INTERCREDITOR AGREEMENT

 

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                                                                    EXHIBIT 10.7

 

                             INTERCREDITOR AGREEMENT

 

            This INTERCREDITOR AGREEMENT ("AGREEMENT"), is dated as of June 24,

2005 and entered into by and among COVANTA ENERGY CORPORATION, a Delaware

corporation (together with its successors and assigns, the "COMPANY"), GOLDMAN

SACHS CREDIT PARTNERS L.P. ("GSCP"), in its capacity as collateral agent for the

First Lien Claimholders (as defined below), including its successors in such

capacity from time to time (the "FIRST LIEN COLLATERAL AGENT"), CREDIT SUISSE,

Cayman Islands Branch ("CREDIT SUISSE"), in its capacity as administrative agent

for the Second Lien Credit Claimholders (as defined below), including its

successors in such capacity from time to time (the "SECOND LIEN ADMINISTRATIVE

AGENT") and CREDIT SUISSE, in its capacity as collateral agent for the Parity

Lien Claimholders (as defined below), including its successors in such capacity

from time to time (the "PARITY LIEN COLLATERAL AGENT"). Capitalized terms used

in this Agreement have the meanings assigned to them in Section 1 below.

 

                                    RECITALS

 

            The Company, Danielson Holding Corporation, a Delaware corporation

(including its successors and assigns, "HOLDINGS"), certain subsidiaries of the

Company as guarantors (the "GUARANTORS"), the lenders and agents party thereto

from time to time, GSCP and Credit Suisse, as Joint Lead Arrangers (each a

"JOINT LEAD ARRANGER"), Joint Bookrunners and Co-Syndication Agents and GSCP, as

Administrative Agent (together with any successor (agent(s) or representative(s)

under the First Lien Loan Documents (including any replacements, extensions,

renewals and refinancings thereof), the "FIRST LIEN ADMINISTRATIVE AGENT") and

the First Lien Collateral Agent, have entered into that Credit and Guaranty

Agreement dated as of the date hereof (as amended, restated, supplemented,

modified, replaced, extended, renewed or refinanced from time to time, the

"FIRST LIEN CREDIT AGREEMENT") providing for a revolving credit facility, a term

loan and funded letters of credit;

 

            The Company, Holdings, the Guarantors, the lenders and agents party

thereto, GSCP and Credit Suisse, as Joint Lead Arrangers, Joint Bookrunners and

Co-Syndication Agents and the SECOND LIEN ADMINISTRATIVE AGENT, have entered

into that Credit and Guaranty Agreement dated as of the date hereof (as amended,

restated, supplemented, modified, replaced, extended, renewed or refinanced from

time to time, the "SECOND LIEN CREDIT AGREEMENT") providing for a term loan (the

"SECOND LIEN TERM LOAN");

 

            The Company or any Guarantor Subsidiary may from time to time incur

additional future Parity Lien Debt. As a condition precedent to any such

issuance, any Parity Lien Representative will become party to this Agreement.

 

                                                                  EXECUTION COPY

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            Pursuant to the First Lien Credit Agreement (a) Holdings has agreed

to guaranty the First Lien Obligations, and (b) Holdings and the Company have

agreed to cause certain current and future Subsidiaries of the Company to agree

to guaranty the First Lien Obligations;

 

            Pursuant to the Second Lien Credit Agreement, (a) Holdings has

agreed to guaranty the Second Lien Credit Obligations, and (b) Holdings and the

Company have agreed to cause certain current and future Subsidiaries of the

Company to agree to guaranty the Second Lien Credit Obligations;

 

            All First Lien Obligations are secured by Liens granted to the First

Lien Collateral Agent pursuant to the First Lien Collateral Documents in all

Collateral;

 

            All existing and future Parity Lien Obligations are secured, Equally

and Ratably, by Liens held by the Parity Lien Collateral Agent pursuant to the

Parity Lien Collateral Documents in all Collateral;

 

            Under the terms of the First Lien Loan Documents, the First Lien

Obligations, are required to be secured on a first priority basis, and are

senior and prior to the Parity Lien Obligations and the Liens granted under the

First Lien Collateral Documents to secure the First Lien Obligations are

required to be senior and prior to the Liens granted under the Parity Lien

Collateral Documents to secure the Parity Lien Obligations;

 

            The First Lien Loan Documents and the Parity Lien Documents provide,

among other things, that the parties thereto shall set forth in this Agreement

their respective rights and remedies with respect to the Collateral;

 

            In order to induce the First Lien Collateral Agent and the First

Lien Claimholders to consent to the Grantors incurring the Parity Lien

Obligations and to induce the First Lien Claimholders to extend credit and other

financial accommodations and lend monies to or for the benefit of the Company or

any other Grantor, the Parity Lien Collateral Agent on behalf of the Parity Lien

Claimholders has agreed to the intercreditor and other provisions set forth in

this Agreement; and

 

            In order to cause the Liens encumbering the Collateral and created

under the Parity Lien Collateral Documents to secure, Equally and Ratably, the

Parity Lien Obligations, the Parity Lien Collateral Agent on behalf of the

Parity Lien Claimholders has agreed to the intercreditor and other provisions

set forth in this Agreement.

 

                                    AGREEMENT

 

            In consideration of the foregoing, the mutual covenants and

obligations herein set forth and for other good and valuable consideration, the

sufficiency and receipt of which are hereby acknowledged, the parties hereto,

intending to be legally bound, hereby agree as follows:

 

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            SECTION 1. DEFINITIONS.

 

            1.1 Defined Terms. As used in the Agreement, the following terms

shall have the following meanings:

 

            "AFFILIATE" means, as applied to any Person, 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 (i) to vote 5% or more of the Securities having

ordinary voting power for the election of directors of such Person or (ii) to

direct or cause the direction of the management and policies of that Person,

whether through the ownership of voting securities or by contract or otherwise.

 

            "AGREEMENT" means this Intercreditor Agreement, as amended,

restated, renewed, extended, supplemented, replaced or otherwise modified from

time to time.

