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		Page
About This Prospectus Supplement			S-1
Summary			S-2
Questions and Answers about this Rights Offerings			S-9
Risk Factors			S-14
Forward-Looking Statements			S-33
No Board Recommendation			S-33
Danielson’s Business			S-34
Ref-Fuel’s Business			S-47
Use of Proceeds			S-56
Capitalization			S-59
Unaudited Pro Forma Condensed Combined Financial Statements			S-61
Selected Consolidated Financial Data — Danielson			S-75
Selected Consolidated Financial Data — Ref-Fuel			S-77
The Rights Offering			S-78
United States Federal Income Tax Consequences			S-88
Plan of Distribution			S-90
Related Party Agreements			S-90
Where You Can Find More Information			S-92
PROSPECTUS
Risk Factors			1
Forward-Looking Statements			13
Danielson’s Business			15
Covanta’s Business			16
American Ref-Fuel Holdings Corp. Acquisition			16
Use of Proceeds			18
Description of Common Stock			18
Description of Warrants			20
Plan of Distribution			21
Experts			21
Legal Matters			23
Where You Can Find More Information			23
Incorporation of Certain Documents by Reference			23

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Q:		What are we offering in this prospectus supplement?
A:		We are conducting a rights offering and issuing at no charge one non-transferable warrant with respect to each share of our common stock outstanding as of the close of business on May 27, 2005. Through this prospectus supplement, we are offering the shares of common stock that holders of warrants may purchase upon exercise of their warrants.
Q:		Who may participate in this rights offering and on what date will the company determine who are its stockholders?
A:		Holders of record of our common stock as of the close of business on May 27, 2005, or the “record date,” will receive one warrant for each outstanding share of our common stock that they hold. Since the warrants do not trade separately from our common stock, any purchaser of those shares of common stock after the record date and prior to the expiration or termination of this rights offering will be permitted to exercise the warrants “stapled” to such shares of our common stock.
Q:		What is the subscription privilege I am entitled to for each warrant?
A:		Each warrant carries with it a basic subscription privilege to purchase 0.90 shares of our common stock and an oversubscription privilege.
Q:		What is the basic subscription privilege each warrant gives me the right to purchase?
A:		Each warrant issued under this rights offering entitles you to purchase 0.90 shares of our common stock at an exercise price of $6.00 per share. You may exercise any number of your warrants, or you may choose not to exercise any of the warrants issued to you. We will not distribute any fractional shares, but instead will pay you cash in lieu of fractional shares as a result of your exercise of your warrants pursuant to this rights offering.
Q:		What is the oversubscription privilege associated with each warrant?
A:		If all of our stockholders do not exercise all of the warrants issued to them in this rights offering, then you may have the opportunity to purchase additional shares of our common stock at $6.00 per share under the oversubscription privilege. By extending oversubscription privileges to our stockholders, we are providing stockholders that exercise all of their warrants with the opportunity to purchase those shares that are not purchased by other stockholders in this rights offering, at $6.00 per share. If there are not enough shares available to fully satisfy all oversubscription privilege requests, the available shares will be distributed proportionately among rights holders who exercised their oversubscription privilege based on the number of shares each rights holder subscribed for under the basic subscription privilege. The “warrant agent,” American Stock Transfer & Trust Company, will return any excess payments by mail without interest or deduction as soon as reasonably practical after the expiration of the subscription period.
Q:		How long will the subscription period last?
A:		You will be able to exercise your warrants only during a limited period. If you do not exercise your warrants before 5:00 p.m., New York City time, on June 21, 2005, your warrants will expire and be of no further value. We may, in our sole discretion, decide to extend this rights offering until some later time. If we extend the expiration date, we will give oral or written notice to the warrant agent on or before such expiration date, followed by a press release no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date.

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Q:		Is there any limit on how long the subscription period will last?
A:		Although the rights offering is scheduled to remain open until June 21, 2005, we have kept the ability to extend the rights offering for as long or as many times as our board of directors determines is necessary to consummate the rights offering or otherwise in our best interests.
Q:		Am I required to participate in this rights offering?
A:		No.
Q:		What happens if I choose not to exercise my warrants?
A:		You will retain your current number of shares of common stock even if you do not exercise your warrants. If you choose not to exercise your warrants, then the percentage of our common stock that you own will decrease. The magnitude of the reduction of your percentage ownership will depend upon the extent to which you and the other stockholders exercise their rights. See “Risk Factors — Risks Related to The Rights Offering — Stockholders who do not fully exercise their warrants will have their interests diluted by those other stockholders who do exercise their warrants” for more information regarding the amount of potential dilution.
Q:		How do I exercise my warrants?
A:		You may exercise your warrants by delivering the following to the warrant agent at or prior to 5:00 p.m., New York City time, on the expiration date:

	•	your properly completed and executed exercise form with any required signature guarantees or other supplemental documentation; and
	•	your full exercise price payment (by check, bank draft, money order or wire transfer) for each share subscribed for under your subscription privileges and any oversubscription privilege; and
	•	if you hold your shares of our common stock in certificated form, certificates representing at least the number of shares of our common stock representing the warrants to be exercised; or
	•	if you hold your shares of our common stock through DTC an exercise form instructing your broker, nominee or other custodian to instruct DTC to transfer the shares of common stock representing the warrants to be exercised to a suspense account established by the warrant agent, to be held in escrow for you until after the expiration date.

		If you use the mail, we recommend that you use insured, registered mail, return receipt requested. If you pay by an uncertified personal check, your warrants will not be deemed exercised until such uncertified check clears. See “The Rights Offering — Delivery of Subscription Materials and Payment.”

Q:		What should I do if I want to exercise my warrants but my shares are held in the name of my broker, custodian bank or other nominee?
A:		If you hold shares of our common stock through a broker, custodian bank or other nominee, we will ask your broker, custodian bank or other nominee to notify you of this rights offering. If you wish to exercise your warrants, you will need to have your broker, custodian bank or other nominee act for you. To indicate your decision, you should complete and return to your broker, custodian bank or other nominee the form entitled “Nominee Holder Certification.” You should receive this form from your broker, custodian bank or other nominee with the other offering materials. You should contact your broker, custodian bank or other nominee if you believe you are entitled to participate in this rights offering but you have not received this form.
Q:		What restrictions may there be on my right to exercise my warrants?
A:		Our ability to utilize our NOLs would be substantially reduced if we were to undergo an “ownership change” as that term is defined under federal income tax regulations. In order to reduce the risk of an ownership change, our certificate of incorporation restricts the ability of any holder of 5% or more of our common stock to purchase or otherwise acquire additional shares of our common stock. Our certificate of incorporation also restricts the ability of any other holder to purchase or otherwise acquire shares of our common stock which will result in total ownership by such stockholder of 5% or more of our common stock. We have the right, in our sole and absolute discretion, to limit the exercise of

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		warrants, including instructing the warrant agent to refuse to honor any exercise of warrants, by 5% stockholders or by any stockholders who would become 5% stockholders through the exercise of their warrants or oversubscription rights. In order to avoid an ownership change, we are requiring any holder who holds at least 6,500,000 shares or holders who would acquire this number of shares through the exercise of warrants or oversubscription rights to notify the warrant agent and to provide us with additional information we may request. See “The Rights Offering — Certificate of Incorporation Restrictions; Escrow Protection Mechanics” for a discussion on how our escrow mechanics operate.
Q:		What should I do if I want to exercise my warrants and I am a stockholder in a foreign country or in the Armed Services?
A:		The warrant agent will not mail any rights offering materials to you if you are a rights holder whose address is outside the United States or if you have an Army Post Office or a Fleet Post Office address. To exercise your rights, you must notify the warrant agent on or prior to 5:00 p.m., New York City time, on June 21, 2005, and take all other steps which are necessary to exercise your rights, on or prior to that time. If you do not follow these procedures prior to the expiration date, your rights will expire.
Q:		Will I be charged a sales commission or a fee if I exercise my warrants?
A:		No. We will not charge a brokerage commission or a fee to rights holders for exercising their warrants. However, if you exercise your warrants through a broker or nominee, you will be responsible for any fees charged by your broker or nominee.
Q:		What are the United States federal income tax consequences of exercising my warrants as a holder of common stock?
A:		A holder of common stock generally will not recognize income or loss for federal income tax purposes in connection with the receipt or exercise of warrants. We urge you to consult your own tax advisor with respect to the particular tax consequences of this rights offering to you. See “United States Federal Income Tax Consequences” for more information on the tax consequences of this rights offering.
Q:		When will I receive certificates for the shares purchased in this rights offering?
A:		We will issue certificates representing shares purchased in this rights offering to you or to DTC on your behalf, as the case may be, as soon as practicable after the expiration of the subscription period and after all allocations and adjustments have been completed.
Q:		If this rights offering is not completed, will my subscription payment be refunded to me?
A:		Yes. The warrant agent will hold all funds it receives in escrow until completion of this rights offering. If this rights offering is not completed, the warrant agent will return promptly, without interest, all subscription payments and any oversubscription payments that are not exercised.
Q:		Are there risks in exercising my warrants?
A:		Yes. The exercise of your rights involves risks. Exercising your rights means buying additional shares of our common stock and should be considered as carefully as you would consider any other equity investment in our company. Among other things, you should carefully consider the risks described under the heading “Risk Factors,” beginning on page S-14 of this prospectus supplement.
Q:		After I exercise my warrants, can I change my mind and cancel my purchase?
A:		No. Once you send in your subscription certificate and payment you will not be able to revoke the exercise of your warrants even if you later learn information about us that you consider to be unfavorable and even if the market price of our common stock is below the warrant exercise price. You should not exercise your warrants unless you are certain that you wish to purchase additional shares of our common stock at the warrant exercise price.

