Exhibit 10.3
EXECUTION VERSION
PLEDGE AGREEMENT
dated as of February 9, 2007
between
COVANTA HOLDING CORPORATION
and
JPMORGAN CHASE BANK, N.A.,
as Collateral Agent

 

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TABLE OF CONTENTS

                      PAGE
 
            SECTION 1. DEFINITIONS; GRANT OF SECURITY     1  
1.1
  General Definitions     1  
1.2
  Definitions; Interpretation     2  
 
            SECTION 2. GRANT OF SECURITY     3  
2.1
  Grant of Security     3  
 
            SECTION 3. SECURITY FOR OBLIGATIONS; PLEDGOR REMAINS LIABLE     3  
3.1
  Security for Obligations     3  
3.2
  Continuing Liability Under Collateral     3  
 
            SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS     3  
4.1
  Generally     3  
4.2
  Pledged Equity Interests     5  
 
            SECTION 5. FURTHER ASSURANCES     8  
5.1
  Further Assurances     8  
 
            SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT     8  
6.1
  Power of Attorney     8  
6.2
  No Duty on the Part of Collateral Agent or Secured Parties     9   SECTION 7.
REMEDIES     9  
7.1
  Generally.     9  
7.2
  Application of Proceeds     11  
7.3
  Cash Proceeds     11  
 
            SECTION 8. COLLATERAL AGENT     12  
 
            SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS     12  
 
            SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM     13  
 
            SECTION 11. MISCELLANEOUS     13  
 
            SCHEDULE 4.1 — GENERAL INFORMATION        
 
            SCHEDULE 4.2 — PLEDGED EQUITY INTERESTS        
 
            EXHIBIT A — PLEDGE SUPPLEMENT        

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          This PLEDGE AGREEMENT, dated as of February 9, 2007 (this
“Agreement”), between COVANTA HOLDING CORPORATION (the “Pledgor”), and JPMORGAN
CHASE BANK, N.A., as collateral agent for the Secured Parties (as herein
defined) (in such capacity as collateral agent, the “Collateral Agent”).
RECITALS:
     WHEREAS, reference is made to that certain Credit and Guaranty Agreement,
dated as of the date hereof (as it may be amended, restated, supplemented or
otherwise modified from time to time, the "Credit Agreement”), by and among
COVANTA ENERGY CORPORATION, a Delaware corporation (“Company”), Pledgor, CERTAIN
SUBSIDIARIES OF COMPANY, as guarantors, the Lenders party thereto from time to
time (the “Lenders”), JPMORGAN CHASE BANK, N.A., as Administrative Agent,
Revolving Issuing Bank and a Funded LC Issuing Bank, UBS AG, STAMFORD BRANCH as
a Funded LC Issuing Bank, LEHMAN COMMERCIAL PAPER INC. and MERRILL LYNCH,
PIERCE, FENNER & SMITH INCORPORATED, as Syndication Agents, BANK OF AMERICA,
N.A. and BARCLAYS BANK PLC, as Documentation Agents, and the COLLATERAL AGENT;
     WHEREAS, subject to the terms and conditions of the Credit Agreement,
certain Credit Parties may enter into one or more Permitted Hedge Agreements (as
defined in the Credit Agreement) with one or more Lender Counterparties;
     WHEREAS, in consideration of the extensions of credit and other
accommodations of Lenders and Lender Counterparties as set forth in the Credit
Agreement and the Permitted Hedge Agreements, respectively, the Pledgor has
agreed to secure the Credit Parties’ obligations under the Credit Documents and
the Permitted Hedge Agreements as set forth herein; and
     NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Pledgor and the Collateral Agent
agree as follows:
SECTION 1. DEFINITIONS; GRANT OF SECURITY.
     1.1 General Definitions. In this Agreement, the following terms shall have
the following meanings:
          “Agreement” shall have the meaning set forth in the preamble.
          “Cash Proceeds” shall have the meaning assigned in Section 7.3.
          “Collateral” shall have the meaning assigned in Section 2.1.
          “Collateral Agent” shall have the meaning set forth in the preamble.
          “Company” shall have the meaning set forth in the recitals.
          “Credit Agreement” shall have the meaning set forth in the recitals.
          “Lender” shall have the meaning set forth in the recitals.
          "Permitted Liens” shall have the meaning assigned in
Section 4.1(a)(i).

 

