10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the year ended December 31, 2004
	or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from             to

Commission file number 000-25955

Waste Services, Inc.

(Successor registrant of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

Delaware (State or other jurisdiction of incorporation or organization)	01-0780204 (I.R.S. Employer Identification No.)
1122 International Blvd. Suite 601, Burlington, Ontario (Address of principal executive offices)	L7L 6Z8 (Zip Code)

Registrant’s telephone number, including area code: (905) 319-1237

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ                    No o

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in a definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act.)

Yes þ                    No o

     The approximate aggregate market value of the voting stock held by non-affiliates of the Registrant as of June 30, 2004 was $345.9 million based upon the closing price of the Registrant’s Common Shares as quoted on the Nasdaq National Market as of that date.

     The number of Common Shares of the Registrant outstanding as of March 1, 2005 was 99,593,680. (assuming exchange of 6,569,910 exchangeable shares of Waste Services (CA) Inc. not owned by Waste Services, Inc.)

INDEX TO FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2004

	Page
PART I.	1
Item 1. Business	2
Item 2. Properties	15
Item 3. Legal Proceedings	16
Item 4. Submission of Matters to a Vote of Security Holders	17
Item 4A. Executive Officers of the Registrant	17
PART II.	18
Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters	18
Item 6. Selected Financial Data	19
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.	37
Item 8. Financial Statements and Supplementary Data	38
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	38
Item 9A. Controls and Procedures	39
Item 9B. Other Information	39
PART III	39
Item 10. Directors and Executive Officers of the Registrant	39
Item 11. Executive Compensation	41
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	46
Item 13. Certain Relationships and Related Transactions	48
Item 14. Principal Accountant Fees and Services	49
PART IV	50
Item 15. Exhibits, Financial Statement Schedules	50
Plan of Arrangement
Provisions for Exchangeable Shares
Voting and Exchange Trust Agreement
Support Agreement
Employment Agreement/Charles A. Wilcox
List of Subsidiaries
Consent of BDO Seidman LLP
Consent of BDO Dunwoody LLP
Consent of PricewaterhouseCoopers LLP
Consent of PricewaterhouseCoopers LLP
Section 302 Chief Executive Officer Certification
Section 302 Chief Financial Officer Certification
Section 906 CEO & CFO Certification

PART I

CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

     This annual report on Form 10-K, or the annual report, contains certain “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Some of these forward-looking statements include forward-looking phrases such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “foresees”, “intends”, “may”, “should” or “will continue”, or similar expressions or the negatives thereof or other variations on these expressions, or similar terminology, or discussions of strategy, plans or intentions. These statements also include descriptions in connection with, among other things:

•   our anticipated revenue, capital expenditures, future cash flows and financing requirements, and those of companies we acquire;

•   the implementation of our business strategy;

•   descriptions of the expected effects of our competitive strategies; and

•   the impact of actions taken by our competitors and other third parties, including courts and other governmental authorities.

     Such statements reflect our current views regarding future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements to be materially different from any future results, performance or achievements that forward-looking statements may express or imply, including, among others:

•   significant restrictive covenants in our various credit facilities;

•   changes in regulations affecting our business and costs of compliance;

•   revocation of existing permits and licenses or the refusal to renew or grant new permits and licenses, which are required to enable us to operate our business or implement our growth strategy;

•   our ability to successfully implement our corporate strategy and integrate any acquisitions we undertake;

•   costs and risks associated with litigation;

•   changes in general business and economic conditions, changes in exchange rates and in the financial markets;

•   changes in accounting standards or pronouncements; and

•   construction, equipment delivery or permitting delays for our transfer stations or landfills.

     Some of these factors are discussed in more detail in this annual report, including under “Item 1. Business — Risk Factors”. If one or more of these risks or uncertainties affects future events and circumstances, or if underlying assumptions do not materialize, actual results may vary materially from those described in this annual report as anticipated, believed, estimated or expected, and this could have a material adverse effect on our business, financial condition and the results of our operations. Further, any forward-looking statement speaks only as of the date on which it is made, and except as required by law we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances.

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Item 1. Business

Overview

     We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. We operate on a decentralized basis while financial controls and information systems are controlled centrally. We currently have operations in five geographic markets — Florida, Arizona, Texas and Eastern and Western Canada. We currently service approximately 5.5 million customers and own and operate seven landfills.

     Our parent company was incorporated in Delaware in 2003 under the name Omni Waste, Inc. In 2003, its name was changed to Waste Services, Inc. (“Waste Services”). Waste Services is the successor to Capital Environmental Resource Inc. (“Capital”) now Waste Services (CA) Inc., by a migration transaction completed effective July 31, 2004. The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and was approved by the Ontario Superior Court of Justice. Pursuant to the plan of arrangement, holders of Capital Common Shares received shares of our common stock unless they elected to receive exchangeable shares of Capital. The terms of the exchangeable shares of Capital are the functional and economic equivalent of our common stock. As a result of the migration Capital became our indirect subsidiary and we became the parent company. Our corporate offices are located at 1122 International Blvd., Suite 601 Burlington, Ontario L7L 6Z8. Our telephone number is (905) 319-1237.

     We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is organized into Florida (North, Central, Gulf), Texas and Arizona. We believe that our geographic segments within Canada and the United States meet the “Aggregation Criteria” set forth in SFAS 131 for the following reasons: (i) the nature of the service, waste collection and disposal, is economically the same and transferable across locations; (ii) the type and class of customer is consistent among regions/districts; (iii) the methods used to deliver services are essentially the same (e.g. containers collect waste at market locations and trucks collect and transfer waste to landfills); and (iv) the regulatory environment within each country is consistent. Accordingly, we have two reportable segments, United States and Canada. We re-entered the United States in May 2003 with the acquisition of the JED Landfill in Osceola County, Florida. We do not have significant (in volume or dollars) inter-segment operation-related transactions. For more information regarding our segments refer to Note 17 of our Consolidated Financial Statement.

     We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K with the SEC. The public may read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The internet address is www.sec.gov.

     You may request a copy our filings, at no cost, by writing or telephoning us at: Waste Services, Inc., 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6Z8, Attention: Corporate Secretary or call (905) 319-1237. You also may obtain them through our website. Our website address is www.wasteservicesinc.com. Information on our website does not form a part of this annual report.

Our Business Strategy

     Our goal is to be a highly profitable, multi-regional solid waste services company in North America with leading market positions in each of the markets we serve. In order to achieve this goal, we intend to:

Maximize Density and Vertical Integration of Operations. We believe that achieving a high degree of density and vertical integration of operations leads to higher profitability and returns on invested capital. In each of our local markets, we seek to maximize the density of our collection routes, which allows us to leverage our facilities and vehicle fleet by increasing the number of customers served and revenue generated by each route. In addition, we seek to vertically integrate our operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of waste volume. By securing and controlling the solid waste stream from collection through disposal, we are able to achieve cost savings for our collection operations, while at the same time providing our landfills with more stable and predictable waste volume and enhancing returns on the capital invested in these facilities. In our efforts to maximize vertical integration, we periodically evaluate markets where we are not internalized for

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possible divestiture or asset swap transactions to enhance density and/or internalization in existing markets where we are vertically integrated.

     Provide Consistent, Superior Customer Service. Our long-term growth and profitability will be driven, in large part, by our ability to provide consistent, superior service to our customers. We believe that our local and regional operating focus allows us to respond effectively to customer needs on a local basis, as well as maintain strong relationships with commercial, municipal and residential accounts. In each of our markets, customer retention and new account generation are key areas of focus for our local managers, and are important components of their performance evaluation.

     Maintain a Decentralized Operating Management Structure with Centralized Controls and Information Systems. The solid waste industry is a local and regional business by nature, where we believe that asset investment, customer relationships, pricing and operational productivity are most effectively managed on a local and regional basis. We have structured our operating management team on a geographically decentralized basis, because we believe that talented, experienced and incentivized local management are in the best position to make effective, profitable decisions regarding local operations and to provide strong customer service. Our senior management team provides significant oversight and guidance for our local management, developing operating goals and standards tailored to each market, but does not impose corporate directives regarding local operating decisions, such as pricing.

     While our operating management structure is decentralized, all of our operations adhere to uniform corporate policies and financial controls and utilize integrated information systems. Our information systems provide both corporate and local management with comprehensive, consistent and timely operating and financial data, enabling them to maintain detailed, ongoing visibility of the performance and trends in each of our local market operations.

     Execute a Disciplined, Disposal-Based Growth Strategy. Our growth strategy consists of both new geographic market entries, for which we first secure disposal capacity, and “tuck-in” acquisitions within an existing market, which typically consist of collection operations or transfer stations. In either case, we focus on maximizing cash flow and return on invested capital.

     For new market entries, we only pursue opportunities where we can:

•   benefit from (i) above-average underlying economic or population growth, or (ii) a changing competitive or regulatory environment that could lead to above-average growth for solid waste services;

•   establish a leading market position over time in the local markets in which we operate; and

•   become vertically integrated with the ability to secure significant waste volume that we collect and transfer to our own landfills.

     We believe that each of the new markets we have entered in the United States have met these criteria.

     For tuck-in acquisitions, we only pursue opportunities that:

•   are complementary to our existing infrastructure, allowing us to increase the density of our collection routes or enhance asset utilization; or

•   increase the waste volume that can be internalized into our transfer stations and landfills.

Operations

     We provide our services on a geographic basis in three regions in the United States, Florida, Arizona and Texas, and in two regions in Canada, Eastern and Western Canada. For a discussion on the seasonality of our business, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Operating Results — Seasonality.”

Collection Services

     We provide collection services to approximately 87,000 commercial and industrial customers and approximately 5,445,000 residential customers. As of December 31, 2004, we had a front-line collection fleet size of approximately 1,185 vehicles with an average fleet age of approximately six years.

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     Commercial and Industrial Collection. We provide collection services to a variety of commercial and industrial customers in all of our geographic markets where we have collection operations. We perform such services principally under one to five year service agreements, which typically contain provisions for automatic renewal and which prohibit the customer from terminating the agreement prior to its expiration date without incurring a penalty. We provide roll-off containers to customers for temporary services, such as for construction projects, under short-term purchase orders. We also provide stationary compactors to our customers, which allow them to compact their waste at their premises prior to its collection. Commercial and industrial collection vehicles normally require one operator. We provide two to eight cubic yard containers to commercial customers and ten to fifty cubic yard containers to industrial customers, including our roll-off accounts.

     We determine the fees we charge our customers by a variety of factors, including collection frequency; level of service; route density; the type, volume and weight of the waste collected; type of equipment and containers furnished; the distance to the disposal or processing facility; the cost of disposal or processing; and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on price increases is sometimes limited by the terms of our contracts.

     Residential Collection. We provide residential waste collection services in all of our geographic markets where we have collection operations through a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes and mobile home parks, and homeowners associations. We also provide such services through residential subscription arrangements with individual homeowners in certain markets.

     Our contracts with municipalities are typically for a term of up to five years and contain a formula, generally based on a predetermined published price index, for automatic adjustments to fees to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities contain renewal provisions.

     The fees we charge for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or transfer facility, the cost of disposal or transfer and prices we charge in the market for similar services.

Transfer Station Services

     We operate 15 transfer stations, including our transfer station in Houston, Texas which commenced operations in January 2005. As further described below, two transfer stations are currently under development in Central Florida and are scheduled to be operational in the second quarter of 2005. These transfer stations will allow us to internalize existing collection volumes to our JED landfill, located outside Orlando. Our transfer stations receive solid waste from our own operations and from third parties, compact the waste and transfer it for disposal to our own or third-party landfills. We charge third parties fees to dispose of their waste at our transfer stations. Transfer station fees are generally based on the cost of processing, transportation and disposal. We typically subcontract the transportation of waste from our transfer stations to the landfill.

     We believe that the benefits of using our transfer stations include improved utilization of our collection infrastructure and better relationships with municipalities and private operators that deliver waste to our transfer stations, which can lead to additional growth opportunities. We believe that transfer stations will become increasingly valuable as new landfills are opening further away from metropolitan areas and waste needs to travel further for disposal.

Commercial and Residential Recycling Services

     We offer collection and processing services to our municipal, commercial and industrial customers for a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles, fiberboard, and ferrous and aluminum metals. We operate five material recovery facilities in Florida and five in Ontario, Canada. These facilities are used to sort, bale and ship recyclable materials to market. We also deliver recyclable materials that we collect to third parties for processing and resale. In an effort to reduce our exposure to commodity price fluctuations on recycled materials, where competitive pressures permit, we charge collection or processing fees for recycling volume collected from our customers. We believe that recycling will continue to be an important component of municipal solid waste management plans due to the public’s environmental awareness and regulations that mandate or encourage recycling.

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Landfill Disposal Services

     We charge our landfill and transfer station customers a tipping fee on a per ton basis for disposing of their solid waste at our transfer stations and landfills. We generally base our landfill tipping fees on market factors and the type and weight of or volume of the waste deposited.

     We dispose of the solid waste we collect in one of four ways: (i) at our own landfills; (ii) through our own transfer stations; (iii) at municipally-owned landfills; or (iv) at third-party landfills or transfer stations. In markets where we do not have our own landfills, we seek to secure favorable long-term disposal arrangements with municipalities or private owners of landfills or transfer stations. In those markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure favorable disposal pricing. In some markets we may enter into put or pay disposal arrangements with third party operators of disposal facilities. These arrangements require us to deliver a minimum tonnage of waste for disposal at a fixed disposal rate, or pay a penalty equal to the number of tons below the required tonnage by that disposal rate. These types of arrangements allow us to fix our disposal costs, but also expose us to the risk that if our tonnage declines and we are unable to deliver the minimum tonnage, we will be required to pay the penalty.

Other Specialized Services

     We offer other specialized services consisting primarily of sales and leasing of compactor equipment and portable toilet services for special events or construction sites.

Local/Regional Operating Structure

     We manage the business on a local/regional basis. Each of our operating regions also has a number of operating districts where the business is managed on a local basis.

     From a management perspective, each region has a general manager who reports to our President and Chief Operating Officer. District managers are responsible for the day-to-day operations of their districts, including supervising their sales force, maintaining service quality, implementing our health and safety and environmental programs and overseeing contract administration. District managers work closely with the region managers to execute business plans and identify business development opportunities. This structure is designed to provide decision-making authority to our district managers who are closest to the needs of the customers they serve in the community. This localized approach allows us to quickly identify and address customer needs, manage local operating dynamics and take advantage of market opportunities.

United States

     We operate in three regions in the United States; Florida, Arizona and Texas.

     Florida Region. Our Florida region is organized into three districts with ten collection operations, two transfer stations, five material recovery facilities and two landfills.

     The Central Florida district, concentrated in the Orlando metropolitan area, has three collection operations and our JED landfill.

     Our JED Landfill is located in Osceola County, Florida (approximately 20 miles south of metropolitan Orlando) and commenced operations in January 2004. This municipal solid waste landfill has initial permitted airspace of approximately 24.0 million cubic yards. The site has an average daily volume limit of 4,000 tons for municipal solid waste and is currently permitted to accept waste from Osceola County and various other counties (which include the Orlando and Tampa/St. Petersburg metropolitan areas) as well as the right to take 2,000 tons per day from other areas of Florida.

     We have two transfer station and recycling facilities under development in Central Florida which, upon completion, will enable us to internalize significant collection volumes into our JED landfill. The Taft transfer station and recycling facility, located south of Orlando, is owned and operated by a third party with whom we have entered into a 10-year disposal agreement. The Taft facility has received a modified permit allowing it to accept up to 1,500 tons of Class I and Class III solid waste combined per day subject to completion of certain building modifications expected to be completed in the second quarter of 2005. The other transfer station and recycling facility, located in Sanford, Florida, is fully permitted to accept up to 2,000 tons per day of Class I municipal solid waste upon completion of construction which is also expected in the second quarter of 2005. Ownership of the Sanford facility, also referred to as the Ice House facility, will be transferred to us upon completion of construction pursuant to the terms of our settlement agreement with the sellers of Florida Recycling.

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     The North Florida district includes the Jacksonville and Daytona market areas and is comprised of two collection operations, two material recovery facilities and the Jones Road Landfill. The Jones Road Landfill is permitted to receive construction and demolition waste and has permitted capacity of approximately 4.48 million cubic yards, with remaining permitted capacity of approximately 2.3 million cubic yards. The landfill has an average daily volume limit of 1,642 tons.

     The Gulf district, concentrated in the Tampa/St. Petersburg, Sarasota and Ft. Myers market areas, has five collection operations, two transfer stations and three material recovery facilities.

     Arizona Region. Our Arizona regional operations are focused in the Phoenix metropolitan area and comprise two collection operations, two transfer stations and our Cactus Regional Landfill. The Cactus Regional Landfill is located in Pinal County (approximately half way between Phoenix and Tucson, Arizona). The landfill began accepting waste in July 2004 and has initial permitted capacity of approximately 224.0 million cubic yards. The site has no daily or annual volume limits. Our transfer station in Mesa, Arizona commenced operations in July of 2004 and our Central Phoenix transfer station began operations in June of 2004. There are no daily or annual volume limits at these transfer stations.

     Texas Region. Our Texas operations include our Fort Bend Regional Landfill and a transfer station serving the Houston market. The Fort Bend Regional Landfill is located in Fort Bend County, which is approximately 15 miles southwest of metropolitan Houston, Texas. It began accepting waste in August 2004 and has initial permitted capacity of 47.6 million cubic yards. The site has no daily or annual volume limits. Additionally, we operate a solid waste transfer station in Houston, Texas, which began operations in January 2005. The site is permitted to accept up to 850 tons per day of municipal and industrial solid waste.

Canada

     We have operations throughout Ontario and in Saskatchewan, Alberta and British Columbia.

     Eastern Canada. Our Eastern Canada operations are based primarily in and around metropolitan areas of southern Ontario. We operate in 16 districts with 14 collection operations, eight transfer stations, five material recovery facilities and one landfill. While our southern Ontario operations, other than Ottawa, do not have internal disposal facilities, we have disposal contracts in place for a majority of our collected volume at rates we believe to be favorable.

     Our Waste Services Landfill is located in Ottawa, Canada. It has estimated remaining capacity of 1.4 million cubic yards. The site has an annual disposal limit of 234,750 metric tons of dry waste. Based on current and projected disposal volumes, we estimate that the site has approximately seven years of remaining capacity. Additionally, we own property that is available for potential future expansions.

     Western Canada. Our Western Canada operations are located in the three most western Canadian provinces: Saskatchewan, Alberta and British Columbia. Our hauling companies are located in and around metropolitan areas of Alberta and British Columbia and our two landfills are located in proximity to the industrial waste markets that they serve. We operate in ten districts with eight collection operations, two transfer stations and two landfills. The two landfills we own and operate in Western Canada primarily serve industrial customers and while we do not have significant internal disposal facilities, we have disposal contracts in place for a majority of our collected volume.

     Our Gap Landfill is located in southern Saskatchewan and is permitted to accept industrial waste. Its primary customer base is the oilfield industry. It has current permitted capacity of approximately 2.4 million cubic yards. The site has no daily or annual volume limits. Based on current disposal volumes, we estimate that the site has a total remaining life of 50 years.

     Our Paintearth Landfill is located in Coronation, Alberta and is permitted to accept non-hazardous solid and industrial wastes, construction and demolition waste and certain special wastes and includes a composting facility, a bio-remediation facility and a material recycling facility. Its primary customer base is currently the oilfield industry. It has an estimated current remaining capacity of 8.9 million cubic yards. Based on current disposal volumes, we estimate that the site has a total remaining life of 40 years.

Sales and Marketing

     We market our services on a decentralized basis principally through our district managers and direct sales representatives. Our

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sales representatives visit customers on a regular basis and call upon potential new customers within a specified territory or service area. These sales representatives receive a portion of their compensation based on meeting certain incentive targets.

     In addition to our sales efforts directed at commercial and industrial customers, we have municipal marketing representatives in our markets in Canada and Florida who are responsible for interfacing with municipalities and communities to which we provide residential service to ensure customer satisfaction. Our municipal representatives organize and handle bids for renewal and new municipal contracts in their service areas.

     We have a diverse customer base, with no single contract or customer representing more than 3.0% of consolidated revenue for the year ended December 31, 2004.

Competition

     The solid waste services industry is highly competitive and fragmented. We compete with large, national solid waste services companies, as well as smaller regional solid waste services companies of varying sizes and resources. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than we have, and may be able to provide services at a lower cost. We also compete with operators of alternative disposal facilities, and with municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges as well as to tax revenue.

     The U.S. solid waste industry currently includes three large national waste companies: Waste Management, Inc., Allied Waste Industries, Inc. and Republic Services, Inc.. Waste Management, Inc. operating through its Canadian subsidiary, Waste Management of Canada Corporation and BFI Canada are our significant competitors in Canada.

     We compete for collection, transfer and disposal volume based primarily on the price and quality of services. From time to time, competitors may reduce the prices of their services in an effort to expand their market share or service areas or to win competitively bid municipal contracts. These practices may cause us to reduce the prices of our services or, if we elect not to do so, to lose business.

     Competition exists not only for collection, transfer and disposal volume, but also for acquisition candidates. We generally compete for acquisition candidates with publicly owned regional and large national solid waste services companies.

Governmental Regulation

     We are subject to significant federal, provincial, state and local environmental and land use laws and regulations in the United States and Canada. The enforcement of both U.S. and Canadian environmental laws has become increasingly stringent. We believe that we are currently in substantial compliance with all material applicable environmental laws, permits, orders and regulations, and therefore we do not currently anticipate any significant environmental costs necessary to bring our existing operations into compliance. We anticipate that regulation, legislation and regulatory enforcement actions related to the solid waste services industry will continue to increase and that as they do, the administrative burden and costs of our compliance will increase.

     To transport, manage and accept solid waste for disposition, we must possess and comply with one or more permits from federal, provincial, state or local agencies and government offices. These permits must be periodically renewed and may be modified or revoked by the issuing agency.

     The principal statutes and regulations that affect our operations are described below.

United States Regulation

     The principal laws and regulations that affect our U.S. operations (including those that were sold in 2001 and which could continue to result in liability to us), as well as waste that we export from our Canadian operations to landfills located in the United States are described below.

The Resource Conservation and Recovery Act of 1976

     The Resource Conservation and Recovery Act of 1976, or RCRA, regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. RCRA

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divides solid waste into two groups, hazardous and non- hazardous. Wastes classified as hazardous under RCRA are subject to much stricter regulation than wastes classified as non-hazardous.

     The Subtitle D Regulations, which govern solid waste landfills, include location restrictions, facility design standards, operating criteria, closure and post-closure requirements, financial assurance requirements, groundwater monitoring requirements, methane gas emission control requirements, groundwater remediation standards and corrective action requirements. The Subtitle D Regulations also require new landfill sites to meet more stringent liner design criteria to keep leachate out of groundwater. Each state is required to revise its landfill regulations to meet these requirements or these requirements will be automatically imposed by the Environmental Protection Agency, or EPA, on landfill owners and operators in that state. Each state is also required to adopt and implement a permit program or other appropriate system to ensure that landfills in each state comply with the Subtitle D Regulations. Various states in which we currently operate or in which we may operate in the future have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations.

The Federal Water Pollution Control Act of 1972

     The Federal Water Pollution Control Act of 1972, or Clean Water Act, regulates the discharge of pollutants from a variety of sources into waters of the United States. If run-off from transfer stations or run-off or collected leachate from landfills that we operate or own were discharged into streams, rivers or other surface waters, the Clean Water Act requires us to obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in the discharge. Also, virtually all landfills are required to comply with the EPA’s storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water run-off from flowing into surface waters. Various states have adopted regulations that are more stringent than the federal requirements.

The Comprehensive Environmental Response, Compensation, and Liability Act of 1980

     The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, established a regulatory and remedial program intended to provide for the investigation and cleanup of facilities where or from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA imposes strict joint and several liability for cleanup of facilities on current owners and operators of the site, former owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranges for the transportation, disposal or treatment of the hazardous substances, and the transporters who select the disposal and treatment facilities. CERCLA also imposes liability for the cost of evaluation and remediation of any damage to natural resources.

     The costs of a CERCLA investigation and cleanup can be very substantial. Liability under CERCLA may be based on the existence of small amounts of the more than 700 “hazardous substances” listed by the EPA, many of which can be found in household waste. If we were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold us, or any other generator, transporter or the owner or operator of the contaminated facility, responsible for all investigative and remedial costs, even if others were also liable. CERCLA gives a responsible party the right to bring a contribution action against other responsible parties for their allocable shares of investigative and remedial costs. Our ability to obtain reimbursement from others for their allocable shares of these costs would be limited by our ability to find other responsible parties and prove the extent of their responsibility and by the financial resources of these other parties.

The Clean Air Act of 1970

     The Clean Air Act of 1970, or Clean Air Act, regulates emissions of air pollutants. The EPA has developed standards that apply to certain landfills depending on the date of the landfill construction, the location of the landfill, the materials disposed of at the landfill and the volume of the landfill emissions. The EPA has also issued standards regulating the disposal of asbestos containing materials under the Clean Air Act. Air permits to construct may be required for gas collection and flaring systems, and operating permits may be required, depending on the estimated volume of emissions.

     All of the federal statutes described above contain provisions authorizing, under certain circumstances, the institution of lawsuits by private citizens to enforce the provisions of the statutes. In addition to a penalty award to the U.S. government, some of those statutes authorize an award of attorneys’ fees to parties successfully advancing such an action.

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The Occupational Safety and Health Act of 1970

     The Occupational Safety and Health Act of 1970 is administered by the Occupational Safety and Health Administration, or OSHA, and in many states by state agencies whose programs have been approved by OSHA. The OSHA Act establishes employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized hazards likely to cause death or serious injury, to comply with adopted worker protection standards, to maintain certain records, to provide workers with required disclosures and to implement certain health and safety training programs. Various OSHA standards may apply to our operations, including standards concerning notices of hazards, the handling of asbestos and asbestos-containing materials and worker training and emergency response programs.

Flow Control/Interstate Waste Restrictions

     Certain permits and approvals, as well as certain state and local regulations, may limit a landfill in accepting waste that originates from specified geographic areas, restrict the importation of out-of-state waste or otherwise discriminate against out-of-state waste. These restrictions, generally known as flow control restrictions, are controversial, and some courts have held that some flow control schemes violate constitutional limits on state or local regulation of interstate commerce. From time to time, federal legislation is proposed that would allow some local flow control restrictions. Although no such federal legislation has been enacted to date, if this federal legislation should be enacted in the future, states could act to limit or prohibit the importation of out-of-state waste or direct that waste be handled at specified facilities. These state actions could adversely affect landfill owners and could also result in higher disposal costs for collection operations.

     Even in the absence of federal legislation, certain state and local jurisdictions may seek to enforce flow control restrictions through local legislation or contract. These restrictions could result in the volume of waste going to landfills being reduced in certain areas, which could affect the landfill owner’s ability to operate the landfills at full capacity or reduce the prices that it can charge for landfill disposal services. Any such restrictions may also result in higher disposal costs for our collection operations.

State and Local Regulation

     Each state has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational safety and health, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post-closure maintenance of landfills and transfer stations. In addition, many states have adopted statutes comparable to, and in some cases more stringent than, CERCLA. These statutes impose requirements for investigation and cleanup of contaminated sites and liability for costs and damages associated with these sites, and some provide for the imposition of liens on property owned by responsible parties. Furthermore, many municipalities also have ordinances, local laws and regulations that affect the operations of solid waste services companies. These include zoning and health measures that limit solid waste management activities to specified sites or activities, flow control provisions that direct the delivery of solid wastes to specific facilities, laws that grant the right to establish franchises for collection services and then put these franchises out for bid, and bans or other restrictions on the movement of solid wastes into a municipality.

     Permits or other land use approvals with respect to a landfill, as well as state or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period, specify the types of waste that may be accepted at the landfill or the areas from which waste may be accepted at a landfill. Once an operating permit for a landfill is obtained, it must generally be renewed periodically.

     There has been an increasing trend at the state and local level in the United States to mandate and encourage waste reduction at the source, and waste recycling, and to prohibit or restrict the disposal of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect the ability of transfer station and landfill owners to operate their sites at full capacity.

     Some state and local authorities enforce certain federal laws in addition to state and local laws and regulations. For example, in some states, RCRA, the Occupational Safety and Health Act, parts of the Clean Air Act and parts of the Clean Water Act are enforced by local or state authorities instead of by the EPA, and in some states those laws are enforced jointly by state or local and federal authorities.

Canadian Regulation

     Our Canadian operations are subject to environmental statutes and regulations at each of the federal, provincial and local levels. These laws impose restrictions designed to control air, soil and water pollution and regulate health and safety, zoning and land use and

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the handling of hazardous and non-hazardous wastes, and often empower government officials to issue administrative orders, including orders to cease carrying out a specific activity. This regulatory framework imposes significant compliance burdens and risks. The contravention of these laws may result in substantial fines that could equal or exceed the amount of monetary benefit acquired as a result of the commission of the offense and which could materially affect our business, results of operations and financial condition. In addition, our Canadian operations are subject to federal and provincial legislation regulating the operation of our fleet of vehicles, as well as to provincial occupational health and safety and workers compensation statutes which establish employer responsibilities for worker health and safety. The provisions of these statutes impose compliance burdens and costs and may result in significant penalties for failure to comply.

     The Canadian Environmental Protection Act, 1999 and the regulations passed under the act regulate, among other things, the import and export of waste into and out of Canada. The Transportation of Dangerous Goods Act regulates the transport of wastes across provincial and federal borders.

Ontario

     Ontario’s Environmental Protection Act and the regulations passed under the Act regulate general waste management and new or expanding landfill sites, prescribe the principal standards for the location, maintenance and operation of waste management systems, transfer and disposal sites, require the monitoring and reporting of airborne contamination and create offenses for spills, unlawful contaminant discharges or failure to comply with environmental permits or approvals.

     The operation of a waste management system or a waste transfer or disposal site in Ontario requires a certificate of approval or a provisional certificate of approval issued by the Ministry of the Environment under Part V of the Ontario Environmental Protection Act. We have applied for and obtained Certificates of Approval for the operation of all of our existing waste management systems and waste transfer and disposal sites in Ontario.

     The Ontario Water Resources Act prohibits unlawful discharges into water and regulates wastewater systems in Ontario, including leachate collection, treatment and discharges at landfills.

     In 2003, amendments were passed to the Municipal Act that allow, in certain prescribed circumstances, the formation of municipal businesses to compete directly in a public competitive bidding process with the private sector waste services industry for the collection, transfer, storage, disposal or recycling of residential waste.

Saskatchewan

     The Environment Management and Protection Act of 2002 and the regulations passed under the Act govern waste management activities carried on in Saskatchewan, including the permitting and operation of our Gap Disposal landfill.

Alberta

     The Environmental Protection and Enhancement Act comprehensively regulates the management and control of waste, including hazardous waste, and creates offenses for spills and other matters of non-compliance. The Waste Control Regulation deals in detail with the identification of wastes and requirements for the handling, storage and disposal of waste. Waste management facilities currently permitted under the Alberta Public Health Act, including our landfill in Coronation, Alberta, must be permitted by Alberta Environment no later than 2006 and the permit must be renewed every 10 years thereafter. Renewal of the Coronation, Alberta landfill site permit may result in the imposition of additional permit conditions that may increase the cell development and operating cost above current levels, or may limit the type, quantity or quality of waste that may be accepted. New landfill design standards are being developed by Alberta Environment that may require us to construct or operate future landfill cells and infrastructure to a higher and potentially more costly standard than currently permitted.

British Columbia

     The Environmental Management Act was enacted in July 2004 and introduced a regime which applies a risk-based approach of administrative penalties to be applied as a compliance enforcement tool as an alternative to prosecution. The Act governs waste collection and transfer operations in British Columbia. Various other provincial statutes, such as the Transportation of Dangerous

     Goods Act deal generally with environmental matters and could also impact our operations in British Columbia.

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Municipal Regulation

     Many municipal governments have passed local by-laws, including zoning and health measures by-laws that limit our activities to prescribed sites or activities, control the delivery of solid wastes to prescribed sites, restrict or ban the movement of solid waste into a municipality and regulate discharges into municipal sewers from our solid waste facilities. There has been an increasing trend to mandate and encourage waste reduction and separation at source and waste recycling, and to prohibit or restrict the disposal of certain solid waste, such as yard waste, leaves and tires, in landfills. Such restrictions could affect the ability of our transfer stations and landfills to operate at full capacity.

Employees

     As of December 31, 2004, we employed 2,128 full-time employees, including 176 persons categorized as professionals or managers, 1,808 employees involved in collection, transfer, disposal and recycling operations, and 144 sales, clerical, data processing or other administrative employees.

Risk Factors

Our indebtedness may make us more vulnerable to unfavorable economic conditions and competitive pressures, limit our ability to borrow additional funds, require us to dedicate or reserve a large portion of cash flow from operations to service debt, and limit our ability to take actions that would increase our revenue and execute our growth strategy

     As of December 31, 2004, we had total debt and capital lease obligations of $278.4 million. Our debt is comprised of our senior credit facilities, including a $60.0 million revolving credit facility due in April 2009, ($15.0 million outstanding at December 31, 2004) and a $99.3 million term loan maturing on April 2011, and our $160.0 million senior subordinated notes maturing in April 2014. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the Common Shares of Waste Services’ first tier foreign subsidiaries, including Capital, are pledged to secure obligations under the Credit Facilities.

     The amount of indebtedness owed under our existing credit facilities and senior subordinated notes may have adverse consequences for us, including making us more vulnerable to unfavorable economic conditions and competitive pressures, limiting our ability to borrow additional funds, requiring us to dedicate or reserve a large portion of cash flow from operations to service debt, limiting our ability to plan for or react to changes in our business and industry and placing us at a disadvantage compared to competitors with less debt in relation to cash flow.

     The credit facilities contain covenants and restrictions that could limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. Any failure by us to comply with these covenants and restrictions will, unless waived by the lenders, result in an immediate obligation to repay indebtedness. If such events occurred, we would be required to refinance or obtain capital from other sources, including sales of additional debt or equity or the sale of assets, in order to meet our repayment obligations. We may not be successful in obtaining alternative sources of funding to repay these obligations should events of default occur.

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Our business is capital intensive and may consume cash in excess of cash flow from our operations and borrowings

     Our ability to remain competitive, sustain our growth and maintain our operations largely depends on our cash flow from operations and our access to capital. We intend to fund our cash needs through our operating cash flow, borrowings and equity issuances. We may require additional equity or debt financing to fund our growth and debt repayment obligations.

     During 2004, we had capital expenditures of $46.2 million. Separately, we have provided for our liabilities related to our closure and post-closure obligations. As we undertake acquisitions, expand our operations, and deplete our landfills, our cash expenditures will increase. As a result, working capital levels may decrease and require financing. In addition, if we must close a landfill sooner than we currently anticipate, or if we reduce our estimate of a landfill’s remaining available air space, we may be required to incur such cash expenditures earlier than originally anticipated. Expenditures for closure and post-closure obligations may increase as a result of any federal, state or local government regulatory action taken to accelerate such expenditures. These factors could substantially increase our cash expenditures and therefore impair our ability to invest in our existing or new facilities.

     We may need to refinance our existing credit facilities and may need to refinance other debt to pay the principal amounts due at maturity. In addition, we may need additional capital to fund future acquisitions and the integration of the businesses that we acquire. Our business may not generate sufficient cash flow, we may not be able to obtain sufficient funds to enable us to pay our debt obligations and capital expenditures or we may not be able to refinance on commercially reasonable terms, if at all.

We may be unable to obtain or maintain the environmental permits and approvals we need to operate our business, which could adversely affect our earnings and cash flow

     We are subject to significant environmental and land use laws and regulations. To own and operate solid waste facilities, including landfills and transfer stations, we must obtain and maintain licenses or permits, as well as zoning, environmental and other land use approvals. It has become increasingly difficult, costly and time-consuming to obtain required permits and approvals to build, operate and expand solid waste management facilities. The process often takes several years, requires numerous hearings and compliance with zoning, environmental and other requirements and is resisted by citizen, public interest and other groups. The cost of obtaining permits could be prohibitive. We may not be able to obtain and maintain the permits and approvals needed to own, operate or expand our solid waste facilities. Moreover, the enactment of additional laws and regulations or the more stringent enforcement of existing laws and regulations could increase the costs associated with our operations. Any of these occurrences could reduce our expected earnings and cash flow.

     In some markets in which we operate, permitting requirements may be prohibitive and may differ between those required of us and those required of our competitors. Our inability to obtain and maintain permits for solid waste facilities may adversely affect our ability to service our customers and compete in these markets, thereby resulting in reduced operating revenue.

     In addition, stringent controls on the design, operation, closure and post-closure care of solid waste facilities could require us to undertake investigative or remedial activities, curtail operations, close a facility temporarily or permanently, or modify, supplement or replace equipment or facilities at substantial costs resulting in reduced profitability and cash flow.

Any failure to maintain the required financial assurance or insurance to support existing or future service contracts may prevent us from meeting our contractual obligations, and we might be unable to bid on new contracts or retain existing contracts resulting in reduced operating revenue and earnings

     Municipal solid waste services contracts and permits to operate transfer stations, landfills and recycling facilities typically require us to obtain performance bonds, letters of credit or other means of financial assurance to secure our contractual performance. Such contracts and permits also typically require us to maintain adequate insurance coverage. We carry a broad range of insurance coverage and retain certain insurance exposure that we believe is customary for a company of our size. If our obligations were to exceed our estimates, there could be a material adverse effect on our results of operations. Our ability to obtain performance bonds or letters of credit is generally dependent on our creditworthiness. Also, the issuance of letters of credit reduces the availability of our revolving credit facilities for other purposes. Our bonding arrangements are generally renewed annually. If we are unable to renew our bonding arrangements on favorable terms or at all or enter into arrangements with new surety providers, we would be unable to meet our existing contractual obligations that require the posting of performance bonds, and we would be unable to bid on new contracts. This would reduce our operating revenue and our earnings.

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Our acquisition strategy may be unsuccessful if we are unable to identify and complete future acquisitions and integrate acquired assets or businesses and this subjects us to risks that may have a material adverse effect on our results of operations

     Part of our strategy to expand our business and increase our revenue and profitability is to pursue the acquisition of disposal-based and collection assets and businesses. We have identified a number of acquisition candidates, both in the United States and Canada, that we believe are suitable. However, we may not be able to acquire these candidates at prices or on terms and conditions that are favorable to us. Furthermore, we expect to finance future acquisitions through a combination of seller financing, cash from operations, borrowings under our financing facilities or issuing additional equity or debt securities. Our ability to execute our acquisition strategy also depends upon other factors, including our ability to obtain financing on favorable terms, the successful integration of acquired businesses and our ability to effectively compete in the new markets we enter.

     If we are unable to identify suitable acquisition candidates or successfully complete and integrate the acquisitions, we may not realize the expected benefits from our acquisition growth strategy, including any expected benefits from the proposed vertical integration of acquired operations and disposal facilities.

Our business strategy depends in part upon vertically integrating our operations. If we are unable to permit, expand or renew permits for our existing landfill sites or enter into agreements that provide us with access to landfill sites and acquire, lease or otherwise secure access to transfer stations, this may reduce our profitability and cash flow.

     Our ability to meet our business strategy depends in part on our ability to permit, expand or renew permits for our existing landfills, develop new landfill sites in proximity to our operations, enter into agreements that will give us long-term access to landfill sites in our markets and to acquire, lease or otherwise secure access to transfer stations that permit us to internalize our collection volume to our own landfill sites. Permits to expand landfills are often not approved until the remaining permitted disposal capacity of a landfill is very low. We may not be able to purchase additional landfill sites, renew the permits for or expand existing landfill sites, negotiate or renegotiate agreements to obtain a long-term advantage for landfill costs or permit or renew permits for transfer stations that allow us to internalize the waste we collect. If we were to exhaust our permitted capacity at our landfills, our ability to expand internally could be limited, and we could be required to cap and close our landfills and dispose of collected waste at more distant landfills or at landfills operated by our competitors or other third parties. In Alberta, Canada, regulations require landfills to be re-approved every 10 years, thereby providing the regulator an opportunity to add potentially more stringent or costly design or operating conditions to the permit or prevent the renewal of the permit. Our landfill located in Alberta, Canada must complete this re-approval process by October 2006. Any failure by us to secure favorable arrangements (through ownership of landfills or otherwise) for the disposal of collected waste would increase our disposal costs and could result in the loss of business to competitors with more favorable disposal options thereby reducing our profitability and cash flow.

     Changes in legislative or regulatory requirements may cause changes in the landfill site permitting process. These changes could make it more difficult or costly for us to obtain or renew landfill permits. Technical design requirements, as approved, may need modification at some future point in time, which could result in higher development and construction costs than projected. Our current estimates of future disposal capacity may change as a result of changes in design requirements prescribed by legislation, construction requirements and changes in the expected waste density over the life of a landfill site. The density of waste used to convert the available airspace at a landfill into tons may be different than estimated because of variations in operating conditions, including waste compaction practices, site design, climate and the nature of the waste.

Any exposure to environmental liabilities, to the extent not adequately covered by insurance, could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions

     We could be held liable for environmental damage at solid waste facilities that we own or operate, including damage to neighboring landowners and residents for contamination of the air, soil, groundwater, surface water and drinking water. Our liability could extend to damage resulting from pre-existing conditions and off-site contamination caused by pollutants or hazardous substances that we or our predecessors arranged to transport, treat or dispose of at other locations. We are also exposed to liability risks from businesses that we acquire because these businesses may have liabilities that we fail or are unable to discover, including noncompliance with environmental laws. Our insurance program may not cover all liabilities associated with environmental cleanup or remediation or compensatory damages, punitive damages, fines, or penalties imposed on us as a result of environmental damage caused by our operations or those of any predecessor. The incurring of liabilities for environmental damages that are not fully covered by insurance could adversely affect our liquidity and could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions.

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We face competition from large and small solid waste services companies and may be unable to successfully compete with other solid waste companies reducing our operating margins

     The markets in which we operate are highly competitive and require substantial labor and capital resources. We compete with large, national solid waste services companies as well as smaller regional solid waste services companies. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than us, and may be able to provide services at a lower cost.

     We also compete with operators of alternative disposal facilities and municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges as well as to tax revenue. Responding to this competition may result in reduced operating margins. Further, competitive pressures may make our internal growth strategy of improving service and increasing sales penetration difficult or impossible to execute.

The termination or non-renewal of existing customer contracts, or the failure to obtain new customer contracts, could result in declining revenue

     We derive a portion of our revenue from municipal contracts that require competitive bidding by potential service providers. Although we intend to continue to bid on municipal contracts and to rebid existing municipal contracts, such contracts may not be maintained or won in the future. In the past year, we have found that some municipalities in Canada, for example, have imposed more restrictive bonding requirements as a qualification to bid for some residential waste collection contracts. We may be unable to meet such bonding requirements at a reasonable cost to us or at all. These requirements may limit our ability to bid for some municipal contracts and may favor some of our competitors. If we are unable to compete successfully for municipal contracts because of bonding requirements, we may lose important sources of revenue.

     We also derive a portion of our revenue from non-municipal contracts, which generally have a term of one to five years. Some of these contracts permit our customers to terminate them before the end of the contractual term. Any failure by us to replace revenue from contracts lost through competitive bidding, termination or non-renewal within a reasonable time period could result in a decrease in our operating revenue and our earnings.

We depend on third parties for disposal of solid waste and if we cannot maintain disposal arrangements with them we could incur significant costs that would result in reduced operating margins and revenue

     We currently deliver a substantial portion of the solid waste we collect to municipally owned disposal facilities and to privately owned or operated disposal facilities. If municipalities increase their disposal rates or if we cannot obtain and maintain disposal arrangements with private owners or operators, we could incur significant additional costs and, if we are not able to pass these cost increases on to our customers because of competitive pressures, this could result in reduced operating margins and revenue.

Labor unions may attempt to organize our non-unionized employees, which may result in increased operating expenses

     Some of our employees in Canada have chosen to be represented by unions, and we have negotiated collective bargaining agreements with them. Labor unions may make attempts to organize our non-unionized employees. The negotiation of any collective bargaining agreement could divert management’s attention away from other business matters. If we are unable to negotiate acceptable collective bargaining agreements, we may have to wait through “cooling-off” periods, which are often followed by union-initiated work stoppages, including strikes. Unfavorable collective bargaining agreements, work stoppages or other labor disputes may result in increased operating expenses.

Our operating margins and profitability may be negatively impacted by increased fuel and energy costs

     Although fuel and energy costs account for a relatively small portion of our total operating costs, sustained increases in such costs, which we are unable to pass on to our customers because of competitive pressures, could lower our operating margins and negatively impact our profitability.

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The industry in which we operate is seasonal and decreases in revenue during winter months may have an adverse effect on our results of operations, particularly for our Canadian operations

     Our operating revenue tends to be somewhat lower in the fall and winter months for our Canadian operations, reflecting the lower volume of solid waste generated during those periods. Our first and fourth quarter results typically reflect this seasonality. In addition, particularly harsh weather conditions may result in temporary slowdowns or suspension of certain of our operations or higher labor and operational costs, any of which could have a material adverse effect on our results of operations.

Our Canadian operations subject us to currency translation risk, which could cause our results to fluctuate significantly from period to period

     For the year ended December 31, 2004, a portion of our revenue was derived from our operations in Canada. For each reporting period, we translate the results of our Canadian operations and financial condition into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. As the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely expenses are unfavorably affected. The effects of translation are reported as a component of other comprehensive income. Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). We do not currently hedge our exposure to changes in foreign exchange rates.

Changes to patterns regarding disposal of waste could adversely affect our results of operations by reducing the volume of waste available for collection and thus reducing our earnings

     Waste reduction programs may reduce the volume of waste available for collection in some areas where we operate. Some areas in which we operate offer alternatives to landfill disposal, such as recycling and composting. In addition, state, local, and provincial authorities increasingly mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard waste, at landfills. Any significant adverse change in regulation or patterns regarding disposal of waste could have a material adverse effect on our earnings by reducing the level of demand for our services, resulting in decreased revenue and the earnings we are able to generate.

Limits on export of waste and any disruptions to the cross-border flow of waste may adversely affect our results of operations by increasing our costs of disposal

     There is limited disposal capacity available in Ontario, Canada, a market in which we have significant operations. As a result, a significant portion of the solid waste collected in Ontario is transported to sites in the United States for disposal. Disruptions in the cross-border flow of waste, or periodic closures of the border to solid waste would cause us to incur more costs due to the increased time our trucks may be required to spend at border check-points or increased processing or sorting requirements. Additionally, our trucks might be required to travel further to dispose of their waste in other areas of Ontario. Disruptions in the cross-border flow of waste could also result in a lack of disposal capacity available to our Ontario market at a reasonable price or at all. These disruptions could have a material adverse effect on our operating results by increasing our costs of disposal in the Ontario market and thereby decreasing our operating margins and could result in the loss of business to competitors with more favorable disposal options.

Item 2. Properties

     Our principal executive offices are in leased premises in Burlington, Ontario and in Scottsdale, Arizona. We also have administrative offices in Arizona, Florida, Alberta and Ontario. Our principal property and equipment consist of land, buildings, vehicles and equipment, substantially all of which are encumbered by liens in favor of our lenders under our existing revolving and term loan credit facilities.

     We operate collection businesses from locations in the United States and in Canada, of which 11 are owned and 22 are leased. At 8 of these leased facilities, we also operate transfer stations. We own 3 of the properties from which we operate transfer stations and lease or have operating agreements for 3 other locations. 3 of our 10 material recycling facilities in Canada and the United States are operated on properties which we own.

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     We own and operate four landfills in the United States and three in Canada. For more information regarding our landfills, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies — Landfill Sites.”

     As of December 31, 2004, we used approximately 1,185 front-line waste collection vehicles in our operations. We believe that our vehicles, equipment and operating properties are adequate for our current operations. However, we expect to continue to make investments in additional equipment and property for expansion, replacement of assets and in connection with future acquisitions.

Item 3. Legal Proceedings

     In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, provincial, state or local agencies. In these proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating permit or license that is required for our operations. From time to time, we may also be subject to actions brought by citizens’ groups or adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or alleging environmental damage or violations of the permits and licenses pursuant to which we operate. We may become party to various lawsuits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a solid waste management business.

     In December 2002, Canadian Waste Services Inc., or Canadian Waste, one of our competitors, commenced an action in the Court of Queen’s Bench of Alberta against us and one of our employees in Western Canada who had previously been employed by Canadian Waste. The action alleges breach of the employment contract between the employee and Canadian Waste, and breach of fiduciary duties. The action also alleges that we participated in those alleged breaches. The action seeks damages in the amount of approximately C$14.5 million, and an injunction enjoining the employee from acting contrary to his alleged employment contract and fiduciary duties.

     In February 2003, Canadian Waste commenced an action in the Court of Queen’s Bench of Alberta against us alleging breach of a landfill tipping agreement that we had entered into with Canadian Waste. The action alleges that we have breached the agreement by not paying certain amounts invoiced to us by Canadian Waste relating to increased costs incurred by Canadian Waste in its operation of the Ryley landfill and at which we deposited certain quantities of waste pursuant to the agreement. Canadian Waste seeks damages in the amount of approximately C$1.3 million. The agreement contains an arbitration clause that prohibits court action and requires arbitration with respect to certain disputes.

     In July 2004, Waste Management, Inc. filed a suit in the District Court of Harris County, Texas against Charles A. Wilcox, our President and Chief Operating Officer. The suit is for breach of contract, including breach of a non-competition agreement, and for a temporary and permanent injunction. Mr. Wilcox is subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management, Inc. Mr. Wilcox intends to vigorously defend this action.

     We intend to vigorously defend these actions both with respect to liability and damages, and no provisions have been made in these financial statements for the above matters.

     As of the date of this report, we do not believe that the reasonably possible losses in respect of all or any of these matters would have a material adverse impact on our business, financial condition, results of operations or cash flows.

     In March 2005, we filed a Complaint against Waste Management, Inc. in the United States District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste Management sought to prevent us from establishing ourselves as an effective competitor to Waste Management in the State of Florida, by tortiously interfering with our business relationships and committing antitrust violations under both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste Management. If we are successful in our suit under antitrust laws, Waste Management would be liable for treble damages or in excess of $75.0 million.

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Item 4. Submission of Matters to a Vote of Security Holders

     On December 29, 2004, we held an annual meeting of our shareholders. At the meeting, David Sutherland-Yoest and Gary W. DeGroote were re-elected as directors to hold office until the 2007 annual meeting of shareholders.

     The following table sets forth the number of votes cast for or withheld for each director nominee:

Director	For		Withheld
David Sutherland-Yoest		75,941,016		327,616
Gary W. DeGroote		76,030,928		237,704

Item 4A. Executive Officers of the Registrant

     The following table sets forth information regarding our executive officers as of March 1, 2005.

Name	Age		Position	Since
David Sutherland-Yoest		48	Chairman and Chief Executive Officer	September 6, 2001
Charles A. Wilcox		52	President and Chief Operating Officer	July 1, 2004
Ivan R. Cairns		59	Executive Vice President, General Counsel and Secretary	January 5, 2004
Mark A. Pytosh		40	Executive Vice President	February 23, 2004
Ronald L. Rubin		39	Executive Vice President and Chief Financial Officer	September 2, 2003
Brian A. Goebel		37	Vice President, Chief Accounting Officer and Corporate Controller	October 1, 2003

     Certain biographical information regarding each of our executive officers is set forth below.

