<PAGE>
                                                                   EXHIBIT 10.1


                     D. E. Shaw Laminar Portfolios, L.L.C.
                          120 West Forty-Fifth Street
                               Floor 39, Tower 45
                               New York, NY 10036


December 2, 2003


Danielson Holding Corporation
Two North Riverside Plaza, Suite 600
Chicago, IL 60606

Ladies and Gentlemen:

Reference is hereby made to that certain Note Purchase Agreement, dated the
date hereof (the "Note Purchase Agreement"), among Danielson Holding
Corporation (the "Company"), and SZ Investments, L.L.C., Third Avenue Trust, on
behalf of the Third Avenue Value Fund Series, and D. E. Shaw Laminar
Portfolios, L.L.C. ("DES"). As a condition to entering into the Note Purchase
Agreement, DES has requested that the Company enter into this Letter Agreement
(this "Letter Agreement"). Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed thereto in the Note Purchase
Agreement.

In consideration of the foregoing and the representations, warranties,
covenants and agreements set forth herein and in the Note Purchase Agreement,
the Company and DES hereby agree as follows:

I.       Transfer of Common Stock by DES and the Transferees. Subject to
Paragraph III below, DES and each Transferee may Transfer the shares of Common
Stock acquired by DES pursuant to the Note Purchase Agreement, including the
Escrowed Stock and the Common Stock to be received upon conversion of the Notes
(collectively, the "Subject Shares"), pursuant to the following terms and
conditions:

         A.       DES shall be permitted to Transfer, in one or multiple
         transactions and without obtaining any additional consent from the
         Company pursuant to Article FIFTH of the Restated Certificate of
         Incorporation, an aggregate number of Subject Shares under this
         Paragraph A up to but not exceeding an amount equal to (i) 10% of the
         outstanding Common Stock of the Company (calculated at the time of
         such Transfer) during the period beginning on the date of the closing
         of the Acquisition (the "Closing Date") through the first anniversary
         of the Closing Date; (ii) 15% of the outstanding Common Stock of the
         Company (calculated at the time of such Transfer) less the percentage
         of shares sold pursuant to clause I.A.(i) during the period beginning
         on the first anniversary of the Closing Date and ending on the second
         anniversary of the Closing Date; and (iii) 20% of the outstanding
         Common Stock of the Company (calculated at the time of such Transfer)
         less the percentage of shares sold pursuant to clauses I.A.(i) and
         (ii) during


<PAGE>
         the period beginning on the second anniversary of the Closing Date and
         ending on the third anniversary of the Closing Date;

         B.       anytime after the third anniversary of the Closing Date, DES
         shall be permitted to Transfer any such remaining Subject Shares then
         owned by it free and clear of any limitations on Transfer and without
         obtaining any additional consent from the Company;

         C.       anytime after the Closing Date, if DES becomes subject to any
         filings or other requirements of any federal, state, municipal or
         foreign governmental, regulatory or other public body, agency or
         authority (including self-regulatory organizations), including without
         limitation any insurance or banking authority (collectively,
         "Regulations"), (other than the Disclaimer(s) filed by DES with the
         State Insurance Departments and any filing required under any federal
         or state securities laws (including without limitation Form 3, Form 4,
         Schedule 13d or 13g, and registration statements)) that requires any
         disclosures of the identity of, or other confidential information
         related to DES's direct or indirect investors or any other identifying
         facts or features or would otherwise limit DES's ability to make
         future investments as a result of being made subject to new
         Regulations, DES shall be permitted to Transfer all Subject Shares
         free and clear of any limitations on Transfer and without obtaining
         any additional consent from the Company; and

         D.       each Transferee from a prior Authorized Transfer shall be
         permitted to Transfer any Subject Shares free and clear of any
         limitations on Transfer and without obtaining any additional consent
         from the Company;

provided, that, in each case, such Transfer constitutes an Authorized Transfer.
As used herein, "Transfer" shall mean any sale, assignment, transfer,
disposition, exchange, mortgage, pledge, grant, hypothecation or other
transfer, absolute or as a security or encumbrance, in any manner whatsoever,
from any transaction or transactions, including without limitation, via
secondary market or over-the-counter transactions; "Transferee" shall mean any
Person that receives Subject Shares in an Authorized Transfer; "Authorized
Transfer" shall mean a Transfer by (i) DES pursuant to Paragraphs A, B or C
above or (ii) any Transferee pursuant to Paragraph D above, in each case that
satisfies the procedures described in Paragraph III below; provided further,
that any Transfer must comply with applicable federal and state securities laws
and insider trading policies.

II.      Representations and Warranties of Company. The Company hereby
represents and warrants to DES that:

         A.       The Special Committee of the Board of Directors of the
         Company, on behalf of the Board of Directors, has authorized the
         agreements set forth in this Letter Agreement in resolutions of the
         Special Committee of the Board of Directors adopted at a Special
         Meeting held on November 24, 2003 and determined that: (i) it is in
         the best interest of the Company to pre-approve the Authorized
         Transfers and (ii) subject to the requirements in Paragraph III below,
         all obligations of the Board of Directors and the Company pursuant to
         Article FIFTH of the Restated Certificate of Incorporation have been
         satisfied


                                      -2-
<PAGE>
         in full with regard to the Authorized Transfers, subject to receipt of
         a Bring-Down Opinion (defined below);

         B.       the Company has received the Nixon Peabody Letter
         substantially in the form of Exhibit A hereto;

         C.       based on current law and circumstances, the Bring-Down
         Opinion (as described below) would be available for the Transfers
         described in Paragraph I, unless (i) the Transferee owns other Common
         Stock that the Transferee acquired within the testing period that
         includes the date of the Proposed Transfer, (ii) the Transferee
         becomes a "5-percent shareholder" as a result of the Transfer and
         (iii) DES or the Transferee receives a Blocking Opinion;

         D.       each of the Transfers described in Paragraph I shall be
         treated by the Company as "previously approved subsequent
         transactions" for purposes of Article FIFTH of the Restated
         Certificate of Incorporation.

