Document:

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                                                                    EXHIBIT 4.26

                             INTERCREDITOR AGREEMENT

                  This INTERCREDITOR AGREEMENT (as amended, restated,
supplemented or otherwise modified from time to time in accordance with the
terms hereof, herein called this "AGREEMENT") is dated as of March __, 2004 and
entered into by and among COVANTA POWER INTERNATIONAL HOLDINGS, INC., a Delaware
corporation ("CPIH" or "COMPANY"), and THE SUBSIDIARIES OF CPIH LISTED ON THE
SIGNATURE PAGES HEREOF AS REVOLVER BORROWERS (together with Company,
collectively, "REVOLVER BORROWERS" and each a "REVOLVER BORROWER") and THE
SUBSIDIARIES OF CPIH LISTED ON THE SIGNATURE PAGES HEREOF AS TERM LOAN BORROWERS
(together with Company, collectively, "TERM LOAN BORROWERS" and each a "TERM
LOAN BORROWER"; the Revolver Borrowers together with the Term Loan Borrowers,
collectively, "BORROWERS" and each a "BORROWER"); COVANTA ENERGY AMERICAS, INC.,
a Delaware corporation ("CEA"); THE FINANCIAL INSTITUTIONS LISTED ON THE
SIGNATURE PAGES HEREOF AS REVOLVER LENDERS (each, in its capacity as a Revolver
Lender, together with any other Person (this and other capitalized terms used
herein without definition being used as defined in subsection 1.1) that becomes
a party hereto as a Revolver Lender pursuant to subsection 6.1(f), individually
referred to herein as a "REVOLVER LENDER" and collectively as "REVOLVER
LENDERS"); THE PERSONS IDENTIFIED AS TERM LOAN LENDERS ON THE SIGNATURE PAGES
HEREOF (each, in its capacity as a Term Loan Lender, together with any other
Person that becomes a party hereto as a Term Loan Lender pursuant to subsection
6.1(f) or subsection 7.1(c), individually referred to herein as a "TERM LOAN
LENDER" and collectively as "TERM LOAN LENDERS"); BANK OF AMERICA, N.A. ("BANK
OF AMERICA"), as administrative agent for Term Loan Lenders (and any successor,
administrative agent for Term Loan Lenders pursuant to the Term Loan Agreement,
in such capacity "TERM LOAN AGENT"), as Collateral Agent and as Cash Management
Bank; DEUTSCHE BANK SECURITIES, INC., as documentation agent for Term Loan
Lenders (and any successor documentation agent for the Term Loan Lenders
pursuant to the Term Loan Agreement, in such capacity "TERM LOAN DOCUMENTATION
AGENT"); DEUTSCHE BANK AG, NEW YORK BRANCH, as administrative agent for Revolver
Lenders (and any successor administrative agent for Revolver Lenders pursuant to
the Revolver Credit Agreement, in such capacity "REVOLVER AGENT"); U.S. BANK
NATIONAL ASSOCIATION, in its capacity as agent for the holders of the
Prepetition Unsecured Claims Participation Interest pursuant to the Plan of
Reorganization (in such capacity, the "PREPETITION UNSECURED CLAIMS AGENT"); THE
COMPANIES LISTED ON THE SIGNATURE PAGES HEREOF AS MANAGEMENT SERVICES AND
REIMBURSEMENT AGREEMENT BENEFICIARIES (the "MANAGEMENT SERVICES AND
REIMBURSEMENT AGREEMENT BENEFICIARIES"); THE COMPANIES LISTED ON THE SIGNATURE
PAGES HEREOF AS MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS (the
"MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS") and the other
Persons who may become parties to this Agreement from time to time pursuant to
and in accordance with subsections 6.1(f) of this Agreement; WELLS FARGO BANK,
N.A., as Debenture Disbursing Agent; and U.S. BANK NATIONAL ASSOCIATION, as
Allowed Class 6 Disbursing Agent.

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                                 R E C I T A L S

                  WHEREAS, the Borrowers have proposed, their creditors have
approved, and the Bankruptcy Court has confirmed, the Plan of Reorganization;

                  WHEREAS, in connection with the Plan of Reorganization,
simultaneously herewith the Borrowers have received financing pursuant to the
Term Loan Agreement and Revolver Credit Agreement;

                  WHEREAS, it is a condition precedent to (i) the obligations of
Revolver Lenders to enter into and extend credit under the Revolver Credit
Agreement, (ii) the obligations of Term Loan Lenders to enter into and extend
credit under the Term Loan Agreement, (iii) the obligations of Management
Services and Reimbursement Agreement Beneficiaries to enter into the Management
Services and Reimbursement Agreement and (iv) the effectiveness of the Plan of
Reorganization, as applicable, that each Party shall have executed and delivered
this Agreement to the Collateral Agent;

                  WHEREAS, on the date hereof Loan Parties have executed and
delivered to Collateral Agent the Collateral Documents pursuant to which Loan
Parties granted a security interest in the Collateral as security for (i) in the
case of Revolver Borrowers, all Obligations of Revolver Borrowers under and in
respect of the Revolver Credit Agreement and all other Revolver Documents to
which Revolver Borrowers are a party to from time to time, in each case as
described therein, and (ii) in the case of Term Loan Borrowers, all Obligations
of Term Loan Borrowers under and in respect of the Term Loan Agreement and all
other Term Loan Documents to which Term Loan Borrowers are party to from time to
time, in each case as described therein;

                  WHEREAS, Creditor Parties desire to set forth certain
provisions regarding the appointment, duties and responsibilities of Collateral
Agent and to set forth certain other provisions concerning the obligations of
Loan Parties to Creditor Parties under the agreements referred to in the
foregoing recitals; and

                  WHEREAS, Creditor Parties wish to set forth their mutual
intentions as to certain matters relating to the exercise of remedies with
respect to the Collateral and payments made by or for the account of the
applicable Loan Parties under the Credit Documents as more fully set forth
herein.

                  NOW, THEREFORE, the parties hereto hereby agree as follows:

                                   SECTION I

                  1.1 DEFINITIONS. Terms used in the Agreement have the meanings
set forth in the introduction and recitals hereto. In addition, the following
terms shall have the following meanings:

                  "ADDITIONAL INTEREST LOANS" means "Additional Interest Loans"
as such term is defined in the Term Loan Agreement.

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                  "AFFILIATE", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person (other than exclusively as a result of such Person's
role as a senior executive of that Person or Project manager or operator),
whether through the ownership of voting securities or by contract or otherwise.

                  "AGENTS" means Collateral Agent, Term Loan Agents and Revolver
Agent.

                  "AGGREGATE NET SALES PROCEEDS" means (i) Net Asset Sales
Proceeds and (ii) Proceeds received by Collateral Agent in connection with the
foreclosure or other disposition of Collateral in connection with any
Enforcement Action.

                  "ALLOWED CLASS 6 CLAIMS" means "Allowed Class 6 Claims" as
such term is defined in the Approved Plan of Reorganization.

                  "ALLOWED CLASS 6 CLOSING DATE" means the date on which the
Bankruptcy Court shall have entered the Allowed Class 6 Disbursing Agent
Authorization Order.

                  "ALLOWED CLASS 6 DISBURSING AGENT" means U.S. Bank National
Association, in its capacity as disbursing agent for the holders of the Allowed
Class 6 Claims, and each of its successors, under the Approved Plan of
Reorganization, Confirmation Order, the Allowed Class 6 Disbursing Agent
Authorization Order, and the agency agreement relating thereto to be entered
into on or after the Closing Date.

                  "ALLOWED CLASS 6 DISBURSING AGENT AUTHORIZATION ORDER" means
an order or orders of the Bankruptcy Court authorizing U.S. Bank National
Association to enter into this Agreement as a Term Loan Lender and to serve as
the Allowed Class 6 Disbursing Agent with respect to Term Loans allocable to the
Allowed Class 6 Disbursing Agent as described in the first sentence of
subsection 9.25A(i) of the Term Loan Agreement.

                  "ALLOWED CLASS 6 INTEREST" means, with respect to any
Non-Confirming Holder, (i) prior to the Closing Date, an Allowed Class 6 Claim
of such Non-Confirming Holder, and (ii) on and after the Closing Date, the
interest held by such Non-Confirming Holder in any Term Loan distributed on the
Allowed 6 Closing Date or the Determination Date to the Allowed Class 6
Disbursing Agent.

                  "APPROVED OPERATING EXPENSES" means, as at any date of
determination, the following operating expenses of Company and its Domestic
Subsidiaries: (i) payments then due and payable by Company to Covanta pursuant
Sections 2, 3, and 4(a) of the Management Services and Reimbursement Agreement,
(ii) amounts then due and payable to DHC pursuant to Section 6 of the DHC Tax
Sharing Agreement, and (iii) fees and expenses then due and payable to senior
executive management of Company (including any success-based fees). "Approved
Operating Expenses" shall not include any Management Services and Reimbursement
Agreement Obligations or operating expenses directly related to any Project
(other than

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operating expenses related to a Project and payable to Management Services and
Reimbursement Agreement Beneficiaries pursuant to the Management Services and
Reimbursement Agreement).

                  "APPROVED PLAN OF REORGANIZATION" means the Plan of
Reorganization and all amendments, modifications, revisions and restatements
thereof, if any, approved by the creditors of Borrowers in requisite number and
percentage, and confirmed by the Bankruptcy Court pursuant to the Confirmation
Order and delivered to Revolver Agents and Term Loan Agents.

                  "ASSET SALE" means (A) the sale by CEA of any of the Capital
Stock of Company to any Person or (B) the sale by Company or any of its
Subsidiaries to any Person of (i) any of the Capital Stock of any of Company's
Subsidiaries, (ii) substantially all of the assets of any division or line of
business of Company or any of its Subsidiaries, or (iii) any other assets
(whether tangible or intangible) of Company or any of its Subsidiaries (other
than (a) inventory sold in the ordinary course of business and (b) any such
other assets to the extent that the aggregate value of such assets sold in any
single transaction or related series of transactions is equal to $250,000 or
less and the aggregate value of all such other assets since the Closing Date is
equal to $1,000,000 or less, in each case so long as not less than 90% of the
consideration received for such assets shall be cash); provided, however, that
Asset Sales shall not include (1) any sale or discount, in each case without
recourse, of accounts receivable arising in the ordinary course of business, but
only in connection with the compromise or collection thereof (provided, that
sales and discounts of not more than $2,000,000 in the aggregate in face value
of accounts receivable may be excluded from Asset Sales pursuant to this clause
(1), and the sole consideration received in connection with any such sale of
accounts receivable shall be cash), (2) any sale or exchange of specific items
of equipment, so long as the purpose of each such sale or exchange is to acquire
(and results within 120 days of such sale or exchange in the acquisition of)
replacement items of equipment which are the functional equivalent of the item
of equipment so sold or exchanged (provided, that any cash received in
connection with any such sale or exchange, to the extent in excess of the
amounts set forth in clause (b) of this definition, shall be deemed cash
proceeds of an Asset Sale), (3) disposals of obsolete, worn out or surplus
property in the ordinary course of business (provided, that not less than 75% of
the consideration, if any, received in connection with any such disposal shall
be cash, and any such cash received, to the extent in excess of the amounts set
forth in clause (b) of this definition, shall be deemed cash proceeds of an
Asset Sale), or (4) any discount or compromise of notes or accounts receivable
for less than the face value thereof, to the extent Company deems necessary in
order to resolve disputes that occur in the ordinary course of business or (5)
any sale of shares in the Madurai Project Entity permitted under subsection
6.7(vi) of each Credit Agreement.

                  "BANK OF AMERICA" shall have the meaning assigned to that term
in the introduction to this Agreement.

                  "BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.

                  "BANKRUPTCY COURT" means the United States Bankruptcy Court
for the Southern District of New York and any other court properly exercising
jurisdiction over any relevant Chapter 11 Case.

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                  "BANKRUPTCY EVENT" means any of one or more of the following
events regardless of the reason therefor:

                  (a) (i) a court having jurisdiction in the premises shall
         enter a decree or order for relief in respect of any Loan Party in an
         involuntary case under the Bankruptcy Code or any applicable
         bankruptcy, insolvency or other similar law now or hereafter in effect,
         which decree or order is not stayed; or any other similar relief shall
         be granted under any applicable federal, or state law; or (ii) an
         involuntary case shall be commenced against any Loan Party under any
         applicable bankruptcy, insolvency or other similar law now or hereafter
         in effect; or a decree or order of a court having jurisdiction in the
         premises for the appointment of a receiver, liquidator, sequestrator,
         trustee, custodian or other officer having similar powers over any Loan
         Party, or over all or a substantial part of its property, shall have
         been entered; or the involuntary appointment of an interim receiver,
         trustee or other custodian of any Loan Party for all or a substantial
         part of its property; or the issuance of a warrant of attachment,
         execution or similar process against any substantial part of the
         property of any Loan Party, and the continuance of any such event in
         clause (ii) for 60 days unless dismissed, bonded or discharged; or

                  (b) (i) any Loan Party shall have an order for relief entered
         with respect to it or commence a voluntary case under the Bankruptcy
         Code or any applicable bankruptcy, insolvency or other similar law now
         or hereafter in effect, or shall consent to the entry of an order for
         relief in an involuntary case, or to the conversion of an involuntary
         case to a voluntary case, under any such law, or shall consent to the
         appointment of or taking possession by a receiver, trustee or other
         custodian for all or a substantial part of its property, or shall make
         any assignment for the benefit of creditors; or

                  (ii) the inability or failure of any Loan Party, or the
         admission by any Loan Party in writing of its inability, to pay its
         debts as such debts become due; or the Governing Body (or any committee
         thereof) of any Loan Party adopts any resolution or otherwise
         authorizes action to approve any of the actions referred to in clause
         (i) or this clause (ii); or

                  (c) any order, judgment or decree shall be entered against any
         Loan Party decreeing the dissolution, winding up or split up of that
         Loan Party and such order shall remain undischarged or unstayed for a
         period in excess of 30 days.

                  "BANKRUPTCY PROCEEDING" means any case or proceeding of the
type described in the definition of "Bankruptcy Event" with respect to any Loan
Party.

                  "BORROWER" and "BORROWERS" shall have the meaning assigned to
such terms in the introduction to this Agreement.

                  "BUSINESS DAY" means any day excluding Saturday, Sunday and
any day which is a legal holiday under the laws of the State of New York, the
State of Texas or the State of California or is a day on which banking
institutions located in any such state are authorized or required by law or
other governmental action to close.

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                  "CAPITAL STOCK" means the capital stock or other equity
interests of a Person.

                  "CASH MANAGEMENT BANK" shall have the meaning assigned to that
term in the definition of "Cash Management System".

                  "CASH MANAGEMENT OBLIGATIONS" means the obligations of
Borrowers to the Cash Management Bank arising from or relating to the Cash
Management System including any liability of Borrower on any claim arising out
of or relating to the Cash Management System, whether or not the right to
payment in respect of such claim is reduced to judgment, liquidated,
unliquidated, fixed or contingent, matured, disputed, undisputed, legal,
equitable, secured or unsecured, and whether or not such claim is discharged,
stayed or otherwise affected by any bankruptcy, insolvency, reorganization or
other similar proceeding.

                  "CASH MANAGEMENT SYSTEM" means the cash management system of
Company and its Subsidiaries in the United States maintained with Bank of
America (in such capacity, "CASH MANAGEMENT BANK") as described in Schedule 3.1P
annexed to each Credit Agreement, as such Cash Management System may be modified
pursuant to subsection 5.10 of each Credit Agreement, and any other related
services provided by Cash Management Bank to Company and its Subsidiaries,
including treasury, depositary and cash management services or in connection
with automated clearing house transfers of funds.

                  "CASH ON HAND" means, as of any date of determination, the
aggregate amounts on deposit in the Cash Management System in the United States
as of the close of business on the preceding Business Day.

                  "CEA" shall have the meaning assigned to that term in the
introduction to this Agreement.

                  "CEA STOCK PLEDGE AGREEMENT" means the Pledge Agreement
executed and delivered by CEA on the Closing Date, substantially in the form of
Exhibit VIII annexed to the Term Loan Agreement (it being understood that such
Pledge Agreement shall contain a covenant requiring CEA to pay to Collateral
Agent any proceeds received by it from or in connection with the sale of any of
the common stock of Company to any Person), as such Pledge Agreement may
thereafter be amended, restated, supplemented or otherwise modified from time to
time to the extent permitted pursuant to subsection 2.4.

                  "CLOSING DATE" means March __, 2004.

                  "COLLATERAL" means, collectively, all of the real, personal
and mixed property (including Capital Stock) and interests in property now owned
or hereafter acquired by any Loan Party in or upon which a security interest,
Lien or mortgage is granted or purported to be granted to Collateral Agent
pursuant to the Collateral Documents, including Proceeds thereof.

                  "COLLATERAL AGENT" shall have the meaning assigned to that
term in subsection 2.1.

                  "COLLATERAL DOCUMENTS" means the Security Agreement, any
foreign pledge agreements, Control Agreements, Mortgages (as defined in the
Credit Agreements), CEA Stock

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Pledge Agreement and all other instruments or documents (pursuant to which a
Lien to secure all or any portion of the Secured Obligations is purported or
intended to be created, granted, evidenced or perfected) delivered from time to
time by any Loan Party pursuant to the Credit Agreements or any other Revolver
Document or Term Loan Document, in each case in order to grant to Collateral
Agent a Lien on any real, personal or mixed property as security for any or all
of the Secured Obligations, as such instruments and documents may be amended,
restated, supplemented or otherwise modified from time to time to the extent
permitted pursuant to subsection 2.4.

                  "COMPANY" shall have the meaning assigned to that term in the
introduction to this Agreement.

                  "CONFIRMATION ORDER" means the Findings of Fact, Conclusions
of Law and Order under 11 U.S.C. Section 1129 and Rule 3020 of the Federal Rules
of Bankruptcy Procedure Confirming Debtors' Second Joint Plan of Reorganization
under Chapter 11 of the Bankruptcy Code entered by the Bankruptcy Court on March
5, 2004 in the Chapter 11 Cases, without modification, revision or amendment.

                  "CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.

                  "CONTROL AGREEMENT" means an agreement, satisfactory in form
and substance to Revolver Agent and Term Loan Agent and executed by the
financial institution or securities intermediary at which a Deposit Account or a
Securities Account, as the case may be, is maintained, pursuant to which such
financial institution or securities intermediary confirms and acknowledges
Collateral Agent's security interest in such account, and agrees that the
financial institution or securities intermediary, as the case may be, will
comply with instructions originated by Collateral Agent as to disposition of
funds in such account, without further consent by Company or any Subsidiary, as
such agreement may be amended, restated, supplemented or otherwise modified from
time to time to the extent permitted pursuant to subsection 2.4.

                  "COVANTA" means Covanta Energy Corporation, a Delaware
corporation.

                  "CREDIT AGREEMENTS" means the Term Loan Agreement and Revolver
Credit Agreement.

                  "CREDIT DOCUMENTS" means, collectively, (i) the Term Loan
Agreement and the other Term Loan Documents, (ii) the Revolver Credit Agreement
and the other Revolver Documents, and (iii) the Management Services and
Reimbursement Agreement, in each case as they may be amended, restated,
supplemented or otherwise modified from time to time to the extent permitted
thereunder and pursuant to subsection 2.5.

                  "CREDITOR OBLIGATIONS" means, collectively, the Approved
Operating Expenses, Revolver Loan Obligations, Term Loan Obligations, Management
Services and Reimbursement Agreement Obligations, Cash Management Obligations,
and Prepetition Unsecured Claims Participation Interest.

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                  "CREDITOR PARTIES" means Collateral Agent, Revolver Agent,
Term Loan Agents, Revolver Lenders, Term Loan Lenders, Cash Management Bank,
Prepetition Unsecured Claims Agent and Management Services and Reimbursement
Agreement Beneficiaries.

                  "DEBENTURE CLOSING DATE" means the date on which the
Bankruptcy Court shall have entered the Debenture Disbursing Agent Authorization
Order.

                  "DEBENTURE DISBURSING AGENT" means Wells Fargo Bank, N.A., in
its capacity as disbursing agent for the holders of the 9.25% Debentures, and
each of its successors, under the Approved Plan of Reorganization, the
Confirmation Order, the Debenture Disbursing Agent Authorization Order and the
disbursing agreement relating thereto to be entered into on or after the Closing
Date.

                  "DEBENTURE DISBURSING AGENT AUTHORIZATION ORDER" means an
order or orders of the Bankruptcy Court authorizing Wells Fargo Bank, N.A. to
enter into this Agreement as a Term Loan Lender and to serve as the Debenture
Disbursing Agent with respect to Term Loans allocable to the Debenture
Disbursing Agent as described in the first sentence of subsection 9.25A(i) of
the Term Loan Agreement.

                  "DEBENTURE INTEREST" means, with respect to any Non-Confirming
Holder, (i) prior to the Debenture Closing Date, the claim in respect of the
9.25% Debentures held by such Non-Confirming Holder, and (ii) on and after the
Debenture Closing Date, the interest held by such Non-Confirming Holder in any
Term Loan distributed on the Debenture Closing Date or the Determination Date to
the Debenture Disbursing Agent; provided, however, that any Debenture Interest
shall cease to be a Debenture Interest at such time that the Non-Confirming
Holder with respect thereto shall become a Lender in accordance with subsection
9.25 of the Term Loan Agreement.

                  "DETERMINATION DATE" means the "Determination Date" as defined
in the Approved Plan of Reorganization.

                  "DEPOSIT ACCOUNT" means a demand, time, savings, passbook or
similar account maintained with a Person engaged in the business of banking,
including a savings bank, savings and loan association, credit union or trust
company.

                  "DHC" means Danielson Holding Corporation, a Delaware
corporation.

                  "DHC TAX SHARING AGREEMENT" means the tax sharing agreement
entered into by DHC, Company and Covanta on the Closing Date, as such agreement
may be amended, restated supplemented or otherwise modified from time to time to
the extent permitted thereunder and pursuant to subsection 2.5(a).

                  "DISBURSING AGENT" means either Debenture Disbursing Agent or
Allowed Class 6 Disbursing Agent, and "DISBURSING AGENTS" means each of them.

                  "DISTRIBUTION" means, with respect to any Creditor Obligation,
(a) any payment or distribution by Covanta or any of its Subsidiaries of cash,
securities or other assets and properties of any kind whatsoever, real or
personal, tangible or intangible, or mixed, whether

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now owned or existing or hereafter acquired or arising and wheresoever located,
by set-off or otherwise, on account of such Creditor Obligation, (b) any
redemption, purchase or other acquisition of such Creditor Obligation by Covanta
or any of its Subsidiaries or (c) the granting of any Lien to or for the benefit
of the holders of such Creditor Obligation in or upon any or all assets and
properties of any kind whatsoever, real or personal, tangible or intangible, or
mixed, whether now owned or existing or hereafter acquired or arising and
wheresoever located of Covanta or any of its Subsidiaries.

                  "DOMESTIC SUBSIDIARY" means any Subsidiary of any Borrower
that is incorporated or organized under the laws of the United States, any state
thereof or in the District of Columbia.

                  "ENFORCEMENT ACTION" shall mean the exercise by any Secured
Party of any of the enforcement rights and remedies under, and subject to the
provisions of, the Collateral Documents at any time on or after an Event of
Default, including any or all of the following: any motion to vacate any stay on
enforcement of the Liens on the Collateral, solicitation of bids from third
parties to conduct the liquidation of Collateral, the engagement or retention of
third parties for the purposes of marketing, promoting or selling all or any
Collateral, the commencement of any action to foreclose on the Liens on any of
the Collateral, notification of account debtors to make payments to any Secured
Party or its agents, any action to take possession of any Collateral or
otherwise in connection with the preservation or protection of any of the
Collateral, its value or any rights or remedies therein or otherwise or as may
be deemed necessary or appropriate to enhance the likelihood or maximize the
repayment of the Secured Obligations.

                  "EVENT OF DEFAULT" means a Revolver Event of Default and/or a
Term Loan Event of Default.

                  "EXISTING IPP INTERNATIONAL PROJECT GUARANTIES" means,
collectively, (i) the existing guaranty by Covanta Energy Group of the
obligations of certain Subsidiaries of Company under certain agreements relating
to the Haripur Project, the Samalpatti Project and the Trezzo Project, (ii) the
existing guaranty by Covanta Projects, Inc. of the obligations of certain
Subsidiaries of Company under certain agreements relating to the Quezon Project,
and (iii) the existing guaranty by Covanta of the obligations certain
Subsidiaries of Company under certain agreements relating to the Balaji/Madurai
Project and the LICA Project, as each such guaranty may be amended, restated,
supplemented or otherwise modified to the extent permitted pursuant to
subsection 2.5(a).

                  "GOVERNING BODY" means the board of directors or other body
having the power to direct or cause the direction of the management and policies
of a Person that is a corporation, partnership, trust or limited liability
company.

                  "GROSS RECEIPTS" means, in respect of any Asset Sale, the
total cash payments (including any cash received by way of deferred payment
pursuant to, or by monetization of, a note receivable or otherwise, but only as
and when so received) received from such Asset Sale minus any repayment of debt
related to the assets sold in such Asset Sale which is made in connection with
such Asset Sale and is not prohibited under the Revolver Credit Agreement and
Term Loan Agreement.

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                  "JUNIOR CREDITOR" shall have the meaning assigned to that term
in subsection 4.2(e).

                  "LENDERS" means Term Loan Lenders and Revolver Lenders.

                  "LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.

                  "LOAN PARTIES" means Company, the other Borrowers, CEA, and
Management Services and Reimbursement Agreement Obligors.

                  "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT" means the
management services and reimbursement agreement entered into by Company and
Covanta and certain of their respective Subsidiaries on the Closing Date, in
form and substance satisfactory to Revolver Agent and Term Loan Agents as such
agreement may be amended, restated, supplemented or otherwise modified from time
to time to the extent permitted thereunder and pursuant to subsection 2.5(a).

                  "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT
BENEFICIARIES" shall have the meaning assigned to that term in the introduction
to this Agreement.

                  "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGATIONS"
means, as at any date of determination, the obligations of Management Services
and Reimbursement Agreement Obligors then due and payable under Section 4(b) of
the Management Services and Reimbursement Agreement; provided, however, that no
such obligations shall be included in "Management Services and Reimbursement
Agreement Obligations" if such obligation arises as a result of (i) any action
or inaction by Covanta or any of its Subsidiaries (other than Company and its
Subsidiaries), not triggered by a failure to perform by Company or any of its
Subsidiaries or (ii) the failure of any Management Services and Reimbursement
Agreement Beneficiary to renew, replace or extend, or cause the renewal,
replacement or extension of, a Letter of Credit (as defined in the Management
Services and Reimbursement Agreement); provided, however that the letter of
credit dated February 28, 1999 issued by Citibank, N.A. to secure an obligation
of NEPC Consortium Ltd. under certain Haripur project documents, and any
renewal, replacement or extension of such letter of credit, shall in each case
be excluded under this clause (ii) to the extent such letter of credit is not
renewed, replaced or extended as a result of (x) the refusal of the issuer
thereof (or any other proposed issuer acceptable to the beneficiary thereof) to
so renew, replace or extend such letter of credit on an unsecured basis or (y)
the failure of any other account party thereunder to satisfy any condition
precedent imposed by the issuer thereof (or any other proposed issuer acceptable
to the beneficiary thereof) to such renewal, replacement or extension.

                  "MANAGEMENT SERVICES AND REIMBURSEMENT AGREEMENT OBLIGORS"
shall have the meaning assigned to that term in the introduction to this
Agreement.

                  "MANDATORY PAYMENTS" means any amount described in subsections
2.4A(iii)(a)-(e) of the Revolver Credit Agreement and subsections
2.4A(ii)(a)-(e) of

                                       10

<PAGE>

the Term Loan Agreement to be applied as a prepayment of the Term Loans and/or
the Revolver Loans and/or a permanent reduction of the Revolver Loan
Commitments.

                  "NET ASSET SALE PROCEEDS" means, with respect to any Asset
Sale, Gross Receipts received from such Asset Sale, net of any bona fide direct
costs incurred in connection with such Asset Sale, including (i) income taxes
reasonably estimated to be actually payable prior to the earlier of (a) the date
which is eighteen months from the date of such Asset Sale and (b) the Maturity
Date as a result of any gain recognized in connection with such Asset Sale, (ii)
additional Taxes actually payable upon the closing of such Asset Sale (including
any transfer Taxes or Taxes on gross receipts), (iii) actual, reasonable and
documented out-of-pocket fees and expenses (including reasonable legal fees,
reasonable fees to advisors and severance costs that are due (pursuant to a
Contractual Obligation of Company or any of its Subsidiaries in effect prior to
such Asset Sale or pursuant to applicable law) and payable immediately upon
consummation of such Asset Sale to employees of Company and its Subsidiaries
that are terminated as a result thereof) paid to Persons other than Company and
its Subsidiaries and their respective Affiliates in connection with such Asset
Sale (including fees necessary to obtain any required consents of such Persons
to such Asset Sale), and (iv) payment of the outstanding principal amount of,
premium or penalty, if any, and interest on any indebtedness (other than
Revolver Loans and Term Loans) that is (x) secured by a valid, enforceable and
perfected Lien on the stock or assets in question that is permitted under
subsection 6.2 of each Credit Agreement and (y) required to be repaid under the
terms of such indebtedness as a result of such Asset Sale (without duplication
of amounts deducted in calculating the Gross Receipts from such Asset Sale) and
is permitted to be paid under the Credit Documents.

                  "NET INSURANCE/CONDEMNATION PROCEEDS" means any cash payments
or Proceeds received by Company or any of its Subsidiaries (i) under any
business interruption or casualty insurance policy in respect of a covered loss
thereunder or (ii) as a result of the taking of any assets of Company or any of
its Subsidiaries by any Person pursuant to the power of eminent domain,
condemnation or otherwise, or pursuant to a sale of any such assets to a
purchaser with such power under threat of such a taking, in each case net of (a)
income taxes reasonably estimated to be actually payable prior to the earlier of
(1) the date which is eighteen months from the date of such receipt and (2)
March ___, 2007 as a result of the receipt of such payments of proceeds and (b)
any actual, reasonable and documented out-of-pocket fees and expenses (including
reasonable legal fees, reasonable fees to advisors and severance costs that are
due (pursuant to a Contractual Obligation, or written employment policy
applicable to terminated employees generally, of Company or any of its
Subsidiaries in effect prior to the event causing or relating to the payment
referred to in clause (i) or (ii) hereof or pursuant to applicable law) and
payable on or prior to the receipt of such payment or proceeds to employees of
Company and its Subsidiaries that have been terminated as a result of the
relevant loss, taking or sale) paid to Persons other than Company and its
Subsidiaries and their respective Affiliates in connection with the relevant
loss, taking or sale or the adjustment or settlement of any claims of Company or
such Subsidiary in respect thereof; provided, however, that Net
Insurance/Condemnation Proceeds shall be reduced in an amount equal to the
amount of proceeds Subsidiaries of Company are legally bound or required,
pursuant to Contractual Obligations in effect on the Closing Date, or which were
entered into after the Closing Date with respect to the financing or acquisition
of a Project, to use for purposes other than application pursuant to subsection
4.1(b).

                                       11

<PAGE>

                  "9.25% DEBENTURES" means the "9.25% Debenture Claims" as such
term is defined in the Approved Plan of Reorganization.

                  "NON-CONFIRMING HOLDER" means, on any date of determination, a
Person that holds on such date a Debenture Interest or an Allowed Class 6
Interest in Term Loans initially allocable in accordance with subsection
9.25A(i) of the Term Loan Agreement to the Debenture Disbursing Agent or the
Allowed Class 6 Disbursing Agent, respectively.

                  "OBLIGATIONS" means all obligations of every nature of Loan
Parties under the Credit Documents, including any liability of such Loan Party
on any claim arising out of or relating to the Credit Documents, whether or not
the right to payment in respect of such claim is reduced to judgment,
liquidated, unliquidated, fixed or contingent, matured, disputed, undisputed,
legal, equitable, secured or unsecured, and whether or not such claim is
discharged, stayed or otherwise affected by any bankruptcy, insolvency,
reorganization or other similar proceeding. Without limiting the generality of
the foregoing, the Obligations of the Loan Parties under the Credit Documents
include (a) the obligation to pay principal, interest (including all interest
which accrues after the commencement of any case or proceeding in bankruptcy
after the insolvency of, or for the reorganization of, any Loan Party, whether
or not allowed in such case or proceeding), charges, expenses, fees, attorneys'
fees and disbursements, indemnities and other amounts payable by any Borrower
and any other Loan Party under any Credit Document and (b) the obligation to
reimburse any amount in respect of any of the foregoing that any Agent or any
Lender, in its sole discretion, may elect to pay or advance on behalf of such
Borrower or other Loan Party; provided, that nothing in this definition shall be
construed as creating any obligations of DHC under the Credit Documents that are
not expressly set forth in such Credit Documents.

                  "OFFICER'S CERTIFICATE" means, as applied to any Person that
is a corporation, partnership, trust or limited liability company, a certificate
executed on behalf of such Person by one or more Officers of such Person or one
or more Officers of a general partner or a managing member if such general
partner or managing member is a corporation, partnership, trust or limited
liability company.