     David Sutherland-Yoest has been our Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland-Yoest also held the position of Chairman and Chief Executive Officer of H₂O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H₂O Technologies Ltd. from March 2000 to January 2004. Mr. Sutherland-Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairman and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland-Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning-Ferris Industries, Ltd.

     Charles A. Wilcox was appointed our President and Chief Operating Officer effective July 1, 2004. Prior to joining us, Mr. Wilcox worked for Waste Management, Inc. from December 1994 where he held the positions of Senior Vice President, Market Planning and Development and prior to that Senior Vice President, Eastern Group.

     Ivan R. Cairns was appointed as Executive Vice President, General Counsel, and Corporate Secretary effective January 5, 2004. Prior to joining us, Mr. Cairns served as Senior Vice President and General Counsel at Laidlaw International Inc. and was Senior Vice President and General Counsel at its predecessor, Laidlaw Inc., for over 20 years. In June 2001, Laidlaw Inc., and four of its direct and indirect subsidiaries, filed voluntary petitions for bankruptcy under the U.S. Bankruptcy Code and also commenced Canadian insolvency proceedings. In June 2003, these companies emerged from bankruptcy and the Canadian insolvency proceedings.

     Mark A. Pytosh was appointed Executive Vice President effective February 23, 2004. Prior to joining us, Mr. Pytosh was a Managing Director in Investment Banking at Lehman Brothers where he focused on working with clients in the industrial sector, including leading the firm’s banking efforts in the solid waste industry. Before joining Lehman Brothers in 2000, Mr. Pytosh had 15 years of investment banking experience at Donaldson, Lufkin & Jenrette and Kidder, Peabody.

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     Ronald L. Rubin was appointed as our Executive Vice President and Chief Financial Officer effective September 2, 2003. Prior to joining us, Mr. Rubin, a Certified Public Accountant, held the position of Vice President, Chief Accounting Officer and Controller for Paxson Communications Corporation which owns and operates a broadcast television distribution system in the United States and the PAX TV network. Prior to joining Paxson, Mr. Rubin held the position of Vice President, Controller for AutoNation Inc., a Fortune 100 company and the former parent of Republic Services, Inc., a provider of solid waste collection, transfer and disposal services in the United States.

     Brian A. Goebel was appointed as our Vice President, Chief Accounting Officer and Corporate Controller effective October 1, 2003. From December 1999 until joining us, Mr. Goebel, a Certified Public Accountant, held the position of Assistant Controller, ANC Rental Corporation, which owned Alamo and National Car Rental. From January 1997 to December 1999, Mr. Goebel was a Director of Corporate Accounting for AutoNation, Inc. Prior to joining AutoNation, Inc., Mr. Goebel spent eight years in the Business Assurance practice of Coopers & Lybrand, LLP.

PART II

Item 5. Market for Registrant’s Common Equity and Related Shareholder Matters

Market Information

     Since March 8, 2004, our Common Shares have been traded on the Nasdaq National Market. From September 22, 2000 through March 7, 2004, our Common Shares were traded on the Nasdaq SmallCap Market. The following table provides high and low common share price information for each quarter within our last two fiscal years:

	High		Low
Year Ended December 31, 2003
First Quarter	$	5.11	$	3.71
Second Quarter	$	4.76	$	2.98
Third Quarter	$	5.90	$	3.10
Fourth Quarter	$	7.00	$	5.05
Year Ended December 31, 2004
First Quarter	$	6.06	$	5.11
Second Quarter	$	5.37	$	4.51
Third Quarter	$	3.00	$	1.95
Fourth Quarter	$	3.91	$	2.41

Holders

     As at March 1, 2005, there were approximately 150 holders of record of our Common Shares (including holders of exchangeable shares).

Dividends

     We have not paid cash dividends on our Common Shares to date. The terms of our senior secured credit facilities prohibit us from paying cash dividends without the consent of our lenders. See Item 7 — Management Discussion and Analysis of Financial Condition — Liquidity and Capital Resources — Senior Secured Credit Facilities.

     We currently intend to retain our future earnings, if any, to finance the growth, development and expansion of our business and repayment of indebtedness. Accordingly, we do not intend to declare or pay any cash dividends on our Common Shares in the immediate future. The declaration, payment and amount of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors. These factors include our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans, the income tax laws then in effect and the requirements of applicable laws.

Recent Sales of Unregistered Securities

     In February 2004, we issued warrants to purchase 200,000 shares of common stock valued at approximately $0.4 million in a private placement transaction in connection with the acquisition of the Fort Bend Regional Landfill site. This issuance of warrants

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was exempt from the registration requirements pursuant to Section 4 (2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that it did not involve a public offering. The warrants vest over a three year period, one-third on each of the first, second and third anniversary of the warrant issue date and are exercisable for a period of 5 years from the warrant issue date at an exercise price of $5.75 per share, being the closing market price of our common stock on the date the warrant was issued.

     In October 2004, we issued 40,000 shares of common stock valued at approximately $0.2 million in a private placement transaction as an earn-out payment in connection with an acquisition in Arizona which was completed in March 2004. This stock issuance was exempt from the registration requirements pursuant to Section 4 (2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that it did not involve a public offering.

Item 6. Selected Financial Data

     The following tables set forth our selected consolidated financial data for the periods indicated and are qualified by reference to, and should be read in conjunction with, our consolidated financial statements and the notes thereto, which are included elsewhere in this annual report, especially Note 3 as it relates to our business combinations, significant asset acquisitions and dispositions and Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” The financial data as of December 31, 2004, 2003, 2002, 2001 and 2000 for the years then ended have been derived from our audited Consolidated Financial Statements. The selected consolidated financial data as of December 31, 2004, 2003, 2002, 2001 and 2000 and for each of the years then ended have been prepared in accordance with accounting principles generally accepted in the United States. All financial information presented in the tables is in thousands of dollars except per share data or as otherwise indicated.

	For Each of the Years Ended December 31,
	2004			2003			2002			2001			2000
	(In thousands except per share data)
Statement of Operations and Cash Flow Data:
Revenue	$	310,785		$	126,750		$	98,846		$	93,241		$	117,008
Income (loss) from operations		7,517			(5,046	)		9,567			(8,671	)		(6,622	)
Net income (loss)		(48,154	)		(22,380	)		2,127			(19,668	)		(18,281	)
Net income (loss) attributable to common shareholders		(48,154	)		(76,952	)		(12,590	)		(19,668	)		(18,281	)
Basic and diluted net loss per share		(0.55	)		(1.98	)		(0.39	)		(1.60	)		(2.54	)
Shares used in calculating basic and diluted net loss per share		88,232			38,782			32,414			12,260			7,197
Cash flows from operating activities		24,697			9,446			13,654			6,685			7,362
Capital expenditures		(46,209	)		(24,438	)		(12,157	)		(3,778	)		(14,362	)

	As of December 31,
	2004		2003		2002		2001		2000
	(In thousands)
Balance Sheet Data:
Cash and cash equivalents	$	8,507	$	21,062	$	1,775	$	2,469	$	—
Property, equipment and landfill sites, net		300,083		192,062		58,994		36,708		50,899
Goodwill and intangible assets		327,756		163,380		66,596		55,089		80,609
Total assets		720,583		470,998		149,022		110,652		152,959
Total debt and capital lease obligations (excluding mandatorily redeemable shares of preferred stock)		278,363		177,449		53,645		53,005		100,834
Mandatorily redeemable preferred shares		64,971		48,205		—		—		—
Total shareholders’ equity		298,776		201,117		77,817		45,913		38,655

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion is based on, and should be read in conjunction with Item 6. “Selected Financial Data” and our Consolidated Financial Statements and Notes thereto contained in this annual report.

Overview

     We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. In 2003, we initiated a disposal-based growth strategy to enter the U.S. solid waste market and establish vertically integrated market positions. Under this strategy, we enter geographic markets with attractive growth or competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. We implemented this strategy in 2003 and 2004 by acquiring large municipal solid waste landfill developments and/or collection operations in Florida, Arizona and Texas. As part of our business strategy to expand into the U.S., we completed a migration transaction (the “Migration Transaction”) on July 31, 2004. Under the Migration Transaction, our corporate structure was reorganized so that Waste Services, Inc. a Delaware company and former subsidiary of Capital Environmental Resource Inc. became the ultimate parent company of our corporate group.

     We operate on a decentralized basis, while financial controls and information systems are controlled centrally. Our business is managed through five operating regions comprised of Florida (including our Central, North, and Gulf districts) Arizona, Texas, and Eastern and Western Canada.

     We had many accomplishments in 2004, including the completion and integration of significant business acquisitions in the U.S. and the opening of our three new large municipal solid waste landfill sites in Florida, Arizona and Texas. The JED landfill, located outside Orlando, opened in January 2004, the Cactus Regional Landfill, serving the Phoenix market, opened in July 2004, and the Fort Bend Regional Landfill, serving the Houston market, opened in August 2004. In Central Florida, two transfer stations are in the final stages of construction. Their completion expected in the second quarter of 2005, will allow us to internalize significant volumes into our JED landfill. In Arizona, we opened two transfer stations in the Phoenix market, which allow us to internalize a majority of our collected volumes into our Cactus Regional Landfill. In January 2005, we opened a transfer station in the Houston market. We look forward to improving margins and cash flow in 2005 as we increase internal and external waste volumes at each of these disposal facilities. We have also taken steps to improve operating performance at our newly acquired collection operations in Florida and Arizona through pricing initiatives, cost controls, safety programs, workforce reductions and consolidation of purchasing in areas such as fuel and parts. We expect these initiatives will also lead to improved financial performance in 2005. Our Canadian operations continue to perform according to our expectations and provide a consistent source of operating income and cash flow. We have introduced operating and cost control initiatives to improve the performance of our Canadian operations. We expect to continue to rationalize certain aspects of our operations in markets where we are not internalized for possible divestiture or asset swap transactions to enhance density and/or internalization opportunities in existing markets where we are vertically integrated and earn our highest returns.

     While we had many accomplishments in 2004, we also experienced setbacks as we failed to meet certain of our second quarter debt covenants in part because of delays in the opening of the Florida transfer stations and the under performance of the operations acquired from Florida Recycling relative to the historical results represented by the sellers. We were able to negotiate a settlement with the former owners of Florida Recycling and negotiate an amendment to our senior credit facilities. As a result of these negotiations, we believe we are well positioned to meet our future covenants. We have also instituted a strict discipline in our cash and working capital management. As a result, we have had limited borrowings under our revolving credit facility since our October bank amendment. With the expected opening of the Florida transfer stations in the second quarter of 2005, we believe that our operating cash flow, availability under our revolving credit facilities and the $7.5 million March 2005 equity infusion required under our credit agreement will provide us with more than sufficient liquidity to execute our business plan in 2005.

Sources of Revenue

     Our revenue consists primarily of fees charged to customers for solid waste collection, landfill disposal, transfer and recycling services.

     We derive a substantial portion of our collection revenue from services provided to commercial, industrial and residential customers that are generally performed under service agreements or pursuant to contracts with municipalities. We recognize revenue when services are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the periods in which the services are rendered.

     We provide collection services for commercial and industrial customers generally under one to five year service agreements. We determine the fees we charge our customers based on a variety of factors, including collection frequency, level of service, route

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density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on cost increases is however sometimes limited by the terms of our contracts.

     We provide residential waste collection services through a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes, mobile home parks and homeowners associations or subscription arrangements with individual homeowners. Our contracts with municipalities are typically for terms of up to five years and contain a formula, generally based on a predetermined published price index, for automatic adjustments to fees to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities contain renewal provisions. The fees we charge for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or processing facility, the cost of disposal or processing and prices we charge in the market for similar services.

     We charge our landfill and transfer station customers a tipping fee on a per ton basis for disposing of their solid waste at our transfer stations and landfills. We generally base our landfill tipping fees on market factors and the type and weight of, or volume of the waste deposited. We generally base our transfer station tipping fees on market factors and the cost of processing the waste deposited at the transfer station, the cost of transporting the waste to a disposal facility and the cost of disposal.

     Material recovery facilities generate revenue from the sale of recyclable commodities. In an effort to reduce our exposure to commodity price fluctuations on recycled materials, where competitive pressures permit, we charge collection or processing fees for recycling volume collected from our customers.

Expense Structure

     Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle and workers compensation insurance and landfill capping, closure and post-closure costs. Our strategy is to create vertically integrated operations in each of our markets which will allow us to internalize our own collection volume into our landfills and transfer stations. Internalization lowers our disposal costs by allowing us to eliminate tipping fees otherwise paid to an independent landfill operator. We believe internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. Historically our internalization has been relatively low, but as a result of the recent opening of our landfills in Florida and Arizona and the opening and expected opening of transfer stations in these regions, we expect our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of our collection volumes to these landfill sites.

     In markets where we do not have our own landfills, we seek to secure long-term disposal arrangements with municipalities or private owners of landfills or transfer stations. In these markets, our ability to maintain competitive prices for our collection services is generally dependent upon our ability to secure low cost disposal pricing. If owners of third party disposal sites discontinue our arrangements, we would have to seek alternative disposal sites which could impact our profitability and cash flow. In addition, if third party disposal sites increase their tipping fees and we are unable to pass these increases on to our collection customers, our profitability and cash flow would be negatively impacted.

     We believe the age and condition of a fleet has a significant impact on operating costs including, but not limited to, repairs and maintenance, insurance and driver training and retention costs. Through capital investment, we seek to maintain an average fleet age of approximately six years. We believe this enables us to minimize our repair and maintenance costs, safety and insurance costs and employee turnover related costs.

     Selling, general and administrative expense includes managerial costs, information systems, sales force, administrative expenses and professional fees. We have made a significant investment in information systems and in assembling our management team to support our growth strategy. We expect selling, general and administrative expense to decline as a percentage of revenue in 2005 as we spread our overhead costs over a larger revenue base.

     Depreciation, depletion and amortization expense includes depreciation of fixed assets over their estimated useful lives using the straight-line method, depletion of landfill costs, including capping, closure and post-closure obligations using the units-of-consumption method, and amortization of intangible assets including customer relationships and contracts and covenants not-to-compete which are amortized over the expected life of the benefit to be received by such intangibles. As further discussed in Note 2 to

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the Consolidated Financial Statements, effective January 1, 2004, we changed our method of accounting for asset retirement obligations.

     We capitalize certain third party costs related to pending acquisitions or development projects. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged currently in earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. We expense indirect and internal costs including executive salaries, overhead and travel costs related to acquisitions as they are incurred.

Recent Acquisitions

     During July 2003, we purchased the site for our Cactus Regional Landfill. During May 2004, we received the permits and authorizations necessary for the operation of the landfill. As a condition of the purchase, we issued 1,250,000 Common Shares valued at $5.5 million to the sellers during the second quarter of 2004. Additionally, the sellers are entitled to contingent payments based upon the landfill achieving certain defined average tons of waste per day. Should the landfill achieve a maximum 5,000 tons per day, the total contingent payments would not exceed $18.0 million.

     In November 2003, we entered into an agreement to acquire the assets of Allied Waste Industries, Inc.’s (“Allied”) northern and central Florida operations (the “Allied Assets”) for a purchase price of approximately $120.0 million, subject to an adjustment for working capital. The primary metropolitan areas served by the Allied Assets are Tampa, Sarasota and Jacksonville, Florida. On December 31, 2003, we completed the first phase of the Allied Assets acquisition. During the first six months of 2004, we completed the acquisition of the remaining Allied Assets. In the second quarter of 2004, we divested certain landfill and related assets and liabilities acquired from Allied in exchange for a collection operation in the metropolitan Orlando area and cash proceeds of $10.0 million. Proceeds in excess of net assets exchanged reduced goodwill from the original Allied Assets acquisition by $8.6 million.

     In February 2004, we acquired a permitted undeveloped municipal solid waste landfill in Fort Bend County, Texas (the “Fort Bend Regional Landfill”). The landfill commenced operations during August of 2004. The purchase price was comprised of $5.1 million in cash, a seller financed promissory note of $5.0 million which has since been repaid and the issuance of 4,375,000 Common Shares valued at approximately $25.0 million. Fort Bend Regional Landfill, which serves the metropolitan Houston area, is approximately 2,600 acres and has an initial permitted capacity of 47.6 million cubic yards.

     In April 2004, we completed the acquisition of the shares of Florida Recycling Services, Inc. (“Florida Recycling”) for an aggregate purchase price of approximately $99.0 million in cash, working capital of approximately $2.2 million, and the issuance of 9,250,000 Common Shares valued at approximately $51.4 million. Florida Recycling operations are based in central Florida, primarily serving the Orlando, Daytona, Fort Myers, and Tampa markets. Following our acquisition, the performance of the operations of Florida Recycling was below our expectations and we conducted a review of Florida’s Recycling business in an effort to identify the factors contributing to the lower than expected level of performance. Based on the results of this review, it appeared that the 2003 financial statements of Florida Recycling, provided by the sellers, contained misstatements and could not be relied upon. As such, we have begun a re-audit of the historical financial statements of Florida Recycling. On September 24, 2004, we reached an agreement with the selling shareholders of Florida Recycling to adjust the purchase price paid for the shares of Florida Recycling whereby, in October 2004, the selling shareholders paid us $7.5 million in cash and returned 500,000 shares of our common stock. The cash and the shares received (valued at their quoted market price as of September 24, 2004), with a total value of approximately $8.6 million, are recorded as income. As part of the settlement and upon its completion, we will receive title to a 2,000 ton per day recycling and transfer facility in Sanford, Florida.

     We expect to continue to make strategic acquisitions which we intend to finance through cash on hand, our Senior Secured Credit Facilities subject to the limitations on our investing activities set out in the Credit Facilities Agreement, as amended, and/or the issuance of other debt and equity financings. We expect that we will continue to rationalize certain aspects of our operations in markets where we are not internalized through either divestiture or asset swap transactions in order to enhance density and/or internalization opportunities in existing markets where we are vertically integrated.

Factors that Might Affect Future Results

     We have recently acquired and commenced operations at three large municipal solid waste landfill sites in the United States that we believe will materially affect our revenue, profitability and cash flow going forward.

     The following summarizes our three recently acquired landfills:

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•   JED Landfill — a municipal solid waste landfill with 24.0 million cubic yards of initial permitted capacity, located in Osceola County, Florida. The landfill is located approximately 20 miles south of metropolitan Orlando and is well positioned to serve the Orlando metropolitan area and the surrounding counties. The facility opened for operation in the first quarter of 2004. Part of our strategy is to maximize the internalization of waste volumes to our JED Landfill. The execution of this strategy is dependent partly upon the opening of two transfer stations in central Florida. The Taft transfer station and recycling facility, located south of Orlando, is owned and operated by a third party with whom we have entered into a 10-year disposal agreement. The Taft facility has received a modified permit allowing it to accept up to 1,500 tons of Class I and Class III solid waste combined per day, subject to completion of certain building modifications expected to be completed in the second quarter of 2005. The other transfer station and recycling facility, located in Sanford, Florida, is fully permitted to accept up to 2,000 tons per day of Class I municipal solid waste upon completion of construction which is also expected in the second quarter of 2005. Ownership of the Sanford facility also referred to as the Ice House facility, will be transferred to us upon completion of construction pursuant to the terms of our settlement agreement with the former owners of Florida Recycling. We had previously expected that these transfer stations would be operational by the fourth quarter of 2004.

•   Cactus Regional Landfill — a municipal solid waste landfill with 224.0 million cubic yards of initial permitted capacity, located in Pinal County, Arizona. The landfill is located between Phoenix and Tucson, Arizona and is well-positioned to serve both markets. The facility opened for operation in the third quarter of 2004. Also in the second and third quarters of 2004, we began operations at our two newly constructed transfer stations in the Phoenix market area.

•   Fort Bend Regional Landfill — a municipal and industrial solid waste landfill with 48.0 million cubic yards of initial permitted capacity, located in Fort Bend County, Texas. The landfill is located approximately 15 miles southwest of metropolitan Houston and is well-positioned to serve the Houston metropolitan area, including Fort Bend County. The facility opened for operation in the third quarter of 2004. We have constructed a transfer station in Houston, which is permitted to accept up to 850 tons per day of municipal solid waste and began operations in January 2005.

Critical Accounting Policies

General

     Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to areas that require a significant level of judgments or are otherwise subject to an inherent degree of uncertainty. These areas include allowances for doubtful accounts, landfill airspace, intangible and long-lived assets, closure and post-closure liabilities, revenue recognition, income taxes and commitments and contingencies. We base our estimates on historical experience, our observance of trends in particular areas, information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated.

     We believe that of our significant accounting policies (refer to Note 2 of the Notes to Consolidated Financial Statements contained elsewhere in this annual report) the following may involve a higher degree of judgment and complexity:

Revenue Recognition

     We recognize revenue when services, such as providing collection services or accepting waste at our disposal facilities, are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the period in which the services are rendered.

Accounts Receivable and Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts based on their expected collectibility. We perform credit evaluations of our significant customers and establish an allowance for doubtful accounts based on the aging of our receivables, payment performance factors, historical trends, and other information. In general, we reserve a portion of those receivables outstanding more than 90 days and 100% of those outstanding over 120 days. We evaluate and revise our reserve on a monthly basis based upon a review of specific

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accounts outstanding and our history of uncollectible accounts.

Business Acquisitions and Goodwill

     We account for business acquisitions using the purchase method of accounting. The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. As part of this allocation process, management must identify and attribute values and estimated lives to the intangible assets acquired. Such determinations involve considerable judgment, and often involve the use of significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of amortization expense recognized in future periods. Assets acquired in a business combination that will be sold are valued at fair value less cost to sell. Results of operating these assets are recognized currently in the period in which those operations occur.

     We have fully adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” and test goodwill for impairment using the two-step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. In determining the fair value, we may utilize: (i) discounted future cash flows; (ii) operating results based upon a comparative multiple of earnings or revenues; (iii) offers from interested investors, if any; or (iv) appraisals. Significant estimates used in the fair value calculation utilizing discounted future cash flows include, but are not limited to: (i) estimates of future revenue and expense growth by reporting unit (ii) future estimated effective tax rates, which we estimate to range between 37% and 40%; (iii) future estimated rate of capital expenditures as well as future required investments in working capital; (iv) estimated average cost of capital, which we estimated to range between 8.0% and 10.0%; and (v) the future terminal value of our reporting unit, which is based upon its ability to exist into perpetuity. Significant estimates used in the fair value calculation utilizing market value multiples include but are not limited to: (i) estimated future growth potential of the reporting unit; (ii) estimated multiples of revenue or earnings a willing buyer is likely to pay; and (iii) estimated control premium a willing buyer is likely to pay.

     Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of the acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with the acquired businesses is impaired. Additionally, as the valuation of identifiable goodwill requires significant estimates and judgment about future performance, cash flows and fair value, our future results could be affected if these current estimates of future performance and fair value change. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations.

     Acquisition deposits and deferred acquisition costs include capitalized incremental direct costs associated with proposed business combinations that are currently being negotiated. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged to earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. Indirect and internal costs, including executive salaries, overhead and travel costs related to acquisitions, are expensed as incurred.

Long-Lived Assets

     We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long-lived assets including amortizing intangible assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

     Upon recognition of an event, as previously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure

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impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties or (ii) the present value of estimated expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.

     Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier then its contractual maturity, any remaining deferred financing costs are charged to earnings.

Landfill Sites

     Landfill sites are recorded at cost. Capitalized landfill costs include expenditures for land, permitting costs, cell construction costs and environmental structures. Capitalized permitting and cell construction costs are limited to direct costs relating to these activities, including legal, engineering and construction costs associated with excavation, liners and site berms, leachate management facilities and other costs associated with environmental management equipment and structures.

     Costs related to acquiring land, excluding the estimated residual value of un-permitted, non-buffer land, and costs related to permitting and cell construction are depleted as airspace is consumed using the units-of-consumption method. Environmental structures, which include leachate collection systems, methane collection systems and groundwater monitoring wells, are charged to expense over the shorter of their useful life or the life of the landfill.

     Capitalized landfill costs may also include an allocation of the purchase price paid for landfills. For landfills purchased as part of a group of several assets, the purchase price assigned to the landfill is determined based upon the discounted expected future cash flows of the landfill relative to the other assets within the acquired group. If the landfill meets our expansion criteria, the purchase price is further allocated between permitted airspace and expansion airspace based upon the ratio of permitted versus probable expansion airspace to total available airspace. Landfill sites are amortized using the units-of-consumption method over the total available airspace including probable expansion airspace where appropriate.

     We assess the carrying value of our landfill sites in accordance with the provisions of SFAS No. 144. These provisions, as well as possible instances that may lead to impairment, are addressed in “—Long-Lived Assets”. There are certain indicators previously discussed that require significant judgment and understanding of the waste industry when applied to landfill development or expansion.

     We identified three sequential steps that landfills generally follow to obtain expansion permits. These steps are as follows: (i) obtaining approval from local authorities; (ii) submitting a permit application to state or provincial authorities; and (iii) obtaining permit approval from state or provincial authorities.

     Before expansion airspace is included in our calculation of total available disposal capacity, the following criteria must be met: (i) the land associated with the expansion airspace is either owned by us or is controlled by us pursuant to an option agreement; (ii) we are committed to supporting the expansion project financially and with appropriate resources; (iii) there are no identified fatal flaws or impediments associated with the project, including political impediments; (iv) progress is being made on the project; (v) the expansion is attainable within a reasonable time frame; and (vi) based upon senior management’s review of the status of the permit process to date we believe it is more likely than not the expansion permit will be received within the next five years. Upon meeting our expansion criteria, the rates used at each applicable landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted to include probable expansion airspace and all additional costs to be capitalized or accrued associated with the expansion airspace.

     Once expansion airspace meets the criteria for inclusion in our calculation of total available disposal capacity, management continuously monitors each site’s progress in obtaining the expansion permit. If at any point it is determined that an expansion area no longer meets the required criteria, the probable expansion airspace is removed from the landfill’s total available capacity and the rates used at the landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted accordingly.

     The following table reflects landfill capacity activity for permitted landfills owned by us for the years ended December 31, 2004, 2003 and 2002 (in thousands of cubic yards).

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	December 31, 2004
	Balance,										Balance,
	Beginning		Landfills		Landfills			Airspace			End
	of Period		Acquired		Divested			Consumed			of Period
United States
Permitted capacity		26,084		244,000		(94	)		(1,107	)		268,883
Probable expansion capacity		18,300		—		—			—			18,300
Total available airspace		44,384		244,000		(94	)		(1,107	)		287,183
Number of sites		3		2		(1	)					4
Canada
Permitted capacity		10,871		1,430		—			(659	)		11,642
Probable expansion capacity		—		—		—			—			—
Total available airspace		10,871		1,430		—			(659	)		11,642
Number of sites		2		1		—						3
Total
Permitted capacity		36,955		245,430		(94	)		(1,766	)		280,525
Probable expansion capacity		18,300		—		—			—			18,300
Total available airspace		55,255		245,430		(94	)		(1,766	)		298,825
Number of sites		5		3		(1	)					7

	December 31, 2003
	Balance,		Landfills							Balance,
	Beginning		Expanded or		Landfills		Airspace			End
	of Period		Acquired		Divested		Consumed			of Period
United States
Permitted capacity		—		26,084		—		—			26,084
Probable expansion capacity		—		18,300		—		—			18,300
Total available airspace		—		44,384		—		—			44,384
Number of sites		—		3		—					3
Canada
Permitted capacity		7,618		3,863		—		(610	)		10,871
Probable expansion capacity		—		—		—		—			—
Total available airspace		7,618		3,863		—		(610	)		10,871
Number of sites		2		—		—					2
Total
Permitted capacity		7,618		29,947		—		(610	)		36,955
Probable expansion capacity		—		18,300		—		—			18,300
Total available airspace		7,618		48,247		—		(610	)		55,255
Number of sites		2		3		—					5

	December 31, 2002
	Balance,									Balance,
	Beginning		Landfills		Landfills		Airspace			End
	of Period		Acquired		Divested		Consumed			of Period
Canada
Permitted capacity		5,832		2,167		—		(381	)		7,618
Probable expansion capacity		—		—		—		—			—
Total available airspace		5,832		2,167		—		(381	)		7,618
Number of sites		1		1		—					2

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Accrued Closure and Post-Closure Obligations

     On January 1, 2003, we adopted the provisions of Statement of Financial Accounting Standards, or SFAS, No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 required us to change our methodology used to record liabilities related to final capping, closure and post-closure of our landfill operations. Under the provisions of the new statement, we recognize, as an asset, the fair value of the liability for an asset retirement obligation. The asset is then depleted, consistent with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Additionally, we recognize a liability for the present value of the estimated future asset retirement obligation. The liability will be adjusted for (i) additional liabilities incurred or settled, (ii) accretion of the liability to its future value and (iii) revisions in the estimated cash flows relative to closure and post-closure costs. As further discussed in Note 2 to the consolidated financial statements, effective January 1, 2004 we changed our methodology used to define an obligating event.

     Accrued closure and post-closure obligations represent an estimate of the future obligation associated with closure and post-closure monitoring of the solid waste landfills owned by us. Site-specific closure and post-closure engineering cost estimates are prepared for the landfills we own. The impact of changes in estimates, based on an annual update, is accounted for on a prospective basis. We calculate closure and post closure liabilities by estimating the total future obligation in current dollars, inflating the obligations based upon the expected date of the expenditure using an inflation rate of 2.0% and discounting the inflated total to its present value using an 8.5% credit-adjusted risk-free discount rate. For 2005, we expect our inflation rate to approximate 2.5% and discount rate to approximate 9.5%. Accretion of discounted cash flows associated with the closure and post closure obligations is accrued over the estimated life of the landfill.

Accounting for Income Taxes

     We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the Consolidated Financial Statements, we are required to estimate the income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, property, plant and equipment and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry-forwards, and liabilities, which are included within the consolidated balance sheet. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the consolidated statement of operations.

Risk Management

     Our U.S.-based automobile, general liability and workers’ compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers’ compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. We have collateral requirements that are set by the insurance companies which underwrite our insurance programs. Collateral requirements may change from time to time, based on, among other things, the size of our business, our claims experience, financial performance or credit quality and retention levels. As of December 31, 2004 we have posted letters of credit with our U.S. insurer of approximately $3.0 million to cover the liability for losses within the deductible limit. During the first quarter of 2005, we increased this letter of credit to $8.4 million. Provisions for retained claims are made by charges to expense based upon periodic evaluations by management of the estimated ultimate liabilities on reported and unreported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become known.

Translation and remeasurement of foreign currency

     Certain of our operations are domiciled in Canada; as such, we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and

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revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.

Operating Results

Results of Operations for each of the Three Years Ended December 31, 2004, 2003 and 2002

     The following tables sets forth our consolidated results of operations for each of the three years ended December 31, 2004, 2003 and 2002 (in thousands):

	2004
	U.S.					Canada					Total
Revenue	$	168,067		100.0	%	$	142,718		100.0	%	$	310,785		100.0	%
Operating expenses:
Cost of operations (exclusive of depreciation and amortization)		123,534		73.5	%		96,366		67.5	%		219,900		70.8	%
Selling, general and administrative expense		33,166		19.7	%		22,361		15.7	%		55,527		17.9	%
Stock-based compensation (benefit) expense		26		—			(116	)	-0.1	%		(90	)	0.0	%
Severance and other related costs		2,563		1.5	%		176		0.1	%		2,739		0.9	%
Settlement with sellers of Florida Recycling		(8,635	)	-5.1	%		—		—			(8,635	)	-2.8	%
Depreciation, depletion and amortization		17,888		10.6	%		16,316		11.4	%		34,204		11.0	%
Foreign exchange gain and other		—		—			(377	)	-0.3	%		(377	)	-0.1	%
Income (loss) from operations	$	(475	)	-0.2	%	$	7,992		5.7	%	$	7,517		2.3	%

	2003
	U.S.					Canada					Total
Revenue	$	1,765		100.0	%	$	124,985		100.0	%	$	126,750		100.0	%
Operating expenses:
Cost of operations (exclusive of depreciation and amortization)		1,300		73.7	%		82,274		65.8	%		83,574		65.9	%
Selling, general and administrative expense		4,617		261.6	%		24,241		19.4	%		28,858		22.8	%
Stock-based compensation expense		—		—			2,677		2.1	%		2,677		2.1	%
Depreciation, depletion and amortization		200		11.3	%		14,727		11.8	%		14,927		11.8	%
Foreign exchange loss and other		—		—			1,760		1.4	%		1,760		1.4	%
Loss from operations	$	(4,352	)	-246.6	%	$	(694	)	-0.5	%	$	(5,046	)	-4.0	%

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	2002
	U.S.				Canada					Total
Revenue	$	—	0.0	%	$	98,846		100.0	%	$	98,846		100.0	%
Operating expenses:
Cost of operations (exclusive of depreciation and amortization)		—	0.0	%		64,436		65.2	%		64,436		65.2	%
Selling, general and administrative expense		—	0.0	%		15,238		15.4	%		15,238		15.4	%
Stock-based compensation expense		—	0.0	%		1,046		1.1	%		1,046		1.1	%
Depreciation, depletion and amortization		—	0.0	%		10,718		10.8	%		10,718		10.8	%
Foreign exchange loss and other		—	0.0	%		(2,159	)	-2.2	%		(2,159	)	-2.2	%
Income from operations	$	—	0.0	%	$	9,567		9.7	%	$	9,567		9.7	%

Revenue

     A summary of our revenue for each of the three years ended December 31, 2004, 2003 and 2002 is as follows (in thousands):

	2004					2003					2002
Collection	$	259,983		78.3	%	$	103,215		74.0	%	$	80,145		72.6	%
Landfill disposal		27,101		8.2			13,173		9.4			9,459		8.6
Transfer station		27,892		8.4			17,315		12.4			16,728		15.1
Material recovery facilities		10,531		3.2			4,859		3.5			3,155		2.8
Other specialized services		6,402		1.9			955		0.7			943		0.9
		331,909		100.0	%		139,517		100.0	%		110,430		100.0	%
Intercompany elimination		(21,124	)				(12,767	)				(11,584	)
	$	310,785				$	126,750				$	98,846

     Revenue was $310.8 million for the year ended December 31, 2004 and $126.8 million for the year ended December 31, 2003, an increase of $184.0 million or in excess of 100%. The increase in revenue for our United States operations of $166.3 million or in excess of 100% was primarily driven by acquisitions of $147.9 million, volume at our new landfills of $7.8 million and internal growth of $10.6 million. Our internal growth in the U.S. was driven primarily by hurricane related collection volumes in Florida during 2004. The increase in revenue for our Canadian operations of $17.7 million or 14.2% is primarily due to increased volume of $4.2 million or 3.4%, pricing increases of $3.7 million or 3.0%, and acquisitions of $0.4 million or 0.3%. In addition, the favorable effects of foreign exchange movements increased Canadian revenue by $9.4 million or 7.5%.

     Revenue was $126.8 million for the year ended December 31, 2003 and $98.8 million for the year ended December 31, 2002, an increase of $28.0 million or 28.2%. The favorable effects of foreign exchange movements increased revenue by 14.0%, reflecting the strengthening of the Canadian dollar versus the U.S. dollar during 2003. Increased collection and landfill disposal volumes increased revenue by 8.0%, which was primarily due to new residential waste collection agreements in our Canadian operations. New acquisitions increased revenue by 5.1% and pricing increases increased revenue by 1.1%.

Cost of Operations

     Cost of operations was $219.9 million for the year ended December 31, 2004 and $83.6 million for the year ended December 31, 2003, an increase of $136.3 million or in excess of 100%. As a percentage of revenue, cost of operations was 70.8% for the year ended December 31, 2004 and 65.9% for the year ended December 31, 2003. The increase in cost of operations for our United States operations of $122.2 million or in excess of 100% was primarily driven by acquisitions and an increase in landfill operating costs at our recently opened landfill sites. As a percentage of revenue, cost of operations in our United States operations was 73.5% for the year ended December 31, 2004 and 73.7% for the year ended December 31, 2003. Our lower margins in the United States, as compared to Canada, are primarily driven by the higher mix of lower margin collection revenue in the United States. We expect that our U.S. operating margins will improve as we increase internal and external volumes at our new landfill and transfer station sites.

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     The increase in cost of operations for 2004 in Canada is primarily due to disposal and sub-contractor costs of $3.0 million or 3.6%, increased labor of $3.0 million or 3.6%, and fuel and other operating costs of $1.3 or 1.5%. The unfavorable effects of foreign exchange movements increased cost of operations by $6.8 million or 8.1%. The increase in disposal, subcontractor, and labor costs in aggregate dollars and as a percentage of revenue is due to increased disposal volumes as well as higher transportation and fuel costs in our Canadian operations coupled with a higher mix of lower margin collection revenue.

     Cost of operations was $83.6 million for the year ended December 31, 2003 and $64.4 million for the year ended December 31, 2002. As a percentage of revenue, cost of operations was 65.9% for the year ended December 31, 2003, and 65.2% for the year ended December 31, 2002. The increase in cost of operations as a percentage of revenue was primarily related to higher costs of labor on lower margin residential contracts that were in place during 2003. The overall increase in cost of operations of 29.7% was primarily due to the effects of foreign currency movements, 13.5%, increased costs of disposal, 7.5%, increased labor costs, 6.6%, and labor and disposal costs at our newly acquired U.S. operations, 2.1%. The increase in Canadian operating costs was primarily the result of new waste collection agreements.

Selling, General and Administrative Expense

     Selling, general and administrative expense, excluding stock-based compensation expense, was $55.5 million for the year ended December 31, 2004 and $28.9 million for the year ended December 31, 2003, an increase of $26.6 million or in excess of 100%. As a percentage of revenue, selling, general and administrative expense was 17.9% for the year ended December 31, 2004 and 22.8% for the year ended December 31, 2003. The overall increase in selling, general and administrative expense is primarily due to acquisitions in the U.S., and to increased salaries, systems and other overhead costs incurred in connection with our expansion into the U.S. In connection with our migration transaction, we incurred legal and professional fees of $0.8 million for the year ended December 31, 2004. Concurrent with our bank amendment, we incurred approximately $0.8 million of legal and professional fees that were currently expensed. During 2004, our compliance efforts with Sarbanes-Oxley increased our overhead spending on third party professionals by approximately $0.9 million. Separately, during the third quarter of 2004 and as part of our cost reduction initiatives, we reduced our workforce by approximately 55 employees and incurred approximately $2.7 million, of which $1.7 million related to our former President, in severance charges and other related costs. As a result of the workforce reduction, we expect an annual savings of $3.2 million in salary and related costs. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $1.5 million or 5.2%. We expect selling, general and administrative expense as a percentage of revenue to decline in 2005 as compared to 2004 due to having a full year impact from our 2004 acquisitions and revenue generated by our newly opened landfills.

     Selling, general and administrative expense, excluding stock-based compensation expense, was $28.9 million for the year ended December 31, 2003 and $15.2 million for the year ended December 31, 2002. As a percentage of revenue, selling, general and administrative expense was 22.8% for the year ended December 31, 2003 and 15.4% for the year ended December 31, 2002. The overall increase in selling, general and administrative expense of 89.4%, as well as the increase as a percentage of revenue, was primarily due to increased salaries, systems and other overhead costs to build our infrastructure and enable us to execute our acquisition strategy as well as increased professional and legal fees relative to our Migration Transaction. The unfavorable effects of foreign exchange movements were 12.7%.

Stock-based compensation expense (benefit)

     Stock-based compensation expense (benefit) relates to warrants issued to an executive officer in 2001 for which variable accounting applies and options or warrants issued to non-employees for services rendered. Stock-based compensation expense (benefit) is partially based on changes in our stock price.

Depreciation, Depletion and Amortization

     Depreciation, depletion and amortization was $34.2 million for the year ended December 31, 2004 and $14.9 million for the year ended December 31, 2003, an increase of $19.3 million or in excess of 100%. As a percentage of revenue, depreciation, depletion and amortization was 11.0% and 11.8% for the years ended December 31, 2004 and 2003, respectively. The overall increase in depreciation, depletion and amortization was due to our acquisitions in the United States coupled with depletion at our three newly opened landfills, $17.7 million, and increased depreciation on our vehicle fleet, related equipment and other increases, $0.5 million. The unfavorable effects of foreign exchange movements increased depreciation, depletion and amortization by $1.1 million. As a percentage of revenue, depreciation, depletion and amortization decreased in 2004 as compared to 2003 due to an increased mix of

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collection revenue. Landfill depletion rates ranged from $1.14 to $7.73 per ton for our landfills in the United States and C$3.31 to C$15.88 per tonne for our landfills in Canada.

     Depreciation, depletion and amortization was $14.9 million for the year ended December 31, 2003 and $10.7 million for the year ended December 31, 2002. As a percentage of revenue, depreciation, depletion and amortization was 11.8% for the year ended December 31, 2003 and 10.8% for the year ended December 31, 2002. The increase in depreciation, depletion and amortization of $4.2 million or 39.3% was due to unfavorable effects of foreign exchange movements of 15.2%, depreciation on our trucks and containers of 10.7%, depletion of approximately 10.5%, depreciation at our newly acquired U.S. operations of 1.9% and amortization and other of 1.0%. Depreciation of our trucks and containers increased primarily due to an increase in our fleet size and number of containers. Depletion increased primarily due to increased disposal volumes as well as depletion related to our closure and post-closure obligations. Landfill depletion rates during the year ended December 31, 2003 for our two Canadian operating landfills ranged from C$4.00 to C$14.06 per tonne. We had no operating landfills in the United States during 2003. For the year ended December 31, 2002, landfill depletion rates ranged from C$3.00 to C$11.19 per tonne.

Foreign Exchange Loss (Gain) and Other

      The foreign exchange loss in 2004 and 2003 was the result of re-measuring U.S. dollar denominated cash balances into Canadian dollars. The foreign exchange gains in 2002 were the result of re-measuring our U.S. dollar denominated debt balances into Canadian dollars. As part of the June 2002 refinancing of our senior credit facility, our U.S. dollar denominated debt was repaid.

Interest Expense

     The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004			2003		2002
Preferred Stock and amortization of issue costs	$	17,582		$	10,161	$	—
Credit facility and Senior Subordinated Note interest		19,858			4,011		3,330
Amortization of debt issue costs		10,294			3,281		1,855
Capitalized interest		(178	)		—		—
Other interest expense		864			986		542
	$	48,420		$	18,439	$	5,727

     The increase in interest expense is due primarily to (i) increased amortization of debt issue costs, which includes a $6.5 million charge for the remaining unamortized debt issue costs associated with the repayment of our 364-day Credit Facility in April 2004, (ii) increased interest expense relative to our senior credit facilities and 9 1/2% Subordinated Notes and (iii) increased non-cash dividends and amortization of issue costs relative to our cumulative mandatorily redeemable preferred stock. The weighted average interest rate on credit facility borrowings was 7.11%, 6.54%, and 6.74%, for the years ended December 31, 2004, 2003 and 2002, respectively.

Changes in fair value of warrants pending registration

     Due to the nature of certain financial penalties within the registration rights agreement in our April 2004 private placement, the Common Shares, warrants and related proceeds from this offering were classified outside of shareholders’ equity until the registration was declared effective during August of 2004. Such amounts were reclassified to permanent equity during the third quarter of 2004.

Income Tax Provision (Benefit)

     The income tax provision (benefit) was $7.6 million for the year ended December 31, 2004, $(0.6) million for the year ended December 31, 2003 and $1.7 million for the year ended December 31, 2002. The provision (benefit) is in excess of amounts at the combined federal and state/provincial statutory rates due to the non-deductible nature of dividends accrued on our preferred shares coupled with valuation allowances on our net operating losses in the United States.

     As of December 31, 2004, we had $75.3 million of gross net-operating loss carry-forwards, of which, $45.6 million related to U.S.

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operations. Refer to Note 14 of our Consolidated Financial Statements for the amount of net operating loss carry-forwards expiring in each future year. We have determined that the realization of the future tax benefit related to the Canadian loss carryforwards totaling $29.7 million is more likely than not and accordingly, have not provided a tax valuation allowance against the benefit of these tax loss carryforwards as they are expected to be utilized through future operations and certain tax planning strategies. Due to the start-up nature of our U.S. operations, we have provided a valuation allowance for our net operating loss carryforwards generated in the United States. Separately, changes in our ownership structure may result in limitations on the utilization of loss carry-forwards, as imposed by Section 382 of the U.S. Internal Revenue Code.

Liquidity and Capital Resources

     Our principal capital requirements are to fund capital expenditures, debt service and business and asset acquisitions. Significant sources of liquidity are cash on hand, working capital, borrowings from our Senior Credit Facilities and proceeds from debt and equity issuances.

Senior Secured Credit Facilities

     On April 30, 2004, we entered into new Senior Secured Credit Facilities (the “Credit Facilities”) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our Canadian operations, and a seven-year term loan facility in the amount of $100.0 million. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the Common Shares of our first tier foreign subsidiaries, including Capital, are pledged to secure obligations under the Credit Facilities. As of December 31, 2004, $15.0 million was drawn under the revolving credit facility and $13.3 million was used to support outstanding letters of credit.

     As of June 30, 2004, we failed to meet certain of the financial covenants contained in the Credit Facilities. On October 4, 2004, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment includes changes to certain of the financial and other covenants contained in the Credit Facilities and increases the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Euro dollar loans. Until we meet certain target leverage ratios, as defined, availability under the amended facility is reduced to $50.0 million, up to $12.5 million of which is available for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. As of December 31, 2004, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods. The amendment also requires us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On September 30, 2004, we entered into a standby purchase agreement with Michael G. DeGroote pursuant to which we may require Mr. DeGroote to purchase shares of our common stock for a purchase price of $7.5 million on or before March 28, 2005. As of March 4, 2005, we exercised our rights under the purchase agreement thereby requiring Mr. DeGroote to purchase such shares.

     Our Credit Facilities, as amended, contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) minimum consolidated interest coverage, (ii) maximum total leverage and (iii) maximum senior secured leverage. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital.

     The following table sets forth our financial covenant levels for each of the next four quarters:

	Maximum Consolidated		Maximum Consolidated Senior		Minimum Consolidated
Fiscal Quarter	Leverage Ratio		Secured Leverage Ratio		Interest Coverage Ratio
FQ1 2005		7.00:1.00		3.00:1.00		1.75:1.00
FQ2 2005		6.50:1.00		2.75:1.00		1.75:1.00
FQ3 2005		5.75:1.00		2.50:1.00		1.75:1.00
FQ4 2005		5.25:1.00		2.50:1.00		2.00:1.00

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9 1/2% Senior Subordinated Notes (“Subordinated Notes”) due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on the Subordinated Notes is payable semiannually on October 15 and April 15. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after April

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15, 2009, at a redemption price of 104.75% of the principal amount, declining ratably in annual increments to par on or after April 15, 2012, together with accrued interest to the redemption date. In addition, prior to April 15, 2007, we may redeem up to 35.0% of the aggregate principal amount of the Subordinated Notes with the proceeds of certain equity offerings, at a redemption price equal to 109.5% of the principal amount. Upon a change of control, as such term is defined in the Indenture, we are required to offer to repurchase all the Subordinated Notes at 101.0% of the principal amount, together with accrued interest and liquidated damages, if any, and obtain the consent of our senior lenders to such payment or repay our indebtedness under our Credit Facilities.

     The Subordinated Notes are unsecured and are subordinate to our existing and future senior secured indebtedness, including our Credit Facilities, structurally subordinated to existing and future indebtedness of our non-guarantor subsidiaries, rank equally with any unsecured senior subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our obligations with respect to the Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by all of our existing and future domestic restricted subsidiaries. The Canadian operations are not guarantors under the Subordinated Notes.

     The Subordinated Notes contain certain covenants that, in certain circumstances and subject to certain limitations and qualifications, restrict, among other things (i) the incurrence of additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of preferred stock and the issuance of stock of our subsidiaries; (iv) certain investments; (v) the repurchase of our Preferred Stock; (vi) transactions with affiliates and (vii) certain sales of assets.

     We also entered into a Registration Rights Agreement with the initial purchasers of the Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we will exchange the Subordinated Notes for registered notes with terms identical to the Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the issuance date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. As we need to file our re-audited Florida Recycling financial statements and pro forma financial statements prior to filing the registration statement, we have not filed the registration statement with respect to the Subordinated Notes and, therefore, we are required to pay liquidated damages, in cash, in an amount equal to $0.05 per week per $1,000 in principal amount, of the unregistered Subordinated Notes, for each week that the default continues for the first 90-days following default (approximately $8,000 per week.) Thereafter, the amount of liquidated damages increases by an additional $0.05 per week per $1,000 in principal amount of unregistered Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1,000 in principal amount of unregistered Subordinated Notes outstanding. These liquidated damages are payable at the same time as interest payments due under the Subordinated Notes. Currently, our interest penalty approximates $24,000 per week until May 26, 2005 when it will increase to $32,000 per week.

Equity Placement

     On April 30, 2004, we raised approximately $50.7 million, after deducting expenses of approximately $2.9 million, from the sale of 13,400,000 Common Shares and warrants to purchase 1,340,000 Common Shares in private placement transactions to certain investors. Sanders Morris Harris Inc. acted as the placement agent for the issuance and was paid a placement agent fee of approximately $2.7 million. Don A. Sanders, a director of ours at the time of such issuance, is a principal of Sanders Morris Harris Inc.

     On March 4, 2005, we exercised our put rights under our standby purchase agreement with Michael DeGroote, thereby requiring Mr. DeGroote to purchase shares of our common stock for $7.5 million on or before March 28, 2005. Pursuant to the standby purchase agreement, the price per share will be equal to 85% of the average of the closing price of our common stock during the ten trading days ending on the second trading day preceding the closing of the transaction. Mr. DeGroote will also receive warrants to purchase our common stock equal to 10% of the shares issued with an exercise price equal to the purchase price for the Common Shares. Upon closing the transaction, Mr. DeGroote will receive a $375,000 commitment fee, which is in addition to the $375,000 fee upon execution of the standby purchase agreement. This equity infusion was required as a condition to our amended credit facility and will provide additional liquidity for us.

Cumulative Mandatory Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the “Preferred Stock”) to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively “Kelso”), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February and June 2004 (the “Subscription Agreement”), at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000

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shares of our common stock (on a one-for-one basis) for $3.00 per share. The warrants are exercisable at anytime until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non-voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears. The liquidation preference approximated $73.4 million as of December 31, 2004. The Preferred Stock entitles the holders to a liquidation preference of $1,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such share as of any date of determination.

     As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit Facilities, the dividend payments accrue. The Preferred Stock, including all accrued and unpaid dividends, must be redeemed in full by no later than May 6, 2015. Until May 6, 2006, we may redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or approximately $92.7 million. If we do not exercise our option to redeem all of the Preferred Stock by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations dated April 30, 2004, if we determine, after conducting a sale process, that any such sale would not yield sufficient proceeds to repay in full the indebtedness then outstanding under our Credit Facilities and the redemption amount of our Subordinated Notes issued on April 30, 2004, or at least $320.0 million, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Subordinated Notes are fully repaid or otherwise satisfied or (iii) a sale of our assets to a third party. We refer to this date as the delayed sale date. If we do not initiate and complete a sale of our assets within 20 months of initiation of the sale process by the holders of the Preferred Stock, then on notice from the holders of the Preferred Stock, all outstanding Preferred Stock will become due and payable on the first anniversary of the date on which the holders of Preferred Stock gave notice requiring the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference of $1,000 per share. If the sale day has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date.