 

            "ASSET SALE" has the meaning assigned to that term in the First Lien

Credit Agreement.

 

            "BANKRUPTCY CODE" means Title 11 of the United States Code entitled

"Bankruptcy," as now and hereafter in effect, or any successor statute.

 

            "BANKRUPTCY LAW" means the Bankruptcy Code and any similar federal,

state or foreign law for the relief of debtors.

 

            "BENEFICIAL OWNER" has the meaning assigned to such term in Rule

13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the

beneficial ownership of any particular "person" (as that term is used in Section

13(d)(3) of the Exchange Act), such "person" will be deemed to have beneficial

ownership of all securities that such "person" has the right to acquire by

conversion or exercise of other securities, whether such right is currently

exercisable or is exercisable only after the passage of time. The terms

"BENEFICIALLY OWNS" and "BENEFICIALLY OWNED" have a corresponding meaning.

 

            "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 or is a day on

which banking institutions located in such state are authorized or required by

law or other governmental action to close.

 

            "CAP AMOUNT" has the meaning assigned to that term within the

definition of "First Lien Obligation."

 

            "CLOSING DATE" means the date on which the Term Loans are made.

 

            "COLLATERAL" means "Collateral" as defined in each of the First Lien

Collateral Documents and Parity Lien Collateral Documents.

 

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            "COMPANY" has the meaning assigned to that term in the Preamble to

this Agreement.

 

            "COMPARABLE PARITY LIEN COLLATERAL DOCUMENT" means, in relation to

any Collateral subject to any Lien created under any First Lien Collateral

Document, the Parity Lien Document which creates a Lien on the same Collateral

granted by the same Grantor.

 

            "CREDIT FACILITIES OBLIGATIONS" means, collectively, First Lien

Obligations and Second Lien Credit Obligations.

 

            "CURRENCY AGREEMENT" means any foreign exchange contract, currency

swap agreement, futures contract, option contract, synthetic cap or other

similar agreement or arrangement, each of which is for the purpose of hedging

the foreign currency risk associated with Company's and its Subsidiaries'

operations and not for speculative purposes.

 

            "DIP FINANCING" has the meaning assigned to that term in Section

6.1.

 

            "DISCHARGE OF FIRST LIEN OBLIGATIONS" means, except to the extent

otherwise expressly provided in Section 5.5:

 

            (a) payment in full in cash of the principal of and interest

(including interest accruing on or after the commencement of any Insolvency or

Liquidation Proceeding, whether or not such interest would be allowed in such

Insolvency or Liquidation Proceeding), on all Indebtedness outstanding under the

First Lien Loan Documents and constituting First Lien Obligations;

 

            (b) payment in full in cash of all other First Lien Obligations that

are due and payable or otherwise accrued and owing at or prior to the time such

principal and interest are paid;

 

            (c) termination or expiration of all commitments, if any, to extend

credit that would constitute First Lien Obligations; and

 

            (d) termination or cash collateralization (in an amount and manner

reasonably satisfactory to the First Lien Collateral Agent and the relevant

issuing bank, but in no event less than 100% nor greater than 105% of the

aggregate undrawn face amount) of all letters of credit issued under the First

Lien Loan Documents and constituting First Lien Obligations.

 

            "DISPOSITION" has the meaning assigned to that term in Section

5.1(b).

 

            "EQUALLY AND RATABLY" means, in reference to sharing of any Liens on

Collateral or proceeds thereof as among the holders of Second Lien Credit

Obligations and the holders of other Parity Lien Obligations, that such Liens or

proceeds: shall be allocated and distributed by the Parity Lien Collateral Agent

to the Second Lien Administrative Agent for the account of the Second Lien

Claimholders and to any comparable Parity Lien Representative for the account of

the other Parity Lien Claimholders represented by it,

 

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ratably in proportion to the principal, interest, fees and premium (if any) and

reimbursement obligations (contingent or otherwise) with respect to letters of

credit, if any, outstanding (whether or not drawings have been made under such

letters of credit), when the allocation or distribution is made, on the Second

Lien Credit Obligations and the other Parity Lien Obligations.

 

            "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended

from time to time, and any successor statute.

 

            "FIRST LIEN ADMINISTRATIVE AGENT" has the meaning set forth in the

Recitals to this Agreement.

 

            "FIRST LIEN CLAIMHOLDERS" means, at any relevant time, the holders

of First Lien Obligations at that time, including the First Lien Lenders and the

agents under the First Lien Loan Documents.

 

            "FIRST LIEN COLLATERAL" means all of the Collateral with respect to

which a Lien is granted as security for any First Lien Obligations.

 

             "FIRST LIEN COLLATERAL AGENT" has the meaning assigned to that term

in the Recitals to this Agreement and shall also include any other First Lien

Collateral Agent established in connection with a Refinancing of any First Lien

Debt as contemplated under Section 5.3(a).

 

            "FIRST LIEN COLLATERAL DOCUMENTS" means the Collateral Documents (as

defined in the First Lien Credit Agreement) and any other agreement, document or

instrument pursuant to which a Lien is granted securing any First Lien

Obligations or under which rights or remedies with respect to such Liens are

governed.

 

            "FIRST LIEN CREDIT AGREEMENT" has the meaning assigned to that term

in the Recitals to this Agreement and shall also include any other First Lien

Credit Agreement established in connection with a Refinancing of any First Lien

Debt as contemplated under Section 5.3(a).

 

            "FIRST LIEN CREDIT LINKED DEPOSIT" means with respect to each First

Lien Lender who has purchased a participation in the First Lien Funded Letters

of Credit, the cash deposit, if any, made by any such Lender pursuant to

Sections 2.4(h) and (j) of the First Lien Credit Agreement, as the same may be

(a) reduced from time to time pursuant to Section 2.4(h) or 2.13(b)(iii) of the

First Lien Credit Agreement or (b) reduced or increased from time to time

pursuant to assignments by or to such First Lien Lender pursuant to Section 10.6

of the First Lien Credit Agreement.