                  "PAYMENT IN FULL" and "PAID IN FULL" means (i) as to the
Revolver Loan Obligations, the payment and satisfaction in full in immediately
available funds of all of such Revolver Loan Obligations and, other than for
purposes of subsection 4.2(a), the termination of all Revolver Loan Commitments,
(ii) as to the Term Loan Obligations, the payment and satisfaction in full in
immediately available funds of all of such Term Loan Obligations and the
termination of the Term Loan Commitments, (iii) as to the Approved Operating
Expenses, the payment in full in immediately available funds of all such
Approved Operating Expenses to the extent then due and payable, (iv) as to the
Management Services and Reimbursement Agreement Obligations, the payment and
satisfaction in full in immediately available funds of all of such Management
Services and Reimbursement Agreement Obligations to the extent then due and
payable pursuant to the Management Services and Reimbursement Agreement, (v) as
to any amounts payable hereunder with respect to the Prepetition Unsecured
Claims Participation Interest, the payment to Prepetition Unsecured Claims Agent
of 5% of the aggregate cumulative amount of Aggregate Net Sales Proceeds not to
exceed $4,000,000 and (vi) as to any other Secured Obligations, the payment and
satisfaction in full in immediately available funds of all

                                       12

<PAGE>

such Secured Obligations then outstanding. If after receipt of any payment of,
or Proceeds of Collateral applied to the payment of, any of the Creditor
Obligations, Collateral Agent or any other Creditor Party, as applicable, is
required to surrender or return such payment or Proceeds to any Person for any
reason, then the Creditor Obligations intended to be satisfied by such payment
or Proceeds shall be reinstated and continue and this Agreement shall continue
in full force and effect as if such payment or Proceeds had not been received by
Collateral Agent or such other Creditor Party, as the case may be.

                  "PARTIES" means the Loan Parties, Secured Parties and Creditor
Parties from time to time party to this Agreement.

                  "PERMITTED ENCUMBRANCES" shall have the meaning assigned to
that term in both the Term Loan Agreement and Revolver Credit Agreement as in
effect on the date hereof.

                  "PERSON" or "PERSONS" means and include natural persons,
corporations, limited partnerships, general partnerships, limited liability
companies, limited liability partnerships, joint stock companies, Joint Ventures
(as defined in the Credit Agreements), associations, companies, trusts, banks,
trust companies, land trusts, business trusts or other organizations, whether or
not legal entities, and governments (whether federal, state or local, domestic
or foreign, and including political subdivisions thereof) and agencies or other
administrative or regulatory bodies thereof.

                  "PETITION DATE" means April 1, 2002.

                  "PLAN OF REORGANIZATION" means the Debtors' Second Joint Plan
of Reorganization under Chapter 11 of the Bankruptcy Code as filed with the
Bankruptcy Court on January 14, 2004 (and as revised and amended through March
2, 2004), together with the Reorganization Plan Supplement to Debtors' Second
Joint Plan of Reorganization filed with the Bankruptcy Court on February 18,
2004 in connection therewith.

                  "PREPETITION UNSECURED CLAIMS" means "Parent and Holding
Company Unsecured Claims" that are "Allowed," as such terms are defined in the
Approved Plan of Reorganization.

                  "PREPETITION UNSECURED CLAIMS AGENT" shall have the meaning
assigned to that term in the introduction to this Agreement.

                  "PREPETITION UNSECURED CLAIMS PARTICIPATION INTEREST" means
the right of holders of Allowed Class 6 Claims to receive 5% of the amount of
Aggregate Net Sale Proceeds up to but not exceeding the total sum of $4,000,000
in the aggregate.

                  "PROCEEDS" means "proceeds", as such term is defined in the
UCC and, in any event, shall include (i) any and all proceeds of any insurance,
indemnity, warranty or guaranty payable to any of the Loan Parties or Collateral
Agent from time to time with respect to any of the Collateral, (ii) any and all
payments (in any form whatsoever) made or due and payable to any of the Loan
Parties from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of all or any part of the Collateral, by any
governmental body, authority, bureau or agency (or any person acting under color
of governmental authority),

                                       13

<PAGE>

and (iii) any and all other consideration (in any form whatsoever) or other
amounts from time to time paid or payable under or in connection with any of the
Collateral upon disposition or otherwise.

                  "PROJECT" means any waste-to-energy facility, electrical
generation plant, cogeneration plant, water treatment facility or other facility
for the generation of electricity or engaged in another line of business in
which Company and its Subsidiaries are permitted to be engaged hereunder for
which a Subsidiary or Subsidiaries of Company was, is or will be (as the case
may be) an owner, operator, manager or builder, and shall also mean any two or
more of such plants or facilities in which an interest has been acquired in a
single transaction, so long as such interest constitutes an existing Investment
on the Closing Date permitted under this Agreement; provided, however, that a
Project shall cease to be a Project of Company and its Subsidiaries at such time
that Company or any of its Subsidiaries ceases to have any existing or future
rights or obligations (whether direct or indirect, contingent or matured)
associated therewith.

                  "REQUISITE OBLIGEES" means (i) until Payment in Full of all
Revolver Loan Obligations, Requisite Revolver Lenders; and (ii) from and after
Payment in Full of all Revolver Loan Obligations, Requisite Term Loan Lenders.

                  "REQUISITE REVOLVER LENDERS" means Lenders having or holding
more than 50% of the aggregate Revolver Loan Exposure of all Revolver Lenders;
provided, however, that prior to the Closing Date, for purposes of this
definition the Revolver Loan Exposure of each Revolver Loan Lender shall equal
the original Revolver Loan Commitment of such Revolver Loan Lender on the
Closing Date.

                  "REQUISITE TERM LOAN LENDERS" means Lenders having or holding
more than 50% of the aggregate Term Loan Exposure of all Term Loan Lenders;
provided, however, that prior to the Closing Date, for purposes of this
definition the Term Loan Exposure of each Term Loan Lender shall equal the
original Term Loan Commitment of such Term Loan Lender on the Closing Date.

                  "REVOLVER AGENT" shall have the meaning assigned to that term
in the introduction hereto.

                  "REVOLVER BORROWER" shall have the meaning assigned to that
term in the introduction hereto.

                  "REVOLVER CREDIT AGREEMENT" means that (i) certain credit
agreement dated as of the date hereof by and among Company and the other
Revolver Borrowers, Revolver Lenders and Revolver Agent, (ii) any credit
agreement entered into by Revolver Borrowers to refinance, replace, renew or
extend, in whole or in party, the credit agreement referenced in clause (i) and
the indebtedness issued thereunder to the extent permitted pursuant to the Term
Loan Agreement, in the case of clause (i) or (ii), as such credit agreement may
be amended, restated, supplemented or otherwise modified from time to time to
the extent permitted thereunder and pursuant to subsection 2.5(b).

                                       14

<PAGE>

                  "REVOLVER DOCUMENTS" means the "Loan Documents" as such term
is defined in the Revolver Credit Agreement (or any comparable term with respect
to any replacement Revolver Credit Agreement not prohibited hereunder).

                  "REVOLVER EVENT OF DEFAULT" means an "Event of Default" under
and as defined in the Revolver Credit Agreement.

                  "REVOLVER LENDER" shall have the meaning assigned to that term
in the introduction to this Agreement.

                  "REVOLVER LOAN" or "REVOLVER LOANS" means the loans made (or
deemed made) by Revolver Lenders to Revolver Borrowers under the Revolver Credit
Agreement.

                  "REVOLVER LOAN COMMITMENT" means, as at any date of
determination, the commitment of a Revolver Lender to make Revolver Loans to
Revolver Borrowers pursuant to the Revolver Credit Agreement.

                  "REVOLVER LOAN EXPOSURE" with respect to any Revolver Lender,
means, as of any date of determination (i) prior to the termination of the
Revolver Loan Commitments, that Revolver Lender's Revolver Loan Commitment, and
(ii) after the termination of the Revolver Loan Commitments, the aggregate
outstanding principal amount of the Revolver Loans of that Revolver Lender.

                  "REVOLVER LOAN OBLIGATIONS" means any and all Obligations to
the extent arising under or with respect to the Revolver Loan Commitments or the
Revolver Loans, including principal and interest on any Revolver Loans and the
fees and other amounts accruing or otherwise owed with respect to the Revolver
Loan Exposure and all other Obligations of a Loan Party with respect to Revolver
Loans; provided, however, that Obligations of any Loan Party for interest or
commitment fees with respect to any Revolver Loan Document and Revolver Loan
Commitments that accrue or may be incurred under any Revolver Loan Document
after the commencement by or against any Loan Party of a Bankruptcy Proceeding
shall be included in the Revolver Loan Obligations solely to the extent
recoverable from such Loan Party or its estate in such proceeding.

                  "SECURED PARTIES" means Term Loan Lenders, Revolver Lenders,
Term Loan Agents, Revolver Agent, Cash Management Bank and Collateral Agent.

                  "SECURED OBLIGATIONS" means all Obligations of Loan Parties
from time to time under the Credit Agreements and the other Revolver Documents
and Term Loan Documents and all obligations owing to Collateral Agent hereunder
or under each Collateral Document, and all Cash Management Obligations.

                  "SECURITIES" means any stock, shares, partnership interests,
voting trust certificates, certificates of interest or participation in any
profit-sharing agreement or arrangement, options, warrants, bonds, debentures,
notes, or other evidences of indebtedness, secured or unsecured, convertible,
subordinated, certificated or uncertificated, or otherwise, or in general any
instruments commonly known as "securities" or any certificates of interest,
shares or

                                       15

<PAGE>

participations in temporary or interim certificates for the purchase or
acquisition of, or any right to subscribe to, purchase or acquire, any of the
foregoing.

                  "SECURITIES ACCOUNT" means an account to which a financial
asset is or may be credited in accordance with an agreement under which the
Person maintaining the account undertakes to treat the Person for whom the
account is maintained as entitled to exercise the rights that comprise the
financial asset.

                  "SECURITY AGREEMENT" means the Security Agreement executed and
delivered by Borrowers on the Closing Date pursuant to the Revolver Credit
Agreement and Term Loan Agreement, as such agreement may from time to time
hereafter be amended, restated, supplemented or otherwise modified to the extent
permitted pursuant to subsection 2.4.

                  "SENIOR AGENT" means, (i) until Payment in Full of all
Revolver Loan Obligations, Revolver Loan Agent and (ii) from and after Payment
in Full of all Revolver Loan Obligations and until Payment in Full of all Term
Loan Obligations, Term Loan Agent.

                  "SENIOR CREDITOR" shall have the meaning assigned to that term
in subsection 4.2(e).

                  "SUBSIDIARY" means, with respect to any Person, any
corporation, partnership, trust, limited liability company, association, joint
venture or other business entity of which more than 50% of the total voting
power of shares of stock or other ownership interests entitled (without regard
to the occurrence of any contingency) to vote in the election of the members of
the Governing Body is at the time owned or controlled, directly or indirectly,
by that Person or one or more of the other Subsidiaries of that Person or a
combination thereof.

                  "SUPERPRIORITY TERM LOAN OBLIGATIONS" means all Term Loan
Obligations in respect of accrued and unpaid interest on the Term Loans
(including, for the avoidance of doubt, accrued and unpaid interest on
Additional Interest Loans; it being understood and agreed that, to the extent
interest on the Term Loans is paid through the issuance of Additional Interest
Loans pursuant to subsection 2.2B(ii) of the Term Loan Agreement, such interest
shall be deemed paid for purposes of this definition).

                  "SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to
that term in subsection 6.1(c).

                  "TAX" or "TAXES" means any present or future tax, levy,
impost, duty, charge, fee, deduction or withholding of any nature and whatever
called, by whomsoever, on whomsoever and wherever imposed, levied, collected,
withheld or assessed, including interest, penalties, additions to tax and any
similar liabilities with respect thereto.

                  "TERM LOAN" or "TERM LOANS" means the loans made (or deemed
made) by Term Loan Lenders to Term Loan Borrowers pursuant to the Term Loan
Agreement, including any Additional Interest Loans (as defined in the Term Loan
Agreement) and loans deemed made after the Closing Date pursuant to subsection
2.1 of the Term Loan Agreement.

                                       16

<PAGE>

                  "TERM LOAN AGENT" shall have the meaning assigned to that term
in the introduction to this Agreement.

                  "TERM LOAN AGENTS" means Term Loan Agent and Term Loan
Documentation Agent.

                  "TERM LOAN AGREEMENT" means that (i) certain credit agreement
dated as of the date hereof by and among Company and the other Term Loan
Borrowers, Term Loan Lenders and the Term Loan Agents, (ii) any credit agreement
entered into by the Term Loan Borrowers to refinance, replace, renew or extend,
in whole or in part, the credit agreement referenced in clause (i) and the
indebtedness thereunder to the extent permitted pursuant to the Revolver Credit
Agreement, in the case of clause (i) or (ii), as such credit agreement may be
amended, restated, supplemented or otherwise modified from time to time to the
extent permitted thereunder and pursuant to subsection 2.5(c).

                  "TERM LOAN BORROWERS" shall have the meaning assigned to that
term in the introduction to this Agreement.

                  "TERM LOAN COMMITMENT" means, as at any date of determination,
the commitment of a Term Loan Lender to make Term Loans to Term Loan Borrowers
pursuant to the Term Loan Agreement.

                  "TERM LOAN DOCUMENTATION AGENT" shall have the meaning
assigned to that term in the introduction to this Agreement.

                  "TERM LOAN DOCUMENTS" means the "Loan Documents" as such term
is defined in the Term Loan Agreement (or any comparable term with respect to
any replacement Term Loan Agreement not prohibited hereunder).

                  "TERM LOAN EVENT OF DEFAULT" means an "Event of Default" under
and as defined in the Term Loan Agreement.

                  "TERM LOAN EXPOSURE" with respect to any Term Loan Lender,
means, as of any date of determination the aggregate outstanding principal
amount of the Term Loans of that Term Loan Lender.

                  "TERM LOAN LENDER" shall have the meaning assigned to that
term in the introduction to this Agreement.

                  "TERM LOAN OBLIGATIONS" means any and all Obligations to the
extent arising under or with respect to the Term Loan Commitments or the Term
Loans, including principal and interest on any Terms Loans and fees and other
amounts accruing or otherwise owed with respect to the Term Loan Exposure;
provided, however, that Obligations of any Loan Party for interest with respect
to any Term Loan Document and Term Loan Commitments that accrue or may be
incurred under any Term Loan Document after the commencement by or against any
Loan Party of a Bankruptcy Proceeding shall be included in the Term Loan
Obligations solely to the extent recoverable from such Loan Party or its estate
in such proceeding.

                                       17

<PAGE>

                  "THIRD-PARTY GUARANTY" shall have the meaning assigned to that
term in subsection 4.2(h).

                  "UCC" means the Uniform Commercial Code as the same may, from
time to time, be in effect in the State of New York; provided, however, in the
event that, by reason of mandatory provisions of law, the priority of any
Secured Party's security interest in any Collateral is governed by the Uniform
Commercial Code as in effect in a jurisdiction other than the State of New York,
the term "UCC" means the Uniform Commercial Code as in effect in such other
jurisdiction for purposes of the provisions hereof relating to such priority and
for purposes of definitions related to such provisions.

                  "UNITED STATES" means the United States of America.

                  1.2 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.

                  (a) Any of the terms defined herein may, unless the context
         otherwise requires, be used in the singular or the plural, depending on
         the reference.

                  (b) References to "Sections" and "subsections" shall be to
         Sections and subsections, respectively, of this Agreement unless
         otherwise specifically provided.

                  (c) The use of the word "include" or "including", when
         following any general statement, term or matter, shall not be construed
         to limit such statement, term or matter to the specific items or
         matters set forth immediately following such word or to similar items
         or matters, whether or not nonlimiting language (such as "without
         limitation" or "but not limited to" or words of similar import) is used
         with reference thereto, but rather shall be deemed to refer to all
         other items or matters that fall within the broadest possible scope of
         such general statement, term or matter.

                  (d) In the event of any refinancing, replacement or extension
         of any Credit Agreement, references in this Agreement to sections or
         subsections of such Credit Agreement shall refer to the functionally
         equivalent sections or subsections in such refinanced, replaced or
         extended agreement as the context requires.

                                   SECTION II

                  2.1 APPOINTMENT AS COLLATERAL AGENT. Each Secured Party (i)
appoints Bank of America to serve as collateral agent and representative of each
such Secured Party (to the extent applicable) under this Agreement and each of
the Collateral Documents (in such capacity, together with its successors in such
capacity, the "COLLATERAL Agent") and (ii) irrevocably authorizes Collateral
Agent to act as agent for the Secured Parties for the purpose of executing and
delivering, on behalf of all such Secured Parties, the Collateral Documents and,
subject to the provisions of this Agreement, for the purpose of exercising such
powers, rights and remedies hereunder and under the other Collateral Documents
as are specifically delegated or granted to Collateral Agent by the terms hereof
and thereof, together with such powers, rights and remedies as are reasonably
incidental thereto. For the avoidance of doubt, it is understood and agreed that
the Collateral Agent is the "Secured Party" or, as the case may be, the
"Mortgagee" referred to in the Collateral Documents. Each Secured Party and
Collateral Agent hereby appoints each other

                                       18

<PAGE>

Secured Party as agent for the purpose of perfecting Collateral Agent's security
interest in Collateral that, in accordance with the UCC, can be perfected by
possession or control.

                  2.2 DECISIONS RELATING TO ENFORCEMENT ACTIONS AND OTHER
MATTERS VESTED IN REQUISITE OBLIGEES.

                  (a) Collateral Agent agrees to take such Enforcement Actions
         and all such actions with respect to Collateral which is perfected only
         by control of such Collateral, in each case as may be directed by
         Requisite Obligees (it being understood and agreed that if, at any time
         Collateral Agent determines that the requisite percentages constituting
         Requisite Obligees shall have been obtained, the Collateral Agent may
         and shall be fully authorized, as of such time and without the need for
         further direction from any Secured Party, to take or not take such
         action as the Requisite Obligees direct); provided, however, that
         notwithstanding anything in this Agreement to the contrary, Collateral
         Agent shall not be required to take any action that is in its judgment
         contrary to law or to the terms of this Agreement or any or all of the
         Collateral Documents or which would in its opinion subject it or any of
         its officers, employees or directors to liability, and Collateral Agent
         shall not be required to take any action under this Agreement or any or
         all of the Collateral Documents unless and until Collateral Agent shall
         be indemnified to its satisfaction by the relevant Parties against any
         and all losses, costs, expenses or liabilities in connection therewith.

                  (b) Each Secured Party agrees that Collateral Agent may act as
         Requisite Obligees may request (regardless of whether any individual
         Party or any other Secured Party agrees, disagrees or abstains with
         respect to such request), that Collateral Agent shall have no liability
         for acting in accordance with such request (provided such action does
         not conflict with the express terms of this Agreement) and that no
         Secured Party shall have any liability to any other Party for any such
         request, except, in each case, liability arising from the gross
         negligence or willful misconduct of such Person. Collateral Agent shall
         give prompt notice to all Secured Parties of actions taken pursuant to
         the instructions of Requisite Obligees; provided, however, that the
         failure to give any such notice shall not impair the right of
         Collateral Agent to take any such action or the validity or
         enforceability under this Agreement and the applicable Collateral
         Documents of the action so taken.

                  (c) Collateral Agent may at any time request directions from
         the Requisite Obligees with respect to the Collateral Documents as to
         any course of action or other matter relating hereto or to the
         Collateral Documents. Except as otherwise provided in the Collateral
         Documents, directions given by Requisite Obligees to Collateral Agent
         with respect to the Collateral and Collateral Documents shall be
         binding on all Secured Parties for all purposes (provided such
         directions do not conflict with the express terms of this Agreement).

                  (d) Each Secured Party, by accepting the benefits hereof and
         of the Collateral Documents, agrees not to take any Enforcement Action
         whatsoever, in each case except through Collateral Agent in accordance
         with this Agreement.

                                       19

<PAGE>

                  2.3 NET INSURANCE/CONDEMNATION PROCEEDS.

                  (a) Unless prohibited by contractual or other legal
         requirement, all policies of insurance required to be maintained under
         any Credit Document shall (a) name Collateral Agent, for the benefit of
         Secured Parties, as an additional insured thereunder as its interests
         may appear and (b) in the case of each business interruption and
         casualty insurance policy, contain a loss payable clause or
         endorsement, satisfactory in form and substance to Revolver Loan Agent
         and Term Loan Agent, that names Collateral Agent for the benefit of
         Secured Parties as the loss payee thereunder for any covered loss in
         excess of $1,000,000 and provides for at least 30 days prior written
         notice to Collateral Agent of any modification or cancellation of such
         policy. As soon as practicable after the Closing Date, Company shall
         deliver to Agents, a certificate from Borrowers' insurance broker(s) or
         other evidence satisfactory to it that all insurance required to be
         maintained pursuant to this subsection 2.3 is in full force and effect
         and that Collateral Agent on behalf of Secured Parties has been named
         as additional insured and/or loss payee thereunder to the extent
         required under this subsection 2.3.

                  (b) Upon receipt by Collateral Agent of any Net
         Insurance/Condemnation Proceeds as loss payee, (a) if and to the extent
         Company would have been required to apply such Net
         Insurance/Condemnation Proceeds (if it had received them directly)
         pursuant to the Revolver Credit Agreement (or, if the Revolver Loan
         Obligations have been Paid in Full, the Term Loan Agreement),
         Collateral Agent shall, and Company hereby authorizes Collateral Agent
         to, apply such Net Insurance/Condemnation Proceeds as provided in
         subsection 4.1(b) or, to the extent applicable, subsection 4.2, and (b)
         to the extent the foregoing clause (a) does not apply, Collateral Agent
         shall deliver such Net Insurance/Condemnation Proceeds to Company, and
         (1) Company and its Subsidiaries may retain and apply any portion
         thereof that is business interruption insurance proceeds for working
         capital purposes or any other purposes not prohibited under the Credit
         Agreements and (2) Company shall, or shall cause one or more of its
         Subsidiaries to, promptly apply such Net Insurance/Condemnation
         Proceeds that are not business interruption insurance proceeds to the
         costs of repairing, restoring, or replacing the assets in respect of
         which such Net Insurance/Condemnation Proceeds were received; provided,
         however that if at any time Senior Agent reasonably determines (A) that
         Company or such Subsidiary is not proceeding diligently with such
         repair, restoration or replacement or that such repair, restoration or
         replacement cannot be completed within 180 days after the receipt by
         Collateral Agent of such Net Insurance/Condemnation Proceeds, Senior
         Agent may direct Collateral Agent, and Company hereby authorizes Senior
         Agent and Collateral Agent to apply such Net Insurance/Condemnation
         Proceeds as provided in subsection 4.1(b).

                  2.4 AMENDMENTS, MODIFICATIONS, WAIVERS AND RELEASES.
Notwithstanding anything in the Credit Agreements, Collateral Documents and
other Credit Documents to the contrary (but subject to subsection 7.1(c)),

                  (a) except in connection with any Enforcement Action, the
         release of the Lien granted in favor of Collateral Agent on all or
         substantially all of the Collateral under the Collateral Documents
         shall require the prior written consent of each Revolver Lender and

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<PAGE>

         each Term Loan Lender; (except that such Lien may be released on all or
         substantially all Collateral to the extent such release is required in
         connection with an Asset Sale or Asset Sales permitted under the Credit
         Agreements); provided however, that, if prior to or concurrently with
         any such release the Revolver Loan Obligations are Paid in Full, then
         such release shall not require any Revolver Lender's consent; and

                  (b) except as set forth in subsection 2.4(a), any amendment,
         modification, termination or waiver of, any Collateral Documents shall
         require the prior written consent of (i) until Payment in Full of all
         Revolver Loan Obligations, Requisite Revolver Lenders and (ii) until
         Payment in Full of all Term Loan Obligations, Requisite Term Loan
         Lenders.

                  2.5 AMENDMENTS, MODIFICATIONS AND WAIVERS WITH RESPECT TO
CREDIT DOCUMENTS. Any amendment or modification of, or waiver of compliance with
the terms of any Credit Document, shall (subject to subsection 7.1(c)) be
subject to the following requirements:

                  (a) Until (i) the termination of the Term Loan Agreement and
         the Payment in Full of all Term Loan Obligations, without the prior
         written consent of Requisite Term Loan Lenders, and (ii) the
         termination of the Revolver Credit Agreement and the Payment in Full of
         all Revolver Loan Obligations, without the prior written consent of
         Requisite Revolver Lenders, Company shall not, and shall not permit any
         of its Subsidiaries to amend, restate, modify or waive (or make any
         payment consistent with an amendment, restatement, modification or
         waiver of) any material provision of the Management Services and
         Reimbursement Agreement, the Existing IPP Project Guaranties, or the
         DHC Tax Sharing Agreement, in each case if the effect of such
         amendment, restatement, modification or waiver, together with all other
         amendments, restatements, modifications or waivers made, (a) is to
         impose additional material obligations on, or confer additional
         material rights to the holders thereof (or to other obligees with
         respect thereto) against, Company or any of its Subsidiaries, (b) is
         otherwise adverse to the interests of the Term Loan Lenders in a manner
         deemed material in the judgment of the Term Loan Agents or Requisite
         Term Loan Lenders so notifying Term Loan Agents or Company, or (c) is
         otherwise adverse to the interests of the Revolver Lenders in a manner
         deemed material in the judgment of the Revolver Agent or Requisite
         Revolver Lenders so notifying Revolver Agent or Company.

                  (b) Subject to the provisions of subsection 2.4, and until the
         termination of the Term Loan Agreement and the Payment in Full of all
         Term Loan Obligations, without the prior written consent of Requisite
         Term Loan Lenders, Revolver Lenders may not amend, restate, modify or
         waive (or receive any payment consistent with an amendment,
         restatement, modification or waiver of) any material provision of any
         of the Revolver Documents, unless (i) the terms of the Revolver
         Documents as so amended, restated, modified or waived are not more
         disadvantageous to Company and its Subsidiaries and the Term Loan
         Lenders (in a manner deemed material by Term Loan Agent or Requisite
         Term Loan Lenders so notifying Term Loan Agent or Company) than the
         Revolver Documents in effect on the Closing Date (it being understood
         and agreed that any amendment, restatement, modification or waiver
         having the effect of increasing the amount of, or reducing, delaying or
         waiving any otherwise required reduction in the

                                       21

<PAGE>

         amount of, any commitment to extend loans under the Revolver Documents
         shall be deemed to be more disadvantageous for purposes of this clause
         (i) without further notice or other action by Term Loan Agents or
         Requisite Term Loan Lenders), (ii) the aggregate amount of indebtedness
         and additional commitments to extend credit, if any, under the Revolver
         Documents as so amended, restated, modified or waived, do not exceed
         the aggregate amount of the commitments to extend credit in effect
         under the Revolver Documents on the Closing Date, (iii) the obligations
         under (and the Liens securing) such Revolver Documents as so amended,
         restated, modified or waived are subject to this Agreement on terms
         substantively identical to the terms applicable to the obligations in
         effect under the Revolver Documents on the Closing Date, and (iv)
         Company provides to Term Loan Agents reasonable prior advance written
         notice of such proposed amendment, restatement, modification or waiver
         and copies of all material contracts or other agreements being entered
         into in connection therewith.

                  (c) Subject to the provisions of subsection 2.4, and until the
         termination of the Revolver Credit Agreement and the Payment in Full of
         all Revolver Loan Obligations, without the prior written consent of
         Requisite Revolver Lenders, Term Loan Lenders may not amend, restate,
         modify or waive (or receive any payment consistent with an amendment,
         restatement, modification or waiver of) any material provision of any
         of the Term Loan Documents, unless (i) the terms of the Term Loan
         Documents as so amended, restated, modified or waived are not more
         disadvantageous to Company and its Subsidiaries and the Revolver
         Lenders (in a manner deemed material by Revolver Agent or Requisite
         Revolver Lenders so notifying Revolver Agent or Company) than the Term
         Loan Documents in effect on the Closing Date (it being understood and
         agreed that any amendment, restatement, modification or waiver having
         the effect of increasing the amount of, or reducing, delaying or
         waiving any otherwise required reduction in the amount of, any
         commitment to extend loans under the Term Loan Documents shall be
         deemed to be more disadvantageous for purposes of this clause (i),
         without further notice or other action by Revolver Agent or Requisite
         Revolver Lenders), (ii) the aggregate amount of indebtedness and
         additional commitments to extend credit, if any, under the Term Loan
         Documents as so amended, restated, modified or waived, do not exceed
         the aggregate amount of the commitments to extend credit in effect
         under the Term Loan Documents on the Closing Date plus the amount of
         any Additional Interest Loans and other Term Loans deemed made
         thereunder from time to time pursuant to subsections 2.2B and 2.1A of
         the Term Loan Agreement, respectively, (iii) the obligations under (and
         the Liens securing) such Term Loan Documents as so amended, restated,
         modified or waived are subject to this Agreement on terms substantively
         identical to the terms applicable to the obligations in effect under
         the Term Loan Documents on the Closing Date, and (iv) Company provides
         to Revolver Agent reasonable prior advance written notice of such
         proposed amendment, restatement, modification or waiver and copies of
         all material contracts or other agreements being entered into in
         connection therewith.

                  (d) Each Lender acknowledges and agrees that Borrowers have
         agreed to and are bound by the provisions of subsection 5.12 (Most
         Favored Nations Payments) of each Credit Agreement.

                                       22

<PAGE>

                                  SECTION III

                  3.1 PRIORITY OF LIENS. Notwithstanding the order or time of
attachment, or the order, time or manner of perfection, or the order or time of
filing or recordation of any document or instrument, or other method of
perfecting a security interest in favor of Collateral Agent in any Collateral,
and notwithstanding any conflicting terms or conditions which may be contained
in any of the Credit Documents, the Secured Parties agree that as among the
Secured Parties, the following Lien priorities shall strictly apply in defining
the respective Lien priorities of each Secured Party in the Collateral:

                  (a) first, the Liens upon the Collateral in favor of
         Collateral Agent to the extent securing the Secured Obligations owing
         from time to time to the Collateral Agent, in its capacity as
         Collateral Agent, to the full extent thereof;

                  (b) second: the Liens upon the Collateral in favor of
         Collateral Agent to the extent securing, on a pari passu basis, the
         Secured Obligations owing from time to time to the Term Loan Agents and
         Revolver Loan Agent, in their capacities as Term Loan Agents and
         Revolver Loan Agent, respectively, to the full extent thereof;

                  (c) third: the Liens upon the Collateral in favor of
         Collateral Agent to the extent securing, on a pari passu basis, (i) the
         remaining Revolver Loan Obligations, and (ii) the Cash Management
         Obligations, in each case to the full extent thereof; and

                  (d) fourth: the Liens upon the Collateral in favor of
         Collateral Agent to the extent securing the Term Loan Obligations to
         the full extent thereof.

                  3.2 PRIORITIES UNAFFECTED BY ACTION OR INACTION. The Lien
priorities in subsection 3.1 shall not be altered or otherwise affected by any
amendment, modification, supplement, extension, renewal, restatement or
refinancing of any of the Secured Obligations, nor by any action or inaction
which Collateral Agent or any other Secured Party may take or fail to take in
respect of the Collateral.

                                   SECTION IV

                  4.1 APPLICATION OF MANDATORY PREPAYMENTS UNDER CREDIT
AGREEMENTS AND NET ASSET SALE PROCEEDS. Notwithstanding anything in the Credit
Documents to the contrary but subject in all respects to subsection 4.2, so long
as any Creditor Obligations are outstanding (including any loans or any
commitments to lend):

                  (a) Any Mandatory Payments pursuant to subsection 2.4A(iii)(e)
         of the Revolver Credit Agreement and subsection 2.4A(ii)(e) of the Term
         Loan Agreement shall, in each case, be applied first, to the payment of
         any Approved Operating Expenses then due and payable to Management
         Services and Reimbursement Agreement Beneficiaries pursuant to the
         Management Services and Reimbursement Agreement; second, to the extent
         of any excess amounts remaining after application in clause first, to
         the payment of interest then due and payable on the Term Loans pursuant
         to subsection 2.2B(ii) of the Term Loan Agreement; third, to the extent
         of any excess amounts remaining after the application described in
         clauses first and second, to repay any

                                       23

<PAGE>

         Management Services and Reimbursement Agreement Obligations then due
         and payable; and fourth to the extent of any excess amounts remaining
         after application in clauses first, second and third, to prepay
         outstanding Term Loans.

                  (b) Any Mandatory Payments pursuant to subsections
         2.4A(iii)(a) - (d) of the Revolver Credit Agreement and subsection
         2.4A(ii)(a) - (d) of the Term Loan Agreement shall, in each case, be
         applied first, to the payment of any Approved Operating Expenses then
         due and payable to Management Services and Reimbursement Agreement
         Beneficiaries pursuant to the Management Services and Reimbursement
         Agreement, second, to the extent of any excess amounts remaining after
         the application described in clause first, (a) to reduce Revolver Loan
         Exposure in an amount equal to 50% of such excess amounts with such
         reduction in Revolver Loan Exposure to occur by repaying outstanding
         Revolver Loans to the full extent thereof and permanently reducing the
         Revolver Loan Commitments in the full amount of the portion of such
         payment so applied to reduce Revolver Loan Exposure (provided, however,
         that no such application shall reduce the Revolver Loan Commitments to
         the extent that the sum of any Cash On Hand plus the amount of Revolver
         Loan Commitments would be less than $10,000,000 after giving effect to
         such reduction), with any amounts so applied to Revolver Loan Exposure
         but not actually applied to repay Revolver Loans being retained by
         Revolver Borrowers, and (b) to repay any Management Services and
         Reimbursement Agreement Obligations then due and payable and
         outstanding Term Loans in an amount equal to 50% of such excess
         amounts, (with such amount being applied first to such Management
         Services and Reimbursement Agreement Obligations and then to prepay
         outstanding Term Loans); and third, if either (1) no Revolver Loans are
         outstanding and the sum of all Cash On Hand plus the amount of Revolver
         Loan Commitments is less than $10,000,000, or (2) no Management
         Services and Reimbursement Agreement Obligations and no Term Loans are
         outstanding, but both events described in clauses (1) and (2) shall not
         have occurred, to repay and reduce Revolver Loan Exposure by repaying
         Revolving Loans and permanently reducing Revolving Loan Commitment
         (with any amounts so applied to Revolver Loan Exposure but not actually
         applied to repay Revolver Loans being retained by Borrowers) or
         Management Services and Reimbursement Agreement Obligations and Term
         Loans (with amounts being applied first to Management Services and
         Reimbursement Agreement Obligations and then to Term Loans) to the
         extent required so that both such events shall occur; provided that,
         notwithstanding anything in the foregoing to the contrary, to the
         extent that any Mandatory Payment applied to prepay Term Loans pursuant
         to this subsection 4.1(b) constitutes Net Asset Sale Proceeds, 5% of
         the aggregate amount of such Net Asset Sale Proceeds shall be applied
         to the payment of Prepetition Unsecured Claims Participation Interest
         (provided, that the aggregate cumulative amount of all Net Asset Sale
         Proceeds so applied, when aggregated with all other Aggregate Net Sales
         Proceeds paid or distributed in respect of Prepetition Unsecured Claims
         Participation Interest, shall not exceed $4,000,000) and 95% of such
         amount shall be applied to prepay Term Loans).