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          “Pledge Supplement” shall mean any supplement to this agreement in
substantially the form of Exhibit A.
          “Pledged Equity Interests” shall mean all shares of capital stock and
all other equity interests in the Company, including, without limitation, all
interests listed on Schedule 4.2 (as such schedule may be amended or modified
from time to time) and the certificates, if any, representing such equity
interests and any interest of the Pledgor on the books and records of the
Company and all dividends, distributions, cash, warrants, rights, options,
instruments, securities and other property or proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such equity interests.
          “Pledgor” shall have the meaning set forth in the preamble.
          “Proceeds” shall mean: (i) all “proceeds” as defined in Article 9 of
the UCC, (ii) payments or distributions made with respect to any Pledged Equity
Interests and (iii) whatever is receivable or received when Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.
          “Record” shall have the meaning specified in Article 9 of the UCC.
          “Secured Obligations” shall have the meaning assigned in Section 3.1.
          “Secured Parties” shall mean the Agents, Issuing Banks, Lenders and
the Lender Counterparties and shall include, without limitation, all former
Agents, Issuing Banks, Lenders and Lender Counterparties to the extent that any
Obligations owing to such Persons were incurred while such Persons were Agents,
Issuing Banks, Lenders or Lender Counterparties and such Obligations have not
been paid or satisfied in full.
          “UCC” shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York or, when the context relates to perfection or
priority of security interests, the Uniform Commercial Code as in effect from
time to time in any other applicable jurisdiction.
     1.2 Definitions; Interpretation. All capitalized terms used herein
(including the preamble and recitals hereto) and not otherwise defined herein
shall have the meanings ascribed thereto in the Credit Agreement or, if not
defined therein, in the UCC. References to “Sections,” “Exhibits” and
“Schedules” shall be to Sections, Exhibits and Schedules, as the case may be, of
this Agreement unless otherwise specifically provided. Section headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect. Any of the terms defined herein may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference. The use herein of the word “include” or “including”, when following
any general statement, term or matter, shall not be construed to limit such
statement, term or matter to the specific items or matters set forth immediately
following such word or to similar items or matters, whether or not nonlimiting
language (such as “without limitation” or “but not limited to” or words of
similar import) is used with reference thereto, but rather shall be deemed to
refer to all other items or matters that fall within the broadest possible scope
of such general statement, term or matter. If any conflict or inconsistency
exists between this Agreement and the Credit Agreement, the Credit Agreement
shall govern. All references herein to provisions of the UCC shall include all
successor provisions under any subsequent version or amendment to any Article of
the UCC.

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SECTION 2. GRANT OF SECURITY.
     2.1 Grant of Security. The Pledgor hereby grants to the Collateral Agent a
security interest in and continuing lien on all of Pledgor’s right, title and
interest in, to and under all of the following, in each case whether now owned
or existing or hereafter acquired or arising and wherever located (all of which
being hereinafter collectively referred to as the “Collateral”):
          (a) Pledged Equity Interests; and
          (b) to the extent not otherwise included above, all Proceeds,
products, accessions, rents and profits of or in respect of any of the
foregoing.
SECTION 3. SECURITY FOR OBLIGATIONS; PLEDGOR REMAINS LIABLE.
     3.1 Security for Obligations. This Agreement secures, and the Collateral is
collateral security for, the prompt and complete payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise (including the payment of amounts that would
become due but for the operation of the automatic stay under Section 362(a) of
the Bankruptcy Code, 11 U.S.C. §362(a) (and any successor provision thereof)),
of all Obligations of the Pledgor and the Credit Parties (the “Secured
Obligations”).
     3.2 Continuing Liability Under Collateral. Notwithstanding anything herein
to the contrary, (i) the Pledgor shall remain liable for all obligations under
the Collateral the same as if this Agreement had not been executed and nothing
contained herein is intended or shall be a delegation of duties to the
Collateral Agent or any Secured Party, (ii) the Pledgor shall remain liable
under any agreements relating to Pledged Equity Interests, to perform all of the
obligations undertaken by it thereunder all in accordance with and pursuant to
the terms and provisions thereof and neither the Collateral Agent nor any
Secured Party shall have any obligation or liability under any of such
agreements by reason of or arising out of this Agreement or any other document
related thereto nor shall the Collateral Agent nor any Secured Party have any
obligation to make any inquiry as to the nature or sufficiency of any payment
received by it or have any obligation to take any action to collect or enforce
any rights under any agreements relating to Pledged Equity Interests, and
(iii) the exercise by the Collateral Agent of any of its rights hereunder shall
not release the Pledgor from any of its duties or obligations under any such
contracts and agreements.
SECTION 4. REPRESENTATIONS AND WARRANTIES AND COVENANTS.
     4.1 Generally.
          (a) Representations and Warranties. The Pledgor hereby represents and
warrants that:
     (i) it owns the Collateral purported to be owned by it or otherwise has the
rights it purports to have in each item of Collateral and, as to all Collateral
whether now existing or hereafter acquired, will continue to own or have such
rights in each item of the Collateral, in each case free and clear of any and
all Liens of all other Persons, other than Liens of the type described in
Section 6.2(b) of the Credit Agreement (“Permitted Liens”) and including,
without limitation, liens arising as a result of the Pledgor becoming bound (as
a result of merger or otherwise) as debtor under a security agreement entered
into by another Person;