 

            "FIRST LIEN DEBT" means Indebtedness constituting First Lien

Obligations.

 

            "FIRST LIEN FUNDED LETTER OF CREDIT COMMITMENTS" means the

commitment of First Lien Lenders to make or otherwise fund a First Lien Credit

Linked Deposit.

 

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            "FIRST LIEN LENDERS" means the "Lenders" under and as defined in the

First Lien Loan Documents and shall also include any other First Lien Lenders

established in connection with a Refinancing of any First Lien Debt as

contemplated under Section 5.3(a).

 

            "FIRST LIEN LOAN DOCUMENTS" means the First Lien Credit Agreement

and the Credit Documents (as defined in the First Lien Credit Agreement),

including Hedge Agreements entered into with a Lender Counterparty, and each of

the other agreements, documents and instruments providing for or evidencing any

other First Lien Obligation, and any other document or instrument executed or

delivered at any time in connection with any First Lien Obligations, including

any intercreditor or joinder agreement among holders of First Lien Obligations,

to the extent such are effective at the relevant time, as each may be amended,

restated, supplemented, modified, renewed, replaced, Refinanced or extended, in

whole or in part from time to time in accordance with the provisions of this

Agreement and shall include all other First Lien Loan Documents established in

connection with a Refinancing of any First Lien Debt as contemplated under

Section 5.3(a).

 

            "FIRST LIEN MORTGAGES" means a collective reference to each

mortgage, deed of trust and other document or instrument under which any Lien on

real property owned or leased by any Grantor is granted to secure any First Lien

Obligations or under which rights or remedies with respect to any such Liens are

governed.

 

            "FIRST LIEN OBLIGATIONS" means, subject to the next sentence, all

Obligations outstanding under the First Lien Credit Agreement and the other

First Lien Loan Documents, including Hedge Agreements entered into with any

Lender Counterparty. "First Lien Obligations" shall include all interest accrued

or accruing (or which would, absent commencement of an Insolvency or Liquidation

Proceeding, accrue) after commencement of an Insolvency or Liquidation

Proceeding in accordance with the rate specified in the relevant First Lien Loan

Document whether or not the claim for such interest is allowed as a claim in

such Insolvency or Liquidation Proceeding.

 

            Notwithstanding the foregoing, if the sum of: (1) Indebtedness for

borrowed money constituting principal outstanding under any First Lien Credit

Agreement and the other First Lien Documents; plus (2) the aggregate face amount

of any letters of credit issued but not reimbursed under any First Lien Credit

Agreement or which are provided for under the letter of credit facility

supported by the First Lien Credit Linked Deposit or facilities similar thereto

under any First Lien Credit Agreement, is in excess of $786,500,000 in the

aggregate (the "CAP AMOUNT"), then only that portion of such Indebtedness and

such aggregate face amount of letters of credit equal to the Cap Amount shall be

included in First Lien Obligations and interest and reimbursement obligations

with respect to such Indebtedness and letters of credit shall only constitute

First Lien Obligations to the extent related to Indebtedness and face amounts of

letters of credit included in the First Lien Obligations.

 

            "FIRST LIEN REVOLVING COMMITMENTS" means the commitments of the

First Lien Lenders to make or otherwise fund any First Lien Revolving Loans and

to acquire

 

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participations in First Lien Revolving Letters of Credit and First Lien Swing

Line Loans under the First Lien Credit Agreement.

 

            "FIRST LIEN REVOLVING LETTER OF CREDIT" means a commercial or

standby letter of credit issued or to be issued by an issuing bank pursuant to

Section 2.4(a) of the First Lien Credit Agreement.

 

            "FIRST LIEN REVOLVING LOANS" means a loan made by a First Lien

Lender to Company pursuant to Section 2.2(a) and/or Section 2.22 of the First

Lien Credit Agreement.

 

            "FIRST LIEN SWING LINE LENDER" means GSCP in its capacity as "Swing

Line Lender" under the First Lien Credit Agreement, together with its permitted

successors and assigns in such capacity.

 

            "FIRST LIEN SWING LINE LOAN" means a loan made by the First Lien

Swing Line Lender to Company pursuant to Section 2.3 of the First Lien Credit

Agreement.

 

            "FIRST LIEN TERM LOANS" means the term loans made by the First Lien

Lenders pursuant to Section 2.1(a) and 2.4(f) the First Lien Credit Agreement

 

            "GOVERNMENTAL AUTHORITY" means any federal, state, municipal,

national or other government, governmental department, commission, board,

bureau, court, agency or instrumentality, political subdivision or any entity or

officer thereof exercising executive, legislative, judicial, regulatory or

administrative functions of any government or any court, in each case whether

associated with a state of the United States, the United States, or a foreign

entity or government.

 

            "GRANTORS" means Holdings, the Company, each of the Guarantor

Subsidiaries and each other Person that has executed and delivered or may from

time to time hereafter execute and deliver a First Lien Collateral Document or a

Parity Lien Collateral Document as a "Grantor" (or the equivalent thereof).

 

            "GUARANTOR SUBSIDIARIES" means current and future Subsidiaries of

the Company providing a guaranty of the First Lien Obligations, the Second Lien

Credit Obligations and the other Parity Lien Obligations, as applicable.

 

            "HEDGE AGREEMENTS" means (i) an Interest Rate Agreement or a

Currency Agreement entered into with a Lender Counterparty in order to satisfy

the requirements of the First Lien Credit Agreement or otherwise in the ordinary

course of the Company's or any of its Subsidiaries' businesses or (ii) a forward

agreement or arrangement designed to hedge against fluctuation in electricity

rates pertaining to electricity produced by a Project, so as long as the

contractual arrangements relating to such Project contemplate that the Company

or its Subsidiaries shall deliver such electricity to third parties.

 

            "HOLDINGS" has the meaning set forth in the Recitals to this

Agreement.