                  (c) In the event that at the time of receipt by Company or any
         of its Subsidiaries of any Net Asset Sale Proceeds, the Term Loan
         Obligations shall have been Paid in Full and the Prepetition Unsecured
         Claims Participation Interest shall not have been Paid in Full at such
         time, 5% of the aggregate amount of such Net Asset Sale

                                       24

<PAGE>

         Proceeds shall be applied to the payment of the Prepetition Unsecured
         Claims Participation Interest until such time as the aggregate amount
         of such Net Asset Sale Proceeds applied to the payment of the
         Prepetition Unsecured Claims Participation Interest when aggregated
         with all other Aggregate Net Sale Proceeds paid or distributed in
         respect of the Prepetition Unsecured Claims Participation Interest,
         shall total $4,000,000.

                  (d) All payments of Term Loans pursuant to this subsection 4.1
         shall made to the Term Loan Agent for distribution to the Term Loan
         Lenders and the Disbursing Agents in accordance with the Term Loan
         Agreement, including subsection 9.25 thereof.

                  4.2 APPLICATION OF PROCEEDS OF COLLATERAL, ETC.

                  (a) Except as provided in subsection 4.2(b) or 4.2(c) below,
         upon the occurrence and during the continuation of an Event of Default
         or the termination of the Revolver Loan Commitments (other than as a
         result of any voluntary termination of Revolver Loan Commitments by
         Revolver Borrowers pursuant to subsection 2.4A(ii) of the Revolver
         Credit Agreement), if requested by Requisite Revolver Lenders with
         respect to any Revolver Event of Default or termination of Revolver
         Loan Commitments, or if requested by Requisite Term Loan Lenders with
         respect to any Term Loan Event of Default, (1) all Mandatory Payments
         or other payments received by any Agent or other Creditor Party on
         account of the Creditor Obligations, whether from any Loan Party or
         otherwise, shall promptly be delivered to Collateral Agent and upon
         receipt by Collateral Agent, applied by Collateral Agent against the
         Creditor Obligations and (2) all Proceeds received by Collateral Agent
         in respect of any sale of, collection from, or other realization upon
         all or any part of the Collateral or other Enforcement Action may, in
         the discretion of Senior Agent upon written direction to Collateral
         Agent, be held by Collateral Agent as Collateral for, and/or (then or
         at any time thereafter) applied in full or in part by Collateral Agent
         against, the applicable Creditor Obligations, in each case under
         clauses (1) and (2) in the following order of priority:

                           (i) First, to the payment of the costs and expenses
         of the exercise of rights and remedies and such sale, collection or
         other realization or Enforcement Action, including reimbursement of all
         expenses, liabilities and advances made or incurred by Collateral Agent
         in connection therewith (including for reasonable cost, fees and
         expenses of counsel and other professionals and agents retained by the
         Collateral Agent) and all amounts for which Collateral Agent is
         entitled to compensation, reimbursement and indemnification under any
         Credit Document and any other amounts then owing to Collateral Agent,
         in its capacity as Collateral Agent, pursuant to the Collateral
         Documents;

                           (ii) Second, to the extent proceeds remain after
         application as described in clause (i) above, pro rata among the
         following, based on the amounts outstanding as of any date of
         determination: all Secured Obligations owing to Term Loan Agents and
         Revolver Agent, in their capacities as Term Loan Agents and Revolver
         Agent, respectively;

                                       25

<PAGE>

                           (iii) Third, to the extent proceeds remain after
         application as described in clauses (i) and (ii) above, to the payment
         of Approved Operating Expenses until all Approved Operating Expenses
         have been Paid in Full;

                           (iv) Fourth, to the extent proceeds remain after
         application as described in clauses (i) through (iii) above, pro rata
         among the following, based on the amounts outstanding as of any date of
         determination: (i) all Revolver Loan Obligations (with any payment of
         the Revolver Loans resulting in a corresponding permanent reduction in
         the Revolver Loan Commitments), and (ii) all Cash Management
         Obligations, until all such Revolver Loan Obligations and Cash
         Management Obligations have been Paid in Full;

                           (v) Fifth, to the extent proceeds remain after
         application as described in clauses (i) through (iv) above, to the
         payment of the Superpriority Term Loan Obligations, until all
         Superpriority Term Loan Obligations have been Paid in Full;

                           (vi) Sixth, to the extent proceeds remain after
         application as described in clauses (i) through (v) above, to the
         payment of the Management Services and Reimbursement Agreement
         Obligations then due and payable, until all Management Services and
         Reimbursement Agreement Obligations have been Paid in Full;

                           (vii) Seventh, to the extent proceeds remain after
         application as described in clauses (i) through (vi) above, 5% of any
         such excess proceeds constituting Aggregate Net Sales Proceeds to the
         payment of the Prepetition Unsecured Claims Participation Interest in
         an aggregate cumulative amount which, when added to all other Aggregate
         Net Sale Proceeds paid or distributed in respect of the Prepetition
         Unsecured Claims Participation Interest, does not exceed $ 4,000,000;

                           (viii) Eighth, to the extent proceeds remain after
         application as described in clauses (i) through (vii) above, to the
         payment of the remaining Term Loan Obligations, until all Term Loan
         Obligations have been Paid in Full; and

                           (ix) Ninth, after application as described in clauses
         (i) through (viii) above and Payment in Full of all other Secured
         Obligations under the Revolver Credit Agreement, Term Loan Agreement,
         and all Secured Obligations then due and payable under the Management
         Services and Reimbursement Agreement, if any, and the termination of
         all Revolver Loan Commitments, to Loan Parties, or, subject to
         subsection 7.1(c), their successors or assigns, or to whosoever may be
         lawfully entitled to receive the same or as a court of competent
         jurisdiction may direct, of any surplus then remaining from such
         Proceeds.

                  (b) Notwithstanding anything in subsection 4.2(a) to the
         contrary, in the event that no Revolver Event of Default has occurred
         and is continuing under subsection 7.1 of the Revolver Credit Agreement
         and no Bankruptcy Proceeding has been commenced by or against any Loan
         Party, the Term Loan Lenders and Term Loan Agents shall be entitled to
         receive payments of current interest and fees with respect to the Term
         Loan Obligations when due under the Term Loan Agreement.

                                       26

<PAGE>

                  (c) Until Proceeds are applied as set forth in this subsection
         4.2, Collateral Agent shall hold such Proceeds in its custody in
         accordance with its regular procedures for handling deposited funds.

                  (d) Payments by Collateral Agent to the Revolver Lenders in
         respect of the Obligations shall be made to the Revolver Agent for
         distribution to the Revolver Lenders in accordance with the Revolver
         Credit Agreement and this Agreement; payments by Collateral Agent to
         the Term Loan Lenders in respect of the Obligations shall be made to
         the Term Loan Agent for distribution to the Term Loan Lenders and the
         Disbursing Agents in accordance with the Term Loan Agreement (including
         subsection 9.25 of the Term Loan Agreement) and this Agreement; any
         payments in respect of Approved Operating Expenses shall be made to
         such Persons as shall be directed in writing by Company pursuant to an
         Officer's Certificate delivered pursuant to subsection 5.1(c); any
         payments in respect of any Management Services and Reimbursement
         Agreement Obligations shall be paid to Covanta, for distribution to the
         applicable Management Services and Reimbursement Agreement Beneficiary;
         payments in respect of any Prepetition Unsecured Claims Participation
         Interest shall be paid to Prepetition Unsecured Claims Agent for
         distribution to the holders of the Prepetition Unsecured Claims
         Participation Interest; and payments in respect of the Cash Management
         Obligations shall be made to Cash Management Bank for the benefit of
         Cash Management Bank.

                  (e) In the event that any Creditor Party shall receive any
         Distribution that such Creditor Party is not entitled to receive or
         retain under the provisions of this Agreement (in such capacity, each,
         a "JUNIOR CREDITOR"), such Junior Creditor shall hold any such
         Distribution so received in trust for the benefit of the holders of
         other Creditor Obligations with the right to receive such Distribution
         under the provisions of this Agreement (in such capacity, each, a
         "SENIOR CREDITOR") and shall segregate such Distribution from other
         assets held by such Junior Creditor; and shall forthwith turn over such
         Distribution (without liability for interest thereon, but with any
         appropriate endorsements or assignments, if necessary) to the holders
         of, or to Collateral Agent for the benefit of the holders of, such
         Creditor Obligations in the form received (with any appropriate
         endorsement or assignment, if necessary) to be distributed in
         accordance with subsection 4.1 or 4.2, as applicable, and applied to
         such Creditor Obligations. In the event of a failure of any Junior
         Creditor to make any such endorsement or assignment to Collateral Agent
         or Senior Creditors, as the case may be, Collateral Agent and such
         Senior Creditors are hereby irrevocably authorized on behalf of such
         Junior Creditor to make such endorsement or assignment, as applicable.
         For the avoidance of doubt, the provisions of this Agreement regarding
         Junior Creditors and Senior Creditors apply regardless of whether or
         not a Junior Creditor or Senior Creditor is a Secured Party.

                  (f) No payment or distribution to any Senior Creditor pursuant
         to the provisions of this Agreement shall entitle the applicable Junior
         Creditor or Junior Creditors to exercise any right of subrogation in
         respect thereof until (i) all Creditor Obligations of such Senior
         Creditors shall have been indefeasibly Paid in Full, or (ii) all of
         such Senior Creditors have consented in writing to the taking of such
         action. With respect to any subrogation claims, each Junior Creditor
         hereby (to the extent permitted by

                                       27

<PAGE>

         applicable law) waives, releases and discharges any and all rights,
         claims, causes of action, liabilities, claims and demands, in law or
         equity, which such Junior Creditor has had, now has, or may in the
         future have, arising out of or relating directly or indirectly to the
         taking or not taking of any act or proceeding or not proceeding with
         any action which the Senior Creditors (or that representatives) may
         take in an effort to collect in respect of the Creditor Obligations
         owed to such Senior Creditors.

                  (g) In furtherance of, and without limiting, the priority
         provisions set forth in this subsection 4.2, but subject to the
         applicable voting provisions set forth in subsection 2.2, each Secured
         Party agrees that, in order to enable Collateral Agent to enforce its
         rights hereunder in any Bankruptcy Proceeding, Collateral Agent is
         hereby irrevocably authorized and empowered in its sole and absolute
         discretion to receive and collect any and all dividends or other
         payments or disbursements made on account of Collateral Agent's Lien on
         the Collateral in whatever form the same may be paid or issued and to
         apply the same on account of any such Creditor Obligations in
         accordance with the provisions of the Credit Documents and this
         Agreement. At any time, including but not limited to during any
         Bankruptcy Proceeding, Collateral Agent and each other Party will
         refrain from taking any action which would contest or challenge in any
         administrative, legal or equitable action or otherwise the validity or
         enforceability of the terms of this Agreement, including the priority
         provisions contained in subsection 4.1 and this subsection 4.2 and the
         Lien priority provisions contained in subsection 3.1.

                  (h) Each Secured Party hereby covenants and agrees that (i)
         such Secured Party will not accept from any Person on behalf of the
         Borrowers any guarantee (a "THIRD-PARTY GUARANTY") of any Obligations
         unless such guarantor simultaneously guarantees the payment of all
         Secured Obligations owed to each of the other Secured Parties (or, if
         such Third-Party Guaranty guarantees only a portion of the Obligations
         owing to such Secured Party, such Secured Party will not accept such
         Third-Party Guaranty unless such guarantor simultaneously guarantees
         the same proportion of Obligations owing to the other Secured Parties),
         and (ii) such Secured Party will not take, accept or obtain any
         security interest in, or lien or encumbrance upon, any assets of any of
         the Borrowers or any Subsidiary or Affiliate thereof or any other
         Person to secure the payment and performance of the Obligations unless
         the Collateral Agent, for the benefit of all Secured Parties, is
         granted a pari passu security interest in, or lien upon, such assets,
         in either case, pursuant to documents in form and substance
         satisfactory to the Revolver Agent and Term Loan Agent.

                  (i) Each Junior Creditor hereby waives any rights it may have
         under applicable law to assert the doctrine of marshalling or to
         otherwise require Collateral Agent or any Senior Creditors to marshal
         any property of the Loan Parties or any of their respective Affiliates
         for the benefit of such Junior Creditors.

                  (j) All payments of Term Loan Obligations pursuant to this
         subsection 4.2 (including Superpriority Term Loan Obligations) shall be
         made to the Term Loan Agent for distribution to the Term Loan Lenders
         and the Disbursing Agents in accordance with the Term Loan Agreement,
         including subsection 9.25 thereof.

                                       28

<PAGE>

                                   SECTION V

                  5.1 INFORMATION. From time to time, upon the request of
Collateral Agent, each of the following Parties agrees to promptly provide to
Collateral Agent the information described below:

                  (a) Revolver Agent agrees to promptly from time to time to (i)
         deliver to Collateral Agent a true, correct and complete copy of any
         amendment, waiver or modification of or supplement to any Revolver
         Document upon execution and delivery to Revolver Agent thereof by the
         relevant parties thereto and (ii) notify Collateral Agent of: (A) the
         aggregate amount of principal of and interest on the relevant
         Obligations arising under the Revolver Credit Agreement as at such date
         as Collateral Agent may specify, (B) the current Revolver Loan
         Commitment under the Revolver Credit Agreement, and (C) any payment
         received by Revolver Agent to be applied to the principal of or
         interest on the Obligations and (iii) the amount of any other fees or
         expenses outstanding under the Revolver Credit Agreement (including
         fees and expenses of Revolver Agent) and, in each case, Collateral
         Agent shall be entitled to rely conclusively upon such information.

                  (b) Term Loan Agent agrees to promptly from time to time to
         (i) deliver to Collateral Agent a true, correct and complete copy of
         any amendment, waiver or modification of or supplement to any Term Loan
         Document upon execution and delivery to Term Loan Agent thereof by the
         relevant parties thereto and (ii) notify Collateral Agent of: (A) the
         aggregate amount of principal of and interest on the Obligations under
         the Term Loan Agreement as at such date as Collateral Agent may
         specify, (B) any payment received by Term Loan Agent to be applied to
         the principal of or interest on the Obligations and (C) the amount of
         any other fees or expenses outstanding under the Term Loan Agreement
         (including fees and expenses of Term Loan Agents) and, in each case,
         Collateral Agent shall be entitled to rely conclusively upon such
         information.

                  (c) Company agrees promptly from time to time to (i) upon
         execution of any amendment, waiver, modification or supplement to the
         Management Services and Reimbursement Agreement, deliver to Collateral
         Agent an Officer's Certificate certifying that attached thereto is a
         true, correct and complete copy of any such amendment, waiver or
         modification or supplement and (ii) upon request of Collateral Agent,
         promptly deliver to Collateral Agent an Officer's Certificate
         certifying as to: (A) the outstanding amount of any claim or demand
         made against any Loan Party pursuant to the Management Services and
         Reimbursement Agreement and any other amounts owing thereunder, whether
         for Approved Operating Expenses, Management Services and Reimbursement
         Agreement Obligations or otherwise, at such date as Collateral Agent
         may specify, (B) the amount of any payment made pursuant to the
         Management Services and Reimbursement Agreement and received by any
         Management Services and Reimbursement Agreement Beneficiary and (C) the
         outstanding amount of, and applicable recipients of, any Approved
         Operating Expenses as at any date as Collateral Agent may specify, and,
         in each case, Collateral Agent shall be entitled to rely conclusively
         upon such certification.

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<PAGE>

                                   SECTION VI

                  6.1 DISCLAIMERS, SUPPLEMENTAL COLLATERAL AGENT, INDEMNITY,
ETC.

                  (a) Collateral Agent shall have no duties or responsibilities
         except those expressly set forth in this Agreement and the Collateral
         Documents and Collateral Agent shall not by reason of this Agreement or
         the Collateral Documents be a trustee for any Party or have any other
         fiduciary obligation to any Party. Collateral Agent shall not be
         responsible to any Party for any recitals, statements, representations
         or warranties contained in this Agreement or any other Credit Document
         or in any certificate or other document referred to or provided for in,
         or received by any of them under, this Agreement or any other Credit
         Document, or for the value, validity, effectiveness, genuineness,
         enforceability or sufficiency of this Agreement or any other Credit
         Document or any other document referred to or provided for therein or
         any Lien under the Collateral Documents or the perfection or priority
         of any such Lien or for any failure by any Loan Party to perform any of
         its respective obligations this Agreement or any other Credit Document.
         Collateral Agent may exercise such powers, rights and remedies and
         perform such duties by or through its Affiliates, agents or employees.

                  (b) Neither Collateral Agent nor any of its officers,
         directors, employees or agents shall be liable to any Parties for any
         action taken or omitted by Collateral Agent under or in connection with
         this Agreement or any of the Collateral Documents or other Credit
         Documents except to the extent caused by Collateral Agent's gross
         negligence or willful misconduct. Collateral Agent shall be entitled to
         refrain from any act or the taking of any action (including the failure
         to take an action) in connection with this Agreement or any of the
         Collateral Documents or other Credit Documents or from the exercise of
         any power, discretion or authority vested in it hereunder or thereunder
         unless and until Collateral Agent shall have received instructions in
         respect thereof from Requisite Obligees (or such other Secured Parties
         as may be required to give such instructions under subsection 2.4(a))
         and, upon receipt of such instructions from Requisite Obligees (or such
         other Secured Parties, as the case may be), Collateral Agent shall be
         entitled to act or (where so instructed) refrain from acting, or to
         exercise such power, discretion or authority, in accordance with such
         instructions. Without prejudice to the generality of the foregoing, (i)
         Collateral Agent shall be entitled to rely, and shall be fully
         protected in relying, upon any communication, instrument or document
         believed by it to be genuine and correct and to have been signed or
         sent by the proper person or persons, and shall be entitled to rely and
         shall be protected in relying on opinions and judgments of attorneys
         (who may be attorneys for Company and its Subsidiaries), accountants,
         experts and other professional advisors selected by it; and (ii) no
         Party shall have any right of action whatsoever against an Agent as a
         result of Collateral Agent acting or (where so instructed) refraining
         from acting under this Agreement or any of the other Collateral
         Documents or other Credit Documents in accordance with the instructions
         of Requisite Obligees (or such other Secured Parties as may be required
         to give such instructions under subsection 2.4(a)).

                  (c) It is the purpose of this Agreement and the Collateral
         Documents and other Credit Documents that there shall be no violation
         of any law of any jurisdiction

                                       30

<PAGE>

         denying or restricting the right of banking corporations or
         associations to transact business as agent or trustee in such
         jurisdiction. It is recognized that in case of litigation under this
         Agreement or any of the Collateral Documents or other Credit Documents,
         and in particular in case of the enforcement of any of the Collateral
         Documents, or in case Collateral Agent deems that by reason of any
         present or future law of any jurisdiction it may not exercise any of
         the rights, powers or remedies granted herein or in any of the other
         Collateral Documents or take any other action which may be desirable or
         necessary in connection therewith, it may be necessary that Collateral
         Agent appoint an additional individual or institution as a separate
         trustee, co-trustee, collateral agent or collateral co-agent (any such
         additional individual or institution being referred to herein
         individually as a "SUPPLEMENTAL COLLATERAL AGENT" and collectively as
         "SUPPLEMENTAL COLLATERAL AGENTS").

                  In the event that Collateral Agent appoints a Supplemental
         Collateral Agent with respect to any Collateral, (i) each and every
         right, power, privilege or duty expressed or intended by this Agreement
         or any of the other Collateral Documents to be exercised by or vested
         in or conveyed to Collateral Agent with respect to such Collateral
         shall be exercisable by and vest in such Supplemental Collateral Agent
         to the extent, and only to the extent, necessary to enable such
         Supplemental Collateral Agent to exercise such rights, powers and
         privileges with respect to such Collateral and to perform such duties
         with respect to such Collateral, and every covenant and obligation
         contained in the Collateral Documents and necessary to the exercise or
         performance thereof by such Supplemental Collateral Agent shall run to
         and be enforceable by either Collateral Agent or such Supplemental
         Collateral Agent, and (ii) the provisions of this Agreement that refer
         to Collateral Agent shall inure to the benefit of such Supplemental
         Collateral Agent and all references herein to Collateral Agent shall be
         deemed to be references to Collateral Agent and/or such Supplemental
         Collateral Agent, as the context may require.

                  Should any instrument in writing from any Loan Party be
         required by any Supplemental Collateral Agent so appointed by
         Collateral Agent for more fully and certainly vesting in and confirming
         to him or it such rights, powers, privileges and duties, such Loan
         Party shall execute, acknowledge and deliver any and all such
         instruments promptly upon request by Collateral Agent. In case any
         Supplemental Collateral Agent, or a successor thereto, shall die,
         become incapable of acting, resign or be removed, all the rights,
         powers, privileges and duties of such Supplemental Collateral Agent, to
         the extent permitted by law, shall vest in and be exercised by
         Collateral Agent until the appointment of a new Supplemental Collateral
         Agent.

                  (d) Each Lender ratably in accordance with the amount of the
         Creditor Obligations of such Lenders, severally agrees that it shall
         indemnify Collateral Agent and the officers, directors, employees,
         agents, attorneys, professional advisors and affiliates of Collateral
         Agent to the extent that any such Person is neither reimbursed by any
         Loan Party under any Loan Document nor reimbursed out of any Proceeds
         pursuant to clause First of subsection 4.2(a), for and against any and
         all liabilities, obligations, losses, damages, penalties, actions,
         judgments, suits, costs, expenses (including counsel fees and
         disbursements and fees and fees and disbursements of any advisor
         engaged by Collateral Agent) or disbursements of any kind and nature
         whatsoever which may be imposed on,

                                       31

<PAGE>

         incurred by or asserted against Collateral Agent or any such Person
         exercising the powers, rights and remedies of a Collateral Agent or
         performing duties of a Collateral Agent hereunder or under the other
         Collateral Documents or in any way relating to or arising out of this
         Agreement, any Collateral Document or any other Credit Document or any
         other documents contemplated hereby or thereby or referred to therein
         or the transactions contemplated hereby or thereby or the enforcement
         of any of the terms of any thereof; provided, however, that no Lender
         shall be liable for any of the foregoing to the extent they arise from
         the gross negligence or willful misconduct of Collateral Agent as
         determined by a final judgment of a court of competent jurisdiction. No
         Revolver Agent or Term Loan Agent shall have any liability to any Party
         under this subsection 6.1(d). Obligations of Non-Confirming Holders and
         Disbursing Agents pursuant to this subsection 6.1(d) shall be subject
         to the provisions of subsection 9.25 of the Term Loan Agreement.

                  (e) The agency hereby created shall in no way impair or affect
         any of the rights and powers of, or impose any duties or obligations
         upon, Collateral Agent in its individual capacity as a Revolver Agent,
         Term Loan Agent or Term Loan Lender, as the case may be, hereunder or
         under any Credit Document. With respect to its participation in the
         Revolver Loan Obligations or Term Loan Obligations, Collateral Agent
         shall have the same rights and powers hereunder as any other Secured
         Party and may exercise the same as though it were not performing the
         duties and functions delegated to it hereunder. Collateral Agent and
         its Affiliates may accept deposits from, lend money to, acquire equity
         interests in and generally engage in any kind of commercial banking,
         investment banking, trust, financial advisory or other business with
         Company or any of its Affiliates as if it were not performing the
         duties specified herein, and may accept fees and other consideration
         from any Loan Party for services in connection with this Agreement and
         otherwise without having to account for the same to Creditor Parties.

                  (f) Collateral Agent may deem and treat the payee of any
         promissory note or other evidence of indebtedness relating to the
         Creditor Obligations as the owner thereof for all purposes hereof
         unless and until a written notice of the assignment or transfer
         thereof, signed by such payee and in form satisfactory to Collateral
         Agent, shall have been filed with Collateral Agent. Any request,
         authority or consent of any Person who at the time of making such
         request or giving such authority or consent is the holder of any such
         note or other evidence of indebtedness shall be conclusive and binding
         on any subsequent holder, transferee or assignee of such note or other
         evidence of indebtedness and of any note or notes or other evidences of
         indebtedness issued in exchange therefor. Notwithstanding anything to
         the contrary contained in the Term Loan Documents, the Revolver
         Documents or Management Services and Reimbursement Agreement, (i) no
         assignment or transfer (including, without limitation, a refinancing or
         replacement) of any interest of (A) any Revolver Lender in the Revolver
         Loan Exposure or Revolver Loans (including pursuant to any refinancing,
         restatement, replacement or extension of the Revolver Credit Agreement
         not prohibited hereunder), or (B) any interest of any Term Loan Lender
         in the Term Loan or the Term Loans (including pursuant to any
         refinancing, restatement, replacement or

                                       32

<PAGE>

         extension of the Term Loan Agreement not prohibited hereunder), may in
         any case be made unless the transferee, assignee or any Person who
         became a lender pursuant to a refinancing, restatement, replacement or
         extension of the Term Loan Agreement or Revolver Credit Agreement, as
         the case may be, executes an Assumption Agreement in the form of Annex
         1 hereto, (ii) no appointment (A) of any successor Revolver Agent under
         the Revolver Credit Agreement (including pursuant to any refinancing,
         restatement, replacement or extension of the Revolver Credit Agreement
         not prohibited hereunder), (B) any successor Term Loan Agent or Term
         Loan Documentation Agent under the Term Loan Agreement (including
         pursuant to any refinancing, restatement, replacement or extension of
         the Term Loan Agreement not prohibited hereunder), or (C) any successor
         Prepetition Unsecured Claims Agent may in any case be made unless the
         successor executes an Assumption Agreement in the form of Annex 1
         hereto and (iii) no Management Services and Reimbursement Agreement
         Beneficiary may assign or transfer any of its interest in the
         Management Services and Reimbursement Agreement without the prior
         written consent of Requisite Revolver Lenders and Requisite Term Loan
         Lenders.

                  (g) Except as expressly provided herein and in the Collateral
         Documents, Collateral Agent shall have no duty to take any affirmative
         steps with respect to the collection of amounts payable in respect of
         the Collateral. Collateral Agent shall incur no liability to any Party
         as a result of any sale of any Collateral at any private sale.

                  (h) Collateral Agent may resign at any time by giving at least
         30 days' notice thereof to the Parties and Collateral Agent may be
         removed as Collateral Agent at any time by Requisite Obligees. In the
         event of such resignation or removal of Collateral Agent, Requisite
         Obligees shall thereupon have the right to appoint a successor
         Collateral Agent. If no successor Collateral Agent shall have been so
         appointed by Requisite Obligees within 30 days after the resigning
         Collateral Agent's giving notice of its intention to resign, then the
         resigning Collateral Agent may appoint, on behalf of Secured Parties, a
         successor Collateral Agent and Company hereby agrees to pay to such
         successor Collateral Agent, in addition to any other amounts payable to
         Collateral Agent hereunder and under the Collateral Documents, such
         reasonable annual fees in such amounts and at such times as may be
         requested by such successor Collateral Agent.

                  (i) Upon the acceptance of any appointment as Collateral Agent
         hereunder by a successor Collateral Agent, such successor Collateral
         Agent shall thereupon succeed to and become vested with all the rights,
         powers, privileges and duties of the retiring or removed Collateral
         Agent under this Agreement and the Collateral Documents. After any
         retiring or removed Collateral Agent's resignation or removal hereunder
         as Collateral Agent, the provisions of this subsection 6.1 shall
         continue in effect for its benefit in respect of any actions taken or
         omitted to be taken by it while it was acting as Collateral Agent.

                  (j) In no event shall Collateral Agent or any Secured Party be
         liable or responsible for any funds or investments of funds held by any
         Loan Party.

                  (k) Upon the proposed sale or other disposition of any
         Collateral that is permitted by the Credit Agreements and is not
         prohibited by subsection 2.4(a) or has been consented to by Requisite
         Obligees in connection with an Enforcement Action, and for which a Loan
         Party desires to obtain a security interest release from Collateral
         Agent,

                                       33

<PAGE>

         such Loan Party shall deliver an Officer's Certificate to Collateral
         Agent, Revolver Loan Agent and Term Loan Agent (i) stating that the
         Collateral or the Capital Stock subject to such disposition is being
         sold or otherwise disposed of in compliance with the terms hereof and
         of the Credit Agreements and (ii) specifying the Collateral or Capital
         Stock being sold or otherwise disposed of in the proposed transaction.
         Upon the receipt of such Officer's Certificate, Collateral Agent shall,
         at Loan Parties' joint and several expense, so long as Senior Agent has
         not informed Collateral Agent that it (a) has reason to believe that
         the facts stated in such Officer's Certificate are not true and correct
         and (b) if the sale or other disposition of such item of Collateral or
         Capital Stock constitutes an Asset Sale (as defined in each Credit
         Agreement) has not received evidence satisfactory to it that
         arrangements satisfactory to it have been made for delivery of the Net
         Asset Sale Proceeds (as defined in each Credit Agreement) if and as
         required by subsection 2.4 of the respective Credit Agreement, execute
         and deliver such releases of its security interest in such Collateral
         as may be reasonably requested by such Loan Party. In the event of any
         conflict or inconsistency between this subsection 6.1(k) and the terms
         of any other Credit Document, the terms of this Agreement shall
         prevail.

                                  SECTION VII

                  7.1 MISCELLANEOUS.

                  (a) All notices and other communications provided for herein
         shall be in writing and may be personally served, or sent by
         telefacsimile or United States mail or courier service or electronic
         mail (as further provided in this clause (a)) and shall be deemed to
         have been given (i) when delivered in person or by courier service,
         (ii) upon receipt of telefacsimile in complete and legible form, (iii)
         three Business Days after deposit in the United States mail with
         postage prepaid and properly addressed, or (iv) in the case of
         electronic mail to the extent provided in this clause (a); provided
         that notices to Collateral Agent shall not be effective until received.
         For the purposes hereof, the addresses of the parties hereto (until
         notice of a change thereof is delivered as provided in this subsection
         7.1(a)) shall be as set forth under each party's name on the signature
         pages (including acknowledgments) hereof. Notices and other
         communications to the Lenders, Revolver Agent and Term Loan Agents
         hereunder may be delivered or furnished by electronic communication
         (including e-mail and Internet or intranet websites) pursuant to
         procedures approved by Collateral Agent. Collateral Agent or any
         Borrower may, in its discretion, agree to accept notices and other
         communications to it hereunder by electronic communications pursuant to
         procedures approved by it, provided that approval of such procedures
         may be limited to particular notices or communications.

                  (b) Subject to Section 7.1(c), no amendment, modification,
         termination or waiver of any provision of this Agreement, and no
         consent to any departure by any Party therefrom, shall in any event be
         effective without the written concurrence of Requisite Revolver Lenders
         and Requisite Term Loan Lenders; provided that (i) no such amendment,
         modification, termination or waiver shall, without the consent of each
         Secured Party with Secured Obligations directly affected thereby,
         amend, modify, terminate or waive, or have the effect of amending,
         modifying, terminating or waiving, the definition of "Requisite
         Obligees" or subsection 3.1, (ii) no such amendment,

                                       34

<PAGE>

         modification, termination or waiver shall, without the consent of each
         Creditor Party (other than Prepetition Unsecured Claims Agent) with
         Creditor Obligations directly affected thereby, amend, modify,
         terminate or waive, or have the effect of amending, modifying,
         terminating or waiving (A) subsection 4.1 or 4.2 or this subsection
         7.1(b), or (B) any other provision of this Agreement in a manner that
         would impose any additional material obligations on such Creditor Party
         or prejudice any material rights or remedies of such Creditor Party,
         (iii) no amendment, modification, termination or waiver of any
         provision of subsection 2.1 or 2.2 or Section 5 or 6 or of any other
         provision of this Agreement which, by its terms, expressly requires the
         approval or concurrence of Collateral Agent shall be effective without
         the written concurrence of Collateral Agent; and (iv) no such
         amendment, modification, termination or waiver of this Agreement shall
         materially increase or materially adversely affect obligations of any
         Loan Party or adversely affect any rights of a Loan Party under the
         other Credit Documents in each case without such Loan Party's prior
         written consent; provided, further, that, without the prior written
         consent of Prepetition Unsecured Claims Agent, no such amendment,
         modification, termination or waiver shall (x) modify or otherwise alter
         in any manner adverse to the holders of the Prepetition Unsecured
         Claims Participation Interest the right of such holders to receive
         Proceeds in the amount and order of priority and under the
         circumstances described in subsections 4.1(b), 4.1(c) and 4.2(a), as in
         effect on the date hereof, (y) impose any additional obligation on
         Prepetition Unsecured Claims Agent or (z) amend, modify, terminate or
         waive, or have the effect of amending, modifying, terminating or
         waiving the rights of Prepetition Unsecured Claims Agent under this
         subsection 7.1(b). To the extent (if any) the provisions of this
         Agreement are inconsistent with the provisions set forth in any Credit
         Agreement in any particular circumstance, then the provisions set forth
         in this Agreement shall prevail to the extent necessary to eliminate or
         avoid such inconsistency in such circumstance; provided further,
         however, that no concurrence of any Lender or Lenders shall be required
         (I) for any amendment, modification, termination or waiver of any
         provision of subsection 7.1(c) or any other section or provision herein
         that only affects the rights and obligations of Debenture Disbursing
         Agent under this Agreement, so long as Term Loan Agents and Term Loan
         Borrowers (and, after execution hereof, the Debenture Disbursing Agent)
         approve such amendment, modification, termination or waiver; and (II)
         for any amendment, modification, termination or waiver of any provision
         of subsection 7.1(c) or any other section or provision that only
         affects the rights and obligations of Allowed Class 6 Disbursing Agent
         under this Agreement, so long as Term Loan Agents and Term Loan
         Borrowers (and, after execution hereof, the Allowed Class 6 Disbursing
         Agent) approve such amendment, modification, termination or waiver.