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     (ii) it has indicated on Schedule 4.1(A) as of the Closing Date: (w) its
type of organization, (x) its jurisdiction of organization, (y) its
organizational identification number and (z) the jurisdiction where its chief
executive office or its sole place of business is, and for the one-year period
preceding the Closing Date has been, located;
     (iii) as of the Closing Date, the full legal name of the Pledgor is as set
forth on Schedule 4.1(A) and it has not had any other legal names in the last
five (5) years since the Closing Date except for those names set forth on
Schedule 4.1(B);
     (iv) except as provided on Schedule 4.1(C), as of the Closing Date, it has
not changed its name, jurisdiction of organization, chief executive office or
sole place of business or its corporate structure in any way (e.g., by merger,
consolidation, change in corporate form or otherwise) within the past five
(5) years;
     (v) as of the Closing Date, it has not within the last five (5) years
become bound (whether as a result of merger or otherwise) as debtor under a
security agreement entered into by another Person, which has not heretofore been
terminated other than the agreements identified on Schedule 4.1(D) hereof;
     (vi) (A) upon the filing of all UCC financing statements naming the Pledgor
as “debtor” and the Collateral Agent as “secured party” and describing the
Collateral in the filing office(s) set forth on Schedule 4.1(E) hereof and
(B) upon delivery of all certificated Pledged Equity Interests, the security
interests granted to the Collateral Agent hereunder constitute valid and
perfected first priority Liens on all of the Collateral;
     (vii) all actions and consents (other than actions and consents required by
the UCC or any other applicable law), including all filings, notices,
registrations and recordings necessary for the exercise by the Collateral Agent
of the voting or other rights provided for in this Agreement or the exercise of
remedies in respect of the Collateral have been made or obtained or otherwise
set forth on Schedule 4.1(F);
     (viii) other than the financing statements filed in favor of the Collateral
Agent, no effective UCC financing statement or other instrument similar in
effect under any applicable law covering all or any part of the Collateral for
perfection purposes is on file in any filing or recording office on the Closing
Date or has been authorized by the Pledgor at any time thereafter except for
financing statements for which proper termination statements have been delivered
to the Collateral Agent for filing;
     (ix) no authorization, approval or other action by, and no notice to or
filing with, any Governmental Authority or regulatory body is required for
either (i) the pledge or grant by the Pledgor of the security interest purported
to be created in favor of the Collateral Agent hereunder or (ii) the exercise by
Collateral Agent of any rights or remedies in respect of any Collateral (whether
specifically granted or created hereunder or created or provided for by
applicable law), except (A) for the filings contemplated by clause (vi) above
and (B) as may be required, in connection with the disposition of any Pledged
Equity Interests, by laws generally affecting the offering and sale of
securities;
     (x) all information supplied by the Pledgor with respect to any of the
Collateral is accurate and complete in all material respects as of the date
supplied

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by the Pledgor, except as could not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect;
     (xi) as of the Closing Date, it has been duly organized as a corporation
solely under the laws of Delaware and remains duly existing as such. The Pledgor
has not filed any certificates of domestication, transfer or continuance in any
other jurisdiction as of the Closing Date.
          (b) Covenants and Agreements. The Pledgor hereby covenants and agrees
that:
     (i) except for the security interest created by this Agreement, it shall
not create or suffer to exist any Lien upon or with respect to any of the
Collateral other than Permitted Liens, and it shall defend the Collateral
against all Persons at any time claiming any interest therein adverse to the
Collateral Agent;
     (ii) it shall not change its legal name, identity, corporate structure
(e.g., by merger, consolidation, change in corporate form or otherwise), type of
organization or jurisdiction of organization unless it shall have (a) notified
the Collateral Agent in writing, by executing and delivering to the Collateral
Agent a completed Pledge Supplement, substantially in the form of Exhibit A
attached hereto, together with all Supplements to applicable Schedules showing
such change thereto, at least thirty (30) days prior to any such change or
establishment, identifying such new proposed name, identity, corporate structure
or jurisdiction of organization and providing such other information in
connection therewith as the Collateral Agent may reasonably request and
(b) taken all actions necessary or reasonably requested by the Collateral Agent
to maintain the continuous validity, perfection and the same or better priority
of the Collateral Agent’s security interest in the Collateral intended to be
granted and agreed to hereby;
     (iii) unless it shall have provided Collateral Agent with 30 days prior
written notice, it shall not file any certificates of domestication, transfer or
continuance in any jurisdiction other than the jurisdiction set forth opposite
its name on Schedule 4.1(A);
     (iv) it shall not take or permit any action which could materially impair
the Collateral Agent’s rights in the Collateral; and
     (v) it shall not sell, transfer or assign any Collateral.
     4.2 Pledged Equity Interests.
          (a) Representations and Warranties. The Pledgor hereby represents and
warrants that:
     (i) Schedule 4.2(A) sets forth all of the Pledged Equity Interests owned by
the Pledgor and such Pledged Equity Interests constitutes all of the issued and
outstanding shares of stock of the Company;
     (ii) it is the record and beneficial owner of the Pledged Equity Interests
free of all Liens, rights or claims of other Persons (other than Permitted
Liens)

