Document:

exv10w9

 

Exhibit 10.9

EMPLOYMENT AGREEMENT

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

Background

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

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

Agreement

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

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

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

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

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

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

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

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

          “Cause” shall mean that Executive has:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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hereof.

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

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

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

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

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

          “Employment Year” shall mean each twelve-month period commencing on
January 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;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

          “Restricted Period” shall have the following meaning:

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

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

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

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

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

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

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

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

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

     2. Employment and Duties.

          2.1 Employment. The Company hereby employs Executive and Executive hereby
accepts appointment or election as Senior Vice President, Business Management
of the Company. Executive shall be responsible for all lawful duties and
entitled to all authority customarily assigned to the position of Senior Vice
President, Business Management, as well as those lawful duties specified by the
Chief Executive Officer or such other senior officer or officers of the Company
as designated by the Board. Executive shall render such services as are
necessary and desirable to protect and advance the best interests of the
Company, acting, in all instances,

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under the supervision of and in accordance
with the lawful policies set by the Chief Executive
Officer or such other senior officer or officers of the Company as
designated by the Board. So long as Executive shall remain an employee of the
Company, Executive’s entire working time, energy, skill and best efforts shall
be devoted to the performance of Executive’s duties hereunder in a manner which
will faithfully and diligently further the business and interests of the
Company; provided, however, that Executive may serve on up to three (3)
corporate, civic and charitable boards with the consent of the compensation
committee of the Parent Company, which serves as the Company’s compensation
committee (such committee, the “Compensation Committee”), and deliver
lectures, fulfill speaking engagements or teach at educational institutions;
provided, further, that such service does not conflict with or detract from the
performance of his duties. Nothing in this Section 2.1 shall be deemed to
limit Executive’s management of his personal passive investments.

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

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

     4. Compensation and Benefits.

          4.1 Base Salary. For all of the services rendered by Executive to the
Company, Executive shall receive a base salary at the gross annual rate
(without regard to authorized or legally required deductions and withholdings)
of Two Hundred Seven Thousand Nine Hundred Dollars ($207,900) (as adjusted from
time to time, the “Base Salary”), payable in installments in accordance with
the Company’s regular payroll practices in effect from time to time.

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

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Committee thereof
has decided to reduce the Target Bonus.

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

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

          4.5 Issuance of Options to Purchase Parent Company Common Stock. Upon
approval of the 2004 Danielson Holding Corporation Equity Award Plan for
Employees and Officers (the “Employees’ Plan”) by the stockholders of the
Parent Company, the Parent Company shall grant to Executive options (the
“Options”) to purchase an aggregate of 65,000 shares of common stock, par value
$0.10 per share of Parent Company (“Common Stock”) at an exercise price equal
to the fair market value per share of the Common Stock (such fair market value
being the average of the high and low price on the trading date immediately
prior to the date of the grant on the American Stock Exchange). The Options
shall be restricted and non-transferable, as set forth in the Stock Option
Agreement, in the form attached hereto as Exhibit A, and shall vest in
accordance with the schedule set forth below. The term of the Options shall be
for a period of ten (10) years following the date of the grant of the Options
hereunder, and the Options shall be subject to such other terms and conditions
not inconsistent with the terms of this Agreement as are set forth in the Stock
Option Agreement to be executed by the Parent Company and Executive and as
determined by the Compensation Committee. To the extent permitted by
applicable law, the Options shall be incentive stock options in each year and,
with respect to any Options that are vested, shall be exercisable for the
applicable periods set forth in the Stock Option Agreement. Executive shall
not be entitled to any rights with respect to the Common Stock underlying the
Options, including the right to vote or receive dividends or distributions with
respect to any of the Common Stock underlying the Options, until such Options
(or any portion thereof) have been exercised. To the extent that Executive is
employed by the Company as of each of the respective dates set forth below and
in recognition of Executive’s employment by the Company prior to the execution
of this Agreement, the Options shall vest as follows:

               (a) 21,666 Options as of the close of business on February 28, 2006;

               (b) 21,667 Options as of the close of business on February 28, 2007; and

               (c) 21,667 Options as of the close of business on February 28, 2008.

