SUBJECT: [Form of Cash Convertible Note Hedge Transaction] The purpose of this letter agreement (this "Confirmation") is to confirm the terms and conditions of the Transaction entered into between [Bank Name] ("Bank"), through its agent [Bank Agent] (the "Agent"), and Covanta Holding Corporation

May 18, 2009

Covanta Holding Corporation

40 Lane Road

Fairfield, New Jersey

Treasurer

973-882-4193

973-882-7234

[Bank Agent], acting as Agent for [Bank Name]

[             ]

[Form of Cash Convertible Note Hedge Transaction]

May 18, 2009.

Modified American, as described below under “Procedures for Exercise”.

Call.

Counterparty.

Bank.

The common stock, par value USD0.10 per share, of Counterparty (Ticker symbol “CVA”).

400,000; provided that if the initial purchasers named in the Purchase Agreement (as defined in Section 4(a) below) exercised the option to purchase additional Cash Convertible Notes (“ Additional Cash Convertible Notes ”) pursuant to Section 3 of the Purchase Agreement, the Number of Options shall be automatically increased, effective upon payment by Counterparty of the Additional Premium on the Additional Premium Payment Date, by a number of Options equal to the number of Additional Cash Convertible Notes in denominations of USD1,000 principal amount issued pursuant to such exercise, and Calculation Agent will promptly notify Counterparty of the increased Number of Options.

As of any date, a number of Shares per Option equal to the “Conversion Rate” (as defined in the Indenture) as of such date, but without regard to any adjustments to the “Conversion Rate” pursuant to Section 10.03 or to Section 10.04(g) or (h) of the Indenture).

As provided in Schedule A to this Confirmation.

[Barclays Bank PLC - 50%; Citibank, N.A. - 25%; JPMorgan Chase Bank, National Association - 25%].

The product of (i) the Number of Options, (ii) the Option Entitlement and (iii) the Applicable Percentage.

As provided in Schedule A to this Confirmation; provided that if the Number of Options is increased pursuant to the proviso to the definition of “Number of Options” above, Counterparty shall pay on the Additional Premium Payment Date an additional Premium (the “ Additional Premium ”) equal to the product of the number of Options by which the aggregate Number of Options is so increased and USD [Barclays Bank PLC - 122.15; Citibank, N.A. - 61.075; JPMorgan Chase Bank, National Association - 61.075].

The closing date for the initial issuance of the Cash Convertible Notes.

The closing date for the purchase and sale of the Additional Cash Convertible Notes.

The New York Stock Exchange.

All Exchanges.

Bank.

Each Conversion Date.

Each “Conversion Date” (as defined in the Indenture).

In respect of each Conversion Date, a number of Options equal to the number of Cash Convertible Notes in denominations of USD1,000 principal amount satisfying all of the requirements for conversion on such Conversion Date in accordance with the terms of the Indenture, subject to “Notice of Exercise” below, but no greater than the Number of Options.

The earlier of (x) the last day on which any Cash Convertible Notes remain outstanding and (y) the maturity date of the Cash Convertible Notes.

Applicable, as provided under “Exercisable Options” above.

Applicable, subject to “Notice of Exercise” below.

Notwithstanding anything to the contrary in the Equity Definitions, in order to exercise any Exercisable Options, Counterparty must notify, or cause the Trustee to notify, Bank in writing prior to 5:00 p.m., New York City time, on the day that is at least one Scheduled Trading Day prior to the first day of the applicable “Conversion Period” (as defined in the Indenture) in respect of the Cash Convertible Notes being converted on the Conversion Date relating to the relevant Exercise Date (the “ Notice Deadline ”) of (i) the number of Options being exercised on such Exercise Date; (ii) the Exercise Date; (iii) the scheduled commencement date of the “Conversion Period”; and (iv) the scheduled settlement date under the Indenture for the relevant Cash Convertible Notes converted on the Conversion Date corresponding to such Exercise Date; provided that, notwithstanding the foregoing, such notice (and the related automatic exercise of such Options) shall be effective if given after the relevant Notice Deadline but prior to 5:00 PM New York City time, on the fifth Scheduled Trading Day of such “Conversion Period”, in which case the Calculation Agent shall have the right to adjust the Delivery Obligation as appropriate to reflect the additional costs (including, but not limited to, hedging mismatches and market losses) and reasonable expenses incurred by Bank in connection with its hedging activities (including the unwinding of any hedge position) as a result of its not having received such notice prior to the Notice Deadline; provided further that in respect of Cash Convertible Notes converted during the period beginning on, and including the 55 ^th “Scheduled Trading Day” (as defined in the Indenture) prior to the “Maturity Date” (as defined in the Indenture) for such Cash Convertible Notes and ending on the first “Scheduled Trading Day” immediately preceding the “Maturity Date”, the Notice Deadline shall be the first “Scheduled Trading Day” immediately preceding the “Maturity Date”.