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and there are no outstanding warrants, options or other rights to purchase, or
shareholder, voting trust or similar agreements outstanding with respect to, or
property that is convertible into, or that requires the issuance or sale of, any
Pledged Equity Interests;
     (iii) no consent of any Person is necessary in connection with the
creation, perfection or first priority status of the security interest of the
Collateral Agent in any Pledged Equity Interests or the exercise by the
Collateral Agent of the voting or other rights provided for in this Agreement or
the exercise of remedies in respect thereof.
          (b) Covenants and Agreements. The Pledgor hereby covenants and agrees
that:
     (i) in the event it acquires rights in any Pledged Equity Interests after
the date hereof, it shall deliver to the Collateral Agent a completed Pledge
Supplement, substantially in the form of Exhibit A attached hereto, together
with all Supplements to Schedules thereto, reflecting such new Pledged Equity
Interests. Notwithstanding the foregoing, it is understood and agreed that the
security interest of the Collateral Agent shall attach to all Pledged Equity
Interests immediately upon the Pledgor’s acquisition of rights therein and shall
not be affected by the failure of the Pledgor to deliver a pledge supplement
required hereby;
     (ii) except as provided in the next sentence, in the event the Pledgor
receives any dividends, interest or distributions on any Pledged Equity
Interests, or any securities or other property upon the merger, consolidation,
liquidation or dissolution of the Company, then (a) such dividends, interest or
distributions and securities or other property shall be included in the
definition of Collateral without further action and (b) the Pledgor shall
immediately take all steps, if any, necessary or advisable to ensure the
validity, perfection, priority and, if applicable, control of the Collateral
Agent over such Pledged Equity Interests (including, without limitation,
delivery thereof to the Collateral Agent) and pending any such action the
Pledgor shall be deemed to hold such dividends, interest, distributions,
securities or other property in trust for the benefit of the Collateral Agent
and shall segregate such dividends, distributions, securities or other property
from all other property of the Pledgor. Notwithstanding the foregoing, so long
as no Event of Default shall have occurred and be continuing, the Collateral
Agent authorizes the Pledgor to retain all ordinary cash dividends and
distributions paid in the normal course of the business of the issuer and
consistent with the past practice of the issuer and all scheduled payments of
interest; and
     (iii) except as expressly permitted by the Credit Agreement, without the
prior written consent of the Collateral Agent, it shall not permit the Company
to merge or consolidate unless (i) the surviving entity creates a security
interest that is perfected by a filed financing statement (that is not effective
solely under section 9-508 of the UCC) in collateral in which such new debtor
has or acquires rights, and (ii) all the outstanding capital stock or other
equity interests of the surviving or resulting corporation, limited liability
company, partnership or other entity which is a Subsidiary of the Pledgor and
which is owned by the Pledgor is, upon such merger or consolidation, pledged
hereunder.

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          (c) Delivery and Control.
     (i) The Pledgor agrees that with respect to any Pledged Equity Interests in
which it currently has rights it shall comply with the provisions of this
Section 4.2(c)(i) on or before the Credit Date and with respect to any Pledged
Equity Interests hereafter acquired by the Pledgor it shall comply with the
provisions of this Section 4.2(c)(i) within fifteen (15) days of acquiring
rights therein, in each case in form and substance reasonably satisfactory to
the Collateral Agent. With respect to any Pledged Equity Interests that is
represented by a certificate or that is an “instrument,” it shall cause such
certificate or instrument to be delivered to the Collateral Agent, indorsed in
blank by an “effective indorsement” (as defined in Section 8-107 of the UCC),
regardless of whether such certificate constitutes a “certificated security” for
purposes of the UCC.
          (d) Voting and Distributions.
     (i) So long as no Event of Default shall have occurred and be continuing
and the Collateral Agent has not given the Pledgor five (5) Business Days prior
written notice to the contrary:

  (1)   except as otherwise provided under the covenants and agreements in this
Agreement or elsewhere herein or in the Credit Agreement, the Pledgor shall be
entitled to exercise or refrain from exercising any and all voting and other
consensual rights pertaining to the Pledged Equity Interests or any part thereof
for any purpose not inconsistent with the terms of this Agreement or the Credit
Agreement; and     (2)   the Collateral Agent shall promptly execute and deliver
(or cause to be executed and delivered) to the Pledgor all proxies, and other
instruments as the Pledgor may from time to time reasonably request for the
purpose of enabling the Pledgor to exercise the voting and other consensual
rights when and to the extent which it is entitled to exercise pursuant to
clause (1) above.

     (ii) Upon the occurrence and during the continuation of an Event of Default
and upon five (5) Business Days prior written notice from the Collateral Agent
to the Pledgor of the Collateral Agent’s intention to exercise such rights:

  (1)   all rights of the Pledgor to exercise the voting and other consensual
rights which it would otherwise be entitled to exercise pursuant hereto shall
cease and all such rights shall thereupon become vested in the Collateral Agent
who shall thereupon have the sole right to exercise such voting and other
consensual rights; and     (2)   in order to permit the Collateral Agent to
exercise the voting and other consensual rights which it may be entitled to
exercise pursuant hereto and to receive all dividends and other distributions
which it may be entitled to receive hereunder: (1) the Pledgor shall promptly
execute and deliver (or cause to be executed and delivered) to the Collateral
Agent all proxies, dividend payment orders and other instruments as the
Collateral Agent may from time to time reasonably request and (2) the Pledgor
acknowledges that the Collateral Agent may utilize the power of attorney set
forth in Section 6.1.