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Q:		May I transfer my warrants if I do not want to purchase any shares?
A:		No. The warrants are not separately transferable. Transfer of ownership of a share of our common stock, however, after the record date and before any warrant associated with such share is exercised will also transfer ownership of the warrant issued with respect to such share.
Q:		Can I sell my shares after I have exercised my warrants?
A:		No. The exercise of your warrants in this rights offering requires you to deliver to the warrant agent the certificates of shares of our common stock representing at least the shares of stock exercised in this rights offering. Therefore, if you exercise your warrants, you will be unable to sell or otherwise transfer your shares of our common stock until your stock certificates are returned after completion or termination of this rights offering. This also means that if you only exercise a portion of your warrants and deliver stock certificates representing more shares than the warrants you are exercising, you will not be able to sell those shares represented by certificates held by the warrant agent until they are returned after completion or termination of this rights offering.
Q:		If I purchase shares after the rights offering has commenced, will I be able to participate in the rights offering?
A:		You will be able to participate in this rights offering only if you can deliver your shares of common stock to the warrant agent in accordance with the instructions in this prospectus supplement. Since stock trades may take three business days to settle, you may not receive your shares in time to be able to satisfy our delivery and escrow requirements. In particular, purchases of our common stock after June 13, 2005 may not settle in sufficient time to be able to satisfy the delivery procedures in this prospectus supplement. We are under no obligation, and have no intention, to adjust our procedures to accommodate holders who acquire shares after the rights offering has commenced.
Q:		Why is Danielson Holding Corporation engaging in this rights offering?
A:		We are making this rights offering in order to raise approximately $400 million, before expenses, in new capital to be used to pay a portion of the $740 million in cash we have agreed to pay for all of the outstanding shares of capital stock of Ref-Fuel.
Q:		How were the terms of the rights offering and the warrant exercise price established?
A:		The warrant exercise price and other terms of the rights offering were approved by a special committee of independent members of our board of directors who were advised by independent financial and legal advisors.
Q:		What is the board of directors’ recommendation regarding this rights offering?
A:		Our board of directors is not making any recommendation as to whether you should exercise your warrants. You should make your decision based on your own assessment of this rights offering and our company.
Q:		How many shares of our common stock will be outstanding after this rights offering?
A:		As of May 27, 2005, we had approximately 74.1 million shares of common stock issued and outstanding. After this rights offering, we anticipate that we will have approximately 141 million shares of common stock outstanding assuming all the warrants that are issued pursuant to the rights offering are exercised. In addition, we may issue up to an additional 5.7 million shares of our common stock under a subsequent offering that we will make to certain creditors of Covanta who voted in favor of the second plan of reorganization that we sponsored.
Q:		Will the new shares be initially listed on the American Stock Exchange and treated like other shares?
A:		Yes. Our common stock is traded on the American Stock Exchange under the symbol “DHC.” The shares of common stock issued upon the exercise of warrants will also be listed on the AMEX under the same symbol. The warrants, however, do not trade separately and will not be listed on the AMEX or any other stock exchange or market.

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Q:		Can the board of directors amend or withdraw this rights offering?
A:		Yes. We reserve the right to cancel the rights offering at any time. If canceled, the exercise price and certificates for the underlying shares will be promptly returned by mail to exercising warrantholders, without interest or deduction. If this rights offering is canceled, the warrants will not be exercisable and will have no value. We also reserve the right to extend the expiration date and to amend the terms or conditions of the rights offering. If this rights offering is extended, the warrant agent will hold your shares and exercise funds, and you will not be able to sell or transfer your shares so held during the extension period. If we amend the terms or conditions of this rights offering, a new prospectus supplement will be distributed to all warrantholders who have previously exercised warrants and to holders of record of unexercised warrants on the date we amend the terms, and such warrantholders will once again be given the opportunity to participate or withdraw from the rights offering.
Q:		What should I do if I have other questions or need assistance?
A:		We have appointed Innisfree M&A Incorporated as information agent for the rights offering. Any questions or requests for additional copies of this prospectus supplement or any ancillary documents may be directed to the information agent at the following address and telephone number:

	501 Madison Avenue
	20th Floor
	New York, New York 10022
	Telephone: (888) 750-5834 (toll-free)

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	Stockholders who do not fully exercise their warrants will have their interests diluted by those other stockholders who do exercise their warrants.

	We have the right to limit the exercise of the warrants.

	Warrantholders who exercise their warrants will be unable to sell or otherwise transfer their shares during the rights offering.

	The exercise of irrevocable subscription rights may adversely affect investors.

	The market price of our common stock may decline prior to the expiration date of the rights offering.

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	We may cancel the rights offering at any time.

	We cannot be certain that our net operating loss tax carryforwards will continue to be available to offset our tax liability.

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	The market for our common stock has been historically illiquid which may affect your ability to sell your shares.

	Reduced liquidity and price volatility could result in a loss to investors.

	Concentrated stock ownership and a restrictive certificate of incorporation provision may discourage unsolicited acquisition proposals.

	Future sales of our common stock may depress our stock price.

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	Our disclosure controls and procedures may not prevent or detect all acts of fraud.

	Failure to maintain an effective system of internal control over financial reporting may have an adverse effect on our stock price.

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	Covanta emerged from bankruptcy with a large amount of domestic debt, and we cannot assure you that its cash flow from domestic operations will be sufficient to pay this debt.

	•	its ability to continue to operate and maintain its facilities consistent with historical performance levels;
	•	its ability to maintain compliance with its debt covenants;
	•	its ability to avoid increases in overhead and operating expenses in view of the largely fixed nature of its revenues;
	•	its ability to maintain or enhance revenue from renewals or replacement of existing contracts, which begin to expire in October 2007 and from new contracts to expand existing facilities or operate additional facilities;
	•	market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after its existing contracts expire;
	•	the continued availability to Covanta of the benefit of Danielson’s net operating losses under a tax sharing agreement; and
	•	its ability to refinance its domestic corporate debt, whether in conjunction with the Ref-Fuel acquisition or otherwise.

	Covanta may not be able to refinance its domestic debt agreements prior to maturity.

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	Covanta’s ability to grow its business is limited.

	Covanta’s liquidity is limited by the amount of domestic debt issued when it emerged from bankruptcy.

	Operation of Covanta’s facilities and the expansion of facilities involve significant risks.

	•	the inaccuracy of Covanta’s assumptions with respect to the timing and amount of anticipated revenues;
	•	supply interruptions;
	•	the breakdown or failure of equipment or processes;
	•	difficulty or inability to find suitable replacement parts for equipment;
	•	the unavailability of sufficient quantities of waste;
	•	decreases in the fees for solid waste disposal;
	•	decreases in the demand or market prices for recovered ferrous or non-ferrous metal;
	•	disruption in the transmission of electricity generated;
	•	permitting and other regulatory issues, license revocation and changes in legal requirements;
	•	labor disputes and work stoppages;

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	•	unforeseen engineering and environmental problems;
	•	unanticipated cost overruns;
	•	weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism;
	•	the exercise of the power of eminent domain; and
	•	performance below expected levels of output or efficiency.

	Development and construction of new projects may not commence operation as scheduled, or at all.

	Covanta’s insurance and contractual protections may not always cover lost revenues, increased expenses or liquidated damages payments.

	Performance reductions could materially and adversely affect Covanta and its projects may operate at lower levels than expected.

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	Covanta generates its revenue primarily under long term contracts and must avoid defaults under its contracts in order to service its debt and avoid material liability to contract counterparties.

	Covanta may face increased risk of market influences on its domestic revenues after its contracts expire.

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	Covanta depends on performance by third parties under contractual arrangements.

	Concentration of suppliers and customers may expose Covanta to heightened financial exposure.

	Covanta’s international businesses emerged from bankruptcy with a large amount of debt, and we cannot assure you that its cash flow from international operations will be sufficient to pay this debt.

	•	its ability to continue to operate and maintain its facilities consistent with historical performance levels;
	•	stable foreign political environments that do not resort to expropriation, contract renegotiations or currency or exchange changes;

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	•	the financial ability of the electric and steam purchasers to pay the full contractual tariffs on a timely basis;
	•	the ability of its international project subsidiaries to maintain compliance with their respective project debt covenants in order to make equity distributions to CPIH; and
	•	its ability to sell existing projects in an amount sufficient to repay CPIH indebtedness at or prior to its maturity in March 2007 or to refinance its indebtedness at or prior to such maturity.

	CPIH’s debt is due in March 2007, and it will need to refinance its debt or obtain cash from other sources to repay this debt at maturity.

	CPIH’s assets and cash flow will not be available to Covanta.

	A sale or transfer of CPIH or its assets may not be sufficient to repay CPIH indebtedness.

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	Exposure to international economic and political factors may materially and adversely affect Covanta’s business.

	•	changes in law or regulations;
	•	changes in electricity tariffs;
	•	changes in foreign tax laws and regulations;
	•	changes in United States federal, state and local laws, including tax laws, related to foreign operations;
	•	compliance with United States federal, state and local foreign corrupt practices laws;
	•	changes in government policies or personnel;
	•	changes in general economic conditions affecting each country, including conditions in financial markets;
	•	changes in labor relations in operations outside the United States;
	•	political, economic or military instability and civil unrest; and
	•	expropriation and confiscation of assets and facilities.

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	Exposure to foreign currency fluctuations may affect Covanta’s costs of operations.

	Exposure to fuel supply prices may affect CPIH’s costs and results of operations.

	Covanta’s inability to obtain resources for operations may adversely affect its ability to effectively compete.

	Compliance with environmental laws could adversely affect Covanta’s results of operations.

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	Federal energy regulation could adversely affect Covanta’s revenues and costs of operations.

	Failure to obtain regulatory approvals could adversely affect Covanta’s operations.

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	The energy industry is becoming increasingly competitive, and Covanta might not successfully respond to these changes.

	Changes in laws and regulations affecting the solid waste and the energy industries could adversely affect Covanta’s business.

	Changes in technology may have a material adverse effect on Covanta’s profitability.

	Insurance regulations may affect NAICC’s operations.

	The insurance products sold by NAICC are subject to intense competition.

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	If NAICC’s loss experience exceeds its estimates, additional capital may be required.

	Failure to satisfy capital adequacy and risk-based capital requirements would require NAICC to obtain additional capital.

	Proposed tort reform legislation could decrease demand for liability insurance, thereby reducing our revenues.

	•	repay its outstanding debt;
	•	refinance its existing debt;
	•	grow its business;
	•	construct new facilities;
	•	commence new operations;
	•	comply with environmental laws, rules and regulations;
	•	expand using new technology;

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	•	perform at expected levels;
	•	avoid contract defaults; and
	•	respond to increased market influences upon expiration of long-term contracts;

	In connection with the Ref-Fuel acquisition, Covanta will incur a large amount of debt, and we cannot assure you that our cash flow from operations will be sufficient to pay this debt.