     Also pursuant to the Amended Certificate of Designations, if we become subject to a liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit Agreement dated April 30, 2004) or in the event of a change of control (as such term is defined in the Amended Certificate of Designations), all payments and other distributions to holders of Preferred Stock will be subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as provided for in the Amended Certificate of Designations, or the distribution of additional shares or other equity securities to the holders of Preferred Stock, so long as such additional shares or other equity securities are subject to at least equivalent subordination provisions. In addition, the Amended Certificate of Designations prohibits us from making any payment or distribution to the holders of Preferred Stock in the event of a sale of our assets, or the exercise by the holders of the Preferred Stock of their right to require payment of the liquidation amount of their shares as a result of the failure to consummate a sale of our assets as described in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to the terms of the agreement then governing our Credit Facilities.

Migration Transaction

     As part of our business strategy to expand into the United States, we entered into a migration transaction that became effective on July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, Inc., a Delaware company, became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Capital, a company amalgamated under the laws of the Province of Ontario, Canada. After the migration transaction, Capital became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (1) the exchange of 87,657,035 Common Shares of Capital for 87,657,035 shares of our common stock; and (2) the conversion of the remaining 9,229,676 Common Shares of Capital held by non-US residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Capital (now Waste Services (CA) Inc.). The transaction was approved by the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting held on July 27, 2004.

     The terms of the exchangeable shares of Capital are the economic and functional equivalent of our common stock. Holders of exchangeable shares (1) will receive the same dividends as holders of shares of our common stock and (2) will be entitled to vote on the same matters as holders of shares of our common stock. Such voting is accomplished through the one (1) share of Special Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, who will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are a component

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of our common equity.

     Upon the occurrence of certain events, such as the liquidation of Capital, or after the redemption date, our Canadian holding company, Capital Holdings will have the right to purchase each exchangeable share for a share of our common stock, plus all declared and unpaid dividends on the exchangeable share. Unless certain events occur, such redemption date will not be earlier than December 31, 2016. Holders of exchangeable shares also have the right at any time at their option, to exchange their exchangeable shares for shares of our common stock.

Surety Bonds and Letters of Credit

     Municipal solid waste services contracts, permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. As of December 31, 2004, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $67.7 million to collateralize our obligations. The majority of these obligations expire over the next year and will need to be renewed.

Cash Flows

     The following discussion relates to the major components of the changes in cash flows for the years ended December 31, 2004 and 2003.

Cash Flows from Operating Activities

     Cash provided by operating activities were $24.7 million for the year ended December 31, 2004 and $9.4 million for the year ended December 31, 2003. The increase in cash provided by operating activities is primarily due to cash generated from our Canadian operations and domestic acquisitions as well as improvements in working capital.

     Cash provided by operating activities were $9.4 million for the year ended December 31, 2003, and $13.7 million for the year ended December 31, 2002. The decrease in cash provided by operating activities is primarily due to increased overhead spending, as previously discussed, partly offset by increased cash from our working capital.

Cash Flows used in Investing Activities

     Cash used in investing activities was $198.2 million for the year ended December 31, 2004 and $195.6 million for the year ended December 31, 2003. The increase in cash used in investing activities is primarily due to the various business acquisitions we completed during 2004 and increased capital expenditures. Capital expenditures were $46.2 million for the year ended December 31, 2004. We expect our capital expenditures to range from $37.0 to $38.0 million for all of 2005. Proceeds from business divestures of $14.2 million primarily related to the sale of non-core assets acquired as part of the Allied and Florida Recycling transactions. We intend to finance future capital expenditures and business acquisitions through operating cash flow, borrowings under our existing credit facilities, proceeds from asset sales and the issuance of equity and/or other debt securities.

     Cash used in investing activities was $195.6 million for the year ended December 31, 2003, and $39.8 million for the year ended December 31, 2002. The increase in cash used in investing activities during 2003 was primarily due to our acquisition activity. During the year ended December 31, 2003, we purchased certain assets from Allied for $81.1 million in cash, all the membership interests in the entity which owns the JED Landfill for $68.1 million in cash, and we acquired a number of smaller companies for an aggregate cash purchase price of approximately $12.2 million. Capital expenditures also increased by $12.3 million for the year ended December 31, 2003 versus 2002 primarily due to increased spending related to landfill development, and in the prior year, approximately $1.8 million in capital expenditures was financed with capital leases. In addition, cash deposits for pending business acquisitions increased $9.9 million over the prior year.

Cash Flows from Financing Activities

     Cash provided by financing activities was $160.7 million for the year ended December 31, 2004 and $205.1 million for the year ended December 31, 2003. The decrease in cash flows from financing activities is due to overall lower equity offerings and related proceeds offset by releases of cash collateral supporting outstanding letters of credit.

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     Cash provided by financing activities was $205.1 million for the year ended December 31, 2003, and $25.4 million for the year ended December 31, 2002. As previously discussed, the increase in cash flows from financing activities is primarily due to proceeds from our Credit Facilities and the issuance of Series 1 preferred shares, Preferred Stock, and our Common Shares, the proceeds of which were primarily used to finance acquisitions and repay our previous senior secured credit facility.

New Accounting Pronouncements

     On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment, which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is similar to the approach described in Statement 123. However, Statement 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

     Statement 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt Statement 123(R) on July 1, 2005.

     Statement 123(R) permits public companies to adopt its requirements using one of two methods:

1.   A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of Statement 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of Statement 123 for all awards granted to employees prior to the effective date of Statement 123(R) that remain unvested on the effective date.

2.   A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

     We have not yet determined either the method of adoption or the impact that the new standard is expected to have on our financial statements.

Seasonality

     We expect the results of our Canadian operations to vary seasonally, with revenue typically lowest in the first quarter of the year, higher in the second and third quarters, and lower in the fourth quarter than in the third quarter. The seasonality is attributable to a number of factors. First, less solid waste is generated during the late fall, winter and early spring because of decreased construction and demolition activity. Second, certain operating costs are higher in the winter months because winter weather conditions slow waste collection activities, resulting in higher labor costs, and rain and snow increase the weight of collected waste, resulting in higher disposal costs, which are calculated on a per ton basis. Also, during the summer months, there are more tourists and part-time residents in some of our service areas, resulting in more residential and commercial collection. Consequently, we expect operating income to be generally lower during the winter. The effect of seasonality on our results of operations from our U.S. operations, which are located in warmer climates than our Canadian operations, is less significant than that of our Canadian operations.

Off-Balance Sheet Financing

     We have no off-balance sheet debt or similar obligations, other than our letters of credit and performance and surety bonds discussed previously, which are not debt. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third party debt. We have entered into a put or pay disposal agreement with RCI Environment Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environment Inc. (collectively the “RCI Companies”) and Intersan Inc. pursuant to which we have posted a letter of credit for C$4.0 million to secure our obligations and those of the RCI Companies to Intersan Inc. Concurrently with the put or pay disposal agreement with the RCI Companies, we entered into a three year agreement with Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.) to allow us to deliver non-hazardous solid waste to their landfill in Michigan. Details of these agreements are further described in Note 12 of our annual financial statements for the year ended December 31, 2004.

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Tabular Disclosure of Contractual Obligations

     We have various commitments primarily related to funding of short-term debt, our Preferred Stock, closure and post-closure obligations and capital and operating lease commitments. You should also read our discussion regarding “Liquidity and Capital Resources” contained herein. The following table provides details regarding our contractual obligations and other commercial commitments subsequent to December 31, 2004 (in thousands):

											Beyond
	2005		2006		2007		2008		2009		5 Years		Total
Contractual cash obligations:
Existing credit facilities	$	1,000	$	1,000	$	1,000	$	1,000	$	16,000	$	254,250	$	274,250
Capital lease obligations		1,341		630		459		—		—		—		2,430
Other long-term debt		166		177		190		203		217		2,177		3,130
Operating lease commitments		5,081		4,674		4,033		3,510		2,594		9,669		29,561
Cumulative mandatorily redeemable preferred stock(1)		—		—		—		—		156,142		—		156,142
Closure and post-closure obligations(2)		—		—		730		4,681		2,019		183,158		190,588
	$	7,588	$	6,481	$	6,412	$	9,394	$	176,972	$	449,254	$	656,101

(1)

This table includes our cumulative mandatorily redeemable preferred stock, which must be redeemed in full no later than May 2015. The future payment of $156.1 million represents the principal, plus accrued dividends at 17.75% compounded quarterly to May 6, 2009, which is the earliest date Kelso may require us to repay the obligation. If we do not redeem by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our board of directors. Refer to Note 11 of the consolidated financial statements.

(2)

Future payments on closure and post-closure obligations are undiscounted and contemplate full utilization of current and probable expansion airspace.

Other Contractual Arrangements

     In connection with a certain acquisition in December 2003 and the issuance of the 600,000 Common Shares, we entered into a reimbursement agreement whereby for a period of one year after the second anniversary of the closing date, we will reimburse the seller for any loss on sales of shares below $4.75 per share.

     In the normal course of our business, we have other commitments and contingencies relating to environmental and legal matters. For a further discussion of commitments and contingencies, see Note 12 to our Consolidated Financial Statements contained elsewhere in this annual report.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

     A portion of our operations are domiciled in Canada; as such, we translate the results of our operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet date, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operation are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates. For each of the three years ended December 31, 2004, 2003 and 2002 we estimate that a 5.0% increase or decrease in the relationship of the Canadian dollar to the U.S. dollar would increase or decrease operating profit from our Canadian operations by less than $0.4 million.

     As of December 31, 2004, we were exposed to variable interest rates under our Credit Facilities, as amended. The interest rates payable on our revolving and term facilities are based on a spread over base Eurodollar loans as defined. A 25 basis point increase in base interest rates would increase annual cash interest expense by approximately $0.3 million.

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Item 8. Financial Statements and Supplementary Data

     All financial statements and supplementary data that are required by this Item are listed in Part IV, Item 15 of this annual report, are presented beginning on Page F-1.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

     PricewaterhouseCoopers LLP (“PwC”), Toronto, Ontario audited our Consolidated Financial Statements for the year ended December 31, 2002. In February 2003, PwC informed us that they declined to stand for reelection as our independent accountants. The report of PwC on our consolidated financial statements as of and for the year ended December 31, 2002 did not contain an adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle.

     In connection with their audit for the year ended December 31, 2002 and for the interim period through the filing date of this report, there were no disagreements with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of PwC, would have caused them to make reference thereto in their report on the financial statements for such year. During the year ended December 31, 2002, there were no reportable events as defined in Item 304(a)(1)(v) of Regulation S-K with respect to us.

     On October 7, 2003, the Audit Committee of our Board of Directors approved the engagement of the firm BDO Dunwoody LLP (“BDO”), Toronto, Ontario to act as our new independent accountants to audit our financial statements for the year ending December 31, 2003. During the years ended December 31, 2001 and 2002 and through October 7, 2003, we did not consult with BDO regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements; or (ii) any matter that was either the subject of a disagreement, as contemplated by Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in Item 304(a)(1)(v) of Regulation S-K.

     As a result of our migration transaction, the Audit Committee of the Board of Directors on July 27, 2004 appointed the U.S. member firm of BDO world wide, BDO Seidman LLP, as our principal independent auditor for the year ended December 31, 2004. BDO, the Canadian member firm of BDO world wide, will continue to provide audit, audit-related and tax services as we continue to have significant operations located in Canada. BDO Dunwoody LLP’s audit report on our Financial Statements for the year ended December 31, 2003, did not contain an adverse opinion or a disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principle.

     For the year ended December 31, 2003 and through the filing date of this report, there have been no disagreements with BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements if not resolved to BDO’s satisfaction would have caused them to make reference to the subject matter of the disagreement in connection with their report. For the years ended December 31, 2003, and through July 27, 2004, there were no “reportable events” as that term is described in Item 304(a)(1)(v) of Regulation S-K.

     During the years ended December 31, 2003, and through July 27, 2004, we did not consult BDO Seidman, LLP with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, or any other matters or reportable events as defined in Item 304(a)(1)(v) of Regulation S-K, other than in connection with carrying out the review procedures required under Appendix K of the SEC Practice Section rules (subsequently adopted by the PCAOB).

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Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

     We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission’s (SEC) rules and forms. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a-15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee.

Changes in Internal Control Over Financial Reporting

     There were no changes in our internal control over financial reporting that occurred during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management's Report on Internal Control Over Financial Reporting

     The report is included in Item 8 of this annual report.

Attestation Report of Registered Public Accounting Firm

     The report is included in Item 8 of this annual report.

Item 9B. Other Information

     None.

PART III

Item 10. Directors and Executive Officers of the Registrant

Directors

     The following table sets forth certain information with respect to our directors as of March 1, 2005:

Name	Age	Since	Position
David Sutherland-Yoest	48	September 6, 2001	Chairman, Chief Executive Officer and Director
Gary W. DeGroote (3)	49	September 6, 2001	Director
Michael B. Lazar (3)	35	May 6, 2003	Director
George E. Matelich (2)	48	May 6, 2003	Director
Lucien Rémillard	57	September 6, 2001	Director
Jack E. Short (1)(2)	63	July 28, 2004	Director
Wallace L. Timmeny(1)(2)(3)	67	July 28, 2004	Director
Michael J. Verrochi(1)(2)	64	July 28, 2004	Director

(1) Member of the Audit Committee.

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(2)	Member of the Governance Committee.
(3)	Member of the Compensation Committee.

     Biographical information regarding each of our directors is set forth below:

     David Sutherland-Yoest has been Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland- Yoest also held the position of Chairman and Chief Executive Officer of H₂O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H₂O Technologies Ltd. from March 2000 to January 2004. Mr. Sutherland-Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairman and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland-Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning-Ferris Industries, Ltd.

     Gary W. DeGroote has been a director since September 6, 2001. Mr. DeGroote has been the President and sole director of GWD Management Inc., a private investment holding company since 1981. From 1991 to 1995, Mr. DeGroote was President and a director of Republic Environmental Systems Ltd. From 1976 through 1989, Mr. DeGroote served in various positions at Laidlaw Waste Systems Ltd. and its affiliates, including as Vice President and served as a member of the board of directors of Laidlaw Inc. from 1983 to 1989. Mr. DeGroote also serves as a director of Century Business Services, Inc.

     Lucien Rémillard has been a director since September 6, 2001. Mr. Rémillard has been the President and Chief Executive Officer of RCI Environnement Inc., a waste management company, since 1997. From 1981 to 1995, Mr. Rémillard was the President and Chief Executive Officer of Intersan, Inc., a waste management company. Mr. Rémillard has also served as a director of the Greater Montreal Area Comite Paritaire des Boueurs, the organization regulating labor relations for the Montreal solid waste removal industry, since 1983. Mr. Rémillard is also Chairman of the board of directors of Remstar Corporation, an independent distribution and film production company.

     Jack E. Short became a director on July 28, 2004. In July 2001, Mr. Short was appointed by the Federal Bankruptcy court for Northern Oklahoma to act as plan agent in the consolidated bankruptcy of Manchester Gas Storage, Inc., and MGL, Inc. In March 2004, a court order was given to close the case and discharge the plan agent. In June 2002, Mr. Short was appointed to the board of T.D. Williamson, Inc. and serves on the finance and audit committees of that company. In July 2004, Mr. Short was appointed to the board of AAON, Inc. and serves on the audit and governance committees. Mr. Short was a partner at PricewaterhouseCoopers LLP from 1976 to 1981 and was readmitted to the partnership in 1987 and was a partner until his retirement in 2001. From 1981 to 1987, Mr. Short was in private industry. In 1994, Mr. Short was appointed for a five-year term to the Oklahoma Board of Accountancy, serving as its chairman for two of those years.

     Wallace L. Timmeny became a director on July 28, 2004. Mr. Timmeny has been a partner in the law firm of Dechert LLP since 1996. Mr. Timmeny is a past chairman of the Executive Council of the Securities Law Committee of the Federal Bar Association. From 1965 to 1979, Mr. Timmeny was an attorney with the U.S. Securities and Exchange Commission and ultimately the deputy director of its Division of Enforcement. Mr. Timmeny serves on the board of directors for Quanta Capital Holdings Ltd. and Friedman, Billings, Ramsey Group, Inc.

     Michael J. Verrochi became a director on July 28, 2004. Mr. Verrochi is currently Chairman and Chief Executive Officer of Verrochi Realty Trust and Chairman and Chief Executive Officer of Monadnock Mountain Spring Water. Mr. Verrochi served in senior executive positions, including Executive Vice-President, with Browning-Ferris Industries, Inc., a solid waste management company, and as a member of its board of directors.

     George E. Matelich has been a director since May 6, 2003. Mr. Matelich has been a Managing Director of Kelso & Company since 1990. Mr. Matelich has been affiliated with Kelso & Company since 1985. Mr. Matelich serves as a director of Optigas, Inc. and as a Trustee of the University of Puget Sound. Mr. Matelich is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock.

     Michael B. Lazar has been a director since May 6, 2003. Mr. Lazar is a Managing Director at Kelso & Company. Mr. Lazar joined Kelso in 1993 and has been involved in the firm’s private equity transactions since that time. Prior to joining Kelso &

40

Company, Mr. Lazar worked in the Acquisition Finance Group at Chemical Securities, Inc. (predecessor to JP Morgan Securities, Inc.). Mr. Lazar started his career in the Corporate Finance and Structured Finance Groups at Chemical Bank as an Investment Banking Analyst. Mr. Lazar is also a director of Endurance Business Media, Inc. Mr. Lazar is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock.

     We have a separately designated standing Audit Committee. On August 11, 2004, following completion of the migration transaction pursuant to which we became the parent company of Waste Services (CA) Inc. (the “Migration”), Jack E. Short, Wallace L. Timmeny and Michael J. Verrochi were appointed to the Audit Committee and Jack E. Short was named the Chair. Our board of directors determined at that time that we have at least one audit committee financial expert serving on the Audit Committee, Jack E. Short, who is an independent director.

     Prior to the Migration, the members of the Audit Committee of Waste Services (CA) Inc. were George E. Matelich, Gary W. DeGroote and Don A. Sanders. George E. Matelich was the Chair and was designated by the board of directors of Waste Services (CA) Inc. as the audit committee financial expert.

Section 16 (a) Beneficial Ownership Reporting Compliance

     Based solely on a review of reports of ownership, reports of changes of ownership and written representations under Section 16 (a) of the Exchange Act that were furnished to us during fiscal 2004 for persons who were, at any time during fiscal 2004, our directors or executive officers or beneficial owners of more than 10% of the outstanding shares of our common stock, all filing requirements for reporting persons were met except by Larry D. Henk who filed one late report with respect to one transaction and by Westbury Bermuda Limited which filed one late report with respect to one transaction.

Code of Ethics

     We have adopted a Code of Business Conduct and Ethics which applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and Corporate Controller. A copy of the Code of Business Conduct and Ethics may be accessed on our website http://www.wasteservicesinc.com.

Item 11. Executive Compensation

Compensation Paid to Named Executive Officers

     The following table provides information relating to compensation for our last three years for each person who served as the Chief Executive Officer during fiscal 2004 and our four other most highly compensated executive officers serving at the end of 2004. The amounts shown include compensation for services in all capacities that were provided to us and our direct and indirect subsidiaries and predecessors.

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Summary Compensation Table

							Long-Term
							Compensation
							Awards
							Securities
							Underlying
			Annual Compensation				Options/		All Other
Name and Principal Position	Year		Salary ($)(1)		Bonus ($)		SARS		Compensation
	(In thousands of U.S. dollars)
David Sutherland-Yoest		2004	$	476.7	$	—		—	$	—
Chairman and Chief Executive Officer		2003		223.1		428.3		1,000,000		—
		2002		210.2		—		—		—
Charles A. Wilcox		2004		192.1		125.0		1,250,000		11.5	(2)
President and Chief Operating Officer		2003		—		—		—		—
Effective July 14, 2004		2002		—		—		—		—
Ivan R. Cairns		2004		330.3		—		—		4.8	(3)
Executive Vice-President, General Counsel and Corporate Secretary		2003		—		—		600,000		—
Effective January 5, 2004		2002		—		—		—		—
Mark A. Pytosh		2004		312.3		—		1,500,000		18.9	(4)
Executive Vice-President		2003		—		—		—		—
Effective February 23, 2004		2002		—		—		—		—
Ronald L. Rubin		2004		293.1		—		—		22.7	(5)
Executive Vice-President and Chief Financial Officer		2003		98.5		230.0		500,000		—
		2002		—		—		—		—

(1)	All our named executive officers took a salary reduction of 20% of their base salary during the last 4 months of 2004.
(2)	Consists of $10,500 in health insurance premiums and $1,000 in term life insurance premiums.
(3)	Consists of contributions to our Canadian deferred profit sharing plan.
(4)	Consists of $17,400 in health insurance premiums and $1,500 in term life insurance premiums.
(5)	Consists of $20,900 in health insurance premiums and $1,800 in term life insurance premiums.

     The following table summarizes options granted to the named executive officers during 2004:

Option/SAR Grants in Last Year

	Individual Grants
	Number of
	Securities			Percent of Total						Potential Realizable Value
	Underlying			Options/SARs						at Assumed Annual Rates of
	Options/SARs			Granted to			Exercise or			Stock Price Appreciation for
	Granted (#)			Employees			Base Price		Expiration	Options Term
Name	Exercisable			in Year			($/Sh)		Date	5% ($)		10% ($)
										($ in thousands)
Charles A. Wilcox		1,250,000	(1)		22.84	%		4.52	06/23/09	$	1,741	$	3,904
Mark A. Pytosh		1,000,000	(2)		18.27	%		5.20	03/30/09		1,686		3,803
		500,000	(3)		9.14	%		4.42	05/11/09		693		1,557

(1)	Exercisable from June 23, 2006.
(2)	Exercisable from March 30, 2006
(3)	Exercisable from May 11, 2006

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Year-End Option/SAR Values

     The following table shows the value of unexercised options held by the named executive officers at the end of 2004. No options were exercised by the named executive officers during 2004.

	Number of Securities
	Underlying Unexercised			Value of Unexercised
	Options/SARs at			In-the-Money Options/SARs
	Year End (#)			at Year End ($)
Name	Exercisable	Unexercisable		Exercisable		Unexercisable
David Sutherland-Yoest	—		1,000,000	—	$	—
Charles A. Wilcox	—		1,250,000	—	$	—
Ivan R. Cairns	—		600,000	—	$	—
Mark A. Pytosh	—		1,500,000	—	$	—
Ronald L. Rubin	—		500,000	—	$	—

Directors’ Compensation

     The Board of Directors has determined that the outside directors will receive the following compensation for acting as directors effective from July 31, 2004:

•   $15,000 as an annual retainer for each Director

•   $20,000 as additional annual retainer for Chair of the Audit Committee

•   $15,000 as an additional retainer for members of the Audit Committee

•   $5,000 as an additional annual retainer for Chair of the Compensation Committee

•   $5,000 as additional annual retainer for the Chair of the Corporate Governance Committee

•   $1,500 or $500 per meeting participation in person or by telephone, respectively.

Employment Agreements

     David Sutherland-Yoest. Mr. Sutherland-Yoest is employed as our Chairman and Chief Executive Officer pursuant to an employment agreement enter into on September 7, 2001. The agreement had an initial term of three years, which term has automatically extended and will continue until notice is given that the employment term will not be extended. Under this employment agreement, Mr. Sutherland-Yoest is entitled to a base salary as determined from time to time by the Board of Directors on the recommendation of the Compensation Committee, plus an annual bonus of up to 100% of his base salary, subject to satisfaction of annual performance objectives mutually agreed upon by the Board of Directors and Mr. Sutherland-Yoest at the beginning of each year. The employment agreement provides for the following benefits upon termination: (a) if the agreement is terminated upon death or total disability or by Mr. Sutherland-Yoest within six months following a change of control, Mr. Sutherland-Yoest or his beneficiaries will be paid his base salary for a period of three years from the effective date of termination plus a lump sum payment equal to three times the average of the cash bonuses paid to him in each of the two most recently completed years, he will receive company benefits for a period of three years, and any stock options granted will continue to vest as if Mr. Sutherland-Yoest were still employed; (b) if the agreement is terminated for cause, Mr. Sutherland-Yoest will be entitled to receive all accrued but unpaid base salary, expenses and any earned benefits; (c) if the agreement is terminated by Mr. Sutherland-Yoest voluntarily, Mr. Sutherland-Yoest will be entitled to receive any accrued but unpaid base salary, expenses and any earned benefits; and (d) if the agreement is terminated without cause, Mr. Sutherland-Yoest will continue to receive his base salary and will receive company benefits until the first anniversary of the effective date of termination, and any stock options will vest and be exercisable until the end of the option term as set out in the option grant. Mr. Sutherland-Yoest’s employment agreement also provides for other customary benefits and perquisites and prohibits him from competing with us during the term of his employment and for a specified period following termination.

     Charles A. Wilcox. Mr. Wilcox is employed as our President and Chief Operating Officer pursuant to the terms of an employment agreement entered into as of July 1, 2004. The employment agreement is for an indefinite term. Mr. Wilcox is entitled to a base salary of $450,000 and a discretionary cash bonus of up to 75% of his base salary in fiscal 2004 and thereafter of up to 100% of his base salary. Mr. Wilcox received a one-time bonus of $125,000 at the time of entering into his employment agreement. His employment agreement provides for the following termination benefits: (a) upon Mr. Wilcox’s death or if we terminate Mr. Wilcox’s employment by reason of his total disability, Mr. Wilcox or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Wilcox has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Wilcox for good reason, Mr. Wilcox is entitled to continue to receive his base salary for a period three years and to payment of his average bonus in the prior three years (or where Mr. Wilcox has been

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employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year), in equal installments over thirty-six months and all of Mr. Wilcox’s options then vest and continue to be exercisable for the balance of their term. If Mr. Wilcox’s employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Wilcox is entitled to receive a lump sum payment of three times both his base salary and his average bonus. If Mr. Wilcox terminates his employment voluntarily or if his employment is terminated for cause, Mr. Wilcox is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Wilcox’s employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Wilcox from competing against us during the term of his employment and for a specified period following his termination..

     Ivan R. Cairns. Mr. Cairns is employed as our Executive Vice-President, General Counsel and Corporate Secretary pursuant to an employment agreement effective January 5, 2004. The term of Mr. Cairns’ employment is indefinite. Mr. Cairns is entitled to a base salary of $330,000 and a discretionary annual cash bonus of up to 100% of his base salary. The employment agreement provides for the following termination benefits: (a) upon Mr. Cairns’ death or if the agreement is terminated by us by reason of Mr. Cairns’ total disability, Mr. Cairns or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Cairns has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Cairns for good reason, Mr. Cairns is entitled to continue to receive his base salary for a period two years and to payment of his average bonus in the prior two years, in equal installments over twenty-four months and all of Mr. Cairns’ options then vest and continue to be exercisable for the balance of their term. If however, Mr. Cairns’ employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Cairns is entitled to receive a lump sum payment of three times his base salary and his average bonus. If Mr. Cairns terminates his employment voluntarily or if his employment is terminated for cause, Mr. Cairns is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Cairns’ employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Cairns from competing against us during the term of his employment and for a specified period following his termination.

     Mark A. Pytosh. Mr. Pytosh entered into an employment agreement with us effective February 23, 2004. The employment agreement is for an indefinite term. By the terms of his employment agreement, Mr. Pytosh is entitled to a base salary of $400,000 and a discretionary cash bonus of up to 100% of his base salary. The employment agreement provides for the following termination benefits: (a) upon Mr. Pystosh’s death or if we terminate Mr. Pytosh’s employment by reason of his total disability, Mr. Pytosh or his beneficiaries are entitled to continue to receive his base salary for three years and is entitled to payment of his average bonus paid in the prior three years (or where Mr. Pytosh has been employed for less than three years, his full bonus entitlement in the immediately preceding fiscal year) in monthly installments over thirty-six months and all of his options then outstanding vest immediately and continue to be exercisable for the balance of their term; (b) upon termination of the agreement by us without cause or by Mr. Pytosh for good reason, Mr. Pytosh is entitled to continue to receive his base salary for a period of two years and to payment of his average bonus in the prior two years (or where Mr. Pytosh has been employed for less than two years, his full bonus entitlement in the immediately preceding fiscal year), in equal installments over twenty-four months and all of Mr. Pytosh’s options then vest and continue to be exercisable for the balance of their term. If Mr. Pytosh’s employment is terminated by us without cause or by him for good reason and a change of control has occurred with the two years preceding or the one year after the effective date of his termination, then Mr. Pytosh is entitled to receive a lump sum payment of three times both his base salary and his average bonus. If Mr. Pytosh terminates his employment voluntarily or if his employment is terminated for cause, Mr. Pytosh is only entitled to receive any accrued by unpaid base salary, expenses and any unearned benefits. Mr. Pytosh’s employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Pytosh from competing against us during the term of his employment and for a specified period following his termination

     Ronald L. Rubin entered into an employment agreement with us effective September 2, 2003. The agreement is for an initial term of two years and automatically renews thereafter for successive one year terms. Mr. Rubin is entitled to receive a base salary of $300,000 and a discretionary annual cash bonus of up to 80% of his base salary. Mr. Rubin also received a one-time payment of $150,000 on signing his employment agreement. The employment agreement provides for the following termination benefits: (a) if the agreement is terminated upon Mr. Rubin’s death or total disability or by us without cause or by Mr. Rubin for good reason, Mr. Rubin or his beneficiaries will continue to be paid his base salary for the remainder of his employment term and all outstanding options granted to Mr. Rubin prior to his termination shall vest and be exercisable in accordance with the terms of the stock option plan pursuant to which the options were granted; (b) if the agreement is terminated by us without cause or by Mr. Rubin for good reason and a change of control has occurred within the two year period preceding or within the one year period following the effective date of

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termination, Mr. Rubin is entitled to receive a lump sum payment equal to his base salary then in effect immediately upon termination and Mr. Rubin’s options will vest as described above; (c) if the agreement is terminated for cause or by Mr. Rubin voluntarily and without good reason, Mr. Rubin is entitled to receive any accrued but unpaid base salary, expenses and any unearned benefits. The employment agreement also provides for other customary benefits and perquisites and prohibits Mr. Rubin from competing with us during the term of his employment and for a specified period following termination.

Compensation Committee Interlocks and Insider Participation

     Effective August 11, 2004, the Compensation Committee was established following completion of the Migration. Wallace L. Timmeny, Chair, Gary W. DeGroote and Michael B. Lazar were appointed to the Compensation Committee at that time. None of the members of our Compensation Committee currently serve as our officers or employees or of any of our subsidiaries nor are any of the current members former officers of ours or any of our subsidiaries. Prior to the Migration, Don A. Sanders, Gary W. DeGroote and Lucien Rémillard served on the compensation committee of Waste Services (CA) Inc. No member of the Waste Services (CA) Inc. Compensation Committee was an officer or employee or former officer of Waste Services (CA) Inc. or any of its subsidiaries.

     In April 2004, we entered into a placement agent agreement with Sanders Morris Harris Inc., or SMH, pursuant to which we agreed to pay SMH a fee for the private placement of 1,340,000 shares of our common stock sold through SMH to certain investors We paid SMH a fee of approximately $2.7 million pursuant to the agreement. Don A. Sanders is a principal of SMH and was a director and a member of our Compensation Committee at the time of the payment to SMH.

     In November 2002, we entered into a Put or Pay Disposal Agreement with RCI Environnement Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environnement Inc., collectively the RCI Companies, and Intersan Inc., or Intersan, a subsidiary of Canadian Waste Services Inc (now Waste Management of Canada Corporation.), pursuant to which we and the RCI Companies agreed to deliver to certain of Intersan’s landfill sites and transfer stations in Quebec, Canada, over the first five-year term of the Agreement, 850,000 metric tons of waste per year, and for the next two years after the expiration of the first five-year term, 710,000 metric tons of waste per year at a fixed disposal rate set out in the Put or Pay Disposal Agreement. If we and the RCI Companies fail to deliver the required tonnage, we are jointly and severally required to pay to Intersan, C$23.67 per metric ton for every metric ton below the required tonnage. If a portion of the annual tonnage commitment is not delivered to a specific site, we are also required to pay C$8.00 per metric ton for every metric ton below the site specific allocation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. No payments were made or required to be made to Intersan pursuant to the Put or Pay Disposal Agreement in the period from January 1, 2004 to December 31, 2004. Lucien Rémillard is also a director of and controls the RCI Companies and is a director and was a member of our Compensation Committee for part of our 2004 fiscal year.

     Concurrently with the Put or Pay Disposal Agreement, we entered into a three-year agreement with Waste Management, Inc. to allow us to deliver up to 75,000 metric tons of non-hazardous waste in the first year and up to 100,000 metric tons in years two and three of the Agreement to Waste Management’s landfill in Michigan at negotiated fixed rates per ton.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Rémillard with respect to our potential acquisition of the solid waste collection and disposal assets owned by Mr. Rémillard in Quebec. In connection with these negotiations, we have reimbursed Mr. Rémillard’s company for expenses in the aggregate amount of approximately C$2.2 million for services provided by third parties to December 31, 2004 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, we will not be reimbursed for the expenses we incurred.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft.

     During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (1991) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote’s brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn. $0.1 million to Cdn.$0.2 million per year in increments over the term of the lease.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

     The following table sets forth information regarding the beneficial ownership of our shares of common stock and exchangeable shares as of March 1, 2005, by each person or entity that is known by us to own more than 5% of the shares of common stock and exchangeable shares. As of such date, the number of issued and outstanding shares in our capital stock was 99,593,680, including exchangeable shares of Waste Services (CA) Inc. not owned directly or indirectly by us. Unless otherwise indicated, the address of each beneficial holder listed below is c/o Waste Services, Inc., 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6Z8.

	Shares Beneficially Owned
			Percentage of
	Number of		Total Issued
	Common/Exchangeable		Common/Exchangeable
Name of Beneficial Owner(1)	Shares		Shares
Westbury (Bermuda) Limited(2)		20,383,355		20.0	%
Kelso & Company, L.P.(3)		7,150,000		6.7	%

(1)	Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In general, a person who has voting power or investment power with respect to securities is treated as a beneficial owner of those securities. Common Shares subject to options or warrants currently exercisable or exercisable within 60 days of March 1, 2005 count as outstanding for computing the percentage beneficially owned by the person holding these options or warrants .
(2)	Consists of 17,900,022 shares of common stock and 2,483,333 shares of common stock issuable upon the exercise of warrants. The stockholder of Westbury Bermuda Limited is Westbury Trust. The trustees of Westbury Trust are Robert Martyn, Gary W. DeGroote and Rick Burdick. The address for Westbury Bermuda Limited is Victoria Hall, 11 Victoria Street, P.O. Box HM 1065, Hamilton, Bermuda, HMEX.
(3)	Consists of 6,435,000 shares of common stock issuable upon the exercise of warrants issued to Kelso Investment Associates VI, L.P. and 715,000 shares of common stock issuable upon the exercise of warrants issued to KEP VI, LLC. Kelso Investment Associates VI, L.P. and KEP VI, LLC are affiliates of Kelso & Company, L.P. The address of Kelso & Company, L.P. is 320 Park Avenue, 24th Floor, New York, New York, 10022

     Information regarding share ownership as of March 1, 2005 of our directors and named executive officers is set forth below:

	Outstanding		% of
Name	Shares(1)		Shares(2)
David Sutherland-Yoest(3)		4,466,362		4.4	%
Gary W. DeGroote(4)		2,385,000		2.4	%
Michael B. Lazar (5)		14,562		*
George E. Matelich (6)		774,697		*
Lucien Rémillard (7)		3,073,497		3.1	%
Jack E. Short		10,000		*
Wallace L. Timmeny		8,500		*
Michael J. Verrochi		385,739		*
Charles A. Wilcox		300,000		*
Ivan R. Cairns		2,500		*
Mark A. Pytosh		420,000		*
Ronald L. Rubin		15,000		*
Brian A. Goebel		—		*
All executive officers and directors as a group (13 persons)		11,855,857		11.8	%

*	Less than one (1%) percent.
(1)	In general, a person who has voting power or investment power with respect to securities is treated as a beneficial owner of those securities. Common Shares subject to options or warrants currently exercisable or exercisable within 60 days of March 1, 2005 count as outstanding for computing the percentage beneficially owned by the person holding these options or warrants.

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(2)	Percentages based upon 99,593,680 shares of common stock outstanding as of March 1, 2005, which includes 6,569,910 exchangeable shares of Waste Services (CA) Inc. not owned directly or indirectly by us.
(3)	Consists of 1,949,497 exchangeable shares of Waste Services (CA) Inc. owned by D.S.Y. Investments Ltd., of which Mr. Sutherland-Yoest is the sole director and stockholder, as well as 751,665 shares of common stock owned by Mr. Sutherland-Yoest personally and 1,000,000 shares of common stock issuable upon the exercise of currently exercisable warrants to purchase Common Shares, 500,000 Common Shares owned by Mr. Sutherland-Yoest’s wife and 265,200 shares of common stock owned by Mr. Sutherland-Yoest’s daughter, Christina Sutherland-Yoest, which Mr. Sutherland-Yoest may be deemed to beneficially own. Mr. Sutherland-Yoest disclaims beneficial ownership with respect to the shares owned by his wife and his daughter.
(4)	Consists of 2,275,000 exchangeable shares of Waste Services (CA) Inc. owned by GWD Management Inc., and 110,000 shares of common stock issuable upon exercise of currently exercisable options to purchase Common Shares issued to Mr. DeGroote. Mr. DeGroote is the controlling stockholder and director of GWD Management Inc.
(5)	Mr. Lazar is a Managing Director of Kelso & Company, L.P. Affiliates of Kelso & Company, L.P. own currently exercisable warrants to purchase 7,150,000 shares of common stock. Mr. Lazar disclaims beneficial ownership of the shares owned by affiliates of Kelso & Company, L.P.
(6)	Consists of 728,797 shares of common stock owned by Mr. Matelich, 900 shares of common stock owned by Mr. Matelich’s children and 45,000 shares of common stock issuable upon the exercise of currently exercisable options to purchase Common Shares issued to Mr. Matelich. Mr. Matelich disclaims beneficial ownership of the shares owned by his children. Mr. Matelich is a Managing Director of Kelso & Company, L.P. Affiliates of Kelso & Company, L.P. own currently exercisable warrants to purchase 7,150,000 shares of common stock. Mr. Matelich disclaims beneficial ownership of the shares owned by affiliates of Kelso & Company, L.P.
(7)	Consists of 1,500,000 exchangeable shares of Waste Services (CA) Inc. owned by Historia Investments Inc., 1,478,497 shares of common stock owned by The Victoria Bank (Barbados) Incorporated, and 95,000 shares of common stock issuable upon the exercise of currently exercisable options to purchase Common Shares issued to Mr. Rémillard. Mr. Rémillard is the controlling stockholder of Historia Investments Inc. and is indirectly the controlling stockholder of The Victoria Bank (Barbados) Incorporated, and is deemed to beneficially own the Common Shares owned by each such entity Mr. Rémillard disclaims beneficial ownership of the Common Shares owned by The Victoria Bank (Barbados) Incorporated and Historia Investments Inc.

Securities Authorized for Issuance under Equity Compensation Plans

     The following table summarizes securities authorized for issuance under our existing equity compensation plans as at December 31, 2004:

						(c)
	(a)			(b)		Number of securities remaining
	Number of Securities to			Weighted-average		available for future issuance under
	be issued upon exercise			exercise price of		equity compensation plans (excluding
	of outstanding options,			outstanding options,		securities to be issued upon exercise of
Plan Category	warrants and rights			warrants and rights		outstanding options, warrants or rights)
Equity compensation plans approved by security holders		12,652,964		$	4.91		5,763,376	(1)
Equity compensation plans not approved by security holders		1,000,000	(2)	$	2.70		—
Total		13,652,964		$	4.74		5,763,376	(1)

(1) Under our 1999 Stock Option Plan, we may grant options to a maximum of 19% of our issued Common Shares and common share equivalents outstanding from time to time.

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(2) Warrants to purchase 1,000,000 of our Common Shares, at an exercise price of $2.70 per share, were granted to David Sutherland-Yoest in September 2001 as a term of the commencement of his employment. As of December 31, 2004, all of the warrants had vested. The warrants expire in September 2011 and are exercisable until their expiration so long as Mr. Sutherland-Yoest is an employee. In the event of a change of control, or if Mr. Sutherland-Yoest’s employment is terminated by reason of death, disability or by us without cause, the warrants continue to be exercisable as if Mr. Sutherland-Yoest had remained an employee. If Mr. Sutherland-Yoest’s employment is terminated by his voluntary resignation or by us for cause, all vested warrants may be exercised within 180 days of the date of such termination.

Item 13. Certain Relationships and Related Transactions

     Other than those listed in this section, we have not entered into any material transactions during the period beginning on January 1, 2004 through March 1, 2005 in which any of our directors, officers or holders of more than 5% of our common stock, or any member of the immediate family of any such director or officer or shareholder has or had any interest.

Advisory Services

     In February 2004, we paid Kelso & Company, L.P. a $0.5 million fee in connection with services related to the arrangement of the senior secured credit facilities that were entered into on December 31, 2003. Two of our directors are nominees to the Board of Kelso & Company, L.P. and are affiliates of Kelso & Company, L.P. George E. Matelich is a Managing Director of Kelso & Company, L.P., and Michael B. Lazar is a Managing Director of Kelso & Company, L.P.

Placement Agent Fees

     Sanders Morris Harris Inc. or SMH acted as placement agent on the issuance of 1,340,000 Common Shares and were paid a placement agent fee of approximately $2.7 million on April 30, 2004. SMH is a beneficial owner of our common stock and Don A. Sanders, a director at the time that the payments were made, is a principal of SMH.

Lease of Premises

     In 2003, we purchased furnishings and leasehold improvements from H₂O Technologies, Ltd. for $0.3 million and assumed a lease of premises from David Sutherland-Yoest. David Sutherland-Yoest, our Chairman and Chief Executive Officer served, until October of 2003, as Chairman and Chief Executive Officer of H₂O Technologies, Ltd. and, until January 2004, as a director of H₂O Technologies, Ltd. The purchase price was determined based on an appraisal. The lease expires on March 31, 2005 with annual rent and operating costs of less than $0.1 million.

Florida Recycling Acquisition

     On April 30, 2004, we acquired from. Larry Henk, our then President and Chief Operating Officer, 3% of the total issued common stock of Florida Recycling Services, Inc., or FRS which Mr. Henk had acquired prior to his commencing his employment with us. Mr. Henk was paid approximately $3.0 million in cash and was issued 277,500 Common Shares as consideration. Under an agreement with the sellers of FRS entered into prior to Mr. Henk’s employment, Mr. Henk was paid a fee of approximately $2.5 million by the sellers following the closing of our acquisition of the shares of FRS. In September, 2004 pursuant to an agreement with the sellers of FRS, Mr. Henk agreed to repay $22,500 of the proceeds he received and return 15,000 Common Shares to us.

Standby Purchase Agreement

     On September 30, 2004 we entered into a standby purchase agreement with Michael G. DeGroote, Gary W. DeGroote’s father, pursuant to which we may require him to purchase shares of our common stock having an aggregate purchase price of $7.5 million on March 28, 2005. On March 4, 2005, we exercised our put rights under the standby purchase agreement. The shares will be purchased at 85% of the average of the closing prices of our common stock during the period from the eleventh trading day through the second trading day preceding the closing of the transaction, on March 28, 2005. Mr. DeGroote will also receive warrants to purchase our common stock equal to 10% of the shares issued with an exercise price equal to the purchase price for the Common Shares. We paid Mr. DeGroote a commitment fee of $375,000 at the time of entering into the agreement and will pay him a further commitment fee of $375,000 on March 28, 2005.

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Other Transactions

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Rémillard with respect to the potential acquisition by Waste Services of the solid waste collection and disposal assets owned by Mr. Rémillard in Quebec. In connection with these negotiations, Waste Services has reimbursed Mr Rémillard’s company for expenses in the aggregate amount of approximately C$2.2 million for services provided by third parties to December 31, 2004 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, Waste Services will not be reimbursed for the expenses it has incurred.

     During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (1991) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote’s brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn. $0.1 million to Cdn.$0.2 million per year in increments over the term of the lease.

Item 14. Principal Accountant Fees and Services

Audit Fees

     Audit fees billed or expected to be billed for the 2004 audit by BDO Seidman, LLP approximate $1.278 million. Audit fees billed and paid for 2004 quarterly review and 2003 audit by BDO Dunwoody, LLP approximated $134,000 and $596,000, respectively.

     Audit fees were $366,000 in 2003 for PricewaterhouseCoopers LLP (related to the 2002 audit).

Audit-Related Fees

     Audit-related fees billed for 2004 by BDO Seidman, LLP approximate $5,500. Audited-related fees billed and paid for 2004 and 2003 by BDO Dunwoody, LLP approximated $259,000 and $73,000, respectively. The BDO Dunwoody, LLP fees primarily related to certain financing transactions which were closed during the first quarter of 2004. Audit related fees were $534,000 in 2003 for PricewaterhouseCoopers LLP.

Tax Fees

     Tax related fees were approximately $40,000 for 2004 by BDO Seidman, LLP. Tax fees were $17,000 in 2004 for BDO Dunwoody LLP. Tax fees were $92,000 in 2003 for PricewaterhouseCoopers LLP. These fees primarily relate to the preparation of our tax returns and related consulting services.

All Other Fees

     All other fees were nil in 2004 and 2003 for BDO Seidman, LLP, BDO Dunwoody, LLP, and PricewaterhouseCoopers LLP.

Pre-Approval Policies and Procedures

     The audit committee approves all audit, audit-related services, tax services and other services provided by BDO Seidman LLP. Any services provided by BDO Seidman LLP that are not specifically included within the scope of the audit must be pre-approved by the audit committee in advance of any engagement. Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimus exception prior to the completion of an audit engagement. In 2004, none of the fees paid to BDO Seidman LLP were approved pursuant to the de minimus exception.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

Consolidated Financial Statements

(a)(1) Consolidated Financial Statements

Management’s Report on Internal Controls over Financial Reporting
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Income (Loss)
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

     Schedule II — Valuation and Qualifying Accounts schedule has been omitted as the required information is included in the Notes to Consolidated Financial Statements included herewith.

     All other schedules have been omitted because they are not applicable.

(3) Exhibits

     Documents filed as exhibits to this report or incorporated by reference:

2.1	Plan of Arrangement under Section 182 of the Business Corporations Act (Ontario)
3.1	Amended and Restated Certificate of Incorporation of Waste Services, Inc. (Incorporated by reference to Exhibit 3.1 to Form 8-K (No. 000- 25955) filed August 2, 2004).
3.2	Provisions for Exchangeable Shares of Waste Services (CA) Inc.
3.3	Certificate of Designation of Special Voting Preferred Stock of Waste Services, Inc. (Incorporated by reference to Exhibit 3.2 Form 8-K (No. 000-25955) filed August 2, 2004).
3.4	By-law No. 1 of Waste Services, Inc. (Incorporated by reference to Exhibit 3.3 to Form 8-K (No. 000-25955) filed August 2, 2004).
3.5	Certificate of Designations of Waste Services, Inc. (Incorporated by reference to Exhibit 1.3 to Form 20-F (No. 000-25955) filed July 15, 2003).
3.6	Amended Certificate of Designations of Waste Services, Inc. (Incorporated by reference to Exhibit 4.1 to Form 8-K (No. 000-25955) filed May 10, 2004).
4.1	Preferred Subscription Agreement dated as of May 6, 2003, among Waste Services, Inc., Capital Environmental Resource Inc., Kelso Investment Associates VI, L.P. and KEP VI LLC (Incorporated by reference to Exhibit 4.4 to Form 20-F (No. 000-25955) filed July 15, 2003).
4.2	Amending Agreement No. 1 to Preferred Subscription Agreement dated as of February 13, 2003, among Waste Services, Inc., Capital Environmental Resource Inc., Kelso Investment Associates VI, L.P. and KEP VI, LLC (Incorporated by reference to Exhibit 4.1 to Form 6-K (No. 000-25955) filed February 26, 2004).
4.3	Amending Agreement No. 2 to Preferred Subscription Agreement dated June 8, 2004 (incorporated by reference to Exhibit 4.1 to Form 8-K (No. 00-259551 filed June 9, 2004).
4.4	Form of Warrants to Purchase Common Stock by and between the

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	Company and certain investors (Incorporated by reference to Exhibit 4.2 to Form 20-F (No. 000-25955) filed July 15, 2003)
4.5	Warrant Agreement dated as of May 6, 2003, between Waste Service Inc., and certain holders of the Preferred Stock (Incorporated by reference to Exhibit 4.6 to Form 20-F (No. 000-25955) filed July 15, 2003).
4.6	Warrant, dated July 27, 2001 issued by us to David Sutherland-Yoest (Incorporated by reference to Exhibit 4.8 to Form 20-F (No. 000-25955) filed July 12, 2002).
4.7	Form of Warrant to Purchase Common Shares by and between Capital Environmental Resource Inc. and certain investors.1/2 (Incorporated by reference to Exhibit 4.4 to Form 8-K (No. 000-25955) filed May 10, 2004).
4.8	Indenture regarding 91/2% Senior Subordinated Notes among Waste Services, Inc., the Guarantors and Wells Fargo Bank, National Association, as trustee, dated as of April 30, 2004 (Incorporated by reference to Exhibit 4.3 to Form 8-K (No. 000-25955) filed May 10, 2004).
4.9	Voting and Exchange Trust Agreement among Waste Services, Inc., Capital Environmental Resource Inc. and Computershare Trust Company of Canada dated July 31, 2004.
4.10	Support Agreement dated July 31, 2004, among Waste Services, Inc. Capital Environmental Holding Company and Capital Environmental Resource Inc.
4.11	Standby Purchase Agreement dated as of September 30, 2004 between Waste Services, Inc. and Michael DeGroote (Incorporated by reference to Exhibit 10.2 to Form 8-K (No. 000-25955) filed on October 5, 2004.)
10.1	Capital Environmental Resource Inc. 1999 Stock Option Plan (Incorporated by reference to Exhibit 4 to Schedule 13D dated February 5, 2002 and filed by certain holders of the Company’s Common Shares with the Commission on February 15, 2002).
10.2	Purchase Agreement dated November 13, 2003, between Allied Waste Industries, Inc., Waste Services, Inc., and Capital Environmental Resource Inc. (Incorporated by reference to Exhibit 10.1 to Form 6-K/A (No. 000-25955), filed January 20, 2003).
10.3	Amended and Restated Stock Purchase Agreement dated as of March 11, 2004, by and among Waste Services, Inc., certain affiliates of Waste Services, Inc., Capital Environmental Resource Inc., Florida Recycling Services, Inc. and certain affiliates thereof. (Incorporated by reference to Exhibit 10.5 to Form 8-K (No. 000-25955) filed May 10, 2004).
10.4	First Amendment to Amended and Restated Stock Purchase Agreement and Settlement Agreement dated September 24, 2004 (Incorporated by Reference to Exhibit 10.2 to Form 8-K (No. 000-25955) filed September 24, 2004.)
10.5	Form of Subscription Agreement dated as of April 30, 2004, between Capital Environmental Resource Inc. and certain investors. (Incorporated by reference to Exhibit 10.1 to Form 8-K (No. 000-25955) filed May 10, 2004).
10.6	Form of Registration Rights Agreement dated as of April 30, 2004, among us and certain investors. (Incorporated by Reference to Exhibit 10.2 to Form 8-K (No. 000-25955) filed filed May 10, 2004).
10.7	91/2% Senior Subordinated Notes Registration Rights Agreement dated April 20, 2004. (Incorporated by reference to Exhibit 10.3 to Form 8-K (No. 000-25955) filed May 10, 2004).
10.8	Amended and Restated Credit Agreement dated as of April 30, 2004, Among Capital Environmental Resource Inc., Waste Services, Inc., the several lenders from time to time parties thereto, Lehman Brothers Inc., as Arranger, CIBC World Markets Corp., as Syndication Agent, Bank of

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	America, N.A., as Documentation Agent, Canadian Imperial Bank of Commerce, as Canadian Agent, and Lehman Commercial Paper Inc., as Administrative Agent. (Incorporated by reference to Exhibit 10.4 to Form 8-K (No. 000-25955) filed May 20, 2004).
10.9	First Amendment to Amended and Restated Credit Agreement dated as of August 25, 2004 (Incorporated by reference to Exhibit 10.1 to Form 8-K (No. 000-25955) field August 27, 2004.)
10.10	Second Amendment to Amended and Restated Credit Agreement dated as of October 4, 2004 (incorporated by reference to Exhibit 10.1 to Form 8-K (No. 000-25955) field October 5, 2004.)
10.12	Employment Agreement dated as of September 7, 2001, between us and David Sutherland-Yoest (Incorporated by reference to Exhibit 4.9 to Form 20-F (No. 000-25955) filed July 12, 2002).
10.13	Employment Agreement dated as of July 1, 2004 between Waste Services, Inc. and Charles A. Wilcox
10.14	Employment Agreement dated January 5, 2004, between us and Ivan R. Cairns. (Incorporated by reference to Exhibit 10.1 to Form 10-Q (No. 000-25955), filed May 17, 2004).
10.15	Employment Agreement dated as of February 23, 2004, between Capital Environmental Resource Inc., Waste Services, Inc. and Mark A. Pytosh. (Incorporated by reference to Exhibit 10.2 to Form 10-Q (No. 000-25955), filed May 17, 2004). 10.2 to Form 10-Q (No. 000-25955), filed May 17, 2004).
10.16	Employment Agreement dated July 23, 2003, between Capital Environmental Resource, Inc. and Ronald L. Rubin (Incorporated by reference to Exhibit 4.26 to Form 20-F for the year ended December 31, 2003 (No. 000-25955), filed March 31, 2004.
10.17	Employment Agreement dated October 1, 2003, between Capital Environmental Resource, Inc. and Brian A. Goebel (Incorporated by reference to Exhibit 4.27 to Form 20-F for the year ended December 31, 2003 (No. 000-25955), filed March 31, 2004.
14.1	Code of Ethics (Incorporated by reference to Exhibit 14.1 to Form 10-K for the year ended December 31, 2003 (No. 000-25955), filed June 9, 2004.
16.1	Letter from PricewaterhouseCoopers LLP, Toronto, Canada dated June 8, 2004 (Incorporated by reference to Exhibit 16.1 to Form 10-K for the year ended December 31, 2003 (No. 000-25955), filed June 9, 2004.
16.2	Letter from BDO Dunwoody LLP to the Securities and Exchange Commission dated July 27, 2004 (Incorporated by reference to Exhibit 16.1 to Form 8-K (No. 000-25955), filed July 27, 2004.
18.1	Letter regarding change in accounting principle executed by BDO Dunwoody LLP on May 12, 2004 (Incorporated by reference to Exhibit 18.1 to Form 10-Q for the quarterly period ended March 31, 2004 (No. 000-25955), filed May 17, 2004.
21.1	List of Subsidiaries
23.1	Consent of BDO Seidman LLP
23.2	Consent of BDO Dunwoody LLP.
23.3	Consent of PricewaterhouseCoopers LLP.
23.4	Consent of PricewaterhouseCoopers LLP.
31.1	Certification of Chairman pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934 as amended of David Sutherland-Yoest, Chief Executive Officer.
31.2	Certification pursuant to Rule 15d-14(a) under the Securities Exchange Act of 1934 as amended of Ronald L. Rubin, Chief Financial Officer.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes-Oxley Act of 2002.