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SECTION 5. FURTHER ASSURANCES.
     5.1 Further Assurances.
          (a) The Pledgor agrees that from time to time, at its expense, that it
shall promptly execute and deliver all further instruments and documents, and
take all further action, that may be necessary, or that the Collateral Agent may
reasonably request, in order to create and/or maintain the validity, perfection
or priority of and protect any security interest granted hereby or to enable the
Collateral Agent to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing, the
Pledgor shall:
     (i) file such financing or continuation statements, or amendments thereto,
and execute and deliver such other agreements, instruments, endorsements, powers
of attorney or notices, as may be necessary or as the Collateral Agent may
reasonably request, in order to perfect and preserve the security interests
granted hereby; and
     (ii) at the Collateral Agent’s request, appear in and defend any action or
proceeding that may affect the Pledgor’s title to or the Collateral Agent’s
security interest in all or any part of the Collateral.
          The Pledgor hereby authorizes the Collateral Agent to file a Record or
Records, including, without limitation, financing or continuation statements,
and amendments thereto, in any jurisdictions and with any filing offices as the
Collateral Agent may determine, in its sole discretion, are necessary or
advisable to perfect the security interest granted to the Collateral Agent
herein. Such financing statements may describe the Collateral in the same manner
as described herein or may contain an indication or description of collateral
that describes such property in any other manner as the Collateral Agent may
determine, in its sole discretion, is necessary, advisable or prudent to ensure
the perfection of the security interest in the Collateral granted to the
Collateral Agent herein. The Pledgor shall furnish to the Collateral Agent from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the
Collateral Agent may reasonably request, all in reasonable detail.
SECTION 6. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
     6.1 Power of Attorney. Until payment in full of all Secured Obligations
(other than unmatured indemnification obligations), the cancellation or
termination of the Commitments and the cancellation, cash collateralization or
expiration of all outstanding Letters of Credit, the Pledgor hereby irrevocably
appoints the Collateral Agent (such appointment being coupled with an interest)
as its attorney-in-fact, with full authority in its place and stead and in its
name, in the name of the Collateral Agent or otherwise, from time to time in the
Collateral Agent’s discretion to take any action and to execute any instrument
that the Collateral Agent may deem reasonably necessary or advisable to
accomplish the purposes of this Agreement, including, without limitation, the
following:
          (a) upon the occurrence and during the continuance of any Event of
Default, to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;

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          (b) upon the occurrence and during the continuance of any Event of
Default, to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clause (a) above;
          (c) upon the occurrence and during the continuance of any Event of
Default, to file any claims or take any action or institute any proceedings that
the Collateral Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of the Collateral Agent
with respect to any of the Collateral;
          (d) to prepare and file any UCC financing statements against the
Pledgor as debtor;
          (e) upon the occurrence and during the continuance of any Event of
Default, to take or cause to be taken all actions necessary to perform or comply
or cause performance or compliance with the terms of this Agreement, including,
without limitation, access to pay or discharge taxes or Liens other than
Permitted Liens levied or placed upon or threatened against the Collateral, the
legality or validity thereof and the amounts necessary to discharge the same to
be determined by the Collateral Agent in its sole discretion, any such payments
made by the Collateral Agent to become obligations of the Pledgor to the
Collateral Agent, due and payable immediately without demand; and
          (f) upon the occurrence and during the continuance of any Event of
Default, generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as though
the Collateral Agent were the absolute owner thereof for all purposes, and to
do, at the Collateral Agent’s option and the Pledgor’s expense, at any time or
from time to time, all acts and things that the Collateral Agent deems
reasonably necessary to protect, preserve or realize upon the Collateral and the
Collateral Agent’s security interest therein in order to effect the intent of
this Agreement, all as fully and effectively as the Pledgor might do.
     6.2 No Duty on the Part of Collateral Agent or Secured Parties. The powers
conferred on the Collateral Agent hereunder are solely to protect the interests
of the Collateral Agent in the Collateral and shall not impose any duty upon the
Collateral Agent or any Secured Party to exercise any such powers. The
Collateral Agent and the Secured Parties shall be accountable only for amounts
that they actually receive as a result of the exercise of such powers, and
neither they nor any of their officers, directors, employees or agents shall be
responsible to the Pledgor for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.
SECTION 7. REMEDIES.
     7.1 Generally.
     (a) If any Event of Default shall have occurred and be continuing, the
Collateral Agent may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it at
law or in equity, all the rights and remedies of the Collateral Agent on default
under the UCC (whether or not the UCC applies to the affected Collateral) to
collect, enforce or satisfy any Secured Obligations then owing, whether by
acceleration or otherwise, and also may pursue any of the following separately,
successively or simultaneously:

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     (i) require the Pledgor, and the Pledgor hereby agrees that it shall at its
expense and promptly upon request of the Collateral Agent forthwith, assemble
all or part of the Collateral as directed by the Collateral Agent and make it
available to the Collateral Agent at a place to be designated by the Collateral
Agent that is reasonably convenient to both parties; and
     (ii) without notice except as specified below or under the UCC, sell,
assign or otherwise dispose of the Collateral or any part thereof in one or more
parcels at public or private sale, at any of the Collateral Agent’s offices or
elsewhere, for cash, on credit or for future delivery, at such time or times and
at such price or prices and upon such other terms as the Collateral Agent may
deem commercially reasonable.
          (b) The Collateral Agent or any Secured Party may be the purchaser of
any or all of the Collateral at any public or private (to the extent to the
portion of the Collateral being privately sold is of a kind that is customarily
sold on a recognized market or the subject of widely distributed standard price
quotations) sale in accordance with the UCC and the Collateral Agent, as
collateral agent for and representative of the Secured Parties, shall be
entitled, for the purpose of bidding and making settlement or payment of the
purchase price for all or any portion of the Collateral sold at any such sale
made in accordance with the UCC, to use and apply any of the Secured Obligations
as a credit on account of the purchase price for any Collateral payable by the
Collateral Agent at such sale. Each purchaser at any such sale shall hold the
property sold absolutely free from any claim or right on the part of the
Pledgor, and the Pledgor hereby waives (to the extent permitted by applicable
law) all rights of redemption, stay and/or appraisal which it now has or may at
any time in the future have under any rule of law or statute now existing or
hereafter enacted. The Pledgor agrees that, to the extent notice of sale shall
be required by law, at least ten (10) days notice to the Pledgor of the time and
place of any public sale or the time after which any private sale is to be made
shall constitute reasonable notification. The Collateral Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Collateral Agent may adjourn any public or private sale from
time to time by announcement at the time and place fixed therefor, and such sale
may, without further notice, be made at the time and place to which it was so
adjourned. The Pledgor hereby waives any claims against the Collateral Agent
arising by reason of the fact that the price at which any Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale, even if the Collateral Agent accepts the first offer
received and does not offer such Collateral to more than one offeree. Nothing in
this Section shall in any way alter the rights of the Collateral Agent
hereunder.
          (c) The Pledgor recognizes that, by reason of certain prohibitions
contained in the Securities Act and applicable state securities laws, the
Collateral Agent may be compelled, with respect to any sale of all or any part
of the Pledged Equity Interests conducted without prior registration or
qualification of such Pledged Equity Interests under the Securities Act and/or
such state securities laws, to limit purchasers to those who will agree, among
other things, to acquire the Pledged Equity Interests for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor acknowledges that any such private sale may be at prices and on terms
less favorable than those obtainable through a public sale without such
restrictions (including a public offering made pursuant to a registration
statement under the Securities Act) and, notwithstanding such circumstances, the
Pledgor agrees that the fact that any such sale is conducted as a private sale
shall not, in and of itself, issue such sale to not be deemed to have been made
in a commercially reasonable manner and that the Collateral Agent shall have no
obligation to engage in public sales and no obligation to delay the sale of any
Pledged Equity Interests for the period of time necessary to permit the issuer
thereof to register it for a form of

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public sale requiring registration under the Securities Act or under applicable
state securities laws, even if such issuer would, or should, agree to so
register it. If the Collateral Agent determines to exercise its right to sell
any or all of the Pledged Equity Interests, upon written request, the Pledgor
shall and shall cause the Company to furnish to the Collateral Agent all such
information as the Collateral Agent may request in order to determine the number
and nature of interest, shares or other instruments included in the Pledged
Equity Interests which may be sold by the Collateral Agent in exempt
transactions under the Securities Act and the rules and regulations of the
Securities and Exchange Commission thereunder, as the same are from time to time
in effect.
          (d) The Collateral Agent may sell the Collateral without giving any
warranties as to the Collateral. The Collateral Agent may specifically disclaim
or modify any warranties of title or the like. This procedure will not be
considered to adversely affect the commercial reasonableness of any sale of the
Collateral.
          (e) The Collateral Agent shall have no obligation to marshal any of
the Collateral.
     7.2 Application of Proceeds. Except as expressly provided elsewhere in this
Agreement or the Credit Agreement, all proceeds received by the Collateral Agent
in respect of any sale, any collection from, or other realization upon all or
any part of the Collateral shall be applied in full or in part by the Collateral
Agent in payment of the Secured Obligations in the following order:
     First, to pay incurred and unpaid fees and expenses of the Agents under the
Credit Documents;
     Second, to the Administrative Agent, for application by it towards payment
of amounts then due and owing and remaining unpaid in respect of the Secured
Obligations, pro rata among the Secured Parties according to the amounts of the
Secured Obligations then due and owing and remaining unpaid to the Secured
Parties; and
     Third, any balance remaining after the Secured Obligations shall have been
paid in full, the Commitments shall have terminated or been cancelled and the
Letters of Credit shall have been cancelled, cash collateralized or have expired
shall be paid over to the Company or to whomsoever may be lawfully entitled to
receive the same.
     7.3 Cash Proceeds. All proceeds of any Collateral received by the Pledgor
consisting of cash, checks and other non-cash items (collectively, “Cash
Proceeds”) shall, if an Event of Default shall have occurred and is continuing
be held by the Pledgor in trust for the Collateral Agent, segregated from its
other funds, and shall, forthwith upon its receipt, unless otherwise provided
pursuant to Section 4.2(b)(ii), be turned over to the Collateral Agent in the
exact form received by the Pledgor (duly indorsed by the Pledgor to the
Collateral Agent, if required) and held by the Collateral Agent in the
Collateral Account. Any Cash Proceeds received by the Collateral Agent (whether
from the Pledgor or otherwise): (i) if no Event of Default shall have occurred
and be continuing, shall be handled as required by this Agreement or the Credit
Agreement, or otherwise be turned over to the Pledgor and (ii) if an Event of
Default shall have occurred and be continuing, may, in the sole discretion of
the Collateral Agent, (A) be held by the Collateral Agent for the ratable
benefit of the Secured Parties, as collateral security for the Secured
Obligations (whether matured or unmatured) and/or (B) then or at any time