	•	the continued operation and maintenance of our facilities, including those of Ref-Fuel, consistent with historical performance levels;
	•	compliance with our debt covenants under our various credit arrangements;
	•	compliance by the Ref-Fuel subsidiaries with their respective debt covenants in order to permit distributions of cash to Covanta;
	•	maintenance or enhancement of revenue from renewals or replacement of existing contracts, which begin to expire in 2007 and from new contracts to expand existing facilities or operate additional facilities;
	•	market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after Covanta’s existing contracts expire; and
	•	the continued availability to Covanta of the benefit of Danielson’s NOLs under a tax sharing agreement.

	We may be unable to integrate the operations of Ref-Fuel and Covanta successfully and may not realize the full anticipated benefits of the acquisition.

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	We will incur significant transaction and combination-related costs in connection with the transaction.

	Failure to close the Ref-Fuel acquisition may adversely affect our financial condition.

	Fees payable in Danielson’s common stock if the Ref-Fuel acquisition fails to close may have a dilutive effect on your interest.

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	Ref-Fuel’s business model includes greater risk in the waste disposal market than does Covanta’s.

	Ref-Fuel’s operations are concentrated in one region, and our acquisition of Ref-Fuel will expose us to regional economic declines.

	Ref-Fuel’s energy contracts involve greater risk of exposure to performance levels which could result in materially lower revenues.

	A material portion of Ref-Fuel’s revenues are derived from three of its projects.

	ARC is obligated to provide guarantees and support in connection with its subsidiaries’ projects.

	•	direct guarantees of certain debt relating to its Hempstead, Niagara and Seconn facilities;
	•	support agreements in connection with service or operating agreement-related obligations for each of its facilities;
	•	contingent obligation to pay lease payment installments in connection with Hempstead and Seconn facilities;
	•	contingent credit support for damages for performance failures;
	•	environmental indemnities; and
	•	contingent capital and credit support to finance costs, in most cases in connection with a corresponding increase in service fees, relating to uncontrollable circumstances.

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	We may not have the ability to raise the funds necessary to finance the change of control offer required by the MSW Energy Holdings LLC and MSW Energy Holdings II LLC indentures.

	We may not be able to integrate our disclosure controls and procedures with Ref-Fuel’s in a timely manner.

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	Our Business Strategy

	•	Leverage our core competencies by:

	•	providing outstanding client service,
	•	utilizing an experienced management team,
	•	developing and utilizing world-class technologies and operational expertise, and
	•	applying proven asset management and cost control;

	•	Maximize long-term value of our existing portfolio by:

	•	continuing to operate at historic production levels,
	•	continuing to execute effective maintenance programs,

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	•	extending operating contracts, and
	•	enhancing the value of Covanta-owned facilities after expiration of existing contracts; and

	•	Capitalize on growth opportunities by:

	•	expanding existing waste-to-energy facilities in attractive markets,
	•	developing TransRiver and its waste procurement and other expertise by leveraging that knowledge across a larger platform,
	•	seeking new operating contract opportunities for waste-to-energy and other energy projects; and
	•	seeking additional opportunities in businesses ancillary to its existing business, including additional waste transfer, transportation, processing and landfill businesses.

	Domestic Energy Business

	Waste-to-Energy Projects

	Independent Power Projects

	International Energy Business

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	Acquisition Rationale

	•	complementing and building upon our recent acquisition of Covanta, through which we operate our core waste-to-energy business, and in which our management team has extensive experience;
	•	materially adding to our existing base of contracted revenues, as approximately 70% of our combined revenues are derived from long-term contracts;
	•	diversifying our cash flow with which to service our corporate debt;
	•	materially adding to our existing asset base, as Ref-Fuel owns five of the six waste-to-energy projects it operates, which we will continue to operate after existing contracts expire;
	•	expanding our presence in the attractive Northeast region, where population density, waste generation rates, high demand for waste disposal services and difficulty in siting new disposal facilities combine to create favorable industry fundamentals;
	•	allowing us to create additional value through cost savings and efficiencies, which we estimate to be approximately $15 million to $20 million annually phased in through 2007;
	•	strengthening our credit profile and lowering our overall cost of capital;
	•	providing the opportunity for material deleveraging, which we expect to be approximately $900 million through 2009 from scheduled payments alone;
	•	providing more flexible financial covenants, through the related refinancing, in our principal financing arrangements, which will allow us to execute our business strategy;
	•	providing us, through the related refinancing, with access to, and the ability to manage cash from, our international businesses in a manner consistent with our overall business strategy; and
	•	allowing us to capitalize on TransRiver’s market knowledge in waste procurement, transfer operations, materials handling and other areas to ensure our facility capacity is utilized fully through municipal solid waste and specialty waste deliveries and to leverage that expertise over a broader platform of facilities.

	•	a first priority secured term loan facility in the amount of $250 million that will mature in 2012, referred to in this prospectus supplement as the “First Lien Term Loan Facility”;
	•	a first priority secured revolving credit facility in the amount of $100 million, available for revolving loans, up to $75 million of which may be utilized for letters of credit, that will mature in 2011, referred to in this prospectus supplement as the “Revolving Credit Facility”;

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	•	a first priority secured synthetic letter of credit facility in the amount of $340 million that will mature in 2012, referred to in this prospectus supplement as the “Synthetic L/ C Facility”; and
	•	a second priority secured term loan facility in the amount of $425 million that will mature in 2013, referred to in this prospectus supplement as the “Second Lien Term Loan Facility.”

	Amortization Payments

		First Lien Term
		Loan Facility
		(In millions)
2005		$	1.25
2006			2.50
2007			2.50
2008			2.50
2009			2.50
2010			2.50
2011			118.75
2012			117.50

	Interest

	Security and Guarantees

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	Intercreditor Agreement

	•	liens securing the Second Lien Obligations will be junior and subordinated in all respects to liens securing the First Lien Obligations;
	•	the collateral agent for the Second Lien Obligations will not exercise any rights or remedies with respect to any collateral for 180 days from the date of delivery of notice in writing to the collateral agent for the First Lien Obligations;
	•	the collateral agent for the Second Lien Obligations will not take or receive any collateral or any proceeds of collateral in connection with the exercise of any right or remedy (including setoff) with respect to any collateral;
	•	any proceeds of collateral received in connection with the sale or disposition of such collateral by the collateral agent for the holders of the First Lien Obligations will be applied to the First Lien Obligations in the order specified by the applicable First Lien Obligation documents. Upon discharge of the First Lien Obligations, any proceeds of collateral held by the collateral agent for the First Lien Obligations will be delivered to the collateral agent for the Second Lien Obligations to be applied in the order specified by the applicable Second Lien Obligation documents; and
	•	except as permitted under the intercreditor agreement and the senior secured credit facilities, Covanta will not make prepayments of the Second Lien Obligations prior to any voluntary or mandatory prepayment of any amounts outstanding under the First Lien Obligations.

	Covenants

	•	incurring additional indebtedness, including guarantees;
	•	creating, incur, assume or permit to exist liens on property and assets;

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	•	making loans and investments and entering into mergers, consolidations, acquisitions and joint ventures;
	•	engaging in sales, transfers and other dispositions of our property or assets;
	•	paying, redeeming or repurchasing debt, or amending or modifying the terms of certain material debt or certain other agreements;
	•	declaring or paying dividends to, making distributions to, or making redemptions and repurchases from, equity holders;
	•	entering into certain affiliate transactions; and
	•	entering into agreements that would restrict the ability of our subsidiaries to pay dividends and make distributions, making certain loans and advances to Covanta, incurring liens or transfer property or assets to Covanta or its subsidiaries.

	•	maximum Covanta leverage ratio measuring recourse debt to a specified Covanta cash flow;
	•	maximum capital expenditures;
	•	minimum Covanta interest coverage ratio measuring recourse debt interest expense to a specified Covanta cash flow; and
	•	minimum consolidated adjusted earnings before interest, taxes, depreciation and amortization.

	Mandatory Prepayment

	•	100% of the net cash proceeds of any property or asset sale, subject to certain exceptions and reinvestment requirements;
	•	100% net insurance and condemnation proceeds, subject to certain exceptions and reinvestment provisions;
	•	50% of the net cash proceeds from the issuance of additional equity securities, subject to certain exceptions; and
	•	100% of the net cash proceeds of certain debt issuances, subject to certain exceptions.

	Events of Default

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	Stock Purchase Agreement

	•	the selling stockholders of Ref-Fuel as to the validity of their respective organization, authority to enter into the transactions, any pre-approvals or consents required by them to consummate the transaction and as to their ownership and title to their shares of Ref-Fuel stock;
	•	representations of Ref-Fuel as to the validity of its organization, capitalization, authority to enter into the transactions, any pre-approvals or consents required by it to consummate the transaction, its respective capital resources, solvency and the accuracy and validity of its securities filings with the SEC and financial statements, the liabilities and certain actions taken by it, various operational matters, including insurance, property, litigation, compliance with laws, contracts, taxes, labor and employee matters, environmental matters, intellectual property, regulatory matters and related party transactions, among others; and
	•	representations of us as to the validity of our organization, authority to enter into the transactions, any pre-approvals or consents required by us to consummate the transaction, our respective capital resources, solvency and the accuracy and validity of our securities filings with the SEC.

	•	Ref-Fuel will adopt, and we will be required to maintain for a period of one year, a severance policy with respect to individuals who are employed by Ref-Fuel immediately prior to the closing of the transaction. Ref-Fuel will also make payments required under its management incentive plan immediately following the closing;
	•	On or before the closing date, Ref-Fuel will terminate all contracts between itself and its affiliates, other than its subsidiaries, without the payment of any consideration for such termination;

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	•	Until the closing, Ref-Fuel will provide us with unaudited monthly financial statements and operating or management reports;
	•	All transaction-related expenses of Ref-Fuel and its subsidiaries will be paid by Ref-Fuel prior to the closing of the transactions; and
	•	For a period of 90 days prior to the closing date, Ref-Fuel will not effect any plant closing, mass layoff, or other action requiring notification under the Worker Adjustment and Retraining Notification Act.

	Registration Rights Agreement

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	Equity Commitment for Rights Offering

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(1)	To simplify the presentation, the ownership shown includes a 49.9% membership interest directly held by MSW Energy Holdings II and a 0.1% membership interest held by ARC II Corp. (formerly known as UAE Ref-Fuel II Corp.), a wholly owned subsidiary of MSW Energy Holdings II.
(2)	MSW Energy Holdings holds its 49.8% membership interest through its wholly-owned subsidiary, MSW Energy Hudson LLC. MSW Energy Holdings also has the right to vote an additional 0.2% interest held by Duke Energy Corporation.