                  (c) All Term Loans that would otherwise be distributed on the
         Allowed Class 6 Closing Date or the Determination Date (if the Allowed
         Class 6 Closing Date shall have occurred prior to the Determination
         Date) on account of Allowed Class 6 Interests shall be held on such
         date by the Allowed Class 6 Disbursing Agent; and all Term Loans that
         would otherwise be distributed on the Debenture Closing Date or the
         Determination Date (if the Debenture Closing Date shall have occurred
         prior to the Determination Date) on account of 9.25% Debentures shall
         be held on such date by the Debenture Disbursing Agent. For so long as
         Debenture Disbursing Agent or Allowed Class 6 Disbursing Agent holds
         Term Loans (subject to subsection 9.25 of the Term Loan

                                       35

<PAGE>

         Agreement) that would otherwise have been Term Loans deemed made
         directly by or distributed directly to Non-Confirming Holders, such
         Disbursing Agent shall be the Term Loan Lender of record with respect
         to such Term Loan Loans held by it (and the corresponding Term Loan
         Commitments and Term Loan Exposure), except that no Disbursing Agent
         shall be deemed a "Term Loan Lender", "Creditor Party" or "Secured
         Party" for purposes of voting on any matters (including the granting of
         any approvals, consents or waivers) with respect to this Agreement;
         provided, however, that this clause (c) shall not be construed as
         permitting, without the prior written consent of the relevant
         Non-Confirming Holder, (a) modification of the rights, duties or
         obligations under the this Agreement (other than with respect to voting
         on any matters) of any Disbursing Agent or of the Non-Confirming
         Holders for whom such Disbursing Agent serves as record Term Loan
         Lender, without concurrent and corresponding modification of the
         rights, duties and obligations of Term Loan Lenders other than such
         Disbursing Agent, (b) this Agreement to be modified to require that any
         Disbursing Agent or Non-Confirming Holder make any loan, advance or
         other extension of credit to, or incur any additional obligation to,
         any Borrower or any other Person on or after the Closing Date, other
         than the Term Loans and monetary obligations pursuant to the provisions
         of the Term Loan Documents in effect on the Closing Date, or (c)
         modification of the provisions of this clause (c) in a manner that is
         adverse in any material respect to the Disbursing Agents or the
         Non-Confirming Holders. For the avoidance of any doubt, the Term Loans,
         Term Loan Commitments and Term Loan Exposure of each Disbursing Agent
         shall be excluded in calculating the number or percentage of Term
         Loans, Term Loan Commitments, Term Loan Exposure and/or Term Loan
         Lenders whose votes are required and obtained (or not obtained, as the
         case may be) for purposes of voting on any matters with respect to this
         Agreement.

                  Any Non-Confirming Holder that executes and delivers to
         Collateral Agent, in accordance with subsection 9.25 of the Term Loan
         Agreement, an acknowledgment and counterpart, in substantially the form
         of Annex 2 hereto, shall cease to be a Non-Confirming Holder and shall
         thereupon become a "Term Loan Lender", "Creditor Party" and "Secured
         Party" for all purposes hereunder and such Non-Confirming Holder
         holding a Term Loan and Term Loan Commitments in amounts equal to the
         amounts so confirmed by the Debenture Disbursing Agent, the Debenture
         Disbursing Agent shall be deemed to have assigned such Term Loan and
         Term Loan Commitment to such Term Loan Lender on such date for all
         purposes of this Agreement (without having to execute an Assumption
         Agreement in the form of Annex 1 hereto notwithstanding subsection
         6.1(f)).

                  Nothing in this Agreement, express or implied, shall be
         construed to confer upon any Non-Confirming Holder that does not become
         a Term Loan Lender any legal or equitable right, remedy or claim under
         or by reason of this Agreement; Collateral Agent shall not have, by
         reason of this Agreement, a fiduciary relationship in respect of any
         Disbursing Agent or any Non-Confirming Holder; and nothing in this
         Agreement, expressed or implied, is intended to or shall be so
         construed as to impose upon Collateral Agent any obligations to any
         Disbursing Agent or any Non-Confirming Holder in respect of this
         Agreement except as expressly set forth herein.

                                       36

<PAGE>

                  Subject to the occurrence of the Debenture Closing Date, the
         Debenture Disbursing Agent shall execute and deliver this Agreement and
         the Term Loan Agreement as the agent for the Non-Confirming Holders on
         account of the 9.25% Debentures under the Approved Plan of
         Reorganization and the Confirmation Order. Subject to the occurrence of
         the Allowed Class 6 Closing Date, the Allowed Class 6 Disbursing Agent
         shall execute and deliver this Agreement and the Term Loan Agreement as
         the agent for the Non-Confirming Holders on account of the Allowed
         Class 6 Claims under the Approved Plan of Reorganization and the
         Confirmation Order.

                  (d) Subject to the provisions of subsection 6.1(f), this
         Agreement shall be binding upon and inure to the benefit of Collateral
         Agent and each other Party and, other than with respect to the
         Management Services and Reimbursement Agreement Beneficiaries (except
         pursuant to a merger of Covanta otherwise permitted pursuant to the
         Credit Agreements), their respective successors and assigns, including
         successors to Revolver Agents and Revolver Lenders under the Revolver
         Loan Documents, Term Agents and Term Loan Lenders under the Term Loan
         Documents and Prepetition Unsecured Claims Agent.

                  (e) This Agreement may be executed in any number of
         counterparts, all of which taken together shall constitute one and the
         same instrument, and any of the parties hereto may execute this
         Agreement by signing any such counterpart.

                  (f) This Agreement shall become effective on the Closing Date
         and upon the execution of this Agreement by each Loan Party, each Term
         Loan Lender, each Revolver Lender, each Term Loan Agent, Revolver
         Agent, each Management Services and Reimbursement Agreement
         Beneficiary, Prepetition Unsecured Claims Agent and Collateral Agent.

                  (g) The Collateral Agent may deem and treat the Secured
         Parties as the "Secured Parties" for all purposes hereof unless and
         until a notice of the assignment or transfer of any interest held by
         such Party shall have been filed with the Collateral Agent in
         accordance with subsection 6.1(f). The Company agrees that it will
         advise the Collateral Agent of any transfer by any Secured Party of any
         Revolver Loan Exposure or Term Loan Exposure held by such Secured Party
         and will, from time to time upon request of the Collateral Agent,
         deliver a list to the Collateral Agent (which shall be distributed by
         the Collateral Agent to each Secured Party) setting forth, for the
         Revolver Loan Exposure, Term Loan Exposure and Management Services and
         Reimbursement Agreement Obligations, the unpaid principal amount and
         holder thereof. The Collateral Agent may rely on such list unless,
         after the distribution thereof, the Collateral Agent is notified by a
         Secured Party that such information as set forth on such list is
         inaccurate.

                  (h) ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY OF THE
         PARTIES ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE BROUGHT IN
         ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF
         NEW YORK AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE
         PARTIES IRREVOCABLY (I) ACCEPTS FOR ITSELF, IN CONNECTION WITH ITS
         PROPERTIES,

                                       37

<PAGE>

         GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE
         AFORESAID COURTS, (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS,
         (III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY
         SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT
         REQUESTED, TO SUCH PARTY HERETO AT ITS ADDRESS PROVIDED IN ACCORDANCE
         WITH SUBSECTION 7.1(a) HEREOF, (IV) AGREES THAT SERVICE OF PROCESS AS
         PROVIDED IN CLAUSE (III) IS SUFFICIENT TO CONFER PERSONAL JURISDICTION
         OVER SUCH PERSON IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND
         OTHERWISE CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT,
         (V) AGREES THAT THE PARTIES HERETO RETAIN THE RIGHT TO SERVE PROCESS IN
         ANY OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH
         PARTY IN THE COURTS OF ANY OTHER JURISDICTION, AND (VI) AGREES THAT THE
         PROVISIONS OF THIS SUBSECTION 7.1(h) RELATING TO JURISDICTION AND VENUE
         SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST EXTENT PERMISSIBLE
         UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402 OR OTHERWISE.

                  (i) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO
         WAIVE ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF
         ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS
         BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THE INTERCREDITOR
         RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this waiver is
         intended to be all-encompassing of any and all disputes that may be
         filed in any court and that relate to the subject matter of this
         transaction, including contract claims, tort claims, breach of duty
         claims, and all other common law and statutory claims. Each party
         hereto acknowledges that this waiver is a material inducement to enter
         into a business relationship, that each has already relied on the
         waiver in entering into this Agreement, and that each will continue to
         rely on the waiver in their related future dealings. Each party hereto
         further warrants and represents that each has reviewed this waiver with
         its legal counsel, and that each knowingly and voluntarily waives its
         jury trial rights following consultation with legal counsel. THIS
         WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
         ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT
         AMENDMENTS, RENEWALS, REPLACEMENTS, SUPPLEMENTS OR MODIFICATIONS TO
         THIS AGREEMENT. In the event of litigation, this Agreement may be filed
         as a written consent to a trial by the court.

                  (j) NO CLAIM MAY BE MADE BY ANY CREDITOR PARTY OR ANY OF THEIR
         RESPECTIVE AFFILIATES, PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES, OR
         ATTORNEYS AGAINST ANY OTHER CREDITOR PARTY OR THEIR RESPECTIVE
         AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, OR ATTORNEYS FOR ANY
         SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR
         WRONGFUL CONDUCT (WHETHER THE CLAIM THEREFOR IS BASED ON CONTRACT, TORT
         OR DUTY IMPOSED BY LAW) IN CONNECTION WITH,

                                       38

<PAGE>

         ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED
         AND RELATIONSHIP ESTABLISHED BY THIS AGREEMENT, OR ANY ACT, OMISSION OR
         EVENT OCCURRING IN CONNECTION THEREWITH; AND EACH CREDITOR PARTY HEREBY
         WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH
         DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
         TO EXIST IN ITS FAVOR.

                  (k) THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE
         PARTIES HEREUNDER OR ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL
         BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
         THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING SECTION 5-1401 OF
         THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
         TO CONFLICTS OF LAWS PRINCIPLES THAT WOULD REQUIRE APPLICATION OF
         ANOTHER LAW.

                  (l) All undertakings and agreements contained in this
         Agreement are solely for the benefit of the Creditor Parties and there
         are no other Persons (other than the Loan Parties to the extent
         expressly provided herein) who are intended to be benefited in any way
         by this Agreement. Each Loan Party agrees that no Creditor Party shall
         have any liability to any of the Loan Parties for performing its
         obligations and responsibilities under this Agreement with respect to
         the other Creditor Parties.

                  [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

                                      39
<PAGE>

                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.

         LOAN PARTIES:

                                      COVANTA POWER INTERNATIONAL HOLDINGS, INC.

                                      By:_______________________________________
                                          Name:
                                          Title:

                                      COVANTA ENERGY AMERICAS, INC.

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:
                                        c/o Covanta Energy Group, Inc.
                                        40 Lane Road
                                        Fairfield, NJ 07007
                                        Attn: Jeffrey Horowitz, Esq.

                                      EACH OF THE ENTITIES NAMED ON SCHEDULE A
                                      ANNEXED HERETO, AS REVOLVER BORROWERS,
                                      TERM BORROWERS AND MANAGEMENT SERVICES AND
                                      REIMBURSEMENT AGREEMENT OBLIGORS

                                      By:_______________________________________
                                         Name: Jeffrey Horowitz, Esq.
                                               Authorized Officer

                                      Notice Address for each Borrower and
                                      Management Services Agreement Obligor:

                                        c/o Covanta Energy Group, Inc.
                                        40 Lane Road
                                        Fairfield, NJ 07007
                                        Attn: Jeffrey Horowitz, Esq.

<PAGE>

MANAGEMENT SERVICES AND REIMBURSEMENT
AGREEMENT BENEFICIARIES:

                                      COVANTA ENERGY CORPORATION

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:

                                        c/o Covanta Energy Group, Inc.
                                        40 Lane Road
                                        Fairfield, NJ 07007
                                        Attn: Jeffrey Horowitz, Esq.

                                      EACH OF THE ENTITIES NAMED ON SCHEDULE B
                                      ANNEXED HERETO, AS MANAGEMENT SERVICES AND
                                      REIMBURSEMENT AGREEMENT BENEFICIARIES

                                      By:_______________________________________
                                         Name: Jeffrey Horowitz, Esq.
                                               Authorized Officer

                                      Notice Address for each Management
                                      Services Agreement Beneficiary:
                                        c/o Covanta Energy Group, Inc.
                                        40 Lane Road
                                        Fairfield, NJ 07007
                                        Attn: Jeffrey Horowitz, Esq.

<PAGE>

AGENTS AND LENDERS:

                                      BANK OF AMERICA, N.A.,
                                      as Collateral Agent and Term Loan Agent

                                      By:_______________________________________
                                         Name:
                                         Title:

                                         Notice Address:
                                          Bank of America, N.A., as
                                          Administrative Agent
                                          555 So. Flower Street, 17th Floor
                                          CA9-706-17-54
                                          Los Angeles, California 90071
                                          Attention: David Price, Vice President
                                          Voice: (213) 345-1300
                                          Fax: (415) 503-5011
                                          email: david.price@bankofamerica.com

                                      BANK OF AMERICA, N.A.,
                                      as a Term Loan Lender

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:
                                      Bank of America, N.A.
                                      555 California Street
                                      San Francisco, CA 94104-1503
                                      Phone: 415-622-4438
                                      Fax: 415-622-0234
                                      Attention: Henry Yu
                                      Email: henry.yu@bankofamerica.com

<PAGE>

                                      BANK OF AMERICA, N.A.,
                                      as Cash Management Bank

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:

                                       43

<PAGE>

                                      DEUTSCHE BANK SECURITIES, INC.,
                                      as Term Loan Documentation Agent

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:
                                        Attention:
                                        Deutsche Bank Securities, Inc.
                                        60 Wall Street
                                        New York, NY 10005

                                      DEUTSCHE BANK AG, NEW YORK BRANCH,
                                      as Revolver Agent

                                      By:_______________________________________
                                         Name: Keith Braun
                                         Title: Director

                                      By:_______________________________________
                                         Name: Keith Braun
                                         Title: Director

                                      Notice Address:
                                        Attention: Keith C. Braun
                                        Deutsche Bank AG, New York Branch
                                        60 Wall Street
                                        New York, NY 10005

<PAGE>

                                      DEUTSCHE BANK AG, NEW YORK BRANCH,
                                      as a Revolver Lender

                                      By:_______________________________________
                                         Name: Keith Braun
                                         Title: Director

                                      By:_______________________________________
                                         Name: Keith Braun
                                         Title: Director

                                      Notice Address:
                                        Attention: Keith C. Braun
                                        Deutsche Bank AG, New York Branch
                                        60 Wall Street
                                        New York, NY 10005

<PAGE>

                                      BANK OF TOKYO MITSUBISHI (CANADA),
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      BAYERISCHE HYPO-UND VEREINSBANK AG,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      BEAR STEARNS & CO. INC.,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      CANADIAN IMPERIAL BANK OF COMMERCE,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      CREDIT SUISSE FIRST BOSTON,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      DEUTSCHE BANK AG, NEW YORK BRANCH,
                                      as a Term Loan Lender

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      By:_______________________________________
                                         Name:
                                         Title:

<PAGE>

                                      BANC OF AMERICA SECURITIES LLC, as
                                      Agent for BANK OF AMERICA, N.A., as a Term
                                      Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      DRESDNER BANK A.G.,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      DRESDNER BANK CANADA,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      GOLDMAN SACHS,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      HSBC BANK CANADA,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      HSBC BANK USA,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      IIB BANK LIMITED,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      JPMORGAN CHASE BANK
                                      (FORMERLY KNOWN AS THE CHASE MANHATTAN
                                      BANK),
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      J.P. MORGAN SECURITIES, INC.,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      KBC BANK NV, NEW YORK BRANCH,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

                                      Notice Address:
                                        Attention: Rose Pagan
                                        KBC Bank NV, New York Branch
                                        125 West 55th Street
                                        New York, NY 10019
                                        Telephone No.: (212) 541-0657
                                        Fax No.: (212) 956-5581

<PAGE>

                                      LANDESBANK HESSEN-THURINGEN GIROZENTRALE,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      MERRILL LYNCH, PIERCE, FENNER & SMITH,
                                      INCORPORATED,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      MINTO APARTMENTS LIMITED,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      QUANTUM PARTNERS LDC
                                      C/O SOROS FUND MANAGEMENT LLC,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      SPECIAL SITUATIONS INVESTING GROUP,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      SUNTRUST BANK,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      THE BANK OF NEW YORK,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      THE BANK OF NOVA SCOTIA,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      THE TORONTO-DOMINION BANK,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      THE TORONTO-DOMINION BANK,
                                      as a Term Loan Lender(1)

                                      By:___________________________________
                                         Name:
                                         Title:

--------------
(1) With respect to the interest acquired from Sun Life Assurance Company of
Canada (formerly known as Clarica Life Insurance Company) and HSBC Bank Canada
on October 28, 2003 by assignment.

<PAGE>

                                      UBS LOAN FINANCE LLC,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      U.S. BANK NATIONAL ASSOCIATION
                                      (FORMERLY KNOWN AS FIRSTAR BANK, N.A.),
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      WACHOVIA BANK, NATIONAL ASSOCIATION,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      WESTLB AG (FORMERLY KNOWN AS WESTDEUTSCHE
                                      LANDESBANK GIROZENTRALE), NEW YORK BRANCH,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

                                      2005646 ONTARIO INC.,
                                      as a Term Loan Lender

                                      By:___________________________________
                                         Name:
                                         Title:

<PAGE>

PREPETITION UNSECURED CLAIMS AGENT:

                                      U.S. BANK NATIONAL ASSOCIATION,
                                      AS PREPETITION UNSECURED CLAIMS
                                      AGENT

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:

<PAGE>

DEBENTURE DISBURSING AGENT:

                                      WELLS FARGO BANK, N.A., AS DEBENTURE
                                      DISBURSING AGENT

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:

<PAGE>

ALLOWED CLASS 6 DISBURSING AGENT:

                                      U.S. BANK NATIONAL ASSOCIATION, AS ALLOWED
                                      CLASS 6 DISBURSING AGENT

                                      By:_______________________________________
                                         Name:
                                         Title:

                                      Notice Address:

<PAGE>

                                                                      Annex 1 to
                                                         Intercreditor Agreement

                  ASSUMPTION AGREEMENT, dated as of __________, 200_, made by
_________________ (the "ADDITIONAL CREDITOR PARTY").

                              W I T N E S S E T H :

                  WHEREAS, Covanta Power International Holdings, Inc.
("COMPANY") and the Subsidiaries of Company listed on the signature pages
thereof; Covanta Energy Americas, Inc., certain Persons listed on the signature
pages thereof as Term Loan Lenders (together with any lenders that subsequently
become party thereto, the "TERM LOAN LENDERS"); certain financial institutions
listed on the signature pages thereof as Revolver Lenders (the "REVOLVER
LENDERS"); Deutsche Bank AG, New York Branch, as administrative agent for
Revolver Lenders, Bank of America, N.A., as administrative agent for Term Loan
Lenders, as collateral agent, and cash management bank, Deutsche Bank
Securities, Inc., as documentation agent for Term Loan Lenders, the companies
listed on the signature pages thereof as Management Services and Reimbursement
Agreement Beneficiaries, the companies listed on the signature pages thereof as
Management Services and Reimbursement Agreement Obligors, U.S Bank National
Association, as agent for the holders of the Prepetition Unsecured Claims
Participation Interest, and Wells Fargo Bank, N.A., as Debenture Disbursing
Agent, and U.S. Bank National Association, as Allowed Class 6 Disbursing Agent
are parties to that certain Intercreditor Agreement dated as of March __, 2004
(as amended, supplemented or otherwise modified from time to time (the
"INTERCREDITOR AGREEMENT");

                  WHEREAS, the Loan Parties have executed the Collateral
Documents pursuant to which the Loan Parties party to each such document have
granted to the Collateral Agent, for the benefit of the Secured Parties, a
security interest in the Collateral to secure their respective obligations
arising in connection with the Credit Document;

                  WHEREAS, subsection 6.1(f) of the Intercreditor Agreement
requires the Additional Creditor Party to become a party to the Intercreditor
Agreement; and

                  WHEREAS, the Additional Creditor Party has agreed to execute
and deliver this Assumption Agreement in order to become a party to the
Intercreditor Agreement;

                  NOW, THEREFORE, IT IS AGREED:

                  1. Defined Terms. Unless otherwise defined herein, terms
defined in the Intercreditor Agreement and used herein shall have the meanings
given to them in the Intercreditor Agreement.

                  2. Intercreditor Agreement. By executing and delivering this
Assumption Agreement, the Additional Creditor Party hereby becomes a party to
the Intercreditor Agreement as [Revolver Agent][Term Loan Agent][Term Loan
Documentation Agent][a Revolver Lender][a Term Loan Lender][Prepetition
Unsecured Claims Agent] and Secured Party thereunder with the same force and
effect as if originally named therein as [Revolver

                                      A-1-1

<PAGE>

Agent][Term Loan Agent][Term Loan Documentation Agent][a Revolver Lender][a Term
Loan Lender][Prepetition Unsecured Claims Agent] and a Secured Party and,
without limiting the generality of the foregoing, hereby expressly assumes all
obligations and liabilities of [Revolver Agent][Term Loan Agent][Term Loan
Documentation Agent][a Revolver Lender][a Term Loan Lender][Prepetition
Unsecured Claims Agent] and a Secured Party thereunder and agrees to be bound by
the terms thereof.

                  2. GOVERNING LAW. THIS ASSUMPTION AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF
NEW YORK.

                  IN WITNESS WHEREOF, the undersigned has caused this Assumption
Agreement to be duly executed and delivered as of the date first above written.

                                      [ADDITIONAL CREDITOR PARTY]

                                      By:___________________________
                                      Name:
                                      Title:

                                     A-1-2

<PAGE>

                                                                      Annex 2 to
                                                         Intercreditor Agreement

                         ACKNOWLEDGMENT AND COUNTERPART

         ACKNOWLEDGMENT AND COUNTERPART (this "COUNTERPART"), dated as of
_______, is entered into in connection with the Intercreditor Agreement dated as
of March __, 2004 (said Intercreditor Agreement, as it may heretofore have been
and as it may hereafter be further amended, restated, supplemented or otherwise
modified from time to time being the "INTERCREDITOR AGREEMENT"; capitalized
terms used herein not otherwise defined herein shall have the meanings ascribed
therein), by and among Covanta Power International Holdings, Inc. ("COMPANY")
and the Subsidiaries of Company listed on the signature pages thereof, as
Borrowers; Covanta Energy Americas, Inc.; certain Persons listed on the
signature pages thereof as Term Loan Lenders (together with any other lenders
that subsequently become party thereto, the "TERM LOAN LENDERS"); certain
financial institutions listed on the signature pages thereof as Revolver
Lenders; Deutsche Bank AG, New York Branch, as administrative agent for Revolver
Lenders; Bank of America, N.A., as administrative agent for Term Loan Lenders,
as collateral agent, and cash management bank; Deutsche Bank Securities, Inc.,
as documentation agent for Term Loan Lenders; the companies listed on the
signature pages thereof as Management Services and Reimbursement Agreement
Beneficiaries; the companies listed on the signature pages thereof as Management
Services and Reimbursement Agreement Obligors; U.S. Bank National Association,
as agent for the holders of the Prepetition Unsecured Claims Participation
Interest, and Wells Fargo Bank, N.A., as Debenture Disbursing Agent, and U.S.
Bank National Association, as Allowed Class 6 Disbursing Agent. The undersigned,
by executing and delivering this Counterpart, hereby acknowledges and agrees (a)
that upon acceptance of this Counterpart by Administrative Agent it shall become
party to the Intercreditor Agreement as a "Term Loan Lender" in accordance with
the terms thereof and shall have the rights and obligations of a Term Loan
Lender under the Intercreditor Agreement, (b) that it shall be bound by all of
the terms of the Intercreditor Agreement as a Term Loan Lender, and (c) that
this Counterpart may be attached to the Intercreditor Agreement. The undersigned
hereby further agrees that the address and facsimile number of the undersigned
for notice purposes pursuant to Section 7.1(a) of the Intercreditor Agreement
shall be initially as set forth below.

                                      [NAME OF TERM LOAN LENDER]

                                      By: ___________________________
                                      Name:
                                      Title:
                                      Notice Address:

                                     A-2-1<PAGE>

                                                                    EXHIBIT 4.27

                               SECURITY AGREEMENT

                  This SECURITY AGREEMENT (this "AGREEMENT") is dated as of
March __, 2004 and entered into by and among COVANTA ENERGY CORPORATION, a
Delaware corporation ("COVANTA" or "COMPANY"), each of THE OTHER BORROWERS
LISTED ON THE SIGNATURE PAGES HEREOF, and each ADDITIONAL BORROWER that may
become a party hereto after the date hereof in accordance with Section 24 hereof
(each an "ADDITIONAL GRANTOR" and collectively "ADDITIONAL GRANTORS"; Borrowers,
including any Additional Grantors, are sometimes collectively referred to herein
as "GRANTORS" and individually as a "GRANTOR"), and BANK OF AMERICA, N.A., in
its capacity as collateral agent for and representative of the Secured Parties
(as defined in the Intercreditor Agreement referred to below) (the "COLLATERAL
AGENT"). All capitalized terms used but not otherwise defined herein shall have
the respective meanings ascribed thereto in the Intercreditor Agreement.

                                    RECITALS

                  WHEREAS, pursuant to the Credit Agreement dated as of March
__, 2004 (said Credit Agreement or any credit agreement entered into by Detroit
L/C Borrowers to refinance, replace, renew or extend, in whole or in part, said
Credit Agreement and the indebtedness and letters of credit issued thereunder to
the extent permitted pursuant to the New L/C Facility Agreement (as defined
below) and the High Yield Indenture (as defined below), as said Credit Agreement
or any replacement to said Credit Agreement may be amended, restated,
supplemented or otherwise modified from time to time, being the "DETROIT L/C
FACILITY AGREEMENT"), by and among Grantors as borrowers, the financial
institutions from time to time party thereto as lenders (the "DETROIT L/C
LENDERS"), Bank of America, N.A., as administrative agent (the "DETROIT L/C
FACILITY AGENT"), and Deutsche Bank Securities, Inc., as documentation agent for
the Detroit L/C Lenders (in such capacity "DETROIT L/C DOCUMENTATION AGENT," and
together with the Detroit L/C Facility Agent, THE "DETROIT L/C AGENTS"), the
Detroit L/C Lenders have made certain commitments (each, a "DETROIT L/C
COMMITMENT"), subject to the terms and conditions set forth in the Detroit L/C
Facility Agreement, to extend certain letter of credit facilities (each, a
"DETROIT L/C") to Grantors;

                  WHEREAS, pursuant to the Credit Agreement dated as of March
__, 2004, (said Credit Agreement or any credit agreement entered into by New L/C
Borrowers to refinance, replace, renew or extend, in whole or in part, said
Credit Agreement and the indebtedness and letters of credit issued thereunder to
the extent permitted pursuant to the Detroit L/C Facility Agreement and the High
Yield Indenture, as said Credit Agreement or any replacement to said Credit
Agreement may be amended, restated, supplemented or otherwise modified from time
to time, being the "NEW L/C FACILITY AGREEMENT"), by and among Grantors as
borrowers, the financial institutions listed therein as lenders (the "NEW L/C
LENDERS") and Bank One, NA, as administrative agent for the New L/C Lenders (in
such capacity, the "NEW L/C AGENT," and collectively with the Detroit L/C
Agents, the Detroit L/C Lenders, the High Yield Trustee, the High Yield
Noteholders, the New L/C Lenders and the Cash Management Bank (as defined
below), the "BENEFITED PARTIES"), the New L/C Lenders have made certain
commitments (each, a "NEW L/C COMMITMENT," and together with the Detroit L/C
Commitments, collectively, the "COMMITMENTS"), subject to the terms and
conditions set forth in the New L/C Facility Agreement, to extend certain letter
of credit and revolving credit facilities (each, a "NEW L/C," and together with
the Detroit L/Cs, the "LETTERS OF CREDIT") to the New L/C Borrowers;

                  WHEREAS, pursuant to the indenture dated as of March __, 2004
(said indenture or any replacement to said indenture entered into in connection
with a refinancing, defeasance, renewal, replacement or extension of the High
Yield Notes (as defined below) permitted under the Detroit L/C Facility
Agreement and New L/C Facility Agreement (as defined below), as said indenture
or replacement to said indenture may be amended, supplemented or otherwise
modified from time to time, being the "HIGH YIELD INDENTURE") by and between
Company and U.S. Bank National Association, in its capacity as trustee (the
"HIGH YIELD TRUSTEE"), Company has issued $205,000,000 in aggregate initial face
principal amount (accruing to $230,000,000 at stated maturity) of its 8.25%
Senior Notes due 2011 (the "HIGH YIELD NOTES");

                                                              Security Agreement

                                       1

<PAGE>

                  WHEREAS, Grantors other than the Company (the "HIGH YIELD
GUARANTORS," and together with the Company and the Grantors, each individually a
"LOAN PARTY," and collectively the "LOAN PARTIES") have agreed, in favor of the
holders of the High Yield Notes (the "HIGH YIELD NOTEHOLDERS"), to guarantee the
prompt payment and performance when due of all obligations of Company under the
High Yield Notes on the terms and conditions set forth in the High Yield
Indenture;

                  WHEREAS, in accordance with the terms of the Credit
Agreements, Borrowers are required to maintain the Cash Management System with
Bank of America (in such capacity, the "CASH MANAGEMENT BANK"), and it is
desired that the Cash Management Obligations be secured hereunder;

                  WHEREAS, Company, the Detroit L/C Borrowers, the New L/C
Borrowers, DHC, the Detroit L/C Agents, the Detroit L/C Lenders, the High Yield
Trustee for the benefit of the High Yield Noteholders, the New L/C Agent, the
New L/C Lenders, the Cash Management Bank and Collateral Agent have entered into
that certain Intercreditor Agreement dated as of March __, 2004 (as it may
hereafter be amended, restated, supplemented or otherwise modified from time to
time, the "INTERCREDITOR AGREEMENT"), pursuant to which the Detroit L/C Agents,
the Detroit L/C Lenders, the High Yield Trustee for the benefit of the High
Yield Noteholders, the New L/C Agent, the New L/C Lenders and Cash Management
Bank have appointed Collateral Agent, and Collateral Agent has agreed to act, as
collateral agent for the Detroit L/C Agents, the Detroit L/C Lenders, the High
Yield Noteholders, the New L/C Agent , the New L/C Lenders and the Cash
Management Bank hereunder; and

                  WHEREAS, it is a condition precedent to (i) the extension of
credit by the Detroit L/C Lenders under the Detroit L/C Facility Agreement, (ii)
the effectiveness of the High Yield Indenture and (iii) the extension of credit
by the New L/C Lenders that the Grantors listed on the signature pages hereof
shall have granted the security interest and undertaken the obligations
contemplated by this Agreement;

                  NOW, THEREFORE, in consideration of the premises and in order
to induce the Detroit L/C Lenders to make extensions of credit from time to time
under the Detroit L/C Facility Agreement, the New L/C Lenders to make extensions
of credit from time to time under the New L/C Facility Agreement, the High Yield
Noteholders to accept the High Yield Notes issued under the High Yield
Indenture, the Cash Management Bank to provide cash management services to the
Grantors and for other good and valuable consideration, the receipt and adequacy
of which are hereby acknowledged, each Grantor hereby agrees with Collateral
Agent as follows:

SECTION 1.        GRANT OF SECURITY.