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SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

WASTE SERVICES, INC.
 

/s/ DAVID SUTHERLAND-YOEST  

David Sutherland-Yoest 

Chairman of the Board,
Chief Executive Officer and Director 

March 15, 2005

     Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ DAVID SUTHERLAND-YOEST David Sutherland-Yoest	Chairman of the Board, Chief Executive Officer Director	March 15, 2005
/s/ RONALD L. RUBIN Ronald L. Rubin	Executive Vice President and Chief Financial Officer	March 15, 2005
/s/ BRIAN A. GOEBEL Brian A. Goebel	Vice President, Corporate Controller and Chief Accounting Officer	March 15, 2005
/s/ GARY W. DEGROOTE Gary W. DeGroote	Director	March 15, 2005
/s / MICHAEL B. LAZAR Michael B. Lazar	Director	March 15, 2005
/s/ GEORGE E. MATELICH George E. Matelich	Director	March 15, 2005
/s/ LUCIEN REMILLARD Lucien Rémillard	Director	March 15, 2005
/s/ JACK E. SHORT Jack E. Short	Director	March 15, 2005
/s/ WALLACE L. TIMMENY Wallace L. Timmeny	Director	March 15, 2005
/s / MICHAEL J. VERROCHI Michael J. Verrochi	Director	March 15, 2005

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Report on Internal Control Over Financial Reporting	F-1
Reports of Independent Registered Public Accounting Firms	F-2
Consolidated Balance Sheets	F-6
Consolidated Statements of Operations and Comprehensive Income (Loss)	F-7
Consolidated Statements of Shareholders’ Equity	F-8
Consolidated Statements of Cash Flows	F-9
Notes to Consolidated Financial Statements	F-10

( i )

MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING

     Management including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States, as well as to safeguard assets from unauthorized use or disposition.

     We conducted an evaluation of the effectiveness of our internal controls over financial reporting based on the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation, we did not identify any material weaknesses in our internal controls. There are inherent limitations in the effectiveness of any system of internal controls over financial reporting; however, based on our evaluation, we have concluded that our internal controls over financial reporting were effective as of December 31, 2004.

     BDO Seidman, LLP, an independent registered public accounting firm, has issued an attestation report on our assessment of internal control over financial reporting, which is included herein.

F-1

Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting

To the Board of Directors and Stockholders of
Waste Services, Inc.

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control over Financial Reporting appearing under Item 8 of Part II of this Form 10-K, that Waste Services, Inc. (the “Company”) maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2004 and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for the year ended December 31, 2004 and our report dated March 9, 2005 expressed an unqualified opinion on those consolidated financial statements.

/s/ BDO Seidman, LLP

Los Angeles, California
March 9, 2005

F-2

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders of
Waste Services, Inc.

We have audited the accompanying consolidated balance sheet of Waste Services, Inc., (the “Company”) as of December 31, 2004 and the related consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Waste Services, Inc. as of December 31, 2004 and the results of its operations and cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 2 to the consolidated financial statements, effective January 1, 2004, the Company changed its method of accounting for closure and post-closure obligations and the associated asset retirement costs.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 9, 2005 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP

Los Angeles, California
March 9, 2005

F-3

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Capital Environmental Resource Inc.

     We have audited the consolidated balance sheet of Capital Environmental Resource Inc. (the “Company”) as at December 31, 2003 and the consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

     In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2003 and the results of its operations and its cash flows for the year then ended in accordance with generally accepted accounting principles in the United States.

BDO DUNWOODY LLP

Chartered Accountants
Toronto, Ontario
March 12, 2004

Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference

     In the United States, reporting standards for auditors require the addition of an explanatory paragraph when there is a change in accounting principle that has a material effect on the comparability of the Company’s financial statements, such as the change described in Note 2 to the Consolidated Financial Statements. Although we conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States), our report to the shareholders dated March 12, 2004 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditor’s report when the change is properly accounted for and adequately disclosed in the financial statements.

BDO DUNWOODY LLP

Chartered Accountants
Toronto, Ontario
March 12, 2004

F-4

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of
Capital Environmental Resource Inc.

     We have audited the consolidated statements of operations and comprehensive income (loss), shareholders’ equity and cash flows of Capital Environmental Resource Inc. (the “Company”) for the year ended December 31, 2002. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

     We conducted our audit in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

     In our opinion, these consolidated financial statements present fairly, in all material respects, the results of the Company’s operations and its cash flows for the year ended December 31, 2002, in accordance with generally accepted accounting principles in the United States.

     As described in Note 1 to the financial statements included in the Company’s 2002 Form 20-F/A (Amendment No. 2), the Company has restated the consolidated statements for the year ended December 31, 2002, to account for the beneficial conversion feature associated with the issuance of the Series 1 Preferred Shares. Accordingly, our previous audit report dated March 20, 2003, has been withdrawn.

PRICEWATERHOUSECOOPERS LLP

Chartered Accountants
Toronto, Canada
March 20, 2003, except for the effect of the restatement
      related to the beneficial conversion feature as described in Note 1
      to the financial statements included in the Company’s 2002 Form 20-F/A
      (Amendment No. 2), which is as of November 4, 2003

Comments by Auditors for U.S. Readers on Canada-United States Reporting Difference

     In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Company’s financial statements, such as the adoption of SFAS 142 described in Note 2 to the consolidated financial statements included in the Company’s 2002 Form 20-F/A (Amendment No. 2). Our report to the stockholders dated March 20, 2003, except for the effect of the restatement related to the beneficial conversion feature as described in Note 1 to the financial statements included in the Company’s 2002 Form 20-F/A (Amendment No. 2), which is as of November 4, 2003, is expressed in accordance with Canadian reporting standards, which do not require a reference to such a change in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements.

PRICEWATERHOUSECOOPERS LLP

Chartered Accountants
Toronto, Canada
March 20, 2003, except for the effect of the restatement
      related to the beneficial conversion feature as described in Note 1
      to the financial statements included in the Company’s 2002 Form 20-F/A
      (Amendment No. 2), which is as of November 4, 2003

F-5

WASTE SERVICES INC.

CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share amounts)

As of December 31,

	2004			2003
ASSETS
Current assets:
Cash and cash equivalents	$	8,507		$	21,062
Restricted cash		—			14,433
Accounts receivable (net of allowance for doubtful accounts of $1,264 and $620 as of December 31, 2004 and 2003, respectively)		47,856			26,999
Prepaid expenses and other current assets		10,940			29,649
Total current assets		67,303			92,143
Property and equipment, net		130,467			74,521
Landfill sites, net		169,616			117,541
Deferred income taxes, net		1,202			1,135
Goodwill and other intangible assets, net		327,756			163,380
Other assets		24,239			22,278
Total assets	$	720,583		$	470,998
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,949		$	12,074
Accrued expenses and other current liabilities		42,533			25,401
Short-term financing and current portion of long-term debt		1,166			172,280
Total current liabilities		69,648			209,755
Long-term debt		276,214			3,130
Accrued closure, post-closure and other obligations		10,974			8,791
Cumulative mandatorily redeemable Preferred Stock (net of discount of $8,426 and $13,558 as of December 31, 2004 and 2003, respectively)		64,971			48,205
Total liabilities		421,807			269,881
Commitments and contingencies (See Note 12)
Shareholders’ equity:
Common stock of Waste Services, Inc. $0.01 par value; 500,000,000 shares authorized; 90,358,196 and nil shares issued and outstanding as of December 31, 2004 and 2003, respectively		904			—
Additional paid-in capital		345,904			—
Treasury stock of Waste Services, Inc. at cost, 500,000 and nil shares as of December 31, 2004 and 2003, respectively, at cost		(1,235	)		—
Common stock of Waste Services (CA) Inc. no par value; nil and 68,338,828 shares issued and outstanding as of December 31, 2004 and 2003, respectively		—			215,395
Options, warrants and deferred stock-based compensation		28,282			25,828
Accumulated other comprehensive income		29,133			15,952
Accumulated deficit		(104,212	)		(56,058	)
Total shareholders’ equity		298,776			201,117
Total liabilities and shareholders’ equity	$	720,583		$	470,998

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-6

WASTE SERVICES INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In thousands of US dollars, except per share amounts)

For the Years Ended December 31,

Statements of Operations

	2004			2003			2002
Revenue	$	310,785		$	126,750		$	98,846
Operating and other expenses:
Cost of operations (exclusive of depreciation and amortization)		219,900			83,574			64,436
Selling, general and administrative expense (exclusive of stock-based compensation)		58,266			28,858			15,238
Stock-based compensation expense (benefit)		(90	)		2,677			1,046
Settlement with sellers of Florida Recycling		(8,635	)		—			—
Depreciation, depletion and amortization		34,204			14,927			10,718
Foreign exchange loss (gain) and other		(377	)		1,760			(2,159	)
Income (loss) from operations		7,517			(5,046	)		9,567
Interest expense		30,838			8,278			5,727
Changes in fair value of warrants		(111	)		—			—
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		17,582			10,161			—
Income (loss) before income taxes		(40,792	)		(23,485	)		3,840
Income tax provision (benefit)		7,587			(587	)		1,713
Income (loss) before cumulative effect of change in accounting principle		(48,379	)		(22,898	)		2,127
Cumulative effect of change in accounting principle, net of provision for income taxes of $132 and $256 for the year ended December 31, 2004 and 2003, respectively		225			518			—
Net income (loss)		(48,154	)		(22,380	)		2,127
Deemed dividend on Series 1 Preferred Stock		—			(54,572	)		(14,717	)
Net loss attributable to common shareholders	$	(48,154	)	$	(76,952	)	$	(12,590	)
Basic and diluted loss per share:
Basic and diluted loss per share attributable to common shareholders before cumulative effect of change in accounting principle	$	(0.55	)	$	(1.99	)	$	(0.39	)
Cumulative effect of change in accounting principle		—			0.01			—
Loss per share — basic and diluted	$	(0.55	)	$	(1.98	)	$	(0.39	)
Weighted average common stock outstanding — basic and diluted		88,232			38,782			32,414
Statements of Comprehensive Income (Loss)
Net income (loss)	$	(48,154	)	$	(22,380	)	$	2,127
Foreign currency translation adjustment		13,181			19,903			355
Comprehensive income (loss)	$	(34,973	)	$	(2,477	)	$	2,482

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-7

WASTE SERVICES INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands of US dollars and share amounts)

																							Options,
	Waste Services						Waste Services																Warrants and			Accumulated
	(CA) Inc.						(CA) Inc.						Waste Services, Inc.				Additional			Treasury			Deferred			Other						Total
	Common Stock						Preferred Stock						Common Stock				Paid in			Shares			Stock-Based			Comprehensive			Accumulated			Shareholders’
	Shares			Amount			Shares			Amount			Shares		Amount		Capital			at Cost			Compensation			Income			Deficit			Equity
Balance, December 31, 2001		23,697		$	85,173			—		$	—			—	$	—	$	—		$	—		$	851		$	(4,306	)	$	(35,805	)	$	45,913
Issuance of Series 1 Preferred Stock		—			—			11,321			28,068			—		—		—			—			—			—			—			28,068
Conversion of Series 1 Preferred to Common Stock		11,321			28,068			(11,321	)		(28,068	)		—		—		—			—			—			—			—			—
Exercise of options and warrants		177			308			—			—			—		—		—			—			—			—			—			308
Additional value of warrants and deferred stock-based compensation		—			—			—			—			—		—		—			—			1,046			—			—			1,046
Foreign currency translation adjustment		—			—			—			—			—		—		—			—			—			355			—			355
Net income		—			—			—			—			—		—		—			—			—			—			2,127			2,127
Balance, December 31, 2002		35,195			113,549			—			—			—		—		—			—			1,897			(3,951	)		(33,678	)		77,817
Warrants issued in connection with Redeemable Preferred		—			—			—			—			—		—		—			—			13,774			—			—			13,774
Issuance of Series 1 Preferred Stock		—			—			28,146			76,236			—		—		—			—			7,586			—			—			83,822
Issuance of Common Stock		4,850			24,812			—			—			—		—		—			—			—			—			—			24,812
Issuance of warrants		—			—			—			—			—		—		—			—			138			—			—			138
Conversion of Series 1 Preferred to Common Stock		28,146			76,236			(28,146	)		(76,236	)		—		—		—			—			—			—			—			—
Exercise of options and warrants		148			798			—			—			—		—		—			—			(244	)		—			—			554
Additional value of warrants and deferred stock-based compensation		—			—			—			—			—		—		—			—			2,677			—			—			2,677
Foreign currency translation adjustment		—			—			—			—			—		—		—			—			—			19,903			—			19,903
Net loss		—			—			—			—			—		—		—			—			—			—			(22,380	)		(22,380	)
Balance, December 31, 2003		68,339			215,395			—			—			—		—		—			—			25,828			15,952			(56,058	)		201,117
Sale of common shares and warrants		13,400			49,126			—			—			—		—		—			—			2,552			—			—			51,678
Common shares and warrants issued in acquisitions		14,837			80,856			—			—			40		—		215			—						—			—			81,071
Exercise of options and warrants		311			1,253			—			—			—		—		8			—			(220	)		—						1,041
Deferred stock-based compensation		—			—			—			—			—		—		—			—			122			—			—			122
Migration transaction		(96,887	)		(346,630	)		—			—			87,658		877		345,753						—			—			—			—
Conversion of exchangeable shares		—			—			—			—			2,660		27		(27	)		—			—			—			—			—
Settlement with sellers of Florida Recycling		—			—			—			—			—		—		—			(1,235	)		—			—			—			(1,235	)
Other paid in capital		—			—			—			—			—		—		(45	)		—			—			—			—			(45	)
Foreign currency translation adjustment		—			—			—			—			—		—		—			—			—			13,181			—			13,181
Net loss		—			—			—			—			—		—		—			—			—			—			(48,154	)		(48,154	)
Balance, December 31, 2004		—		$	—			—		$	—			90,358	$	904	$	345,904		$	(1,235	)	$	28,282		$	29,133		$	(104,212	)	$	298,776

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-8

WASTE SERVICES INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of US dollars)

For the Years Ended December 31,

	2004			2003			2002
Cash flows from operating activities:
Net income (loss)	$	(48,154	)	$	(22,380	)	$	2,127
Adjustments to reconcile net income (loss) to net cash flows from operating activities -
Depreciation, depletion, and amortization		34,204			14,927			10,718
Non-cash component of settlement with sellers of Florida Recycling		(1,235	)		—			—
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		17,582			10,161			—
Amortization of debt issue costs		10,294			3,281			1,855
Deferred income tax provision (benefit)		7,218			(990	)		(464	)
Foreign exchange loss (gain)		(90	)		1,915			(1,441	)
Non-cash stock-based compensation (benefit)		(90	)		2,677			1,046
Cumulative effect of change in accounting principle, net of tax		(225	)		(518	)		—
Changes in fair value of warrants		(111	)		—			—
Other non-cash items		86			455			844
Changes in operating assets and liabilities (excluding the effects of acquisitions) -
Accounts receivable		(7,085	)		(1,749	)		(1,880	)
Prepaid expenses and other current assets		(2,303	)		(5,959	)		1,267
Accounts payable		3,363			3,886			(446	)
Accrued expenses and other current liabilities		11,243			3,740			28
		24,697			9,446			13,654
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(164,679	)		(161,371	)		(27,197	)
Capital expenditures		(46,209	)		(24,438	)		(12,157	)
Proceeds from business divestitures		14,231			952			416
Deposits for business acquisitions and other		(1,551	)		(10,776	)		(839	)
		(198,208	)		(195,633	)		(39,777	)
Cash flows from financing activities:
Proceeds from issuance of debt		283,000			166,493			57,200
Principal repayments of debt		(187,158	)		(74,251	)		(57,544	)
Sale of common shares and warrants		53,600			—			—
Proceeds and deposits from release of restricted cash and release of collateral supporting letters of credit		24,341			(9,929	)		—
Proceeds from the issuance of Series 1 Preferred Shares		—			86,189			30,000
Proceeds from the issuance of mandatorily redeemable Preferred Shares		—			55,000			—
Proceeds from the exercise of options and warrants		1,041			554			308
Fees paid for financing transactions		(14,141	)		(18,967	)		(4,555	)
		160,683			205,089			25,409
Effect of exchange rate changes on cash and cash equivalents		273			385			20
Increase (decrease) in cash and cash equivalents		(12,555	)		19,287			(694	)
Cash and cash equivalents, beginning of period		21,062			1,775			2,469
Cash and cash equivalents, end of period	$	8,507		$	21,062		$	1,775

The accompanying notes are an integral part of these Consolidated Financial Statements.

F-9

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands of US dollars unless otherwise stated)

1.    Organization of Business and Basis of Presentation

     The accompanying Consolidated Financial Statements include the accounts of Waste Services, Inc. (“Waste Services”), successor to Capital Environmental Resource Inc. now known as Waste Services (CA) Inc. (“Capital” or the “Canadian operations”) and its wholly owned subsidiaries (collectively, “we,” “us” or “our”). We are a multi-regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers in the United States and Canada. In 2003, we initiated a disposal-based growth strategy to enter the United States solid waste market and establish leading, vertically integrated market positions. Under this strategy, we enter geographic markets with attractive growth or competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. As part of our business strategy to expand into the United States, we entered into a migration transaction, which was completed effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services, a Delaware company, is the ultimate parent company of our corporate group. Prior to the migration transaction, Waste Services was a subsidiary of Capital. After the migration transaction, Capital became Waste Services’ subsidiary. Effective with the completion of the migration on July 31 2004, the historical equity balances of Capital were reclassified into the equity of Waste Services.

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, depletion of landfill development costs, intangible assets, goodwill, liabilities for landfill capping, closure and post-closure obligations, insurance reserves, liabilities for potential litigation and deferred taxes.

     A portion of our operations are domiciled in Canada; as such, for each reporting period, we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar, revenue is favorably affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet dates, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders’ equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operations are re-measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re-measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates.

2.    Summary of Significant Accounting Policies

Adoption of New Accounting Standard

     On January 1, 2003, we adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations.” SFAS No. 143 required us to change our methodology used to record liabilities related to capping, closure and post-closure of our landfill operations. Under SFAS No. 143, we are required to recognize as an asset, the fair value of the liability for an asset retirement obligation. The asset is then depleted, consistently with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Upon adoption, the liability we recognized represented the present value of the total estimated future asset retirement obligation. The methodology we used to define the cost pool related to an obligating event included total capping, closure and post-closure costs to be incurred, on a discounted basis, over the remaining life of the site.

     In connection with the opening of our JED Landfill in Florida in the first quarter of 2004, we re-evaluated and changed the methodology used to define an obligating event, and we segregated the cost pool for the obligation into closure and post-closure obligations and landfill capping obligations. Effective January 1, 2004, we recognize the fair value of the liability for the closure and post-closure obligation over the life of the landfill as waste is placed in the site as opposed to the time at which the landfill commences operations. Additionally, under our new method, we view landfill capping events, which occur in phases throughout the life of a landfill, as discrete activities that are recognized as asset retirement obligations separately from other closure and post-closure obligations. These capping events occur generally during the operating life of a landfill and can be associated with specific waste placed under an area to be capped. As a result, we use a separate capping rate per ton to recognize the principal amount of the retirement obligation and related asset associated with each capping event. We deplete the asset recorded pursuant to this approach as waste volume covered by the capping event is placed into the landfill.

F-10

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

     We believe this method is preferable as it (i) provides a better measure of the fair value of the asset retirement obligation by more precisely matching the landfill obligating events with the recognition of the fair value of the asset retirement obligation; (ii) is more consistent with our policies for the allocation of purchase price in landfill acquisitions and the related valuation of assumed retirement obligations; (iii) reflects a more accurate rate of accretion thereby creating a more accurate value of our current and future retirement obligations and (iv) is the predominant method used in our industry.

     The effect of the change in methodology, had it been adopted January 1, 2003, would have been to increase net loss before cumulative effect of change in accounting principle as of December 31, 2003 by approximately $0.4 million. The effect of this change on basic or diluted loss per share as of December 31, 2004 would have been $0.01.

     The following table summarizes the balance sheet impact of our change in accounting methodology for asset retirement obligations SFAS No. 143:

				Adjustment for
				Change in
	December 31, 2003			Accounting			January 1, 2004
Landfill sites	$	128,044		$	(3,191	)	$	124,853
Accumulated depletion		(10,503	)		717			(9,786	)
Landfill sites, net	$	117,541		$	(2,474	)	$	115,067
Accrued closure and post-closure obligations	$	7,737		$	(2,831	)	$	4,906
Deferred income tax asset (liability)	$	3,727		$	(132	)	$	3,595

Business Combinations and Acquisitions

     We allocate the purchase price of an acquired business, on a preliminary basis, to the identified assets and liabilities acquired based on their estimated fair values at the dates of acquisition, with any residual amounts allocated to goodwill. The purchase price allocations are considered preliminary until we have obtained all required information to complete its allocation. Although the time required to obtain the necessary information will vary with circumstances specific to an individual acquisition, the “allocation period” for finalizing purchase price allocations generally does not exceed one year from the date of consummation of an acquisition. Adjustments to the allocation of purchase price may decrease those amounts allocated to goodwill and, as such, may increase those amounts allocated to other tangible or intangible assets, which may result in higher depreciation or amortization expense in future periods. Assets acquired in a business combination that will be sold are valued at fair value less cost to sell. Results of operating these assets are recognized currently in the period in which those operations occur. The value of shares issued in connection with an acquisition is based upon the average market price of our Common Stock during the five day period consisting of the period two days before, the day of and the two days after the terms of the acquisition are agreed to and/or announced.

Cash and Cash Equivalents and Restricted Cash

     Cash and cash equivalents are defined as cash and short-term highly liquid deposits with initial maturities of three months or less. As of December 31, 2003, restricted cash amounted to $14.4 million, which represented funds held in escrow to finance the acquisition of certain assets from Allied Waste Industries, Inc. or Allied.

Concentration of Credit Risk

     Financial instruments that potentially subject us to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. We place our cash and cash equivalents only with high credit quality financial institutions. Our customers are diversified as to both geographic and industry concentrations. Therefore, our trade accounts receivable are not subject to a concentration of credit risk.

F-11

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

Allowance for Doubtful Accounts

     We maintain an allowance for doubtful accounts based on the expected collectibility. We perform credit evaluations of significant customers and establish an allowance for doubtful accounts based on the aging of receivables, payment performance factors, historical trends, and other information. In general, we reserve a portion of those receivables outstanding more than 90 days and 100% of those outstanding over 120 days. We evaluate and revise our reserve on a monthly basis based upon a review of specific accounts outstanding and our history of uncollectible accounts.

     The changes to the allowance for doubtful accounts for the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004			2003			2002
Balance at beginning of the year	$	620		$	350		$	507
Acquisitions		1,380			243			148
Provisions		2,243			229			425
Impact of foreign exchange fluctuations		12			73			3
Bad debts charged to reserves, net of recoveries		(2,991	)		(275	)		(733	)
Balance at end of the year	$	1,264		$	620		$	350

Property and Equipment

     Property and equipment are recorded at cost less accumulated depreciation. Improvements or betterments, which extend the life of an asset, are capitalized. Expenditures for maintenance and repair costs are expensed as incurred. Gains and losses resulting from property and equipment retirements or disposals are credited or charged to earnings in the year of disposal. Depreciation is computed over the estimated useful life using the straight-line method as follows:

Buildings	10 to 25 years
Vehicles	10 years
Containers, compactors, landfill, and recycling equipment	5 to 12 years
Furniture, fixtures and other office equipment	3 to 5 years
Leasehold improvements	Shorter of term of lease or estimated life

Long-Lived Assets

     We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long-lived assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long-lived asset group; (ii) a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset or asset group; (v) a current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group; or (vi) a current expectation that, more likely than not, a long-lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life.

     We use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long-lived assets in assessing their recoverability. We measure impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long-lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties or (ii) the present value of estimated expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows.

Landfill Sites

     Landfill sites are recorded at cost. Capitalized landfill costs include expenditures for land, permitting costs, cell construction costs and environmental structures. Capitalized permitting and cell construction costs are limited to direct costs relating to these activities, including legal, engineering and construction costs associated with excavation, liners and site berms, leachate management facilities and other costs associated with environmental equipment and structures.

F-12

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

Costs related to acquiring land, excluding the estimated residual value of un-permitted, non-buffer land, and costs related to permitting and cell construction are depleted as airspace is consumed using the units-of-consumption method. Environmental structures, which include leachate collection systems, methane collection systems and groundwater monitoring wells, are charged to expense over the shorter of their useful life or the life of the landfill.

     Capitalized landfill costs may also include an allocation of the purchase price paid for landfills. For landfills purchased as part of a group of several assets, the purchase price assigned to the landfill is determined based upon the discounted expected future cash flows of the landfill relative to the other assets within the acquired group. If the landfill meets our expansion criteria, the purchase price is further allocated between permitted airspace and expansion airspace based upon the ratio of permitted versus probable expansion airspace to total available airspace. Landfill sites are amortized using the units-of-consumption method over the total available airspace including probable expansion airspace where appropriate.

     We assess the carrying value of our landfill sites in accordance with the provisions of SFAS No. 144 “Accounting for the Impairment of Long-Lived Assets”. These provisions, as well as possible instances that may lead to impairment, are addressed in the Long-Lived Assets discussion. There are certain indicators previously discussed that require significant judgment and understanding of the waste industry when applied to landfill development or expansion.

     We have identified three sequential steps that landfills generally follow to obtain expansion permits. These steps are as follows: (i) obtaining approval from local authorities; (ii) submitting a permit application to State or Provincial authorities; and (iii) obtaining permit approval from state or provincial authorities.

     Before expansion airspace is included in our calculation of total available disposal capacity, the following criteria must be met: (i) the land associated with the expansion airspace is either owned by us or is controlled by us pursuant to an option agreement; (ii) we are committed to supporting the expansion project financially and with appropriate resources; (iii) there are no identified fatal flaws or impediments associated with the project, including political impediments; (iv) progress is being made on the project; (v) the expansion is attainable within a reasonable time frame; and (vi) based upon senior management’s review of the status of the permit process to date, we believe it is likely the expansion permit will be received within the next five years. Upon meeting our expansion criteria, the rates used at each applicable landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted to include probable expansion airspace and all additional costs to be capitalized or accrued associated with the expansion airspace.

     Once expansion airspace meets our criteria for inclusion in our calculation of total available disposal capacity, management continuously monitors each site’s progress in obtaining the expansion permit. If at any point it is determined that an expansion area no longer meets the required criteria, the probable expansion airspace is removed from the landfill’s total available capacity and the rates used at the landfill to expense costs to acquire, construct, close and maintain a site during the post-closure period are adjusted accordingly.

Goodwill and Other Intangible Assets

     We account for our goodwill in accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets.” In general, goodwill is tested for impairment on an annual basis. In testing for impairment, we use the two-step impairment test prescribed by SFAS No. 142. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. In determining the fair value, we may utilize: (i) discounted future cash flows; (ii) operating results based upon a comparative multiple of earnings or revenues; (iii) offers from interested investors, if any; or (iv) appraisals. If the fair value exceeds the carrying amount, goodwill of the reporting unit is considered not impaired, and the second step of the impairment test is unnecessary. The second step, if necessary, compares the implied fair value of goodwill with the carrying amount of that goodwill. The implied fair value of goodwill is determined by deducting the fair value of a reporting unit’s identifiable assets and liabilities from the fair value of the reporting unit as a whole, as if that reporting unit had just been acquired and the purchase price were being initially allocated. If the implied fair value is less than the carrying value, an impairment charge is recorded to earnings.

     In addition, we evaluate a reporting unit for impairment if events or circumstances change between annual tests, indicating a possible impairment. Examples of such events or circumstances include: (i) a significant adverse change in legal factors or in the business climate; (ii) an adverse action or assessment by a regulator; (iii) a more likely than not expectation that a reporting unit or a significant portion thereof will be sold; or (iv) the testing for recoverability under SFAS No. 144 of a significant asset group within the reporting unit.

F-13

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

     Other intangible assets primarily include customer relationships and contracts and covenants not-to-compete. Other intangible assets are recorded at their cost, less accumulated amortization and are amortized over the expected benefit to be received by such intangibles. We periodically evaluate the carrying value and remaining estimated useful life of its other intangible assets subject to amortization in accordance with the provisions of SFAS No. 144.

Other Non-Current Assets

     Acquisition deposits and deferred acquisition costs include capitalized incremental direct costs associated with proposed business combinations that are currently being negotiated. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged to earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. Indirect and internal costs, including executive salaries, overhead and travel costs related to acquisitions, are expensed as incurred. Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier then its contractual maturity, any remaining deferred financing costs are charged to earnings.

Fair Value of Financial Instruments

     The book values of the cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these instruments. Borrowings under our senior credit facilities as of December 31, 2004 have carrying values that approximate their respective fair values based on the current rate offered to us for instruments with similar market risk and maturities. The fair value of our 9.5% Senior Subordinated Notes at December 31, 2004 is estimated at $159.2 million based on the year end quoted market price. The fair value of our mandatorily redeemable preferred shares at December 31, 2004 is estimated at $73.4 million based up the aggregate liquidation preference as there is no quoted market price available for this security.

Environmental Costs

     We accrue for costs associated with environmental remediation obligations when such costs are probable and can be reasonably estimated. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Cost of future expenditures for environmental remediation obligations are not discounted to their present value.

Accrued Closure and Post-Closure Obligations

     Accrued closure and post-closure costs represent an estimate of the current value of the future obligations associated with closure and post-closure monitoring of solid waste landfills. Closure and post-closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred when a landfill facility ceases to accept waste and closes. Accruals for closure and post-closure monitoring and maintenance consider site inspection, groundwater monitoring, leachate management, methane gas management and recovery, and operating and maintenance costs to be incurred during the period after the facility closes. Certain of these environmental costs, principally capping and methane gas management costs, are also incurred during the operating life of the site in accordance with the landfill operating requirements. Site specific closure and post-closure engineering cost estimates are prepared annually. The impact of changes in estimates is accounted for on a prospective basis.

     Landfill closure and post-closure liabilities are calculated by estimating the total obligation of capping and closure events in current dollars, inflating the obligation based upon the expected date of the expenditure using an inflation rate of 2.0% and discounting the inflated total to its present value using an 8.5% credit-adjusted risk-free discount rate. Accretion of discounted cash flows associated with the closure and post closure obligations is accrued over the life of the landfill, as a charge to cost of operations.

Revenue Recognition

     We recognize revenue when services, such as providing hauling services and accepting waste at our disposal facilities, are rendered. Amounts billed to customers, prior to providing the related services, are reflected as deferred revenue and reported as revenues in the period in which the services are rendered.

F-14

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

Royalty Arrangements

     It is customary in the waste industry for landfill acquisition agreements to include royalty arrangements. Amounts paid under these royalty arrangements are charged to operations based upon a systematic and rational allocation of the royalty over the period in which the royalty is incurred.

Advertising Costs

     We expense advertising costs as they are incurred. Advertising expense for the year ended December 31, 2004, was $0.8 million (2003 — $0.5 million; 2002 — $0.3 million), which is included in selling, general and administrative expense on the accompanying Statements of Operations.

Risk Management

     Our U.S.-based automobile, general liability and workers’ compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers’ compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. We have collateral requirements that are set by insurance companies, which underwrite our insurance programs. Collateral requirements may change from time to time, based on, among other things, size of our business, our claims experience, financial performance or credit quality and retention levels. As of December 31, 2004 we have posted letters of credit with our U.S. insurer of approximately $3.0 million to cover the liability for losses within the deductible limit. During the first quarter of 2005, we increased this letter of credit to $8.4 million. Provisions for retained claims are made by charges to expense based upon periodic evaluations by management and outside actuaries of the estimated ultimate liabilities on reported and unreported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become known.

Stock-Based Compensation Plans

     Our stock-based compensation plans are accounted for under the recognition and measurement principles of Accounting Principles Board Opinion (“APB”) No. 25 “Accounting for Stock Issued to Employees,” and related interpretations. Pro forma information regarding the impact of stock-based compensation on net income and earnings per share is required by SFAS No. 123 “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” Such pro forma information, determined as if we had accounted for its employee stock options under the fair value recognition provisions of SFAS No. 123, is illustrated in the following table:

	2004			2003			2002
Net loss attributable to Common Shareholders as reported	$	(48,154	)	$	(76,952	)	$	(12,590	)
Stock-based employee compensation expense pursuant to SFAS No. 123, net of tax		(10,312	)		(3,483	)		(1,632	)
Pro forma net loss attributable to Common Shareholders	$	(58,466	)	$	(80,435	)	$	(14,222	)
Basic and diluted loss per share:
As reported	$	(0.55	)	$	(1.98	)	$	(0.39	)
Pro forma	$	(0.66	)	$	(2.07	)	$	(0.44	)

     The fair value of options granted up to December 31, 2004, was estimated using the Black-Scholes option pricing model using the following assumptions:

	2004			2003			2002
Annual dividend yield	—			—			—
Weighted-average expected lives (years)	3 years			3 years			3 years
Risk-free interest rate		2.57% - 3.25	%		3.05% - 3.47	%		3.46% - 4.62	%
Volatility		84	%		72	%		72	%

F-15

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

     The weighted-average grant-date fair value of options granted was $2.33 for the year ended December 31, 2004 (2003 — $2.42; 2002 — $2.68).

     Compensation expense recognized for stock options subject to variable accounting is based on the intrinsic value (the difference between the exercise price and quoted market price) of the options at the end of each reporting period. Changes in the intrinsic value are recognized until such options are exercised, expired or forfeited.

Income Taxes

     We account for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial statements. In assessing the realizability of deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to that extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized.

Net Income (Loss) Per Share Information

     Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of Common Shares outstanding for the period including 6,569,910 exchangeable shares of WSI (CA). Diluted earnings (loss) per share is calculated based on the weighted average shares of Common Stock outstanding, including the exchangeable shares, during the year plus the dilutive effect of Common Stock purchase warrants and stock options using the treasury stock method and the dilutive effects of the Convertible Series 1 Preferred Shares using the if-converted method. Contingently issuable shares are included in the computation of basic earnings (loss) per share when issuance of the shares is no longer contingent. Due to the net losses attributable to Common Shareholders for the years ended December 31, 2004, 2003 and 2002, basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive.

New Accounting Pronouncements

     In December 2004, the FASB issued SFAS No. 123 (revised 2004), Shares—Based Payment, (“SFAS No. 123(R)”), which amends SFAS No. 123, “Accounting for Stock—Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123(R) requires compensation expense to be recognized for all share-based payments made to employees based on the fair value of the award at the date of grant, eliminating the intrinsic value alternative allowed by SFAS No. 123. Generally, the approach to determining fair value under the original pronouncement has not changed. However, there are revisions to the accounting guidelines established, such as accounting for forfeitures, that will change our accounting for stock-based awards in the future.

     SFAS No. 123(R) must be adopted in the first interim or annual period beginning after June 15, 2005. The statement allows companies to adopt its provision using either of the following transition alternatives:

(i) The modified prospective method, which results in the recognition of compensation expense using SFAS 123(R) for all share-based awards granted after the effective date and the recognition of compensation expense using SFAS 123 for all previously granted share—based awards that remain unvested at the effective date; or

(ii) The modified retrospective method, which results in applying the modified prospective method and restating prior periods by recognizing the financial statement impact of share—based payments in a matter consistent with the pro forma disclosure requirements of SFAS No. 123. The modified retrospective method may be applied to all prior periods presented or previously reported interim periods of the year of adoption.

     We have not yet determined either the method of adoption or the impact that the new standard is expected to have on our financial statements.

F-16

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

3.    Business Combinations, Significant Asset Acquisitions and Disposals of Businesses

Business Combinations and Significant Asset Acquisitions

     In November 2003, we entered into an agreement to acquire the assets of Allied Waste Industries, Inc.’s (“Allied”) northern and central Florida operations (the “Allied Assets”) for a purchase price of approximately $120.0 million subject to an adjustment for working capital. The primary metropolitan areas served by the Allied Assets are Tampa, Sarasota and Jacksonville, Florida. On December 31, 2003, we completed the first phase of the Allied Assets acquisition. During the first six months of 2004, we completed the acquisition of the remaining Allied Assets. In the second quarter of 2004, we divested a certain landfill and related assets and liabilities in exchange for a collection operation in the metropolitan Orlando area and cash proceeds of $10.0 million. Proceeds in excess of net assets exchanged reduced goodwill from the original Allied Assets acquisition by $8.6 million.

     In April 2004, we also completed the acquisition of the issued and outstanding shares of Florida Recycling Services, Inc. (“Florida Recycling”) for an aggregate purchase price of approximately $99.0 million in cash, working capital of approximately $2.2 million, and the issuance of 9,250,000 Common Shares valued at approximately $51.4 million. Florida Recycling operations are based in central Florida, primarily serving the Orlando, Daytona, Fort Myers, and Tampa markets. Following the acquisition, the performance of the operations of Florida Recycling were below our expectations and we conducted a review of Florida’s Recycling business in an effort to identify the factors contributing to the lower than expected level of performance. Based on the results of this review, it appears that the 2003 financial statements of Florida Recycling, provided by the sellers, contained misstatements and could not be relied upon. As such, we have begun a re-audit of the historical financial statements of Florida Recycling. On September 24, 2004, we reached an agreement with the selling shareholders of Florida Recycling to adjust the purchase price paid for the shares of Florida Recycling whereby, in October 2004, the selling shareholders paid us $7.5 million in cash and returned 500,000 shares of our common stock. The cash and the shares received (valued at the quoted market price as of September 24, 2004), with a total value of approximately $8.6 million, have been recorded as income in accordance with SFAS No. 141. As part of the settlement and upon its completion, we will receive title to a 2,000 ton per day recycling and transfer facility in Sanford, Florida.

     In February 2004, we acquired a permitted undeveloped municipal solid waste landfill in Fort Bend County, Texas (the “Fort Bend Regional Landfill”). The landfill commenced operations during August of 2004. The purchase price was comprised of $5.1 million in cash, a seller financed promissory note of $5.0 million which has since been repaid and the issuance of 4,375,000 Common Shares valued at approximately $25.0 million. Fort Bend Regional Landfill, which serves the metropolitan Houston area, is approximately 2,600 acres and has an initial permitted capacity of 47.6 million cubic yards. In addition to the landfill, we acquired a leasehold interest in a fully permitted transfer station site near Houston, which opened in January 2005. In connection with the acquisition of the Fort Bend Regional Landfill, we entered into a royalty agreement, under which we will be required to pay a royalty of $0.25 per ton of eligible waste, as defined in the agreement, received at the landfill after we commence operations at the site and for the first five years subsequent to the date of the royalty agreement and $0.35 per ton of eligible waste thereafter.

     During the first quarter of 2004, we acquired the assets of three collection businesses in the metropolitan Phoenix area for aggregate cash consideration of approximately $8.4 million plus the issuance of 989,800 Common Shares valued at approximately $5.7 million. Separately, in January 2004, we acquired an industrial-permitted waste landfill site in Saskatchewan, Canada. The purchase price was comprised of $1.1 million in cash and the issuance of 12,000 Common Shares valued at approximately $0.1 million.

     During July 2003, we purchased Cactus Waste Systems, LLC for $0.6 million in cash and a $1.2 million option that we exercised in September 2003 to purchase an 800-acre site in Pinal County, Arizona, which has been zoned to permit the development of a landfill. During May 2004, we received the permits and authorizations necessary for the operation of the landfill (the “Southeast Regional Landfill”) and, as a condition of the purchase, we issued 1,250,000 Common Shares valued at $5.5 million to the sellers during the second quarter of 2004 which has been capitalized as a cost of the landfill. The landfill began operations July 2004. The sellers are entitled to contingent payments based upon the landfill achieving certain defined average tons of waste per day. Should the landfill achieve a maximum 5,000 tons per day, the total contingent payments would not exceed $18.0 million. Additionally, we

F-17

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

entered into a royalty agreement whereby we will pay the sellers a royalty of $0.50 per ton on all waste deposited at the Southeast Regional Landfill after the earlier to occur of July 2006 or the receipt of 1,250 tons of waste per day at the landfill.

     Details of the net assets acquired and cash used in asset and business acquisitions for the years ended December 31 are as follows:

	2004
	Allied			Florida			All
	Assets			Recycling			Others			Total			2003			2002
Purchase price:
Cash	$	45,988		$	104,234		$	18,350		$	168,572		$	161,371		$	30,607
Seller financed note payable		—			—			5,000			5,000			—			—
Common stock and warrants		—			51,357			36,721			88,078			18,382			—
Total purchase price		45,988			155,591			60,071			261,650			179,753			30,607
Allocated as follows:
Working capital assumed:
Cash and cash equivalents		—			—			—			—			—			1,184
Accounts receivable		3,755			7,426			409			11,590			6,676			1,371
Prepaid expenses and other current assets		182			935			69			1,186			324			74
Accounts payable		—			(8,604	)		(738	)		(9,342	)		(976	)		(822	)
Accrued expenses and other current liabilities		(870	)		(4,410	)		—			(5,280	)		(6,930	)		(463	)
Net working capital		3,067			(4,653	)		(260	)		(1,846	)		(906	)		1,344
Property and equipment		10,728			23,911			6,044			40,683			103,124			18,041
Landfill sites		—			—			41,982			41,982			—			—
Other assets		—			271			—			271			—			—
Deferred taxes		—			—			(334	)		(334	)		—			578
Long-term debt assumed		—			—			—			—			(4,429	)		—
Accrued closures, post-closure and other obligations assumed		—			—			(52	)		(52	)		(1,483	)		(896	)
Net book value of assets acquired and liabilities assumed		13,795			19,529			47,380			80,704			96,306			19,067
Excess purchase price to be allocated	$	32,193		$	136,062		$	12,691		$	180,946		$	83,447		$	11,540
Allocated as follows:
Goodwill	$	23,201		$	108,906		$	12,667		$	144,774		$	66,639		$	9,348
Other intangible assets		8,992			27,156			24			36,172			16,808			2,192
Total allocated	$	32,193		$	136,062		$	12,691		$	180,946		$	83,447		$	11,540

     The above table includes cash deposits and acquisition related costs of $4.0 million and 1,000,000 common shares and warrants valued at $5.7 million, which relate to the Florida Recycling acquisition that were paid or deposited during 2003 and have been capitalized to the cost of the acquisition during 2004. As we are continuing to accumulate required information, these purchase price allocations are preliminary and may be subject to change.

     We believe the primary value of an acquisition is the opportunities made available by vertically integrating operations within a certain geographic market.

     The following unaudited condensed consolidated pro forma statement of operations data shows the results of our operations for the years ended December 31, 2004, 2003 and 2002 as if completed business combinations had occurred at the beginning of current and most recent prior period (in thousands except per share amounts):

F-18

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

	2004			2003			2002
Revenue	$	355,004		$	314,914		$	165,583
Net loss attributable to common shareholders	$	(53,132	)	$	(98,457	)	$	(8,963	)
Basic and diluted net loss per Common Share	$	(0.59	)	$	(2.02	)	$	(0.27	)
Basic and diluted pro forma weighted average number of common shares outstanding		90,503			48,632			33,014

     Due to the pending re-audit of the Florida Recycling financial statements for each of the three years ended December 31, 2003, we have re-cast these pro-forma disclosures using our best estimate of the actual historical results of Florida Recycling. These estimates are subject to change pending the completion of the re-audit. These unaudited condensed pro forma consolidated results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of the beginning of the respective periods or the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisitions.

4.    Prepaid Expenses and Other Current Assets

     Prepaid expenses and other current assets consist of the following as of December 31, 2004 and 2003:

	2004		2003
Prepaid expenses	$	6,990	$	6,623
Cash collateral desposits for letters of credit		—		9,929
Debt issue costs related to the 364-day senior secured credit facility		—		8,829
Other current assets		3,950		4,268
Total	$	10,940	$	29,649

5.    Property and Equipment

     Property and equipment consist of the following as of December 31, 2004 and 2003:

	2004			2003
Land and buildings	$	18,872		$	6,132
Vehicles		101,215			62,182
Containers, compactors, landfill and recycling equipment		61,550			39,902
Furniture, fixtures, other office equipment and leasehold improvements		8,562			5,927
Total property and equipment		190,199			114,143
Less: Accumulated depreciation		(59,732	)		(39,622	)
Property and equipment, net	$	130,467		$	74,521

     Included in property and equipment at December 31, 2004, are vehicles held under capital leases with a cost of $2.8 million (2003 — $5.7 million) and accumulated depreciation of $0.7 million (2003 — $1.9 million).

6.    Landfill Sites, Accrued Closure, Post-Closure and Other Obligations

Landfill Sites

     Landfill sites consist of the following as of December 31, 2004 and 2003:

F-19

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

	2004			2003
Landfill sites	$	188,616		$	128,044
Accumulated depletion		(19,000	)		(10,503	)
Landfill sites, net	$	169,616		$	117,541

     On an annual basis, we update the development cost estimates, closure and post-closure and future capacity estimates for its landfills. Future capacity estimates are updated using surveys to estimate utilized disposal capacity and remaining disposal capacity. These cost and capacity estimates are reviewed and approved by senior management on an annual basis.

     The change in landfill sites for the years ended December 31, 2004, 2003, and 2002 is as follows:

	2004			2003			2002
Balance, beginning of period	$	117,541		$	13,084		$	3,768
Acquisitions		41,982			90,094			11,936
Additional landfill site costs		12,839			12,268			368
Additional asset retirement obligations		858			—			—
Depletion		(8,105	)		(4,789	)		(3,124	)
Divestitures		(154	)		—			—
Capitalized interest		178			—			—
Purchase price allocation adjustments for prior acquisitions		5,907			—			—
Effect of foreign exchange rate fluctuations		1,044			3,227			136
Change in accounting principle		(2,474	)		3,657			—
Balance, end of period	$	169,616		$	117,541		$	13,084

Accrued Closure, Post-Closure and Other Obligations

     Accrued closure, post-closure and other obligations consist of the following as of December 31, 2004 and 2003:

	2004		2003
Accrued closure and post-closure obligations	$	6,390	$	7,737
Deferred income tax liability		3,984		—
Capital lease obligations		416		911
Other obligations		184		143
	$	10,974	$	8,791

F-20

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

     Accrued closure and post-closure obligations include the costs associated with obligations for closure and post-closure of our landfills. The anticipated timeframe for paying these costs varies based on the remaining useful life of each landfill as well as the duration of the post-closure monitoring period. The changes to accrued closure and post-closure obligations are as follows:

	2004			2003
Balance, beginning of period	$	7,737		$	1,925
Acquisitions		52			1,483
Accretion		463			455
Additional asset retirement obligations		858			—
Divestitures		(146	)		—
Purchase price allocation adjustments for prior acquisitions		(92	)		—
Effect of foreign exchange rate fluctuations		349			991
Change in accounting principle		(2,831	)		2,883
Balance, end of period	$	6,390		$	7,737

     The aggregate non-discounted annual payments required in respect of accrued closure and post-closure obligations for our permitted sites as of December 31, 2004 are as follows:

	Amount
2005	$	—
2006		—
2007		730
2008		4,681
2009		2,019
Thereafter		183,158
Total	$	190,588

     The above future expenditures for closure and post-closure obligations assume full utilization of permitted and probable expansion airspace.