III.     Procedures for Authorized Transfers. DES and each Transferee intending
to effect a Transfer of Subject Shares that, but for this Paragraph III, would
otherwise qualify as an Authorized Transfer, shall provide the Company written
notice in the form of Exhibit B hereto (the "Notice of Transfer") of such
Transfer (a "Proposed Transfer") no less than seven Business Days before the
date of such Proposed Transfer. The Notice of Transfer shall include the number
of Subject Shares to be Transferred pursuant to such Proposed Transfer and the
anticipated date of such Proposed Transfer. In the case of a Transferee or
intended recipient, as the case may be, that either is or would become a
"5-percent shareholder" (within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended and the applicable Treasury regulations
thereunder (the "Code")) immediately after the Proposed Transfer, the Notice of
Transfer shall also include the name of the Transferee, in the case of a
Proposed Transfer by DES, or the intended recipient of the Subject Shares, in
the case of a Proposed Transfer by a Transferee , the number of shares of
Common Stock owned, directly or constructively, by such Transferee or intended
recipient within the past three years and the number of shares of Common Stock
acquired within such three year period. The Company shall promptly use all
commercially reasonable efforts to obtain an opinion substantially in the form
of Exhibit C hereto (a "Bring-Down Opinion"), and in no event later than five
Business Days after receipt of the Notice of Transfer, give appropriate
instructions to the transfer agent for the Common Stock (the "Transfer Agent"),
in full satisfaction of the provisions of Article FIFTH of the Restated
Certificate of Incorporation, and shall direct the Transfer Agent to effectuate
the Proposed Transfer; provided, however, that if such Bring-Down Opinion
cannot be delivered, the Company shall deliver to DES or the Transferee, as
applicable, within five Business Days after the receipt of the Notice of
Transfer, an opinion of Skadden, Arps, Slate, Meagher & Flom LLP, Nixon Peabody
LLP or other nationally recognized tax counsel reasonably acceptable to DES or
the Transferee, as applicable, that the Proposed Transfer would result in, or
create an unreasonable risk of, (i) an aggregate increase in the percentage
ownership of the stock of the Company by its "5-percent shareholders" and (ii)
that such aggregate increase in ownership of the stock of the Company would
constitute an "ownership change" under Section 382(g) of the Code, determined
by substituting "48.75 percentage points" for "50 percentage points" where such
phrase appears in Section 382(g)(1)(A) of the Code (the "Blocking Opinion"),
and such Proposed Transfer shall


                                      -3-
<PAGE>
not qualify as an Authorized Transfer. For the avoidance of doubt, any Blocking
Opinion issued upon receipt of a Notice of Transfer shall apply solely to the
Proposed Transfer and not to any subsequent Transfer of Subject Shares pursuant
to this Letter Agreement.

IV.      Cooperation Under FPA.

         A.       DES agrees to use commercially reasonable efforts, to the
         extent required by law, to cooperate in providing information required
         to be furnished as part of any required filing under Section 203 of
         the Federal Power Act, as amended, by Covanta, the Company or DES.

         B.       The Company agrees to use commercially reasonable efforts, to
         cooperate with DES in minimizing the information to be furnished by
         DES and to provide to DES information required in any such filing
         required to be made by DES.

V.       Miscellaneous.

         A.       The Company and DES agree that the provisions of this Letter
         Agreement will be amended to equitably reflect the effect of any
         issuance or redemption of stock of the Company, stock split or reverse
         stock split with respect to stock of the Company, recapitalization of
         the Company or any other adjustment to the capital structure of the
         Company.

         B.       All notices or other communications required or authorized to
         be given hereunder shall be made pursuant to Section 12.4 of the Note
         Purchase Agreement.

         C.       This Letter Agreement may not be amended, supplemented,
         modified or revoked unless agreed to in writing by the parties hereto.

         D.       This Letter Agreement shall be governed by, and construed in
         accordance with, the laws of the State of Delaware, without giving
         effect to its conflicts-of-law provisions.

         E.       The Company and DES hereby acknowledge that damages may not
         be an adequate remedy in the event that any of the provisions of this
         Letter Agreement were not performed in accordance with their specific
         terms or were otherwise breached. It is accordingly agreed that DES
         shall be entitled to an injunction or injunctions to prevent breaches
         of this Letter Agreement and to enforce specifically the terms and
         provisions hereof in any court in the United States or any state
         having jurisdiction, this being in addition to any other remedy to
         which DES is entitled at law or in equity.


                                      -4-
<PAGE>
If you are in agreement with the foregoing, please sign in the space provided
below and return a copy of this Letter Agreement to DES.


                                        D. E. SHAW LAMINAR PORTFOLIOS, L.L.C.


                                        By: /s/ Max Holmes
                                           ------------------------------------
                                        Name:   Max Holmes
                                        Title:  Authorized Signatory


Agreed:

DANIELSON HOLDING CORPORATION


By: /s/ Philip G. Tinkler
   ---------------------------------
Name:   Philip G. Tinkler
Title:  Chief Financial Officer
Date:   December 2, 2003


                                      -5-