          4.6 Grant of Restricted Stock of Parent Company. Pursuant to the Parent
Company’s Long-Term Incentive Plan, adopted by the Board on July 19, 2004, the
Parent

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Company shall grant to Executive such number of shares of Common Stock
(the “Restricted
Stock”) as is determined by dividing One Hundred Ten Thousand Dollars
($110,000) by the fair market value per share of the Common Stock as of the
date of this Agreement (such fair market value per share being the average of
the high and low price on the trading date immediately prior to the date of the
grant on the American Stock Exchange) and upon approval of the Employees’ Plan
by the stockholders of the Parent Company. The Restricted Stock shall be
restricted and non-transferable, as set forth in the Restricted Stock
Agreement, in the form attached hereto as Exhibit B, and shall vest in
accordance with the schedule set forth below. Executive shall be entitled only
to such rights with respect to the Restricted Stock, such as the right to vote
or receive dividends or distributions with respect to any shares of the
Restricted Stock, as are set forth in the Restricted Stock Agreement. The
restrictions upon the Restricted Stock shall lapse and Executive shall acquire
“ownership” of the Restricted Stock in accordance with the following schedule:

               (a) Restricted Stock Time Vesting. One-half of the shares of Restricted
Stock awarded hereunder, consisting of 7,587 shares (the “Time Vesting
Restricted Stock”), shall vest as of the dates and in the amounts set forth
below provided that Executive is employed on such date by the Company or its
Affiliates or Subsidiaries:

               (i) 2,529 shares and representing one-third of the Time
Vesting Restricted Stock, shall vest on February 28, 2005;

               (ii) 2,529 shares and representing one-third of the Time
Vesting Restricted Stock, shall vest on February 28, 2006; and

               (iii) 2,529 shares and representing one-third of the Time
Vesting Restricted Stock, shall vest on February 28, 2007.

               (b) Restricted Share Performance Vesting. One-half of the shares of
Restricted Stock awarded hereunder, consisting of 7,586 shares (the
“Performance Vesting Restricted Stock”), shall vest as of the dates and in the
amounts set forth below:

               (i) First Tranche Amount. The “First Tranche Amount”
consisting of 2,528 shares and representing one-third of the
Performance Vesting Restricted Stock, shall vest on February 28,
2005, pursuant to the satisfaction of performance based metric of
operating cash flow of the Company as set forth in the Covanta 2004
Cash Bonus Plan.

               (ii) Second Tranche Amount. The “Second Tranche Amount”
consisting of 2,529 shares and representing one-third of the
Performance Vesting Restricted Stock, shall vest on February 28,
2006, pursuant to the satisfaction of the applicable performance
criteria and schedule determined by the Board or the Compensation
Committee thereof; provided, however, that if the Board or the
Compensation Committee thereof does not establish new criteria,
then the performance criteria and schedule for awarding bonuses
under the Company’s 2005 Cash Bonus Plan shall apply; and

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               (iii) Third Tranche Amount. The “Third Tranche Amount”
consisting of 2,529 shares and representing one-third of the
Performance Vesting Restricted Stock, shall vest on February 28,
2007, pursuant to the satisfaction of the applicable performance
criteria and schedule determined by the Board or the Compensation
Committee thereof; provided, however, that if the Board or the
Compensation Committee thereof does not establish new criteria,
then the performance criteria and schedule for awarding bonuses
under the Company’s 2006 Cash Bonus Plan shall apply.