7.    Other Assets

     Other assets consisted of the following as of December 31, 2004 and 2003:

	2004		2003
Debt and redeemable Preferred Stock issue costs, net of accumulated amortization of $2,271 as of December 31, 2004 and $496 as of December 31, 2003, respectively	$	10,833	$	2,096
Acquisition deposits and deferred acquisition costs		12,576		20,182
Other assets		830		—
	$	24,239	$	22,278

F-21

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(In thousands of US dollars unless otherwise stated)

8.    Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following as of December 31, 2004 and 2003:

	2004			2003
Other intangible assets subject to amortization:
Customer relationships and contracts	$	50,495		$	17,909
Non-competition agreements and other		4,126			2,653
		54,621			20,562
Less: Accumulated amortization:
Customer relationships and contracts		(5,913	)		(837	)
Non-competition agreements and other		(1,782	)		(889	)
Other intangible assets subject to amortization, net		46,926			18,836
Goodwill		280,830			144,544
Goodwill and other intangible assets, net	$	327,756		$	163,380

     The changes in goodwill for the years ended December 31, 2004 and 2003 are as follows:

	2004								2003
	U.S.			Canada		Total			Total
Balance, beginning of period	$	65,822		$	78,722	$	144,544		$	64,365
Acquisitions		144,460			314		144,774			66,639
Divestitures		(8,599	)		—		(8,599	)		—
Effect of foreign exchange rate fluctuations		—			6,219		6,219			13,989
Purchase price allocation adjustments for prior acquisitions		(6,108	)		—		(6,108	)		(449	)
Balance, end of period	$	195,575		$	85,255	$	280,830		$	144,544

     Amortization expense of other intangible assets for the year ended December 31, 2004, was $6.1 million (2003 — $0.8 million; 2002 — $0.6 million). Estimated future amortization of other intangible assets based on balances existing at December 31, 2004, is as follows:

	Amount
2005	$	6,758
2006		6,134
2007		5,044
2008		4,202
2009		3,568
Thereafter		21,220
Total	$	46,926

     As of December 31, 2004, the weighted average amortization period for other intangible assets is as follows:

Customer relationships and contracts	11.5 years
Non-competition agreements and other	3.0 years

F-22

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

9. Accrued Expenses and Other Current Liabilities

     Accrued expenses and other current liabilities consist of the following as of December 31, 2004 and 2003:

	2004		2003
Accrued compensation, benefits and subcontractor costs	$	8,393	$	5,665
Accrued waste disposal costs		8,220		2,631
Accrued acquisition costs		2,230		1,804
Accrued insurance		2,860		3,383
Current portion of capital lease obligations		567		1,128
Deferred revenue		9,443		5,834
Accrued interest		4,762		—
Other accrued expenses and liabilities		6,058		4,956
Total	$	42,533	$	25,401

10. Debt

     Debt consists of the following as of December 31, 2004 and 2003:

	2004			2003
Senior Secured Credit Facilities:
Revolving credit facility, floating interest rate at 6.71% as of December 31, 2004 due April 2009	$	15,000		$	—
Term loan facility, floating interest rate at 6.78% as of December 31, 2004, due $250 per quarter with balance due April 2011		99,250			—
Senior Subordinated Notes fixed rate at 9.5% due 2014		160,000			—
Other subordinated promissory notes payable, interest at 6.67%, due through June 2017		3,130			3,285
364-day Senior Secured Credit Facility (repaid in full on April 30, 2004)		—			172,125
		277,380			175,410
Less: Current portion		(1,166	)		(172,280	)
Long-term portion	$	276,214		$	3,130

Senior Secured Credit Facilities

     On April 30, 2004, we entered into new Senior Secured Credit Facilities (the “Credit Facilities”) with a syndicate of lenders. The Credit Facilities consist of a five-year revolving credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our Canadian operations, and a seven-year term loan facility in the amount of $100.0 million. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the Common Shares of Waste Services’ first tier foreign subsidiaries, including Capital, are pledged to secure obligations under the Credit Facilities. As of December 31, 2004, $15.0 million was drawn under the revolving credit facility and $13.3 million was used to support outstanding letters of credit.

     As of June 30, 2004, we failed to meet certain of the financial covenants contained in the Credit Facilities. On October 4, 2004, we entered into an amendment to the credit agreement with the administrative agent for the lenders. The amendment includes changes to certain of the financial and other covenants contained in the credit facilities and increases the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Euro dollar loans. Until we meet certain target leverage ratios, as defined, availability under the amended facility is reduced to $50.0 million up to $12.5 million of which is available for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. As of December 31, 2004, we are in compliance with the financial covenants, as amended and we expect to continue to be in compliance in future periods. The amendment also requires us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On September 30, 2004, we entered into a standby purchase agreement with Michael G. DeGroote pursuant to which we may require Mr. DeGroote to purchase shares of our common stock for a purchase price of $7.5 million on or before March 28, 2005. As of March 4, 2005, we exercised our rights under the purchase agreement thereby requiring Mr. DeGroote to purchase such shares.

F-23

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

     Our Credit Facilities, as amended, contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) minimum consolidated interest coverage, (ii) maximum total leverage and (iii) maximum senior secured leverage. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital.

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9 1/2% Senior Subordinated Notes (“Subordinated Notes”) due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on the Subordinated Notes is payable semiannually commencing October 15, 2004. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after April 15, 2009, at a redemption price of 104.75% of the principal amount, declining ratably in annual increments to par on or after April 15, 2012, together with accrued interest to the redemption date. In addition, prior to April 15, 2007, we may redeem up to 35.0% of the aggregate principal amount of the Subordinated Notes with the proceeds of certain equity offerings, at a redemption price equal to 109.5% of the principal amount. Upon a change of control, as such term is defined in the Indenture, we are required to offer to repurchase all the Subordinated Notes at 100.0% of the principal amount, together with accrued interest and liquidated damages, if any, and obtain the consent of our senior lenders to such payment or repay our indebtedness under our Credit Facilities.

     The Subordinated Notes are unsecured and are subordinate to our existing and future senior secured indebtedness, including our Credit Facilities, structurally subordinated to existing and future indebtedness of our non-guarantor subsidiaries, rank equally with any unsecured senior subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our obligations with respect to the Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by all of our existing and future domestic restricted subsidiaries. The Canadian operations are not guarantors under the Subordinated Notes.

     The Subordinated Notes contain certain covenants that, in certain circumstances and subject to certain limitations and qualifications, restrict, among other things (i) the incurrence of additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of preferred stock and the issuance of stock of our subsidiaries; (iv) certain investments; (v) the repurchase of our Preferred Stock; (vi) transactions with affiliates and (vii) certain sales of assets.

     We also entered into a Registration Rights Agreement with the initial purchasers of the Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we will exchange the Subordinated Notes for registered notes of Waste Services with terms identical to the Subordinated Notes; (ii) have such registration statement declared effective within 210 days of the issuance date; (iii) maintain the effectiveness of such registration statement for minimum periods specified in the agreement and (iv) file a shelf registration statement in the circumstances and within the time periods specified in the agreement. As a result of needing to file our re-audited Florida Recycling financial statements and pro forma financial statements, we have not filed the registration statement with respect to the Subordinated Notes and, therefore, we are required to pay liquidated damages, in cash, in an amount equal to $0.05 per week per $1 in principal amount, of the unregistered Subordinated Notes, for each week that the default continues for the first 90-days following default (approximately $8,000 per week.) Thereafter, the amount of liquidated damages increases by an additional $0.05 per week per $1 in principal amount of unregistered Subordinated Notes for each subsequent 90-day period until all defaults have been cured, to a maximum of $0.50 per week per $1 in principal amount of unregistered Subordinated Notes outstanding. These liquidated damages are payable at the same time as interest payments due under the Subordinated Notes. Currently, our interest penalty approximates $24,000 per week until May 26, 2005 when it will increase to $32,000 per week.

364-day Senior Secured Credit Facility (Repaid in full on April 30, 2004)

     On December 31, 2003, we entered into a $220.0 million 364-day Senior Secured Credit Facility (the “364-day Facility”) comprised of a $195.0 million term loan and a $25.0 million revolving credit facility, which was secured by substantially all of our current and future acquired assets. Initial borrowings under the 364-day Facility were used to finance the acquisition of certain of the Allied Assets and to repay our prior senior credit facility in full. The 364-day Facility bore interest at 9.0% per annum and was repaid in April 2004 with the proceeds of the Credit Facilities, Subordinated Notes and an equity private placement.

F-24

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

     The aggregate annual principal repayments required in respect to debt as of December 31, 2004 are as follows:

	Amount
2005	$	1,166
2006		1,177
2007		1,190
2008		1,203
2009		16,217
Thereafter		256,427
Total	$	277,380

11. Cumulative Mandatorily Redeemable Preferred Shares

     In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the “Preferred Stock”) to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively “Kelso”), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February 2004, (the “Subscription Agreement”), at a price of $1,000 per share. We also issued to Kelso 7,150,000 warrants to purchase shares of our common stock (on a one-for-one basis) for $3.00 per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non-voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears. The liquidation preference approximated $73.4 million as of December 30, 2004. The Preferred Stock entitles the holders to a liquidation preference of $1,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such share as of any date of determination.

     As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit Facilities, the dividend payments will accrue. The Preferred Stock, including all accrued and unpaid dividends, must be redeemed in full by no later than May 6, 2015. Until May 6, 2006, we may redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or approximately $92.7 million subject to the restrictions in our Credit Facility and our Senior Subordinated Notes. If we do not exercise our option to redeem all of the Preferred Stock by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations of Waste Services dated April 30, 2004, if we determine, after conducting a sale process, that any such sale would not yield sufficient proceeds to repay in full the indebtedness then outstanding under our Credit Facilities and the redemption amount of our Subordinated Notes issued on April 30, 2004, or at least $320.0 million, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Subordinated Notes are fully repaid or otherwise satisfied or (iii) a sale of our assets to a third party. We refer to this date as the delayed sale date. If we do not initiate and complete a sale of our assets within 20 months of initiation of the sale process by the holders of the Preferred Stock, then on notice from the holders of the Preferred Stock, all outstanding Preferred Stock will become due and payable on the first anniversary of the date on which the holders of Preferred Stock gave notice requiring the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference of $1,000 per share. If the sale day has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date.

     Also pursuant to the Amended Certificate of Designations, if we become subject to a liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit Agreement dated April 30, 2004) or in the event of a change of control (as such term is defined in the Amended Certificate of Designations), all payments and other distributions to holders of Preferred Stock will be subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as provided for in the Amended Certificate of Designations, or the distribution of additional shares or other equity securities to the holders of Preferred Stock, so long as such additional shares or other equity securities are subject to at least equivalent subordination provisions. In addition, the Amended Certificate of Designations prohibits us from making any payment or distribution to the holders of Preferred Stock in the event of a sale of our assets, or the exercise by the holders of the Preferred Stock of their right to require payment of the liquidation amount of their shares as a result of the failure to consummate a sale of our assets as described in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to the terms of the agreement then governing our Credit Facilities.

     Due to its redeemable provisions we classified the Preferred Stock as a liability. We also allocated the relative fair value of the proceeds to Preferred Stock and warrants. The 7,150,000 warrants have an allocated value on the date of issue of approximately $14.8 million. The value allocated to the warrants was treated as a component of equity, with an offsetting amount treated as a discount

F-25

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

which will accrete to interest expense using the effective interest method over the life of the Preferred Stock which is the earliest redemption date of May 6, 2006.

12. Commitments and Contingencies

Leases

     The following is a schedule of future minimum lease payments as of December 31, 2004:

	Operating		Capital
	Leases		Leases			Total
2005	$	5,081	$	1,341		$	6,422
2006		4,674		630			5,304
2007		4,033		459			4,492
2008		3,510		—			3,510
2009		2,594		—			2,594
Thereafter		9,669		—			9,669
	$	29,561		2,430		$	31,991
Less: amount representing interest				(1,447	)
				983
Less: current portion of capital lease obligations				567
Long-term capital lease obligations			$	416

     We have entered into operating lease agreements, primarily consisting of leases for our various facilities. Total rent expense, under operating leases charged to operations, was approximately $4.0 million for the year ended December 31, 2004 (2003 — $2.2 million; 2002 — $1.8 million). We lease certain heavy equipment and hauling vehicles under capital lease agreements. The assets related to these leases have been capitalized and are included in property and equipment.

Surety Bonds and Letters of Credit

     Municipal solid waste services contracts, permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. As of December 31, 2004, we have provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $67.7 million (2003 — $19.6 million) to collateralize its obligations. The royalty of these obligations expire over the next year and will need to be renewed.

Environmental Risks

     We are subject to liability for environmental damage that its solid waste facilities may cause, including damage to neighboring landowners or residents, particularly as a result of the contamination of soil, groundwater or surface water, including damage resulting from conditions existing prior to the acquisition of such facilities. Pollutants or hazardous substances whose transportation, treatment or disposal was arranged by us or our predecessors, may also subject us to liability for any off-site environmental contamination caused by these pollutants or hazardous substances.

     Any substantial liability for environmental damage incurred by us could have a material adverse effect on our financial condition, results of operations or cash flows. As of the date of these Consolidated Financial Statements, we estimate the range of reasonably possible loss related to environmental matters to be insignificant and is not aware of any such environmental liabilities that would be material to us operations or financial condition.

Disposal Agreement

     On November 22, 2002, we entered into a Put or Pay Disposal Agreement, or the Disposal Agreement, with RCI Environment Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environment Inc., collectively the RCI Companies, and Intersan Inc., or Intersan, a subsidiary of Canadian Waste Services Inc., pursuant to which we, together with the RCI Companies, agreed to deliver to certain of Intersan’s landfill sites and transfer stations in Quebec, Canada, over the next 5 years, 850,000 metric tonnes of waste per year, and for the next 2 years after the expiration of the first 5 year term, 710,000 metric tonnes of waste per year

F-26

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

at a fixed disposal rate set out in the Disposal Agreement. If we and the RCI Companies fail to deliver the required tonnage, we are jointly and severally required to pay to Intersan, C$23.67 per metric tonne for every tonne below the required tonnage. If a portion of the annual tonnage commitment is not delivered to a specific site we are also required to pay C$8.00 per metric tonne for every tonne below the site specific allocation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. We do not anticipate material future payments under the Disposal Agreement and accordingly, have not provided for a liability pursuant to this agreement as of December 31, 2004, or 2003. The companies within the RCI Group are controlled by a director of ours and/or individuals related to that director.

     Concurrently with the Disposal Agreement, we entered into a three-year agreement with Canadian Waste Services, Inc. to allow us to deliver up to 75,000 tons in year one and up to 100,000 tons in years two and three of non-hazardous solid waste to their landfill in Michigan at negotiated fixed rates per ton.

Collective Bargaining Agreements

     As of December 31, 2004, approximately 37% of our employees were subject to various collective bargaining agreements. Currently, there are no significant grievances with regards to these agreements.

Legal Proceedings

     In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, provincial, state or local agencies. In these proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating permit or license held by us. From time to time, we may also be subject to actions brought by citizens’ groups, adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or allegations related to environmental damage or violations of the permits and licenses pursuant to which we operate. In addition, we may become party to various claims and suits for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a waste management business.

     In December 2002, Canadian Waste Services Inc., or Canadian Waste, one of our competitors, commenced an action in the Court of Queen’s Bench of Alberta against us and one of our employees in Western Canada who had previously been employed by Canadian Waste. The action alleges breach of the employment contract between the employee and Canadian Waste, and breach of fiduciary duties. The action also alleges that we participated in those alleged breaches. The action seeks damages in the amount of approximately C$14.5 million, and an injunction enjoining the employee from acting contrary to his alleged employment contract and fiduciary duties.

     On February 7, 2003, Canadian Waste commenced an action in the Court of Queen’s Bench of Alberta against us alleging breach of a landfill tipping agreement that we had entered into with Canadian Waste. The action alleges that we have breached the agreement by not paying certain amounts invoiced to us by Canadian Waste relating to increased costs incurred by Canadian Waste in its operation of the Ryley landfill and at which we deposited certain quantities of waste pursuant to the agreement. Canadian Waste seeks damages in the amount of approximately C$1.3 million. The agreement contains an arbitration clause that prohibits court action and requires arbitration with respect to certain disputes.

     In the District Court of Harris County, Texas, Waste Management, Inc. filed a suit against our President and Chief Operating Officer, Charles A. Wilcox, for breach of contract, including breach of a non-competition agreement, and for a temporary and a permanent injunction. Mr. Wilcox is presently subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management, Inc. Mr. Wilcox intends to vigorously defend this action.

     We intend to vigorously defend these actions both with respect to liability and damages. No provision has been made in these financial statements for the above matters. We do not believe that the possible losses in respect of all or any of these matters would have a material adverse impact on our business, financial condition, results of operations or cash flows.

     In March 2005, we filed a Complaint against Waste Management, Inc. in the United States District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste Management sought to prevent us from establishing ourselves as an effective competitor to Waste Management in the State of Florida, by tortuously interfering with our business relationships and committing antitrust violations under both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste Management. If we are successful in our suit under antitrust laws, Waste Management would be liable for treble damages or in excess of $75.0 million.

F-27

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

13. Capital Stock

Migration Transaction

     As part of our business strategy to expand into the United States, we entered into a migration transaction effective July 31, 2004. Under the migration transaction, our corporate structure was reorganized so that Waste Services became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Capital, a company amalgamated under the laws of the Province of Ontario, Canada. After the migration transaction, Capital became a subsidiary of Waste Services, Inc.

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (1) the exchange of 87,657,035 Common Shares of Capital for 87,657,035 shares of our common stock; and (2) the conversion of the remaining 9,229,676 Common Shares of Capital held by non-US residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Capital (now Waste Services (CA) Inc.). The transaction was approved by the Ontario Superior Court of Justice on July 30, 2004 and by our shareholders at a special meeting held on July 27, 2004.

     The terms of the exchangeable shares of Capital are the economic and functional equivalent of our common stock. Holders of exchangeable shares (1) will receive the same dividends as holders of shares of our common stock and (2) will be entitled to vote on the same matters as holders of shares of our common stock. Such voting is accomplished through the one (1) share of Special Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, who will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are classified as part of our equity.

     Upon the occurrence of certain events, such as the liquidation of Capital, or after the redemption date, our Canadian holding company, Capital Holdings will have the right to purchase each exchangeable share for a share of our common stock, plus all declared and unpaid dividends on the exchangeable share. Unless certain events occur, such redemption date will not be earlier than December 31, 2016. Holders of exchangeable shares also have the right at any anytime at their option, to exchange their exchangeable shares for shares of our common stock.

Equity Placement

     On April 30, 2004, we raised approximately $50.7 million, after deducting expenses of approximately $2.9 million, from the sale of 13,400,000 Common Shares and warrants to purchase 1,340,000 Common Shares of Capital in private placement transactions to certain investors. Sanders Morris Harris Inc. acted as the placement agent for the issuance and was paid a placement agent fee of approximately $2.7 million. Don A. Sanders, a director of ours at the time of such issuance, is a principal of Sanders Morris Harris Inc.

     On March 4, 2005, we exercised our put rights under our standby purchase agreement with Michael DeGroote, thereby requiring Mr. DeGroote to purchase shares of our common stock for $7.5 million on or before March 28, 2005. Pursuant to the standby purchase agreement, the price per share will be equal to 85% of the average closing price of our common stock for the ten trading days ending on the second trading day preceding the closing of the transaction. Mr. DeGroote will also receive warrants to purchase our common stock equal to 10% of the shares issued with an exercise price equal to the purchase of the Common Shares. Upon closing the transaction, Mr. DeGroote will receive a $375,000 commitment fee, which is in addition to the $375,000 fee he received upon execution of the standby purchase agreement. This equity infusion was required as a condition to our amended credit facility.

Series 1 Preferred Shares

     During 2003 and 2002, we completed several private offerings of its Series 1 Preferred Shares, which were converted to Common Shares. The Series 1 Preferred Shares were non-voting and were not entitled to receive any dividends declared by us. The following table sets forth the varied tranches of Series 1 Preferred Shares issued during 2003 (amounts in thousands except share and per share amounts):

F-28

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	Series 1 Preferred											Warrant Exercise
Period	Shares		Price Per Share		Gross Proceeds		Net Proceeds			Warrants Issued		Price Per Share
March — June		10,241,666	$	3.00	$	30,725	$	28,925			2,048,333	$	3.00
June(a)		5,000,000	$	3.00		15,000		14,100			1,000,000	$	3.00
July(b)		4,154,667	$	3.00		12,464		11,600			830,933	$	3.00
September(b)		8,750,000	$	3.20		28,000		27,877			1,575,000	$	3.20
		28,146,333			$	86,189	$	82,502	(c)		5,454,266

(a)	The proceeds from this issue were received and recorded as of June 25, 2003; the shares were issued July 8, 2003.
(b)	A shareholder and certain of our officers and directors and/or their affiliates, purchased 1,762,500 Series 1 Preferred Shares in these private placement transactions.
(c)	Separately, we recorded a tax asset of $1.3 million for the deductible portion of the fees paid.

     We accounted for the issuance of the Series 1 Preferred Shares as the issuance of three differing securities: (i) Series 1 Preferred Shares convertible into Common Shares; (ii) warrants exercisable for Common Shares; and (iii) a beneficial conversion feature embedded in the Series 1 Preferred Shares. The gross proceeds from the offerings were allocated based upon the relative fair value of the Series 1 Preferred Shares on the commitment date (date of issue), and the warrants. The fair value of the Common Shares at the commitment date was compared to the gross proceeds allocated to the Series 1 Preferred Shares based upon their relative fair

     The excess of fair value of the Common Shares over the gross proceeds allocated to the Series 1 Preferred Shares was deemed to be the value associated with the beneficial conversion feature of the Series 1 Preferred Shares and was recorded as a non-cash dividend on the Series 1 Preferred Shares. Value ascribed to the beneficial conversion feature of the Series 1 Preferred Shares and the allocated fair value of the warrants approximated $54.6 million for the year ended December 31, 2003, which was recognized as a deemed dividend to the Series 1 Preferred Shareholders.

     At our annual meeting held in December 2003, the shareholders approved the conversion of the Series 1 Preferred Shares to Common Shares, thereby effecting the exchange on the basis of one Common Share for each one Series 1 Preferred Share and the exercisability of the warrants that were issued with the Series 1 Preferred Shares.

     On February 6, 2002, we completed a private placement sale to certain investors, including some of our shareholders, directors and officers, of 11,320,754 Series 1 Preferred Shares at a price of $2.65 per share, resulting in net proceeds to us of approximately $28.1 million. There were no warrants issued relative to the 2002 Series 1 Preferred Shares. The closing market price of our common stock, as reported by NASDAQ, on February 6, 2002 was $3.95 per share resulting in a beneficial conversion feature of $1.30 per share or approximately $14.7 million, which was recognized as a deemed dividend to the Series 1 Preferred Shareholders. Under the terms of the Preferred Shares, the holders had agreed to hold a stockholders meeting to approve the conversion and were required under contract to vote their Common Shares in favor of the conversion. As the holders of the Preferred Shares represented the majority of the outstanding Common Shares of Waste Services, the conversion of Preferred Shares was assumed at the time of their issuance. On March 27, 2002, the stockholders approved the conversion and all outstanding Series 1 Preferred Shares were converted into Common Shares.

Employee and Director Stock Option Plans and Option Grants

     Under the 1997 Stock Option Plan, we may grant options to acquire Common Shares up to a maximum of 10% of the then issued and outstanding Common Shares on an as converted basis. All of the options issued under the 1997 plan vested on completion of the initial public offering of our securities. No options will remain exercisable later than five years after the grant date, unless the Board of Directors determines otherwise.

     Under the 1999 Stock Option Plan, we may grant options to acquire Common Shares up to a maximum of 19% of the then issued and outstanding shares of Common Stock and Common Stock equivalents, including stock options issued under the 1997 Stock Option Plan. Options granted to non-employee directors will generally vest one year from the date of grant. Options granted to employees become exercisable only after the second anniversary of the grant date, unless otherwise determined by the Compensation Committee. No option will remain exercisable later than five years after the grant date, unless the Compensation Committee determines otherwise. Upon a change of control event, options become immediately exercisable.

F-29

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

     All options granted under the 1997 and 1999 Stock Option Plans have been granted at or above market price. The weighted average exercise price of the aggregate outstanding options at December 31, 2004, was $4.91 (2003 — $4.71; 2002 — $4.18). The weighted average contractual life of the options outstanding as at December 31, 2004, was 3.10 years (2003 — 4.24 years). As of December 31, 2004, the weighted average exercise price of options that were exercisable was $3.90 (2003 — $5.07; 2002 — $9.12). Certain of our options are priced in Canadian dollars and certain options are priced in US dollars. Stock option activity, for employee options covered by the 1997 and 1999 Stock Option Plans for the years ended December 31, 2004, 2003 and 2002 is as follows:

	2004			2003			2002
Options outstanding at beginning of the year		7,806,699			2,435,816			1,871,713
Options granted during the year		5,472,000			5,493,000			1,065,500
Options exercised during the year		(192,500	)		(20,000	)		(85,388	)
Options forfeited during the year		(433,235	)		(102,117	)		(416,009	)
Options outstanding at end of the year		12,652,964			7,806,699			2,435,816
Options exercisable at end of the year		2,727,964			1,790,699			284,500
Weighted average exercise price: (C$ Options In C$)
Options granted	$	7.37		$	6.49		$	5.87
Options exercised	$	5.22		$	4.05		$	7.22
Options forfeited	$	8.33		$	9.47		$	10.94
Options outstanding at end of the year	$	6.45		$	6.15		$	5.70
Option price ranges: (C$ Options In C$)
Options granted	$	3.23-8.40		$	5.25-7.28		$	4.95-9.20
Options exercised	$	4.05-6.03		$	4.05		$	7.22
Options forfeited	$	5.25-18.05		$	5.89-14.44		$	7.22-14.44
Options outstanding at end of the year	$	3.23-18.05		$	4.05-18.05		$	4.05-18.05
Weighted average exercise price: (US$ Options)
Options granted	$	4.82		$	4.49		$	3.37
Options exercised	$	3.73		$	—		$	3.39
Options forfeited	$	7.42		$	6.34		$	7.50
Options outstanding at end of the year	$	4.61		$	4.55		$	5.97
Option price ranges: (US$ Options)
Options granted	$	2.70-6.25		$	3.89-5.52		$	3.12-4.15
Options exercised	$	3.46-4.15		$	—		$	2.43-4.00
Options forfeited	$	3.89-12.00		$	4.00-12.00		$	4.00-14.50
Options outstanding at end of the year	$	2.70-6.25		$	3.12-12.00		$	3.12-14.44

14. Income Taxes

     The income tax provision (benefit) for the years ended December 31, 2004, 2003 and 2002 consists of the following:

	2004		2003			2002
Current:
Federal	$	—	$	—		$	—
State		—		—			—
Canada		369		403			2,177
Current income tax provision		369		403			2,177
Federal and state deferred		3,984		—			—
Foreign deferred		3,234		(990	)		(464	)
Deferred income tax provision (benefit)		7,218		(990	)		(464	)
Provision (benefit) for income taxes	$	7,587	$	(587	)	$	1,713

     Pre-tax income (loss) from our U.S. operations was $(48.6) million, $(17.3) million and nil for the years ended December 31, 2004, 2003, 2002, respectively. Pre-tax income (loss) from our Canadian operations was $7.8 million, $(6.1) million and $3.8 million for the years ended December 31, 2004, 2003, 2002, respectively.

F-30

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

     As discussed in Note 13, pursuant to the migration transaction we reorganized from a Canadian company to a U.S. company in 2004. Accordingly, for the following reconciliation, statutory rates are based upon U.S. federal income tax rates in 2004 and Canadian federal and provincial rates in 2003 and 2002. The reconciliation of the difference between income taxes at the statutory rate and the income tax provision (benefit) before cumulative effect of change in accounting principle for the years ended December 31, 2004, 2003 and 2002 is as follows:

	2004			2003			2002
Provision at statutory rate	$	(14,277	)	$	(8,675	)	$	1,482
State, net of federal benefit		499			—			—
Effect of change in enacted rates on deferred taxes		—			(478	)		96
Non-deductible warrant expense		514			903			404
Non-deductible interest expense and preferred stock dividends		6,921			3,790			59
Non-deductible foreign exchange (gains) and loss		(16	)		366			(558	)
Other permanent differences		(601	)		509			13
Undistributed earnings in foreign subsidiary		1,866			—			—
Valuation allowance		12,412			2,641			—
Large corporations tax		269			357			217
Income tax provision (benefit)	$	7,587		$	(587	)	$	1,713

     The income tax provision of $0.1 and $0.3 million for December 31, 2004 and 2003, respectively, related to the cumulative effect of change in accounting principle and was provided at statutory rates. Significant components of our deferred income tax assets and liabilities as of December 31, 2004 and 2003 are as follows:

	2004			2003
Deferred income tax assets:
Tax loss carry forward — United States	$	15,955		$	2,641
Tax loss carry forward — Canada		10,602			11,392
Accruals not currently deductibles — United States		1,753			—
Less: Valuation allowance — United States		(15,842	)		(2,641	)
Net deferred tax assets		12,468			11,392
Deferred income tax liabilities:
Book basis in property and goodwill in excess of tax basis — United States		(3,984	)		—
Book basis in property in excess of tax basis — Canada		(9,400	)		(7,665	)
Undistributed earnings in foreign subsidiary — United States		(1,866	)		—
Net deferred income tax asset (liability)		(2,782	)		3,727
Less: current portion of deferred taxes		—			(2,592	)
Net deferred income tax asset (liability) long-term	$	(2,782	)	$	1,135

     Due to the lack of operating history relative to our US operations, we have provided a valuation allowance for our US net operating loss carryforwards and deferred tax assets, net of certain deferred tax liabilities.

     We have provided deferred taxes on the undistributed earnings of our Canadian Subsidiary as it is likely such earnings will be recognized as taxable income domestically in connection with certain non-recurring tax planning initiatives related to our migration transaction.

     Gross net operating loss carry-forwards expire as follows:

	US		Canada		Total
2005	$	—	$	—	$	—
2006		—		—		—
2007		—		—		—
2008		—		8,451		8,451
2009		—		11,893		11,893
Thereafter		45,586		9,405		54,991
Total net operating loss carryforwards	$	45,586	$	29,749	$	75,335

     For tax purposes, generally goodwill acquired as a result an asset-based United States acquisition is deducted over a 15-year period and 75% of goodwill acquired in an asset-based Canadian acquisition is deducted based on a seven-percent declining balance.

F-31

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

     The changes to the deferred tax valuation allowance for the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Balance at beginning of the year	$	2,641	$	—	$	6,981
Additions to valuation allowance		12,412		2,641		593
Reversal related to acquisitions		—		—		(5,074	)
Adjustments to valuation allowance		789		—		(2,500	)
Balance at end of the year	$	15,842	$	2,641	$	—

15. Net Loss Per Share Information

     The following table sets forth the calculation of the numerator and denominator used in the computation of basic and diluted net loss per share for the years ended December 31, 2004, 2003 and 2002:

	2004			2003			2002
Numerator:
Net loss attributable to common shareholders	$	(48,154	)	$	(76,952	)	$	(12,590	)
Denominator:
Basic and diluted pro forma weighted average number of common shares outstanding		88,232			38,782			32,414
Antidilutive securities not included in the diluted earnings per share calculation:
Series 1 Preferred Shares		—			13,582			1,520
Options to purchase Common Shares		299			707			450
Warrants to purchase Common Shares		2,189			3,189			437

16. Retirement Plan

     We sponsor a defined contribution Deferred Profit Sharing Plan, or DPSP, for our Canadian domiciled employees. Eligible employees may contribute pre-tax compensation to a Registered Retirement Savings Plan, subject to certain governmental limits and restrictions. We matched 100% of the employee contributions, up to the first 3% of the employee’s compensation which is deferred. Participant contributions vest immediately and employer contributions vest after two years of employment. During 2004, the matched contributions totaled approximately $0.2 million (2003 — $0.3 million; 2002 — $0.2 million).

     During 2004, we established a 40l(k) Plan for employees located in the United States. The domestic plan provides for employees to contribute up to fifty percent of their eligible compensation, subject to certain IRS limits. We match fifty percent of the employee contributions, up to the first 6% of the employee’s contribution. Participant contributions vest immediately and employer contributions vest after two years of employment. During 2004, we matched contributions totaling approximately $0.2 million

17. Segment Information

     We have determined our operating and reporting segments pursuant to the requirements of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information”. In making this determination, we considered its organization/reporting structure and the information used by our chief operating decision makers to make decisions about resource allocation and performance assessment. We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is organized into Florida (North, Central, Gulf), Texas and Arizona. We believe our domestic U.S. and our Canadian geographic segments meet the “Aggregation Criteria” set forth in SFAS 131 for the following reasons: (i) the nature of the service, waste collection and disposal, is economically the same and transferable across locations; (ii) the type and class of customer is consistent among regions/districts; (iii) the methods used to deliver services are essentially the same (e.g. containers collect waste at market locations and trucks collect and transfer waste to landfills); and (iv) the regulatory environment is consistent within Canada and the U.S., respectively.

     We operated exclusively in Canada during 2002. We re-entered the United States in May 2003 with the acquisition of the JED Landfill in Osceola County, Florida. We do not have significant (in volume or dollars) inter-segment operation-related transactions.

F-32

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

For further information regarding our segments see Note 21.

18. Related Party Transactions

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft.

     During 2004, David Sutherland-Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Remillard with respect to the potential acquisition by Waste Services of the solid waste collection and disposal assets owned by Mr. Remillard in Quebec. In connection with these negotiations, Waste Services has reimbursed Mr Remillard’s company for expenses in the aggregate amount of approximately C$2.2 million for services provided by third parties to December 31, 2004 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, Waste Services will not be reimbursed for the expenses it has incurred.

     During 2004, Waste Services entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International 1991 Corporation, a property development company controlled by Michael H. DeGroote, a brother of Gary W. DeGroote, one of our directors. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn. $0.1 million to Cdn.$0.2 million per year in increments over the term of the lease.

     We paid Kelso and Company, L.P., an affiliate of Kelso, an advisory services fee of $1.65 million in connection with the issuance of 55,000 shares of WSI Preferred Stock to Kelso in May 2003. In February 2004, we also paid Kelso and Company, L.P., a $0.5 million fee in connection with services related to the arrangement of the 364-Day Credit facilities that was entered into on December 31, 2003 and repaid in full on April 30, 2004. Two of our directors, George E. Matelich and Michael B. Lazar are Managing Directors of Kelso & Company L.P.

     Effective March 31, 2003, we entered into a placement agent agreement with Sanders Morris Harris Inc., or SMH, pursuant to which we agreed to pay SMH a fee for Series 1 preferred shares sold through SMH. To date, we have paid SMH fees of $1.9 million pursuant to the agreement. SMH is a beneficial owner of our Common Shares. However, effective July 31, 2004 Don Sanders, a principal of SMH, is no longer one of the our directors.

     During 2003, we purchased legal services for less than $0.1 million from Durkin and Durkin. A former executive officer, Thomas E. Durkin III, is an inactive partner in Durkin and Durkin.

     In 2003, we purchased furnishings and leasehold improvements from H₍₂₎O Technologies, Ltd. for $0.3 million and assumed a lease of premises from David Sutherland-Yoest. David Sutherland-Yoest, our Chairman and Chief Executive Officer was, until October of 2003, Chairman and Chief Executive Officer of H₍₂₎O Technologies, Ltd. and until January 2004, was a director of H₍₂₎O Technologies, Ltd. The lease expires on March 31, 2005 with annual rent and operating costs of less than $0.1 million.

     Certain affiliates of our officers and directors were purchasers of Series 1 Preferred Shares in September 2003. An independent committee consisting of David Sutherland-Yoest and George E. Matelich reviewed and approved the terms of issuance of the Series 1 Preferred Shares in which the shareholder, officers and directors or their affiliates were purchasers.

     In November of 2002, we entered into a Put or Pay Disposal agreement with the RCI Companies which are controlled by one of our directors, Mr. Lucien Rémillard. Concurrently with the Put or Pay Disposal Agreement, we entered into a disposal agreement with Canadian Waste Services Inc. which provides us with access to Canadian Waste’s Michigan landfill at negotiated fixed rates per ton.

     During the year ended December 31, 2002, we paid fees for financial advisory services to SMH of approximately $1.3 million. During the year ended December 31, 2002, we also purchased legal services for approximately $125,000 from a law firm of which an executive officer of ours is an inactive partner. During the year ended December 31, 2002, we paid a director $30,000 for certain services rendered.

     These transactions are in the normal course of operations and are recorded at the exchange amount, which is the consideration agreed to between the respective parties.

F-33

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

19. Supplementary Cash Flow Information

     Supplemental non-cash financing activities during the years ended December 31, 2004, 2003 and 2002 are as follows:

	2004		2003		2002
Financing activities:
Beneficial conversion feature of Series 1 Preferred Shares	$	—	$	54,572	$	14,717
Common Shares issued on acquisition		88,078		18,382		—
Common Shares issued on deposit for acquisition		—		6,430		—
Assets acquired under capital leases		—		—		1,786

     Other cash flow information:

	2004		2003		2002
Cash paid for interest	$	15,782	$	5,147	$	3,766
Cash paid for income taxes		341		1,220		2,085

20. Selected Quarterly Financial Data (unaudited)

     The following table summarizes the unaudited quarterly results of operations as reported for 2004 and 2003 (in thousands of US dollars, except per share amounts): (See also our note on Business Combinations Note 3)

	2004
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Revenue	$	50,317		$	72,626		$	94,615		$	93,227
Income from operations		205			871			5,660			781
Net loss before cumulative effect of change in accounting principal		(10,959	)		(18,615	)		(5,719	)		(13,086	)
Cumulative effect of change in accounting principle		225			—			—			—
Net loss		(10,734	)		(18,615	)		(5,719	)		(13,086	)
Basic and diluted loss per share before cumulative effect of change in accounting principle	$	(0.15	)	$	(0.21	)	$	(0.06	)	$	(0.14	)
Cumulative effect of change in accounting principle		—			—			—			—
Basic and diluted loss per share	$	(0.15	)	$	(0.21	)	$	(0.06	)	$	(0.14	)
Shares used in computing per share amounts		70,583			88,855			96,854			96,418

	2003
	First			Second			Third			Fourth
	Quarter			Quarter			Quarter			Quarter
Revenue	$	25,280		$	31,282		$	34,748		$	35,440
Income (loss) from operations		1,064			(18	)		(841	)		(5,251	)
Net loss before cumulative effect of change in accounting principal		(299	)		(3,506	)		(7,121	)		(11,972	)
Cumulative effect of change in accounting principle		518			—			—			—
Net income (loss)		219			(3,506	)		(7,121	)		(11,972	)
Net loss attributable to Common Shareholders		(8,313	)		(15,995	)		(40,672	)		(11,972	)
Basic and diluted loss per share before cumulative effect of change in accounting principle	$	(0.25	)	$	(0.42	)	$	(1.06	)	$	(0.28	)
Cumulative effect of change in accounting principle		0.01			—			—			—
Basic and diluted loss per share	$	(0.24	)	$	(0.42	)	$	(1.06	)	$	(0.28	)
Shares used in computing per share amounts		35,195			37,865			38,447			43,531

F-34

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

21. Condensed Consolidating Financial Statements of Waste Services Inc.

     Waste Services, our Parent company, is the primary obligor under the Subordinated Notes, however our Parent has no independent assets or operations and the guarantees of the domestic restricted subsidiaries are full and unconditional and joint and several with respect to the Senior Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any. Our Canadian operations are not guarantors under the Senior Subordinated Notes. We operated exclusively in Canada during 2002 and as such, there were no domestic guarantor financial statements for 2002 historical period.

     Presented below are Consolidating Balance Sheets as of December 31, 2004 and December 31, 2003 and the related Condensed Consolidating Statements of Operations and Cash Flows for the years then ended of Waste Service Inc. and the guarantor subsidiaries, our U.S. operations, (“Guarantors”) and the subsidiaries which are not guarantors, our Canadian operations, (“Non-guarantors”):

	December 31, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	6,223		$	2,284		$	—		$	8,507
Accounts receivable, net		24,509			23,347			—			47,856
Prepaid expenses and other current assets		6,440			4,500			—			10,940
Total current assets		37,172			30,131			—			67,303
Property and equipment, net		64,805			65,662			—			130,467
Landfill sites, net		155,710			13,906			—			169,616
Deferred income taxes, net		—			1,202			—			1,202
Goodwill and other intangible assets, net		240,578			87,178			—			327,756
Other assets		12,105			12,134			—			24,239
Investment in subsidiary		125,482			—			(125,482	)		—
Total assets	$	635,852		$	210,213		$	(125,482	)	$	720,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,757		$	10,192		$	—		$	25,949
Accrued expenses and other current liabilities		31,104			11,429			—			42,533
Short-term financing and current portion of long-term debt		1,166			—			—			1,166
Total current liabilities		48,027			21,621			—			69,648
Long-term debt		276,214			—			—			276,214
Accrued closure, post-closure and other obligations		5,628			5,346			—			10,974
Cumulative mandatorily redeemable Preferred Stock, net		64,971			—			—			64,971
Total liabilities		394,840			26,967			—			421,807
Shareholders’ equity:
Common stock of Waste Services, Inc		904			—			—			904
Additional paid-in capital		322,400			—			23,504			345,904
Treasury stock of Waste Services, Inc.		(1,235	)		—			—			(1,235	)
Exchangeable shares of Waste Services (CA) Inc.		—			33,022			(33,022	)		—
Common stock of Waste Services (CA) Inc.		—			115,964			(115,964	)		—
Options, warrants and deferred stock-based compensation		13,774			14,508			—			28,282
Accumulated other comprehensive income		—			29,133			—			29,133
Accumulated deficit		(94,831	)		(9,381	)		—			(104,212	)
Total shareholders’ equity		241,012			183,246			(125,482	)		298,776
Total liabilities and shareholders’ equity	$	635,852		$	210,213		$	(125,482	)	$	720,583

F-35

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	December 31, 2003
	Guarantors			Non-Guarantors		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	8,843		$	12,219	$	—		$	21,062
Restricted cash		14,433			—		—			14,433
Accounts receivable, net		6,557			20,442		—			26,999
Prepaid expenses and other current assets		10,015			19,634		—			29,649
Total current assets		39,848			52,295		—			92,143
Property and equipment, net		13,948			60,573		—			74,521
Landfill sites, net		101,356			16,185		—			117,541
Deferred income taxes, net		—			1,135		—			1,135
Goodwill and other intangible assets, net		82,118			81,262		—			163,380
Other assets		2,096			20,182		—			22,278
Due to (from) affiliates		—			16,758		(16,758	)		—
Investment in subsidiaries		—			8,747		(8,747	)		—
Total assets	$	239,366		$	257,137	$	(25,505	)	$	470,998
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	5,282		$	6,792	$	—		$	12,074
Accrued expenses and other current liabilities		9,813			15,588		—			25,401
Short-term financing and current portion of long-term debt		172,280			—		—			172,280
Total current liabilities		187,375			22,380		—			209,755
Long-term debt		3,130			—		—			3,130
Accrued closure, post-closure and other obligations		1,483			7,308		—			8,791
Cumulative mandatorily redeemable Preferred Stock, net		48,205			—		—			48,205
Due to affiliates		16,758			—		(16,758	)		—
Total liabilities		256,951			29,688		(16,758	)		269,881
Shareholders’ equity:
Common stock of Waste Services (CA) Inc		—			215,395		—			215,395
Contributed capital		8,747			—		(8,747	)		—
Options, warrants and deferred stock-based compensation		13,774			12,054		—			25,828
Accumulated other comprehensive income		—			15,952		—			15,952
Accumulated deficit		(40,106	)		(15,952)		—			(56,058	)
Total shareholders’ equity		(17,585	)		227,449		(8,747	)		201,117
Total liabilities and shareholders’ equity	$	239,366		$	257,137	$	(25,505	)	$	470,998

F-36

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	December 31, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	168,067		$	142,718		$	—		$	310,785
Operating and other expenses:
Cost of operations (exclusive of depreciation and amortization)		123,534			96,366			—			219,900
Selling, general and administrative expense (exclusive of stock-based compensation)		33,166			22,361			—			55,527
Stock-based compensation expense (benefit)		26			(116	)		—			(90	)
Severance and other related costs		2,563			176			—			2,739
Settlement with sellers of Florida Recycling		(8,635	)		—			—			(8,635	)
Depreciation, depletion and amortization		17,888			16,316			—			34,204
Foreign exchange gain and other		—			(377	)		—			(377	)
Equity loss (earnings) in investees		(3,151	)		39,082			(35,931	)		—
Income (loss) from operations		2,676			(31,090	)		35,931			7,517
Interest expense		30,517			321			—			30,838
Changes in fair value of warrants		—			(111	)		—			(111	)
Cumulative mandatorily redeemable preferred stock dividends and											—
amortization of issue costs		17,582			—			—			17,582
Loss before income taxes		(45,423	)		(31,300	)		35,931			(40,792	)
Income tax provision		3,983			3,604			—			7,587
Loss before cumulative effect of change in accounting principle		(49,406	)		(34,904	)		35,931			(48,379	)
Cumulative effect of change in accounting principle, net of provision for income taxes of $132 and $256 for the year ended December 31, 2004 and 2003, respectively		—			225			—			225
Net loss		(49,406	)		(34,679	)		35,931			(48,154	)
Deemed dividend on Series 1 Preferred Stock		—			—			—			—
Net loss attributable to Common Shareholders	$	(49,406	)	$	(34,679	)	$	35,931		$	(48,154	)

F-37

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	December 31, 2003
	Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	1,765		$	124,985		$	—		$	126,750
Operating and other expenses:
Cost of operations (exclusive of depreciation and amortization)		1,300			82,274			—			83,574
Selling, general and administrative expense (exclusive of stock-based compensation)		4,617			24,241			—			28,858
Stock-based compensation expense		—			2,677			—			2,677
Depreciation, depletion and amortization		200			14,727			—			14,927
Foreign exchange loss and other		—			1,760			—			1,760
Equity loss in investees		—			17,345			(17,345	)		—
Loss from operations		(4,352	)		(18,039	)		17,345			(5,046	)
Interest expense		264			8,014			—			8,278
Intercompany interest expense (income)		2,568			(2,568	)		—			—
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		10,161			—			—			10,161
Loss before income taxes		(17,345	)		(23,485	)		17,345			(23,485	)
Income tax provision		—			(587	)		—			(587	)
Loss before cumulative effect of change in accounting principle		(17,345	)		(22,898	)		17,345			(22,898	)
Cumulative effect of change in accounting principle, net of provision for income taxes of $256 for the year ended December 31, 2003		—			518			—			518
Net loss		(17,345	)		(22,380	)		17,345			(22,380	)
Deemed dividend on Series 1 Preferred Stock		—			(54,572	)		—			(54,572	)
Net loss attributable to Common Shareholders	$	(17,345	)	$	(76,952	)	$	17,345		$	(76,952	)

F-38

WASTE SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	December 31, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows from (used in) operating activities:	$	(665	)	$	25,362		$	—		$	24,697
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(163,555	)		(1,124	)		—			(164,679	)
Capital expenditures		(33,159	)		(13,050	)		—			(46,209	)
Proceeds from business divestitures		14,231			—			—			14,231
Deposits for business acquisitions and other		1,359			(2,910	)		—			(1,551	)
Intercompany		—			(78,985	)		78,985			—
		(181,124	)		(96,069	)		78,985			(198,208	)
Cash flows from financing activities:
Proceeds from issuance of debt		283,000			—			—			283,000
Principal repayments of debt		(186,031	)		(1,127	)		—			(187,158	)
Sale of common shares and warrants		—			53,600			—			53,600
Proceeds from release of restricted cash and release of collateral supporting letters of credit		14,433			9,908			—			24,341
Proceeds from the exercise of options and warrants		—			1,041			—			1,041
Fees paid for financing transactions		(11,218	)		(2,923	)		—			(14,141	)
Intercompany		78,985			—			(78,985	)		—
		179,169			60,499			(78,985	)		160,683
Effect of exchange rate changes on cash and cash equivalents		—			273			—			273
Decrease in cash and cash equivalents		(2,620	)		(9,935	)		—			(12,555	)
Cash and cash equivalents, beginning of period		8,843			12,219			—			21,062
Cash and cash equivalents, end of period	$	6,223		$	2,284		$	—		$	8,507

F-39

WASTE SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
(In thousands of US dollars unless otherwise stated)

	December 31, 2003
	Guarantors			Non-Guarantors			Eliminations			Consolidated
Cash flows from (used in) operating activities:	$	(2,682	)	$	12,128		$	—		$	9,446
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(159,913	)		(1,458	)		—			(161,371	)
Capital expenditures		(10,260	)		(14,178	)		—			(24,438	)
Proceeds from business divestitures		—			952			—			952
Deposits for business acquisitions and other		—			(10,776	)		—			(10,776	)
Intercompany		(15,524	)		—			15,524			—
		(185,697	)		(25,460	)		15,524			(195,633	)
Cash flows from financing activities:
Proceeds from issuance of debt		157,692			8,801			—			166,493
Principal repayments of debt		(1,144	)		(73,107	)		—			(74,251	)
Proceeds from release of restricted cash (cash collateral deposits for supporting letters of credit		—			(9,929	)		—			(9,929	)
Proceeds from the issuance of Series 1 Preferred Shares		—			86,189			—			86,189
Proceeds from the issuance of mandatorily redeemable Preferred Shares		55,000			—			—			55,000
Proceeds from the exercise of options and warrants		—			554			—			554
Fees paid for financing transactions		(14,326	)		(4,641	)		—			(18,967	)
Intercompany		—			15,524			(15,524	)		—
		197,222			23,391			(15,524	)		205,089
Effect of exchange rate changes on cash and cash equivalents		—			385			—			385
Increase in cash and cash equivalents		8,843			10,444			—			19,287
Cash and cash equivalents, beginning of period		—			1,775			—			1,775
Cash and cash equivalents, end of period	$	8,843		$	12,219		$	—		$	21,062

F-40

EX-2.1

                                                                     EXHIBIT 2.1

                               PLAN OF ARRANGEMENT
                                UNDER SECTION 182
                   OF THE BUSINESS CORPORATIONS ACT (ONTARIO)

                                   ARTICLE 1
                                 INTERPRETATION

1.1             DEFINITIONS

                In this Plan of Arrangement, unless there is something in the
subject matter or context inconsistent therewith, the following terms shall have
the following meanings, respectively:

         "AFFILIATE" of any person means any other person directly or indirectly
         controlled by, or under control of, that person. For the purposes of
         this definition, "control" (including, with correlative meanings, the
         terms "controlled by" and "under common control of"), as applied to any
         person, means the possession by another person of the power to direct
         or cause the direction of the management and policies of that first
         mentioned person through the direct or indirect ownership of over 50%
         of the voting securities;

         "ARRANGEMENT" means the arrangement under section 182 of the OBCA on
         the terms and subject to the conditions set out in this Plan of
         Arrangement, subject to any amendments or variations hereto made in
         accordance with section 6.1 of the Arrangement Agreement or Article 6
         hereof or made at the direction of the Court in the Final Order;

         "ARRANGEMENT AGREEMENT" means the agreement made June 9, 2004 among
         WSI, Capital Holdings and CERI, as amended, supplemented or restated in
         accordance therewith prior to the Effective Date, providing for, among
         other things, the Arrangement;

         "ARRANGEMENT RESOLUTION" means the special resolution of the CERI
         Shareholders, to be substantially in the form and content of Schedule B
         annexed to the Arrangement Agreement;

         "ARTICLES OF ARRANGEMENT" means the articles of arrangement of CERI in
         respect of the Arrangement that are required by the OBCA to be sent to
         the Director after the Final Order is made;

         "BOARD OF DIRECTORS" means the board of directors of CERI;

