.10 per share of Parent Company (“Common Stock”) at an exercise price equal to the fair market value per share of the Common Stock (such fair market value being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange). The Options shall be restricted and non-transferable, as set forth in the Stock Option Agreement, in the form attached hereto as Exhibit A, and shall vest in accordance with the schedule set forth below. The term of the Options shall be for a period of ten (10) years following the date of the grant of the Options hereunder, and the Options shall be subject to such other terms and conditions not inconsistent with the terms of this Agreement as are set forth in the Stock Option Agreement to be executed by the Parent Company and Executive and as determined by the Compensation Committee. To the extent permitted by applicable law, the Options shall be incentive stock options in each year and, with respect to any Options that are vested, shall be exercisable for the applicable periods set forth in the Stock Option Agreement. Executive shall not be entitled to any rights with respect to the Common Stock underlying the Options, including the right to vote or receive dividends or distributions with respect to any of the Common Stock underlying the Options, until such Options (or any portion thereof) have been exercised. To the extent that Executive is employed by the Company as of each of the respective dates set forth below and in recognition of Executive’s employment by the Company prior to the execution of this Agreement, the Options shall vest as follows:

               (a) 21,666 Options as of the close of business on February 28, 2006;

               (b) 21,667 Options as of the close of business on February 28, 2007; and

               (c) 21,667 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent

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Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing One Hundred Ten Thousand Dollars ($110,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to any shares of the Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 7,587 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

                    (i) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

                    (ii) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

                    (iii) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 7,586 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

                    (i) First Tranche Amount. The “First Tranche Amount” consisting of 2,528 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

                    (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 2,529 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

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                    (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 2,529 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

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

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

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Exchange Act, and then only to the extent of owning not more than two percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or for a period of six (6) months following the expiration of this Agreement, Executive agrees and

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

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

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company and shall be deemed to be a “trade secret.” In the event that any part of the Confidential Information becomes generally known to the public through legitimate origins (other than by the breach of this Agreement by Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

          8.5 Return of Property. Upon termination of this Agreement for any reason,

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Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

          8.7 Equitable Remedies. In the event that Executive breaches any of the terms or conditions set forth in this Section 8, Executive stipulates that such breach will result in

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immediate and irreparable harm to the business and goodwill of the Parent Company and/or the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Parent Company and/or the Company shall therefore be entitled to apply for and receive from any court of competent jurisdiction an injunction to restrain any violation of this Agreement and such further relief as the court may deem just and proper. Following judgment or other final determination by such court, the non-prevailing party in such proceeding shall pay the costs and expenses (including court costs and reasonable attorneys’ fees) of the prevailing party.

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

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

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

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     10. Indemnification.

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

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

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

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

     11. Miscellaneous.

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

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

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

If to the Employer or the Company:

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

With a copy to:

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

And to:

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

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If to Executive:

Scott Whitney
                                      
                                      
Telephone Number:                    

With a copy to:

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

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

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

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

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

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

          11.10 Severability. If any phrase, clause or provision of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, such phrase, clause or provision shall be deemed severed from this Agreement, but will not affect any other provisions

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of this Agreement, which shall otherwise remain in full force and effect. If any restriction or limitation in this Agreement is deemed to be unreasonable, onerous and unduly restrictive by a court of competent jurisdiction, it shall not be stricken in its entirety and held totally void and unenforceable, but shall remain effective to the maximum extent permitted by such court.

[signature page follows]

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

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
COMPANY:
Covanta Energy Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
/s/ Scott Whitney
Scott Whitney, Individually

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EX-10.9

Exhibit 10.9

EMPLOYMENT AGREEMENT

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

Background

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

provided, however, that no termination under clause (c), (d), (e) or (f) above shall be effective unless Executive shall have first received written notice describing in reasonable detail the basis for the termination and within fifteen (15) days following delivery of such notice Executive shall have failed to cure such alleged behavior constituting “cause”; provided, further, that this notice requirement prior to termination shall be applicable only if such behavior or breach is capable of being cured.

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

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

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

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

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

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

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

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

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

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

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

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

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hereof.

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

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

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

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

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

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

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

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

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

               (c) any removal by the Company of Executive from his position

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indicated in Section 2.1 or the assignment to Executive of duties and responsibilities materially inconsistent and adverse with the duties indicated in Section 2.1, except in connection with (i) the reclassification or restructuring of Executive’s position on the Company’s senior management team in connection with the expansion or modification of the Company’s business, or (ii) the termination of Executive’s employment for Cause or Disability;

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

     2. Employment and Duties.

          2.1 Employment. The Company hereby employs Executive and Executive hereby accepts appointment or election as Senior Vice President, Business Management of the Company. Executive shall be responsible for all lawful duties and entitled to all authority customarily assigned to the position of Senior Vice President, Business Management, as well as those lawful duties specified by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. Executive shall render such services as are necessary and desirable to protect and advance the best interests of the Company, acting, in all instances,

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under the supervision of and in accordance with the lawful policies set by the Chief Executive Officer or such other senior officer or officers of the Company as designated by the Board. So long as Executive shall remain an employee of the Company, Executive’s entire working time, energy, skill and best efforts shall be devoted to the performance of Executive’s duties hereunder in a manner which will faithfully and diligently further the business and interests of the Company; provided, however, that Executive may serve on up to three (3) corporate, civic and charitable boards with the consent of the compensation committee of the Parent Company, which serves as the Company’s compensation committee (such committee, the “Compensation Committee”), and deliver lectures, fulfill speaking engagements or teach at educational institutions; provided, further, that such service does not conflict with or detract from the performance of his duties. Nothing in this Section 2.1 shall be deemed to limit Executive’s management of his personal passive investments.