                  Each Grantor hereby assigns and grants to Collateral Agent a
security interest, subject to the terms of the Intercreditor Agreement
(including, without limitation, the provisions regarding lien priority), in all
of such Grantor's right, title and interest in and to all of such Grantor's
personal property and fixture property of every kind and nature, and all
proceeds and products thereof, in each case whether now or hereafter acquired
and wherever the same may be located, including, without limitation, the
following (the "COLLATERAL"), to secure the obligations as set forth in Section
2 herein except as provided in the penultimate paragraph to this Section 1:

                  (a) all equipment, in all of its forms, all parts thereof and
all accessions thereto (any and all such equipment, parts and accessions being
the "EQUIPMENT");

                  (b) all inventory in all of its forms, including but not
limited to (i) all goods held by such Grantor for sale or lease or to be
furnished under contracts of service or so leased or furnished, (ii) all raw
materials, work in process, finished goods, and materials used or consumed in
the manufacture, packing, shipping, advertising, selling, leasing, furnishing or
production of such inventory or otherwise used or consumed in such Grantor's
business, (iii) all goods in which such Grantor has an interest in mass or a
joint or other interest or right of any kind, and (iv) all goods which are
returned to or repossessed by such Grantor and all accessions thereto and
products thereof (collectively the "INVENTORY") and all negotiable and
non-negotiable documents of title (including without limitation, documents,
warehouse receipts, dock receipts and bills of lading) issued by any Person
covering any Inventory (any such negotiable document of title being a
"NEGOTIABLE DOCUMENT OF TITLE");

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<PAGE>

                  (c) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles, letter-of-credit rights and other rights and
obligations of any kind owned by or owing to such Grantor and all rights in, to
and under all security agreements, leases and other contracts securing or
otherwise relating to any such accounts, contract rights, chattel paper,
documents, instruments, general intangibles, letter-of-credit rights or other
rights and obligations (any and all such accounts, contract rights, chattel
paper, documents, instruments, general intangibles, letter of credit rights and
other rights and obligations being the "ACCOUNTS," and any and all such security
agreements, leases and other contracts being the "RELATED CONTRACTS").

                  (d) all deposit accounts, including any restricted deposit
accounts established and maintained by Collateral Agent pursuant to Sections 12
and 13 hereof and all the accounts and concentration accounts which constitute
the Cash Management System, together with (i) all amounts on deposit from time
to time in such deposit accounts and (ii) all interest, cash, instruments,
securities and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of the
foregoing (the "DEPOSIT ACCOUNTS");

                  (e) the "SECURITIES COLLATERAL," which term means:

                           (i) the shares of stock, partnership interests,
                  interests in joint ventures, limited liability company
                  interests and all other equity interests in any other Person,
                  including all securities convertible into, and rights,
                  warrants, options and other rights to purchase or otherwise
                  acquire, any of the foregoing now or hereafter owned by such
                  Grantor, including those owned on the date hereof and
                  described on Schedule 1(e)(i), and the certificates or other
                  instruments representing any of the foregoing and any interest
                  of such Grantor in the entries on the books of any securities
                  intermediary pertaining thereto (the "PLEDGED SHARES"), and
                  all dividends, distributions, returns of capital, cash,
                  warrants, options, rights, instruments, rights to vote or
                  manage the business of such Person pursuant to organizational
                  documents governing the rights and obligations of the
                  stockholders, partners, members or other owners thereof and
                  other property or proceeds from time to time received,
                  receivable or otherwise distributed in respect of or in
                  exchange for any or all of such Pledged Shares;

                           (ii) the indebtedness from time to time owed to such
                  Grantor by any obligor, and the instruments evidencing such
                  indebtedness (the "PLEDGED DEBT"), and all interest, cash,
                  instruments and other property or proceeds from time to time
                  received, receivable or otherwise distributed in respect of or
                  in exchange for any or all of the Pledged Debt; and

                           (iii) all other investment property of such Grantor
                  not otherwise included in this clause (e) or the definition of
                  Investment Collateral below; provided, however, that the
                  Securities Collateral shall not include (1) any shares of
                  stock, partnership interests, interests in joint ventures,
                  limited liability company interests or other equity interests
                  of any Subsidiary that was not incorporated or organized under
                  the laws of the United States, any state thereof or the
                  District of Columbia (a "FOREIGN SUBSIDIARY") in excess of the
                  number of shares or other such interests of such issuer
                  possessing up to but not exceeding 65% of the voting power of
                  all classes of capital stock or other such interests entitled
                  to vote of such Foreign Subsidiary, or (2) any shares of
                  stock, partnership interests, interests in joint ventures,
                  limited liability company interests or all other equity
                  interests of those Subsidiaries the pledge of which would
                  constitute a violation of (A) a valid and enforceable
                  Contractual Obligation in favor of or for the benefit of a
                  Person other than Company or any of its Subsidiaries and their
                  respective Affiliates for which the required consents have not
                  been obtained, or (B) applicable law affecting such Grantor or
                  such Subsidiary;

                  (f) the "INVESTMENT COLLATERAL", which term means:

                           (i) all securities accounts, including any restricted
                  securities accounts established and maintained by Collateral
                  Agent pursuant to Section 14 herein, (ii) all credit balances
                  held from time to time in such securities accounts, (iii) any
                  property, including any Financial Assets (as defined in the
                  UCC) credited to any such securities account by Collateral
                  Agent and any other property acquired by Collateral Agent as
                  securities intermediary in exchange for, with proceeds from or
                  distributions on, or otherwise in respect of any of the
                  foregoing (any such property an

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<PAGE>

                  "INVESTMENT") and any security entitlements, securities
                  (whether certificated or uncertificated), instruments,
                  accounts, chattel paper, general intangibles and deposits
                  representing or evidencing any Investment, and (iv) all
                  interest, dividends, cash, instruments, securities and other
                  property from time to time received, receivable or otherwise
                  distributed in respect of or in exchange for any or all of the
                  Investments.

                  (g) the "INTELLECTUAL PROPERTY COLLATERAL," which term means:

                           (i) all rights, title and interest (including rights
                  acquired pursuant to a license or otherwise) in and to all
                  trademarks, service marks, designs, logos, indicia,
                  tradenames, trade dress, corporate names, company names,
                  business names, fictitious business names, trade styles and/or
                  other source and/or business identifiers and applications
                  pertaining thereto, owned by such Grantor, or hereafter
                  adopted and used, in its business (including, without
                  limitation, the trademarks specifically identified in Schedule
                  1(g)(i), as the same may be amended pursuant hereto from time
                  to time) (collectively, the "TRADEMARKS"), all registrations
                  that have been or may hereafter be issued or applied for
                  thereon in the United States and any state thereof and in
                  foreign countries (including, without limitation, the
                  registrations and applications specifically identified in
                  Schedule 1(g)(i), as the same may be amended pursuant hereto
                  from time to time) (the "TRADEMARK REGISTRATIONS"), all common
                  law and other rights in and to the Trademarks in the United
                  States and any state thereof and in foreign countries (the
                  "TRADEMARK RIGHTS"), and all goodwill of such Grantor's
                  business symbolized by the Trademarks and associated therewith
                  (the "ASSOCIATED GOODWILL");

                           (ii) all rights, title and interest (including rights
                  acquired pursuant to a license or otherwise) in and to all
                  patents and patent applications and rights and interests in
                  patents and patent applications under any domestic or foreign
                  law that are presently, or in the future may be, owned or held
                  by such Grantor and all patents and patent applications and
                  rights, title and interests in patents and patent applications
                  under any domestic or foreign law that are presently, or in
                  the future may be, owned by such Grantor in whole or in part
                  (including, without limitation, the patents and patent
                  applications listed in Schedule 1(g)(ii)(A), as the same may
                  be amended pursuant hereto from time to time, but excluding
                  those listed in Schedule 1(g)(ii)(B)), all rights
                  corresponding thereto (including, without limitation, the
                  right, exercisable only upon the occurrence and during the
                  continuation of an Event of Default, to sue for past, present
                  and future infringements in the name of such Grantor or in the
                  name of Collateral Agent, the Detroit L/C Lenders, the High
                  Yield Noteholders or the New L/C Lenders and/or any other
                  Benefited Parties), and all re-issues, divisions,
                  continuations, renewals, extensions and continuations-in-part
                  thereof (all of the foregoing being collectively referred to
                  as the "PATENTS"); it being understood that the rights and
                  interests included in the Intellectual Property Collateral
                  hereby shall include, without limitation, all rights and
                  interests pursuant to licensing or other contracts in favor of
                  such Grantor pertaining to patent applications and patents
                  presently or in the future owned or used by third parties but,
                  in the case of third parties which are not Affiliates of such
                  Grantor, only to the extent permitted by such licensing or
                  other contracts and, if not so permitted, only with the
                  consent of such third parties; and

                           (iii) all rights, title and interest (including
                  rights acquired pursuant to a license or otherwise) under
                  copyright in various published and unpublished works of
                  authorship including, without limitation, computer programs,
                  computer data bases, other computer software, layouts, trade
                  dress, drawings, designs, writings, and formulas owned by such
                  Grantor (including, without limitation, the works listed on
                  Schedule 1(g)(iii), as the same may be amended pursuant hereto
                  from time to time) (collectively, the "COPYRIGHTS"), all
                  copyright registrations issued to such Grantor and
                  applications for copyright registration that have been or may
                  hereafter be issued or applied for thereon by such Grantor in
                  the United States and any state thereof and in foreign
                  countries (including, without limitation, the registrations
                  listed on Schedule 1(g)(iii), as the same may be amended
                  pursuant hereto from time to time) (collectively, the
                  "COPYRIGHT REGISTRATIONS"), all common law and other rights in
                  and to the Copyrights in the United States and any state
                  thereof and in foreign countries including all copyright
                  licenses (but with respect to

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<PAGE>

                  such copyright licenses, only to the extent permitted by such
                  licensing arrangements) (the "COPYRIGHT RIGHTS"), including,
                  without limitation, each of the Copyrights, rights, titles and
                  interests in and to the Copyrights, all derivative works and
                  other works protectable by copyright, which are presently, or
                  in the future may be, owned, created (as a work for hire for
                  the benefit of such Grantor), authored (as a work for hire for
                  the benefit of such Grantor), or acquired by such Grantor, in
                  whole or in part, and all Copyright Rights with respect
                  thereto and all Copyright Registrations therefor, heretofore
                  or hereafter granted or applied for, and all renewals and
                  extensions thereof, throughout the world, including all
                  proceeds thereof (such as, by way of example and not by
                  limitation, license royalties and proceeds of infringement
                  suits), the right to renew and extend such Copyright
                  Registrations and Copyright Rights and to register works
                  protectable by copyright and the right to sue for past,
                  present and future infringements of the Copyrights and
                  Copyright Rights;

                  (h) all information used or useful or arising from the
business including all goodwill, trade secrets, trade secret rights, know-how,
customer lists, processes of production, ideas, confidential business
information, techniques, processes, formulas, and all other proprietary
information;

                  (i) all licenses, contracts and agreements, as each such
license, contract and agreement may be amended, restated, supplemented or
otherwise modified from time to time (said agreements, as so amended, restated,
supplemented or otherwise modified, being referred to herein individually as an
"ASSIGNED AGREEMENT" and collectively as the "ASSIGNED AGREEMENTS"), including,
without limitation, (i) all rights of such Grantor to receive moneys due or to
become due under or pursuant to the Assigned Agreements, (ii) all rights of such
Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty
with respect to the Assigned Agreements, (iii) all claims of such Grantor for
damages arising out of any breach of or default under the Assigned Agreements,
and (iv) all rights of such Grantor to terminate, amend, supplement, modify or
exercise rights or options under the Assigned Agreements, to perform thereunder
and to compel performance and otherwise exercise all remedies thereunder;

                  (j) to the extent not included in any other paragraph of this
Section 1, each Grantor's commercial tort claims (as defined under Article 9 of
the UCC), potential claims, causes of action and potential causes of action,
including, but not limited to, those listed on Schedule 1(j) (collectively, the
"COMMERCIAL TORT CLAIMS"), and all general intangibles (including, without
limitation, tax refunds, payment intangibles, other rights to payment or
performance, choses in action, software and judgments taken on any rights or
claims included in the Collateral);

                  (k) all plant fixtures, business fixtures and other fixtures,
and storage and office facilities, and all accessions thereto and products
thereof;

                  (l) all books, records, ledger cards, files, correspondence,
computer programs, tapes, disks and related data processing software that at any
time evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon; and

                  (m) all proceeds, products, rents and profits of or from any
and all of the foregoing Collateral and, to the extent not otherwise included,
all payments under insurance related to the Collateral (whether or not
Collateral Agent is the loss payee thereof), or any indemnity, warranty or
guaranty, payable by reason of loss or damage to or otherwise with respect to
any of the foregoing Collateral. For purposes of this Agreement, the term
"PROCEEDS" includes whatever is receivable or received when Collateral or
proceeds are sold, exchanged, collected or otherwise disposed of, whether such
disposition is voluntary or involuntary.

                  Notwithstanding anything herein to the contrary, (i) in no
event shall the Collateral include, and no Grantor shall be deemed to have
granted a security interest in (x) any of such Grantor's rights or interests in
any license, contract or agreement to which such Grantor is a party or any of
its rights or interests thereunder, to the extent, but only to the extent, that
such a grant would, under the terms of such license, contract or agreement or
otherwise, result in a breach of the terms of, or constitute a default under the
provisions of any license, contract or agreement to which such Grantor is a
party on the date hereof (other than to the extent that any such provision would
be rendered ineffective pursuant to the UCC or any other applicable law
(including the Bankruptcy Code) or principles of equity); provided, that
immediately upon the ineffectiveness, lapse or termination of any such

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<PAGE>

provision, the Collateral shall include, and such Grantor shall be deemed to
have granted a security interest to Collateral Agent in, all such rights and
interests as if such provision had never been in effect; provided, further that
if the assignment of proceeds of such license, contract or agreement would not
result in a breach of the terms of, or constitute a default under the provisions
of such license, contract or agreement, such proceeds shall be included in the
Collateral, (y) any real property leasehold, unless a Grantor has executed a
leasehold mortgage or leasehold deed of trust covering such real property
leasehold, or (z) any amounts in Deposit Accounts that are reserves or escrow
arrangements established in accordance with the Approved Plan of Reorganization,
and (ii) in no event shall DSS Environmental, Inc., a New York corporation, be
deemed to have granted a security interest to the Collateral Agent for the
benefit of the High Yield Noteholders.

                  Each item of Collateral listed in this Section 1 that is
defined in Articles 8 or 9 of the UCC shall also include the meanings set forth
in the UCC, it being the intention of the Grantors that the description of the
Collateral set forth above be construed to include the broadest possible range
of assets.

SECTION 2.        SECURITY FOR OBLIGATIONS.

                  This Agreement secures, and the Collateral assigned by each
Grantor is collateral security for, the Secured Obligations.

SECTION 3.        GRANTORS REMAIN LIABLE.

                  Anything contained herein to the contrary notwithstanding, (a)
each Grantor shall remain liable under any contracts, licenses and agreements
included in the Collateral, to the extent set forth therein, to perform all of
its duties and obligations thereunder to the same extent as if this Agreement
had not been executed, (b) the exercise by Collateral Agent of any of its rights
hereunder shall not release any Grantor from any of its duties or obligations
under the contracts, licenses and agreements included in the Collateral, and (c)
Collateral Agent shall not have any obligation or liability under any contracts,
licenses, and agreements included in the Collateral by reason of this Agreement,
nor shall Collateral Agent be obligated to perform any of the obligations or
duties of any Grantor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder.

SECTION 4.        REPRESENTATIONS AND WARRANTIES.

                  Each Grantor represents and warrants as follows:

                  (a) OWNERSHIP OF COLLATERAL. Except as expressly permitted by
the Credit Documents, such Grantor owns the Collateral owned by such Grantor
free and clear of any Lien. Except as expressly permitted by the Credit
Documents and such as may have been filed in favor of Collateral Agent in
connection with this Agreement, no effective financing statement or other
instrument similar in effect covering all or any part of the Collateral is on
file in any filing or recording office.

                  (b) LOCATIONS OF EQUIPMENT AND INVENTORY. All of the Equipment
and Inventory having a value in excess of $500,000 is, as of the date hereof, or
in the case of an Additional Grantor, the date of the applicable counterpart
entered into pursuant to Section 24 hereof (each, a "COUNTERPART") located at
the places specified in Schedule 4(b), except for Equipment that is temporarily
moved from places specified in Schedule 4(b) to undergo repair or Inventory
which, in the ordinary course of business, is in transit either (i) from a
supplier to a Grantor, (ii) between the locations specified in Schedule 4(b), or
(iii) to customers of a Grantor.

                  (c) NEGOTIABLE DOCUMENTS OF TITLE. Except as set forth on
Schedule 4(c), no Negotiable Documents of Title are outstanding with respect to
any of the Inventory with a value in excess of $100,000.

                  (d) OFFICE LOCATIONS; TYPE AND JURISDICTION OF ORGANIZATION.
The chief place of business, the chief executive office and the office where
such Grantor keeps its records regarding the Accounts and all originals of all
chattel paper that evidence Accounts are, as of the date hereof, and, except as
described on Schedule 4(d), have been for the four-month period preceding the
date hereof, or, in the case of an Additional Grantor, the date of the
applicable Counterpart, located at the locations described on Schedule 4(d);
such Grantor's type (i.e.,

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<PAGE>

corporation, limited partnership, etc.) and jurisdiction of organization are
listed on Schedule 4(d); and no Grantor is an unregistered entity.

                  (e) NAMES. No Grantor (or predecessor by merger or otherwise
of such Grantor) has, within the four-month period preceding the date hereof,
or, in the case of an Additional Grantor, the date of the applicable
Counterpart, had a different name from the name of such Grantor listed on the
signature pages hereof, except the names listed in Schedule 4(e) annexed hereto.

                  (f) DELIVERY OF CERTAIN COLLATERAL. All certificates or
instruments (excluding checks) evidencing, comprising or representing the
Collateral (including, without limitation, the Securities Collateral) have been
or, when required pursuant to this Agreement will be, delivered to Collateral
Agent duly endorsed or accompanied by duly executed instruments of transfer or
assignment in blank.

                  (g) SECURITIES COLLATERAL. (i) All of the Pledged Shares
described on Schedule 1(e)(i) have been duly authorized and validly issued in
compliance with all applicable federal and state securities laws and, in the
case of capital stock, are fully paid and non-assessable; (ii) all of the
Pledged Debt issued by Company or any of its Subsidiaries has been duly
authorized, authenticated or issued, and delivered and is the legal, valid and
binding obligation of the issuers thereof and is not in default; (iii) except as
described more fully on Schedule 1(e)(i), the Pledged Shares constitute all of
the issued and outstanding shares of stock or other equity interests of each
issuer thereof (subject to the proviso to Section 1(e)(iii) with respect to
shares of a Foreign Subsidiary), and there are no outstanding warrants, options
or other rights to purchase, or other agreements outstanding with respect to, or
property that is now or hereafter convertible into, or that requires the
issuance or sale of, any Pledged Shares, except pursuant to any Contractual
Obligation set forth on Schedule 4(g); (iv) the Pledged Debt issued by Company
or any of its Subsidiaries constitutes all of the issued and outstanding
intercompany indebtedness evidenced by a promissory note; and (v) Schedule
1(e)(i) sets forth all of the Pledged Shares owned by each Grantor on the date
hereof, or in the case of an Additional Grantor, the date of the applicable
Counterpart.

                  (h) INTELLECTUAL PROPERTY COLLATERAL.

                           (i) a true and complete list of all Trademark
                  Registrations and Trademark applications owned, held (whether
                  pursuant to a license or otherwise) or used by such Grantor,
                  in whole or in part, is set forth in Schedule 1(g)(i);

                           (ii) a true and complete list of all Patents owned,
                  held (whether pursuant to a license or otherwise) or used by
                  such Grantor, in whole or in part, is set forth in Schedule
                  1(g)(ii);

                           (iii) a true and complete list of all Copyright
                  Registrations and applications for Copyright Registrations
                  held (whether pursuant to a license or otherwise) by such
                  Grantor, in whole or in part, is set forth in Schedule
                  1(g)(iii);

                           (iv) after reasonable inquiry, such Grantor is not
                  aware of any pending or threatened claim by any third party
                  that any of the Intellectual Property Collateral owned, held
                  or used by such Grantor is invalid or unenforceable; and

                           (v) except as expressly permitted by each Credit
                  Document, no effective security interest or other Lien
                  covering all or any part of the Intellectual Property
                  Collateral is on file in the United States Patent and
                  Trademark Office or the United States Copyright Office.

                  (i) PERFECTION. The security interest in the Collateral is
granted to Collateral Agent on the basis described in Section 2 hereof and
constitutes a valid security interest (except for the security interest
purported to be granted in commercial tort claims other than those listed on
Schedule 1(j)), to the extent the UCC or United States patent, trademark or
copyright statutes are applicable thereto, securing the payment of the
applicable Secured Obligations. Upon (i) the filing of UCC financing statements
naming each Grantor as "debtor," naming Collateral Agent as "secured party" and
describing the Collateral in the filing office with respect to such Grantor set
forth on Schedule 4(i), (ii) in the case of the Securities Collateral consisting
of certificated securities or evidenced by

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<PAGE>

instruments, delivery of the certificates representing such certificated
securities and delivery of such instruments to Collateral Agent, in each case
duly endorsed or accompanied by duly executed instruments of assignment or
transfer in blank, and (iii) in the case of the Intellectual Property Collateral
listed on Schedules 1g(i), (ii) and (iii) hereto, excluding the Intellectual
Property held under foreign law, in addition to the filing of such UCC financing
statements, the filing of a Grant of Trademark Security Interest, substantially
in the form of Exhibit I, and a Grant of Patent Security Interest, substantially
in the form of Exhibit II, with the United States Patent and Trademark Office
and the filing of a Grant of Copyright Security Interest, substantially in the
form of Exhibit III, with the United States Copyright Office (each such Grant of
Trademark Security Interest, Grant of Patent Security Interest and Grant of
Copyright Security Interest being referred to herein as a "GRANT"), the security
interest in the Collateral referred to in the immediately preceding sentence in
each case will constitute a perfected security interest therein (except for the
security interest purported to be granted in commercial tort claims other than
those listed on Schedule 1(j)), to the extent the UCC or United States patent,
trademark or copyright statutes are applicable thereto, prior to all other Liens
(except for Liens otherwise permitted under any Credit Document to the extent
such Liens are permitted to be senior in priority to the Liens in favor of the
Collateral Agent, the Cash Management Bank, the Detroit L/C Agents and the
Detroit L/C Lenders, the New L/C Agent and the New L/C Lenders or the High Yield
Noteholders, as the case may be), and all filings and other actions in the
United States necessary or desirable to perfect and protect such security
interest have been duly made or taken. In the case of Intellectual Property held
under foreign law, after the occurrence of an Event of Default, all actions
necessary or desirable to perfect and protect such security interest shall be
taken.

                  (j) COMMERCIAL TORT CLAIMS. Schedule 1(j) identifies with
specificity each claim or cause of action that any Grantor may have, which
arises in tort, for which a related action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration ("PROCEEDING") has been initiated by any Person.

                  (k) ROLLING STOCK. The rolling stock of the Grantors
(collectively) as of the date hereof has an aggregate book value of less than
$1,500,000.00.

SECTION 5.        FURTHER ASSURANCES.

                  (a) GENERALLY. Each Grantor agrees that from time to time, at
the expense of Grantors, such Grantor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that Collateral Agent may reasonably request, in
order to perfect and protect the security interest granted or purported to be
granted hereby under the UCC or United States patent, trademark or copyright
statutes or to enable Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, each Grantor will: (i) at the request of Collateral
Agent, upon the occurrence and continuation of an Event of Default, mark
conspicuously each item of chattel paper included in the Accounts, each Related
Contract and, at the request of Collateral Agent, each of its records pertaining
to the Collateral, with a legend, in form and substance satisfactory to
Collateral Agent, indicating that such Collateral is subject to the security
interest granted hereby, (ii) at the request of Collateral Agent, upon the
occurrence and continuation of an Event of Default, deliver and pledge to
Collateral Agent hereunder all instruments (including checks) and all original
counterparts of chattel paper constituting Collateral, duly endorsed and
accompanied by duly executed instruments of transfer or assignment, all in form
and substance satisfactory to Collateral Agent, (iii) execute and file such
financing or continuation statements, or amendments thereto, and execute and
deliver such agreements establishing that Collateral Agent has control of
specified items of Collateral and such other instruments or notices, as may be
necessary, or as Collateral Agent may reasonably request, in order to perfect
and preserve the security interest granted or purported to be granted hereby
under the UCC or United States patent, trademark or copyright statutes, (iv)
furnish to Collateral Agent from time to time statements and schedules further
identifying and describing the Collateral and such other reports in connection
with the Collateral as Collateral Agent may reasonably request, all in
reasonable detail, (v) upon the reasonable request of Collateral Agent, execute
and file with the registrar of motor vehicles or other appropriate authority in
such jurisdiction an application or other document requesting the notation or
other indication of the security interest created hereunder on such certificate
of title or any item of Equipment that is covered by a certificate of title
under a statute of any jurisdiction under the law of which indication of a
security interest on such certificate is required as a condition of perfection
thereof, (vi) at any time during normal business hours, upon reasonable request
by Collateral Agent, exhibit the Collateral in its existing location to, and
allow inspection of the Collateral by, Collateral Agent, or

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<PAGE>

persons designated by Collateral Agent, (vii) at Collateral Agent's request,
appear in and defend any action or proceeding that may affect such Grantor's
title to, or Collateral Agent's security interest in all or any material part
of, the Collateral, except for Intellectual Property Collateral; provided,
however, that the foregoing exception for Intellectual Property Collateral shall
not apply if such Intellectual Property is of material value as determined by
Collateral Agent in its sole and absolute discretion; (viii) use commercially
reasonable efforts to obtain any necessary consents of third parties to the
assignment and perfection of a security interest to Collateral Agent with
respect to any Collateral, and (ix) at Collateral Agent's reasonable request,
Grantors shall promptly deliver, execute and file any and all documents,
instruments and certificates that Collateral Agent deems necessary or desirable,
and in each case in form and substance satisfactory to Collateral Agent.
Notwithstanding the foregoing sentence, no Grantor shall be required to amend or
otherwise modify the description of the Collateral to provide a description of
any claim or cause of action which arises in tort unless and until a Proceeding
relating to such claim or cause of action has been initiated by any Person. Each
Grantor hereby authorizes Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relative to all or any part of
the Collateral without the signature of any Grantor. Each Grantor agrees that a
carbon, photographic or other reproduction of this Agreement or of a financing
statement signed or authenticated by such Grantor shall be sufficient
authorization to file a financing statement and may be filed as a financing
statement in any and all jurisdictions.

                  (b) SECURITIES COLLATERAL. Without limiting the generality of
the foregoing Section 5(a), each Grantor agrees that it will, upon obtaining any
additional shares of stock or other equity or debt securities required to be
pledged hereunder, immediately (and in any event within five (5) Business Days)
deliver to Collateral Agent a Pledge Supplement, duly executed by such Grantor,
in substantially the form of Exhibit IV (a "PLEDGE SUPPLEMENT"), in respect of
the additional Pledged Shares or Pledged Debt (to the extent issued by Company
or any of its Subsidiaries) to be pledged pursuant to this Agreement. Upon each
delivery of a Pledge Supplement to Collateral Agent, the representations and
warranties contained in clauses (i)-(iv) of Section 4(g) hereof shall be deemed
to have been made by such Grantor as to the Securities Collateral described in
such Pledge Supplement as of the date thereof. Each Grantor hereby authorizes
Collateral Agent to attach each Pledge Supplement to this Agreement and agrees
that all Pledged Shares or Pledged Debt of such Grantor listed on any Pledge
Supplement shall for all purposes hereunder be considered Collateral of such
Grantor; provided that the failure of any Grantor to execute a Pledge Supplement
with respect to any additional Pledged Shares or Pledged Debt pledged pursuant
to this Agreement shall not impair the security interest of Collateral Agent
therein or otherwise adversely affect the rights and remedies of Collateral
Agent hereunder with respect thereto.

                  (c) INTELLECTUAL PROPERTY COLLATERAL. Without limiting the
generality of the foregoing Section 5(a), each Grantor shall execute and deliver
to Collateral Agent contemporaneous with its execution and delivery of this
Agreement or a counterpart hereto (i) with respect to all of such Grantor's
Trademark Collateral, a Grant of Trademark Security Interest, substantially in
the form of Exhibit I, (ii) with respect to all of such Grantor's Patent
Collateral, a Grant of Patent Security Interest, substantially in the form of
Exhibit II, and (iii) with respect to all of such Grantor's Copyright
Collateral, a Grant of Copyright Security Interest, substantially in the form of
Exhibit III. In addition, if any Grantor shall hereafter obtain rights to any
new Intellectual Property Collateral or become entitled to the benefit of (i)
any patent application or patent or any reissue, division, continuation,
renewal, extension or continuation-in-part of any Patent or any improvement of
any Patent or (ii) any material Copyright Registration, application for
Copyright Registration or renewals or extension of any material Copyright, then
in any such case, the provisions of this Agreement shall automatically apply
thereto. Each Grantor shall promptly notify Collateral Agent in writing of any
of the foregoing rights acquired by such Grantor after the date hereof and of
(i) any Trademark Registrations issued or application for a Trademark
Registration or application for a Patent made, and (ii) any Copyright
Registrations issued or applications for Copyright Registration made, in any
such case, after the date hereof. Promptly after the filing of an application
for any material (1) Trademark Registration; (2) Patent; or (3) Copyright
Registration, each Grantor shall execute and deliver to Collateral Agent and
record in all places where a Grant is recorded an IP Supplement, substantially
in the form of Exhibit V (an "IP SUPPLEMENT"), pursuant to which such Grantor
shall grant to Collateral Agent a security interest to the extent of its
interest in such Intellectual Property Collateral; provided, if, in the
reasonable judgment of such Grantor, after due inquiry, granting such interest
would result in the grant of a Trademark Registration or Copyright Registration
in the name of Collateral Agent, such Grantor shall give written notice to
Collateral Agent as soon as reasonably practicable and the filing shall instead
be undertaken as soon as practicable but in no case later than immediately
following the grant of the applicable Trademark Registration or Copyright
Registration, as the case may be. Upon delivery to Collateral Agent of an IP
Supplement, Schedules 1(g)(i), 1(g)(ii), and 1(g)(iii) hereto and Schedule A to
each Grant, as

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<PAGE>

applicable, shall be deemed modified to include reference to any right, title or
interest in any existing Intellectual Property Collateral or any Intellectual
Property Collateral included on Schedule A to such IP Supplement. Each Grantor
hereby authorizes Collateral Agent to modify this Agreement without the
signature or consent of any Grantor by attaching Schedules 1(g)(i), 1(g)(ii),
and 1(g)(iii), as applicable, that have been modified to include such
Intellectual Property Collateral or to delete any reference to any right, title
or interest in any Intellectual Property Collateral in which any Grantor no
longer has or claims any right, title or interest; provided, the failure of any
Grantor to execute an IP Supplement with respect to any additional Intellectual
Property Collateral pledged pursuant to this Agreement shall not impair the
security interest of Collateral Agent therein or otherwise adversely affect the
rights and remedies of Collateral Agent hereunder with respect thereto.

SECTION 6.        CERTAIN COVENANTS OF GRANTORS.

                  Each Grantor shall:

                  (a) not use or permit any material Collateral under its
control to be used unlawfully or in violation of any provision of this Agreement
or any applicable statute, regulation or ordinance or any policy of insurance
covering the Collateral;

                  (b) notify Collateral Agent of any change in such Grantor's
name, identity or corporate structure within 15 days of such change;

                  (c) give Collateral Agent 30 days' prior written notice of (i)
any change in such Grantor's chief place of business, chief executive office or
offices where such Grantor keeps its records regarding the Accounts and all
originals of all chattel paper that evidence Accounts or (ii) reincorporation,
reorganization or other action that results in a change of the jurisdiction of
organization, incorporation, formation or "location" of such Grantor under the
UCC;

                  (d) if Collateral Agent gives value to enable such Grantor to
acquire rights in or the use of any Collateral, use such value for such
purposes;

                  (e) except as expressly permitted by each Credit Document, pay
promptly when due all property and other taxes, assessments and governmental
charges or levies imposed upon, and all claims (including claims for labor,
services, materials and supplies) against, the Collateral; provided that no such
tax, assessment, charge, levy or claim need be paid if it is being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted, so long as (i) such reserve or other appropriate provision, if any,
as shall be required in conformity with GAAP shall have been made therefor and
(ii) in the case of a tax, assessment, charge, levy or claim which has or may
become a Lien against any of the Collateral, such proceedings conclusively
operate to stay the sale of any portion of the Collateral to satisfy such charge
or claim; provided however, that notwithstanding the foregoing proviso, such
Grantor shall in any event pay such taxes, assessments, charges, levies or
claims not later than five days prior to the date of any proposed sale under any
judgment, writ or warrant of attachment entered or filed against such Grantor or
any of the Collateral as a result of the failure to make such payment; and

                  (f) after the date hereof, give Collateral Agent prompt notice
with sufficient particularity of any claim or cause of action of any Grantor
arising in tort and not otherwise identified on Schedule 1(j) relating to a
Proceeding that has been initiated by any Person.

SECTION 7.        SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.

                  Each Grantor shall:

                  (a) keep the items of Equipment and Inventory owned by such
Grantor having a value in excess of $500,000 at its main place of business or
the places therefor specified on Schedule 4(b) or, upon 30 days' prior written
notice to Collateral Agent, at such other places in jurisdictions where all
action that may be necessary or desirable, or that Collateral Agent may
reasonably request, in order to perfect and protect the security interest

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<PAGE>

granted or purported to be granted hereby, or to enable Collateral Agent to
exercise and enforce its rights and remedies hereunder, with respect to such
Equipment and Inventory shall have been taken;

                  (b) promptly furnish to Collateral Agent a statement
respecting any material loss or damage to any of the material Equipment owned by
such Grantor;

                  (c) keep correct and accurate records of Inventory owned by
such Grantor, in accordance with such Grantor's customary practices;

                  (d) if any Inventory is in possession or control of any of
such Grantor's agents or processors, if the aggregate book value of all such
Inventory exceeds $500,000, and in any event upon the occurrence of an Event of
Default, instruct such agent or processor to hold all such Inventory for the
account of Collateral Agent and subject to the instructions of Collateral Agent;

                  (e) after an Event of Default has occurred and is continuing,
promptly upon the issuance and delivery to such Grantor of any Negotiable
Document of Title, deliver such Negotiable Document of Title to Collateral
Agent; and

                  (f) at its own expense, maintain insurance with respect to the
Equipment and Inventory in accordance with the terms of the Credit Documents.