         "BUSINESS DAY" means any day on which commercial banks are generally
         open for business in New York, New York and Toronto, Ontario, other
         than a Saturday, a Sunday or a day observed as a statutory holiday in
         New York, New York under the laws of the State of New York or the
         federal laws of the United States of America or in Toronto, Ontario
         under the laws of the Province of Ontario or the federal laws of
         Canada;

         "CANADIAN DOLLAR EQUIVALENT" has the meaning ascribed thereto in the
         Exchangeable Share Provisions;

         "CANADIAN RESIDENT" means a resident of Canada for purposes of the ITA
         and includes a partnership any member of which is a resident of Canada
         for purposes of the ITA;



                                       1


         "CAPITAL HOLDINGS" means Capital Environmental Holdings Company, an
         unlimited liability company existing under the laws of the Province of
         Nova Scotia and a subsidiary of WSI;

         "CERI" means Capital Environmental Resource Inc., a corporation
         existing under the laws of the Province of Ontario;

         "CERI COMMON SHARES" means the issued and outstanding voting common
         shares in the capital of CERI;

         "CERI CURRENT MARKET PRICE" means, in respect of a CERI Common Share,
         for the purposes of Section 4.5, the Canadian Dollar Equivalent of the
         average of the closing bid and ask prices of one CERI Common Share on
         NASDAQ during a period of 20 consecutive trading days ending three
         trading days before the Effective Date; provided, however, that if in
         the opinion of the Board of Directors, acting reasonably and in good
         faith, the public distribution or trading activity of CERI Common
         Shares during such period (whether or not traded on a stock exchange or
         automated quotation system) does not create a market which reflects the
         fair market value of a CERI Common Share, then the CERI Current Market
         Price shall be determined by the Board of Directors, in good faith and
         in its sole discretion, and provided further that any such opinion or
         determination by the Board of Directors shall be conclusive and
         binding;

         "CERI MEETING" means the special meeting of CERI Shareholders,
         including any adjournment thereof, to be called and held in accordance
         with the Interim Order to consider the Arrangement Resolution;

         "CERI OPTIONS" means the options to purchase CERI Common Shares granted
         under the CERI Stock Option Plan and options to purchase CERI Common
         Shares granted to non-employees, being outstanding and unexercised on
         the Effective Date;

         "CERI SHAREHOLDERS" means the holders of CERI Common Shares;

         "CERI STOCK OPTION PLAN" means, collectively, the 1997 Stock Option
         Plan and the 1999 Stock Option Plan approved by the Board of Directors,
         each as amended;

         "CERI WARRANTS" means the warrants exercisable for CERI Common Shares
         outstanding and unexercised on the Effective Date;

         "CERTIFICATE" means the certificate of arrangement giving effect to the
         Arrangement, issued pursuant to subsection 183(2) of the OBCA after the
         Articles of Arrangement have been filed;

         "COURT" means the Ontario Superior Court of Justice;

         "CURRENT MARKET PRICE" has the meaning ascribed thereto in the
         Exchangeable Share Provisions;

         "DEPOSITARY" means American Stock Transfer & Trust Company at its
         offices set out in the Letter of Transmittal and Election Form;

         "DIRECTOR" means the Director appointed pursuant to section 278 of the
         OBCA;

         "DISSENT RIGHTS" has the meaning set out in Section 3.1 hereof;

                                       2


         "DISSENTING SHAREHOLDER" means a holder of CERI Common Shares who
         dissents in respect of the Arrangement Resolution in strict compliance
         with the Dissent Rights;

         "DIVIDEND AMOUNT" has the meaning ascribed thereto in Section 5.1(a)
         hereof;

         "DROP DEAD DATE" means August 31, 2004, or such later date as may be
         mutually agreed to by the parties to the Arrangement Agreement;

         "EFFECTIVE DATE" means the date shown on the Certificate, provided that
         such date occurs on or prior to the Drop Dead Date;

         "EFFECTIVE TIME" means 12:01 a.m. on the Effective Date;

         "ELECTED SHARES" means the CERI Common Shares held by persons that are
         not U.S. Persons who elect, in a duly completed Letter of Transmittal
         and Election Form deposited with the Depositary no later than the
         Election Deadline, to receive Exchangeable Shares in connection with
         the Arrangement;

         "ELECTION DEADLINE" means 5:00 p.m. (New York time) on the date which
         is two Business Days prior to the Effective Date;

         "EXCHANGEABLE SHARE PROVISIONS" means the rights, privileges,
         restrictions and conditions attaching to the Exchangeable Shares, which
         rights, privileges, restrictions and conditions shall be substantially
         as set out in Appendix 1 hereto;

         "EXCHANGEABLE SHARES" means the exchangeable shares in the capital of
         CERI, having substantially the rights, privileges, restrictions and
         conditions set out in the Exchangeable Share Provisions;

         "FINAL ORDER" means the final order of the Court approving the
         Arrangement as such order may be amended by the Court at any time prior
         to the Effective Date or, if appealed, then, unless such appeal is
         withdrawn or denied, as affirmed;

         "GOVERNMENTAL ENTITY" means any (a) multinational, federal, provincial,
         territorial, state, regional, municipal, local or other government,
         governmental or public department, central bank, court, tribunal,
         arbitral body, commission, board, bureau or agency, domestic or
         foreign, (b) any subdivision, agent, commission, board or authority of
         any of the foregoing, (c) any regulatory agency or self-regulatory
         authority (including the Ontario Securities Commission, the Quebec
         Securities Commission, the NASDAQ and the United States Securities and
         Exchange Commission), or (d) any quasi-governmental or private body
         exercising any regulatory, expropriation or taxing authority under or
         for the account of any of the foregoing;

         "INTERIM ORDER" means the interim order of the Court, as the same may
         be amended, in respect of the Arrangement;

         "ITA" means the Income Tax Act (Canada), as amended;

         "LETTER OF TRANSMITTAL AND ELECTION FORM" means the letter of
         transmittal and election form for use by holders of CERI Common Shares,
         in the form accompanying the Proxy Statement;

                                       3


         "LIQUIDATION AMOUNT" has the meaning ascribed thereto in section 5.1 of
         the Exchangeable Share Provisions;

         "LIQUIDATION CALL PURCHASE PRICE" has the meaning ascribed thereto in
         Section 5.1(a) hereof;

         "LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in Section
         5.1(a) hereof;

         "LIQUIDATION DATE" has the meaning ascribed thereto in section 5.1 of
         the Exchangeable Share Provisions;

         "MEETING DATE" means the date of the CERI Meeting;

         "NASDAQ" means the NASDAQ National Market;

         "OBCA" means the Business Corporations Act (Ontario) as now in effect
         and as may be amended from time to time prior to the Effective Date;

         "PERSON" includes any individual, firm, partnership, joint venture,
         venture capital fund, limited liability company, unlimited liability
         company, association, trust, trustee, executor, administrator, legal
         personal representative, estate, group, body corporate, corporation,
         unincorporated association or organization, Governmental Entity,
         syndicate or other entity, whether or not having legal status;

         "PROXY STATEMENT" means the notice of the CERI Meeting and accompanying
         proxy statement, including all schedules and exhibits thereto, to be
         sent to CERI Shareholders in connection with the CERI Meeting;

         "REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
         Section 5.2(a) hereof;

         "REDEMPTION CALL RIGHT" has the meaning ascribed thereto in Section
         5.2(a) hereof;

         "REDEMPTION DATE" has the meaning ascribed thereto in section 1.1 of
         the Exchangeable Share Provisions;

         "REDEMPTION PRICE" has the meaning ascribed thereto in section 7.1 of
         the Exchangeable Share Provisions;

         "RETRACTION CALL RIGHT" has the meaning ascribed thereto in section 6.1
         of the Exchangeable Share Provisions;

         "U.S. PERSON" means any person or entity that is (i) an individual
         citizen or resident of the United States, (ii) a corporation (or other
         entity taxable as a corporation for U.S. federal income tax purposes)
         created or organized under the laws of the United States or any state
         thereof or the District of Columbia, (iii) an estate the income of
         which is subject to U.S. federal income taxation regardless of its
         source or (iv) a trust that (x) is subject to the primary supervision
         of a court within the United States and one or more U.S. persons have
         the authority to control all substantial decisions of the trust or (y)
         has a valid election in effect under applicable U.S. Treasury
         Regulation (as such term is defined in the Arrangement Agreement) to be
         treated as a U.S. person;

                                       4


         "TRANSFER AGENT" has the meaning ascribed thereto in Section 5.1(b)
         hereof;

         "TRUSTEE" means the trustee to be chosen by WSI and CERI, acting
         reasonably, to act as trustee under the Voting and Exchange Trust
         Agreement, being a corporation existing under the laws of Canada or a
         province therein and authorized to carry on the business of a trust
         company in Canada, and any successor trustee appointed under the Voting
         and Exchange Trust Agreement;

         "VOTING AND EXCHANGE TRUST AGREEMENT" means an agreement to be made
         among WSI, CERI and the Trustee in connection with the Plan of
         Arrangement substantially in the form and content of Schedule E annexed
         to the Arrangement Agreement, with such changes thereto as the parties
         to the Arrangement Agreement, acting reasonably, may agree;

         "WSI" means Waste Services, Inc., a corporation existing under the laws
         of the State of Delaware;

         "WSI COMMON SHARES" means the shares of common stock in the capital of
         WSI;

         "WSI CONTROL TRANSACTION" has the meaning ascribed thereto in section
         1.1 of the Exchangeable Share Provisions; and

         "WSI SPECIAL VOTING SHARE" means the share in the special voting stock
         of WSI to be issued in its own series, which entitles the holder of
         record to a number of votes at meetings of holders of the WSI Common
         Shares equal to the number of Exchangeable Shares outstanding from time
         to time (other than Exchangeable Shares held by WSI and its
         affiliates), which share is to be issued to, deposited with and voted
         by, the Trustee as described in the Voting and Exchange Trust
         Agreement.

1.2             SECTIONS AND HEADINGS

                The division of this Plan of Arrangement into Articles, Sections
and other portions and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of this
Plan of Arrangement. Unless otherwise indicated, any reference in this Plan of
Arrangement to an "Article" or "Section" followed by a number or a letter refer
to the specified Article or Section of this Plan of Arrangement. The terms "this
Plan of Arrangement", "hereof", "herein" and "hereunder" and similar expressions
refer to this Plan of Arrangement and not to any particular Article, Section or
other portion hereof and include any agreement or instrument supplementary or
ancillary hereto.

1.3             NUMBER, GENDER, ETC.

                In this Plan of Arrangement, unless the context otherwise
requires, words importing the singular number include the plural and vice versa
and words importing any gender include all genders.



                                       5


                                   ARTICLE 2
                                  ARRANGEMENT

2.1             BINDING EFFECT

                This Plan of Arrangement will become effective at, and be
binding at and after, the Effective Time on (i) CERI, (ii) WSI, (iii) Capital
Holdings, (iv) all holders and all beneficial owners of CERI Common Shares, (v)
all holders and all beneficial owners of CERI Warrants and CERI Options, and
(vi) all holders and all beneficial owners of Exchangeable Shares from time to
time.

2.2             ARRANGEMENT

                Commencing at the Effective Time, subject to the terms and
conditions of the Arrangement Agreement, the following shall occur and shall be
deemed to occur in the following order (except that (c), (d), (e) and (f) shall
be deemed to have occurred simultaneously) without any further act or formality:

         (a)    the articles of CERI will be amended to (i) create, as a class
                of shares in the capital of CERI, an unlimited number of
                Exchangeable Shares and (ii) change the name of CERI to "Waste
                Services (CA) Inc.";

         (b)    Capital Holdings will purchase at fair market value from WSI the
                WSI Common Shares required to effect the exchanges in paragraph
                (c), and in consideration therefor will assume any debt owing by
                WSI to CERI and will issue and deliver to WSI one common share
                in the capital of Capital Holdings for each such WSI Common
                Share so purchased and WSI will be recorded as the holder of
                such common shares of Capital Holdings and be deemed the legal
                and beneficial owner thereof;

         (c)    each CERI Common Share (other than Elected Shares and CERI
                Common Shares held by (i) Dissenting Shareholders who are
                ultimately entitled to be paid the fair value of the CERI Common
                Shares held by them, and (ii) WSI) will be transferred, without
                any further act or formality, by the holder thereof to Capital
                Holdings in exchange for one fully paid and non-assessable WSI
                Common Share, free and clear of all liens, claims and
                encumbrances, and the name of each such holder will be removed
                from the register of holders of CERI Common Shares and subject
                to complying with the procedure for obtaining WSI Common Shares,
                added to the register of holders of WSI Common Shares, and
                Capital Holdings will be recorded as the registered holder of
                such CERI Common Shares so transferred and will be deemed to be
                the legal and beneficial owner thereof;

         (d)    each CERI Common Share that is an Elected Share will be
                converted into one fully paid and non-assessable Exchangeable
                Share, and the name of each such holder will be removed from the
                register of holders of CERI Common Shares and added to the
                register of holders of Exchangeable Shares;

         (e)    WSI, CERI and the Trustee will enter into the Voting and
                Exchange Trust Agreement and WSI will issue to and deposit with
                the Trustee the WSI Special Voting Share, in consideration of
                the payment to WSI by CERI on behalf of the holders of the
                Elected Shares of US$1.00, to be thereafter held of record by
                the Trustee as trustee for and on behalf of, and for the use and
                benefit of, the holders of the Exchangeable Shares in accordance
                with the Voting and Exchange Trust Agreement;



                                       6


         (f)    each WSI Common Share held by CERI will be redeemed at a price
                of US$1.00 per share;

         (g)    each CERI Option outstanding at the Effective Time will continue
                to be an obligation of CERI; however, pursuant to the terms of
                the CERI Option, it shall permit the holder to purchase a number
                of WSI Common Shares equal to the number of CERI Common Shares
                that may be purchased if such CERI Option were exercisable and
                exercised immediately prior to the Effective Time. Each CERI
                Option shall continue to provide for an exercise price per WSI
                Common Share equal to the exercise price per CERI Common Share
                of such CERI Option immediately prior to the Effective Time. The
                term to expiry, conditions to and manner of exercising, vesting
                schedule and all other terms and conditions of such CERI Option
                will otherwise be unchanged, and any document or agreement
                previously evidencing a CERI Option shall thereafter continue to
                evidence and be deemed to evidence such CERI Option; and

         (h)    each CERI Warrant outstanding at the Effective Time will
                continue to be an obligation of CERI; however, pursuant to the
                terms of the CERI Warrant, it shall permit the holder to
                purchase a number of WSI Common Shares equal to the number of
                CERI Common Shares that may be purchased if such CERI Warrant
                were exercisable and exercised immediately prior to the
                Effective Time. Each CERI Warrant shall continue to provide for
                an exercise price per WSI Common Share equal to the exercise
                price per CERI Common Share of such CERI Warrant immediately
                prior to the Effective Time. The term to expiry, conditions to
                and manner of exercising, vesting schedule and all other terms
                and conditions of such CERI Warrant will otherwise be unchanged,
                and any document or agreement previously evidencing a CERI
                Warrant shall thereafter continue to evidence and be deemed to
                evidence such CERI Warrant.

2.3             ELECTIONS

                Each Person who, at or prior to the Election Deadline, is a
holder of record of CERI Common Shares and who either (i) is not a U.S. Person
that holds such shares on its own behalf or (ii) holds such shares on behalf of
a Person who is not a U.S. Person, will be entitled, with respect to all or a
portion of such shares, to make or deliver an election at or prior to the
Election Deadline to receive Exchangeable Shares on the basis set forth herein
and in the Letter of Transmittal and Election Form.

2.4             ADJUSTMENTS TO EXCHANGE

                The number of WSI Common Shares issued in connection with the
Arrangement shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into WSI Common Shares or CERI Common Shares other than
stock dividends paid in lieu of ordinary course dividends), reorganization,
recapitalization or other like changes with respect to WSI Common Shares or CERI
Common Shares occurring after the date of the Arrangement Agreement and prior to
the Effective Time.



                                       7


                                   ARTICLE 3
                                RIGHTS OF DISSENT

3.1             RIGHTS OF DISSENT

                Registered holders of CERI Common Shares may exercise rights of
dissent with respect to such shares pursuant to and, except as expressly
indicated to the contrary in this Section 3.1, in the manner set forth in
section 185 of the OBCA and this Section 3.1 (the "DISSENT RIGHTS") in
connection with the Arrangement Resolution; provided that, notwithstanding
subsection 185(6) of the OBCA, the written objection to the Arrangement
Resolution referred to in subsection 185(6) of the OBCA must be received by CERI
not later than 5:00 p.m. (Toronto time) on the Business Day preceding the CERI
Meeting; and provided further that, notwithstanding the provisions of section
185 of the OBCA, holders of CERI Common Shares who duly exercise such rights of
dissent and who:

         (a)    are ultimately determined to be entitled to be paid fair value
                for their CERI Common Shares, which fair value, notwithstanding
                anything to the contrary contained in section 185 of the OBCA,
                shall be determined as of the Effective Time, shall be deemed to
                have transferred such CERI Common Shares as of the Effective
                Time at the fair value of such shares determined as of the
                Effective Time, without any further act or formality and free
                and clear of all liens and claims, to CERI and such shares so
                transferred to CERI shall be cancelled as of the Effective Date;
                or

         (b)    are ultimately determined not to be entitled, for any reason, to
                be paid fair value for their CERI Common Shares shall be deemed
                to have participated in the Arrangement on the same basis as a
                non-dissenting holder of equity in CERI and shall be deemed to
                have elected to receive, and shall receive, the securities
                provided for in Section 2.2(c),

but in no case shall WSI, Capital Holdings, CERI, the Transfer Agent or any
other Person be required to recognize such holders as holders of CERI Common
Shares after the Effective Time, and the names of such holders of CERI Common
Shares shall be deleted from the registers of holders of equity in CERI at the
Effective Time.

                                   ARTICLE 4
                       CERTIFICATES AND FRACTIONAL SHARES

4.1             ISSUANCE OF CERTIFICATES REPRESENTING EXCHANGEABLE SHARES

                At or promptly after the Effective Time, CERI shall deposit with
the Depositary, for the benefit of the holders of Elected Shares, certificates
representing that number of whole Exchangeable Shares to be delivered pursuant
to the Arrangement. Upon surrender (on or prior to the Election Deadline) to the
Depositary for cancellation of a certificate which immediately prior to the
Effective Time represented one or more CERI Common Shares that were reclassified
for one or more Exchangeable Shares under the Arrangement, together with a duly
completed Letter of Transmittal and Election Form and such other documents,
instruments and payments as the Depositary may reasonably require, the holder of
such surrendered certificate shall be entitled to receive, and after the
Effective Time the Depositary shall deliver to such holder, certificate(s)
registered in the name of such holder representing that number (rounded down to
the nearest whole number) of Exchangeable Shares which such holder has the right
to receive (together with any dividends or distributions with respect thereto
pursuant to Section 4.4 and any cash in lieu of fractional Exchangeable Shares
pursuant to Section 4.5, less any amounts withheld pursuant to Section 4.8), and
any certificate so surrendered shall forthwith be cancelled. In the





                                       8


event of a transfer of ownership of CERI Common Shares which was not registered
in the transfer records of CERI, certificate(s) representing the number of
Exchangeable Shares to be delivered upon the reclassification of the CERI Common
Shares as Exchangeable Shares may be registered in the name of and issued to the
transferee if the certificate representing such CERI Common Shares is presented
to the Depositary, on or prior to the Election Deadline, accompanied by a duly
completed Letter of Transmittal and Election Form, all documents required to
evidence and effect such transfer and such other documents, instruments and
payments as the Depositary may reasonably require.

4.2             EXCHANGE OF CERTIFICATES FOR WSI COMMON SHARES

                At or promptly after the Effective Time, Capital Holdings shall
deposit or caused to be deposited with the Depositary, for the benefit of the
holders of CERI Common Shares (other than Elected Shares), certificates
representing that whole number of WSI Common Shares delivered pursuant to the
Arrangement pursuant to Section 2.2(c). Upon surrender to the Depositary for
cancellation of a certificate which immediately prior to the Effective Time
represented outstanding CERI Common Shares which were transferred to Capital
Holdings in exchange for WSI Common Shares under the Arrangement, together with
a duly completed Letter of Transmittal and Election Form and such other
documents, instruments and payments as the Depositary may reasonably require,
the holder of such surrendered certificate shall be entitled to receive, and
after the Effective Time the Depositary shall deliver to such holder, a
certificate representing that number (rounded down to the nearest whole number)
of WSI Common Shares which such holder is entitled to receive (together with any
dividends or distributions with respect thereto pursuant to Section 4.4 and any
cash in lieu of fractional WSI Common Shares pursuant to Section 4.5, less any
amounts withheld pursuant to Section 4.8), and any certificate so surrendered
shall forthwith be cancelled. In the event of a transfer of ownership of such
CERI Common Shares which was not registered in the transfer records of CERI, the
certificates representing the number of WSI Common Shares issuable in exchange
for such CERI Common Shares may be registered in the name of and issued to the
transferee if the certificate representing the CERI Common Shares is presented
to the Depositary, accompanied by a duly completed Letter of Transmittal and
Election Form, all documents required to evidence and effect such transfer and
such other documents, instruments and payments as the Depositary may reasonably
require. Without limiting, and subject to, the provisions of Section 4.7, until
surrendered as contemplated by this Section 4.2, each certificate, which
immediately prior to the Effective Time represented one or more outstanding CERI
Common Shares which were exchanged for WSI Common Shares pursuant to Section
2.2(c), shall be deemed as of and after the Effective Time to represent only the
right to receive upon such surrender (i) the certificate representing WSI Common
Shares as contemplated by this Section 4.2, (ii) a cash payment in lieu of any
fractional WSI Common Shares as contemplated by Section 4.5 and (iii) any
dividends or distributions with a record date after the Effective Time
theretofore paid or payable with respect to WSI Common Shares as contemplated by
Section 4.4, in each case less any amounts withheld pursuant to Section 4.8.

4.3             INTENTIONALLY LEFT BLANK

4.4             DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES

                No dividends or other distributions declared or made after the
Effective Time with respect to Exchangeable Shares or WSI Common Shares with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered certificate which immediately prior to the Effective Time
represented outstanding CERI Common Shares that were exchanged pursuant to
Section 2.2, and no cash payment in lieu of fractional shares shall be paid to
any such holder pursuant to Section 4.5 and no interest shall be earned or
payable on these proceeds, unless and until the holder of record of such
certificate shall surrender such certificate in accordance with Section 4.1 or
4.2. Subject to applicable





                                       9


law, at the time of such surrender of any such certificate (or, in the case of
clause (iii) below, at the appropriate payment date), there shall be paid to the
record holder of the certificates representing whole CERI Common Shares, without
interest, (i) the amount of any cash payable in lieu of a fractional
Exchangeable Share or WSI Common Share to which such holder is entitled pursuant
to Section 4.5, (ii) the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such whole
Exchangeable Share or WSI Common Share, as the case may be, and (iii) on the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole Exchangeable Share or
WSI Common Share, as the case may be.

4.5             NO FRACTIONAL SHARES

                No certificates representing fractional Exchangeable Shares or
fractional WSI Common Shares shall be issued upon the surrender for exchange of
certificates pursuant to Section 4.1 or 4.2 and no dividend, stock split or
other change in the capital structure of CERI shall relate to any such
fractional security and such fractional interests shall not entitle the owner
thereof to exercise any rights as a security holder of CERI. In lieu of any such
fractional securities:

         (a)    each Person otherwise entitled to a fractional interest in an
                Exchangeable Share will receive from CERI a cash payment equal
                to such Person's fractional interest multiplied by the CERI
                Current Market Price; and

         (b)    each Person otherwise entitled to a fractional interest in a WSI
                Common Share will receive a cash payment equal to such Person's
                pro rata portion of the net proceeds after expenses received by
                the Depositary upon the sale of whole shares representing an
                accumulation of all fractional interests in WSI Common Shares to
                which all such Persons would otherwise be entitled.

4.6             LOST CERTIFICATES

                In the event any certificate which immediately prior to the
Effective Time represented one or more outstanding CERI Common Shares shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such certificate to be lost, stolen or destroyed, the
Depositary will issue in exchange for such lost, stolen or destroyed
certificate, cash and/or one or more certificates representing one or more
Exchangeable Shares or WSI Common Shares, as the case may be, (and any dividends
or distributions with respect thereto and any cash payment pursuant to Section
4.5) deliverable in accordance with such holder's Letter of Transmittal and
Election Form. When authorizing such payment in exchange for any lost, stolen or
destroyed certificate, the Person to whom certificates representing Exchangeable
Shares or WSI Common Shares are to be issued shall, as a condition precedent to
the issuance thereof, give a bond satisfactory to CERI, WSI and their respective
transfer agents in such sum as CERI or WSI may direct or otherwise indemnify
CERI and WSI in a manner satisfactory to CERI and WSI against any claim that may
be made against CERI or WSI with respect to the certificate alleged to have been
lost, stolen or destroyed.

4.7             EXTINCTION OF RIGHTS

                Any certificate which immediately prior to the Effective Time
represented outstanding CERI Common Shares that were exchanged pursuant to
Section 2.2 that is not deposited with all other instruments required by Section
4.1 or 4.2 on or prior to the fifth anniversary of the Effective Date shall
cease to represent a claim or interest of any kind or nature as a shareholder of
CERI or WSI. On such




                                       10


date, the Exchangeable Shares and WSI Common Shares (or cash in lieu of
fractional interests therein, as provided in Section 4.5) to which the former
registered holder of the certificate referred to in the preceding sentence was
ultimately entitled shall be deemed to have been surrendered for no further
consideration to CERI or Capital Holdings, as the case may be, together with all
entitlements to dividends, distributions and interest in respect thereof held
for such former registered holder. None of WSI, Capital Holdings, CERI or the
Depositary shall be liable to any person in respect of any Exchangeable Shares
or WSI Common Shares (or dividends, distributions and interest in respect
thereof) delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.

4.8             WITHHOLDING RIGHTS

                CERI, Capital Holdings, WSI and the Depositary shall be entitled
to deduct and withhold from any dividend or consideration otherwise payable to
any holder of CERI Common Shares, WSI Common Shares or Exchangeable Shares such
amounts as CERI, Capital Holdings, WSI or the Depositary is required or
permitted to deduct and withhold with respect to such payment under the ITA, the
United States Internal Revenue Code of 1986 or any provision of federal,
provincial, territorial, state, local or foreign tax law, in each case, as
amended. To the extent that amounts are so withheld, such withheld amounts shall
be treated for all purposes hereof as having been paid to the holder of the
shares in respect of which such deduction and withholding was made, provided
that such withheld amounts are actually remitted to the appropriate taxing
authority. To the extent that the amount so required or permitted to be deducted
or withheld from any payment to a holder exceeds the cash portion of the
consideration otherwise payable to the holder, CERI, Capital Holdings, WSI and
the Depositary are hereby authorized to sell or otherwise dispose of such
portion of the consideration as is necessary to provide sufficient funds to
CERI, Capital Holdings, WSI or the Depositary, as the case may be, to enable it
to comply with such deduction or withholding requirement and CERI, Capital
Holdings, WSI or the Depositary shall notify the holder thereof and remit any
unapplied balance of the net proceeds of such sale.


                                   ARTICLE 5
       CERTAIN RIGHTS OF CAPITAL HOLDINGS TO ACQUIRE EXCHANGEABLE SHARES

5.1             CAPITAL HOLDINGS LIQUIDATION CALL RIGHT

                In addition to Capital Holdings' rights contained in the
Exchangeable Share Provisions, including, without limitation, the Retraction
Call Right, Capital Holdings shall have the following rights in respect of the
Exchangeable Shares:

         (a)    Capital Holdings shall have the overriding right (the
                "LIQUIDATION CALL RIGHT"), in the event of and notwithstanding
                the proposed liquidation, dissolution or winding-up of CERI or
                any other distribution of assets of CERI among its shareholders
                for the purpose of winding up its affairs, pursuant to Article 5
                of the Exchangeable Share Provisions, to purchase from all but
                not less than all of the holders of Exchangeable Shares (other
                than WSI and its affiliates) on the Liquidation Date all but not
                less than all of the Exchangeable Shares held by each such
                holder upon payment by Capital Holdings to each such holder of
                an amount per Exchangeable Share (the "LIQUIDATION CALL PURCHASE
                PRICE") equal to the sum of (i) the Current Market Price of a
                WSI Common Share on the last Business Day prior to the
                Liquidation Date, which shall be satisfied in full by Capital
                Holdings causing to be delivered to such holder one WSI Common
                Share, plus (ii) to the extent not paid by CERI, an additional
                amount equivalent to the full amount of all declared and unpaid
                dividends on each such Exchangeable Share held by such holder on



                                       11


                any dividend record date which occurred prior to the date of
                purchase by Capital Holdings (the "DIVIDEND AMOUNT"). In the
                event of the exercise of the Liquidation Call Right by Capital
                Holdings, each holder shall be obligated to sell all the
                Exchangeable Shares held by the holder to Capital Holdings upon
                the Liquidation Date on payment by Capital Holdings to the
                holder of the Liquidation Call Purchase Price for each such
                share, and CERI shall have no obligation to pay any Liquidation
                Amount to any holder of such Exchangeable Shares so purchased by
                Capital Holdings.

         (b)    To exercise the Liquidation Call Right, Capital Holdings must
                notify CERI's transfer agent (the "TRANSFER AGENT"), as agent
                for the holders of Exchangeable Shares, and CERI of Capital
                Holdings' intention to exercise such right at least 30 days
                before the Liquidation Date in the case of a voluntary
                liquidation, dissolution or winding-up of CERI or any other
                voluntary distribution of assets of CERI among its shareholders
                for the purpose of winding up its affairs, and at least five
                Business Days before the Liquidation Date in the case of an
                involuntary liquidation, dissolution or winding-up of CERI or
                any other involuntary distribution of assets of CERI among its
                shareholders for the purpose of winding up its affairs. The
                Transfer Agent will notify the holders of Exchangeable Shares as
                to whether or not Capital Holdings has exercised the Liquidation
                Call Right forthwith after the earlier of (i) receipt of notice
                by the Transfer Agent from Capital Holdings of its intention to
                exercise such right and (ii) the expiry of the period during
                which the same may be exercised by Capital Holdings. If Capital
                Holdings exercises the Liquidation Call Right, then on the
                Liquidation Date Capital Holdings will purchase and such holders
                will sell all of the Exchangeable Shares then outstanding for a
                price per Exchangeable Share equal to the Liquidation Call
                Purchase Price.

         (c)    For the purposes of completing the purchase of the Exchangeable
                Shares pursuant to the Liquidation Call Right, Capital Holdings
                shall deposit with the Transfer Agent, on or before the
                Liquidation Date, certificates representing the aggregate number
                of WSI Common Shares deliverable by Capital Holdings upon the
                exercise of such right and a cheque or cheques of Capital
                Holdings payable at par at any branch of the bankers of Capital
                Holdings representing the aggregate Dividend Amount, if any, in
                payment of the total Liquidation Call Purchase Price, less any
                amounts withheld pursuant to Section 4.8. Provided that Capital
                Holdings has complied with the immediately preceding sentence,
                on and after the Liquidation Date the rights of each holder of
                Exchangeable Shares will be limited to receiving, without
                interest, such holder's proportionate part of the total
                Liquidation Call Purchase Price payable by Capital Holdings upon
                presentation and surrender by the holder of certificates
                representing the Exchangeable Shares held by such holder and the
                holder shall on and after the Liquidation Date be considered and
                deemed for all purposes to be the holder of the WSI Common
                Shares to which it is entitled. Upon surrender to the Transfer
                Agent of a certificate or certificates representing Exchangeable
                Shares, together with such other documents and instruments as
                may be required to effect a transfer of Exchangeable Shares
                under the OBCA and the articles and by-laws of CERI and such
                additional documents, instruments and payments as the Transfer
                Agent may reasonably require, the holder of such surrendered
                certificate or certificates shall be entitled to receive in
                exchange therefor, and the Transfer Agent on behalf of Capital
                Holdings shall deliver to such holder, certificates representing
                the WSI Common Shares (which securities shall be fully paid and
                non-assessable and shall be free and clear of any lien, claim or
                encumbrance) to which the holder is entitled and a cheque or
                cheques of Capital Holdings payable at par at any branch of the
                bankers of Capital Holdings in payment of the remaining portion,
                if any, of the total Liquidation Call Purchase Price,




                                       12


                less any amounts withheld pursuant to Section 4.8. If Capital
                Holdings does not exercise the Liquidation Call Right in the
                manner described above, on the Liquidation Date the holders of
                the Exchangeable Shares will be entitled to receive in exchange
                therefor the Liquidation Amount otherwise payable by CERI in
                connection with the liquidation, dissolution or winding-up of
                CERI or any other distribution of assets of CERI among its
                shareholders for the purpose of winding up its affairs pursuant
                to Article 5 of the Exchangeable Share Provisions.

5.2             CAPITAL HOLDINGS REDEMPTION CALL RIGHT

                In addition to Capital Holdings' rights contained in the
Exchangeable Share Provisions, including, without limitation, the Retraction
Call Right, Capital Holdings shall have the following rights in respect of the
Exchangeable Shares:

         (a)    Capital Holdings shall have the overriding right (the
                "REDEMPTION CALL RIGHT"), notwithstanding the proposed
                redemption of the Exchangeable Shares by CERI pursuant to
                Article 7 of the Exchangeable Share Provisions, to purchase from
                all but not less than all of the holders of Exchangeable Shares
                (other than WSI and its affiliates) on the Redemption Date all
                but not less than all of the Exchangeable Shares held by each
                such holder on payment by Capital Holdings to each holder of an
                amount per Exchangeable Share (the "REDEMPTION CALL PURCHASE
                PRICE") equal to the sum of (i) the Current Market Price of a
                WSI Common Share on the last Business Day prior to the
                Redemption Date, which shall be satisfied in full by Capital
                Holdings delivering or causing to be delivered to such holder
                one WSI Common Share, plus (ii) to the extent not paid by CERI,
                the Dividend Amount. In the event of the exercise of the
                Redemption Call Right by Capital Holdings, each holder shall be
                obligated to sell all the Exchangeable Shares held by the holder
                to Capital Holdings on the Redemption Date on payment by Capital
                Holdings to the holder of the Redemption Call Purchase Price for
                each such Exchangeable Share, and CERI shall have no obligation
                to redeem, or to pay any Dividend Amount to any holder in
                respect of, such Exchangeable Shares so purchased by Capital
                Holdings.

         (b)    To exercise the Redemption Call Right, Capital Holdings must
                notify the Transfer Agent, as agent for the holders of
                Exchangeable Shares, and CERI of Capital Holdings' intention to
                exercise such right at least 30 days before the Redemption Date,
                except in the case of a redemption occurring as a result of a
                WSI Control Transaction or an Exchangeable Share Voting Event
                (each as defined in the Exchangeable Share Provisions), in which
                case Capital Holdings shall so notify the Transfer Agent and
                CERI on or before the Redemption Date. The Transfer Agent will
                notify the holders of the Exchangeable Shares as to whether or
                not Capital Holdings has exercised the Redemption Call Right
                forthwith after the earlier of (i) receipt of notice by the
                Transfer Agent from Capital Holdings of its intention to
                exercise such right and (ii) the expiry of the period during
                which the same may be exercised by Capital Holdings. If Capital
                Holdings exercises the Redemption Call Right, then on the
                Redemption Date Capital Holdings will purchase and such holders
                will sell all of the Exchangeable Shares then outstanding for a
                price per Exchangeable Share equal to the Redemption Call
                Purchase Price.

         (c)    For the purposes of completing the purchase of the Exchangeable
                Shares pursuant to the Redemption Call Right, Capital Holdings
                shall deposit with the Transfer Agent, on or before the
                Redemption Date, certificates representing the aggregate number
                of WSI




                                       13


                Common Shares deliverable by Capital Holdings upon the exercise
                of such right and a cheque or cheques of Capital Holdings
                payable at par at any branch of the bankers of Capital Holdings
                representing the aggregate Dividend Amount, if any, in payment
                of the total Redemption Call Purchase Price, less any amounts
                withheld pursuant to Section 4.8 hereof. Provided that Capital
                Holdings has complied with the immediately preceding sentence,
                on and after the Redemption Date the rights of each holder of
                Exchangeable Shares will be limited to receiving, without
                interest, such holder's proportionate part of the total
                Redemption Call Purchase Price payable by Capital Holdings upon
                presentation and surrender by the holder of certificates
                representing the Exchangeable Shares held by such holder and the
                holder shall on and after the Redemption Date be considered and
                deemed for all purposes to be the holder of the WSI Common
                Shares to which it is entitled. Upon surrender to the Transfer
                Agent of a certificate or certificates representing Exchangeable
                Shares, together with such other documents and instruments as
                may be required to effect a transfer of Exchangeable Shares
                under the OBCA and the articles and by-laws of CERI and such
                additional documents, instruments and payments as the Transfer
                Agent may reasonably require, the holder of such surrendered
                certificate or certificates shall be entitled to receive in
                exchange therefor, and the Transfer Agent on behalf of Capital
                Holdings shall deliver to such holder, certificates representing
                the WSI Common Shares (which securities shall be fully paid and
                non-assessable and shall be free and clear of any lien, claim or
                encumbrance) to which the holder is entitled and a cheque or
                cheques of Capital Holdings payable at par at any branch of the
                bankers of Capital Holdings in payment of the remaining portion,
                if any, of the total Redemption Call Purchase Price, less any
                amounts withheld pursuant to Section 4.8. If Capital Holdings
                does not exercise the Redemption Call Right in the manner
                described above, on the Redemption Date the holders of the
                Exchangeable Shares will be entitled to receive in exchange
                therefor the Redemption Price plus accrued and unpaid dividends
                payable by CERI in connection with the redemption of the
                Exchangeable Shares pursuant to Article 7 of the Exchangeable
                Share Provisions.

                                   ARTICLE 6
                                   AMENDMENTS

6.1             AMENDMENTS TO PLAN OF ARRANGEMENT

                CERI reserves the right to amend, modify and/or supplement this
Plan of Arrangement at any time and from time to time prior to the Effective
Date, provided that each such amendment, modification and/or supplement must be
(i) set out in writing, (ii) approved by WSI, (iii) filed with the Court and, if
made following the CERI Meeting, approved by the Court and (iv) communicated to
CERI Shareholders if and as required by the Court.

                  Any amendment, modification or supplement to this Plan of
Arrangement may be proposed by CERI at any time prior to the CERI Meeting
(provided that WSI shall have consented thereto) with or without any other prior
notice or communication, and if so proposed and accepted by the Persons voting
at the CERI Meeting (other than as may be required under the Interim Order),
shall become part of this Plan of Arrangement for all purposes.

                  Any amendment, modification or supplement to this Plan of
Arrangement that is approved by the Court following the CERI Meeting shall be
effective only if (i) it is consented to by each of CERI and WSI and (ii) if
required by the Court, it is consented to by the CERI Shareholders voting in the
manner directed by the Court.



                                       14


                  Any amendment, modification or supplement to this Plan of
Arrangement may be made following the Effective Date unilaterally by WSI,
provided that it concerns a matter which, in the reasonable opinion of WSI, is
of an administrative nature required to better give effect to the implementation
of this Plan of Arrangement and is not adverse to the financial or economic
interests of any holder of CERI Common Shares.

                                   ARTICLE 7
                               FURTHER ASSURANCES

7.1                     Notwithstanding that the transactions and events set out
herein shall occur and be deemed to occur in the order set out in this Plan of
Arrangement without any further act or formality, each of the parties to the
Arrangement Agreement shall make, do and execute, or cause to be made, done and
executed, all such further acts, deeds, agreements, transfers, assurances,
instruments or documents as may reasonably be required by any of them in order
further to document or evidence any of the transactions or events set out
herein.





                                       15



                                   APPENDIX 1

                          EXCHANGEABLE SHARE PROVISIONS


                                       16

EX-3.2

                                                                     EXHIBIT 3.2

                           PROVISIONS ATTACHING TO THE

           EXCHANGEABLE SHARES OF CAPITAL ENVIRONMENTAL RESOURCE INC.

The Exchangeable Shares shall have the following rights, privileges,
restrictions and conditions:

                                   ARTICLE 1
                                INTERPRETATION

1.1             For the purposes of these share provisions, unless there is
something in the subject matter or context inconsistent therewith, the following
terms shall have the following meanings, respectively:

         "AFFILIATE" of any person means any other person directly or indirectly
         controlled by, or under control of, that person. For the purposes of
         this definition, "control" (including, with correlative meanings, the
         terms "controlled by" and "under common control of"), as applied to any
         person, means the possession by another person of the power to direct
         or cause the direction of the management and policies of that first
         mentioned person through the direct or indirect ownership of over 50%
         of the voting securities;

         "ARRANGEMENT" means the arrangement under section 182 of the OBCA on
         the terms and subject to the conditions set out in the Plan of
         Arrangement, to which plan these share provisions are attached as
         Appendix 1 and which Plan of Arrangement (other than Appendix 1
         thereto) is attached to these share provisions as Exhibit A, subject to
         any amendments or variations thereto made in accordance with section
         6.1 of the Arrangement Agreement or Article 6 of the Plan of
         Arrangement or made at the direction of the Court in the Final Order;

         "ARRANGEMENT AGREEMENT" means the agreement made June 9, 2004 among
         WSI, CERI and Capital Holdings, as amended, supplemented or restated in
         accordance therewith prior to the Effective Date, providing for, among
         other things, the Arrangement;

         "BOARD OF DIRECTORS" means the board of directors of CERI;

         "BUSINESS DAY" means any day on which commercial banks are generally
         open for business in New York, New York and Toronto, Ontario, other
         than a Saturday, a Sunday or a day observed as a statutory holiday in
         New York, New York under the laws of the State of New York or the
         federal laws of the United States of America or in Toronto, Ontario
         under the laws of the Province of Ontario or the federal laws of
         Canada;

         "CANADIAN DOLLAR EQUIVALENT" means in respect of an amount expressed in
         a currency other than Canadian dollars (the "FOREIGN CURRENCY AMOUNT")
         at any date, the product obtained by multiplying:

         (a)      the Foreign Currency Amount by,

         (b)      the noon spot exchange rate on such date for such foreign
                  currency expressed in Canadian dollars as reported by the Bank
                  of Canada or, in the event such spot exchange rate is not
                  available, such spot exchange rate on such date for such
                  foreign currency




                  expressed in Canadian dollars as may be deemed by the Board of
                  Directors to be appropriate for such purpose;

         "CAPITAL HOLDINGS" means Capital Environmental Holdings Company, an
         unlimited liability company existing under the laws of the Province of
         Nova Scotia and a subsidiary of WSI;

         "CAPITAL HOLDINGS CALL NOTICE" has the meaning ascribed thereto in
         Section 6.3 hereof;

         "CERI" means Capital Environmental Resource Inc., a company existing
         under the laws of the Province of Ontario;

         "CERI COMMON SHARES" means the voting common shares in the capital of
         CERI;

         "CERI PREFERRED SHARES" means the preferred shares in the capital of
         CERI;

         "COURT" means the Ontario Superior Court of Justice;

         "CURRENT MARKET PRICE" means, in respect of a WSI Common Share on any
         date, the Canadian Dollar Equivalent of the average of the closing bid
         and ask prices of WSI Common Shares during a period of 20 consecutive
         trading days ending not more than three trading days before such date
         on NASDAQ, or, if the WSI Common Shares are not then quoted on NASDAQ,
         on such other stock exchange or automated quotation system on which the
         WSI Common Shares are listed or quoted, as the case may be, as may be
         selected by the Board of Directors for such purpose; provided, however,
         that if in the opinion of the Board of Directors, acting reasonably and
         in good faith, the public distribution or trading activity of WSI
         Common Shares during such period (whether or not traded on a stock
         exchange or automated quotation system) does not create a market which
         reflects the fair market value of a WSI Common Share, then the Current
         Market Price of a WSI Common Share shall be determined by the Board of
         Directors, in good faith and in its sole discretion, and provided
         further that any such selection, opinion or determination by the Board
         of Directors shall be conclusive and binding;

         "DIRECTOR" means the Director appointed pursuant to section 278 of the
         OBCA;

         "DIVIDEND AMOUNT" has the meaning ascribed thereto in Section 6.3
         hereof;

         "DROP DEAD DATE" means August 31, 2004, or such later date as may be
         mutually agreed to by the parties to the Arrangement Agreement;

         "EFFECTIVE DATE" means the date shown on the certificate of arrangement
         to be issued by the Director under the OBCA giving effect to the
         Arrangement, provided that such date occurs on or prior to the Drop
         Dead Date;

         "EXCHANGEABLE SHARE VOTING EVENT" means any matter in respect of which
         holders of Exchangeable Shares are entitled to vote as a separate class
         of shareholders of CERI, including to approve or disapprove, as
         applicable, any change to, or in the rights of the holders of, the
         Exchangeable Shares to maintain their economic equivalence with the WSI
         Common Shares, but, for greater certainty, does not include any matter
         in respect of which holders of Exchangeable Shares are entitled to vote
         (or instruct the Trustee to vote) in their capacity as Beneficiaries
         under (and as that term is defined in) the Voting and Exchange Trust
         Agreement;



         "EXCHANGEABLE SHARES" means the exchangeable shares in the capital of
         CERI, having the rights, privileges, restrictions and conditions set
         forth herein;

         "FINAL ORDER" means the final order of the Court approving the
         Arrangement as such order may be amended by the Court at any time prior
         to the Effective Date or, if appealed, then, unless such appeal is
         withdrawn or denied, as affirmed;

         "GOVERNMENTAL ENTITY" means any (a) multinational, federal, provincial,
         territorial, state, regional, municipal, local or other government,
         governmental or public department, central bank, court, tribunal,
         arbitral body, commission, board, bureau or agency, domestic or
         foreign, (b) any subdivision, agent, commission, board or authority of
         any of the foregoing, (c) any regulatory agency or self-regulatory
         authority (including the Ontario Securities Commission, the Quebec
         Securities Commission, the NASDAQ and the United States Securities and
         Exchange Commission) or (d) any quasi-governmental or private body
         exercising any regulatory, expropriation or taxing authority under or
         for the account of any of the foregoing;

         "ITA" means the Income Tax Act (Canada), as amended;

         "LIQUIDATION AMOUNT" has the meaning ascribed thereto in Section 5.1
         hereof;

         "LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in section
         5.1 of the Plan of Arrangement;

         "LIQUIDATION DATE" has the meaning ascribed thereto in Section 5.1
         hereof;

         "NASDAQ" means the NASDAQ National Market;

         "OBCA" means the Business Corporations Act (Ontario), as now in effect
         and as may be amended from time to time prior to the Effective Date;

         "PERSON" includes any individual, firm, partnership, joint venture,
         venture capital fund, limited liability company, unlimited liability
         company, association, trust, trustee, executor, administrator, legal
         personal representative, estate, group, body corporate, corporation,
         unincorporated association or organization, Governmental Entity,
         syndicate or other entity, whether or not having legal status;

         "PLAN OF ARRANGEMENT" means the plan of arrangement substantially in
         the form and content of Schedule C annexed to the Arrangement Agreement
         and any amendments or variations thereto made in accordance with
         section 6.1 of the Arrangement Agreement or Article 6 of the Plan of
         Arrangement or made at the direction of the Court in the Final Order;

         "PURCHASE PRICE" has the meaning ascribed thereto in Section 6.3
         hereof;

         "REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
         section 5.2 of the Plan of Arrangement;

         "REDEMPTION CALL RIGHT" has the meaning ascribed thereto in section 5.2
         of the Plan of Arrangement;

         "REDEMPTION DATE" means the date, if any, established by the Board of
         Directors for the redemption by CERI of all but not less than all of
         the outstanding Exchangeable Shares pursuant





         to Article 7 of these share provisions, which date shall be no earlier
         than December 31, 2016, unless:

         (a)      there are fewer than one million Exchangeable Shares
                  outstanding (other than Exchangeable Shares held by WSI and
                  its affiliates, and as such number of shares may be adjusted
                  as deemed appropriate by the Board of Directors to give effect
                  to any subdivision or consolidation of or stock dividend on
                  the Exchangeable Shares, any issue or distribution of rights
                  to acquire Exchangeable Shares or securities exchangeable for
                  or convertible into Exchangeable Shares, any issue or
                  distribution of other securities or rights or evidences of
                  indebtedness or assets, or any other capital reorganization or
                  other transaction affecting the Exchangeable Shares), in which
                  case the Board of Directors may accelerate such redemption
                  date to such date prior to December 31, 2016 as it may
                  determine, upon at least 60 days' prior written notice to the
                  registered holders of the Exchangeable Shares and the Trustee;

         (b)      a WSI Control Transaction occurs, in which case, provided that
                  the Board of Directors determines, in good faith and in its
                  sole discretion, that it is not reasonably practicable to
                  substantially replicate the terms and conditions of the
                  Exchangeable Shares in connection with such WSI Control
                  Transaction and that the redemption of all but not less than
                  all of the outstanding Exchangeable Shares is necessary to
                  enable the completion of such WSI Control Transaction in
                  accordance with its terms, the Board of Directors may
                  accelerate such redemption date to such date prior to December
                  31, 2016 as it may determine, upon such number of days' prior
                  written notice to the registered holders of the Exchangeable
                  Shares and the Trustee as the Board of Directors may determine
                  to be reasonably practicable in such circumstances;

         (c)      an Exchangeable Share Voting Event is proposed and (i) the
                  Board of Directors has determined, in good faith and in its
                  sole discretion, that it is not reasonably practicable to
                  accomplish the business purpose intended by the Exchangeable
                  Share Voting Event, which business purpose must be bona fide
                  and not for the primary purpose of causing the occurrence of a
                  Redemption Date, in any other commercially reasonable manner
                  that does not result in an Exchangeable Share Voting Event and
                  (ii) the holders of Exchangeable Shares fail to take the
                  necessary action at a meeting or other vote of holders of
                  Exchangeable Shares to approve or disapprove, as applicable,
                  the Exchangeable Share Voting Event, in which case the
                  redemption date shall be the Business Day following the day on
                  which the holders of Exchangeable Shares failed to take such
                  action and the Board of Directors shall give such number of
                  days' prior written notice of such redemption to the
                  registered holders of the Exchangeable Shares and the Trustee
                  as the Board of Directors may determine to be reasonably
                  practicable in such circumstances; or

         (d)      applicable Canadian tax legislation is amended and becomes
                  effective such that substantially all holders of Exchangeable
                  Shares who are residents of Canada (which shall be deemed to
                  include holders of all but one million of the issued and
                  outstanding Exchangeable Shares, other than WSI and its
                  affiliates and non-residents of Canada) may exchange their
                  Exchangeable Shares for WSI Common Shares on a tax deferred
                  basis, in which case the Board of Directors may accelerate
                  such Redemption Date to such date prior to December 31, 2016
                  as they may determine, upon at least 60 days' prior written
                  notice to the registered holders of Exchangeable Shares and
                  the Trustee,



         provided, however, that the accidental failure or omission to give any
         notice of redemption under clauses (a), (b), (c) or (d) above to any
         holder of Exchangeable Shares shall not affect the validity of any such
         redemption;

         "REDEMPTION PRICE" has the meaning ascribed thereto in Section 7.1
         hereof;

         "RETRACTED SHARES" has the meaning ascribed thereto in Section 6.1(a)
         hereof;

         "RETRACTION CALL RIGHT" has the meaning ascribed thereto in Section
         6.1(c) hereof;

         "RETRACTION DATE" has the meaning ascribed thereto in Section 6.1(b)
         hereof;

         "RETRACTION PRICE" has the meaning ascribed thereto in Section 6.1
         hereof;

         "RETRACTION REQUEST" has the meaning ascribed thereto in Section 6.1
         hereof;

         "SECURITIES ACT" means the Securities Act (Ontario) and the rules,
         regulations and policies made thereunder, as now in effect and as they
         may be amended from time to time prior to the Effective Date;

         "SUPPORT AGREEMENT" means an agreement to be made among CERI, WSI and
         Capital Holdings substantially in the form and content of Schedule D
         annexed to the Arrangement Agreement, with such changes thereto as the
         parties to the Arrangement Agreement, acting reasonably, may agree, a
         copy of which is available at the records office of CERI;

         "TRANSFER AGENT" means American Stock Transfer & Trust Company or such
         other Person as may from time to time be appointed by CERI as the
         registrar and transfer agent for the Exchangeable Shares;

         "TRUSTEE" means the trustee chosen by CERI and WSI, acting reasonably,
         to act as trustee under the Voting and Exchange Trust Agreement, being
         a corporation existing under the laws of Canada or any province therein
         and authorized to carry on the business of a trust company in Canada,
         and any successor trustee appointed under the Voting and Exchange Trust
         Agreement;

         "VOTING AND EXCHANGE TRUST AGREEMENT" means an agreement to be made
         between WSI, CERI and the Trustee in connection with the Plan of
         Arrangement substantially in the form and content of Schedule E annexed
         to the Arrangement Agreement, with such changes thereto as the parties
         to the Arrangement Agreement, acting reasonably, may agree;

         "WSI" means Waste Services, Inc., a corporation existing under the laws
         of the State of Delaware;

         "WSI COMMON SHARES" means the shares of common stock in the capital of
         WSI and any other securities into which such shares may be changed;

         "WSI CONTROL TRANSACTION" means any merger, amalgamation, tender offer,
         material sale of shares or rights or interests therein or thereto or
         similar transactions involving WSI (other than internal reorganizations
         or transactions in the ordinary course which do not result in a change
         of control of WSI) or any proposal to do so that has been approved by
         the Board of Directors and recommended to the shareholders of WSI for
         approval; and



         "WSI DIVIDEND DECLARATION DATE" means the date on which the board of
         directors of WSI declares any dividend on the WSI Common Shares.