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

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

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the Company, Executive shall receive a base salary at the gross annual rate (without regard to authorized or legally required deductions and withholdings) of Two Hundred Seven Thousand Nine Hundred Dollars ($207,900) (as adjusted from time to time, the “Base Salary”), payable in installments in accordance with the Company’s regular payroll practices in effect from time to time.

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

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Committee thereof has decided to reduce the Target Bonus.

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

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

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon approval of the 2004 Danielson Holding Corporation Equity Award Plan for Employees and Officers (the “Employees’ Plan”) by the stockholders of the Parent Company, the Parent Company shall grant to Executive options (the “Options”) to purchase an aggregate of 65,000 shares of common stock, par value $0.10 per share of Parent Company (“Common Stock”) at an exercise price equal to the fair market value per share of the Common Stock (such fair market value being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange). The Options shall be restricted and non-transferable, as set forth in the Stock Option Agreement, in the form attached hereto as Exhibit A, and shall vest in accordance with the schedule set forth below. The term of the Options shall be for a period of ten (10) years following the date of the grant of the Options hereunder, and the Options shall be subject to such other terms and conditions not inconsistent with the terms of this Agreement as are set forth in the Stock Option Agreement to be executed by the Parent Company and Executive and as determined by the Compensation Committee. To the extent permitted by applicable law, the Options shall be incentive stock options in each year and, with respect to any Options that are vested, shall be exercisable for the applicable periods set forth in the Stock Option Agreement. Executive shall not be entitled to any rights with respect to the Common Stock underlying the Options, including the right to vote or receive dividends or distributions with respect to any of the Common Stock underlying the Options, until such Options (or any portion thereof) have been exercised. To the extent that Executive is employed by the Company as of each of the respective dates set forth below and in recognition of Executive’s employment by the Company prior to the execution of this Agreement, the Options shall vest as follows:

               (a) 21,666 Options as of the close of business on February 28, 2006;

               (b) 21,667 Options as of the close of business on February 28, 2007; and

               (c) 21,667 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the Parent

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Company shall grant to Executive such number of shares of Common Stock (the “Restricted Stock”) as is determined by dividing One Hundred Ten Thousand Dollars ($110,000) by the fair market value per share of the Common Stock as of the date of this Agreement (such fair market value per share being the average of the high and low price on the trading date immediately prior to the date of the grant on the American Stock Exchange) and upon approval of the Employees’ Plan by the stockholders of the Parent Company. The Restricted Stock shall be restricted and non-transferable, as set forth in the Restricted Stock Agreement, in the form attached hereto as Exhibit B, and shall vest in accordance with the schedule set forth below. Executive shall be entitled only to such rights with respect to the Restricted Stock, such as the right to vote or receive dividends or distributions with respect to any shares of the Restricted Stock, as are set forth in the Restricted Stock Agreement. The restrictions upon the Restricted Stock shall lapse and Executive shall acquire “ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 7,587 shares (the “Time Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below provided that Executive is employed on such date by the Company or its Affiliates or Subsidiaries:

               (i) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2005;

               (ii) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2006; and

               (iii) 2,529 shares and representing one-third of the Time Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of Restricted Stock awarded hereunder, consisting of 7,586 shares (the “Performance Vesting Restricted Stock”), shall vest as of the dates and in the amounts set forth below:

               (i) First Tranche Amount. The “First Tranche Amount” consisting of 2,528 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2005, pursuant to the satisfaction of performance based metric of operating cash flow of the Company as set forth in the Covanta 2004 Cash Bonus Plan.

               (ii) Second Tranche Amount. The “Second Tranche Amount” consisting of 2,529 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2006, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2005 Cash Bonus Plan shall apply; and

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               (iii) Third Tranche Amount. The “Third Tranche Amount” consisting of 2,529 shares and representing one-third of the Performance Vesting Restricted Stock, shall vest on February 28, 2007, pursuant to the satisfaction of the applicable performance criteria and schedule determined by the Board or the Compensation Committee thereof; provided, however, that if the Board or the Compensation Committee thereof does not establish new criteria, then the performance criteria and schedule for awarding bonuses under the Company’s 2006 Cash Bonus Plan shall apply.

