exv10w7



 





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 1st 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 1st 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



13









 




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



14









 




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



15









 




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



16









 




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.



17









 




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







18









 






	 	 	 
	

	 	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



19









 




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]




20









 









     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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