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thereafter may be applied by the Collateral Agent against the Secured
Obligations then due and owing in accordance with the Credit Agreement.
SECTION 8. COLLATERAL AGENT.
     The Collateral Agent has been appointed to act as Collateral Agent
hereunder by Lenders and, by their acceptance of the benefits hereof, the other
Secured Parties. The Collateral Agent shall be obligated, and shall have the
right hereunder, to make demands, to give notices, to exercise or refrain from
exercising any rights, and to take or refrain from taking any action (including,
without limitation, the release or substitution of Collateral), solely in
accordance with this Agreement and the Credit Agreement; provided, the
Collateral Agent shall, after payment in full of all Obligations under the
Credit Agreement and the other Credit Documents, exercise, or refrain from
exercising, any remedies provided for herein in accordance with the instructions
of the holders of a majority of the aggregate notional amount (or, with respect
to any Permitted Hedge Agreement that has been terminated in accordance with its
terms, the amount then due and payable (exclusive of expenses and similar
payments but including any early termination payments then due) under such
Permitted Hedge Agreement) under all Permitted Hedge Agreements. In furtherance
of the foregoing provisions of this Section, each Secured Party, by its
acceptance of the benefits hereof, agrees that it shall have no right
individually to realize upon any of the Collateral hereunder, it being
understood and agreed by such Secured Party that all rights and remedies
hereunder may be exercised solely by the Collateral Agent for the benefit of
Secured Parties in accordance with the terms of this Section. Collateral Agent
may resign at any time by giving thirty (30) days’ prior written notice thereof
to Lenders and the Pledgor. Upon any such notice of resignation or any such
removal, Requisite Lenders shall have the right, upon five (5) Business Days’
notice to the Administrative Agent, to appoint a successor Collateral Agent.
Upon the acceptance of any appointment as Collateral Agent hereunder by a
successor Collateral Agent, that successor Collateral Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the retiring Collateral Agent under this Agreement, and the retiring
Collateral Agent under this Agreement shall promptly (i) transfer to such
successor Collateral Agent all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Collateral Agent under this Agreement, and (ii) execute and deliver to such
successor Collateral Agent or otherwise authorize the filing of such amendments
to financing statements, and take such other actions, as may be necessary or
appropriate in connection with the assignment to such successor Collateral Agent
of the security interests created hereunder, whereupon such retiring Collateral
Agent shall be discharged from its duties and obligations under this Agreement.
After any retiring Collateral Agent’s resignation hereunder as the Collateral
Agent, the provisions of this Agreement shall inure to its benefit as to any
actions taken or omitted to be taken by it under this Agreement while it was the
Collateral Agent hereunder.
SECTION 9. CONTINUING SECURITY INTEREST; TRANSFER OF LOANS.
     This Agreement shall create a continuing security interest in the
Collateral and shall remain in full force and effect until the payment in full
of all Secured Obligations, the cancellation, cash collateralization or
termination of the Commitments and the cancellation, cash collateralization or
expiration of all outstanding Letters of Credit, be binding upon The Pledgor,
its successors and assigns, and inure, together with the rights and remedies of
the Collateral Agent hereunder, to the benefit of the Collateral Agent and its
successors, transferees and assigns. Without limiting the generality of the
foregoing, but subject to the terms of the Credit Agreement, any Lender may
assign or otherwise transfer any Loans held by it to any other Person, and such

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other Person shall thereupon become vested with all the benefits in respect
thereof granted to Lenders herein or otherwise. Upon the payment in full of all
Secured Obligations, the cancellation or termination of the Commitments and the
cancellation, cash collateralization or expiration of all outstanding Letters of
Credit, the security interest granted hereby shall automatically terminate
hereunder and of record and all rights to the Collateral shall automatically
revert to the Pledgor. Upon any such termination the Collateral Agent shall, at
Pledgor’s expense, execute and deliver to the Pledgor such documents as the
Pledgor shall reasonably request to evidence such termination.
SECTION 10. STANDARD OF CARE; COLLATERAL AGENT MAY PERFORM.
     The powers conferred on the Collateral Agent hereunder are solely to
protect its interest in the Collateral and shall not impose any duty upon it to
exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Collateral Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of Collateral in its possession if such Collateral is
accorded treatment substantially equal to that which the Collateral Agent
accords its own property. Neither the Collateral Agent nor any of its directors,
officers, employees or agents shall be liable for failure to demand, collect or
realize upon all or any part of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Pledgor or otherwise. If the Pledgor fails to perform
any agreement contained herein, the Collateral Agent may itself perform, or
cause performance of, such agreement, and the expenses of the Collateral Agent
incurred in connection therewith shall be payable by the Pledgor.
SECTION 11. MISCELLANEOUS.
     Any notice required or permitted to be given under this Agreement shall be
given in accordance with Section 10.1 of the Credit Agreement. No failure or
delay on the part of the Collateral Agent in the exercise of any power, right or
privilege hereunder or under any other Credit Document shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other power,
right or privilege. All rights and remedies existing under this Agreement and
the other Credit Documents are cumulative to, and not exclusive of, any rights
or remedies otherwise available. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby. All covenants hereunder shall be
given independent effect so that if a particular action or condition is not
permitted by any of such covenants, the fact that it would be permitted by an
exception to, or would otherwise be within the limitations of, another covenant
shall not avoid the occurrence of a Default or an Event of Default if such
action is taken or condition exists. This Agreement shall be binding upon and
inure to the benefit of the Collateral Agent and Pledgor and its respective
successors and assigns. The Pledgor shall not, without the prior written consent
of the Collateral Agent given in accordance with the Credit Agreement, assign
any right, duty or obligation hereunder. This Agreement and the other Credit
Documents embody the entire agreement and understanding between the Pledgor and
the Collateral Agent and supersede all prior agreements and understandings
between such parties relating to the subject matter hereof and thereof.
Accordingly, the Credit Documents may not be contradicted