 

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            "INDEBTEDNESS" means and includes all Obligations that constitute

"Indebtedness" within the meaning of the First Lien Credit Agreement, the Second

Lien Credit Agreement or any other Parity Lien Document, as applicable.

 

            "INSOLVENCY OR LIQUIDATION PROCEEDING" means:

 

            (a) any voluntary or involuntary case or proceeding under the

Bankruptcy Code with respect to any Grantor;

 

            (b) any other voluntary or involuntary insolvency, reorganization or

bankruptcy case or proceeding, or any receivership, liquidation, reorganization

or other similar case or proceeding with respect to any Grantor or with respect

to a substantial part of their respective assets;

 

            (c) any liquidation, dissolution, reorganization or winding up of

any Grantor whether voluntary or involuntary and whether or not involving

insolvency or bankruptcy (in each case, except to the extent expressly permitted

under Section 6.9 or not constituting an Event of Default under Section 8.1 of

the First Lien Credit Agreement); or

 

            (d) any assignment for the benefit of creditors or any other

marshalling of assets and liabilities of any Grantor.

 

            "INTERCREDITOR JOINDER" means an agreement substantially in the form

of Exhibit A.

 

            "INTEREST RATE AGREEMENT" means any interest rate swap agreement,

interest rate cap agreement, interest rate collar agreement, interest rate

hedging agreement or other similar agreement or arrangement each of which is for

the purpose of hedging the interest rate exposure associated with Company's and

its Subsidiaries' operations and not for speculative purposes.

 

            "JOINT LEAD ARRANGER" has the meaning set forth in the Recitals to

this Agreement.

 

            "LENDER COUNTERPARTY" means each Joint Lead Arranger and each First

Lien Lender or any Affiliate of a First Lien Lender counterparty to a Hedge

Agreement (including any Person who is a First Lien Lender (and any Affiliate

thereof) as of the Closing Date but subsequently, whether before or after

entering into a Hedge Agreement, ceases to be a First Lien Lender) including,

without limitation, each such Affiliate that enters into a joinder agreement

with respect to any of the First Lien Loan Documents with the First Lien

Collateral Agent.

 

            "LIEN" means any lien, mortgage, pledge, collateral assignment,

security interest, charge or encumbrance of any kind (including any agreement to

give any of the foregoing, any conditional sale or other title retention

agreement, and any lease in the nature thereof) and any option, trust or other

preferential arrangement having the practical effect of any of the foregoing.

 

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             "LIEN SHARING AND PRIORITY CONFIRMATION" means as to any Series of

Parity Lien Debt, the written agreement of the holders of such Series of Parity

Lien Debt (or set forth in agreements binding on such holders), as set forth in

the indenture, credit agreement or other agreement governing such Series of

Parity Lien Debt, for the enforceable benefit of all holders of each existing or

future Series of Parity Lien Debt, each existing and future Parity Lien

Representative, all holders of First Lien Debt and the First Lien Collateral

Agent:

 

                  (1) that all Parity Lien Obligations will be and are secured

      Equally and Ratably by all Parity Liens at any time granted by the Company

      or any other Grantor to secure any Obligations in respect of such Series

      of Parity Lien Debt, whether or not upon property otherwise constituting

      collateral for such Series of Parity Lien Debt, and that all such Parity

      Liens will be enforceable by the Parity Lien Collateral Agent for the

      benefit of all holders of Parity Lien Obligations Equally and Ratably;

 

                  (2) that the holders of Obligations in respect of such Series

      of Parity Lien Debt are bound by the provisions of this Agreement,

      including the provisions relating to the ranking of Parity Liens and the

      order of application of proceeds from the enforcement of Parity Liens; and

 

                  (3) consenting to and directing the Parity Lien Collateral

      Agent to perform its obligations under this Agreement and the other Parity

      Lien Collateral Documents.

 

            "NEW AGENT" has the meaning assigned to that term in Section 5.5.

 

            "OBLIGATIONS" means all obligations of every nature of each Grantor

from time to time owed to the First Lien Claimholders, the Parity Lien

Claimholders or any of them or their respective Affiliates, in each case under

the First Lien Loan Documents, the Parity Lien Documents or Hedge Agreements,

whether for principal, interest or payments for early termination of Interest

Rate Agreements, fees, expenses, indemnification or otherwise and all guarantees

of any of the foregoing.

 

            "PARITY LIEN" means a Lien granted by a Parity Lien Collateral

Document to the Parity Lien Collateral Agent for the benefit of the holders of

Parity Lien Debt, at any time, upon any property of the Company or any other

Grantor to secure Parity Lien Obligations.

 

            "PARITY LIEN CLAIMHOLDERS" means, at any relevant time,

collectively, the Second Lien Credit Claimholders and all existing and future

holders of Parity Lien Obligations.

 

            "PARITY LIEN COLLATERAL" means all of the Collateral with respect to

which a Lien is granted as security for any Parity Lien Obligations.

 

            "PARITY LIEN COLLATERAL AGENT" has the meaning set forth in the

Preamble to this Agreement.

 

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            "PARITY LIEN COLLATERAL DOCUMENTS" means the Collateral Documents

(as defined in the Second Lien Credit Agreement) and any other agreement,

document or instrument pursuant to which a Lien is granted securing any Parity

Lien Obligations or under which rights or remedies with respect to such Liens

are governed.