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	•	the sale of electrical energy and capacity, thermal energy and waste disposal services;
	•	earnings on equity investments; and
	•	providing operation and management services to various energy businesses for fixed and variable fees.

	MSW I

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	MSW II

	Overview

	•	American Ref-Fuel Company of Hempstead, a New York general partnership and the beneficial owner of the Hempstead facility, referred to in this prospectus supplement as the “Hempstead Partnership”;
	•	American Ref-Fuel Company of Essex County, a Delaware general partnership and the beneficial owner of the Essex facility, referred to in this prospectus supplement as the “Essex Partnership”;
	•	American Ref-Fuel Company of Southeastern Connecticut, a Connecticut general partnership and the beneficial owner of the Seconn facility, referred to in this prospectus supplement as the “Seconn Partnership”;
	•	American Ref-Fuel Company of Niagara, L.P., a Delaware limited partnership and the beneficial owner of the Niagara facility, referred to in this prospectus supplement as the “Niagara Partnership”;
	•	American Ref-Fuel Company of Semass, L.P., a Massachusetts limited partnership, referred to in this prospectus supplement as “Semass L.P.” and the owner of 90% of the Semass Partnership, the owner of the Semass facility, referred to in this prospectus supplement as the “Semass Partnership,” and American Ref-Fuel Operations of Semass, L.P., a Delaware limited partnership and the operator of the Semass facility, referred to in this prospectus supplement as the “Semass Operator”; and
	•	American Ref-Fuel Company of Delaware Valley, L.P., a Delaware limited partnership and the lessee of the Delaware Valley facility, referred to in this prospectus supplement as the “Delaware Partnership.”

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	•	Hempstead, New York;
	•	Newark, New Jersey;
	•	Preston, Connecticut;
	•	Niagara Falls, New York;
	•	Rochester, Massachusetts; and
	•	Chester, Pennsylvania.

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	•	the notes, the revolving credit facility and other existing indebtedness;
	•	purchase money indebtedness;
	•	intercompany debt;
	•	indebtedness that is non-recourse to ARC;
	•	indebtedness incurred to finance capital expenditures required by law;
	•	subordinated debt;
	•	up to $5 million of indebtedness incurred in the ordinary course;
	•	other indebtedness so long as cash flow coverage tests are satisfied and the ratings are not reduced on the ARC senior notes; and
	•	refinancing indebtedness.

	•	the sale of assets, other than in the ordinary course of business;
	•	any condemnation or casualty loss or damage; or
	•	the restructuring of power, steam sales, waste processing or disposal service contracts or other material contracts,

	•	no default or event of default shall have occurred and be continuing or would occur as a consequence of such distribution;
	•	the debt service reserve accounts are funded at their required levels;
	•	recourse debt coverage ratio (described below) for the preceding rolling four fiscal quarters is equal to or greater than 1.75 to 1.00;

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	•	the projected recourse debt coverage ratio for the succeeding rolling four fiscal quarters is equal to or greater than 1.75 to 1.00; and
	•	no material adverse effect will occur as a result of making such distribution.

	MSW I Financing

	•	no default or event of default shall have occurred and be continuing or would occur as a consequence of such restricted payment;
	•	MSW I is not required to make an offer, which they have not yet consummated, to repurchase or redeem MSW I notes with the net proceeds received from Ref-Fuel Holdings or its subsidiaries upon the issuance of debt or equity securities, incurrence of indebtedness or consummation of an asset sale by Ref-Fuel Holdings or any of its subsidiaries; and
	•	at the time of such restricted payment, the proportionate consolidated interest coverage ratio for MSW I’s most recently ended four full fiscal quarters would have been at least 2.0 to 1.0 on a pro forma basis as if the restricted payment had been made at the beginning of such four-quarter

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		period, and the projected proportionate consolidated interest coverage ratio for MSW I’s four full fiscal quarters commencing with the first full fiscal quarter after the date of the proposed restricted payment would be at least 2.0 to 1.0.

	•	the MSW I notes;
	•	indebtedness in respect of member loans;
	•	refinancing indebtedness;
	•	intercompany debt among MSW I and its restricted subsidiaries;
	•	indebtedness in respect of hedging obligations;
	•	guarantees of permitted indebtedness;
	•	if ARC becomes a subsidiary of MSW I, under specific circumstances indebtedness may be permitted to be incurred by ARC and its subsidiaries including:

	•	indebtedness under the ARC credit facility not to exceed $75 million;
	•	purchase money indebtedness;
	•	indebtedness incurred to finance capital expenditures required by law;
	•	indebtedness that is non-recourse to ARC; and

	•	other indebtedness not to exceed $30 million.

	MSW II Financing

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	•	no default or event of default shall have occurred and be continuing or would occur as a consequence of such restricted payment;
	•	MSW II is not required to make an offer, which it has not yet consummated, to repurchase or redeem MSW II notes with the net proceeds received from Ref-Fuel Holdings or its subsidiaries upon the issuance of debt or equity securities, incurrence of indebtedness or consummation of an asset sale by Ref-Fuel Holdings or any of its subsidiaries; and
	•	at the time of such restricted payment, the proportionate consolidated interest coverage ratio for MSW II’s most recently ended four full fiscal quarters would have been at least 2.0 to 1.0 on a pro forma basis as if the restricted payment had been made at the beginning of such four-quarter period, and the projected proportionate consolidated interest coverage ratio for MSW II’s four full fiscal quarters commencing with the first full fiscal quarter after the date of the proposed restricted payment would be at least 2.0 to 1.0.

	•	the MSW II notes;
	•	indebtedness in respect of member loans;
	•	refinancing indebtedness;

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	•	intercompany debt among MSW II and its restricted subsidiaries;
	•	indebtedness in respect of hedging obligations;
	•	guarantees of permitted indebtedness;
	•	if ARC becomes a subsidiary of MSW II, under specific circumstances indebtedness may be permitted to be incurred by ARC and its subsidiaries including:

	•	indebtedness under the ARC credit facility not to exceed $75 million;
	•	purchase money indebtedness;
	•	indebtedness incurred to finance capital expenditures required by law;
	•	indebtedness that is non-recourse to American Ref-Fuel; and

	•	other indebtedness not to exceed $30 million.

		(In millions)
Expected proceeds from this rights offering		$	400.0
Estimated offering expenses of this rights offering			(4.0	)
Net cash to Danielson		$	396.0

This rights offering			66.7				million shares
Common stock outstanding prior to this rights offering			74.1				million shares
Common stock outstanding following issuances in this rights offering			140.8				million shares

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		(In millions)
Expected proceeds from this rights offering		$	200.0
Estimated offering expenses of this rights offering			(4.0	)
Net cash to Danielson		$	196.0

		(In millions)
Expected proceeds from this rights offering		$	400.0
Estimated offering expenses of this rights offering			(4.0	)
Estimated proceeds from 9.25% Offerings			20.8
Estimated offering expenses of 9.25% Offering			(0.5	)
Net cash available to Danielson			416.3

This rights offering			66.7 million shares
9.25% Offering			5.7 million shares
Common stock outstanding prior to both rights offerings			74.1 million shares
Common stock outstanding following issuances			146.5 million shares

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			Amount
			(In millions)
Sources of Funds:
Cash on hand				21.3
Rights Offering(1)			$	400.0
New senior secured credit facilities
	Revolving credit facility(2)			—
Synthetic letter of credit facility(2)				—
First lien term loan				250.0
Second lien term loan				425.0
	Total Sources		$	1,096.3
Uses of Funds:
Acquisition purchase price(3)			$	740.0
Repayment of Covanta senior secured debt(4)				208.7
Repayment of Covanta subordinated unsecured debt(5)				28.0
Repayment of Covanta international term loan facility(6)				77.1
Estimated fees and expenses(7)				42.5
	Total Uses		$	1,096.3

(1)	The Unaudited Pro Forma Condensed Combined Financial Statements presented below and presented in our current report on Form 8-K/A filed on May 12, 2005 reflected gross proceeds of $398.3 million based on an assumed offering of 66,370,000 shares of our common stock issued and outstanding at that date. The gross proceeds illustrated above of $400.0 million reflect the actual offering of 66,673,004 shares of our common stock at $6.00 per share.
(2)	The senior secured credit facilities will provide for a total of $440 million of credit facilities. After giving effect to the transactions, we expect to have $340 million of letters of credit capacity and $100 million of availability for borrowing under the revolving portion of the senior credit facilities. See “Capitalization” and “Danielson’s Business — Description of Acquisition Debt.”
(3)	Based on a purchase price of $740 million. See “Danielson’s Business — Acquisition of Ref-Fuel” and “— Description of Acquisition Debt” for additional information related to the acquisition.
(4)	Consists of $208.7 million of 8.25% senior secured notes due 2011, the principal amount of which accretes to $230 million at maturity. Funds necessary to repay such debt at closing will include all additional accretion through the date of closing.
(5)	Consists of approximately $28 million of 7.5% subordinated unsecured notes due 2012.
(6)	Consists of $77.1 million as of March 31, 2005, of a CPIH term loan that bears interest at 10.5% per annum and matures in December 2006. Funds necessary to repay such debt at closing may be less than $77.1 million if additional principal payments are made prior to closing.
(7)	Unpaid fees and expenses as of the closing.

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	•	“Use of Proceeds” located elsewhere in this prospectus supplement;
	•	“Selected Consolidated Financial Data — Danielson” located elsewhere in this prospectus supplement;
	•	“Selected Consolidated Financial Data — Ref-Fuel” located elsewhere in this prospectus supplement;
	•	Our consolidated financial statements and related notes contained in our annual report on Form 10-K for the fiscal year ended December 31, 2004, as amended, and incorporated by reference in this prospectus supplement;
	•	Ref-Fuel’s consolidated financial statements and related notes for the three years ended December 31, 2004 were filed as Exhibit 99.2 to our current report on Form 8-K dated April 8, 2005 and incorporated into this prospectus supplement by reference thereto; and
	•	“Unaudited Pro Forma Condensed Combined Financial Statements” located elsewhere in this prospectus supplement.