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by evidence of prior, contemporaneous or subsequent oral agreements of the
parties. There are no unwritten oral agreements between the parties. This
Agreement may be executed in one or more counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts together shall constitute
but one and the same instrument; signature pages may be detached from multiple
separate counterparts and attached to a single counterpart so that all signature
pages are physically attached to the same document.
     THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK.

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     IN WITNESS WHEREOF, the Pledgor and the Collateral Agent have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.

              COVANTA HOLDING CORPORATION
 
       
 
  By:   /s/ Anthony J. Orlando
 
       
 
      Name: Anthony J. Orlando
 
      Title: Chief Executive Officer and President
 
            JPMORGAN CHASE BANK, N.A., as     Collateral Agent
 
       
 
  By:   /s/ 
 
       
 
      Authorized Signatory

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SCHEDULE 4.1
TO PLEDGE AGREEMENT
GENERAL INFORMATION

(A)   Full Legal Name, Type of Organization, Jurisdiction of Organization, Chief
Executive Office/Sole Place of Business and Organizational Identification Number
of the Pledgor:

                                  Chief Executive             Jurisdiction of  
Office/Sole Place     Full Legal Name   Type of Organization   Organization   of
Business   Organization I.D.#
Covanta Holding
Corporation
  Corporation   Delaware   40 Lane Rd. Fairfield, NJ 07004     2294829  

(B)   Other Legal Names of the Pledgor in the past five (5) years:

On September 20, 2005 the company changed its name from Danielson Holding
Corporation to Covanta Holding Corporation.
Trade Name or Fictitious Business Name
None.

(C)   Changes in Name, Jurisdiction of Organization, Chief Executive Office or
Sole Place of Business and Corporate Structure within past five (5) years:

      Date of Change   Description of Change
March 10, 2004
  The Chief Executive Office moved from its prior location at 2 North Riverside
Plaza, Suite 600, Chicago, IL 60606 to its new location at 40 Lane Road,
Fairfield, NJ 07004

(D)   Agreements that have not yet terminated pursuant to which Pledgor is bound
as debtor within past five (5) years:

None.

          Description of Agreement

SCHEDULE 4.1-1

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(E)   Financing Statements:

Filing Jurisdiction(s): Delaware

(F)   Actions and Consents: None.

SCHEDULE 4.1-2

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SCHEDULE 4.2
TO PLEDGE AGREEMENT
Pledged Equity Interests
(A)

                          Certificate No.   No. of Pledged     Corporation  
Certificated (Y/N)   (if any)   Units/Stock   % of Outstanding Stock
Covanta Energy Corporation
  Y   2   200   100%

SCHEDULE 4.2-1

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EXHIBIT A
TO PLEDGE AGREEMENT
PLEDGE SUPPLEMENT
     This PLEDGE SUPPLEMENT, dated [mm/dd/yy], is delivered by COVANTA HOLDING
CORPORATION, a Delaware corporation (the “Pledgor") pursuant to the Pledge
Agreement, dated as of February 9, 2007 (as it may be from time to time amended,
restated, modified or supplemented, the “Pledge Agreement”), between Pledgor and
JPMORGAN CHASE BANK, N.A., as Collateral Agent (the “Collateral Agent”).
Capitalized terms used herein not otherwise defined herein shall have the
meanings ascribed thereto in the Pledge Agreement.
     Pledgor hereby confirms the grant to the Collateral Agent set forth in the
Pledge Agreement of, and does hereby grant to the Collateral Agent, a security
interest in all of Pledgor’s right, title and interest in and to all Collateral
to secure the Secured Obligations, in each case whether now or hereafter
existing or in which Pledgor now has or hereafter acquires an interest and
wherever the same may be located. Pledgor represents and warrants that the
attached Supplements to Schedules accurately and completely set forth all
additional information required pursuant to the Pledge Agreement and hereby
agrees that such Supplements to Schedules shall constitute part of the Schedules
to the Pledge Agreement.
     IN WITNESS WHEREOF, Pledgor has caused this Pledge Supplement to be duly
executed and delivered by its duly authorized officer as of [mm/dd/yy].

     
 
  COVANTA HOLDING CORPORATION
 
   
 
  By:
 
   
 
  Name:
 
  Title:

Exhibit A-1