1.2             The division of these share provisions into Articles, Sections
and other portions and the insertion of headings are for convenience of
reference only and shall not affect the construction or interpretation of these
share provisions. Unless otherwise indicated, all references to an "Article" or
"Section" followed by a number or a letter refer to the specified Article or
Section of these share provisions. The terms "these share provisions", "hereof",
"herein" and "hereunder" and similar expressions refer to these share provisions
and not to any particular Article, Section or other portion hereof and include
any agreement or instrument supplementary or ancillary hereto.

1.3             If any date on which any action is required to be taken under
these share provisions is not a Business Day, such action shall be required to
be taken on the next succeeding Business Day. Words importing the singular
number only shall include the plural and vice versa. Words importing any gender
shall include all genders.

                                   ARTICLE 2
                         RANKING OF EXCHANGEABLE SHARES

2.1             The Exchangeable Shares shall be entitled to a preference over
the CERI Common Shares, the CERI Preferred Shares and any other shares ranking
junior to the Exchangeable Shares with respect to the payment of dividends and
the distribution of assets in the event of the liquidation, dissolution or
winding-up of CERI, whether voluntary or involuntary, or any other distribution
of the assets of CERI, among its shareholders for the purpose of winding up its
affairs.

                                   ARTICLE 3
                                    DIVIDENDS

3.1             A holder of an Exchangeable Share shall be entitled to receive
and the Board of Directors shall, subject to applicable law, on each WSI
Dividend Declaration Date, declare a dividend on each Exchangeable Share:

         (a)    in the case of a cash dividend declared on the WSI Common
                Shares, in an amount in cash for each Exchangeable Share in U.S.
                dollars, or the Canadian Dollar Equivalent thereof, on the WSI
                Dividend Declaration Date, in each case, corresponding to the
                cash dividend declared on each WSI Common Share;

         (b)    in the case of a stock dividend declared on the WSI Common
                Shares to be paid in WSI Common Shares, by the issue or transfer
                by CERI of such number of Exchangeable Shares for each
                Exchangeable Share as is equal to the number of WSI Common
                Shares to be paid on each WSI Common Share unless in lieu of
                such stock dividend CERI elects to effect a corresponding,
                contemporaneous and economically equivalent (as determined by
                the Board of Directors in accordance with Section 3.5 hereof)
                subdivision of the outstanding Exchangeable Shares; and

         (c)    in the case of a dividend declared on the WSI Common Shares in
                property other than cash or WSI Common Shares, in such type and
                amount of property for each Exchangeable Share as is the same as
                or economically equivalent (as determined by the Board of
                Directors, acting reasonably in accordance with Section 3.5
                hereof) to the type and amount of property declared as a
                dividend on each WSI Common Share.




                Such dividends shall be paid out of money, assets or property of
CERI properly applicable to the payment of dividends, or out of authorized but
unissued shares of CERI, as applicable.

3.2             Cheques of CERI payable at par at any branch of the bankers of
CERI shall be issued in respect of any cash dividends contemplated by Section
3.1(a) hereof and the sending of such a cheque to each holder of an Exchangeable
Share shall satisfy the cash dividend represented thereby unless the cheque is
not paid on presentation. Certificates registered in the name of the registered
holder of Exchangeable Shares shall be issued or transferred in respect of any
stock dividends contemplated by Section 3.1(b) hereof and the sending of such a
certificate to each holder of an Exchangeable Share shall satisfy the stock
dividend represented thereby. Such other type and amount of property in respect
of any dividends contemplated by Section 3.1(c) hereof shall be issued,
distributed or transferred by CERI in such manner as it shall determine and the
issuance, distribution or transfer thereof by CERI to each holder of an
Exchangeable Share shall satisfy the dividend represented thereby. No holder of
an Exchangeable Share shall be entitled to recover by action or other legal
process against CERI any dividend that is represented by a cheque that has not
been duly presented to CERI's bankers for payment or that otherwise remains
unclaimed for a period of six years from the date on which such dividend was
payable.

3.3             The record date for the determination of the holders of
Exchangeable Shares entitled to receive payment of, and the payment date for,
any dividend declared on the Exchangeable Shares under Section 3.1 hereof shall
be the same dates as the record date and payment date, respectively, for the
corresponding dividend declared on the WSI Common Shares.

3.4             If on any payment date for any dividends declared on the
Exchangeable Shares under Section 3.1 hereof the dividends are not paid in full
on all of the Exchangeable Shares then outstanding, any such dividends that
remain unpaid shall be paid on a subsequent date or dates determined by the
Board of Directors on which CERI shall have sufficient moneys, assets or
property properly applicable to the payment of such dividends.

3.5             The Board of Directors shall determine, in good faith and in its
sole discretion, economic equivalence for the purposes of Section 3.1 hereof,
and each such determination shall be conclusive and binding on CERI and its
shareholders. In making each such determination, the following factors shall,
without excluding other factors determined by the Board of Directors to be
relevant, be considered by the Board of Directors:

         (a)    in the case of any stock dividend or other distribution payable
                in WSI Common Shares, the number of such shares issued in
                proportion to the number of WSI Common Shares previously
                outstanding;

         (b)    in the case of the issuance or distribution of any rights,
                options or warrants to subscribe for or purchase WSI Common
                Shares (or securities exchangeable for or convertible into or
                carrying rights to acquire WSI Common Shares), the terms of such
                rights, options or warrants and the relationship between the
                exercise price of each such right, option or warrant, the number
                of such rights, options or warrants to be issued or distributed
                in respect of each WSI Common Share and the Current Market
                Price;

         (c)    in the case of the issuance or distribution of any other form of
                property (including without limitation any shares or securities
                of WSI of any class other than WSI Common Shares, any rights,
                options or warrants other than those referred to in Section
                3.5(b) above, any evidences of indebtedness of WSI or any assets
                of WSI), the relationship between the fair market value (as
                determined by the Board of Directors, acting






                reasonably) of such property to be issued or distributed with
                respect to each outstanding WSI Common Share and the Current
                Market Price; and

         (d)    in the case of any subdivision, redivision or change of the then
                outstanding WSI Common Shares into a greater number of WSI
                Common Shares or the reduction, combination, consolidation or
                change of the then outstanding WSI Common Shares into a lesser
                number of WSI Common Shares or any amalgamation, merger,
                reorganization or other transaction affecting WSI Common Shares,
                the effect thereof upon the then outstanding WSI Common Shares.

                                   ARTICLE 4
                              CERTAIN RESTRICTIONS

4.1             So long as any of the Exchangeable Shares are outstanding, CERI
shall not at any time without, but may at any time with, the approval of the
holders of the Exchangeable Shares given as specified in Section 10.2 hereof:

         (a)    pay any dividends on the CERI Common Shares, CERI Preferred
                Shares or any other shares ranking junior to the Exchangeable
                Shares, other than stock dividends payable in CERI Common
                Shares, CERI Preferred Shares or any such other shares ranking
                junior to the Exchangeable Shares, as the case may be;

         (b)    redeem or purchase or make any capital distribution in respect
                of CERI Common Shares, CERI Preferred Shares or any other shares
                ranking junior to the Exchangeable Shares;

         (c)    redeem or purchase any other shares of CERI ranking equally with
                the Exchangeable Shares with respect to the payment of dividends
                or on any liquidation distribution; or

         (d)    issue any Exchangeable Shares or any other shares of CERI
                ranking equally with, or superior to, the Exchangeable Shares
                other than by way of stock dividends to the holders of such
                Exchangeable Shares.

The restrictions in Sections 4.1(a), (b), (c) and (d) above shall not apply if
all dividends on the outstanding Exchangeable Shares corresponding to dividends
declared and paid to date on the WSI Common Shares shall have been declared and
paid on the Exchangeable Shares.

                                   ARTICLE 5
                           DISTRIBUTION ON LIQUIDATION

5.1             In the event of the liquidation, dissolution or winding-up of
CERI or any other distribution of the assets of CERI among its shareholders for
the purpose of winding up its affairs, a holder of Exchangeable Shares shall be
entitled, subject to applicable law, to receive from the assets of CERI in
respect of each Exchangeable Share held by such holder on the effective date
(the "LIQUIDATION DATE") of such liquidation, dissolution or winding-up, before
any distribution of any part of the assets of CERI among the holders of the CERI
Common Shares, CERI Preferred Shares or any other shares ranking junior to the
Exchangeable Shares, an amount per share equal to the Current Market Price on
the last Business Day prior to the Liquidation Date (the "LIQUIDATION Amount"),
which shall be satisfied in full by CERI causing to be delivered to such holder
one WSI Common Share, together with all declared and unpaid dividends on each
such Exchangeable Share held by such holder on any dividend record date

which occurred prior to the Liquidation Date (in each case less any amounts
withheld on account of tax required to be deducted and withheld therefrom).

5.2             On or promptly after the Liquidation Date, and subject to the
exercise by Capital Holdings of the Liquidation Call Right, CERI shall cause to
be delivered to the holders of the Exchangeable Shares the Liquidation Amount
for each such Exchangeable Share upon presentation and surrender of the
certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the articles and by-laws of CERI and such
additional documents and instruments as the Transfer Agent may reasonably
require, at the registered office of CERI or at any office of the Transfer Agent
as may be specified by CERI by notice to the holders of the Exchangeable Shares.
Payment of the total Liquidation Amount for such Exchangeable Shares shall be
made by delivery to each holder, at the address of the holder recorded in the
register of shareholders of CERI for the Exchangeable Shares or by holding for
pick-up by the holder at the registered office of CERI or at any office of the
Transfer Agent as may be specified by CERI by notice to the holders of
Exchangeable Shares, on behalf of CERI of certificates representing WSI Common
Shares (which shares shall be duly issued as fully paid and non-assessable and
shall be free and clear of any lien, claim or encumbrance) and a cheque of CERI
payable at par at any branch of the bankers of CERI in respect of the remaining
portion, if any, of the total Liquidation Amount (in each case less any amounts
withheld on account of tax required to be deducted and withheld therefrom). On
and after the Liquidation Date, the holders of the Exchangeable Shares shall
cease to be holders of such Exchangeable Shares and shall not be entitled to
exercise any of the rights of holders in respect thereof, other than the right
to receive their proportionate part of the total Liquidation Amount, unless
payment of the total Liquidation Amount for such Exchangeable Shares shall not
be made upon presentation and surrender of share certificates in accordance with
the foregoing provisions, in which case the rights of the holders shall remain
unaffected until the total Liquidation Amount has been paid in the manner
hereinbefore provided. CERI shall have the right at any time after the
Liquidation Date to deposit or cause to be deposited the total Liquidation
Amount in respect of the Exchangeable Shares represented by certificates that
have not at the Liquidation Date been surrendered by the holders thereof in a
custodial account with any chartered bank or trust company in Canada. Upon such
deposit being made, the rights of the holders of Exchangeable Shares thereafter
shall be limited to receiving their proportionate part of the total Liquidation
Amount (in each case less any amounts withheld on account of tax required to be
deducted and withheld therefrom) for such Exchangeable Shares so deposited,
against presentation and surrender of the said certificates held by them,
respectively, in accordance with the foregoing provisions. Upon such payment or
deposit of the total Liquidation Amount, the holders of the Exchangeable Shares
shall thereafter be considered and deemed for all purposes to be holders of the
WSI Common Shares delivered to them or the custodian on their behalf.

5.3             After CERI has satisfied its obligations to pay the holders of
the Exchangeable Shares the Liquidation Amount per Exchangeable Share pursuant
to Sections 5.1 and 5.2 hereof, such holders shall not be entitled to share in
any further distribution of the assets of CERI.

                                   ARTICLE 6
                   RETRACTION OF EXCHANGEABLE SHARES BY HOLDER

6.1             A holder of Exchangeable Shares shall be entitled at any time,
subject to the exercise by Capital Holdings of the Retraction Call Right and
otherwise upon compliance with the provisions of this Article 6, to require CERI
to redeem any or all of the Exchangeable Shares registered in the name of such
holder for an amount per share equal to the Current Market Price of a WSI Common
Share on the last Business Day prior to the Retraction Date (the "RETRACTION
PRICE"), which shall be satisfied in full by CERI causing to be delivered to
such holder one WSI Common Share for each Exchangeable Share presented and
surrendered by the holder, together with, on the payment date therefor, the full
amount of





all declared and unpaid dividends on any such Exchangeable Share held by such
holder on any dividend record date which occurred prior to the Retraction Date
(in each case less any amounts withheld on account of tax required to be
deducted and withheld therefrom). To effect such redemption, the holder shall
present and surrender at the registered office of CERI or at any office of the
Transfer Agent as may be specified by CERI by notice to the holders of
Exchangeable Shares the certificate or certificates representing the
Exchangeable Shares which the holder desires to have CERI redeem, together with
such other documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the articles and by-laws of CERI and such
additional documents and instruments as the Transfer Agent may reasonably
require, and together with a duly executed statement (the "RETRACTION REQUEST")
in the form of Schedule A hereto or in such other form as may be acceptable to
CERI:

         (a)    specifying that the holder desires to have all or any number
                specified therein of the Exchangeable Shares represented by such
                certificate or certificates (the "RETRACTED SHARES") redeemed by
                CERI;

         (b)    stating the Business Day on which the holder desires to have
                CERI redeem the Retracted Shares (the "RETRACTION DATE"),
                provided that (i) the Retraction Date shall be not less than 10
                Business Days nor more than 15 Business Days after the date on
                which the Retraction Request is received by CERI and (ii) in the
                event that no such Business Day is specified by the holder in
                the Retraction Request, the Retraction Date shall be deemed to
                be the 15th Business Day after the date on which the Retraction
                Request is received by CERI and provided further that if the
                Retraction Date resulting from the foregoing is not a Tuesday or
                Friday then the Retraction Date shall be the nearest following
                Tuesday or Friday (or, if such Tuesday or Friday is not a
                Business Day, the Business Day preceding such Tuesday or
                Friday); and

         (c)    acknowledging the overriding right (the "RETRACTION CALL RIGHT")
                of Capital Holdings to purchase all but not less than all of the
                Retracted Shares directly from the holder and that the
                Retraction Request shall be deemed to be a revocable offer by
                the holder to sell the Retracted Shares to Capital Holdings in
                accordance with the Retraction Call Right on the terms and
                conditions set out in Section 6.3 below.

6.2             Subject to the exercise by Capital Holdings of the Retraction
Call Right, upon receipt by CERI or the Transfer Agent in the manner specified
in Section 6.1 hereof of a certificate or certificates representing the number
of Retracted Shares, together with a Retraction Request, and provided that the
Retraction Request is not revoked by the holder in the manner specified in
Section 6.7, CERI shall redeem the Retracted Shares effective at the close of
business on the Retraction Date and shall cause to be delivered to such holder
the total Retraction Price with respect to such shares, provided that all
declared and unpaid dividends for which the record date has occurred prior to
the Retraction Date shall be paid on the payment date for such dividends. If
only a part of the Exchangeable Shares represented by any certificate is
redeemed (or purchased by Capital Holdings pursuant to the Retraction Call
Right), a new certificate for the balance of such Exchangeable Shares shall be
issued to the holder at the expense of CERI.

6.3             Upon receipt by CERI of a Retraction Request, CERI shall
immediately notify Capital Holdings thereof and shall provide to Capital
Holdings a copy of the Retraction Request. In order to exercise the Retraction
Call Right, Capital Holdings must notify CERI of its determination to do so (the
"CAPITAL HOLDINGS CALL NOTICE") within five Business Days of notification to
Capital Holdings by CERI of the receipt by CERI of the Retraction Request. If
Capital Holdings does not so notify CERI within such five Business Day period,
CERI will notify the holder as soon as possible thereafter that Capital Holdings
will not exercise the Retraction Call Right. If Capital Holdings delivers the
Capital Holdings Call Notice





within such five Business Day period, and provided that the Retraction Request
is not revoked by the holder in the manner specified in Section 6.7, the
Retraction Request shall thereupon be considered only to be an offer by the
holder to sell the Retracted Shares to Capital Holdings in accordance with the
Retraction Call Right. In such event, CERI shall not redeem the Retracted Shares
and Capital Holdings shall purchase from such holder and such holder shall sell
to Capital Holdings on the Retraction Date the Retracted Shares for a purchase
price (the "PURCHASE PRICE") per share equal to the Retraction Price per share,
which shall be satisfied in full by Capital Holdings causing to be delivered to
such holder one WSI Common Share for each purchased Exchangeable Share, plus, on
the designated payment date therefor, to the extent not paid by CERI on the
designated payment date therefor, an additional amount equivalent to the full
amount of all declared and unpaid dividends on those Retracted Shares held by
such holder on any dividend record date which occurred prior to the Retraction
Date (the "DIVIDEND AMOUNT"). For the purposes of completing a purchase pursuant
to the Retraction Call Right, Capital Holdings shall deposit with the Transfer
Agent, on or before the Retraction Date, certificates representing WSI Common
Shares and a cheque or cheques of Capital Holdings payable at par at any branch
of the bankers of Capital Holdings representing the aggregate Dividend Amount,
less any amounts withheld on account of tax required to be deducted and withheld
therefrom pursuant to Section 13.3. Provided that Capital Holdings has complied
with the immediately preceding sentence, the closing of the purchase and sale of
the Retracted Shares pursuant to the Retraction Call Right shall be deemed to
have occurred as at the close of business on the Retraction Date and, for
greater certainty, no redemption by CERI of such Retracted Shares shall take
place on the Retraction Date. In the event that Capital Holdings does not
deliver a Capital Holdings Call Notice within such five Business Day period, and
provided that the Retraction Request is not revoked by the holder in the manner
specified in Section 6.7, CERI shall redeem the Retracted Shares on the
Retraction Date and in the manner otherwise contemplated in this Article 6.

6.4             CERI or Capital Holdings, as the case may be, shall deliver or
cause the Transfer Agent to deliver to the relevant holder, at the address of
the holder recorded in the register of shareholders of CERI for the Exchangeable
Shares or at the address specified in the holder's Retraction Request or by
holding for pick-up by the holder at the registered office of CERI or at any
office of the Transfer Agent as may be specified by CERI by notice to the
holders of Exchangeable Shares, certificates representing the WSI Common Shares
(which shares shall be duly issued as fully paid and non-assessable and shall be
free and clear of any lien, claim or encumbrance) registered in the name of the
holder or in such other name as the holder may request, and, if applicable and
on or before the payment date therefor, a cheque payable at par at any branch of
the bankers of CERI or Capital Holdings, as applicable, representing the
aggregate Dividend Amount, in payment of the total Retraction Price or the total
Purchase Price, as the case may be, in each case, less any amounts withheld on
account of tax required to be deducted and withheld therefrom, and such delivery
of such certificates and cheques on behalf of CERI or by Capital Holdings, as
the case may be, or by the Transfer Agent shall be deemed to be payment of and
shall satisfy and discharge all liability for the total Retraction Price or
total Purchase Price, as the case may be, to the extent that the same is
represented by such share certificates and cheques (plus any tax deducted and
withheld therefrom and remitted to the proper tax authority).

6.5             On and after the close of business on the Retraction Date, the
holder of the Retracted Shares shall cease to be a holder of such Retracted
Shares and shall not be entitled to exercise any of the rights of a holder in
respect thereof, other than the right to receive his proportionate part of the
total Retraction Price or total Purchase Price, as the case may be, unless upon
presentation and surrender of share certificates in accordance with the
foregoing provisions, payment of the total Retraction Price or the total
Purchase Price, as the case may be, shall not be made as provided in Section
6.4, in which case the rights of such holder shall remain unaffected until the
total Retraction Price or the total Purchase Price, as the case may be, has been
paid in the manner hereinbefore provided. On and after the close of business on
the Retraction Date, provided that presentation and surrender of certificates
and payment of the total Retraction Price or the total Purchase Price, as the
case may be, has been made in accordance with the





foregoing provisions, the holder of the Retracted Shares so redeemed by CERI or
purchased by Capital Holdings shall thereafter be considered and deemed for all
purposes to be a holder of the WSI Common Shares delivered to it.

6.6             Notwithstanding any other provision of this Article 6, CERI
shall not be obligated to redeem Retracted Shares specified by a holder in a
Retraction Request to the extent that such redemption of Retracted Shares would
be contrary to solvency requirements or other provisions of applicable law. If
CERI believes that on any Retraction Date it would not be permitted by any of
such provisions to redeem the Retracted Shares tendered for redemption on such
date, and provided that Capital Holdings shall not have exercised the Retraction
Call Right with respect to the Retracted Shares, CERI shall only be obligated to
redeem Retracted Shares specified by a holder in a Retraction Request to the
extent of the maximum number that may be so redeemed (rounded down to a whole
number of shares) as would not be contrary to such provisions and shall notify
the holder at least two Business Days prior to the Retraction Date as to the
number of Retracted Shares which will not be redeemed by CERI. In any case in
which the redemption by CERI of Retracted Shares would be contrary to solvency
requirements or other provisions of applicable law, CERI shall redeem Retracted
Shares in accordance with Section 6.2 hereof on a pro rata basis and shall issue
to each holder of Retracted Shares a new certificate, at the expense of CERI,
representing the Retracted Shares not redeemed by CERI pursuant to Section 6.2
hereof. Provided that the Retraction Request is not revoked by the holder in the
manner specified in Section 6.7, the holder of any such Retracted Shares not
redeemed by CERI pursuant to Section 6.2 hereof as a result of solvency
requirements or other provisions of applicable law shall be deemed by giving the
Retraction Request to require WSI to purchase such Retracted Shares from such
holder on the Retraction Date or as soon as practicable thereafter on payment by
WSI to such holder of the Purchase Price for each such Retracted Share pursuant
to the terms of the Voting and Exchange Trust Agreement.

6.7             A holder of Retracted Shares may, by notice in writing given by
the holder to CERI before the close of business on the Business Day immediately
preceding the Retraction Date, withdraw its Retraction Request, in which event
such Retraction Request shall be null and void and, for greater certainty, the
revocable offer constituted by the Retraction Request to sell the Retracted
Shares to Capital Holdings shall be deemed to have been revoked.

                                   ARTICLE 7
                    REDEMPTION OF EXCHANGEABLE SHARES BY CERI

7.1             Subject to applicable law, and provided Capital Holdings has not
exercised the Redemption Call Right, CERI shall on the Redemption Date redeem
all but not less than all of the then outstanding Exchangeable Shares for an
amount per share equal to the Current Market Price of a WSI Common Share on the
last Business Day prior to the Redemption Date (the "REDEMPTION PRICE"), which
shall be satisfied in full by CERI causing to be delivered to each holder of
Exchangeable Shares one WSI Common Share for each Exchangeable Share held by
such holder, together with the full amount of all declared and unpaid dividends
on each such Exchangeable Share held by such holder on any dividend record date
which occurred prior to the Redemption Date (in each case less any amounts
withheld on account of tax required to be deducted and withheld therefrom).

7.2             In any case of a redemption of Exchangeable Shares under this
Article 7, CERI shall, at least 30 days before the Redemption Date (other than a
Redemption Date established in connection with a WSI Control Transaction or an
Exchangeable Share Voting Event), send or cause to be sent to each holder of
Exchangeable Shares a notice in writing of the redemption by CERI or the
purchase by Capital Holdings under the Redemption Call Right, as the case may
be, of the Exchangeable Shares held by such holder. In the case of a Redemption
Date established in connection with a WSI Control Transaction or an Exchangeable
Share Voting Event, the written notice of redemption by CERI or the purchase by
Capital





Holdings under the Redemption Call Right will be sent on or before the
Redemption Date, on as many days prior written notice as may be determined by
the Board of Directors of CERI to be reasonably practicable in the
circumstances. In any such case, such notice shall set out the formula for
determining the Redemption Price or the Redemption Call Purchase Price, as the
case may be, the Redemption Date and, if applicable, particulars of the
Redemption Call Right.

7.3             On or promptly after the Redemption Date and subject to the
exercise by Capital Holdings of the Redemption Call Right, CERI shall cause to
be delivered to the holders of the Exchangeable Shares to be redeemed the
Redemption Price for each such Exchangeable Share, together with the full amount
of all declared and unpaid dividends on each such Exchangeable Share held by
such holder on any dividend record date which occurred prior to the Redemption
Date, upon presentation and surrender at the registered office of CERI, or at
any office of the Transfer Agent as may be specified by CERI in such notice, of
the certificates representing such Exchangeable Shares, together with such other
documents and instruments as may be required to effect a transfer of
Exchangeable Shares under the OBCA and the articles and by-laws of CERI and such
additional documents and instruments as the Transfer Agent may reasonably
require. Payment of the total Redemption Price for such Exchangeable Shares,
together with payment of such dividends, shall be made by delivery to each
holder, at the address of the holder recorded in the register of shareholders of
CERI or by holding for pick-up by the holder at the registered office of CERI or
at any office of the Transfer Agent as may be specified by CERI in such notice,
on behalf of CERI of certificates representing WSI Common Shares (which shares
shall be duly issued as fully paid and non-assessable and shall be free and
clear of any lien, claim or encumbrance) and, if applicable, a cheque of CERI
payable at par at any branch of the bankers of CERI in payment of any such
dividends, in each case, less any amounts withheld on account of tax required to
be deducted and withheld therefrom. On and after the Redemption Date, the
holders of the Exchangeable Shares called for redemption shall cease to be
holders of such Exchangeable Shares and shall not be entitled to exercise any of
the rights of holders in respect thereof, other than the right to receive their
proportionate part of the total Redemption Price and any such dividends, unless
payment of the total Redemption Price and any such dividends for such
Exchangeable Shares shall not be made upon presentation and surrender of
certificates in accordance with the foregoing provisions, in which case the
rights of the holders shall remain unaffected until the total Redemption Price
and any such dividends have been paid in the manner hereinbefore provided. CERI
shall have the right at any time after the sending of notice of its intention to
redeem the Exchangeable Shares as aforesaid to deposit or cause to be deposited
the total Redemption Price for and the full amount of such dividends on (except
as provided in the preceding sentence) the Exchangeable Shares so called for
redemption, or of such of the said Exchangeable Shares represented by
certificates that have not at the date of such deposit been surrendered by the
holders thereof in connection with such redemption, in a custodial account with
any chartered bank or trust company in Canada named in such notice, less any
amounts withheld on account of tax required to be deducted and withheld
therefrom. Upon the later of such deposit being made and the Redemption Date,
the Exchangeable Shares in respect whereof such deposit shall have been made
shall be redeemed and the rights of the holders thereof after such deposit or
Redemption Date, as the case may be, shall be limited to receiving their
proportionate part of the total Redemption Price and such dividends for such
Exchangeable Shares so deposited and all dividends and other distributions with
respect to the WSI Common Shares to which such holders are entitled with a
record date on or after the Redemption Date and before the time at which such
holders become the holders of such WSI Common Shares provided that a
corresponding amount has not been received by such holders on their Exchangeable
Shares (in each case less any amounts withheld on account of tax required to be
deducted and withheld therefrom) without interest, against presentation and
surrender of the said certificates for such Exchangeable Shares held by them,
respectively, in accordance with the foregoing provisions. Upon such payment or
deposit of the total Redemption Price and the full amount of such dividends, the
holders of the Exchangeable Shares shall thereafter be considered and deemed for
all purposes to be holders of the WSI Common Shares delivered to them or the
custodian on their behalf.




                                   ARTICLE 8
                            PURCHASE FOR CANCELLATION

8.1             Subject to applicable law, CERI may at any time and from time to
time purchase for cancellation all or any part of the outstanding Exchangeable
Shares at any price by tender to all the holders of record of Exchangeable
Shares then outstanding or if the Exchangeable Shares are listed or quoted on
any stock exchange or automated quotation system, through the facilities of such
stock exchange or automated quotation system on which the Exchangeable Shares
are listed or quoted at any price per share together with an amount equal to all
declared and unpaid dividends thereon for which the record date has occurred
prior to the date of purchase. If in response to an invitation for tenders under
the provisions of this Section 8.1, more Exchangeable Shares are tendered at a
price or prices acceptable to CERI than CERI is prepared to purchase, the
Exchangeable Shares to be purchased by CERI shall be purchased as nearly as may
be pro rata according to the number of shares tendered by each holder who
submits a tender to CERI, provided that when shares are tendered at different
prices, the pro rating shall be effected (disregarding fractions) only with
respect to the shares tendered at the price at which more shares were tendered
than CERI is prepared to purchase after CERI has purchased all the shares
tendered at lower prices. If only part of the Exchangeable Shares represented by
any certificate shall be purchased, a new certificate for the balance of such
shares shall be issued at the expense of CERI. In addition to the foregoing,
subject to applicable law, CERI may at any time and from time to time purchase
for cancellation all or any part of the outstanding Exchangeable Shares by
private agreement with any holder thereof.

                                   ARTICLE 9
                                 VOTING RIGHTS

9.1             The holders of the Exchangeable Shares shall be entitled to
receive notice of and to attend any meeting of the shareholders of CERI and to
vote at any such meeting. Each holder of Exchangeable Shares shall be entitled
to 1/10 of one vote for each Exchangeable Share registered in the name of such
holder.

                                   ARTICLE 10
                             AMENDMENT AND APPROVAL

10.1            The rights, privileges, restrictions and conditions attaching to
the Exchangeable Shares may be added to, changed or removed, but only with the
approval of the holders of the Exchangeable Shares voting separately as a class
and given as hereinafter specified.

10.2            Any approval given by the holders of the Exchangeable Shares to
add to, change or remove any right, privilege, restriction or condition
attaching to the Exchangeable Shares, or any other matter requiring the approval
or consent of the holders of the Exchangeable Shares voting separately as a
class, shall be deemed to have been sufficiently given if it shall have been
given in accordance with applicable law subject to a minimum requirement that
such approval be evidenced by resolution passed by not less than two-thirds of
the votes cast on such resolution at a meeting of holders of Exchangeable Shares
duly called and held at which the holders of at least 20% of the outstanding
Exchangeable Shares at that time are present or represented by proxy; provided
that if at any such meeting the holders of at least 20% of the outstanding
Exchangeable Shares at that time are not present or represented by proxy within
one-half hour after the time appointed for such meeting, then the meeting shall
be adjourned to such date not less than five days thereafter and to such time
and place as may be designated by the chairman of such meeting. At such
adjourned meeting the holders of Exchangeable Shares present or represented by
proxy thereat may transact the business for which the meeting was originally
called and a resolution passed thereat by the affirmative vote of not less than
two-thirds of the votes cast on such





resolution at such meeting shall constitute the approval or consent of the
holders of the Exchangeable Shares.

                                   ARTICLE 11
            RECIPROCAL CHANGES, ETC. IN RESPECT OF WSI COMMON SHARES

11.1            Each holder of an Exchangeable Share acknowledges that the
Support Agreement provides, in part, that WSI will not without the prior
approval of CERI and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 10.2 hereof:

         (a)    issue or distribute WSI Common Shares (or securities
                exchangeable for or convertible into or carrying rights to
                acquire WSI Common Shares) to the holders of all or
                substantially all of the then outstanding WSI Common Shares by
                way of stock dividend or other distribution, other than an issue
                of WSI Common Shares (or securities exchangeable for or
                convertible into or carrying rights to acquire WSI Common
                Shares) to holders of WSI Common Shares who exercise an option
                to receive dividends in WSI Common Shares (or securities
                exchangeable for or convertible into or carrying rights to
                acquire WSI Common Shares) in lieu of receiving cash dividends;

         (b)    issue or distribute rights, options or warrants to the holders
                of all or substantially all of the then outstanding WSI Common
                Shares entitling them to subscribe for or to purchase WSI Common
                Shares (or securities exchangeable for or convertible into or
                carrying rights to acquire WSI Common Shares); or

         (c)    issue or distribute to the holders of all or substantially all
                of the then outstanding WSI Common Shares:

                (i)    shares or securities of WSI of any class other than WSI
                       Common Shares (other than shares convertible into or
                       exchangeable for or carrying rights to acquire WSI Common
                       Shares, subject to Section 11.1(a) hereof);

                (ii)   rights, options or warrants other than those referred to
                       in Section 11.1(b) above;

                (iii)  evidences of indebtedness of WSI; or

                (iv)   assets of WSI,

unless the economic equivalent on a per share basis of such WSI Common Shares
(or securities exchangeable for or convertible into or carrying rights to
acquire WSI Common Shares), rights, options, warrants, securities, shares,
evidences of indebtedness or other assets is issued or distributed or otherwise
provided simultaneously to holders of the Exchangeable Shares.

11.2            Each holder of an Exchangeable Share acknowledges that the
Support Agreement further provides, in part, that WSI will not without the prior
approval of CERI and the prior approval of the holders of the Exchangeable
Shares given in accordance with Section 10.2 hereof:

         (a)    subdivide, redivide or change the then outstanding WSI Common
                Shares into a greater number of WSI Common Shares;

         (b)    reduce, combine, consolidate or change the then outstanding WSI
                Common Shares into a lesser number of WSI Common Shares; or




         (c)    reclassify or otherwise change the WSI Common Shares or effect
                an amalgamation, merger, reorganization or other transaction
                affecting the WSI Common Shares,

unless the same or an economically equivalent change shall simultaneously be
made to, or in, the rights of the holders of the Exchangeable Shares. The
Support Agreement further provides, in part, that the aforesaid provisions of
the Support Agreement shall not be changed without the approval of the holders
of the Exchangeable Shares given in accordance with Section 10.2 hereof.

                                   ARTICLE 12
                     ACTIONS BY CERI UNDER SUPPORT AGREEMENT

12.1            CERI will take all such actions and do all such things as shall
be necessary or advisable to perform and comply with and to ensure performance
and compliance by WSI, Capital Holdings and CERI with all provisions of the
Support Agreement applicable to WSI, Capital Holdings and CERI, respectively, in
accordance with the terms thereof including, without limitation, taking all such
actions and doing all such things as shall be necessary or advisable to enforce
to the fullest extent possible for the direct benefit of CERI all rights and
benefits in favour of CERI under or pursuant to such agreement.

12.2            CERI shall not propose, agree to or otherwise give effect to any
amendment to, or waiver or forgiveness of its rights or obligations under, the
Support Agreement without the approval of the holders of the Exchangeable Shares
given in accordance with Section 10.2 hereof other than such amendments, waivers
and/or forgiveness as may be necessary or advisable for the purposes of:

         (a)    adding to the covenants of the other parties to such agreement
                for the protection of CERI or the holders of the Exchangeable
                Shares thereunder;

         (b)    making such provisions or modifications not inconsistent with
                such agreement as may be necessary or desirable with respect to
                matters or questions arising thereunder which, in the good faith
                opinion of the Board of Directors, it may be expedient to make,
                provided that the Board of Directors shall be of the good faith
                opinion, after consultation with counsel, that such provisions
                and modifications will not be prejudicial to the interests of
                the holders of the Exchangeable Shares; or

         (c)    making such changes in or corrections to such agreement which,
                on the advice of counsel to CERI, are required for the purpose
                of curing or correcting any ambiguity or defect or inconsistent
                provision or clerical omission or mistake or manifest error
                contained therein, provided that the Board of Directors shall be
                of the good faith opinion, after consultation with counsel, that
                such changes or corrections will not be prejudicial to the
                interests of the holders of the Exchangeable Shares.

                                   ARTICLE 13
                     LEGEND; CALL RIGHTS; WITHHOLDING RIGHTS

13.1            The certificates evidencing the Exchangeable Shares shall
contain or have affixed thereto a legend in form and on terms approved by the
Board of Directors, with respect to the Support Agreement, the provisions of the
Plan of Arrangement relating to the Liquidation Call Right and the Redemption
Call Right and the Voting and Exchange Trust Agreement (including the provisions
with respect to the voting rights, exchange rights and automatic exchange
thereunder).

13.2            Each holder of an Exchangeable Share, whether of record or
beneficial, by virtue of becoming and being such a holder shall be deemed to
acknowledge each of the Liquidation Call Right,




the Retraction Call Right and the Redemption Call Right, in each case, in favour
of Capital Holdings, and the overriding nature thereof in connection with the
liquidation, dissolution or winding-up of CERI or the retraction or redemption
of Exchangeable Shares, as the case may be, and to be bound thereby in favour of
Capital Holdings as therein provided.

13.3            WSI, Capital Holdings, CERI and the Transfer Agent shall be
entitled to deduct and withhold from any consideration otherwise payable to any
holder of Exchangeable Shares such amounts as WSI, Capital Holdings, CERI or the
Transfer Agent determines, acting reasonably, are required or permitted to be
deducted and withheld with respect to such payment under the ITA, the United
States Internal Revenue Code of 1986 or any provision of federal, provincial,
territorial, state, local or foreign tax law, in each case as amended or
succeeded. To the extent that amounts are so withheld, such withheld amounts
shall be treated for all purposes as having been paid to the holder of the
Exchangeable Shares in respect of which such deduction and withholding was made,
provided that such withheld amounts are actually remitted to the appropriate
taxing authority. To the extent that the amount so required to be deducted or
withheld from any payment to a holder exceeds the cash portion of the
consideration otherwise payable to the holder, WSI, Capital Holdings, CERI and
the Transfer Agent are hereby authorized to exchange such number of Exchangeable
Shares for WSI Common Shares and sell or otherwise dispose of such number of WSI
Common Shares as is necessary to provide sufficient funds to WSI, Capital
Holdings, CERI or the Transfer Agent, as the case may be, to enable it to comply
with such deduction or withholding requirement and WSI, Capital Holdings, CERI
or the Transfer Agent shall notify the holder thereof and remit to such holder
any unapplied balance of the net proceeds of such sale.

                                   ARTICLE 14
                                     NOTICES

14.1            Any notice, request or other communication to be given to CERI
by a holder of Exchangeable Shares shall be in writing and shall be valid and
effective if given by mail (postage prepaid) or by telecopy or by delivery to
the registered office of CERI and addressed to the attention of the Secretary of
CERI. Any such notice, request or other communication, if given by mail,
telecopy or delivery, shall only be deemed to have been given and received upon
actual receipt thereof by CERI.

14.2            Any presentation and surrender by a holder of Exchangeable
Shares to CERI or the Transfer Agent of certificates representing Exchangeable
Shares in connection with the liquidation, dissolution or winding-up of CERI or
the retraction or redemption of Exchangeable Shares shall be made by registered
mail (postage prepaid) or by delivery to the registered office of CERI or to
such office of the Transfer Agent as may be specified in writing by CERI, in
each case, addressed to the attention of the Secretary of CERI. Any such
presentation and surrender of certificates shall only be deemed to have been
made and to be effective upon actual receipt thereof by CERI or the Transfer
Agent, as the case may be. Any such presentation and surrender of certificates
made by registered mail shall be at the sole risk of the holder mailing the
same.

14.3            Any notice, request or other communication to be given to a
holder of Exchangeable Shares by or on behalf of CERI shall be in writing and
shall be valid and effective if given by mail (postage prepaid) or by delivery
to the address of the holder recorded in the register of shareholders of CERI
or, in the event of the address of any such holder not being so recorded, then
at the last known address of such holder. Any such notice, request or other
communication, if given by mail, shall be deemed to have been given and received
on the third Business Day following the date of mailing and, if given by
delivery, shall be deemed to have been given and received on the date of
delivery. Accidental failure or omission to give any notice, request or other
communication to one or more holders of Exchangeable Shares shall not invalidate
or otherwise alter or affect any action or proceeding to be taken by CERI
pursuant thereto.





                                   SCHEDULE A

                               RETRACTION REQUEST

To:      Waste Services (CA) Inc. (formerly Capital Environmental Resource Inc.)
         (the "CORPORATION") and Capital Environmental Holdings Company
         ("CAPITAL HOLDINGS")

         This Retraction Request is given pursuant to Article 6 of the
provisions (the "SHARE PROVISIONS") attaching to the exchangeable shares in the
capital of the Corporation represented by the share certificate attached hereto.
All capitalized words and expressions used in this Retraction Request and not
otherwise defined herein shall have the meanings ascribed to such words and
expressions, respectively, in the Share Provisions.

         The undersigned hereby notifies the Corporation that, subject to the
Retraction Call Right referred to below, the undersigned desires to have the
Corporation redeem, in accordance with Article 6 of the Share Provisions:

         [ ]    all share(s) represented by the attached share certificate; or

         [ ]    _____________ share(s) only of the shares represented by the
                attached share certificate.

         The undersigned hereby notifies the Corporation that the Retraction
         Date shall be ____________________.

NOTE:    The Retraction Date must be a Business Day and must not be less than 10
         Business Days nor more than 15 Business Days after the date upon which
         this Retraction Request is received by the Corporation. If no such
         Business Day is specified above, the Retraction Date shall be deemed to
         be the 15th Business Day after the date on which this notice is
         received by the Corporation. Further, if the Retraction Date resulting
         from the foregoing is not a Tuesday or Friday, then the Retraction Date
         shall be the nearest following Tuesday or Friday (or, if such Tuesday
         or Friday is not a Business Day, the Business Day preceding such
         Tuesday or Friday).

         The undersigned acknowledges the overriding Retraction Call Right of
Capital Holdings to purchase all but not less than all of the Retracted Shares
from the undersigned and that this Retraction Request is and shall be deemed to
be a revocable offer by the undersigned to sell the Retracted Shares to Capital
Holdings in accordance with the Retraction Call Right on the Retraction Date for
the Purchase Price and on the other terms and conditions set out in Section 6.3
of the Share Provisions. This Retraction Request, and this offer to sell the
Retracted Shares to Capital Holdings, may be revoked and withdrawn by the
undersigned only by notice in writing given to the Corporation at any time
before the close of business on the Business Day immediately preceding the
Retraction Date.

         The undersigned acknowledges that if, as a result of solvency
provisions of applicable law, the Corporation is unable to redeem all Retracted
Shares and provided that Capital Holdings shall not have exercised the
Retraction Call Right with respect to the Retracted Shares, the undersigned will
be deemed to have exercised the Exchange Right (as defined in the Voting and
Exchange Trust Agreement) so as to require Waste Services, Inc. to purchase the
unredeemed Retracted Shares.

         The undersigned hereby represents and warrants to Capital Holdings and
the Corporation that the undersigned:

         [ ]  is a non-resident of Canada for purposes of the Income Tax Act
              (Canada) and is a resident of _____________

              or           (select one)

         [ ]  is not a non-resident of Canada for purposes of the Income Tax Act
              (Canada).

THE UNDERSIGNED ACKNOWLEDGES THAT IN THE ABSENCE OF AN INDICATION THAT THE
UNDERSIGNED IS NOT A NON-RESIDENT OF CANADA, WITHHOLDING ON ACCOUNT OF CANADIAN
TAX MAY BE MADE FROM AMOUNTS PAYABLE TO THE UNDERSIGNED ON THE REDEMPTION OR
PURCHASE OF THE RETRACTED SHARES.




         The undersigned hereby represents and warrants to Capital Holdings and
the Corporation that the undersigned has good title to, and owns, the share(s)
represented by this certificate to be acquired by Capital Holdings or the
Corporation, as the case may be, free and clear of all liens, claims and
encumbrances.


- --------------------------------------------------------------------------------
   (Date)          (Signature of Shareholder)       (Guarantee of Signature)


[ ]      Please check box if the securities and any cheque(s) resulting from the
         retraction or purchase of the Retracted Shares are to be held for
         pick-up by the shareholder from the Transfer Agent, failing which the
         securities and any cheque(s) will be mailed to the last address of the
         shareholder as it appears on the register.

NOTE:    This panel must be completed and the certificate representing
         Exchangeable Shares, together with such additional documents as the
         Transfer Agent may require, must be deposited with the Transfer Agent.
         The securities and any cheque(s) resulting from the retraction or
         purchase of the Retracted Shares will be issued and registered in, and
         made payable to, respectively, the name of the shareholder as it
         appears on the register of the Corporation and the securities and any
         cheque(s) resulting from such retraction or purchase will be delivered
         to such shareholder as indicated above, unless the form appearing
         immediately below is duly completed.


Date:
     ---------------------------------------


Name of Person in Whose Name Securities or Cheque(s)
Are to be Registered, Issued or Delivered (please print):
                                                         -----------------------

Street Address or P.O. Box:
                           -----------------------------------------------------

Signature of Shareholder:
                         -------------------------------------------------------

City, Province and Postal Code:
                               -------------------------------------------------


Signature Guaranteed by:
                        --------------------------------------------------------

NOTE:    If this Retraction Request is for less than all of the shares
         represented by the attached share certificate, a certificate
         representing the remaining Exchangeable Share(s) represented by the
         attached share certificate will be issued and registered in the name of
         the shareholder as it appears on the register of the Corporation,
         unless the share transfer power on the share certificate is duly
         completed in respect of such share(s).

EX-4.9

                                                                     EXHIBIT 4.9

                       VOTING AND EXCHANGE TRUST AGREEMENT

                  MEMORANDUM OF AGREEMENT made the 31stWaste Services, day of
July, 2004,

AMONG:

                     WASTE SERVICES, INC., a corporation existing under the laws
                     of the State of Delaware (hereinafter referred to as "WSI")

                                     - and -

                     WASTE SERVICES (CA) INC. (FORMERLY CAPITAL ENVIRONMENTAL
                     RESOURCE INC.), a corporation existing under the laws of
                     the Province of Ontario (hereinafter referred to as "CERI")

                                     - and -

                     COMPUTERSHARE TRUST COMPANY OF CANADA, a trust company
                     continued under the laws of Canada and authorized to carry
                     on the trust business in each province of Canada
                     (hereinafter referred to as "Trustee")


                  WHEREAS in connection with the Arrangement Agreement (defined
herein), certain holders of common shares in the capital of CERI will receive
and hold exchangeable shares in the capital of CERI pursuant to the plan of
arrangement contemplated by the Arrangement Agreement;

                  AND WHEREAS pursuant to the Arrangement Agreement, WSI and
CERI have agreed to execute a voting and exchange trust agreement substantially
in the form of this Agreement;

                  The foregoing recitals are made as representations and
statements of fact by WSI and CERI and not by the Trustee.

                  NOW THEREFORE in consideration of the respective covenants and
agreements herein contained and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
covenant and agree as follows:

                                   ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

1.1             DEFINITIONS

                In this Agreement, unless there is something in the subject
matter or context inconsistent therewith, the following terms shall have the
following meanings, respectively:

         "AFFILIATE" of any person means any other person directly or indirectly
         controlled by, or under control of, that person. For the purposes of
         this definition, "control" (including, with correlative meanings, the
         terms "controlled by" and "under common control of"), as applied to any
         person, means the possession by another person of the power to direct
         or cause the direction of the





         management and policies of that first mentioned person through the
         direct or indirect ownership of over 50% of the voting securities.

         "AGREEMENT" means this agreement, including any Schedules or Exhibits
         to this agreement, as it may be amended or supplemented from time to
         time in accordance with the provisions hereof.

         "ARRANGEMENT" means the arrangement under section 182 of the OBCA on
         the terms and subject to the conditions set out in the Plan of
         Arrangement, subject to any amendments or variations thereto made in
         accordance with section 6.1 of the Arrangement Agreement or Article 6
         of the Plan of Arrangement or made at the direction of the Court.

         "ARRANGEMENT AGREEMENT" means the agreement made June 9, 2004 among
         WSI, CERI and Capital Holdings, a copy of which is attached as Exhibit
         A, as amended, supplemented or restated in accordance therewith prior
         to the Effective Date (as defined in the Arrangement Agreement),
         providing for, among other things, the Arrangement.

         "AUTOMATIC EXCHANGE RIGHT" means the benefit of the obligation of WSI
         to effect the automatic exchange of Exchangeable Shares for WSI Common
         Shares pursuant to Section 5.12 hereof.

         "BENEFICIARIES" means the registered holders from time to time of
         Exchangeable Shares, other than WSI and its Affiliates.

         "BENEFICIARY VOTES" has the meaning ascribed thereto in Section 4.2
         hereof.

         "BOARD OF DIRECTORS" means the board of directors of WSI.

         "BUSINESS DAY" means any day on which commercial banks are generally
         open for business in New York, New York and Toronto, Ontario, other
         than a Saturday, a Sunday or a day observed as a statutory holiday in
         New York, New York under the laws of the State of New York or the
         federal laws of the United States or in Toronto, Ontario under the laws
         of the Province of Ontario or the federal laws of Canada.

         "CANADIAN DOLLAR EQUIVALENT" means, in respect of an amount expressed
         in a currency other than Canadian dollars (the "FOREIGN CURRENCY
         AMOUNT") at any date, the product obtained by multiplying (a) the
         Foreign Currency Amount by (b) the noon spot exchange rate on such date
         for such foreign currency expressed in Canadian dollars as reported by
         the Bank of Canada or, in the event such spot exchange rate is not
         available, such exchange rate on such date for such foreign currency
         expressed in Canadian dollars as may be deemed by the Board of
         Directors to be appropriate for such purpose.

         "CAPITAL HOLDINGS" means Capital Environmental Holdings Company, an
         unlimited liability company existing under the laws of the Province of
         Nova Scotia which, at the time of the consummation of the Arrangement,
         will be a direct wholly-owned subsidiary of WSI.

         "COURT" means the Ontario Superior Court of Justice.