				As of
				March 31, 2005
				Danielson				Pro Forma
				(In millions)
Cash and cash equivalents and restricted funds held in trust
	Cash and cash equivalents			$	58.0			$	94.3
	Restricted funds held in trust				245.4				384.6
Total cash, cash equivalents and restricted funds held in trust				$	303.4			$	478.9
Debt
	Non-recourse project debt:
		Ref-Fuel non-recourse project		$	—			$	471.2
		Covanta non-recourse project debt			879.0				879.0
	Project and intermediate debt:
		Other recourse project debt			—				251.2
		ARC 6.26% senior notes due 2015			—				240.0
		MSW I 8.5% senior secured notes due 2010			—				200.0
		MSW II 7.375% senior secured notes due 2010(1)			—				225.0
		Covanta 8.25% senior secured debt(2)			208.7				—
		Covanta 7.5% subordinated unsecured debt			28.0				—

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				As of
				March 31, 2005
				Danielson				Pro Forma
				(In millions)
	Senior secured credit facilities:
		First lien revolving credit facility(3)			—				—
		First lien letter of credit facility(3)			—				—
		First lien term loan			—				250.0
		Second lien term loan			—				425.0
		International term loan facility(4)			77.1				—
	Unamortized premium on debt				35.1				98.3
Total debt				$	1,227.9			$	3,039.7
Stockholders’ equity:
	Preferred Stock ($0.10 par value; authorized 10,000,000 shares; none issued and outstanding)			$	—			$	—
	Common Stock ($0.10 par value; authorized 150,000,000 shares; issued and outstanding 74,081,116 actual and 140,754,120, as adjusted shares)(5)				7.4				14.0
	Additional Paid-in Capital				197.0				586.4
	Unearned Compensation				(2.7	)			(2.7	)
	Accumulated other comprehensive income				(0.5	)			(0.5	)
	Accumulated Deficit				(54.0	)			(54.0	)
	Treasury Stock (Cost of 10,796 shares)				(0.1	)			(0.1	)
Total stockholders’ equity(6)				$	147.1			$	543.1
Total capitalization				$	1,375.0			$	3,582.8

(1)	Although the Unaudited Pro Forma Condensed Combined Financial Statements presented below and presented in our current report on Form 8-K/A filed on May 12, 2005 assumed that all of the outstanding MSW II notes were redeemed at 101% of par value and replaced with new MSW II notes, we did not incorporate such assumption into this capitalization table since the principal amount of outstanding debt would not be materially different.
(2)	The principal amount of such debt accretes to $230 million at maturity in March 2011. The outstanding principal amount of such debt to be repaid at closing will include all additional accreted amounts through closing.
(3)	The senior secured credit facilities will provide for a total of $440 million of credit facilities. After giving effect to the transactions, we expect to have $340 million of letters of credit capacity and $100 million of availability for borrowing under the revolving portion of the senior credit facilities. See “Capitalization” and “Danielson’s Business — Description of Acquisition Debt.”
(4)	As of March 31, 2005, Covanta Energy’s international debt consisted of $77.1 million of borrowing under an international term loan credit facility.
(5)	As of May 27, 2005.
(6)	Assumes receipt of $396.0 million of net proceeds from this rights offering.

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	•	We purchased Covanta on January 1, 2004, pursuant to an investment and purchase agreement (the “Investment and Purchase Agreement”) for an assumed aggregate purchase price of $47.5 million which includes the cash purchase price of $29.8 million, approximately $6.4 million for professional fees and other costs incurred in connection with the acquisition, and an estimated fair value of $11.3 million for our commitment to sell up to 3.0 million shares of our common stock at $1.53 per share to certain creditors of Covanta.
	•	All shares associated with the acquisition of Covanta are considered issued and outstanding as of January 1, 2004, including 5.1 million of contingently returnable shares to the bridge lenders, 8.75 million shares that resulted from the conversion of a part of the convertible bridge loan and 27.4 million shares issued in connection with the pro rata rights offering to all of our stockholders.
	•	Covanta emerged from bankruptcy on January 1, 2004 simultaneous with our purchase of Covanta. Accordingly, a purchase price allocation of fair values to the assets acquired and liabilities assumed has been performed at the assumed date of acquisition in conformity with Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” and SFAS No. 109 “Accounting for Income Taxes.” In addition to purchase price allocation adjustments, Covanta’s assumed emergence from Chapter 11 proceedings on January 1, 2004 resulted in a new reporting entity and adoption of fresh-start accounting as of that date, in accordance with AICPA Statement of Position (SOP) 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.”
	•	The new debt structure of Covanta that was in place on March 10, 2004 upon Covanta’s emergence from bankruptcy was assumed to be refinanced in connection with the acquisition of Ref-Fuel as of January 1, 2004 as more fully described below.

	•	The pro forma financial information has been prepared assuming the probable acquisition of Ref-Fuel by us for an assumed aggregate purchase price of $2,211 million which includes the cash purchase price of $740 million, assumed debt of $1,451 million at its estimated fair value, and estimated direct transaction costs and restructuring charges of $20 million related to the acquisition.
	•	At January 1, 2004, proceeds of $398 million from the issuance and stockholder exercise of rights to purchase our common stock in this rights offering are used to finance the transaction. In this rights offering, our existing stockholders will be issued rights to purchase our stock on a pro rata basis, with each holder entitled to purchase approximately 0.9 shares of our common stock at an exercise price of $6.00 per full share for each share of our common stock then held. Assuming a full participation in this rights offering, an additional 66,377,000 shares were assumed issued and outstanding as of January 1, 2004 (based on the factor of 0.9 applied to 73,752,000 shares outstanding near the time of this filing).

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	•	The consummation of a debt financing package to finance the transaction, refinance the existing recourse debt of Covanta, and provide additional liquidity for Covanta, referred to in this prospectus supplement as the “debt financing package,” is assumed to have occurred as of January 1, 2004. The financing consists of two tranches, each of which will be secured by pledges of the stock of Covanta’s subsidiaries that has not otherwise been pledged, guarantees from certain of Covanta’s subsidiaries and all other available assets of Covanta’s subsidiaries. The first tranche, a first priority senior secured bank facility, is expected to be comprised of a funded $250 million term loan facility, a $100 million revolving credit facility and a $340 million letter of credit facility. The revolving credit facility and the letter of credit facility will be available for Covanta’s needs in connection with its domestic and international businesses, including the existing businesses of Ref-Fuel. The second tranche is expected to be a second priority senior secured funded $425 million term loan facility, $212.5 million of which may be replaced by fixed rate notes within 120 days after the closing of the financing without premium or penalty.
	•	The April 30, 2004 “Equalization Transactions,” as defined in “— Adjustments for the Ref-Fuel Transaction,” and the ownership changes that occurred on August 31, 2004 between and among Ref-Fuel and its owners are assumed to have taken place on January 1, 2004.
	•	The current project and other debt of Ref-Fuel subsidiaries will not be refinanced in connection with the acquisition, except for the assumed repurchase of the MSW II notes with an outstanding principal amount of $225 million at a price equal to 101% plus accrued and unpaid interest. Our existing commitments from Goldman Sachs Credit Partners, L.P. and Credit Suisse First Boston provide sufficient financing for any such repurchases. In addition, existing revolving credit and letter of credit facilities of American Ref-Fuel Company LLC (the parent of each Ref-Fuel project company) will be canceled and replaced with new facilities at the Covanta level. Danielson will incur additional fees on the notes repurchased, plus additional transaction costs relating to such repurchases. The amount of such additional fees and transaction costs will depend on whether and to what extent any such repurchases are required.
	•	The unaudited pro forma condensed combined financial information should be read in conjunction with:

	•	accompanying notes to the unaudited pro forma condensed combined financial statements;
	•	Covanta’s separate historical financial statements (i) as of and for the year ended December 31, 2004 included in Covanta’s annual report on Form 10-K, as amended, and (ii) as of and for the quarter ended March 31, 2005 included in Covanta’s quarterly report on Form 10-Q;
	•	our separate historical financial statements (i) as of and for the year ended December 31, 2004 included in our annual report on Form 10-K, as amended, and (ii) as of and for the quarter ended March 31, 2005 included in our quarterly report on Form 10-Q; and
	•	Ref-Fuel’s separate historical financial statements (i) as of and for the year ended December 31, 2004 included in our Form 8-K filed on April 7, 2005, and (ii) as of and for the quarter ended March 31, 2005 included in our current report on Form 8-K/ A filed on May 12, 2005.

	•	The unaudited pro forma condensed combined financial information is provided for informational purposes only and is not necessarily indicative of the results of operations or financial position of the combined companies that would have occurred had the transactions been consummated on January 1, 2004, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial statements do not give consideration to expense savings or asset dispositions and are based upon currently available information and upon certain assumptions that management believes are reasonable under the circumstances. The adjustments made to the financial statements are based upon the preliminary work of our management and our consultants. Since the Ref-Fuel transactions have not been consummated, the allocation of purchase price to Ref-Fuel is preliminary and subject to change as additional information and analysis is obtained and as more detailed valuation studies are completed. Based upon this preliminary purchase price

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		allocation, the excess of purchase price over the net assets acquired, or goodwill, is approximately $353.7 million. The actual amounts that will be recorded based upon our final assessment of fair values may differ substantially from the information presented in these pro forma condensed financial statements, particularly with respect to the purchase price allocation between tangible and intangible assets and the amount of goodwill recorded.
	•	Our management and our external valuation consultants used a blend of the income and cost valuation approaches to determine the fair values for Ref-Fuel’s property, plant and equipment. Relatively greater weight was placed on the income approach, consistent with the methodologies previously used by us to value the assets of Covanta upon its emergence from bankruptcy. The income approach determines the present value of estimated income over the remaining life of the specific asset or business using a discount rate appropriate for the related risk.
	•	Our management and our external valuation consultants based estimates of future energy prices on recent market information and trends. In some cases, these prices are higher then those previously used by Ref-Fuel and its valuation consultants in determining fair values pursuant to a prior valuation of Ref-Fuel as of December 12, 2003. Use of higher estimates of future energy prices has the impact of allocating higher values to Ref-Fuel’s property, plant and equipment and reduces the values allocated to the contractual intangible assets. Higher future energy prices result in lower values for contracts with fixed pricing, resulting in lower fair values ascribed to contract-related intangible assets. Conversely, the value of future benefits of ownership of the business would be higher, resulting in higher fair values ascribed to property, plant and equipment.