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

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

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

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

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

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

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

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

     6. Termination.

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

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

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

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

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

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

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

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

12

 

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

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

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

          8.2 Covenant Not to Solicit Employees. During the Restricted Period or
for a period of six (6) months following the expiration of this Agreement,
Executive agrees and

13

 

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

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

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

          8.5 Return of Property. Upon termination of this Agreement for any
reason,

14

 

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

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

          8.7 Equitable Remedies. In the event that Executive breaches any of the
terms or conditions set forth in this Section 8, Executive stipulates that such
breach will result in

15

 

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

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

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

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

16

 

     10. Indemnification.

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

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

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

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

     11. Miscellaneous.

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

17

 

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

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

If to the Employer or the Company:

Covanta Energy Corporation

40 Lane Road

Fairfield, NJ 07004

Attn: President and CEO

Telephone Number: (973) 882-9000

Facsimile Number: (973) 882-7076

With a copy to:

Covanta Energy Corporation

40 Lane Road

Fairfield, NJ 07004

Attn: General Counsel

Telephone Number: (973) 882-9000

Facsimile Number: (973) 882-7357

And to:

David S. Stone, Esq.

Neal, Gerber & Eisenberg LLP

2 North LaSalle Street

Suite 2200

Chicago, IL 60602

Telephone Number: 312-269-8411

Facsimile Number: 312-269-1747

18

 

If to Executive:

Seth Myones

                                                         

                                                         

Telephone Number:                                       
 

With a copy to:

Michael S. Harrington, Esq.

Fox Rothschild, LLP

P.O. Box 673

760 Constitution Drive

Exton, PA 19341

Telephone Number: (610) 458-4957

Facsimile Number: (610) 458-7337

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

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

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

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

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

          11.10 Severability. If any phrase, clause or provision of this Agreement
is declared invalid or unenforceable by a court of competent jurisdiction, such
phrase, clause or provision shall be deemed severed from this Agreement, but
will not affect any other provisions

19

 

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/ Seth Myones

	 	 	
 
	 	 	Seth Myones, Individually

21exv4w2

 

EXHIBIT 4.2

DANIELSON HOLDING CORPORATION

EQUITY AWARD PLAN FOR EMPLOYEES AND OFFICERS

 

 

TABLE OF CONTENTS

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

-i- 

 

TABLE OF CONTENTS

(Continued)

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

-ii- 

 

TABLE OF CONTENTS

(Continued)

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

-iii- 

 

DANIELSON HOLDING CORPORATION EQUITY AWARD PLAN FOR

EMPLOYEES AND OFFICERS

SECTION 1. Purpose; Definitions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-2-

 

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

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

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

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

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

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

SECTION 2. Stock Subject to the Plan.

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

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

SECTION 3. Administration of the Plan.

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

-3-

 

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

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

SECTION 4. Eligibility for Awards.

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

SECTION 5. Limitations on Options.

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

SECTION 6. Term of Plan.

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

SECTION 7. Term of Option.

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

-4-

 

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

SECTION 8. Option Exercise Price and Consideration.

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

	(A)	 	In the case of an Incentive Stock Option

	(i)	 	granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing
more than ten percent (10%) of the voting power of all classes
of stock of the Company or any Subsidiary (taking into account
the attribution rules under Section 424(d) of the Code), the
per Share exercise price shall be not less than 110% of the
Fair Market Value per Share on the date of grant, or
	 
	(ii)	 	granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share
exercise price shall be not less than 100% of the Fair Market
Value per Share on the date of grant.

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

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

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

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

-5-

 

SECTION 9. Exercise of Option.

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

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

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

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

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

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

-6-

 

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

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

     (e) Retirement of Recipient.

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

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

-7-

 

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

SECTION 10. Restricted Stock.

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

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

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

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

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

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

-8-

 

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

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

SECTION 11. Deferral of Stock Award.

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

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

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

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SECTION 12. Other Awards.

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

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

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

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

SECTION 13. Non-Transferability of Awards.

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

SECTION 14. Adjustments Upon Changes in Capitalization.

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

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

SECTION 15. Date of Grant.

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

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

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

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

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

SECTION 17. Conditions Upon Issuance of Shares.

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

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

-11-

 

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

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

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

SECTION 18. General Provisions.

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

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

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

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

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

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

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

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

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

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

-13-

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