In respect of an Exercise Date occurring on a Conversion Date, in lieu of the obligations set forth in Sections 8.1 and 9.1 of the Equity Definitions, and subject to “Notice of Exercise” above, Bank shall pay to Counterparty on the related Settlement Date, with respect to a number of Options exercised on such Exercise Date, an amount in cash equal to the product of (i) the Applicable Percentage and (ii) the excess, if any, of (x) the aggregate “ Cash Conversion Settlement Amount ” (as defined in the Indenture) that Counterparty is obligated to pay to the holder(s) of the related Cash Convertible Notes converted on such Conversion Date pursuant to Section 10.02(b) of the Indenture over (y) the aggregate principal amount of such Cash Convertible Notes (such product, the “ Net Cash Settlement Amount ”); provided that such obligation shall be determined excluding (a) any cash that Counterparty is obligated to pay to holder(s) of the Cash Convertible Notes as a result of any adjustments to the Conversion Rate as set forth in Section 10.03 or in Section 10.04(g) or (h) of the Indenture and, (b) for the avoidance of doubt, any interest payment or distribution that Counterparty is obligated to deliver in respect of Cash Convertible Notes converted on such Conversion Date.

No later than the Scheduled Trading Day immediately following the last day of the “Conversion Period” (as defined in the Indenture), Counterparty shall, or shall cause Trustee to, give Bank notice of the final amount of cash comprising the Net Cash Settlement Amount; it being understood, for the avoidance of doubt, that the requirement of Counterparty to deliver such notice shall neither (i) limit Counterparty’s obligations with respect to “Notice of Exercise” above nor (ii) affect Bank’s delivery obligations hereunder in any way.

In respect of an Exercise Date occurring on a Conversion Date, the settlement date for the cash to be paid in connection with the related Cash Convertible Notes under the terms of the Indenture; provided that the Settlement Date shall not be prior to the Currency Business Day immediately following the date on which Counterparty gives notice to Bank of such Settlement Date.

USD.

Notwithstanding Section 11.2 of the Equity Definitions, upon any adjustment to the “Conversion Rate” (as defined in the Indenture) and/or the nature of the Shares underlying the Cash Convertible Notes pursuant to the Indenture (other than an increase in the “Conversion Rate” pursuant to Section 10.03 or to Section 10.04(g) or (h) of the Indenture), the Calculation Agent will make a corresponding adjustment to any one or more of the Strike Price, Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement, payment or other terms of the Transaction to the same extent as the adjustment under the Indenture. Counterparty agrees that it will notify Bank upon the effectiveness of any such adjustment.

Notwithstanding Section 12.1(b) of the Equity Definitions, a “Merger Event” means the occurrence of any event or condition set forth in Section 10.05 of the Indenture.

Upon the occurrence of a Merger Event that causes the Shares to be converted into or exchanged for more than a single type of consideration (determined based in part upon the form of election of the holders of the Shares), Counterparty shall promptly notify the Calculation Agent in writing of the types and amounts of consideration that holders of Shares have affirmatively elected to receive upon consummation of such Merger Event; provided that in no event shall the date of such notification be later than the date on which such Merger Event is consummated.

Notwithstanding Section 12.2 of the Equity Definitions, upon the occurrence of a Merger Event, the Calculation Agent shall make a corresponding adjustment in respect of any adjustment under the Indenture to any one or more of the nature of the Shares, the Strike Price, the Number of Options, the Option Entitlement and any other variable relevant to the exercise, settlement, payment or other terms of the Transaction; provided , however , that such adjustment shall be made without regard to any adjustment to the “ Conversion Rate ” (as defined in the Indenture) pursuant to Section 10.03 or to Section 10.04(g) or (h) of the Indenture.

Cancellation and Payment (Calculation Agent Determination); provided that, in addition to the provisions of Section 12.6(a)(iii) of the Equity Definitions, it will also constitute a Delisting if the Exchange is located in the United States and the Shares are not immediately re-listed, re-traded or re-quoted on any of the New York Stock Exchange, the American Stock Exchange, the NASDAQ Global Select Market or the NASDAQ Global Market (or their respective successors); if the Shares are immediately re-listed, re-traded or re-quoted on any such exchange or quotation system, such exchange or quotation system shall thereafter be deemed to be the Exchange.

Applicable; provided that Section 12.9(a)(ii)(Y) of the Equity Definitions is hereby deleted.

Applicable.

Applicable.

Applicable.

Applicable.

Bank for all applicable Additional Disruption Events.

Bank for all applicable Extraordinary Events.

Applicable.

Applicable.

Applicable.