 

            "PARITY LIEN DEBT" means:

 

                  (1)    the Indebtedness under the Second Lien Credit Documents;

      and

 

                  (2)    to the extent issued and outstanding, any other

      Indebtedness that is permitted to be incurred under the Second Lien Credit

      Documents and secured Equally and Ratably with Liens securing the

      Indebtedness under the Second Lien Credit Documents and the other Secured

      Debt Documents; provided that in the case of any Indebtedness referred to

      in clause (2) of this definition:

 

                         (a) on or before the date on which such Indebtedness is

            incurred by the Company or any Guarantor Subsidiary, such

            Indebtedness is designated by the Company in an Officer's

            Certificate delivered to the First Lien Collateral Agent, the Second

            Lien Administrative Agent and the Parity Lien Collateral Agent as

            "Parity Lien Debt" for the purposes of the Secured Debt Documents;

 

                        (b) such Indebtedness is (i) governed by an indenture,

            credit agreement or other agreement that includes a Lien Sharing and

            Priority Confirmation and (ii) subject to an Intercreditor Agreement

            Joinder; and

 

                        (c) all requirements set forth in this Agreement and the

            Parity Lien Collateral Documents as to the confirmation grant or

            perfection of the Parity Lien Collateral Agent's Lien to secure such

            Indebtedness or Obligations in respect thereof are satisfied.

 

            "PARITY LIEN DOCUMENTS" means the documents evidencing existing and

future Parity Lien Debt and each of the other agreements, documents and

instruments providing for or evidencing any other Parity Lien Obligation, and

any other document or instrument executed or delivered at any time in connection

with any Parity Lien Obligations, including any intercreditor or joinder

agreement among holders of Parity Lien Obligations to the extent such are

effective at the relevant time, as each may be amended, restated, supplemented,

modified, renewed, replaced, refinanced or extended, in whole or in part, from

time to time in accordance with the provisions of this Agreement. As of the

Closing Date, the Parity Lien Debt and Parity Lien Obligations are comprised

only of the Second Lien Credit Obligations under the Second Lien Credit

Agreement.

 

            "PARITY LIEN MORTGAGES" means a collective reference to each

mortgage, deed of trust and any other document or instrument under which any

Lien on real property owned or leased by any Grantor is granted to secure any

Parity Lien Obligations or under which rights or remedies with respect to any

such Liens are governed.

 

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            "PARITY LIEN OBLIGATIONS" means all existing and future Obligations

outstanding under the Parity Lien Documents. "Parity Lien Obligations" shall

include all interest accrued or accruing (or which would, absent commencement of

an Insolvency or Liquidation Proceeding, accrue) after commencement of an

Insolvency or Liquidation Proceeding in accordance with the rate specified in

the relevant Parity Lien Document whether or not the claim for such interest is

allowed as a claim in such Insolvency or Liquidation Proceeding.

 

            "PARITY LIEN REPRESENTATIVE" means:

 

                  (1) in the case of the Second Lien Credit Agreement, the

      Second Lien Administrative Agent; or

 

                  (2) in the case of any other Series of Parity Lien Debt, the

      holder of such Parity Lien Debt, or if there are more than one holders of

      such Series of Parity Lien Debt, the trustee, agent or representative of

      the holders of such series of Parity Lien Debt who maintains the transfer

      register for such Series of Parity Lien Debt and is appointed as a Parity

      Lien Representative (for the purposes related to the administration of the

      applicable Parity Lien Collateral Documents) pursuant to the indenture,

      credit agreement, or other agreement governing such Series of Parity Lien

      Debt, together with its successors in such capacity; provided that in each

      case such Person shall have executed an Intercreditor Joinder.

 

            "PERSON" means and includes natural persons, corporations, limited

partnerships, general partnerships, limited liability companies, limited

liability partnerships, joint stock companies, joint ventures, associations,

companies, trusts, banks, trust companies, land trusts, business trusts or other

organizations, whether or not legal entities, and governmental authorities.

 

            "PLAN OF REORGANIZATION" means the plan of reorganization in the

bankruptcy cases of Company and its Subsidiaries that became effective on March

10, 2004.

 

            "PLEDGED COLLATERAL" has the meaning set forth in Section 5.4.

 

            "PROJECT" means any waste-to-energy facility, waste disposal or

collection facility and facilities related or ancillary thereto, 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 the Company and its Subsidiaries are permitted to be engaged under the

First Lien Credit Agreement for which a Subsidiary or Subsidiaries of Company

was, is or will be (as the case may be) an owner, operator, manager or builder;

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.

 

            "RECOVERY" has the meaning set forth in Section 6.5.

 

                                       11

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            "REFINANCE" means, in respect of any Indebtedness, to refinance,

extend, renew, defease, amend, modify, supplement, restructure, replace, refund

or repay, or to issue other indebtedness, in exchange or replacement for, or in

lieu of, such Indebtedness in whole or in part. "REFINANCED" and "REFINANCING"

shall have correlative meanings.

 

            "REQUIRED PARITY LIEN CLAIMHOLDERS" holders of Parity Lien Debt

holding more than 50% of the outstanding principal amount of all Parity Lien

Debt (including the Second Lien Debt).

 

            "SECOND LIEN ADMINISTRATIVE AGENT" has the meaning set forth in the

Recitals to this Agreement.

 

            "SECOND LIEN CREDIT CLAIMHOLDERS" means, at any relevant time, the

holders of Second Lien Credit Obligations at that time, including the Second

Lien Lenders, and the agents under the Second Lien Credit Documents.

 

            "SECOND LIEN CREDIT AGREEMENT" has the meaning assigned to that term

in the Recitals to this Agreement.

 

            "SECOND LIEN CREDIT DOCUMENTS" means the Credit Documents (as such

term is defined in the Second Lien Credit Agreement) and each of the other

agreements, documents and instruments providing for or evidencing any other

Second Lien Credit Obligation, and any other document or instrument executed or

delivered at any time in connection with any Second Lien Credit Obligations,

including any intercreditor or joinder agreement among holders of Second Lien

Credit Obligations to the extent such are effective at the relevant time, as

each may be amended, restated, supplemented, modified, renewed, replaced,

Refinanced or extended, in whole or in part, from time to time in accordance

with the provisions of this Agreement.

 

            "SECOND LIEN CREDIT OBLIGATIONS" means, all Obligations outstanding

under the Second Lien Credit Agreement and the other Second Lien Credit

Documents. "Second Lien Obligations" shall include all interest accrued or

accruing (or which would, absent commencement of an Insolvency or Liquidation

Proceeding, accrue) after commencement of an Insolvency or Liquidation

Proceeding in accordance with the rate specified in the relevant Second Lien

Credit Document whether or not the claim for such interest is allowed as a claim

in such Insolvency or Liquidation Proceeding.