SECTION 8.        SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED
                  CONTRACTS.

                  (a) Each Grantor shall keep its chief place of business and
chief executive office and the office where it keeps its records concerning the
Accounts and Related Contracts, and all originals of all chattel paper in such
Grantor's possession that evidence Accounts, at the locations therefor set forth
on Schedule 4(d) or upon 30 days' prior written notice to Collateral Agent, at
such other location in a jurisdiction where all action that may be necessary, or
that Collateral Agent may reasonably request, in order to perfect and protect
the security interest granted or purported to be granted hereby, or to enable
Collateral Agent to exercise and enforce its rights and remedies hereunder, with
respect to such Accounts and Related Contracts shall have been taken. Each
Grantor will hold and preserve such records and chattel paper and will permit
representatives of Collateral Agent, upon reasonable notice during normal
business hours, to inspect and make abstracts from such records and chattel
paper, and each Grantor agrees to render to Collateral Agent, at Grantor's cost
and expense, such clerical and other assistance as may be reasonably requested
with regard thereto. Promptly upon the reasonable request of Collateral Agent,
each Grantor shall deliver to Collateral Agent complete and correct copies of
each Related Contract.

                  (b) Each Grantor shall maintain (i) complete records of each
Account, in accordance with its customary business practices, including records
of all payments received, credits granted and merchandise returned, and (ii) all
documentation relating thereto.

                  (c) Except as otherwise provided in this subsection (c), each
Grantor shall continue to collect, at its own expense, all amounts due or to
become due to such Grantor under the Accounts and Related Contracts. In
connection with such collections, each Grantor may take (and, upon the
occurrence and during the continuance of an Event of Default at Collateral
Agent's direction, shall take) such action as such Grantor or Collateral Agent
may deem necessary or advisable to enforce collection of amounts due or to
become due under the Accounts; provided, however, that Collateral Agent shall
have the right at any time, upon the occurrence and during the continuation of
an Event of Default and upon written notice to such Grantor of its intention to
do so, to notify the account debtors or obligors under any Accounts of the
assignment of such Accounts to Collateral Agent and, to the extent such Grantor
is not legally or contractually prohibited from doing so and such contractual
prohibitions are enforceable under applicable law, to direct such account
debtors or obligors to make payment of all amounts due or to become due to such
Grantor thereunder directly to Collateral Agent, to notify each Person
maintaining a lockbox or similar arrangement to which account debtors or
obligors under any Accounts have been directed to make payment to remit all
amounts representing collections on checks and other payment items from time to
time sent to or deposited in such lockbox or other arrangement directly to
Collateral Agent and, upon such notification and at the expense of Grantors, to
enforce collection of any such Accounts and to adjust, settle or compromise the
amount or payment

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                                       11

<PAGE>

thereof, in the same manner and to the same extent as such Grantor might have
done. After receipt by such Grantor of the notice from Collateral Agent referred
to in the proviso to the preceding sentence, (i) all amounts and proceeds
(including checks and other instruments) received by such Grantor in respect of
the Accounts and the Related Contracts shall be received in trust for the
benefit of Collateral Agent hereunder, shall be segregated from other funds of
such Grantor and shall be forthwith paid over or delivered to Collateral Agent
in the same form as so received (with any necessary endorsement) to be held as
cash Collateral and applied as provided by Section 20 hereof, and (ii) such
Grantor shall not adjust, settle or compromise the amount or payment of any
Account, or release wholly or partly any account debtor or obligor thereof, or
allow any credit or discount thereon.

SECTION 9.        SPECIAL COVENANTS WITH RESPECT TO THE SECURITIES COLLATERAL.

                  (a) DELIVERY. Each Grantor agrees that all certificates or
instruments representing or evidencing the Securities Collateral shall be
delivered to and held by or on behalf of Collateral Agent pursuant hereto and
shall be in suitable form for transfer by delivery or, as applicable, shall be
accompanied by such Grantor's endorsement, where necessary, or duly executed
instruments of transfer or assignment in blank, all in form and substance
reasonably satisfactory to Collateral Agent. Collateral Agent shall have the
right at any time to exchange certificates or instruments representing or
evidencing such Securities Collateral for certificates or instruments of smaller
or larger denominations. Nothing in this Section 9(a) shall apply to Pledged
Shares held by a Grantor in a Person in whom Borrowers in the aggregate hold
less than 10% (whether in voting power or economic value or both) of the shares
of stock or other equity interests.

                  (b) COVENANTS. Each Grantor shall (i) not, except as expressly
permitted by each of the Credit Documents, permit any issuer of Pledged Shares
that is a Subsidiary or an Affiliate of any Grantor to merge or consolidate
unless all the outstanding capital stock or other equity interests of the
surviving or resulting Person is, upon such merger or consolidation, pledged
hereunder and no cash, securities or other property is distributed in respect of
the outstanding shares of any other constituent corporation; provided, if the
surviving or resulting Person upon any such merger or consolidation involving an
issuer of Pledged Shares which is a Foreign Subsidiary is a Foreign Subsidiary
then such Grantor shall only be required to pledge outstanding capital stock of
such surviving or resulting Person possessing up to but not exceeding 65% of the
voting power of all classes of capital stock or other equity interests of such
issuer entitled to vote; (ii) to the extent legally able to do so, cause each
issuer of Pledged Shares that is controlled by such Grantor not to issue any
stock, other equity interests or other securities in addition to or in
substitution for the Pledged Shares issued by such issuer, except to such
Grantor or unless such stock, equity interests or securities received by the
Grantor are pledged hereunder; (iii) pledge hereunder, and deliver to Collateral
Agent as soon as practicable (but in no event later than three Business Days)
upon its acquisition (directly or indirectly) thereof, any and all additional
shares of stock, other equity interests or other securities of each issuer of
Pledged Shares; (iv) pledge hereunder, and deliver to Collateral Agent as soon
as practicable (but in no event later than three Business Days) upon its
acquisition (directly or indirectly) thereof, any and all shares of stock or
other equity interests of any Person that, after the date of this Agreement,
becomes, as a result of any occurrence, a direct Subsidiary of such Grantor;
provided that, notwithstanding anything contained in this clause (iv) to the
contrary, such Grantor shall only be required to pledge the outstanding capital
stock or other equity interests of a Foreign Subsidiary up to but not exceeding
65% of the voting power of all classes of capital stock or other equity
interests of such Foreign Subsidiary entitled to vote; (v) pledge hereunder, as
soon as practicable (but in no event later than five Business Days) upon their
issuance, any and all instruments or other evidences of additional indebtedness
from time to time owed to such Grantor by any obligor on the Pledged Debt (to
the extent issued by Company or any of its Subsidiaries); (vi) pledge hereunder,
as soon as practicable (but in no event later than five Business Days) upon
their issuance, any and all instruments or other evidences of indebtedness from
time to time owed to such Grantor by any Person that after the date of this
Agreement becomes, as a result of any occurrence, a direct or indirect
Subsidiary of such Grantor; and (vii) at the request of Collateral Agent,
promptly execute and deliver to Collateral Agent an agreement providing for the
control, as that term is defined in the UCC, by Collateral Agent of all
securities entitlements and securities accounts of such Grantor; provided,
however, that nothing in this Section 9(b) shall be construed as a waiver of the
prohibitions and restrictions on the Grantors with respect to investments as set
forth in any applicable Credit Document.

                  (c) VOTING AND DISTRIBUTIONS. So long as no Event of Default
shall have occurred and be continuing, (i) each Grantor shall be entitled to
exercise any and all voting and other consensual rights pertaining to the
Securities Collateral or any part thereof for any purpose not inconsistent with
the terms of this Agreement, the

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                                       12

<PAGE>

Detroit L/C Facility Agreement, the New L/C Facility Agreement or the High Yield
Indenture; provided, no Grantor shall exercise or refrain from exercising any
such right if Collateral Agent shall have notified such Grantor that, in
Collateral Agent's judgment, such action would have a material adverse effect on
the value of the Securities Collateral or any part thereof; and provided
further, such Grantor shall give Collateral Agent at least five Business Days'
prior written notice of the manner in which it intends to exercise, or the
reasons for refraining from exercising, any such right if exercising, or
refraining from exercising, such right would reasonably be expected to have a
material adverse effect on the value of the Securities Collateral or any part
thereof (it being understood, however, that neither (among other things) (A) the
voting by such Grantor of any Pledged Shares for or such Grantor's consent to
the election of directors or other members of a governing body of an issuer of
Pledged Shares at a regularly scheduled annual or other meeting of stockholders
or holders of equity interests or with respect to incidental matters at any such
meeting, nor (B) such Grantor's consent to or approval of any action otherwise
permitted under this Agreement, the Detroit L/C Facility Agreement, the New L/C
Facility Agreement or the High Yield Indenture shall be deemed inconsistent with
the terms of this Agreement, the Detroit L/C Facility Agreement, the New L/C
Facility Agreement or the High Yield Indenture, respectively, within the meaning
of this Section 9(c), and no notice of any such voting or consent need be given
to Collateral Agent) and (ii) each Grantor shall be entitled to receive and
retain, and to utilize any and all dividends, other distributions and interest
paid in respect of the Securities Collateral to the extent permitted under the
Credit Documents; provided, that except as otherwise provided in the Credit
Documents, any and all (A) dividends, distributions and interest paid or payable
other than in cash in respect of, and instruments and other property received,
receivable or otherwise distributed in respect of, or in exchange for, any
Securities Collateral, (B) dividends and other distributions paid or payable in
cash in respect of any Securities Collateral in connection with a partial or
total liquidation or dissolution or in connection with a reduction of capital,
capital surplus or paid-in-surplus, and (C) cash paid, payable or otherwise
distributed in respect of principal or in redemption of or in exchange for any
Securities Collateral, shall be, and shall forthwith be delivered to Collateral
Agent to hold as, Securities Collateral and shall, if received by such Grantor,
be received in trust for the benefit of Collateral Agent, be segregated from the
other property or funds of such Grantor and be forthwith delivered to Collateral
Agent as Securities Collateral in the same form as so received (with all
necessary endorsements).

                  Upon the occurrence and during the continuation of an Event of
Default, (x) all rights of such Grantor to exercise the voting and other
consensual rights which it would otherwise be entitled to exercise pursuant
hereto shall cease, and all such rights shall thereupon become vested in
Collateral Agent who shall thereupon have the sole right to exercise such voting
and other consensual rights; (y) all rights of such Grantor to receive the
dividends, other distributions and interest payments which it would otherwise be
authorized to receive and retain pursuant hereto shall cease, and all such
rights shall thereupon become vested in Collateral Agent who shall thereupon
have the sole right to receive and hold as Securities Collateral such dividends,
other distributions and interest payments; and (z) all dividends, principal,
interest payments and other distributions which are received by such Grantor
contrary to the provisions of clause (ii) of the immediately preceding paragraph
or clause (y) above shall be received in trust for the benefit of Collateral
Agent, shall be segregated from other funds of such Grantor and shall forthwith
be paid over to Collateral Agent as Securities Collateral in the same form as so
received (with any necessary endorsements).

                  (d) IRREVOCABLE PROXY. In order to permit Collateral Agent to
exercise the voting and other consensual rights which it may be entitled to
exercise pursuant hereto and to receive all dividends, principal or interest
payments and other distributions which it may be entitled to receive hereunder,
(I) each Grantor shall promptly execute and deliver (or cause to be executed and
delivered) to Collateral Agent all such proxies, dividend payment orders and
other instruments as Collateral Agent may from time to time request, and (II)
without limiting the effect of clause (I) above, each Grantor hereby grants to
Collateral Agent an IRREVOCABLE PROXY to vote the Pledged Shares and to exercise
all other rights, powers, privileges and remedies to which a holder of the
Pledged Shares would be entitled (including giving or withholding written
consents of shareholders or other holders of equity interests, calling special
meetings of shareholders or other holders of equity interests and voting at such
meetings), which proxy shall be effective, automatically and without the
necessity of any action (including any transfer of any Pledged Shares on the
record books of the issuer thereof) by any other Person (including the issuer of
the Pledged Shares or any officer or agent thereof), upon the occurrence and
during the continuance of an Event of Default and which proxy shall only
terminate upon the Payment in Full of all Secured Obligations.

SECTION 10.       SPECIAL COVENANTS WITH RESPECT TO THE INTELLECTUAL PROPERTY
                  COLLATERAL.

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<PAGE>

                  (a) Each Grantor shall:

                           (i) use commercially reasonable efforts so as not to
                  permit the inclusion in any contract to which it hereafter
                  becomes a party of any provision that could or might in any
                  way impair or prevent the creation of a security interest in,
                  or the assignment of, such Grantor's rights and interests in
                  any property that is material Intellectual Property Collateral
                  acquired under such contracts; and

                           (ii) furnish to Collateral Agent from time to time at
                  Collateral Agent's reasonable request statements and schedules
                  further identifying and describing any material Intellectual
                  Property Collateral and such other reports in connection with
                  such Collateral, all in reasonable detail.

                  (b) Except as otherwise provided in this Section 10, each
Grantor shall continue to collect in accordance with its customary business
practice, at its own expense, all amounts due or to become due to such Grantor
in respect of the material Intellectual Property Collateral or any portion
thereof. In connection with such collections, each Grantor may take (and, after
the occurrence and during the continuance of any Event of Default at Collateral
Agent's reasonable direction, shall take) such action as such Grantor or
Collateral Agent may deem reasonably necessary or advisable to enforce
collection of such amounts; provided, Collateral Agent shall have the right (but
not the obligation) at any time, upon the occurrence and during the continuation
of an Event of Default, to notify the obligors with respect to any such amounts
of the existence of the security interest created hereby and to direct such
obligors to make payment of all such amounts directly to Collateral Agent, and,
upon such notification and at the expense of such Grantor, to enforce collection
of any such amounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as such Grantor might have
done. Upon the occurrence and during the continuation of any Event of Default,
(i) all amounts and proceeds (including checks and other instruments) received
by each Grantor in respect of amounts due to such Grantor in respect of the
Intellectual Property Collateral or any portion thereof shall be received in
trust for the benefit of Collateral Agent hereunder, shall be segregated from
other funds of such Grantor and shall be forthwith paid over or delivered to
Collateral Agent in the same form as so received (with any necessary
endorsement) to be held as cash Collateral and applied as provided by Section 20
herein, and (ii) such Grantor shall not adjust, settle or compromise the amount
or payment of any such amount or release wholly or partly any obligor with
respect thereto or allow any credit or discount thereon.

                  (c) Each Grantor shall give Collateral Agent 10 Business Days
prior written notice of any abandonment of any material Intellectual Property
Collateral (it being understood that no such notice needs to be given by such
Grantor of the abandonment of non-material Intellectual Property) or any pending
patent application or any Patent.

                  (d) Except as provided herein, each Grantor shall have the
right to commence and prosecute in its own name, as real party in interest, for
its own benefit and at its own expense, such suits, proceedings or other actions
for infringement, unfair competition, dilution, misappropriation or other
damage, or reexamination or reissue proceedings as are necessary to protect the
Intellectual Property Collateral. Each Grantor shall promptly, following its
becoming aware thereof, notify Collateral Agent of the institution of, or of any
adverse determination in, any proceeding (whether in the United States Patent
and Trademark Office, the United States Copyright Office or any federal, state,
local or foreign court) regarding such Grantor's ownership, right to use, or
interest in any material Intellectual Property Collateral. Each Grantor shall
provide to Collateral Agent any information with respect thereto requested by
Collateral Agent.

                  (e) In addition to, and not by way of limitation of, the
granting of a security interest in the Collateral pursuant hereto, each Grantor,
effective upon the occurrence and during the continuation of an Event of
Default, hereby assigns, transfers and conveys to Collateral Agent the
nonexclusive right and license to use all trademarks, tradenames, copyrights,
patents or technical processes (including, without limitation, the Intellectual
Property Collateral) owned or used by such Grantor that relate to the Collateral
and any other collateral granted by such Grantor as security for the Secured
Obligations, together with any goodwill associated therewith, all to the extent
necessary to enable Collateral Agent to realize on the Collateral in accordance
with this Agreement and to enable any transferee or assignee of the Collateral
to enjoy the benefits of the Collateral. This right shall inure to the

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<PAGE>

benefit of all successors, assigns and transferees of Collateral Agent and its
successors, assigns and transferees, whether by voluntary conveyance, operation
of law, assignment, transfer, foreclosure, deed in lieu of foreclosure or
otherwise. Such right and license shall be granted free of charge, without
requirement that any monetary payment whatsoever be made to such Grantor.

SECTION 11.       SPECIAL PROVISIONS WITH RESPECT TO THE ASSIGNED AGREEMENTS.

                  (a) Each Grantor shall at its expense:

                           (i) if consistent with sound business practices,
                  perform and observe all terms and provisions of the Assigned
                  Agreements to be performed or observed by it, maintain the
                  Assigned Agreements in full force and effect, enforce the
                  Assigned Agreements in accordance with such Grantor's
                  customary business practice; and

                           (ii) after the occurrence and during the continuation
                  of an Event of Default and upon the request of Collateral
                  Agent, furnish to Collateral Agent, promptly upon receipt
                  thereof, copies of all notices, requests and other material
                  documents received by such Grantor under or pursuant to the
                  Assigned Agreements, and from time to time (A) furnish to
                  Collateral Agent such information and reports regarding the
                  Assigned Agreements as Collateral Agent may reasonably request
                  and (B) upon request of Collateral Agent make to the parties
                  to such Assigned Agreements such demands and requests for
                  information and reports or for action as such Grantor is
                  entitled to make under the Assigned Agreements.

                  (b) Upon the occurrence and during the continuance of an Event
of Default, no Grantor shall:

                           (i) cancel or terminate any of the Assigned
                  Agreements or consent to or accept any cancellation or
                  termination thereof;

                           (ii) amend or otherwise modify the Assigned
                  Agreements or give any consent, waiver or approval thereunder;

                           (iii) waive any default under or breach of the
                  Assigned Agreements;

                           (iv) consent to or permit or accept any prepayment of
                  amounts to become due under or in connection with the Assigned
                  Agreements, except as expressly provided therein; or

                           (v) take any other action in connection with the
                  Assigned Agreements that could reasonably be expected to
                  materially impair the value of the interest or rights of such
                  Grantor thereunder or that could reasonably be expected to
                  materially impair the interest or rights of Collateral Agent.

SECTION 12.       DETROIT L/C COLLATERAL ACCOUNT.

                  (a) Collateral Agent is hereby authorized to establish and
maintain, as a blocked account in the name of the Company and under the sole
dominion and control of Collateral Agent a restricted Deposit Account designated
as "Covanta Energy Corporation/Detroit L/C Collateral Account" (hereinafter
referred to as the "DETROIT L/C COLLATERAL ACCOUNT"). The Company hereby
acknowledges and the Company and Collateral Agent hereby agree that the dominion
and control exercised by the Collateral Agent in respect of the Detroit L/C
Collateral Account shall constitute control for the purposes Section 9-104 of
the UCC.

                  (b) All funds to be applied in respect of the Detroit L/C
Obligations pursuant to Sections 4.1 and 4.2 of the Intercreditor Agreement
shall be deposited into the Detroit L/C Collateral Account. Funds deposited into
the Detroit L/C Collateral Account shall not be withdrawn or transferred except
as set forth in clause (c) below, and as otherwise set forth in, and in
accordance with, the Intercreditor Agreement. Each of the parties hereto hereby

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<PAGE>

acknowledges that amounts on deposit in the Detroit L/C Collateral Account shall
be released from time to time in accordance with the Intercreditor Agreement.

                  (c) If an Event of Default (as defined in the Detroit L/C
Facility Agreement) has occurred and is continuing and, in accordance with
Section 8 of the Detroit L/C Facility Agreement, the Grantors are required to
pay to Collateral Agent an amount (the "AGGREGATE AVAILABLE AMOUNT") equal to
105% of the maximum amount that may at any time be drawn under all Detroit L/Cs
then outstanding under the Detroit L/C Facility Agreement, the Grantors shall
deliver funds in such an amount for deposit in the Detroit L/C Collateral
Account. If for any reason the aggregate amount delivered by the Grantors for
deposit in the Detroit L/C Collateral Account as aforesaid is less than the
Aggregate Available Amount, the aggregate amount so delivered by Company shall
be apportioned among all outstanding Detroit L/Cs for purposes of this clause
(c) in accordance with the ratio of the maximum amount available for drawing
under each such Detroit L/C (as to such Detroit L/C, the "MAXIMUM AVAILABLE
AMOUNT") to the Aggregate Available Amount. Upon any drawing under any
outstanding Detroit L/C, Collateral Agent may apply the amount apportioned to
such Detroit L/C to reimburse the Detroit L/C Lender that issued such Detroit
L/C for the amount of such drawing. In the event of cancellation or expiration
of any Detroit L/C in respect of which Company has deposited in the Detroit L/C
Collateral Account any amounts described above, or in the event of any reduction
in the Maximum Available Amount under such Detroit L/C, Collateral Agent shall
apply the amount then on deposit in the Detroit L/C Collateral Account in
respect of such Detroit L/C (less, in the case of such a reduction, the Maximum
Available Amount under such Detroit L/C immediately after such reduction),
first, to the cash collateralization pursuant to the terms of this Agreement of
any outstanding Detroit L/Cs in respect of which the Grantors have failed to pay
all or a portion of the amounts described above (such cash collateralization to
be apportioned among all such Detroit L/Cs in the manner described above),
second, to the extent of any excess, to the payment of any other outstanding
Detroit L/C Obligations, third, to the extent of any further excess, to the
payment of any other outstanding Secured Obligations in accordance with Section
20 hereof and fourth, to the extent of any further excess, to the payment to
whomsoever shall be lawfully entitled to receive such funds.

SECTION 13.       NEW L/C COLLATERAL ACCOUNT.

                  (a) Collateral Agent is hereby authorized to establish and
maintain, as a blocked account in the name of the Company and under the sole
dominion and control of Collateral Agent a restricted Deposit Account designated
as "Covanta Energy Corporation/New L/C Collateral Account" (hereinafter referred
to as the "NEW L/C COLLATERAL ACCOUNT"). The Company hereby acknowledges and the
Company and Collateral Agent hereby agree that the dominion and control
exercised by the Collateral Agent in respect of the New L/C Collateral Account
shall constitute control for the purposes Section 9-104 of the UCC.

                  (b) All funds to be applied in respect of the New L/C
Obligations pursuant to Sections 4.1 and 4.2 of the Intercreditor Agreement
shall be deposited into the New L/C Collateral Account. Funds deposited into the
New L/C Collateral Account shall not be withdrawn or transferred except as set
forth in clause (c) below, and as otherwise set forth in, and in accordance
with, the Intercreditor Agreement. Each of the parties hereto hereby
acknowledges that amounts on deposit in the New L/C Collateral Account shall be
released from time to time in accordance with the Intercreditor Agreement.

         (c) If an Event of Default (as defined in the New L/C Facility
Agreement) has occurred and is continuing and, in accordance with Section 8 of
the New L/C Facility Agreement, the Grantors are required to pay to Collateral
Agent an amount (the "NEW L/C AGGREGATE AVAILABLE AMOUNT") equal to 105% of the
maximum amount that may at any time be drawn under all New L/Cs then outstanding
under the New L/C Facility Agreement, the Grantors shall deliver funds in such
an amount for deposit in the New L/C Collateral Account. If for any reason the
aggregate amount delivered by the Grantors for deposit in the New L/C Collateral
Account as aforesaid is less than the New L/C Aggregate Available Amount, the
aggregate amount so delivered by Company shall be apportioned among all
outstanding New L/Cs for purposes of this clause (c) in accordance with the
ratio of the aggregate maximum amount available for drawing under each such New
L/C (as to such New L/C, the "NEW L/C MAXIMUM AVAILABLE AMOUNT") to the New L/C
Aggregate Available Amount. Upon any drawing under any outstanding New L/C,
Collateral Agent may apply the amount apportioned to such New L/C to reimburse
the New L/C Lender that issued such New L/C for the amount of such drawing. In
the event of cancellation or expiration of any New L/C in respect of which
Company has deposited in the New L/C Collateral Account any amounts described
above, or in the event of any reduction in the New L/C Maximum Available Amount
under such New L/C, Collateral Agent shall apply the amount then on deposit in
the New L/C Collateral Account in respect of such New L/C (less, in the case of
such a reduction, the New L/C Maximum Available Amount under such New L/C

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<PAGE>

immediately after such reduction), first, to the cash collateralization pursuant
to the terms of this Agreement of any outstanding New L/Cs in respect of which
the Grantors have failed to pay all or a portion of the amounts described above
(such cash collateralization to be apportioned among all such New L/Cs in the
manner described above), second, to the extent of any excess, to the payment of
any other outstanding New L/C Obligations, third, to the extent of any further
excess, to the payment of any other outstanding Secured Obligations in
accordance with Section 20 hereof and fourth, to the extent of any further
excess, to the payment to whomsoever shall be lawfully entitled to receive such
funds.

SECTION 14.       SPECIAL PROVISIONS WITH RESPECT TO THE COLLATERAL ACCOUNTS.

                  Collateral Agent is hereby authorized to establish and
maintain at its offices restricted deposit accounts and restricted securities
accounts which shall be in the names of Grantors, jointly or each individually,
and under the sole dominion and control of Collateral Agent. Each Grantor agrees
that from time to time, at the expense of Grantors, such Grantor will promptly
execute and deliver account control agreements in form and substance
satisfactory to Collateral Agent and take all further action that may be
necessary or desirable, or that Collateral Agent may reasonably request, in
order to perfect and protect the security interest granted or purported to be
granted hereby in such accounts or to enable Collateral Agent to exercise and
enforce its rights and remedies hereunder with respect to any such accounts.

SECTION 15.       COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.

                  Each Grantor hereby irrevocably appoints Collateral Agent as
such Grantor's attorney-in-fact, with full authority in the place and stead of
such Grantor and in the name of such Grantor, Collateral Agent or otherwise,
from time to time in Collateral Agent's discretion to take any action and to
execute any instrument that Collateral Agent may deem necessary or advisable to
accomplish the purposes of this Agreement, including without limitation:

                  (a) upon the occurrence and during the continuance of an Event
of Default, to obtain and adjust insurance required to be maintained by such
Grantor or paid to Collateral Agent pursuant to Section 7 hereof;

                  (b) upon the occurrence and during the continuance of an Event
of Default, to ask for, demand, collect, sue for, recover, compound, receive and
give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral;

                  (c) upon the occurrence and during the continuance of an Event
of Default, to receive, endorse and collect any drafts or other instruments,
documents and chattel paper in connection with clauses (a) and (b) above;

                  (d) upon the occurrence and during the continuance of an Event
of Default, to file any claims or take any action or institute any proceedings
that Collateral Agent may deem necessary or desirable for the collection of any
of the Collateral or otherwise to enforce the rights of Collateral Agent with
respect to any of the Collateral;

                  (e) to pay or discharge taxes or Liens (other than Liens
permitted under this Agreement or each of the Credit Documents) levied or placed
upon the Collateral, the legality or validity thereof and the amounts necessary
to discharge the same to be determined by Collateral Agent in its sole
discretion, any such payments made by Collateral Agent to become obligations of
such Grantor to Collateral Agent, due and payable immediately without demand;

                  (f) upon the occurrence and during the continuance of an Event
of Default, to sign and endorse any invoices, freight or express bills, bills of
lading, storage or warehouse receipts, drafts against debtors, assignments,
verifications and notices in connection with Accounts and other documents
relating to the Collateral; and

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                                       17

<PAGE>

                  (g) upon the occurrence and during the continuance of an Event
of Default, generally to sell, transfer, pledge, make any agreement with respect
to or otherwise deal with any of the Collateral as fully and completely as
though Collateral Agent were the absolute owner thereof for all purposes, and to
do, at Collateral Agent's option and Grantors' expense, at any time or from time
to time, all acts and things that Collateral Agent reasonably deems necessary to
protect, preserve or realize upon the Collateral and Collateral Agent's security
interest therein in order to effect the intent of this Agreement, all as fully
and effectively as such Grantor might do.

SECTION 16.       COLLATERAL AGENT MAY PERFORM.

                  If any Grantor fails to perform any agreement contained
herein, Collateral Agent may itself perform, or cause performance of (but shall
not be obligated to perform or cause the performance of), such agreement, and
the expenses of Collateral Agent incurred in connection therewith shall be
payable by Grantors under Section 21(b) hereof.

SECTION 17.       STANDARD OF CARE.

                  The powers conferred on Collateral Agent hereunder are solely
to protect its interest in the Collateral and shall not impose any duty upon it
to exercise any such powers. Except for the exercise of reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Collateral Agent shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Collateral Agent
shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Collateral Agent accords its own
property.

SECTION 18.       REMEDIES.

                  (a) GENERALLY. Subject to the terms of the Intercreditor
Agreement, if any Event of Default shall have occurred and be continuing,
Collateral Agent may exercise in respect of the Collateral, in addition to all
other rights and remedies provided for herein or otherwise available to it, all
the rights and remedies of a secured party on default under the UCC (whether or
not the UCC applies to the affected Collateral), and also may (i) require each
Grantor to, and each Grantor hereby agrees that it will at its expense and upon
request of Collateral Agent forthwith, assemble all or part of the Collateral as
directed by Collateral Agent and make it available to Collateral Agent at a
place to be designated by Collateral Agent that is reasonably convenient to both
parties, (ii) enter onto the property where any Collateral is located and take
possession thereof with or without judicial process, (iii) prior to the
disposition of the Collateral, store, process, repair or recondition the
Collateral or otherwise prepare the Collateral for disposition in any manner to
the extent Collateral Agent reasonably deems appropriate, (iv) take possession
of any Grantor's premises or place custodians in exclusive control thereof,
remain on such premises and use the same and any of such Grantor's equipment for
the purpose of completing any work in process, taking any actions described in
the preceding clause (iii) and collecting any Secured Obligation, (v) without
notice except as specified below, sell the Collateral or any part thereof in one
or more parcels at public or private sale, at any of Collateral Agent's offices
or elsewhere, for cash, on credit or for future delivery, at such time or times
and at such price or prices and upon such other terms as Collateral Agent may
deem commercially reasonable, (vi) exercise dominion and control over and refuse
to permit further withdrawals from any Deposit Account maintained with
Collateral Agent or any Benefited Party and provide instructions directing the
disposition of funds in Deposit Accounts not maintained with Collateral Agent or
any Benefited Party and (vii) provide entitlement orders with respect to
securities entitlements and other investment property constituting a part of the
Collateral and with notice to the relevant Grantor, transfer to or register in
the name of Collateral Agent or any of its nominees any or all of the Securities
Collateral. Collateral Agent or any Benefited Party (subject to the terms of the
Intercreditor Agreement) may be the purchaser of any or all of the Collateral at
any such sale and Collateral Agent, as agent for and representative of the
Benefited Parties (but not any Benefited Party in its individual capacity unless
Requisite Obligees shall otherwise agree in writing), shall be entitled, for the
purpose of bidding and making settlement or payment of the purchase price for
all or any portion of the Collateral sold at any such public sale, to use and
apply any of the Secured Obligations as a credit on account of the purchase
price for any Collateral payable by Collateral Agent at such sale. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of any Grantor, and each Grantor hereby waives (to
the extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of

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                                       18

<PAGE>

law or statute now existing or hereafter enacted. Each Grantor agrees that, to
the extent notice of sale shall be required by law, at least ten days' notice to
such Grantor of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
Collateral Agent shall not be obligated to make any sale of Collateral
regardless of notice of sale having been given. Collateral Agent may adjourn any
public or private sale from time to time by announcement at the time and place
fixed therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. To the extent permitted by applicable
law, each Grantor hereby waives any claims against Collateral Agent arising by
reason of the fact that the price at which any Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale, even if Collateral Agent accepts the first offer received and does
not offer such Collateral to more than one offeree. If the proceeds of any sale
or other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantors shall be jointly and severally liable for the deficiency
and the fees of any attorneys employed by Collateral Agent to collect such
deficiency. Each Grantor further agrees that a breach of any of the covenants
contained in this Section will cause irreparable injury to Collateral Agent,
that Collateral Agent has no adequate remedy at law in respect of such breach
and, as a consequence, that each and every covenant contained in this Section
shall be specifically enforceable against such Grantor, and each Grantor hereby
waives and agrees not to assert any defenses against an action for specific
performance of such covenants except for a defense that no default has occurred
giving rise to the Secured Obligations becoming due and payable prior to their
stated maturities.

                  (b) SECURITIES COLLATERAL.