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		Danielson				American
		Holding				Ref-Fuel				Pro Forma				Pro Forma
		Corp.				Holdings Corp.				Adjustments				Combined
		(Dollars in thousands)
ENERGY SERVICES ASSETS
Cash and cash equivalents		$	58,012			$	57,610			$	(32,000	)l		$	83,622
Marketable securities available for sale			4,100				—								4,100
Restricted funds held in trust			121,525				46,734								168,259
Restricted funds for emergence costs			24,476				—								24,476
Receivables, net			112,146				68,241								180,387
Unbilled service receivables			56,650				—								56,650
Deferred income taxes			14,747				9,806								24,553
Other current assets			52,514				16,140				(1,500	)l			67,154
Current assets			444,170				198,531				(33,500	)			609,201
Property, plant and equipment, net			814,110				1,185,048				599,191	q			2,598,349
Service and energy contracts and other intangible assets, net			173,108				526,445				(142,340	)q			557,213
Goodwill			—				123,984				229,739	m			353,723
Restricted funds held in trust			123,918				92,389				—				216,307
Investments in and advances to investees and joint ventures			67,784				—				—				67,784
Unbilled service receivables			95,799				—				—				95,799
Other assets			61,305				11,755				33,000	n			112,810
											6,750	t
Total Energy Services assets			1,780,194				2,138,152				692,840				4,611,186
PARENT COMPANY AND INSURANCE ASSETS
Cash and cash equivalents			20,384				—				—				20,384
Investments in fixed maturity debt securities and equity securities			57,345				—				—				57,345
Reinsurance recoverable on paid and unpaid losses, net of allocations			19,540				—				—				19,540
Deferred income taxes			18,083				—				—				18,083
Other assets			12,535				—				—				12,535
Total Parent Company and Insurance assets			127,887				—				—				127,887
Total assets		$	1,908,081			$	2,138,152			$	692,840			$	4,739,073
ENERGY SERVICES LIABILITIES
Accounts payable and accrued liabilities		$	124,322			$	74,602			$	10,500	o		$	209,424
Current portion of recourse debt			113				20,000				—				20,113
Current portion of project debt			114,719				55,713				4,465	q			174,897
Accrued emergence costs			24,476				—				—				24,476
Other current liabilities			14,167				—				—				14,167
Current liabilities			277,797				150,315				14,965				443,077
Long-term recourse debt			313,891				903,325				13,269	q			1,591,685
											361,200	n
Long-term project debt			799,259				459,768				(5,982	)q			1,253,045
Deferred taxes			116,406				156,584				169,455	r			442,445
Other liabilities			98,281				219,963				(6,871	)q			311,373
Total Energy Services liabilities			1,605,634				1,889,955				546,036				4,041,625
PARENT COMPANY AND INSURANCE LIABILITIES
Unpaid losses and loss adjustment expenses			61,190				—				—				61,190
Other liabilities			10,355				—				—				10,355
Total Parent Company and Insurance liabilities			71,545				—				—				71,545
Minority interests			83,825				701								84,526
Total stockholders’ equity			147,077				247,496				146,804	p			541,377
Total liabilities and stockholders’ equity		$	1,908,081			$	2,138,152			$	692,840			$	4,739,073

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			Danielson				American
			Holding				Ref-Fuel				Pro Forma				Pro Forma
			Corp.				Holdings Corp.				Adjustments				Combined
			(In thousands, except per share data)
REVENUES
Energy:
	Service revenues		$	111,458			$	64,639			$	(1,758	)h		$	174,339
	Energy and steam sales			58,788				32,388				14,764	h			105,940
	Other			690				3,204								3,894
				170,936				100,231				13,006				284,173
Insurance and other:
	Net earned premiums			3,471												3,471
	Net investment income			487												487
	Net other income			43												43
				4,001				—				—				4,001
COSTS AND EXPENSES
Energy:
	Plant operating expenses			119,496				52,794								172,290
	Depreciation and amortization			16,320				16,736				13,006	h			49,554
												3,492	q
	Net interest on project debt			9,633								7,460	i			17,408
												315	t
	Selling, general and administrative			12,402				12,420								24,822
	Other			(617	)			1,386								769
				157,234				83,336				24,273				264,843
Insurance and other:
	Net losses and loss adjustment			2,307												2,307
	Other			1,437												1,437
				3,744				—				—				3,744
Operating earnings				13,959				16,895				(11,267	)			19,587
Interest income				779				1,233								2,012
Interest expense				(10,321	)			(21,472	)			7,460	i			(30,559	)
												10,560	j
												(16,447	)k
												(339	)q
Other income, net				3,718				360								4,078
Earnings before minority interests, income taxes and equity earnings				8,135				(2,984	)			(10,033	)			(4,882	)
Minority interests				(1,550	)			(37	)							(1,587	)
Tax benefit (expense)				(2,742	)			1,259				4,070	s			2,587
Equity in income (loss) of unconsolidated subsidiaries				6,460												6,460
Net Earnings			$	10,303			$	(1,762	)		$	(5,963	)		$	2,578
Earnings per common share
	Basic		$	0.14											$	0.02
	Diluted		$	0.13											$	0.02
Weighted average common shares outstanding
	Basic			72,964								66,377				139,341
	Diluted			77,072								69,077				146,149

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			Jan 1 to				Jan 1 to				Jan 1 to				Jan 1 to				Jan 1 to
			Dec 31, 2004				Mar 10, 2004				Mar 10, 2004				Dec 31, 2004				Apr 30, 2004
			Danielson								Deconsolidation				American				Ownership Changes
			Holding				Covanta				of Covanta				Ref-Fuel				of Ref-Fuel				Pro Forma				Pro Forma
			Corp.				Energy Corp.				Entities(a)				Holdings Corp.				Entities(g)				Adjustments				Combined
			(In thousands, except per share data)
REVENUES
Energy:
	Service revenues		$	374,622			$	89,867			$	(5,282	)		$	194,950			$	89,496			$	(7,171	)h		$	736,482
	Energy and steam sales			181,074				53,307				(535	)			93,188				41,566				59,770	h			428,370
	Other			1,506				58								10,506				6,475								18,545
				557,202				143,232				(5,817	)			298,644				137,537				52,599				1,183,397
Insurance and other:
	Net earned premiums			17,998																								17,998
	Net investment income			2,405																								2,405
	Net other income			465																								465
				20,868				—				—				—				—				—				20,868
COSTS AND EXPENSES
Energy:
	Plant operating expenses			354,542				100,774				(3,632	)			116,089				73,322								641,095
	Depreciation and amortization			52,632				13,426				(786	)			45,154				22,842				(12,640	)b			199,168
																								8,598	c
																								3,375	d
																								52,599	h
																								13,968	q
	Net interest on project debt			32,586				13,407				(1,045	)											(3,419	)e			75,785
																								1,263	t
																								32,993	i
	Selling, general and
	administrative			38,076				7,597				(322	)			30,216				15,031								90,598
	Other			(832	)			(2,234	)			116				1,765				342								(843	)
				477,004				132,970				(5,669	)			193,224				111,537				96,737				1,005,803
Insurance and other:
	Net losses and loss adjustment			12,861																								12,861
	Other			10,850																								10,850
				23,711				—				—				—				—				—				23,711
Operating earnings				77,355				10,262				(148	)			105,420				26,000				(44,138	)			174,751
Interest income				1,858				935								2,967				1,022								6,782
Interest expense				(43,739	)			(6,142	)			6				(69,219	)			(21,626	)			32,993	i			(125,666	)
																								53,213	j
																								(65,788	)k
																								(5,364	)q
Other income, net																303				122								425
Reorganization items								(58,282	)															58,282	f			—
Fresh start adjustments								(399,063	)															399,063	f			—
Gain on extinguishment of debt								510,680																(510,680	)f			—
Earnings before equity earnings, minority interests, income taxes and discontinued operations				35,474				58,390				(142	)			39,471				5,518				(82,419	)			56,292
Minority interests				(6,869	)			(2,511	)							(12,283	)			11,372								(10,291	)
Tax benefit (expense)				(11,535	)			(30,240	)							(17,818	)			—				33,699	s			(25,894	)
Equity in income (loss) of unconsolidated subsidiaries				17,024				3,924				142				6,148				(6,148	)							21,090
Net earnings			$	34,094			$	29,563			$	—			$	15,518			$	10,742			$	(48,720	)		$	41,197
Earnings per common share
	Basic		$	0.54																							$	0.30
	Diluted		$	0.52																							$	0.29
Weighted average common shares outstanding
	Basic			63,469																				75,477				138,946
	Diluted			65,742																				78,460				144,202

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Note 1:	BASIS OF PRESENTATION

	Danielson

Current assets			$	522,659
Property, plant and equipment				814,369
Intangible assets				191,943
Other assets				327,065
	Total assets acquired		$	1,856,036
Current liabilities			$	364,480
Long-term debt				328,053
Project debt				850,591
Deferred income taxes				88,405
Other liabilities				176,982
	Total liabilities acquired		$	1,808,511
Net assets acquired			$	47,525

	Ref-Fuel

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	•	property, plant and equipment, intangibles, goodwill and debt, all of which may change based on consideration of additional analysis by Danielson and its valuation consultants;
	•	accrued expenses for transaction costs and restructuring efforts which may change based on identification of final fees and costs; and
	•	tax liabilities and deferred taxes, which may be adjusted based upon additional information to be received from taxing authorities and which result from changes in the allocated book basis of items for which deferred taxes are provided.

Purchase price
	Cash		$	740,000
	Debt assumed			1,450,558
	Estimated direct transaction costs			9,250
	Estimated restructuring charges			10,500
	Total		$	2,210,308
Preliminary purchase price allocation
	Tangible assets less liabilities assumed		$	1,971,920
	Intangible assets, net			211,405
	Goodwill			353,723
	Deferred tax liability			(326,039	)
	Minority interest			(701	)
	Total preliminary purchase price allocation		$	2,210,308

Note 2:	PRO FORMA ADJUSTMENTS

	Adjustments for the Covanta Transactions

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	Adjustments for the Ref-Fuel Transactions

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			Annual				Quarter
			2004				2005
Covanta recourse debt (January 1 to March 10, 2004)			$	6,142			$	—
Danielson recourse debt (January 1 to December 31, 2004)				9,033				—
Covanta recourse debt and credit facilities (March 11 to December 31, 2004)				34,706				10,320
Ref-Fuel credit facilities				932				240
Ref-Fuel senior notes				2,400				—
	Total		$	53,213			$	10,560

										Annual				Quarter
		Principal				Rate				2004				2005
Borrowings:
First Lien Facility		$	250,000				6.25	%		$	15,625			$	3,906
Second Lien Facility			425,000				8.25	%			35,063				8,766
Total Borrowings		$	675,000							$	50,688			$	12,672
Available for letters of credit and revolving credit:
Letter of credit fees under First Lien Facility		$	340,000				3.00	%		$	10,200			$	2,550
Revolving credit facility*			100,000				0.50	%			500				125
Total unfunded		$	440,000							$	10,700			$	2,675
Amortization of debt financing package financing costs											4,400				1,100
Total										$	65,788			$	16,447

(*)	Available for up to $75 million of letters of credit as an alternative to borrowings. This facility remains unused.