 

            "SECOND LIEN DEBT" means any Indebtedness of any Grantor under the

Second Lien Credit Agreement.

 

            "SECOND LIEN LENDERS" means the "Lenders" under and as defined in

the Second Lien Credit Agreement.

 

            "SECOND LIEN TERM LOAN" has the meaning set forth in the Recitals to

this Agreement.

 

            "SECURED DEBT" means the Indebtedness under the First Lien Credit

Documents and the Parity Lien Documents.

 

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            "SECURED DEBT DOCUMENTS" means the First Lien Collateral Documents

and the Parity Lien Collateral Documents.

 

            "SECURITIES" has the meaning assigned to that term in the First Lien

Credit Agreement.

 

            "SERIES OF PARITY LIEN DEBT" means, severally, (1) Indebtedness

under the Second Lien Credit Agreement and (2) any issue or series of any other

Parity Lien Debt for which a single transfer register is maintained.

 

            "STANDSTILL PERIOD" has the meaning set forth in Section 3.1(a)(1).

 

            "SUBSIDIARY" means, with respect to any Person, any corporation,

partnership, 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 Person or Persons (whether

directors, managers, trustees or other Persons performing similar functions)

having the power to direct or cause the direction of the management and policies

thereof 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; provided, in determining the percentage of ownership interests of any

Person controlled by another Person, no ownership interest in the nature of a

"qualifying share" of the former Person shall be deemed to be outstanding.

 

            "TERM LOANS" means the First Lien Term Loans and the term loans made

by the Second Lien Lenders pursuant to the Second Lien Credit Agreement.

 

            "UCC" means the Uniform Commercial Code (or any similar or

equivalent legislation) as in effect in any applicable jurisdiction.

 

            1.2 Terms Generally. The definitions of terms in this Agreement

shall apply equally to the singular and plural forms of the terms defined.

Whenever the context may require, any pronoun shall include the corresponding

masculine, feminine and neuter forms. The words "include," "includes" and

"including" shall be deemed to be followed by the phrase "without limitation."

The word "will" shall be construed to have the same meaning and effect as the

word "shall." Unless the context requires otherwise:

 

            (a) any definition of or reference to any agreement, instrument or

other document herein shall be construed as referring to such agreement,

instrument or other document as from time to time amended, restated,

supplemented, modified, renewed, replaced, Refinanced or extended;

 

            (b) any reference herein to any Person shall be construed to include

such Person's permitted successors and assigns;

 

            (c) the words "herein," "hereof" and "hereunder," and words of

similar import, shall be construed to refer to this Agreement in its entirety

and not to any particular provision hereof;

 

                                       13

<PAGE>

 

            (d) all references herein to Sections shall be construed to refer to

Sections of this Agreement; and

 

            (e) the words "asset" and "property" shall be construed to have the

same meaning and effect and to refer to any and all tangible and intangible

assets and properties, including cash, securities, accounts and contract rights.

 

            SECTION 2. LIEN PRIORITIES.

 

            2.1 Relative Priorities. Notwithstanding the date, time, method,

manner or order of grant, attachment or perfection of any Liens securing the

Parity Lien Obligations granted on the Collateral or of any Liens securing the

First Lien Obligations granted on the Collateral and notwithstanding any

provision of the UCC, or any other applicable law or the Parity Lien Documents

or any defect or deficiencies in, or failure to perfect, the Liens securing the

First Lien Obligations or any other circumstance whatsoever, the Parity Lien

Collateral Agent, on behalf of itself and the Parity Lien Claimholders, hereby

agrees that:

 

            (a) any Lien on the Collateral securing any First Lien Obligations

now or hereafter held by or on behalf of the First Lien Collateral Agent or any

First Lien Claimholders or any agent or trustee therefor, regardless of how

acquired, whether by grant, possession, statute, operation of law, subrogation

or otherwise, shall be senior in all respects and prior to any Lien on the

Collateral securing any Parity Lien Obligations;

 

            (b) any Lien on the Collateral securing any Parity Lien Obligations

now or hereafter held by or on behalf of the Parity Lien Collateral Agent, any

Parity Lien Claimholders or any agent or trustee therefor regardless of how

acquired, whether by grant, possession, statute, operation of law, subrogation

or otherwise, shall be junior and subordinate in all respects to all Liens on

the Collateral securing any First Lien Obligations. All Liens on the Collateral

securing any First Lien Obligations shall be and remain senior in all respects

and prior to all Liens on the Collateral securing any Parity Lien Obligations

for all purposes, whether or not such Liens securing any First Lien Obligations

are subordinated to any Lien securing any other obligation of the Company, any

other Grantor or any other Person; and

 

            (c) any Lien on the Collateral securing the Parity Lien Obligations

now or hereafter held by or on behalf of the Parity Lien Collateral Agent, any

Parity Lien Claimholders or any agent or trustee therefore regardless of how

acquired, whether by grant, possession, statute, operation of law, subrogation

or otherwise, shall be shared Equally and Ratably among the Parity Lien

Claimholders.

 

            2.2 Prohibition on Contesting Liens. Each of the Parity Lien

Collateral Agent, for itself and on behalf of each Parity Lien Claimholder, and

the First Lien Collateral Agent, for itself and on behalf of each First Lien

Claimholder, agrees that it will not (and hereby waives any right to) contest or

support any other Person in contesting, in any proceeding (including any

Insolvency or Liquidation Proceeding), the perfection, priority, validity or

enforceability of a Lien held by or on behalf of any of the First Lien

 

                                       14

<PAGE>

 

Claimholders in the First Lien Collateral or by or on behalf of any of the

Parity Lien Claimholders in any of the Parity Lien Collateral, as the case may

be, or the provisions of this Agreement; provided that nothing in this Agreement

shall be construed to prevent or impair the rights of the First Lien Collateral

Agent or any First Lien Claimholder to enforce this Agreement, including the

provisions of this Agreement relating to the priority of the Liens securing the

First Lien Obligations as provided in Sections 2.1 and 3.1.