                           (i) Each Grantor recognizes that, by reason of
                  certain prohibitions contained in the Securities Act and
                  applicable state securities laws, Collateral Agent may be
                  compelled, with respect to any sale of all or any part of the
                  Securities Collateral conducted without prior registration or
                  qualification of such Securities Collateral under the
                  Securities Act and/or such state securities laws, to limit
                  purchasers to those who will agree, among other things, to
                  acquire the Securities Collateral for their own account, for
                  investment and not with a view to the distribution or resale
                  thereof. Each Grantor acknowledges that any such private sales
                  may be at prices and on terms less favorable than those
                  obtainable through a public sale without such restrictions
                  (including a public offering made pursuant to a registration
                  statement under the Securities Act) and, notwithstanding such
                  circumstances and the registration rights granted to
                  Collateral Agent by such Grantor pursuant hereto and
                  notwithstanding the provisions of Section 9-610(c) of the UCC,
                  which each Grantor hereby waives to the extent permitted by
                  applicable law, each Grantor agrees that any such private sale
                  shall be deemed to have been made in a commercially reasonable
                  manner and that Collateral Agent shall have no obligation to
                  engage in public sales and no obligation to delay the sale of
                  any Securities Collateral for the period of time necessary to
                  permit the issuer thereof to register it for a form of public
                  sale requiring registration under the Securities Act or under
                  applicable state securities laws, even if such issuer would,
                  or should, agree to so register it. If Collateral Agent
                  determines to exercise its right to sell any or all of the
                  Securities Collateral, upon written request, each Grantor
                  shall and shall cause each issuer of any Pledged Shares to be
                  sold hereunder from time to time to furnish to Collateral
                  Agent all such information as Collateral Agent may request in
                  order to determine the number of shares and other instruments
                  included in the Securities Collateral which may be sold by
                  Collateral Agent in exempt transactions under the Securities
                  Act and the rules and regulations of the Securities and
                  Exchange Commission thereunder, as the same are from time to
                  time in effect and to otherwise comply with the Securities Act
                  and such rules and regulations in connection with such sale.

                           (ii) If Collateral Agent shall determine to exercise
                  its right to sell all or any of the Securities Collateral
                  pursuant to this Section, each Grantor agrees that, upon
                  request of Collateral Agent (which request may be made by
                  Collateral Agent in its sole discretion), such Grantor will,
                  at its own expense (A) execute and deliver, and cause each
                  issuer of the Securities Collateral contemplated to be sold
                  and the directors and officers thereof to execute and deliver,
                  all such instruments and documents, and do or cause to be done
                  all such other acts and things, as may be necessary or, in the
                  opinion of Collateral Agent, advisable to register such
                  Securities Collateral under the provisions of the Securities
                  Act and to cause the registration statement relating thereto
                  to become effective and to remain effective for such period as
                  prospectuses are required by law to be

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                                       19

<PAGE>

                  furnished, and to make all amendments and supplements thereto
                  and to the related prospectus which, in the opinion of
                  Collateral Agent, are necessary or advisable, all in
                  conformity with the requirements of the Securities Act and the
                  rules and regulations of the Securities and Exchange
                  Commission applicable thereto; (B) use its best efforts to
                  qualify the Securities Collateral under all applicable state
                  securities or "Blue Sky" laws and to obtain all necessary
                  governmental approvals for the sale of the Securities
                  Collateral, as requested by Collateral Agent; (C) cause each
                  such issuer to make available to its security holders, as soon
                  as practicable, an earnings statement which will satisfy the
                  provisions of Section 11(a) of the Securities Act; (D) do or
                  cause to be done all such other acts and things as may be
                  necessary to make such sale of the Securities Collateral or
                  any part thereof valid and binding and in compliance with
                  applicable law; and (E) bear all costs and expenses, including
                  reasonable attorneys' fees, of carrying out its obligations
                  under this Section.

                           (iii) Without limiting the generality of those
                  provisions of the Detroit L/C Facility Agreement (or any
                  successor provisions thereto), the New L/C Facility Agreement
                  (or any successor provisions thereto) and the High Yield
                  Indenture (or any successor provisions thereto) that require
                  one or more of the Grantors to reimburse expenses of or
                  indemnify the Collateral Agent or any Benefited Party in the
                  event of any public sale described herein, each Grantor agrees
                  to indemnify and hold harmless Collateral Agent and the
                  Benefited Parties and each of their respective directors,
                  officers, employees and agents from and against any loss, fee,
                  cost, expense, damage, liability or claim, joint or several,
                  to which any such Persons may become subject or for which any
                  of them may be liable, under the Securities Act or otherwise,
                  insofar as such losses, fees, costs, expenses, damages,
                  liabilities or claims (or any litigation commenced or
                  threatened in respect thereof) arise out of or are based upon
                  an untrue statement or alleged untrue statement of a material
                  fact contained in any preliminary prospectus, registration
                  statement, prospectus or other such document published or
                  filed in connection with such public sale, or any amendment or
                  supplement thereto, or arise out of or are based upon the
                  omission or alleged omission to state therein a material fact
                  required to be stated therein or necessary to make the
                  statements therein not misleading, and will reimburse
                  Collateral Agent and such other Persons for any legal or other
                  expenses reasonably incurred by Collateral Agent and such
                  other Persons in connection with any litigation, of any nature
                  whatsoever, commenced or threatened in respect thereof
                  (including any and all fees, costs and expenses whatsoever
                  reasonably incurred by Collateral Agent and such other Persons
                  and counsel for Collateral Agent and such other Persons in
                  investigating, preparing for, defending against or providing
                  evidence, producing documents or taking any other action in
                  respect of, any such commenced or threatened litigation or any
                  claims asserted). This indemnity shall be in addition to any
                  liability which any Grantor may otherwise have and shall
                  extend upon the same terms and conditions to each Person, if
                  any, that controls Collateral Agent or such Persons within the
                  meaning of the Securities Act.

                  (c) REMEDIES WITH RESPECT TO BORROWERS. Furthermore, upon the
occurrence and during the continuance of any Event of Default, Collateral Agent
may revoke each Grantor's rights to use cash collateral in which Collateral
Agent has an interest; provided that, any other provision of this Agreement or
any other Credit Document to the contrary notwithstanding, with respect to the
foregoing, Collateral Agent shall give each Loan Party five Business Days prior
written notice (which notice shall be delivered by facsimile or overnight
courier) of the exercise of its rights and remedies with respect to the
Collateral. The enumeration of the foregoing rights and remedies is not intended
to be exhaustive and the exercise of any right or remedy shall not preclude the
exercise of any other rights or remedies, all of which shall be cumulative and
not alternative. Each Grantor hereby waives (i) presentment, demand and protest
and notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties or other
property at any time held by Collateral Agent and any Benefited Party on which
Loan Parties may in any way be liable and hereby ratify and confirm whatever
Collateral Agent and the Benefited Parties may lawfully do in this regard, (ii)
subject to the notice provisions of the preceding paragraph, all rights to
notice and hearing prior to Collateral Agent's taking possession or control of,
or to the reply of Collateral Agent or any Benefited Party, attachment or levy
upon, the Collateral, or any bond or security which might be required by any
court prior to allowing Collateral Agent or any Benefited Party to exercise any
of their remedies, and (iii) the benefit of all

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                                       20

<PAGE>

valuation, appraisal and exemption laws. Each Grantor acknowledges they have
been advised by counsel of their choice with respect to the effect of the
foregoing waivers and this Agreement, the Credit Documents and the transactions
evidenced by this Agreement and the Credit Documents.

SECTION 19.       ADDITIONAL REMEDIES FOR INTELLECTUAL PROPERTY COLLATERAL.

                  (a) Anything contained herein to the contrary notwithstanding,
upon the occurrence and during the continuation of an Event of Default, (i)
Collateral Agent shall have the right (but not the obligation) to bring suit, in
the name of any Grantor, Collateral Agent or otherwise, to enforce any
Intellectual Property Collateral, in which event each Grantor shall, at the
request of Collateral Agent, do any and all lawful acts and execute any and all
documents required by Collateral Agent in aid of such enforcement and each
Grantor shall promptly, upon demand, reimburse and indemnify Collateral Agent as
provided in those provisions of the Detroit L/C Facility Agreement (or any
successor provisions thereto), the New L/C Facility Agreement (or any successor
provisions thereto) and the High Yield Indenture (or any successor provisions
thereto) that require one or more of the Grantors to reimburse expenses of or
indemnify the Collateral Agent or the Benefited Parties and as provided in
Section 21 hereof, as applicable, in connection with the exercise of its rights
under this Section, and, to the extent that Collateral Agent shall elect not to
bring suit to enforce any Intellectual Property Collateral as provided in this
Section, each Grantor agrees to use all reasonable measures, whether by action,
suit, proceeding or otherwise, to prevent the infringement of any of the
Intellectual Property Collateral by others and for that purpose agrees to use
its commercially reasonable judgment in maintaining any action, suit or
proceeding against any Person so infringing reasonably necessary to prevent such
infringement; (ii) upon written demand from Collateral Agent, each Grantor shall
execute and deliver to Collateral Agent an assignment or assignments of the
Intellectual Property Collateral and such other documents as are necessary or
appropriate to carry out the intent and purposes of this Agreement; (iii) each
Grantor agrees that such an assignment and/or recording shall be applied to
reduce the Secured Obligations outstanding only to the extent that Collateral
Agent (or any Detroit L/C Lender, New L/C Lender or High Yield Noteholder,
subject to the terms of the Intercreditor Agreement) receives cash proceeds in
respect of the sale of, or other realization upon, the Intellectual Property
Collateral; and (iv) within five Business Days after written notice from
Collateral Agent, each Grantor shall make available to Collateral Agent, to the
extent within such Grantor's power and authority, such personnel in such
Grantor's employ on the date of such Event of Default as Collateral Agent may
reasonably designate, by name, title or job responsibility, to permit such
Grantor to continue, directly or indirectly, to produce, advertise and sell the
products and services sold or delivered by such Grantor under or in connection
with the Trademarks, Trademark Registrations and Trademark Rights, such persons
to be available to perform their prior functions on Collateral Agent's behalf
and to be compensated by Collateral Agent at such Grantor's expense on a per
diem, pro-rata basis consistent with the salary and benefit structure applicable
to each as of the date of such Event of Default.

                  (b) If (i) an Event of Default shall have occurred and, by
reason of cure, waiver, modification, amendment or otherwise, no longer be
continuing, (ii) no other Event of Default shall have occurred and be
continuing, (iii) an assignment to Collateral Agent of any rights, title and
interests in and to the Intellectual Property Collateral shall have been
previously made, and (iv) the Secured Obligations shall not have become
immediately due and payable, upon the written request of any Grantor, Collateral
Agent shall promptly execute and deliver to such Grantor, at such Grantor's cost
and expense, such assignments as may be necessary to reassign to such Grantor
any such rights, title and interests as may have been assigned to Collateral
Agent as aforesaid, subject to any disposition thereof that may have been made
by Collateral Agent; provided, after giving effect to such reassignment,
Collateral Agent's security interest granted pursuant hereto, as well as all
other rights and remedies of Collateral Agent granted hereunder, shall continue
to be in full force and effect; and provided further, the rights, title and
interests so reassigned shall be free and clear of all Liens other than Liens
(if any) encumbering such rights, title and interest at the time of their
assignment to Collateral Agent and Liens permitted under the relevant provisions
of the Credit Documents.

SECTION 20.       APPLICATION OF PROCEEDS.

                  Except as expressly provided in Sections 12 and 13 hereof and
elsewhere in this Agreement, all proceeds received by Collateral Agent in
respect of any sale of, collection from, or other realization upon all or any
part of the Collateral shall be applied in accordance with the Intercreditor
Agreement. In furtherance of, and without limiting the foregoing, in the event
that (i) the Detroit L/C Commitments and the obligation of the Detroit L/C

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                                       21

<PAGE>

Lenders to issue and maintain Detroit L/Cs have terminated and all Detroit L/C
Obligations have been Paid in Full, and (ii) the New L/C Commitments and the
obligation of the New L/C Lenders to issue and maintain New L/Cs have terminated
and the New L/C Obligations have been Paid in Full, then in each case, any cash
collateral held by Collateral Agent in each of the Detroit L/C Collateral
Account and the New L/C Collateral Account shall be applied in accordance with
the Intercreditor Agreement.

SECTION 21.       INDEMNITY AND EXPENSES.

                  (a) Grantors jointly and severally agree to indemnify
Collateral Agent, each Detroit L/C Agent, each Detroit L/C Lender, the New L/C
Agent, each New L/C Lender, each High Yield Noteholder and each other Benefited
Party from and against any and all claims, losses and liabilities in any way
relating to, growing out of or resulting from this Agreement and the
transactions contemplated hereby (including without limitation enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
solely from Collateral Agent's or such Detroit L/C Agent's, Detroit L/C
Lender's, New L/C Agent's, New L/C Lender's, High Yield Noteholder's or
Benefited Party's gross negligence or willful misconduct as finally determined
by a court of competent jurisdiction.

                  (b) Grantors jointly and severally agree to pay to Collateral
Agent upon demand the amount of any and all costs and expenses, including the
reasonable fees and expenses of its counsel and of any experts and agents, that
Collateral Agent may incur in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any of the Collateral, (iii) the
exercise or enforcement of any of the rights of Collateral Agent hereunder, or
(iv) the failure by any Grantor to perform or observe any of the provisions
hereof.

                  (c) The obligations of Grantors in this Section 21 shall
survive the termination of this Agreement and the discharge of Grantors' other
obligations under this Agreement, the Detroit L/C Facility Agreement, the New
L/C Facility Agreement and the High Yield Indenture (subject to the terms of the
Intercreditor Agreement).

SECTION 22.       CONTINUING SECURITY INTEREST; TRANSFER OF LOANS; TERMINATION\
                  AND RELEASE.

                  (a) This Agreement shall create a continuing security interest
in the Collateral and shall (i) remain in full force and effect until the
Payment in Full of all Secured Obligations, (ii) be binding upon Grantors and
their respective successors and assigns, and (iii) inure, together with the
rights and remedies of Collateral Agent hereunder, to the benefit of Collateral
Agent and its successors, transferees and assigns. Without limiting the
generality of the foregoing clause (iii), but subject to the relevant assignment
provisions set forth in each of the Credit Documents and the Intercreditor
Agreement, (A) any Detroit L/C Agent or Detroit L/C Lender may assign or
otherwise transfer its rights under the Detroit L/C Facility Agreement to any
other Person, and in each case such other Person shall thereupon become vested
with all the benefits in respect thereof granted to Detroit L/C Agents or
Detroit L/C Lenders, as applicable, herein or otherwise (subject to the terms of
the Intercreditor Agreement), (B) the New L/C Agent and any New L/C Lender may
assign or otherwise transfer its rights under the New L/C Facility Agreement to
any other Person, and in each case such other Person shall thereupon become
vested with all the benefits in respect thereof granted to the New L/C Agent or
such New L/C Lender, as applicable, herein or otherwise (subject to the terms of
the Intercreditor Agreement) and (C) any High Yield Noteholder may assign or
otherwise transfer any High Yield Note to any other Person in accordance with
the High Yield Indenture, and such other Person shall thereupon become vested
with all the benefits in respect thereof granted to High Yield Noteholders
herein or otherwise (subject to the terms of the Intercreditor Agreement).

                  (b) Upon the Payment in Full of all Secured Obligations, the
security interest granted hereby shall terminate and all rights to the
Collateral shall revert to the applicable Grantors. Upon any such termination
Collateral Agent will, at Grantors' expense, execute and deliver to Grantors
such documents as Grantors shall reasonably request to evidence such
termination. In addition, upon the proposed sale, transfer or other disposition
of any Collateral by a Grantor in accordance with the relevant provisions of
each Credit Document for which such Grantor desires to obtain a security
interest release from Collateral Agent, such Grantor shall deliver an Officer's
Certificate (x) stating that the Collateral subject to such disposition is being
sold, transferred or otherwise disposed of in compliance with the terms of the
Credit Documents and (y) specifying the Collateral being sold, transferred or
otherwise disposed of in the proposed transaction. Upon the receipt of such
Officer's Certificate and so long as no Event of Default has occurred and is
continuing or would result from the proposed disposition of the Collateral and

Security Agreement

                                       22

<PAGE>

so long as the proceeds from such disposition are applied in accordance with the
Credit Documents, Collateral Agent shall, at Grantor's expense, so long as
Collateral Agent believes in good faith that the Officer's Certificate delivered
by such Grantor with respect to such sale is true, correct and complete, execute
and deliver such releases of its security interest in such Collateral which is
to be so sold, transferred or disposed of, as may be reasonably requested by
such Grantor.

SECTION 23.       COLLATERAL AGENT AS AGENT.

                  (a) Collateral Agent has been appointed to act as Collateral
Agent hereunder by the Detroit L/C Agents, the Detroit L/C Lenders, the New L/C
Agent, the New L/C Lenders, the High Yield Trustee on behalf of the High Yield
Noteholders and the Cash Management Bank. Collateral Agent shall be obligated,
and shall have the right hereunder, to make demands, to give notices, to
exercise or refrain from exercising any rights, and to take or refrain from
taking any action (including without limitation the release or substitution of
Collateral), solely in accordance with this Agreement and the Credit Documents.

                  (b) Collateral Agent shall at all times be the same Person
that is the Collateral Agent under the Intercreditor Agreement. Written notice
of resignation by Collateral Agent pursuant to subsections 6.1(h) or (i) of the
Intercreditor Agreement shall also constitute notice of resignation as
Collateral Agent under this Agreement; removal of Collateral Agent pursuant to
subsections 6.1(h) or (i) of the Intercreditor Agreement shall also constitute
removal as Collateral Agent under this Agreement; and appointment of a successor
Collateral Agent pursuant to subsections 6.1(h) or (i) of the Intercreditor
Agreement shall also constitute appointment of a successor Collateral Agent
under this Agreement. Upon the acceptance of any appointment as Collateral Agent
under subsections 6.1(h) or (i) of the Intercreditor Agreement by a successor
Collateral Agent, that successor Collateral Agent shall thereupon succeed to and
become vested with all the rights, powers, privileges and duties of the retiring
or removed Collateral Agent under this Agreement, and the retiring or removed
Collateral Agent under this Agreement shall promptly (i) transfer to such
successor Collateral Agent all sums, securities and other items of Collateral
held hereunder, together with all records and other documents necessary or
appropriate in connection with the performance of the duties of the successor
Collateral Agent under this Agreement, and (ii) execute and deliver to such
successor Collateral Agent such amendments to financing statements, and take
such other actions, as may be necessary or appropriate in connection with the
assignment to such successor Collateral Agent of the security interest created
hereunder, whereupon such retiring or removed Collateral Agent shall be
discharged from its duties and obligations under this Agreement. After any
retiring or removed Collateral Agent's resignation or removal hereunder as
Collateral Agent, the provisions of this Agreement shall inure to its benefit as
to any actions taken or omitted to be taken by it under this Agreement while it
was Collateral Agent hereunder.

SECTION 24.       ADDITIONAL GRANTORS.

                  Any Subsidiary of Company that is party to any of the Credit
Documents but is not a party hereto may become a party hereto as an additional
Grantor by executing a Counterpart substantially in the form of Exhibit VI
annexed hereto, whereupon such Subsidiary shall become a Grantor hereunder and
such Subsidiary shall also execute a Counterpart substantially in the form of
Annex 2 to the Intercreditor Agreement pursuant to Section 6.1(l) of the
Intercreditor Agreement, whereupon such Subsidiary shall become a Detroit L/C
Borrower or New L/C Borrower, as applicable, under the Intercreditor Agreement.
Upon delivery of any such Counterpart to Collateral Agent, notice of which is
hereby waived by Grantors, each such Additional Grantor shall be a Grantor and
shall be as fully a party hereto as if such Additional Grantor were an original
signatory hereto. Each Grantor expressly agrees that its obligations arising
hereunder shall not be affected or diminished by the addition or release of any
other Grantor hereunder, nor by any election of Collateral Agent not to cause
any Subsidiary of Company to become an Additional Grantor hereunder. This
Agreement shall be fully effective as to any Grantor that is or becomes a party
hereto regardless of whether any other Person becomes or fails to become or
ceases to be a Grantor hereunder.

SECTION 25.       AMENDMENTS; ETC.

                  No amendment, modification, termination or waiver of any
provision of this Agreement, and no consent to any departure by any Grantor
therefrom, shall in any event be effective unless the same shall be in writing
and signed by Collateral Agent and, in the case of any such amendment or
modification, by Grantors; provided that this Agreement may be modified by the
execution of a Counterpart by an Additional Grantor in accordance with

Security Agreement

                                       23

<PAGE>

Section 24 hereof and Grantors hereby waive any requirement of notice of or
consent to any such amendment. Any such waiver or consent shall be effective
only in the specific instance and for the specific purpose for which it was
given. In the event of any refinancing, replacement or extension of the New L/C
Facility Agreement or Detroit L/C Facility Agreement, references in this
Agreement to sections or subsections of the New L/C Facility Agreement and
Detroit L/C Facility Agreement shall refer to the functionally equivalent
sections or subsections in such refinanced, replaced or extended agreement as
the context requires.

SECTION 26.       NOTICES.

                  Any notice or other communication herein required or permitted
to be given shall be in writing and may be personally served or sent by
telefacsimile or United States mail or courier service and shall be deemed to
have been given when delivered in person or by courier service, upon receipt of
telefacsimile, or three Business Days after depositing it in the United States
mail with postage prepaid and properly addressed; provided that notices to
Collateral Agent shall not be effective until received. For the purposes hereof,
the address of each party hereto shall be as set forth under such party's name
on the signature page hereof or such other address as shall be designated by
such party in a written notice delivered to the other parties hereto. Electronic
mail and Internet and intranet websites may be used to distribute routine
communications, provided, however, that no signature with respect to any notice,
request, agreement, waiver, amendment or other document or any notice that is
intended to have a binding effect may be sent by electronic mail.

SECTION 27.       FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.

                  No failure or delay on the part of Collateral Agent in the
exercise of any power, right or privilege hereunder shall impair such power,
right or privilege or be construed to be a waiver of any default or acquiescence
therein, nor shall any single or partial exercise of any such power, right or
privilege preclude any other or further exercise thereof or of any other power,
right or privilege. All rights and remedies existing under this Agreement are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

SECTION 28.       SEVERABILITY.

                  In case any provision in or obligation under this Agreement
shall be invalid, illegal or unenforceable in any jurisdiction, the validity,
legality and enforceability of the remaining provisions or obligations, or of
such provision or obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.

SECTION 29.       HEADINGS.

                  Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.

SECTION 30.       GOVERNING LAW; TERMS; RULES OF CONSTRUCTION.

                  THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT
LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW
YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES, EXCEPT TO THE EXTENT THAT
THE UCC PROVIDES THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. Unless otherwise
defined herein or in the Credit Documents, terms used in Articles 8 and 9 of the
UCC are used herein as therein defined. The rules of construction set forth in
subsection 1.3 of the Detroit L/C Facility Agreement shall be applicable to this
Agreement mutatis mutandis.

SECTION 31.       CONSENT TO JURISDICTION AND SERVICE OF PROCESS.

Security Agreement

                                       24

<PAGE>

                  ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY GRANTOR ARISING
OUT OF OR RELATING TO THIS AGREEMENT, OR ANY OBLIGATIONS HEREUNDER, MAY BE
BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE,
COUNTY AND CITY OF NEW YORK. BY EXECUTING AND DELIVERING THIS AGREEMENT, EACH
GRANTOR, FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, IRREVOCABLY (I)
ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE JURISDICTION AND VENUE OF
SUCH COURTS; (II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS; (III) AGREES THAT
SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN ANY SUCH COURT MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO SUCH GRANTOR AT ITS
ADDRESS PROVIDED IN ACCORDANCE WITH SECTION 26 HEREOF; (IV) AGREES THAT SERVICE
AS PROVIDED IN CLAUSE (III) ABOVE IS SUFFICIENT TO CONFER PERSONAL JURISDICTION
OVER SUCH GRANTOR IN ANY SUCH PROCEEDING IN ANY SUCH COURT, AND OTHERWISE
CONSTITUTES EFFECTIVE AND BINDING SERVICE IN EVERY RESPECT; (V) AGREES THAT
COLLATERAL AGENT RETAINS THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST SUCH GRANTOR IN THE COURTS OF
ANY OTHER JURISDICTION; AND (VI) AGREES THAT THE PROVISIONS OF THIS SECTION 31
RELATING TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE
FULLEST EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.

SECTION 32.       WAIVER OF JURY TRIAL.

                  GRANTORS AND COLLATERAL AGENT HEREBY AGREE TO WAIVE THEIR
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT. The scope of this waiver is intended to be
all-encompassing of any and all disputes that may be filed in any court and that
relate to the subject matter of this transaction, including without limitation
contract claims, tort claims, breach of duty claims, and all other common law
and statutory claims. Each Grantor and Collateral Agent acknowledge that this
waiver is a material inducement for Grantors and Collateral Agent to enter into
a business relationship, that Grantors and Collateral Agent have already relied
on this waiver in entering into this Agreement and that each will continue to
rely on this waiver in their related future dealings. Each Grantor and
Collateral Agent further warrant and represent that each has reviewed this
waiver with its legal counsel, and that each knowingly and voluntarily waives
its jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SECTION 32
AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
In the event of litigation, this Agreement may be filed as a written consent to
a trial by the court.

SECTION 33.       COUNTERPARTS.

                  This Agreement may be executed in one or more counterparts and
by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart thereof.

                  [Remainder of page intentionally left blank]

Security Agreement

                                       25

<PAGE>

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

                           GRANTORS:

                           COVANTA ENERGY CORPORATION

                           By:
                              --------------------------------
                           Name: Anthony Orlando
                           Title: President and Chief Executive Officer

                           Notice Address:
                                  40 Lane Road
                                  Fairfield, New Jersey 07007
                                  Attn:  Jeffrey Horowitz, Esq.

                           EACH OF THE ENTITIES LISTED ON SCHEDULE A ANNEXED
                           HERETO

                           By:
                              --------------------------------
                              on behalf of each of the entities listed on
                              Schedule A annexed hereto

                              Name: Anthony Orlando
                              Title: President and Chief Executive Officer

                              Notice Address:
                                     40 Lane Road
                                     Fairfield, New Jersey 07007
                                     Attn: Jeffrey Horowitz, Esq.

Security Agreement

                                       S-1

<PAGE>

                           BANK OF AMERICA, N.A.,
                           as Collateral Agent

                           By:
                              --------------------------------
                            Name:
                            Title:

                            Notice Address:
                            Bank of America, N.A., as Collateral Agent
                            555 So. Flower Street, 17th Floor
                            CA9-706-17-54
                            Los Angeles, California 90071
                            Attention: David Price, Vice President
                            Voice: (213) 345-1300
                            Fax: (415) 503-5011
                            email: david.price@bankofamerica.com

Security Agreement

                                       S-2

<PAGE>

                                   SCHEDULE A
                                 OTHER GRANTORS

1.  AMOR 14 Corporation

2.  Covanta Acquisition, Inc.

3.  Covanta Bessemer, Inc.

4.  Covanta Cunningham Environmental Support, Inc.

5.  Covanta Energy Americas, Inc.

6.  Covanta Energy Construction, Inc.

7.  Covanta Energy Corporation

8.  Covanta Energy Group, Inc.

9.  Covanta Energy International, Inc.

10. Covanta Energy Resource Corp.

11. Covanta Energy Services, Inc.

12. Covanta Energy West, Inc.

13. Covanta Engineering Services, Inc.

14. Covanta Geothermal Operations Holdings, Inc.

15. Covanta Geothermal Operations, Inc.

16. Covanta Haverhill Properties, Inc.

17. Covanta Heber Field Energy, Inc.

18. Covanta Hennepin Energy Resource Co., Limited Partnership

19. Covanta Hillsborough, Inc.

20. Covanta Huntsville, Inc.

21. Covanta Hydro Energy, Inc.

22. Covanta Hydro Operations West, Inc.

23. Covanta Hydro Operations, Inc.

24. Covanta Imperial Power Services, Inc.

25. Covanta Kent, Inc.

26. Covanta Lancaster, Inc.

27. Covanta Lee, Inc.

28. Covanta Long Island, Inc.

29. Covanta Marion Land Corp.

30. Covanta Mid-Conn, Inc.

31. Covanta Montgomery, Inc.

32. Covanta New Martinsville Hydroelectric Corporation

33. Covanta New Martinsville Hydro-Operations Corporation

34. Covanta Oahu Waste Energy Recovery, Inc.

Security Agreement

<PAGE>

35. Covanta Onondaga Operations, Inc.

36. Covanta Operations of Union, LLC

37. Covanta OPW Associates, Inc.

38. Covanta OPWH, Inc.

39. Covanta Pasco, Inc.

40. Covanta Plant Services of New Jersey, Inc.

41. Covanta Power Equity Corporation

42. Covanta Power Pacific, Inc.

43. Covanta Power Plant Operations

44. Covanta Projects of Hawaii, Inc.

45. Covanta Projects, Inc.

46. Covanta RRS Holdings, Inc.

47. Covanta Secure Services, Inc.

48. Covanta SIGC Energy, Inc.

49. Covanta SIGC Energy II, Inc.

50. Covanta SIGC Geothermal Operations, Inc.

51. Covanta Systems, LLC

52. Covanta Wallingford Associates, Inc.

53. Covanta Waste to Energy , LLC

54. Covanta Water Holdings, Inc.

55. Covanta Water Systems, Inc.

56. Covanta Water Treatment Services, Inc.

57. DSS Environmental, Inc.

58. ERC Energy II, Inc.

59. ERC Energy, Inc.

60. Heber Field Energy II, Inc.

61. Heber Loan Partners

62. LMI, Inc.

63. Mammoth Geothermal Company

64. Mammoth Power Company

65. Mt. Lassen Power

66. Pacific Geothermal Company

67. Pacific Oroville Power, Inc.

68. Pacific Wood Fuels Company

69. Pacific Wood Services Company

70. Three Mountain Operations, Inc.

71. Three Mountain Power, LLC

Security Agreement

<PAGE>

                               SCHEDULE 1(e)(i) TO
                               SECURITY AGREEMENT

                                 PLEDGED SHARES

<TABLE>
<CAPTION>
                             CLASS OF                                                                 PERCENTAGE OF
 ISSUER OF PLEDGED            PLEDGED                                  PAR          NUMBER OF          OUTSTANDING
       SHARES                 SHARES         CERTIFICATE NOS.         VALUE       PLEDGED SHARES     PLEDGED SHARES
 -----------------           --------        ----------------         -----       --------------     --------------
<S>                       <C>                <C>                   <C>            <C>                <C>
------------------        ---------------    ----------------      ------------   ---------------    ---------------

------------------        ---------------    ----------------      ------------   ---------------    ---------------

------------------        ---------------    ----------------      ------------   ---------------    ---------------

------------------        ---------------    ----------------      ------------   ---------------    ---------------
</TABLE>

Security Agreement

<PAGE>

                               SCHEDULE 1(g)(i) TO
                               SECURITY AGREEMENT

U.S. TRADEMARKS:

<TABLE>
<CAPTION>
                                           Trademark                    Registration                   Registration
       Registered Owner                   Description                      Number                          Date
----------------------------          ------------------                ------------                   ------------
<S>                                   <C>                               <C>                            <C>
</TABLE>

FOREIGN TRADEMARKS:

<TABLE>
<CAPTION>
                                           Trademark                    Registration                   Registration
       Registered Owner                   Description                      Number                          Date
----------------------------          ------------------                ------------                   ------------
<S>                                   <C>                               <C>                            <C>
</TABLE>

Security Agreement

                                    1(g)(i)-1

<PAGE>

                             SCHEDULE 1(g)(ii)(A) TO
                               SECURITY AGREEMENT

U.S. PATENTS ISSUED:

<TABLE>
<CAPTION>
         Patent No.                    Issue Date                    Invention                    Inventor
-------------------------          -----------------               --------------               -------------
<S>                                <C>                             <C>                          <C>
</TABLE>

U.S. PATENTS PENDING:

<TABLE>
<CAPTION>
      Applicant's                  Date               Application
          Name                    Filed                 Number                Invention              Inventor
-----------------------        -----------         ----------------          -----------            -----------
<S>                            <C>                 <C>                       <C>                    <C>
</TABLE>

Security Agreement

                                       1(g)(ii)(A)-1

<PAGE>

                             SCHEDULE 1(g)(ii)(B) TO
                               SECURITY AGREEMENT

FOREIGN PATENTS ISSUED:

<TABLE>
<CAPTION>
         Patent No.                    Issue Date                    Invention                    Inventor
-------------------------          -----------------               --------------               -------------
<S>                                <C>                             <C>                          <C>
</TABLE>

FOREIGN PATENTS PENDING:

<TABLE>
<CAPTION>
      Applicant's                  Date               Application
          Name                    Filed                 Number                Invention              Inventor
-----------------------        -----------         ----------------          -----------            -----------
<S>                            <C>                 <C>                       <C>                    <C>
</TABLE>

Security Agreement

                                       1(g)(ii)(B)-1

<PAGE>

                              SCHEDULE 1(g)(iii) TO
                               SECURITY AGREEMENT

U.S. COPYRIGHTS:

<TABLE>
<CAPTION>
Title             Registration No.      Date of Issue             Registered Owner
-----             ----------------      -------------             ----------------
<S>               <C>                   <C>                       <C>
</TABLE>

FOREIGN COPYRIGHT REGISTRATIONS:

<TABLE>
<CAPTION>
Country         Title              Registration No.          Date of Issue
-------         -----              ----------------          -------------
<S>             <C>                <C>                       <C>
</TABLE>

PENDING U.S. COPYRIGHT REGISTRATIONS & APPLICATIONS:

<TABLE>
<CAPTION>
Title             Reference No.             Date of Application        Copyright Claimant
-----             -------------             -------------------        ------------------
<S>               <C>                       <C>                        <C>
</TABLE>

PENDING FOREIGN COPYRIGHT REGISTRATIONS & APPLICATIONS:

<TABLE>
<CAPTION>
Country Title                       Registration No.             Date of Issue
--------------                      ----------------             -------------
<S>                                 <C>                          <C>
</TABLE>

Security Agreement

                                 1(g)(ii)(B)-1

<PAGE>

                                  SCHEDULE 1(J)
                                       TO
                               SECURITY AGREEMENT

                             COMMERCIAL TORT CLAIMS

Security Agreement

                                     1(j)-1

<PAGE>

                                  SCHEDULE 4(b)
                                       TO
                               SECURITY AGREEMENT

                      LOCATIONS OF EQUIPMENT AND INVENTORY

NAME OF GRANTOR                             LOCATIONS OF EQUIPMENT AND INVENTORY

Security Agreement

                                     4(b)-1

<PAGE>

                                  SCHEDULE 4(d)
                                       TO
                               SECURITY AGREEMENT

             OFFICE LOCATIONS, TYPE AND JURISDICTION OF ORGANIZATION

<TABLE>
<CAPTION>
                                                                              JURISDICTION OF
NAME OF GRANTOR      TYPE OF ORGANIZATION    OFFICE LOCATIONS                   ORGANIZATION
---------------      --------------------    ----------------                 ---------------
<S>                  <C>                     <C>                              <C>
</TABLE>

Security Agreement

                                     4(d)-1

<PAGE>

                                  SCHEDULE 4(e)
                                       TO
                               SECURITY AGREEMENT

                                   OTHER NAMES

NAME OF GRANTOR                                             OTHER NAMES

Security Agreement

                                     4(e)-1

<PAGE>

                                  SCHEDULE 4(g)
                                       TO
                               SECURITY AGREEMENT

                         CERTAIN CONTRACTUAL OBLIGATIONS

                                     4(g)-1

Security Agreement

<PAGE>

                                  SCHEDULE 4(i)
                                       TO
                               SECURITY AGREEMENT

                                 FILING OFFICES

Grantor                                                       Filing Offices

Security Agreement

                                     4(i)-1

<PAGE>

                                                                    EXHIBIT I TO
                                                              SECURITY AGREEMENT

                 [FORM OF GRANT OF TRADEMARK SECURITY INTEREST]

                      GRANT OF TRADEMARK SECURITY INTEREST

                  WHEREAS, [NAME OF GRANTOR], a ___________ corporation
("GRANTOR"), owns and uses in its business, and will in the future adopt and so
use, various intangible assets, including the Trademark Collateral (as defined
below);

                  WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation
("COMPANY") and the Subsidiaries of Company listed on the signature pages
thereof (collectively, Company and such Subsidiaries of Company are "BORROWERS"
and each a "BORROWER") have entered into certain Credit Agreement dated as of
March __, 2004 (said Credit Agreement or any credit agreement entered into by
Detroit L/C Borrowers to refinance, replace, renew or extend, in whole or in
part, said Credit Agreement and the indebtedness and letters of credit issued
thereunder, as said Credit Agreement or any replacement to said Credit Agreement
may be amended, restated, supplemented or otherwise modified from time to time,
being the "DETROIT L/C FACILITY AGREEMENT") with the financial institutions
listed on the signature pages thereof as Lenders (collectively, together with
their respective successors and assigns party to the Detroit L/C Facility
Agreement from time to time, the "DETROIT L/C LENDERS"), DEUTSCHE BANK
SECURITIES, INC., as Documentation Agent for the Detroit L/C Lenders (in such
capacity, the "DETROIT L/C DOCUMENTATION AGENT"), and BANK OF AMERICA, N.A., as
Administrative Agent for the Detroit L/C Lenders (in such capacity, the "DETROIT
L/C FACILITY AGENT," and together with the Detroit L/C Documentation Agent, the
"DETROIT L/C AGENTS"), pursuant to which the Detroit L/C Lenders have made
certain commitments, subject to the terms and conditions set forth in the
Detroit L/C Facility Agreement, to extend certain letter of credit facilities to
Borrowers;

                  WHEREAS, Borrowers have entered into certain Credit Agreement
dated as of March __, 2004 (said Credit Agreement or any credit agreement
entered into by New L/C Borrowers to refinance, replace, renew or extend, in
whole or in part, said Credit Agreement and the indebtedness and letters of
credit issued thereunder, as said Credit Agreement or any replacement to said
Credit Agreement may be amended, restated, supplemented or otherwise modified
from time to time, being the "NEW L/C FACILITY AGREEMENT") with the financial
institutions listed on the signature pages thereof as Lenders (collectively,
together with their respective successors and assigns party to the Detroit L/C
Facility Agreement from time to time, the "NEW L/C LENDERS"), and Bank One, NA,
as Administrative Agent for the New L/C Lenders (in such capacity, the "NEW L/C
FACILITY AGENT"), pursuant to which the New L/C Lenders have made certain
commitments, subject to the terms and conditions set forth in the New L/C
Facility Agreement, to extend certain letter of credit facilities to Borrowers;

                  WHEREAS, Company has issued $205,000,000 in aggregate face
principal amount accruing to $230,000,000 at stated maturity of its 8.25% Senior
Notes due 2011 (said notes or any replacement to said notes pursuant to a
refinancing, defeasance, renewal, replacement or extension of such notes, being
the "HIGH YIELD NOTES");

                  WHEREAS, Borrowers other than the Company have agreed, in
favor of the holders of the High Yield Notes, to guarantee the prompt payment
and performance when due of all obligations of Company under the High Yield
Notes;

                  WHEREAS, Borrowers are required to maintain the Cash
Management System (as defined in the New L/C Facility Agreement and the Detroit
L/C Facility Agreement) with Collateral Agent (in such capacity, the "CASH
MANAGEMENT BANK") and the obligations of Borrowers to the Cash Management Bank
arising from or relating to the Cash Management System are secured under the
Security Agreement (as defined below); and

                  WHEREAS, pursuant to the terms of a Security Agreement dated
as of March __, 2004 (as it may heretofore have been and as it may from time to
time hereafter be amended, restated, supplemented or otherwise

Security Agreement

                                     I-S-1

<PAGE>

modified, the "SECURITY AGREEMENT"), among Grantor, the other grantors named
therein and Bank of America, N.A., in its capacity as collateral agent for and
representative of the Secured Parties (as defined in the Intercreditor Agreement
referred to below), (the "COLLATERAL AGENT"), Grantor has granted in favor of
Collateral Agent a secured and protected interest in, and Collateral Agent has
agreed to become a secured creditor with respect to, the Trademark Collateral;

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, subject to the terms and
conditions of the Security Agreement, Grantor hereby grants to Collateral Agent
a security interest, (subject to the terms of the Intercreditor Agreement (as
defined in the Security Agreement) (including, without limitation, the
provisions regarding lien priority)), in all of Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which Grantor now has or hereafter acquires an interest and wherever the
same may be located (the "TRADEMARK COLLATERAL"):

         (i) all rights, title and interest (including rights acquired pursuant
         to a license or otherwise but only to the extent permitted by
         agreements governing such license or other use) in and to all
         trademarks, service marks, designs, logos, indicia, tradenames, trade
         dress, corporate names, company names, business names, fictitious
         business names, trade styles and/or other source and/or business
         identifiers and applications pertaining thereto, owned by such Grantor,
         or hereafter adopted and used, in its business (including, without
         limitation, the trademarks specifically identified in Schedule A)
         (collectively, the "TRADEMARKS"), all registrations that have been or
         may hereafter be issued or applied for thereon in the United States and
         any state thereof and in foreign countries (including, without
         limitation, the registrations and applications specifically identified
         in Schedule A) (the "TRADEMARK REGISTRATIONS"), all common law and
         other rights (but in no event any of the obligations) in and to the
         Trademarks in the United States and any state thereof and in foreign
         countries (the "TRADEMARK RIGHTS"), and all goodwill of such Grantor's
         business symbolized by the Trademarks and associated therewith (the
         "ASSOCIATED GOODWILL"); and

         (ii) all proceeds, products, rents and profits of or from any and all
         of the foregoing Trademark Collateral and, to the extent not otherwise
         included, all payments under insurance (whether or not Collateral Agent
         is the loss payee thereof), or any indemnity, warranty or guaranty,
         payable by reason of loss or damage to or otherwise with respect to any
         of the foregoing Trademark Collateral. For purposes of this Grant of
         Trademark Security Interest, the term "PROCEEDS" includes whatever is
         receivable or received when Trademark Collateral or proceeds are sold,
         exchanged, collected or otherwise disposed of, whether such disposition
         is voluntary or involuntary.

                  Notwithstanding anything herein to the contrary, in no event
shall the Trademark Collateral include, and Grantor shall be not deemed to have
granted a security interest in, any of Grantor's rights or interests in any
license, contract or agreement to which Grantor is a party or any of its rights
or interests thereunder, to the extent, but only to the extent, that such a
grant would, under the terms of such license, contract or agreement or
otherwise, result in a breach of the terms of, or constitute a default under any
license, contract or agreement to which Grantor is a party on the date hereof
(other than to the extent that any such provision would be rendered ineffective
pursuant to the UCC or any other applicable law (including the Bankruptcy Code
(as defined in the Intercreditor Agreement) or principles of equity); provided,
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Trademark Collateral shall include, and Grantor shall be deemed
to have granted a security interest to Collateral Agent in, all such rights and
interests as if such provision had never been in effect; provided, further that
if the assignment of proceeds of such license, contract or agreement would not
result in a breach of the terms of, or constitute a default under the provisions
of such license, contract or agreement, such proceeds shall be included in the
Trademark Collateral.

                  Grantor does hereby further acknowledge and affirm that the
rights and remedies of Collateral Agent with respect to the security interests
in the Trademark Collateral granted hereby are more fully set forth in the
Security Agreement, the terms and provisions of which are incorporated by
reference herein as if fully set forth herein.

Security Agreement

                                     I-S-2

<PAGE>

                  IN WITNESS WHEREOF, Grantor has caused this Grant of Trademark
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the __ day of _______, 200__.

                                          [NAME OF GRANTOR]

                                          By:
                                             -----------------------------------
                                            Name:
                                                 -------------------------------
                                            Title:
                                                  ------------------------------
Security Agreement

                                     I-S-3

<PAGE>

                                   SCHEDULE A
                                       TO
                      GRANT OF TRADEMARK SECURITY INTEREST

<TABLE>
<CAPTION>
                                         United States
                                           Trademark                    Registration                   Registration
Registered Owner                          Description                      Number                          Date
----------------                         --------------                 -------------                  -------------
<S>                                      <C>                            <C>                            <C>
</TABLE>

Security Agreement

                                       I-A-1

<PAGE>

                                                                   EXHIBIT II TO
                                                              SECURITY AGREEMENT

                   [FORM OF GRANT OF PATENT SECURITY INTEREST]

                        GRANT OF PATENT SECURITY INTEREST

                  WHEREAS, [NAME OF GRANTOR], a ___________ corporation
("GRANTOR"), owns and uses in its business, and will in the future adopt and so
use, various intangible assets, including the Patent Collateral (as defined
below);

                  WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation
("COMPANY") and the Subsidiaries of Company listed on the signature pages
thereof (collectively, Company and such Subsidiaries of Company are "BORROWERS"
and each a "BORROWER") have entered into certain Credit Agreement dated as of
March __, 2004 (said Credit Agreement or any credit agreement entered into by
Detroit L/C Borrowers to refinance, replace, renew or extend, in whole or in
part, said Credit Agreement and the indebtedness and letters of credit issued
thereunder, as said Credit Agreement or any replacement to said Credit Agreement
may be amended, restated, supplemented or otherwise modified from time to time,
being the "DETROIT L/C FACILITY AGREEMENT") with the financial institutions
listed on the signature pages thereof as Lenders (collectively, together with
their respective successors and assigns party to the Detroit L/C Facility
Agreement from time to time, the "DETROIT L/C LENDERS"), DEUTSCHE BANK
SECURITIES, INC., as Documentation Agent for the Detroit L/C Lenders (in such
capacity, the "DETROIT L/C DOCUMENTATION AGENT"), and BANK OF AMERICA, N.A., as
Administrative Agent for the Detroit L/C Lenders (in such capacity, the "DETROIT
L/C FACILITY AGENT," and together with the Detroit L/C Documentation Agent, the
"DETROIT L/C AGENTS"), pursuant to which the Detroit L/C Lenders have made
certain commitments, subject to the terms and conditions set forth in the
Detroit L/C Facility Agreement, to extend certain letter of credit facilities to
Borrowers;

                  WHEREAS, Borrowers have entered into certain Credit Agreement
dated as of March __, 2004 (said Credit Agreement or any credit agreement
entered into by New L/C Borrowers to refinance, replace, renew or extend, in
whole or in part, said Credit Agreement and the indebtedness and letters of
credit issued thereunder, as said Credit Agreement or any replacement to said
Credit Agreement may be amended, restated, supplemented or otherwise modified
from time to time, being the "NEW L/C FACILITY AGREEMENT") with the financial
institutions listed on the signature pages thereof as Lenders (collectively,
together with their respective successors and assigns party to the Detroit L/C
Facility Agreement from time to time, the "NEW L/C LENDERS"), and Bank One, NA,
as Administrative Agent for the New L/C Lenders (in such capacity, the "NEW L/C
FACILITY AGENT"), pursuant to which the New L/C Lenders have made certain
commitments, subject to the terms and conditions set forth in the New L/C
Facility Agreement, to extend certain letter of credit facilities to Borrowers;

                  WHEREAS, Company has issued $205,000,000 in aggregate face
principal amount accruing to $230,000,000 at stated maturity of its 8.25% Senior
Notes due 2011 (said notes or any replacement to said notes pursuant to a
refinancing, defeasance, renewal, replacement or extension of such notes, being
the "HIGH YIELD NOTES");

                  WHEREAS, Borrowers other than the Company have agreed, in
favor of the holders of the High Yield Notes, to guarantee the prompt payment
and performance when due of all obligations of Company under the High Yield
Notes;

                  WHEREAS, Borrowers are required to maintain the Cash
Management System (as defined in the New L/C Facility Agreement and the Detroit
L/C Facility Agreement) with Collateral Agent (in such capacity, the "CASH
MANAGEMENT BANK") and the obligations of Borrowers to the Cash Management Bank
arising from or relating to the Cash Management System are secured under the
Security Agreement (as defined below); and

                  WHEREAS, pursuant to the terms of a Security Agreement dated
as of March __, 2004 (as it may heretofore have been and as it may from time to
time hereafter be amended, restated, supplemented or otherwise

Security Agreement

                                       II-1

<PAGE>

modified, the "SECURITY AGREEMENT"), among Grantor, the other grantors named
therein and Bank of America, N.A., in its capacity as collateral agent for and
representative of the Secured Parties (as defined in the Intercreditor Agreement
referred to below), (the "COLLATERAL AGENT"), Grantor has granted in favor of
Collateral Agent a secured and protected interest in, and Collateral Agent has
agreed to become a secured creditor with respect to, the Patent Collateral;

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, subject to the terms and
conditions of the Security Agreement, Grantor hereby grants to Collateral Agent
a security interest, (subject to the terms of the Intercreditor Agreement (as
defined in the Security Agreement) (including, without limitation, the
provisions regarding lien priority)), in all of Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which Grantor now has or hereafter acquires an interest and wherever the
same may be located (the "PATENT COLLATERAL"):

         (i) all rights, title and interest (including rights acquired pursuant
         to a license or otherwise but only to the extent permitted by
         agreements governing such license or other use) in and to all patents
         and patent applications and rights and interests in patents and patent
         applications under any domestic or foreign law that are presently, or
         in the future may be, owned or held by such Grantor and all patents and
         patent applications and rights, title and interests in patents and
         patent applications under any domestic or foreign law that are
         presently, or in the future may be, owned by such Grantor in whole or
         in part (including, without limitation, the patents and patent
         applications listed in Schedule A), all rights (but not obligations)
         corresponding thereto to sue for past, present and future infringements
         and all re-issues, divisions, continuations, renewals, extensions and
         continuations-in-part thereof (all of the foregoing being collectively
         referred to as the "PATENTS"); and

         (ii) all proceeds, products, rents and profits of or from any and all
         of the foregoing Patent Collateral and, to the extent not otherwise
         included, all payments under insurance (whether or not Collateral Agent
         is the loss payee thereof), or any indemnity, warranty or guaranty,
         payable by reason of loss or damage to or otherwise with respect to any
         of the foregoing Patent Collateral. For purposes of this Grant of
         Patent Security Interest, the term "PROCEEDS" includes whatever is
         receivable or received when Patent Collateral or proceeds are sold,
         exchanged, collected or otherwise disposed of, whether such disposition
         is voluntary or involuntary.

                  Notwithstanding anything herein to the contrary, in no event
shall the Patent Collateral include, and Grantor shall be not deemed to have
granted a security interest in, any of Grantor's rights or interests in any
license, contract or agreement to which Grantor is a party or any of its rights
or interests thereunder, to the extent, but only to the extent, that such a
grant would, under the terms of such license, contract or agreement or
otherwise, result in a breach of the terms of, or constitute a default under any
license, contract or agreement to which Grantor is a party on the date hereof
(other than to the extent that any such provision would be rendered ineffective
pursuant to the UCC or any other applicable law (including the Bankruptcy Code
(as defined in the Intercreditor Agreement) or principles of equity); provided,
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Patent Collateral shall include, and Grantor shall be deemed to
have granted a security interest to Collateral Agent in, all such rights and
interests as if such provision had never been in effect; provided, further that
if the assignment of proceeds of such license, contract or agreement would not
result in a breach of the terms of, or constitute a default under the provisions
of such license, contract or agreement, such proceeds shall be included in the
Patent Collateral.

                  Grantor does hereby further acknowledge and affirm that the
rights and remedies of Collateral Agent with respect to the security interest in
the Patent Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

             [The remainder of this page intentionally left blank.]

Security Agreement

                                       II-2

<PAGE>

                  IN WITNESS WHEREOF, Grantor has caused this Grant of Patent
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the ___ day of ____________, 200__.

                                        [NAME OF GRANTOR]

                                        By:
                                           -------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

Security Agreement

                                     II-S-1

<PAGE>

                                   SCHEDULE A
                                       TO
                        GRANT OF PATENT SECURITY INTEREST

PATENTS ISSUED:

<TABLE>
<CAPTION>
Patent No.                    Issue Date                    Invention                    Inventor
----------                    ----------                    ---------                    --------
<S>                           <C>                           <C>                          <C>
</TABLE>

PATENTS PENDING:

<TABLE>
<CAPTION>
Applicant's                 Date                Application
   Name                    Filed                   Number                Invention              Inventor
-----------                -----                ------------             ---------              --------
<S>                        <C>                  <C>                      <C>                    <C>
</TABLE>

Security Agreement

                                     II-A-1

<PAGE>

                                                                  EXHIBIT III TO
                                                              SECURITY AGREEMENT

                 [FORM OF GRANT OF COPYRIGHT SECURITY INTEREST]

                      GRANT OF COPYRIGHT SECURITY INTEREST

                  WHEREAS, [NAME OF GRANTOR], a ___________ corporation
("GRANTOR"), owns and uses in its business, and will in the future adopt and so
use, various intangible assets, including the Copyright Collateral (as defined
below);

                  WHEREAS, COVANTA ENERGY CORPORATION, a Delaware corporation
("COMPANY") and the Subsidiaries of Company listed on the signature pages
thereof (collectively, Company and such Subsidiaries of Company are "BORROWERS"
and each a "BORROWER") have entered into certain Credit Agreement dated as of
March __, 2004 (said Credit Agreement or any credit agreement entered into by
Detroit L/C Borrowers to refinance, replace, renew or extend, in whole or in
part, said Credit Agreement and the indebtedness and letters of credit issued
thereunder, as said Credit Agreement or any replacement to said Credit Agreement
may be amended, restated, supplemented or otherwise modified from time to time,
being the "DETROIT L/C FACILITY AGREEMENT") with the financial institutions
listed on the signature pages thereof as Lenders (collectively, together with
their respective successors and assigns party to the Detroit L/C Facility
Agreement from time to time, the "DETROIT L/C LENDERS"), DEUTSCHE BANK
SECURITIES, INC., as Documentation Agent for the Detroit L/C Lenders (in such
capacity, the "DETROIT L/C DOCUMENTATION AGENT"), and BANK OF AMERICA, N.A., as
Administrative Agent for the Detroit L/C Lenders (in such capacity, the "DETROIT
L/C FACILITY AGENT," and together with the Detroit L/C Documentation Agent, the
"DETROIT L/C AGENTS"), pursuant to which the Detroit L/C Lenders have made
certain commitments, subject to the terms and conditions set forth in the
Detroit L/C Facility Agreement, to extend certain letter of credit facilities to
Borrowers;

                  WHEREAS, Borrowers have entered into certain Credit Agreement
dated as of March __, 2004 (said Credit Agreement or any credit agreement
entered into by New L/C Borrowers to refinance, replace, renew or extend, in
whole or in part, said Credit Agreement and the indebtedness and letters of
credit issued thereunder, as said Credit Agreement or any replacement to said
Credit Agreement may be amended, restated, supplemented or otherwise modified
from time to time, being the "NEW L/C FACILITY AGREEMENT") with the financial
institutions listed on the signature pages thereof as Lenders (collectively,
together with their respective successors and assigns party to the Detroit L/C
Facility Agreement from time to time, the "NEW L/C LENDERS"), and Bank One, NA,
as Administrative Agent for the New L/C Lenders (in such capacity, the "NEW L/C
FACILITY AGENT"), pursuant to which the New L/C Lenders have made certain
commitments, subject to the terms and conditions set forth in the New L/C
Facility Agreement, to extend certain letter of credit facilities to Borrowers;

                  WHEREAS, Company has issued $205,000,000 in aggregate face
principal amount accruing to $230,000,000 at stated maturity of its 8.25% Senior
Notes due 2011 (said notes or any replacement to said notes pursuant to a
refinancing, defeasance, renewal, replacement or extension of such notes, being
the "HIGH YIELD NOTES");

                  WHEREAS, Borrowers other than the Company have agreed, in
favor of the holders of the High Yield Notes, to guarantee the prompt payment
and performance when due of all obligations of Company under the High Yield
Notes;

                  WHEREAS, Borrowers are required to maintain the Cash
Management System (as defined in the New L/C Facility Agreement and the Detroit
L/C Facility Agreement) with Collateral Agent (in such capacity, the "CASH
MANAGEMENT BANK") and the obligations of Borrowers to the Cash Management Bank
arising from or relating to the Cash Management System are secured under the
Security Agreement (as defined below); and

                  WHEREAS, pursuant to the terms of a Security Agreement dated
as of March __, 2004 (as it may heretofore have been and as it may from time to
time hereafter be amended, restated, supplemented or otherwise

Security Agreement

                                       III-1

<PAGE>

modified, the "SECURITY AGREEMENT"), among Grantor, the other grantors named
therein and Bank of America, N.A., in its capacity as collateral agent for and
representative of the Secured Parties (as defined in the Intercreditor Agreement
referred to below), (the "COLLATERAL AGENT"), Grantor has granted in favor of
Collateral Agent a secured and protected interest in, and Collateral Agent has
agreed to become a secured creditor with respect to, the Copyright Collateral;

                  NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, subject to the terms and
conditions of the Security Agreement, Grantor hereby grants to Collateral Agent
a security interest, (subject to the terms of the Intercreditor Agreement (as
defined in the Security Agreement) (including, without limitation, the
provisions regarding lien priority)), in all of Grantor's right, title and
interest in and to the following, in each case whether now or hereafter existing
or in which Grantor now has or hereafter acquires an interest and wherever the
same may be located (the "COPYRIGHT COLLATERAL"):

         (i) all rights, title and interest (including rights acquired pursuant
         to a license or otherwise but only to the extent permitted by
         agreements governing such license or other use) under copyright in
         various published and unpublished works of authorship including,
         without limitation, computer programs, computer data bases, other
         computer software layouts, trade dress, drawings, designs, writings,
         and formulas (including, without limitation, the works listed on
         Schedule A, as the same may be amended pursuant hereto from time to
         time) (collectively, the "COPYRIGHTS"), all copyright registrations
         issued to Grantor and applications for copyright registration that have
         been or may hereafter be issued or applied for thereon in the United
         States and any state thereof and in foreign countries (including,
         without limitation, the registrations listed on Schedule A, as the same
         may be amended pursuant hereto from time to time) (collectively, the
         "COPYRIGHT REGISTRATIONS"), all common law and other rights in and to
         the Copyrights in the United States and any state thereof and in
         foreign countries including all copyright licenses (but with respect to
         such copyright licenses, only to the extent permitted by such licensing
         arrangements) (the "COPYRIGHT RIGHTS"), including, without limitation,
         each of the Copyrights, rights, titles and interests in and to the
         Copyrights, all derivative works and other works protectable by
         copyright, which are presently, or in the future may be, owned, created
         (as a work for hire for the benefit of Grantor), authored (as a work
         for hire for the benefit of Grantor), or acquired by Grantor, in whole
         or in part, and all Copyright Rights with respect thereto and all
         Copyright Registrations therefor, heretofore or hereafter granted or
         applied for, and all renewals and extensions thereof, throughout the
         world, including all proceeds thereof (such as, by way of example and
         not by limitation, license royalties and proceeds of infringement
         suits), the right (but not the obligation) to renew and extend such
         Copyright Registrations and Copyright Rights and to register works
         protectable by copyright and the right (but not the obligation) to sue
         in the name of such Grantor or in the name of Collateral Agent or
         Lenders for past, present and future infringements of the Copyrights
         and Copyright Rights; and

         (ii) all proceeds, products, rents and profits of or from any and all
         of the foregoing Copyright Collateral and, to the extent not otherwise
         included, all payments under insurance (whether or not Collateral Agent
         is the loss payee thereof), or any indemnity, warranty or guaranty,
         payable by reason of loss or damage to or otherwise with respect to any
         of the foregoing Copyright Collateral. For purposes of this Grant of
         Copyright Security Interest, the term "PROCEEDS" includes whatever is
         receivable or received when Copyright Collateral or proceeds are sold,
         exchanged, collected or otherwise disposed of, whether such disposition
         is voluntary or involuntary.

                  Notwithstanding anything herein to the contrary, in no event
shall the Copyright Collateral include, and Grantor shall be not deemed to have
granted a security interest in, any of Grantor's rights or interests in any
license, contract or agreement to which Grantor is a party or any of its rights
or interests thereunder, to the extent, but only to the extent, that such a
grant would, under the terms of such license, contract or agreement or
otherwise, result in a breach of the terms of, or constitute a default under any
license, contract or agreement to which Grantor is a party on the date hereof
(other than to the extent that any such provision would be rendered ineffective
pursuant to the UCC or any other applicable law (including the Bankruptcy Code
(as defined in the Intercreditor Agreement) or principles of equity); provided,
that immediately upon the ineffectiveness, lapse or termination of any such
provision, the Copyright Collateral shall include, and Grantor shall be deemed
to have granted a security interest to Collateral Agent in, all such rights and
interests as if such provision had never been in effect; provided, further that
if the assignment of proceeds of such license, contract or agreement would not
result in a breach of the

Security Agreement

                                       III-2

<PAGE>

terms of, or constitute a default under the provisions of such license, contract
or agreement, such proceeds shall be included in the Copyright Collateral.

                  Grantor does hereby further acknowledge and affirm that the
rights and remedies of Collateral Agent with respect to the security interest in
the Copyright Collateral granted hereby are more fully set forth in the Security
Agreement, the terms and provisions of which are incorporated by reference
herein as if fully set forth herein.

             [The remainder of this page intentionally left blank.]

Security Agreement

                                       III-3

<PAGE>

                  IN WITNESS WHEREOF, Grantor has caused this Grant of Copyright
Security Interest to be duly executed and delivered by its officer thereunto
duly authorized as of the ___ day of ___________, 200__.

                                         [NAME OF GRANTOR]

                                        By:
                                           -------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

Security Agreement

                                     III-S-1

<PAGE>

                                   SCHEDULE A
                                       TO
                      GRANT OF COPYRIGHT SECURITY INTEREST

U.S. COPYRIGHTS:
<TABLE>
<CAPTION>
Title          Registration No.     Date of Issue              Registered Owner
-----          ---------------      -------------              ----------------
<S>            <C>                  <C>                        <C>
</TABLE>

PENDING U.S. COPYRIGHT REGISTRATIONS & APPLICATIONS:

<TABLE>
<CAPTION>
Title             Reference No.             Date of Application                 Copyright Claimant
-----             -------------             -------------------                 ------------------
<S>               <C>                       <C>                                 <C>
</TABLE>

Security Agreement

                                     III-A-1

<PAGE>

                                                                   EXHIBIT IV TO
                                                              SECURITY AGREEMENT

                                PLEDGE SUPPLEMENT

                  This Pledge Supplement, dated as of _________________, 200__
is delivered pursuant to the Security Agreement, dated as of March __, 2004
among ____________, a ____________ ("GRANTOR"), the other Grantors named
therein, and Bank of America, N.A., as Collateral Agent (as it may heretofore
have been and as it may from time to time hereafter be amended, restated,
supplemented or otherwise modified, the "SECURITY AGREEMENT"). Capitalized terms
used herein not otherwise defined herein shall have the meanings ascribed
thereto in the Security Agreement.

                  Grantor hereby agrees that the [Pledged Shares] [Pledged Debt]
listed on the schedule attached hereto shall be deemed to be part of the
[Pledged Shares] [Pledged Debt] and shall become part of the Securities
Collateral and shall secure all Secured Obligations.

                  IN WITNESS WHEREOF, Grantor has caused this Amendment to be
duly executed and delivered by its duly authorized officer as of
_______________, 200__.

                                        [GRANTOR]

                                        By:
                                           -------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

Security Agreement

                                       IV-1

<PAGE>

                                                                    EXHIBIT V TO
                                                              SECURITY AGREEMENT

                                  IP SUPPLEMENT

                  This IP SUPPLEMENT, dated as of ____________, 200__ is
delivered pursuant to and supplements (i) the Security Agreement, dated as of
March __, 2004 (as it may heretofore have been and as it may from time to time
hereafter be amended, restated, supplemented or otherwise modified, the
"SECURITY AGREEMENT"), among _______________ ("GRANTOR"), the other Grantors
named therein, and Bank of America, N.A., as Collateral Agent, and (ii) the
[Grant of Trademark Security Interest] [Grant of Patent Security Interest]
[Grant of Copyright Security Interest] dated as of ___________, 200__ (the
"GRANT") executed by Grantor. Capitalized terms used herein not otherwise
defined herein shall have the meanings ascribed thereto in the Grant.

                  Grantor grants to Collateral Agent a security interest (as set
forth in the Security Agreement) in all of Grantor's right, title and interest
in and to the [Trademark Collateral] [Patent Collateral] [Copyright Collateral]
listed on Schedule A attached hereto. All such [Trademark Collateral] [Patent
Collateral] [Copyright Collateral] shall be deemed to be part of the [Trademark
Collateral] [Patent Collateral] [Copyright Collateral] and shall be hereafter
subject to each of the terms and conditions of the Security Agreement and the
Grant.

                  IN WITNESS WHEREOF, Grantor has caused this Supplement to be
duly executed and delivered by its duly authorized officer as of ______________,
200__.

                                        [GRANTOR]

                                        By:
                                           -------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

                               [Attach Schedule A]

Security Agreement

                                       V-1

<PAGE>

                                                                   EXHIBIT VI TO
                                                              SECURITY AGREEMENT

                              [FORM OF COUNTERPART]

                  COUNTERPART (this "COUNTERPART"), dated as of __________,
200__ is delivered pursuant to Section 24 of the Security Agreement referred to
below. The undersigned hereby agrees that this Counterpart may be attached to
the Security Agreement, dated as of March __, 2004 (as it may heretofore have
been and as it may from time to time hereafter be amended, restated,
supplemented or otherwise modified, the "SECURITY AGREEMENT"; capitalized terms
used herein not otherwise defined herein shall have the meanings ascribed
therein), among Covanta Energy Corporation, the other Grantors named therein,
and Bank of America, N.A., as Collateral Agent. The undersigned by executing and
delivering this Counterpart hereby becomes a Grantor under the Security
Agreement in accordance with Section 24 thereof and agrees to be bound by all of
the terms thereof. Without limiting the generality of the foregoing, the
undersigned hereby:

                  (i) agrees that all Collateral of the undersigned, including
         the items of property described on the Schedules attached hereto, shall
         become part of the Collateral and shall secure all Secured Obligations,
         and hereby grants to the Collateral Agent for the benefit of the
         Lenders a continuing security interest (as set forth in the Security
         Agreement) in all such Collateral of the undersigned;

                  (ii) authorizes the Collateral Agent to add the information
         set forth on the Schedules to this Counterpart to the correlative
         Schedules attached to the Security Agreement(1);

                  (iii) agrees that it hereby becomes a party to the Security
         Agreement as a Grantor and hereafter has the rights and obligations of
         a Grantor thereunder and is bound by all of the provisions thereof as
         fully as if the undersigned were one of the original parties thereto;

                  (iv) makes the representations and warranties set forth in the
         Security Agreement, as amended hereby, to the extent relating to the
         undersigned; and

                  (v) agrees that the address and facsimile number of the
         undersigned for notice purposes pursuant to Section 26 of the Security
         Agreement shall be initially as set forth below.

                                        [NAME OF ADDITIONAL GRANTOR]

                                        By:
                                           -------------------------------------
                                          Name:
                                               ---------------------------------
                                          Title:
                                                --------------------------------

                                        Notice Address:

                                              -----------------------------
                                              -----------------------------
                                            -------------------------------

---------------------
(1) The Schedules to the Counterpart should include copies of all Schedules that
identify Collateral to be granted by the Grantor.

Security Agreement
                                       V-1

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