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First Lien Facility			$	250,000
Second Lien Facility				425,000
Ref-Fuel Rights Offering				398,300
Proceeds from MSW II Senior Notes Refinancing				225,000
	Total sources		$	1,298,300
Cash consideration			$	740,000
Covanta recourse debt				313,800
Estimated transaction costs				42,500
Redemption of MSW II Senior Notes				227,250
MSW II Senior Notes Refinancing Costs				6,750
	Total uses		$	1,330,300
Cash payment			$	32,000

Proceeds from this rights offering, net of transaction costs of $4,000		$	394,300
To eliminate historical Ref-Fuel stockholders’ equity			(247,496	)
Total		$	146,804

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																			Expense Increase
																			(Decrease)
			Historical				Preliminary				Balance				Life
			Balance				Fair Value				Adjustment				(Yrs)				Annual				Quarter
Property, plant and equipment			$	1,185,048			$	1,784,239			$	599,191				20			$	29,960			$	7,490
Intangible assets:
	Service and energy contracts			479,489				337,149				(142,340	)			10				(14,234	)			(3,559	)
	Non-amortizable intangibles			46,956				49,956				—				N/A				N/A				N/A
	Service and energy contracts and other intangibles			526,445								(142,340	)							(14,234	)			(3,559	)
Other liabilities:
	Waste contracts and operating lease			155,122				172,700				17,578				10				(1,758	)			(439	)
	Other			64,841				40,392				(24,449	)			N/A				N/A				N/A
	Other liabilities, net			219,963								(6,871	)							(1,758	)			(439	)
Net impact on depreciation and amortization																			$	13,968			$	3,492
	Debt, current and non-current balances			1,483,806				1,450,558				11,752							$	(10,847	)		$	(2,712	)
	Reverse historical premium amortization																			16,211				3,051
	Net impact on interest expense																		$	5,364			$	339

		Annual				Quarter
		(Dollars in thousands)
Historical MSW II interest expense at 7.375%		$	16,594			$	4,148
New MSW II Senior Notes interest at 8.125%			(18,282	)			(4,570	)
Amortization of historical MSW II financing costs			1,389				348
Amortization of refinancing fees			(964	)			(241	)
Net (increase) in interest expense		$	(1,263	)		$	(315	)

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Note 3:	EARNINGS PER SHARE

	•	Basic and diluted earnings per share and the average shares outstanding used in the calculation of basic and diluted earnings per share of common stock and shares of common stock outstanding for the pro forma year ended December 31, 2004 and quarter ended March 31, 2005 have been adjusted, as necessary, to reflect the following equity transactions, as if they occurred on January 1, 2004, the issuance of: (a) 5.1 million of bridge shares, (b) 27.4 million shares in connection with a pro rata rights offering to all our stockholders on May 18, 2004, (c) 8.75 million shares pursuant to the conversion of approximately $13.4 million in principal amount of our convertible notes and (d) 66.4 million shares associated with this rights offering. In addition, diluted earnings per share and the average shares used in the calculation of diluted earnings per share of common stock and shares of common stock outstanding for the pro forma year ended December 31, 2004 and quarter ended March 31, 2005 have been adjusted, as necessary, to reflect the following additional equity transactions, as if they occurred on January 1, 2004; (i) our commitment to sell up to 3.0 million shares of its common stock at $1.53 per share to certain creditors of Covanta and (ii) an additional 2.7 million shares to such creditors in such offering.

Note 4:	PENSION COST

Note 5:	POTENTIAL ADDITIONAL FINANCING

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			Years Ended
			2004(1)				2003(2)				2002(3)				2001				2000
			(In thousands, except per share amounts)
Statement of Operations Data
Operating revenue			$	578,555			$	41,123			$	531,501			$	92,104			$	84,331
Operating expense				501,200				54,029				528,168				106,365				85,073
Operating income (loss)				77,355				(12,906	)			3,333				(14,261	)			(742	)
Other income (loss)				—								2,793				—				(1,906	)
Interest expense				41,881				1,424				38,735				—				—
Income (loss) before taxes, minority interest and equity income				35,474				(14,330	)			(32,609	)			(14,261	)			1,164
Minority interest expense				6,869				—				—				—				—
Income taxes				11,535				18				346				73				134
Equity in net income (loss) from consolidated investments				17,024				(54,877	)			—				—				—
Net income (loss)			$	34,094			$	(69,225	)		$	(32,955	)		$	(14,334	)		$	1,030
Income (loss) per share(5)
	Basic			0.54				(1.46	)			(0.82	)			(0.48	)			0.04
	Diluted			0.52				(1.46	)			(0.82	)			(0.48	)			0.04
Balance Sheet Data
Cash and cash equivalents			$	96,148			$	17,952			$	25,183			$	17,866			$	12,545
Restricted funds held in trust				239,918				—				—				—				—
Investments				65,042				71,057				93,746				148,512				147,667
Properties — net				819,400				254				654,575				131				56
Service and energy contracts				177,290				—				—				—				—
Deferred tax asset				26,910
Total assets				1,939,081				162,648				1,032,945				208,871				210,829
Deferred income taxes				109,465				—				—				—				—
Unpaid losses and LAE				64,270				83,380				101,249				105,745				100,030
Recourse debt				312,896				40,000				597,246				—				—
Project debt(6)				944,737				—				—				—				—
Project debt premium				37,910				—				—				—				—
Minority interest				83,350				—				—				—				—
Shareholders’ equity				134,815				27,791				77,360				74,463				81,330
Book value per share of common stock(5)			$	1.84			$	0.50			$	1.63			$	2.48			$	2.74
Shares of common stock outstanding (4),(5)				73,430				55,105				47,459				30,039				29,716

(1)

For the year ended December 31, 2004, Covanta’s results of operations are included in Danielson’s consolidated results since March 10, 2004. As a result of the consummation of the Covanta acquisition on March 10, 2004, our future performance will predominantly reflect the performance of Covanta’s operations which are significantly larger than our insurance operations. As a result, the nature of our business, the risks attendant to such business and the trends that it will face has been

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	significantly altered by the acquisition of Covanta. Accordingly, our historic financial performance and results of operations will not be indicative of its future performance.
(2)	ACL, which was acquired on May 29, 2002, and certain of its subsidiaries, filed a petition on January 31, 2003 with the U.S. Bankruptcy Court for the Southern District of Indiana, New Albany Division to reorganize under Chapter 11 of the U.S. Bankruptcy Code. As a result of this filing we no longer maintained control of the activities of ACL and our equity interest in ACL was canceled when ACL’s plan of reorganization was confirmed on December 30, 2004 and it emerged from bankruptcy on January 11, 2005. Accordingly, we no longer include ACL and its subsidiaries as consolidated subsidiaries in our financial statements. Our investments in these entities are presented using the equity method effective as of the beginning of the year ending December 31, 2003. Other (loss) income above consists of our equity in the net loss of ACL, GMS and Vessel Leasing in 2003.
(3)	In 2002, we purchased 100% of ACL, 5.4% of GMS and 50% of Vessel Leasing.
(4)	Does not give effect to currently exercisable options, and, in 2001 and 2000, warrants to purchase shares of common stock.
(5)	Basic and diluted earnings per share and the average shares used in the calculation of basic and diluted earnings per share and book value per share of common stock and shares of common stock outstanding for all periods have been adjusted retroactively to reflect the bonus element contained in the rights offering issued on May 18, 2004.
(6)	Includes $38 million of unamortized debt premium.

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						For the Period from
						December 12					For the Period from
		For the Year				through					January 1 through				For the Year Ended
		December 31, 2004				December 31, 2003					December 12, 2003				December 31, 2002
						(In thousands)
Statement of Operations Data
Operating revenue		$	298,644			$	—				$	—			$	—
Earnings from equity investment in Ref-Fuel Holdings			6,148				3,969					50,204				52,898
Operating expenses			(116,089	)			—					—				—
Depreciation and amortization expense			(45,154	)			(4	)				(258	)			(281	)
General and administrative expenses			(30,216	)			(358	)				(4,634	)			(7,548	)
Transactions costs related to MSW Merger			—				—					(16,600	)			—
Losses on asset retirements			(1,765	)			—					—				—
Interest income			2,967				133					519				616
Interest expense			(69,219	)			(2,677	)				(10,651	)			(12,202	)
Loss on early extinguishment of debt			—				—					(1,655	)			—
Minority interest in net income of subsidiaries			(12,283	)			—					—				—
Other, net			303				—					3,278				2,020
Earnings before income taxes			33,336				1,063					20,203				35,503
Provision for income taxes			(17,818	)			(498	)				(12,362	)			(15,639	)
Earnings from continuing operations			15,518				565					7,841				19,864
Earnings from discontinued operations, net of income tax expense of $5,373, $382, $3,310 and $418, respectively			5,589				429					2,888				2,612
Gain (loss) on disposal of discontinued operations, net of income tax expense (benefit) of $0, $0, $0 and ($3,238), respectively			—				—					—				(10,427	)
Earnings (losses) from discontinued operations			5,589				429					2,888				(7,815	)
Net income		$	21,107			$	994				$	10,729			$	12,049
Balance Sheet Data
Cash and cash equivalents		$	$88,945			$	17,537
Total assets			2,201,075				705,441
Total debt			1,471,013				308,179
Total equity			284,258				124,903
Cash Flow Data
Cash from operating activities		$	154,230			$	(3,095	)			$	44,781			$	75,675
Cash from investing activities			57,064				548					(5,909	)			(40,625	)
Cash from financing activities			(139,886	)			14,215					(110,097	)			18,586
Capital expenditures			(13,047	)			—					(1,049	)			(4,381	)

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	•	your properly completed and executed exercise form with any required signature guarantees or other supplemental documentation; and
	•	your full exercise price payment for each share subscribed for under your subscription privileges; and
	•	if you hold your shares of our common stock in certificated form, certificates representing at least the number of shares of our common stock representing the warrants to be exercised; or
	•	if you hold your shares of our common stock through DTC, an exercise form instructing your broker, nominee or other custodian to instruct DTC to transfer the shares of common stock representing the warrants to be exercised to a suspense account established by the warrant agent, to be held in escrow for you until after the expiration date.