(a)

Commodity Exchange Act. It is an “eligible contract participant” within the meaning of Section 1a(12) of the U.S. Commodity Exchange Act, as amended (the “ CEA ”). The Transaction has been subject to individual negotiation by the parties. The Transaction has not been executed or traded on a “trading facility” as defined in Section 1a(33) of the CEA; and

(b)

Securities Act. It is a “qualified institutional buyer” as defined in Rule 144A under the U.S. Securities Act of 1933, as amended (the “ Securities Act ”), or an “accredited investor” as defined in Section 2(a)(15)(ii) of the Securities Act.

(a)

the representations and warranties of Counterparty set forth in Section 2 of the Purchase Agreement dated as of the Trade Date between Counterparty and Barclays Capital Inc., Citigroup Global Markets Inc. and J.P. Morgan Securities Inc., as representatives of the initial purchasers party thereto (the “ Purchase Agreement ”), are true and correct and are hereby deemed to be repeated to Bank as if set forth herein;

(b)

Counterparty is not as of the Trade Date, and shall not be after giving effect to the transactions contemplated hereby, “insolvent” (as such term is defined in Section 101(32) of the U.S. Bankruptcy Code (Title 11 of the United States Code) (the “ Bankruptcy Code ”));

(c)

Counterparty shall immediately provide written notice to Bank upon obtaining knowledge of the occurrence of any event that would constitute an Event of Default      , adjustments specified under “Method of Adjustment”, a Merger Event or any other Extraordinary Event; provided, however , that should Counterparty be in possession of material non-public information regarding Counterparty, Counterparty shall not communicate such information to Bank;

(d)

Counterparty’s investments in and liabilities in respect of the Transaction, which it understands are not readily marketable, are not disproportionate to its net worth, and Counterparty is able to bear any loss in connection with the Transaction, including the loss of its entire investment in the Transaction;

(e)

Counterparty understands, agrees and acknowledges that Bank has no obligation or intention to register the Transaction under the Securities Act, any state securities law or other applicable federal securities law;

(f)

each of Counterparty’s filings under the Securities Act, the Securities Exchange Act of 1934, as amended (the “ Exchange Act ”), or other applicable securities laws that are required to be filed have been filed and that, as of the respective dates thereof and as of the date of this representation, there is no misstatement of material fact contained therein or omission of a material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they were made, not misleading;

(g)

Counterparty is not, and after giving effect to the transactions contemplated hereby will not be, required to register as an “investment company” as such term is defined in the Investment Company Act of 1940, as amended;

(h)

Counterparty understands, agrees and acknowledges that no obligations of Bank to it hereunder shall be entitled to the benefit of deposit insurance and that such obligations shall not be guaranteed by any affiliate of Bank or any governmental agency;

(i)

(A) Counterparty is acting for its own account, and it has made its own independent decisions to enter into the Transaction and as to whether the Transaction is appropriate or proper for it based upon its own judgment and upon advice from such advisers as it has deemed necessary, (B) Counterparty is not relying on any communication (written or oral) of Bank or any of its affiliates as investment advice or as a recommendation to enter into the Transaction (it being understood that information and explanations related to the terms and conditions of the Transaction shall not be considered investment advice or a recommendation to enter into the Transaction) and (C) no communication (written or oral) received from Bank or any of its affiliates shall be deemed to be an assurance or guarantee as to the expected results of the Transaction;

(j)

without limiting the generality of Section 13.1 of the Equity Definitions, Counterparty acknowledges that Bank is not making any representations or warranties with respect to the treatment of the Transaction under FASB Statements 128, 133, as amended, 149 or 150, EITF Issue No. 00-19, 01-6, 03-6 or 07-5 (or any successor issue statements), under FASB’s Liabilities & Equity Project or under FASB Staff Position or any other accounting guidance;

(k)

Counterparty is not entering into the Transaction for the purpose of (i) creating actual or apparent trading activity in the Shares (or any security convertible into or exchangeable for the Shares) or (ii) raising or depressing or otherwise manipulating the price of the Shares (or any security convertible into or exchangeable for the Shares) in violation of the Exchange Act;

(l)

Counterparty shall deliver to Bank an opinion of counsel, dated as of the Trade Date in form and substance reasonably satisfactory to Bank, with respect to matters set forth in Section 3(a) of the Agreement, and paragraph 4(g) of this Confirmation, and a resolution of Counterparty’s board of directors authorizing the Transaction and such other certificate or certificates as Bank shall reasonably request; and

(m)

COUNTERPARTY UNDERSTANDS THAT THE TRANSACTION IS SUBJECT TO COMPLEX RISKS THAT MAY ARISE WITHOUT WARNING AND MAY AT TIMES BE VOLATILE AND THAT LOSSES MAY OCCUR QUICKLY AND IN UNANTICIPATED MAGNITUDE AND IS WILLING TO ACCEPT SUCH TERMS AND CONDITIONS AND ASSUME (FINANCIALLY AND OTHERWISE) SUCH RISKS.

(a)

Method of Delivery. Whenever delivery of funds or other assets is required hereunder by or to Counterparty, such delivery shall be effected through the Agent. In addition, all not