 

            2.3 No New Liens. So long as the Discharge of First Lien Obligations

has not occurred, whether or not any Insolvency or Liquidation Proceeding has

been commenced by or against the Company or any other Grantor, the parties

hereto agree that the Company shall not, and shall not permit any other Grantor

to:

 

            (a) grant or permit any additional Liens on any asset or property to

secure any Parity Lien Obligation unless it has granted or concurrently grants a

Lien on such asset or property to secure the First Lien Obligations; or

 

            (b) grant or permit any additional Liens on any asset or property to

secure any First Lien Obligations unless it has granted or concurrently grants a

Lien on such asset or property to secure the Parity Lien Obligations.

 

To the extent that the foregoing provisions are not complied with for any

reason, without limiting any other rights and remedies available to the First

Lien Collateral Agent and/or the First Lien Claimholders, the Parity Lien

Collateral Agent, on behalf of Parity Lien Claimholders, agrees that any amounts

received by or distributed to any of them pursuant to or as a result of Liens

granted in contravention of this Section 2.3 shall be subject to Section 4.3.

 

            2.4 Similar Liens and Agreements. The parties hereto agree that it

is their intention that the First Lien Collateral and the Parity Lien Collateral

be identical. In furtherance of the foregoing and of Section 8.9, the parties

hereto agree, subject to the other provisions of this Agreement:

 

            (a) upon request by the First Lien Collateral Agent or the Parity

Lien Collateral Agent, to cooperate in good faith (and to direct their counsel

to cooperate in good faith) from time to time in order to determine the specific

items included in the First Lien Collateral and the Parity Lien Collateral and

the steps taken to perfect their respective Liens thereon and the identity of

the respective parties obligated under the First Lien Loan Documents and the

Parity Lien Documents; and

 

            (b) that, except to the extent that such documents and agreements

are replaced in connection with a Refinancing of any First Lien Debt or Second

Lien Debt as contemplated under Section 5.3, the documents and agreements

creating or evidencing the First Lien Collateral and the Parity Lien Collateral

and guarantees for the First Lien Obligations and the Parity Lien Obligations

subject to Section 5.3(d), shall be in all material respects the same forms of

documents other than with respect to the first lien and the second lien nature

of the Obligations thereunder.

 

                                       15

<PAGE>

 

            SECTION 3. ENFORCEMENT.

 

            3.1    Exercise of Remedies.

 

            (a)    Until the Discharge of First Lien Obligations has occurred,

whether or not any Insolvency or Liquidation Proceeding has been commenced by or

against the Company or any other Grantor, the Parity Lien Collateral Agent and

the Parity Lien Claimholders:

 

                   (1) will not exercise or seek to exercise any rights or

      remedies with respect to any Collateral (including the exercise of any

      right of setoff or any right under any lockbox agreement, account control

      agreement, landlord waiver or bailee's letter or similar agreement or

      arrangement to which the Parity Lien Collateral Agent or any Parity Lien

      Claimholder is a party) or institute any action or proceeding with respect

      to such rights or remedies (including any action of foreclosure);

      provided, however, that the Parity Lien Collateral Agent at the written

      direction of the Required Parity Lien Claimholders, may exercise any or

      all such rights or remedies after a period of at least 180 days has

      elapsed since the later of: (i) the date on which the Parity Lien

      Collateral Agent, at the written direction of the Required Parity Lien

      Claimholders, declared the existence of any Event of Default under any

      Parity Lien Documents and demanded the repayment of all the principal

      amount of any Parity Lien Obligations; and (ii) the date on which the

      First Lien Collateral Agent received notice from the Parity Lien

      Collateral Agent of such declarations of an Event of Default and demand

      for repayment (the "STANDSTILL PERIOD"); provided, further, however, that

      notwithstanding anything herein to the contrary, in no event shall the

      Parity Lien Collateral Agent or any Parity Lien Claimholder exercise any

      rights or remedies with respect to the Collateral if, notwithstanding the

      expiration of the Standstill Period, the First Lien Collateral Agent or

      First Lien Claimholders shall have commenced and be diligently pursuing

      the exercise of their rights or remedies with respect to all or any

      material portion of the Collateral (prompt notice of such exercise to be

      given to the Parity Lien Collateral Agent);

 

                  (2) will not contest, protest or object to any foreclosure

      proceeding or action brought by the First Lien Collateral Agent or any

      First Lien Claimholder or any other exercise by the First Lien Collateral

      Agent or any First Lien Claimholder of any rights and remedies relating to

      the Collateral under the First Lien Loan Documents or otherwise; and

 

                  (3) subject to their rights under clause (a)(1) above and

      except as may be permitted in Section 3.1(c), will not object to the

      forbearance by the First Lien Collateral Agent or the First Lien

      Claimholders from bringing or pursuing any foreclosure proceeding or

      action or any other exercise of any rights or remedies relating to the

      Collateral;

 

      provided, that, in the case of (1), (2) and (3) above, the Liens granted

      to secure the Parity Lien Obligations of the Parity Lien Claimholders

      shall attach to any proceeds

 

                                       16

<PAGE>

 

      resulting from actions taken by the First Lien Collateral Agent or any

      First Lien Claimholder in accordance with this Agreement after application

      of such proceeds to the extent necessary to meet the requirements of a

      Discharge of First Lien Obligations.