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

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

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

          8.1 Covenant Not to Compete. During the Restricted Period, Executive shall not, without the consent of the Board, in any form or any manner, directly or indirectly, on Executive’s own behalf or in combination with others, become engaged in (as an individual, partner, stockholder, director, officer, principal, agent, independent contractor, employee, trustee, lender of money or in any other relation or capacity whatsoever, except as a holder of securities of a corporation whose securities are publicly traded and which is subject to the reporting requirements of the Exchange Act, and then only to the extent of owning not more than two percent (2%) of the issued and outstanding securities of such corporation or other entity) or provide services to any business which renders services or sells products, or proposes to render services or sell products, that compete with the Business of the Parent Company, the Company or any of their respective subsidiaries within the United States and any foreign country in which the Parent Company, the Company or any of their respective subsidiaries conducts any aspect of the Business during the term of this Agreement. For purposes of this Agreement, the term “Business” shall mean the ownership and operation of waste-to-energy and independent power generation projects. Notwithstanding the foregoing, after termination of Executive’s employment for any reason, Executive shall be permitted to work for any business that owns and operates independent power generation projects so long as such business, as determined in the good faith judgment of the Board, does not compete with the Parent Company, the Company or any of their respective subsidiaries.

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or for a period of six (6) months following the expiration of this Agreement, Executive agrees and

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

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

          8.4 Covenant of Confidentiality. At any time during the term of Executive’s employment with the Company (pursuant to this Agreement or otherwise), and for a period of five (5) years after the termination of Executive’s employment with the Company for any reason, Executive shall not, except in furtherance of the Business of the DHC Group or otherwise with the prior authorization of the Company, in any form or manner, directly or indirectly, divulge, disclose or communicate to any person, entity, firm, corporation or any other third party (other than in the course of Executive’s employment hereunder), or utilize for Executive’s personal benefit or for the benefit of any competitor of the DHC Group any Confidential Information. For purposes of this Agreement, “Confidential Information” shall mean, but shall not be limited to, any technical or non-technical data, formulae, patterns, compilations, programs, devices, methods, techniques, drawings, designs, processes, procedures, improvements, models or manuals of any member of the DHC Group or which are licensed by any member of the DHC Group, any financial data or lists of actual or potential customers or suppliers (including contacts thereat) of the DHC Group, and any information regarding the contracts, marketing and sales plans, which is not generally known to the public through legitimate origins of the DHC Group. The Parent Company and the Company and Executive acknowledge and agree that such Confidential Information is extremely valuable to the Parent Company and the Company and shall be deemed to be a “trade secret.” In the event that any part of the Confidential Information becomes generally known to the public through legitimate origins (other than by the breach of this Agreement by Executive or by misappropriation), or is required to be disclosed by legal, administrative or judicial process (provided that Executive has provided to the Parent Company and the Company reasonable prior notice of such request and the Parent Company or the Company has had a reasonable opportunity, at its expense, to dispute, defend or limit such request for the Confidential Information), that part of the Confidential Information shall no longer be deemed Confidential Information for purposes of this Agreement, but Executive shall continue to be bound by the terms of this Agreement as to all other Confidential Information.

          8.5 Return of Property. Upon termination of this Agreement for any reason,

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Executive shall promptly deliver to the Company all correspondence, drawings, blueprints, manuals, letters, notes, notebooks, reports, programs, plans, proposals, financial documents or any other documents, including all copies in any form or media, concerning the Company’s Customers, marketing strategies, products or processes which contain any Confidential Information.

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

          8.7 Equitable Remedies. In the event that Executive breaches any of the terms or conditions set forth in this Section 8, Executive stipulates that such breach will result in

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immediate and irreparable harm to the business and goodwill of the Parent Company and/or the Company and that damages, if any, and remedies at law for such breach would be inadequate. The Parent Company and/or the Company shall therefore be entitled to apply for and receive from any court of competent jurisdiction an injunction to restrain any violation of this Agreement and such further relief as the court may deem just and proper. Following judgment or other final determination by such court, the non-prevailing party in such proceeding shall pay the costs and expenses (including court costs and reasonable attorneys’ fees) of the prevailing party.

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

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

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

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     10. Indemnification.

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

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

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

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

     11. Miscellaneous.

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

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

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

If to the Employer or the Company:

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

With a copy to:

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

And to:

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

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If to Executive:

Seth Myones

Telephone Number:                                       

With a copy to:

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

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

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

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

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

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

          11.10 Severability. If any phrase, clause or provision of this Agreement is declared invalid or unenforceable by a court of competent jurisdiction, such phrase, clause or provision shall be deemed severed from this Agreement, but will not affect any other provisions

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of this Agreement, which shall otherwise remain in full force and effect. If any restriction or limitation in this Agreement is deemed to be unreasonable, onerous and unduly restrictive by a court of competent jurisdiction, it shall not be stricken in its entirety and held totally void and unenforceable, but shall remain effective to the maximum extent permitted by such court.

[signature page follows]

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

EMPLOYER:
Covanta Projects, Inc.
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
COMPANY:
Covanta Energy Corporation
By:	/s/ Anthony J. Orlando
	Anthony J. Orlando, President and CEO
/s/ Seth Myones
Seth Myones, Individually

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