	•	Any family group consisting of an individual, spouse, children, grandchildren and parents are treated as one person. Note that an individual can be treated as a member of several different family groups. For example, your family group would include your spouse, children, father and mother, but your mother’s family group would include her spouse, all her children and her grandchildren.
	•	Any common stock owned by any entity will generally be attributed proportionately to the ultimate owners of that entity. Such attribution will also occur through tiered entity structures.
	•	Any persons or entities acting in concert or having a formal or informal understanding among themselves to make a coordinated purchase of common stock will be treated as one stockholder.
	•	In determining stock ownership, any person or entity that holds an option to acquire either common stock or another option or right to acquire common stock should be treated as owning the underlying common stock.
	•	Ownership may not be structured with an abusive principal purpose of avoiding these rules.

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	(1) by exercising warrants, each holder will represent to us that such holder will not be, after giving effect to the exercise of warrants and assuming that such holder is issued all of the shares for which the holder subscribed, an owner, either direct or indirect, record or beneficial, or by application of Section 382 attribution provisions summarized above, of more than 6,500,000 shares, constituting approximately 4.5% of our outstanding common stock;
	(2) if such exercise would result in such holder owning more than 6,500,000 shares of our common stock, constituting approximately 4.5% of our outstanding common stock, such holder must notify the warrant agent at the telephone number set forth under “Delivery of Subscription Materials and Payment”;
	(3) if requested, each holder will be required to provide us with additional information regarding the amount of common stock that the holder owns; and
	(4) we shall have the right to instruct the warrant agent to refuse to honor such holder’s exercise to the extent such exercise might, in our sole and absolute discretion, result in such holder owning 5% or more of our common stock.

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	501 Madison Avenue
	20th Floor
	New York, New York 10022
	Telephone: (888) 750-5834 (toll-free)

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	•	certified check or bank draft drawn upon a U.S. bank or postal, telegraphic or express money order payable to the warrant agent;
	•	wire transfer of immediately available funds directed to American Stock Transfer & Trust Company, c/o Chase Manhattan Bank, ABA No. 021-000021, Credit Account No. 323-836925; or
	•	personal check payable to the warrant agent.

	•	clearance of any uncertified check;
	•	receipt by the warrant agent of any certified check or bank draft drawn upon a U.S. bank or of any postal, telegraphic or express money order; or
	•	receipt of collected funds in the warrant account designated above.

	American Stock Transfer & Trust Company
	59 Maiden Lane
	New York, NY 10038
	Telephone: (877) 248-6417

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	•	your exercise form provides that shares are to be delivered to you as record holder of those warrants; or
	•	you are an eligible institution.

	•	a bank;
	•	a broker, dealer, municipal securities broker or dealer or government securities broker or dealer;
	•	a credit union;
	•	a member of a national securities exchange, registered securities association or clearing agency; or
	•	a savings association that is a participant in a securities transfer association for the account of an eligible institution.

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	•	a citizen or resident of the United States;
	•	a partnership, corporation or other entity created or organized in or under the laws of the United States or of any political subdivision thereof;
	•	a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or
	•	an estate, the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source.

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	The market for our common stock has been historically illiquid which may affect your ability to sell your shares.

	Reduced liquidity and price volatility could result in a loss to investors.

	Concentrated stock ownership and a restrictive certificate of incorporation provision may discourage unsolicited acquisition proposals.

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	Future sales of our common stock may depress our stock price.

	Our disclosure controls and procedures may not prevent or detect all acts of fraud.

	Failure to maintain an effective system of internal control over financial reporting may have an adverse effect on our stock price.

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	We cannot be certain that our net operating loss tax carryforwards will continue to be available to offset our tax liability.

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	Covanta emerged from bankruptcy with a large amount of domestic debt, and we cannot assure you that its cash flow from domestic operations will be sufficient to pay this debt.

	•	its ability to continue to operate and maintain its facilities consistent with historical performance levels;
	•	its ability to maintain compliance with its debt covenants;
	•	its ability to avoid increases in overhead and operating expenses in view of the largely fixed nature of its revenues;
	•	its ability to maintain or enhance revenue from renewals or replacement of existing contracts, which begin to expire in October 2007 and from new contracts to expand existing facilities or operate additional facilities;
	•	market conditions affecting waste disposal and energy pricing, as well as competition from other companies for contract renewals, expansions, and additional contracts, particularly after its existing contracts expire;
	•	the continued availability to Covanta of the benefit of Danielson’s net operating losses under a tax sharing agreement; and
	•	its ability to refinance its domestic corporate debt, whether in conjunction with the Ref-Fuel acquisition or otherwise.

	Covanta may not be able to refinance its domestic debt agreements prior to maturity.

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	Covanta’s ability to grow its business is limited.

	Covanta’s liquidity is limited by the amount of domestic debt issued when it emerged from bankruptcy.

	Operation of Covanta’s facilities and the expansion of facilities involve significant risks.

	•	the inaccuracy of Covanta’s assumptions with respect to the timing and amount of anticipated revenues;
	•	supply interruptions;
	•	the breakdown or failure of equipment or processes;
	•	difficulty or inability to find suitable replacement parts for equipment;
	•	the unavailability of sufficient quantities of waste;
	•	decreases in the fees for solid waste disposal;

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	•	decreases in the demand or market prices for recovered ferrous or non-ferrous metal;
	•	disruption in the transmission of electricity generated;
	•	permitting and other regulatory issues, license revocation and changes in legal requirements;
	•	labor disputes and work stoppages;
	•	unforeseen engineering and environmental problems;
	•	unanticipated cost overruns;
	•	weather interferences, catastrophic events including fires, explosions, earthquakes, droughts and acts of terrorism;
	•	the exercise of the power of eminent domain; and
	•	performance below expected levels of output or efficiency.

	Covanta’s insurance and contractual protections may not always cover lost revenues, increased expenses or liquidated damages payments.

	Performance reductions could materially and adversely affect Covanta, and its projects may operate at lower levels than expected.

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	Covanta generates its revenue primarily under long-term contracts and must avoid defaults under its contracts in order to service its debt and avoid material liability to contract counterparties.

	Covanta may face increased risk of market influences on its domestic revenues after its contracts expire.

	Concentration of suppliers and customers may expose Covanta to heightened financial exposure.

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	Covanta’s international businesses emerged from bankruptcy with a large amount of debt, and we cannot assure you that its cash flow from international operations will be sufficient to pay this debt.

	•	its ability to continue to operate and maintain its facilities consistent with historical performance levels;
	•	stable foreign political environments that do not resort to expropriation, contract renegotiations or currency or exchange changes;
	•	the financial ability of the electric and steam purchasers to pay the full contractual tariffs on a timely basis;
	•	the ability of its international project subsidiaries to maintain compliance with their respective project debt covenants in order to make equity distributions to CPIH; and
	•	its ability to sell existing projects in an amount sufficient to repay CPIH indebtedness at or prior to its maturity in March 2007, or to refinance its indebtedness at or prior to such maturity.

	CPIH’s debt is due in March 2007, and it will need to refinance its debt or obtain cash from other sources to repay this debt at maturity.

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	CPIH’s assets and cash flow will not be available to Covanta.

	A sale or transfer of CPIH or its assets may not be sufficient to repay CPIH indebtedness.

	Exposure to international economic and political factors may materially and adversely affect Covanta’s business.

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	•	changes in law or regulations;
	•	changes in electricity tariffs;
	•	changes in foreign tax laws and regulations;
	•	changes in United States, federal, state and local laws, including tax laws, related to foreign operations;
	•	compliance with United States, federal, state and local foreign corrupt practices laws;
	•	changes in government policies or personnel;
	•	changes in general economic conditions affecting each country, including conditions in financial markets;
	•	changes in labor relations in operations outside the United States;
	•	political, economic or military instability and civil unrest; and
	•	expropriation and confiscation of assets and facilities.

	Exposure to foreign currency fluctuations may affect Covanta’s costs of operations.

	Exposure to fuel supply prices may affect CPIH’s costs and results of operations.

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	Covanta’s inability to obtain resources for operations may adversely affect its ability to effectively compete.

	Compliance with environmental laws could adversely affect Covanta’s results of operations.

	Federal energy regulation could adversely affect Covanta’s revenues and costs of operations.

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	Failure to obtain regulatory approvals could adversely affect Covanta’s operations.

	The energy industry is becoming increasingly competitive, and Covanta might not successfully respond to these changes.

	Changes in laws and regulations affecting the solid waste and the energy industries could adversely affect Covanta’s business.

	Insurance regulations may affect NAICC’s operations.

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	The insurance products sold by NAICC are subject to intense competition.

	If NAICC’s loss experience exceeds its estimates, additional capital may be required.

	Failure to satisfy capital adequacy and risk-based capital requirements would require NAICC to obtain additional capital.

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	•	we have paid or set apart all accrued and unpaid dividends for the preferred stock and any stock ranking on its parity; and
	•	we have set apart sufficient funds for the payment of the dividends for the current dividend period with respect to the preferred stock and any of the stock ranking on its parity.

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	•	we will advise the requesting party in writing; and
	•	we will approve any subsequent request by other 5% stockholders of a type that we had previously denied only after we give all previously denied requests (in the order denied) the opportunity to complete the previously desired transaction. In addition, we may approve any requested transaction in any order of receipt if, in our business judgment, the transaction is in our best interests.

	•	we conclude that the restrictions are no longer necessary in order to avoid a loss of the NOLs;
	•	the NOLs are no longer available to us; or
	•	our board concludes, in its business judgment, that preservation of the NOLs are no longer in our interest.

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	1. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 16, 2005 as amended by our Annual Reports on Form 10-K/A filed on March 21, 2005 and April 22, 2005;
	2. Our Current Reports on Form 8-K filed on February 2, 2005, February 25, 2005, March 17, 2005 (Exhibit 23.1 thereto only), March 23, 2005, March 24, 2005, April 7, 2005 and our Current Report on Form 8-K/A filed on May 12, 2005;

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	3. Covanta’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004, filed on March 17, 2005 as amended by Covanta’s Annual Report on Form 10-K/A filed on April 22, 2005;
	4. Our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, filed on May 4, 2005; and
	5. Covanta’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, filed on May 5, 2005.

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