 

            (b)    Until the Discharge of First Lien Obligations has occurred,

whether or not any Insolvency or Liquidation Proceeding has been commenced by or

against the Company or any other Grantor, subject to Section 3.1(a)(1), the

First Lien Collateral Agent and the First Lien Claimholders shall have the right

to enforce rights, exercise remedies (including set-off and the right to credit

bid their debt) and make determinations regarding the release, disposition, or

restrictions with respect to the Collateral without any consultation with or the

consent of the Parity Lien Collateral Agent or any Parity Lien Claimholder;

provided, that the Lien securing the Parity Lien Obligations shall remain on the

proceeds of such Collateral released or disposed of subject to the relative

priorities described in Section 2. In exercising rights and remedies with

respect to the Collateral, the First Lien Collateral Agent and the First Lien

Claimholders may, subject to the rights of the Company and the other Grantors

thereunder, enforce the provisions of the First Lien Loan Documents and exercise

remedies thereunder, all in such order and in such manner as they may determine

in the exercise of their sole discretion. Such exercise and enforcement shall

include the rights of an agent appointed by them to sell or otherwise dispose of

Collateral upon foreclosure, to incur expenses in connection with such sale or

disposition, and to exercise all the rights and remedies of a secured creditor

under the UCC and of a secured creditor under Bankruptcy Laws of any applicable

jurisdiction.

 

             (c)    Notwithstanding the foregoing, the Parity Lien Collateral

Agent and any Parity Lien Claimholder may:

 

                  (1) file a claim or statement of interest with respect to the

      Parity Lien Obligations; provided that an Insolvency or Liquidation

      Proceeding has been commenced by or against the Company or any other

      Grantor;

 

                  (2) take any action (not adverse to the priority status of the

      Liens on the Collateral securing the First Lien Obligations, or the rights

      of any First Lien Collateral Agent or the First Lien Claimholders to

      exercise remedies in respect thereof) in order to create, perfect,

      preserve or protect its Lien on the Collateral;

 

                  (3) file any necessary responsive or defensive pleadings in

      opposition to any motion, claim, adversary proceeding or other pleading

      made by any person objecting to or otherwise seeking the disallowance of

      the claims of the Parity Lien Claimholders, including any claims secured

      by the Collateral, if any, in each case in accordance with the terms of

      this Agreement;

 

                  (4) file any pleadings, objections, motions or agreements

      which assert rights or interests available to unsecured creditors of the

      Grantors arising under either any Insolvency or Liquidation Proceeding or

      applicable non-bankruptcy law, in each case not inconsistent with the

      terms of this Agreement;

 

                                       17

<PAGE>

 

                   (5) vote on any plan of reorganization, file any proof of

      claim, make other filings and make any arguments and motions that are, in

      each case, in accordance with the terms of this Agreement, with respect to

      the Parity Lien Obligations and the Collateral; and

 

                  (6) exercise any of its rights or remedies with respect to the

      Collateral after the termination of the Standstill Period to the extent

      permitted by Section 3.1(a)(1).

 

            The Parity Lien Collateral Agent, on behalf of itself and the Parity

Lien Claimholders, agrees that it will not take or receive any Collateral or any

proceeds of Collateral in connection with the exercise of any right or remedy

(including set-off) with respect to any Collateral in its capacity as a creditor

in violation of this Agreement. Without limiting the generality of the

foregoing, unless and until the Discharge of First Lien Obligations has

occurred, except as expressly provided in Sections 3.1(a), 6.3(b) and this

Section 3.1(c), the sole right of the Parity Lien Collateral Agent and the

Parity Lien Claimholders with respect to the Collateral is to hold a Lien on the

Collateral pursuant to the Parity Lien Collateral Documents for the period and

to the extent granted therein and to receive a share of the proceeds thereof, if

any, after the Discharge of First Lien Obligations has occurred.

 

            (d)    Subject to Sections 3.1(a) and (c) and Section 6.3(b):

 

                  (1) the Parity Lien Collateral Agent, for itself and on behalf

      of the Parity Lien Claimholders, agrees that the Parity Lien Collateral

      Agent and the Parity Lien Claimholders will not take any action that would

      hinder any exercise of remedies under the First Lien Loan Documents or is

      otherwise prohibited hereunder, including any sale, lease, exchange,

      transfer or other disposition of the Collateral, whether by foreclosure or

      otherwise;

 

                  (2) the Parity Lien Collateral Agent, for itself and on behalf

      of the Parity Lien Claimholders, hereby waives any and all rights it or

      the Parity Lien Claimholders may have as a junior lien creditor or

      otherwise to object to the manner in which the First Lien Collateral Agent

      or the First Lien Claimholders seek to enforce or collect the First Lien

      Obligations or the Liens securing the First Lien Obligations granted in

      any of the First Lien Collateral undertaken in accordance with this

      Agreement, regardless of whether any action or failure to act by or on

      behalf of the First Lien Collateral Agent or First Lien Claimholders is

      adverse to the interest of the Parity Lien Claimholders; and

 

                  (3) the Parity Lien Collateral Agent hereby acknowledges and

      agrees that no covenant, agreement or restriction contained in the Parity

      Lien Collateral Documents or any other Parity Lien Document (other than

      this Agreement) shall be deemed to restrict in any way the rights and

      remedies of the First Lien Collateral Agent or the First Lien Claimholders

      with respect to the Collateral as set forth in this Agreement and the

      First Lien Credit Documents.

 

                                       18

<PAGE>

 

            (e)    Except as otherwise specifically set forth in Sections 3.1(a)

and (d), the Parity Lien Collateral Agent and the Parity Lien Claimholders may

exercise rights and remedies as unsecured creditors against the Company or any

other Grantor that has guaranteed or granted Liens to secure the Parity Lien

Obligations in accordance with the terms of the Parity Lien Documents and

applicable law; provided that in the event that any Parity Lien Claimholder

becomes a judgment Lien creditor in respect of Collateral as a result of its

enforcement of its rights as an unsecured creditor with respect to the Parity

Lien Obligations, such judgment Lien shall be subject to the terms of this

Agreement for all purposes (including in relation to the First Lien Obligations)

as the other Liens securing the Parity Lien Obligations are subject to this

Agreement.

 

            (f)    Nothing in this Agreement shall prohibit the receipt by the

Parity Lien Collateral Agent or any Parity Lien Claimholders of the required

payments of