         "CURRENT MARKET PRICE" means, in respect of a WSI Common Share on any
         date, the Canadian Dollar Equivalent of the average of the closing bid
         and ask prices of WSI Common Shares during a period of 20 consecutive
         trading days ending not more than three trading days before such date
         on the NASDAQ, or, if the WSI Common Shares are not then quoted on the
         NASDAQ, on such other stock exchange or automated quotation system on
         which the WSI Common Shares are listed





         or quoted, as the case may be, as may be selected by the Board of
         Directors for such purpose; provided, however, that if in the opinion
         of the Board of Directors the public distribution or trading activity
         of WSI Common Shares during such period (whether or not traded on a
         stock exchange or automated quotation system) does not create a market
         which reflects the fair market value of a WSI Common Share, then the
         Current Market Price of a WSI Common Share shall be determined by the
         Board of Directors, in good faith and in its sole discretion, and
         provided further that any such selection, opinion or determination by
         the Board of Directors shall be conclusive and binding.

         "EXCHANGE PUT RIGHT" has the meaning ascribed thereto in Section 5.14
         hereof.

         "EXCHANGE RIGHT" has the meaning ascribed thereto in Section 5.1
         hereof.

         "EXCHANGEABLE SHARES" means the exchangeable shares in the capital of
         CERI, having substantially the rights, privileges, restrictions and
         conditions set out in Appendix 1 to the Plan of Arrangement.

         "INDEMNIFIED PARTIES" has the meaning ascribed thereto in Section 9.1
         hereof.

         "INSOLVENCY EVENT" means the institution by CERI of any proceeding to
         be adjudicated a bankrupt or insolvent or to be wound up, or the
         consent of CERI to the institution of bankruptcy, insolvency or
         winding-up proceedings against it, or the filing of a petition, answer
         or consent seeking dissolution or winding-up under any bankruptcy,
         insolvency or analogous laws, including without limitation the
         Companies Creditors' Arrangement Act (Canada) and the Bankruptcy and
         Insolvency Act (Canada), and the failure by CERI to contest in good
         faith any such proceedings commenced in respect of CERI within 30 days
         of becoming aware thereof, or the consent by CERI to the filing of any
         such petition or to the appointment of a receiver, or the making by
         CERI of a general assignment for the benefit of creditors, or the
         admission in writing by CERI of its inability to pay its debts
         generally as they become due, or CERI not being permitted, pursuant to
         solvency requirements of applicable law, to redeem any Retracted Shares
         pursuant to section 6.6 of the Share Provisions.

         "LIQUIDATION CALL PURCHASE PRICE" has the meaning ascribed thereto in
         section 5.1 of the Plan of Arrangement.

         "LIQUIDATION CALL RIGHT" has the meaning ascribed thereto in section
         5.1 of the Plan of Arrangement.

         "LIQUIDATION EVENT" has the meaning ascribed thereto in Section 5.12(b)
         hereof.

         "LIQUIDATION EVENT EFFECTIVE DATE" has the meaning ascribed thereto in
         Section 5.12(c) hereof.

         "LIST" has the meaning ascribed thereto in Section 4.6 hereof.

         "NASDAQ" means the NASDAQ National Market.

         "OBCA" means the Business Corporations Act (Ontario), as amended.

         "OFFICER'S CERTIFICATE" means, with respect to WSI or CERI, as the case
         may be, a certificate signed by any officer or director of WSI or CERI,
         as the case may be.




         "PERSON" includes any individual, firm, partnership, joint venture,
         venture capital fund, limited liability company, unlimited liability
         company, association, trust, trustee, executor, administrator, legal
         personal representative, estate, group, body corporate, corporation,
         unincorporated association or organization, government body, syndicate
         or other entity, whether or not having legal status.

         "PLAN OF ARRANGEMENT" means the plan of arrangement substantially in
         the form and content of Schedule C annexed to the Arrangement Agreement
         and any amendments or variations thereto made in accordance with
         section 6.1 of the Arrangement Agreement or Article 6 of the Plan of
         Arrangement or made at the direction of the Court.

         "PURCHASE PRICE" has the meaning ascribed thereto in section 6.3 of the
         Share Provisions.

         "REDEMPTION CALL PURCHASE PRICE" has the meaning ascribed thereto in
         section 5.2 of the Plan of Arrangement.

         "REDEMPTION CALL RIGHT" has the meaning ascribed thereto in section 5.2
         of the Plan of Arrangement.

         "REDEMPTION PRICE" has the meaning ascribed thereto in section 7.1 of
         the Share Provisions.

         "RETRACTED SHARES" has the meaning ascribed thereto in Section 5.7
         hereof.

         "RETRACTION CALL RIGHT" has the meaning ascribed thereto in section 6.1
         of the Share Provisions.

         "RETRACTION PRICE" has the meaning ascribed thereto in section 6.1 of
         the Share Provisions.

         "SHARE PROVISIONS" means the rights, privileges, restrictions and
         conditions attaching to the Exchangeable Shares.

         "SUPPORT AGREEMENT" means that certain support agreement made as of
         even date herewith among CERI, WSI and Capital Holdings substantially
         in the form and content of Schedule D annexed to the Arrangement
         Agreement, with such changes thereto as the parties to the Arrangement
         Agreement, acting reasonably, may agree.

         "TRUST" means the trust created by this Agreement.

         "TRUST ESTATE" means the WSI Special Voting Share, any other
         securities, the Exchange Right, the Automatic Exchange Right, the
         Exchange Put Right and any money or other property which may be held by
         the Trustee from time to time pursuant to this Agreement.

         "TRUSTEE" means Computershare Trust Company of Canada and, subject to
         the provisions of Article 10, includes any successor trustee.

         "VOTING RIGHTS" means the voting rights attached to the WSI Special
         Voting Share.

         "WSI AFFILIATES" means Affiliates of WSI.

         "WSI COMMON SHARE" means a share of voting common stock in the capital
         of WSI.

         "WSI CONSENT" has the meaning ascribed thereto in Section 4.2 hereof.




         "WSI MEETING" has the meaning ascribed thereto in Section 4.2 hereof.

         "WSI SPECIAL VOTING SHARE" means the one share of special voting stock
         of WSI issued in its own series which entitles the holder of record to
         a number of votes at meetings of holders of WSI Common Shares equal to
         the number of Exchangeable Shares outstanding from time to time (other
         than Exchangeable Shares held by WSI and WSI Affiliates), which share
         is to be issued to, deposited with, and voted by, the Trustee as
         described herein.

         "WSI SUCCESSOR" has the meaning ascribed thereto in Section 11.1(a)
         hereof.

1.2             INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.

                The division of this Agreement into Articles, Sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement. Unless
otherwise indicated, all references to an "Article" or "Section" followed by a
number or a letter refer to the specified Article or Section of this Agreement.
The terms "this Agreement", "hereof", "herein" and "hereunder" and similar
expressions refer to this Agreement and not to any particular Article, Section
or other portion hereof and include any agreement or instrument supplementary or
ancillary hereto.

1.3             DATE, NUMBER, GENDER, ETC.

                If any date on which any action is required to be taken under
this Agreement is not a Business Day, such action shall be required to be taken
on the next succeeding Business Day. Words importing the singular number only
shall include the plural and vice versa. Words importing any gender shall
include all genders.

1.4             CERTIFICATE OF INCUMBENCY

                Each of the other parties to this Agreement shall file with the
Trustee a certificate of incumbency setting forth the names and titles of the
individuals authorized to give instructions, directions or other instruments
(including Officer's Certificates) to the Trustee ("AUTHORIZED PERSONS"),
together with specimen signatures of such persons, and the Trustee shall be
entitled to rely on the latest certificate of incumbency filed with it unless it
receives notice, in accordance with this agreement, of a change in Authorized
Persons with updated specimen signatures.

                                   ARTICLE 2
                              PURPOSE OF AGREEMENT

2.1             ESTABLISHMENT OF TRUST

                The purpose of this Agreement is to create the Trust for the
benefit of the Beneficiaries, and to create the Exchange Right, the Automatic
Exchange Right and the Exchange Put Right, all as herein provided. The Trustee
will hold the WSI Special Voting Share in order to enable the Trustee to
exercise the Voting Rights and will hold the Exchange Right, the Automatic
Exchange Right and the Exchange Put Right in order to enable the Trustee to
exercise or enforce such rights, in each case as trustee for and on behalf of
the Beneficiaries as provided in this Agreement.




                                   ARTICLE 3
                            WSI SPECIAL VOTING SHARE

3.1             ISSUE AND OWNERSHIP OF THE WSI SPECIAL VOTING SHARE

                WSI concurrently with the execution and delivery hereof issues
to and deposits with the Trustee the WSI Special Voting Share to be hereafter
held of record by the Trustee as trustee for and on behalf of, and for the use
and benefit of, the Beneficiaries and in accordance with the provisions of this
Agreement. WSI hereby acknowledges receipt from the Trustee as trustee for and
on behalf of the Beneficiaries of good and valuable consideration (and the
adequacy thereof) for the issuance of the WSI Special Voting Share by WSI to the
Trustee (and, in the event a taxing authority subsequently determines that the
amount of consideration paid by CERI to WSI in exchange for the Special Voting
Share was inadequate, CERI shall promptly pay out of its own funds the remaining
amount deemed to be owing to WSI (plus an appropriate amount of interest)).
During the term of the Trust and subject to the terms and conditions of this
Agreement, the Trustee shall possess and be vested with full legal ownership of
the WSI Special Voting Share and shall be entitled to exercise all of the rights
and powers of an owner with respect to the WSI Special Voting Share, provided
that the Trustee shall:

         (a)    hold the WSI Special Voting Share and the legal title thereto as
                trustee solely for the use and benefit of the Beneficiaries in
                accordance with the provisions of this Agreement; and

         (b)    except as specifically authorized by this Agreement, have no
                power or authority to sell, transfer, vote or otherwise deal in
                or with the WSI Special Voting Share and the WSI Special Voting
                Share shall not be used, or disposed of, by the Trustee for any
                purpose other than the purposes for which this Trust is created
                pursuant to this Agreement.

3.2             LEGENDED SHARE CERTIFICATES

                CERI will cause each certificate representing Exchangeable
Shares to bear an appropriate legend notifying the Beneficiaries of their right
to instruct the Trustee with respect to the exercise of the Voting Rights in
respect of the Exchangeable Shares held by the Beneficiaries. The Trustee shall
have no duty under the Agreement to monitor or enforce compliance by CERI with
the aforesaid legending requirements.

3.3             SAFE KEEPING OF CERTIFICATE

                The certificate representing the WSI Special Voting Share shall
at all times be held in safe keeping by the Trustee.

                                   ARTICLE 4
                            EXERCISE OF VOTING RIGHTS

4.1             VOTING RIGHTS

                The Trustee, as the holder of record of the WSI Special Voting
Share, shall be entitled to all of the Voting Rights, including the right to
vote in person or by proxy the WSI Special Voting Share on any matters,
questions, proposals or propositions whatsoever that may properly come before
the shareholders of WSI at a WSI Meeting or in connection with a WSI Consent.
The Voting Rights shall be and remain vested in and exercised by the Trustee
subject to the terms of this Agreement. Subject to Section 7.14:




         (a)    the Trustee shall exercise the Voting Rights only on the basis
                of instructions received pursuant to this Article 4 from
                Beneficiaries on the record date established by WSI or by
                applicable law for such WSI meeting who are entitled to instruct
                the Trustee as to the voting thereof at the time at which the
                WSI Meeting is held or a WSI Consent is sought; and

         (b)    to the extent that no instructions are received from a
                Beneficiary with respect to the Voting Rights to which such
                Beneficiary is entitled, the Trustee shall not exercise or
                permit the exercise of such Voting Rights.

4.2             NUMBER OF VOTES

                With respect to all meetings of shareholders of WSI at which
holders of WSI Common Shares are entitled to vote (each, a "WSI MEETING") and
with respect to all written consents sought by WSI from its shareholders
including the holders of WSI Common Shares (each, a "WSI CONSENT"), each
Beneficiary shall be entitled to instruct the Trustee to cast and exercise one
of the votes comprised in the Voting Rights for each Exchangeable Share owned of
record by such Beneficiary on the record date established by WSI or by
applicable law for such WSI Meeting or WSI Consent, as the case may be (the
"BENEFICIARY VOTES"), in respect of each matter, question, proposal or
proposition to be voted on at such WSI Meeting or in connection with such WSI
Consent. WSI shall provide the Trustee with notice by the close of business on
the third Business Day prior to a WSI Meeting or WSI Consent, that neither WSI
nor its affiliates have exercised any votes in respect of the Exchangeable
Shares.

4.3             MAILINGS TO SHAREHOLDERS

                With respect to each WSI Meeting and WSI Consent, the Trustee
will use its reasonable efforts to mail promptly or cause to be mailed (or
otherwise communicate in the same manner as WSI utilizes in communications to
holders of WSI Common Shares, subject to applicable regulatory requirements and
provided such manner of communication is reasonably available to the Trustee) to
each of the Beneficiaries named in the List (referred to in Section 4.6), such
mailing or communication to commence whenever practicable on the same day as the
mailing or notice (or other communication) with respect thereto is commenced by
WSI to its holders of WSI Common Shares:

         (a)    a copy of such notice (or other communication), together with
                any related materials, including, without limitation, any proxy
                or information statement, to be provided to shareholders of WSI,
                but excluding proxies to vote WSI Common Shares;

         (b)    a statement that such Beneficiary is entitled to instruct the
                Trustee as to the exercise of the Beneficiary Votes with respect
                to such WSI Meeting or WSI Consent or, pursuant to Section 4.7,
                to attend such WSI Meeting and to exercise personally the
                Beneficiary Votes thereat;

         (c)    a statement as to the manner in which such instructions may be
                given to the Trustee, including an express indication that
                instructions may be given to the Trustee to give:

                (i)    a proxy to such Beneficiary or his designee to exercise
                       personally the Beneficiary Votes; or

                (ii)   a proxy to a designated agent or other representative of
                       the management of WSI to exercise such Beneficiary Votes;





         (d)    a statement that if no such instructions are received from the
                Beneficiary, the Beneficiary Votes to which such Beneficiary is
                entitled will not be exercised;

         (e)    a form of direction whereby the Beneficiary may so direct and
                instruct the Trustee as contemplated herein; and

         (f)    a statement of the time and date by which such instructions must
                be received by the Trustee in order to be binding upon it, which
                in the case of a WSI Meeting shall not be earlier than the close
                of business on the fourth Business Day prior to such meeting,
                and of the method for revoking or amending such instructions.

                The materials referred to in this Section 4.3 are to be provided
to the Trustee by WSI and the materials referred to in Section 4.3(c), (e) and
(f) shall be subject to reasonable comment by the Trustee in a timely manner,
provided, however, that the Trustee shall have no obligation to review such
materials. Subject to the foregoing, WSI shall ensure that the materials to be
provided to the Trustee are provided in sufficient time to permit the Trustee to
comment as aforesaid and to send all materials to each Beneficiary at the same
time as such materials are first sent to holders of WSI Common Shares. WSI
agrees not to communicate with holders of WSI Common Shares with respect to the
materials referred to in this Section 4.3 otherwise than by mail unless such
method of communication is also reasonably available to the Trustee for
communication with the Beneficiaries.

                For the purpose of determining Beneficiary Votes to which a
Beneficiary is entitled in respect of any WSI Meeting or WSI Consent, the number
of Exchangeable Shares owned of record by the Beneficiary shall be determined at
the close of business on the record date established by WSI or by applicable law
for purposes of determining shareholders entitled to vote at such WSI Meeting or
consent in respect of such WSI Consent. WSI will notify the Trustee of any
decision of the Board of Directors with respect to the calling of any WSI
Meeting or the seeking of a WSI Consent and shall provide all necessary
information and materials to the Trustee in each case promptly and in any event
in sufficient time to enable the Trustee to perform its obligations contemplated
by this Section 4.3.

4.4             COPIES OF SHAREHOLDER INFORMATION

                WSI will deliver to the Trustee copies of all proxy materials
(including notices of WSI Meetings but excluding proxies to vote WSI Common
Shares), information statements, reports (including without limitation, all
interim and annual financial statements) and other written communications that,
in each case, are to be distributed from time to time to holders of WSI Common
Shares in sufficient quantities and in sufficient time so as to enable the
Trustee to send or cause to be sent those materials to each Beneficiary at the
same time as such materials are first sent to holders of WSI Common Shares. The
Trustee will mail or otherwise send or cause to be mailed or otherwise sent, to
each Beneficiary, at the expense of WSI, copies of all such materials (and all
materials specifically directed to the Beneficiaries or to the Trustee for the
benefit of the Beneficiaries by WSI) received by the Trustee from WSI
contemporaneously with the sending of such materials to holders of WSI Common
Shares. The Trustee will also make available for inspection by any Beneficiary
at the Trustee's principal office in Toronto, Ontario all proxy materials,
information statements, reports and other written communications that are:

         (a)    received by the Trustee as the registered holder of the WSI
                Special Voting Share and made available by WSI generally to the
                holders of WSI Common Shares; or

         (b)    specifically directed to the Beneficiaries or to the Trustee for
                the benefit of the Beneficiaries by WSI.




4.5             OTHER MATERIALS

                As soon as reasonably practicable after receipt by WSI or
holders of WSI Common Shares (if such receipt is known by WSI) of any material
sent or given by or on behalf of a third party to holders of WSI Common Shares
generally, including without limitation, dissident proxy and information
circulars (and related information and material) and tender and exchange offer
circulars (and related information and material), WSI shall use its reasonable
efforts to obtain and deliver to the Trustee copies thereof in sufficient
quantities so as to enable the Trustee to forward or cause to be forwarded such
material (unless the same has been provided directly to Beneficiaries by such
third party) or cause to be mailed or otherwise sent, to each Beneficiary as
soon as possible thereafter. As soon as reasonably practicable after receipt
thereof, the Trustee will mail or otherwise send to each Beneficiary, at the
expense of WSI, copies of all such materials received by the Trustee from WSI.
The Trustee will also make available for inspection by any Beneficiary at the
Trustee's principal office in Toronto, Ontario copies of all such materials.

4.6             LIST OF PERSONS ENTITLED TO VOTE

                Unless the Trustee also acts as the transfer agent for the
Exchangeable Shares (in which case the Trustee shall be able to prepare a list
of the Beneficiaries from time to time), CERI shall, (a) prior to each annual,
general and special WSI Meeting or the seeking of any WSI Consent and (b)
forthwith upon each request made at any time by the Trustee in writing, prepare
or cause to be prepared a list (a "LIST") of the names and addresses of the
Beneficiaries arranged in alphabetical order and showing the number of
Exchangeable Shares held of record by each such Beneficiary, in each case at the
close of business on the date specified by the Trustee in such request or, in
the case of a List prepared in connection with a WSI Meeting or a WSI Consent,
at the close of business on the record date established by WSI or pursuant to
applicable law for determining the holders of WSI Common Shares entitled to
receive notice of and/or to vote at such WSI Meeting or to give consent in
connection with such WSI Consent. Each such List shall be delivered to the
Trustee promptly after receipt by CERI of such request or the record date for
such meeting or seeking of consent, as the case may be, and in any event within
sufficient time as to permit the Trustee to perform its obligations under this
Agreement and the Trustee may rely solely on each such List to identify the
Beneficiaries in order to perform its obligations hereunder in connection with a
WSI Meeting or a WSI Consent. WSI agrees to give CERI notice (with a copy to the
Trustee) of the calling of any WSI Meeting or the seeking of any WSI Consent,
together with the record dates therefor, sufficiently prior to the date of the
calling of such meeting or seeking of such consent so as to enable CERI to
perform its obligations under this Section 4.6.

4.7             ENTITLEMENT TO DIRECT VOTES

                Any Beneficiary named in a List prepared in connection with any
WSI Meeting or WSI Consent will be entitled (a) to instruct the Trustee in the
manner described in Section 4.3 with respect to the exercise of the Beneficiary
Votes to which such Beneficiary is entitled or (b) to attend such meeting and
personally exercise thereat, as the proxy of the Trustee, the Beneficiary Votes
to which such Beneficiary is entitled.

4.8             VOTING BY TRUSTEE AND ATTENDANCE OF TRUSTEE REPRESENTATIVE AT
                MEETING

         (a)    In connection with each WSI Meeting and WSI Consent, the Trustee
                shall exercise, either in person or by proxy, in accordance with
                the instructions received from a Beneficiary pursuant to Section
                4.3, the Beneficiary Votes as to which such Beneficiary is
                entitled to direct the vote (or any lesser number thereof as may
                be set forth in the instructions), other than any Beneficiary
                votes that are the subject of Section 4.8(b), provided, however,
                that





                such written instructions are received by the Trustee from the
                Beneficiary prior to the time and date fixed by the Trustee for
                receipt of such instruction in the notice given by the Trustee
                to the Beneficiary pursuant to Section 4.3.

         (b)    The Trustee shall cause a representative who is empowered by it
                to sign and deliver, on behalf of the Trustee, proxies for
                Voting Rights to attend each WSI Meeting. Upon submission by a
                Beneficiary (or its designee) named in the List prepared in
                connection with the relevant meeting, of identification
                satisfactory to the Trustee's representative, and at the
                Beneficiary's request, such representative shall sign and
                deliver to such Beneficiary (or its designee) a proxy to
                exercise personally the Beneficiary Votes as to which such
                Beneficiary is otherwise entitled hereunder to direct the vote,
                if such Beneficiary either (i) has not previously given the
                Trustee instructions pursuant to Section 4.3 in respect of such
                meeting or (ii) submits to such representative written
                revocation of any such previous instructions. At such meeting,
                the Beneficiary (or its designee) exercising such Beneficiary
                Votes shall have the same rights as the Trustee to speak at the
                meeting in favour of any matter, question, proposal or
                proposition, to vote by way of ballot at the meeting in respect
                of any matter, question, proposal or proposition and to vote at
                such meeting by way of a show of hands in respect of any matter,
                question or proposition.

4.9             DISTRIBUTION OF WRITTEN MATERIALS

                Any written materials distributed by the Trustee pursuant to
this Agreement shall be sent by mail (or otherwise communicated in the same
manner as WSI utilizes in communications to holders of WSI Common Shares,
subject to applicable regulatory requirements and provided such manner of
communication is reasonably available to the Trustee) to each Beneficiary at its
address as shown on the register of holders of Exchangeable Shares maintained by
the registrar and transfer agent. WSI agrees not to communicate with holders of
WSI Common Shares with respect to such written materials otherwise than by mail
unless such method of communication is also reasonably available to the Trustee
for communication with the Beneficiaries. CERI shall provide or cause to be
provided to the Trustee for purposes of communication, on a timely basis and
without charge or other expense:

         (a)    a current List; and

         (b)    upon the request of the Trustee, mailing labels to enable the
                Trustee to carry out its duties under this Agreement (unless the
                Trustee also acts as the transfer agent for the Exchangeable
                Shares, in which case the Trustee shall prepare such mailing
                labels itself).

4.10            TERMINATION OF VOTING RIGHTS

                All of the rights of a Beneficiary with respect to the
Beneficiary Votes exercisable in respect of the Exchangeable Shares held by such
Beneficiary, including the right to instruct the Trustee as to the voting of or
to vote personally such Beneficiary Votes, shall be deemed to be surrendered by
the Beneficiary to WSI or Capital Holdings, as the case may be, and such
Beneficiary Votes and the Voting Rights represented thereby shall cease
immediately upon (i) the delivery by such holder to the Trustee of the
certificates representing such Exchangeable Shares, in connection with the
exercise by the Beneficiary of the Exchange Right or Exchange Put Right, or upon
the exercise of the Automatic Exchange Right (unless, in any such case, WSI or
Capital Holdings shall not have delivered the requisite WSI Common Shares
issuable in exchange therefor to the Trustee for delivery to the Beneficiaries),
or (ii) upon the redemption of Exchangeable Shares pursuant to Article 6 or 7 of
the Share Provisions, or (iii) upon the effective date of the liquidation,
dissolution or winding-up of CERI pursuant to Article 5 of the Share





Provisions, or (iv) upon the purchase of Exchangeable Shares from the holder
thereof by Capital Holdings pursuant to the exercise by Capital Holdings of the
Retraction Call Right, the Redemption Call Right or the Liquidation Call Right.

                                   ARTICLE 5
                      EXCHANGE RIGHT AND AUTOMATIC EXCHANGE

5.1             GRANT AND OWNERSHIP OF THE EXCHANGE RIGHT

                WSI hereby grants to the Trustee as trustee for and on behalf
of, and for the use and benefit of, the Beneficiaries (i) the right (the
"EXCHANGE RIGHT"), upon the occurrence and during the continuance of an
Insolvency Event, to require WSI to purchase from each and every Beneficiary all
or any part of the Exchangeable Shares held by the Beneficiary, (ii) the
Automatic Exchange Right, and (iii) the Exchange Put Right, all in accordance
with the provisions of this Agreement. WSI hereby acknowledges receipt from the
Trustee as trustee for and on behalf of the Beneficiaries of good and valuable
consideration (and the adequacy thereof) for the grant of the Exchange Right,
the Automatic Exchange Right and the Exchange Put Right by WSI to the Trustee.
During the term of the Trust and subject to the terms and conditions of this
Agreement, the Trustee shall possess and be vested with full legal ownership of
the Exchange Right, the Automatic Exchange Right and the Exchange Put Right and
shall be entitled to exercise all of the rights and powers of an owner with
respect to the Exchange Right, the Automatic Exchange Right and the Exchange Put
Right, provided that the Trustee shall:

         (a)    hold the Exchange Right, the Automatic Exchange Right and the
                Exchange Put Right and the legal title thereto as trustee solely
                for the use and benefit of the Beneficiaries in accordance with
                the provisions of this Agreement; and

         (b)    except as specifically authorized by this Agreement, have no
                power or authority to exercise or otherwise deal in or with the
                Exchange Right, the Automatic Exchange Right or the Exchange Put
                Right, and the Trustee shall not exercise any such rights for
                any purpose other than the purposes for which the Trust is
                created pursuant to this Agreement.

5.2             LEGENDED SHARE CERTIFICATES

                CERI will cause each certificate representing Exchangeable
Shares to bear an appropriate legend notifying the Beneficiaries of:

         (a)    their right to instruct the Trustee with respect to the exercise
                of the Exchange Right in respect of the Exchangeable Shares held
                by a Beneficiary;

         (b)    the Automatic Exchange Right; and

         (c)    the Exchange Put Right.

                The Trustee shall have no duty under this Agreement to monitor
or enforce compliance by CERI with aforesaid legending requirements.

5.3             GENERAL EXERCISE OF EXCHANGE RIGHT

                The Exchange Right shall be and remain vested in and exercisable
by the Trustee. Subject to Section 7.14, the Trustee shall exercise the Exchange
Right only on the basis of instructions





received pursuant to this Article 5 from Beneficiaries entitled to instruct the
Trustee as to the exercise thereof. To the extent that no instructions are
received from a Beneficiary with respect to the Exchange Right, the Trustee
shall not exercise or permit the exercise of the Exchange Right.

5.4             PURCHASE PRICE

                The purchase price payable by WSI (or Capital Holdings, as the
case may be) for each Exchangeable Share to be purchased by WSI (or Capital
Holdings, as the case may be) under the Exchange Right and the Exchange Put
Right shall be an amount per share equal to (a) the Current Market Price of a
WSI Common Share on the last Business Day prior to the day of closing of the
purchase and sale of such Exchangeable Share under the Exchange Right or the
Exchange Put Right, which shall be satisfied in full by WSI causing to be
delivered to such holder one WSI Common Share, plus (b) to the extent not paid
by CERI on the designated payment date therefor, an additional amount equal to
and in satisfaction of the full amount of all declared and unpaid dividends on
each such Exchangeable Share held by such holder on any dividend record date
which occurred prior to the closing of the purchase and sale. In connection with
each exercise of the Exchange Right or the Exchange Put Right, WSI shall provide
to the Trustee an Officer's Certificate setting forth the calculation of the
purchase price for each Exchangeable Share. The purchase price for each such
Exchangeable Share so purchased may be satisfied only by WSI issuing and
delivering or causing to be delivered to the Trustee, on behalf of the relevant
Beneficiary, one WSI Common Share and on the applicable payment date a cheque
for the balance, if any, of the purchase price without interest (but less any
amounts withheld pursuant to Section 5.13). Upon payment by WSI (or Capital
Holdings, as the case may be) of such purchase price, the relevant Beneficiary
shall cease to have any right to be paid any amount in respect of declared and
unpaid dividends on each such Exchangeable Share by CERI.

5.5             EXERCISE INSTRUCTIONS

                Subject to the terms and conditions herein set forth, a
Beneficiary shall be entitled, upon the occurrence and during the continuance of
an Insolvency Event, to instruct the Trustee to exercise the Exchange Right with
respect to all or any part of the Exchangeable Shares registered in the name of
such Beneficiary on the register of holders of Exchangeable Shares maintained by
the registrar and transfer agent. To cause the exercise of the Exchange Right by
the Trustee, the Beneficiary shall deliver to the Trustee, in person or by
certified or registered mail, at its principal office in Toronto, Ontario or at
such other places as the Trustee may from time to time designate by written
notice to the Beneficiaries, the certificates representing the Exchangeable
Shares which such Beneficiary desires WSI to purchase, duly endorsed in blank
for transfer, and accompanied by such other documents and instruments as may be
required to effect a transfer of Exchangeable Shares under the OBCA and the
articles and by-laws of CERI and such additional documents and instruments as
the Trustee, CERI and WSI may reasonably require together with (a) a duly
completed form of notice of exercise of the Exchange Right, contained on the
reverse of or attached to the Exchangeable Share certificates, stating (i) that
the Beneficiary thereby instructs the Trustee to exercise the Exchange Right so
as to require WSI to purchase from the Beneficiary the number of Exchangeable
Shares specified therein, (ii) that such Beneficiary has good title to and owns
all such Exchangeable Shares to be acquired by WSI free and clear of all liens,
claims and encumbrances, (iii) the names in which the certificates representing
WSI Common Shares issuable in connection with the exercise of the Exchange Right
are to be issued and (iv) the names and addresses of the persons to whom such
new certificates should be delivered and (b) payment (or evidence satisfactory
to the Trustee, CERI and WSI of payment) of the taxes (if any) payable as
contemplated by Section 5.8 of this Agreement. If only a part of the
Exchangeable Shares represented by any certificate or certificates delivered to
the Trustee are to be purchased by WSI under the Exchange Right, a new
certificate for the balance of such Exchangeable Shares shall be issued to the
holder at the expense of CERI.




5.6             DELIVERY OF WSI COMMON SHARES; EFFECT OF EXERCISE

                Promptly after the receipt of the certificates representing the
Exchangeable Shares which the Beneficiary desires WSI to purchase under the
Exchange Right, together with such documents and instruments of transfer and a
duly completed form of notice of exercise of the Exchange Right (and payment of
taxes, if any payable as contemplated by Section 5.8 or evidence thereof), duly
endorsed for transfer to WSI, the Trustee shall notify WSI and CERI of its
receipt of the same, which notice to WSI and CERI shall constitute exercise of
the Exchange Right by the Trustee on behalf of the holder of such Exchangeable
Shares, and WSI shall promptly thereafter deliver or cause to be delivered to
the Trustee, for delivery to the relevant Beneficiary (or to such other persons,
if any, properly designated by such Beneficiary) the number of WSI Common Shares
issuable in connection with the exercise of the Exchange Right, and on the
applicable payment date cheques for the balance, if any, of the total purchase
price therefor without interest (but less any amounts withheld pursuant to
Section 5.13); provided, however, that no such delivery shall be made unless and
until the Beneficiary requesting the same shall have paid (or provided evidence
satisfactory to the Trustee, CERI and WSI of the payment of) the taxes (if any)
payable as contemplated by Section 5.8 of this Agreement. Immediately upon the
giving of notice by the Trustee to WSI and CERI of the exercise of the Exchange
Right as provided in this Section 5.6, the closing of the transaction of
purchase and sale contemplated by the Exchange Right shall be deemed to have
occurred and the relevant Beneficiary shall be deemed to have transferred to WSI
all of such Beneficiary's right, title and interest in and to the Exchangeable
Shares which are the subject of the Exchange Right and the related interest in
the Trust Estate and shall cease to be a holder of such Exchangeable Shares and
shall not be entitled to exercise any of the rights of a holder in respect
thereof, other than the right to receive such Beneficiary's proportionate part
of the total purchase price therefor, unless the requisite number of WSI Common
Shares is not allotted, issued and delivered by WSI to the Trustee within five
Business Days of the date of the giving of such notice by the Trustee or the
balance of the purchase price, if any, is not paid by WSI on the applicable
payment date therefor, in which case the rights of the Beneficiary shall remain
unaffected until such WSI Common Shares are so allotted, issued and delivered,
and the balance of the purchase price, if any, has been paid, by WSI. Upon
delivery by WSI to the Trustee of such WSI Common Shares, and the balance of the
purchase price, if any, the Trustee shall deliver such WSI Common Shares to such
Beneficiary (or to such other persons, if any, properly designated by such
Beneficiary). Concurrently with such Beneficiary ceasing to be a holder of
Exchangeable Shares, the Beneficiary shall be considered and deemed for all
purposes to be the holder of the WSI Common Shares delivered to it pursuant to
the exercise of the Exchange Right. If only a part of the Exchangeable Shares
represented by any certificate or certificates delivered to the Trustee are to
be purchased by WSI under the Exchange Right, a new certificate for the balance
of such Exchangeable Shares shall be issued to the holder at the expense of
CERI.

5.7             EXERCISE OF EXCHANGE RIGHT SUBSEQUENT TO RETRACTION

                In the event that a Beneficiary has exercised its right under
Article 6 of the Share Provisions to require CERI to redeem any or all of the
Exchangeable Shares held by the Beneficiary (the "RETRACTED SHARES") and is
notified by CERI pursuant to section 6.6 of the Share Provisions that CERI will
not be permitted as a result of solvency requirements of applicable law to
redeem all such Retracted Shares, and provided that Capital Holdings shall not
have exercised the Retraction Call Right with respect to the Retracted Shares
and that the Beneficiary has not revoked the retraction request delivered by the
Beneficiary to CERI pursuant to section 6.7 of the Share Provisions and provided
further that the Trustee has received written notice of the retraction request
from CERI or WSI, the retraction request will constitute and will be deemed to
constitute notice from the Beneficiary to the Trustee instructing the Trustee to
exercise the Exchange Right with respect to those Retracted Shares that CERI is
unable to redeem. In any such event, CERI hereby agrees with the Trustee and in
favour of the Beneficiary promptly to forward or cause to be forwarded to the
Trustee all relevant materials delivered by the




                                       17


Beneficiary to CERI or to the transfer agent of the Exchangeable Shares
(including without limitation, a copy of the retraction request delivered
pursuant to section 6.1 of the Share Provisions) in connection with such
proposed redemption of the Retracted Shares and the Trustee will thereupon
exercise the Exchange Right with respect to the Retracted Shares that CERI is
not permitted to redeem and will require WSI to purchase such shares in
accordance with the provisions of this Article 5.

5.8             STAMP OR OTHER TRANSFER TAXES

                Upon any sale of Exchangeable Shares to WSI pursuant to the
Exchange Right, the Exchange Put Right, the Automatic Exchange Right or the
Exchange Put Right, the share certificate or certificates representing WSI
Common Shares to be delivered in connection with the payment of the total
purchase price therefor shall be issued in the name of the relevant Beneficiary
in respect of the Exchangeable Shares so sold or in such names as such
Beneficiary may otherwise direct in writing without charge to the holder of the
Exchangeable Shares so sold; provided, however, that such Beneficiary (a) shall
pay (and none of WSI, CERI or the Trustee shall be required to pay) any
documentary, stamp, transfer or other taxes that may be payable in respect of
any transfer involved in the issuance or delivery of such shares to a person
other than such Beneficiary or (b) shall have evidenced to the satisfaction of
the Trustee, WSI and CERI that such taxes, if any, have been paid.

5.9             NOTICE OF INSOLVENCY EVENT

                As soon as practicable following the occurrence of an Insolvency
Event or any event that with the giving of notice or the passage of time or both
would be an Insolvency Event, CERI and WSI shall give written notice thereof to
the Trustee. As soon as practicable following the receipt of notice from either
CERI or WSI of the occurrence of an Insolvency Event, or upon the Trustee
otherwise becoming aware of an Insolvency Event, the Trustee will mail to each
Beneficiary, at the expense of WSI (such funds to be received in advance by the
Trustee), a notice of such Insolvency Event in the form provided by WSI, which
notice shall contain a brief statement of the rights of the Beneficiaries with
respect to the Exchange Right; provided, however, that notice of an Insolvency
Event based on CERI not being permitted, pursuant to solvency requirements of
applicable law, to redeem any Retracted Shares pursuant to section 6.6 of the
Share Provisions need not be given more than once during each three-month
period.

5.10            QUALIFICATION OF WSI COMMON SHARES

                WSI covenants that if any WSI Common Shares to be issued and
delivered pursuant to the Exchange Right, the Automatic Exchange Right or the
Exchange Put Right, require registration or qualification with or approval of or
the filing of any document, including any prospectus or similar document, or the
taking of any proceeding with or the obtaining of any order, ruling or consent
from any governmental or regulatory authority under any Canadian or United
States federal, provincial, territorial or state law or regulation or pursuant
to the rules and regulations of any regulatory authority or the fulfillment of
any other Canadian or United States federal, provincial, territorial or state
legal requirement before such shares may be issued and delivered by WSI to the
initial holder thereof or in order that such shares may be freely traded
thereafter (other than any restrictions of general application on transfer by
reason of a holder being a "control person" of WSI for purposes of Canadian
provincial securities law or an "affiliate" of WSI for purposes of United States
federal or state securities law), WSI will in good faith expeditiously take all
such actions and do all such things as are necessary or desirable to cause such
WSI Common Shares to be and remain duly registered, qualified or approved. WSI
will in good faith expeditiously take all such actions and do all such things as
are reasonably necessary or desirable to cause all WSI Common Shares to be
delivered pursuant to the Exchange Right, the Automatic Exchange Right or the
Exchange Put Right to be listed, quoted or posted for trading on all stock
exchanges and quotation



                                       18


systems on which outstanding WSI Common Shares have been listed by WSI and
remain listed and are quoted or posted for trading at such time.

5.11            WSI COMMON SHARES

                WSI hereby represents, warrants and covenants that the WSI
Common Shares issuable as described herein will be duly authorized and validly
issued as fully paid and non-assessable and shall be free and clear of any lien,
claim or encumbrance.

5.12            AUTOMATIC EXCHANGE ON LIQUIDATION OF WSI

         (a)    WSI will give the Trustee written notice of each of the
                following events at the time set forth below:

                (i)   in the event of any determination by the Board of
                      Directors to institute voluntary liquidation, dissolution
                      or winding-up proceedings with respect to WSI or to effect
                      any other distribution of assets of WSI among its
                      shareholders for the purpose of winding up its affairs, at
                      least 30 days prior to the proposed effective date of such
                      liquidation, dissolution, winding-up or other
                      distribution; and

                (ii)  as soon as practicable following the earlier of (A)
                      receipt by WSI of notice of, and (B) WSI otherwise
                      becoming aware of, any threatened or instituted claim,
                      suit, petition or other proceedings with respect to the
                      involuntary liquidation, dissolution or winding-up of WSI
                      or to effect any other distribution of assets of WSI among
                      its shareholders for the purpose of winding up its
                      affairs, in each case where WSI has failed to contest in
                      good faith any such proceeding commenced in respect of WSI
                      within 30 days of becoming aware thereof.

         (b)    As soon as practicable following receipt by the Trustee from WSI
                of notice of any event (a "LIQUIDATION EVENT") contemplated by
                Section 5.12(a)(i) or 5.12(a)(ii) above, the Trustee will give
                notice thereof to the Beneficiaries at the expense of WSI (such
                funds to be received in advance). Such notice shall be provided
                to the Trustee by WSI and shall include a brief description of
                the automatic exchange of Exchangeable Shares for WSI Common
                Shares provided for in Section 5.12(c).

         (c)    In order that the Beneficiaries will be able to participate on a
                pro rata basis with the holders of WSI Common Shares in the
                distribution of assets of WSI in connection with a Liquidation
                Event, on the fifth Business Day prior to the effective date
                (the "LIQUIDATION EVENT EFFECTIVE DATE") of a Liquidation Event
                all of the then outstanding Exchangeable Shares shall be
                automatically exchanged for WSI Common Shares. To effect such
                automatic exchange, WSI shall purchase on the fifth Business Day
                prior to the Liquidation Event Effective Date each Exchangeable
                Share then outstanding and held by Beneficiaries, and each
                Beneficiary shall sell the Exchangeable Shares held by it at
                such time, for a purchase price per share equal to (a) the
                Current Market Price of a WSI Common Share on the fifth Business
                Day prior to the Liquidation Event Effective Date, which shall
                be satisfied in full by WSI issuing to the Beneficiary one WSI
                Common Share, and (b) to the extent not paid by CERI, an
                additional amount equal to and in satisfaction of the full
                amount of all declared and unpaid dividends on each such
                Exchangeable Share held by such holder on any dividend record
                date which occurred prior to the date of the exchange. WSI shall
                provide the Trustee with an Officer's




                                       19


                Certificate in connection with each automatic exchange setting
                forth the calculation of the purchase price for each
                Exchangeable Share.

         (d)    On the fifth Business Day prior to the Liquidation Event
                Effective Date, the closing of the transaction of purchase and
                sale contemplated by the automatic exchange of Exchangeable
                Shares for WSI Common Shares shall be deemed to have occurred,
                and each Beneficiary shall be deemed to have transferred to WSI
                all of the Beneficiary's right, title and interest in and to
                such Beneficiary's Exchangeable Shares and the related interest
                in the Trust Estate, any right of each such Beneficiary to
                receive declared and unpaid dividends from CERI shall be deemed
                to be satisfied and discharged and each such Beneficiary shall
                cease to be a holder of such Exchangeable Shares and WSI shall
                issue to the Beneficiary the WSI Common Shares issuable upon the
                automatic exchange of Exchangeable Shares for WSI Common Shares
                and on the applicable payment date shall deliver to the Trustee
                for delivery to the Beneficiary a cheque for the balance, if
                any, of the total purchase price for such Exchangeable Shares
                without interest but less any amounts withheld pursuant to
                Section 5.13. Concurrently with such Beneficiary ceasing to be a
                holder of Exchangeable Shares, the Beneficiary shall be
                considered and deemed for all purposes to be the holder of the
                WSI Common Shares issued pursuant to the automatic exchange of
                Exchangeable Shares for WSI Common Shares and the certificates
                held by the Beneficiary previously representing the Exchangeable
                Shares exchanged by the Beneficiary with WSI pursuant to such
                automatic exchange shall thereafter be deemed to represent WSI
                Common Shares issued to the Beneficiary by WSI pursuant to such
                automatic exchange. Upon the request of a Beneficiary and the
                surrender by the Beneficiary to the Trustee or WSI of
                Exchangeable Share certificates deemed to represent WSI Common
                Shares, duly endorsed in blank and accompanied by such
                instruments of transfer as WSI may reasonably require, WSI shall
                deliver or cause to be delivered to the Beneficiary certificates
                representing WSI Common Shares of which the Beneficiary is the
                holder.

5.13            WITHHOLDING RIGHTS

         (a)    WSI, CERI and the Trustee shall be entitled to deduct and
                withhold from any consideration otherwise payable under this
                Agreement to any holder of Exchangeable Shares or WSI Common
                Shares such amounts as WSI, CERI or the Trustee is required to
                deduct and withhold with respect to such payment under the
                Income Tax Act (Canada), the United States Internal Revenue Code
                of 1986 or any provision of provincial, territorial, state,
                local or foreign tax law, in each case as amended or succeeded.
                The Trustee may act and rely on the advice of counsel with
                respect to such matters. To the extent that amounts are so
                withheld, such withheld amounts shall be treated for all
                purposes as having been paid to the holder of the shares in
                respect of which such deduction and withholding was made,
                provided that such withheld amounts are actually remitted to the
                appropriate taxing authority. To the extent that the amount so
                required to be deducted or withheld from any payment to a holder
                exceeds the cash portion of the consideration otherwise payable
                to the holder, WSI, CERI and the Trustee are hereby authorized
                to sell or otherwise dispose of such portion of the
                consideration as is necessary to provide sufficient funds to
                WSI, CERI or the Trustee, as applicable, as the case may be, to
                enable it to comply with such deduction or withholding
                requirement and WSI, CERI or the Trustee shall notify the holder
                thereof and remit to such holder any unapplied balance of the
                net proceeds of such sale.



                                       20


         (b)    Any other provision of this agreement notwithstanding, the
                Trustee shall not be responsible for determining and shall have
                no duty to determine or verify whether any taxes are payable or,
                if any taxes are payable, the amount thereof to be deducted and
                remitted to any taxing authority or agency in any jurisdiction,
                in respect of any consideration or the amount otherwise payable
                under this agreement to any person (including any holder or
                former holder of Exchangeable Shares or WSI Common Shares) at
                any time. The Trustee shall not be responsible for determining
                the adequacy of or otherwise examining any evidence of the
                payment of any taxes which any Beneficiary or other party may at
                any time submit to the Trustee. The making of such
                determinations is the responsibility solely of WSI and CERI and
                the Trustee shall be entitled to rely and act upon any written
                instructions which it may receive from either WSI and CERI or
                their respective counsel with regard to the withholding and
                remittance of tax and/or the retention of sufficient funds by
                the Trustee to enable it to comply with any applicable
                withholding taxes. If no written instructions to withhold have
                been received by the Trustee from WSI and CERI or their counsel
                by the date when the Trustee is required to make or forward
                payment to a given party, the Trustee may proceed to make or
                forward such payment without deduction or withholding or
                retention of funds on account of taxes on the assumption that no
                deduction or withholding or retention of funds on account of
                taxes is required. Prior to the making of any distributions to
                holders or former holders of Exchangeable Shares, WSI and/or
                CERI shall ensure that the Trustee has access to sufficient
                funds (by directly providing, if necessary, such funds to the
                Trustee) to enable the Trustee to comply with any applicable
                withholding taxes in connection with such distribution.

5.14            PURCHASE OF EXCHANGEABLE SHARES BY WSI

                WSI hereby grants to the Trustee, as trustee for and on behalf
of, and for the use and benefit of, the Beneficiaries the benefit of its
covenant and agreement (the "EXCHANGE PUT RIGHT") that it shall purchase (or
cause Capital Holdings to purchase) all Exchangeable Shares in respect of which
the holder thereof has not, in the circumstances contemplated in the Share
Provisions and, if applicable, the Plan of Arrangement, received the full amount
of the Liquidation Call Purchase Price, Retraction Price, Purchase Price,
Redemption Price or Redemption Call Purchase Price, as the case may be, together
with all declared and unpaid dividends, as applicable, to which the holder is
entitled in respect of such shares pursuant to the Share Provisions and, if
applicable, the Plan of Arrangement, and it shall be at the discretion of WSI to
decide, in respect of each such holder, which of Capital Holdings and WSI shall
purchase the Exchangeable Shares.

                                   ARTICLE 6
                RESTRICTIONS ON ISSUE OF WSI SPECIAL VOTING STOCK

6.1             ISSUE OF ADDITIONAL SHARES

                During the term of this Agreement, WSI will not, without the
consent of the holders at the relevant time of Exchangeable Shares, given in
accordance with section 10.2 of the Share Provisions, issue any shares of its
special voting preferred stock in the same series as the WSI Special Voting
Share. The Trustee shall have no duty under this Agreement to monitor or enforce
compliance by WSI with its obligations under this Article 6.



                                       21


                                   ARTICLE 7
                             CONCERNING THE TRUSTEE

7.1             POWERS AND DUTIES OF THE TRUSTEE

                The rights, powers, duties and authorities of the Trustee under
this Agreement, in its capacity as trustee of the Trust, shall include:

         (a)    receipt and deposit of the WSI Special Voting Share from WSI as
                Trustee for and on behalf of the Beneficiaries in accordance
                with the provisions of this Agreement;

         (b)    granting proxies and distributing materials to the Beneficiaries
                as provided in this Agreement;

         (c)    voting the Beneficiary Votes in accordance with the provisions
                of this Agreement;

         (d)    receiving the grant of the Exchange Right, the Automatic
                Exchange Right and the Exchange Put Right from WSI as Trustee
                for and on behalf of the Beneficiaries in accordance with the
                provisions of this Agreement;

         (e)    exercising the Exchange Right and enforcing the benefit of the
                Automatic Exchange Right and the Exchange Put Right, in each
                case in accordance with the provisions of this Agreement, and in
                connection therewith receiving from the Beneficiaries
                Exchangeable Shares and other requisite documents and
                distributing to such Beneficiaries WSI Common Shares and
                cheques, if any, to which such Beneficiaries are entitled upon
                the exercise of the Exchange Right or pursuant to the Automatic
                Exchange Right or the Exchange Put Right, as the case may be;

         (f)    holding title to the Trust Estate;

         (g)    taking action at the direction of a Beneficiary or Beneficiaries
                to enforce the obligations of WSI and CERI under this Agreement;
                and

         (h)    taking such other actions and doing such other things as are
                specifically provided in this Agreement.

                In the exercise of such rights, powers, duties and authorities
the Trustee shall have (and is granted) such incidental and additional rights,
powers, duties and authority not in conflict with any of the provisions of this
Agreement as the Trustee, acting in good faith and in the reasonable exercise of
its discretion, may deem necessary, appropriate or desirable to effect the
purpose of the Trust. Any exercise of duties or of such discretionary rights,
powers, duties and authorities by the Trustee shall be final, conclusive and
binding upon all persons. For greater certainty, and anything else herein
notwithstanding, the Trustee shall have only those duties as set out
specifically in this Agreement.

                The Trustee in exercising its rights, powers, duties and
authorities hereunder shall act honestly and in good faith and with a view to
the best interests of the Beneficiaries and shall exercise the degree of care,
diligence and skill that a reasonably prudent trustee would exercise in
comparable circumstances.

                The Trustee shall not be bound to give notice or do or take any
act, action or proceeding by virtue of the powers conferred on it hereby unless
and until it shall be specifically required to do so




                                       22


under the terms hereof; nor shall the Trustee be required to take any notice of,
or to do, or to take any act, action or proceeding as a result of any default or
breach of any provision hereunder, unless and until notified in writing of such
default or breach, which notices shall distinctly specify the default or breach
desired to be brought to the attention of the Trustee, and in the absence of
such notice the Trustee may for all purposes of this Agreement conclusively
assume that no default or breach has been made in the observance or performance
of any of the representations, warranties, covenants, agreements or conditions
contained herein.

7.2             NO CONFLICT OF INTEREST

                The Trustee represents to WSI and CERI that at the date of
execution and delivery of this Agreement there exists no material conflict of
interest in the role of the Trustee as a fiduciary hereunder. The Trustee shall,
within 90 days after it becomes aware that such material conflict of interest
exists, either eliminate such material conflict of interest or resign in the
manner and with the effect specified in Article 10. If, notwithstanding the
foregoing provisions of this Section 7.2, the Trustee has such a material
conflict of interest, the validity and enforceability of this Agreement shall
not be affected in any manner whatsoever by reason only of the existence of such
material conflict of interest. If the Trustee contravenes the foregoing
provisions of this Section 7.2, any interested party may apply to the Court for
an order that the Trustee be replaced as Trustee hereunder.

7.3             DEALINGS WITH TRANSFER AGENTS, REGISTRARS, ETC.

                WSI and CERI irrevocably authorize the Trustee, from time to
time, to:

         (a)    consult, communicate and otherwise deal with the respective
                registrars and transfer agents, and with any such subsequent
                registrar or transfer agent, of the Exchangeable Shares and WSI
                Common Shares; and

         (b)    requisition, from time to time, (i) from any such registrar or
                transfer agent any information readily available from the
                records maintained by it which the Trustee may reasonably
                require for the discharge of its duties and responsibilities
                under this Agreement and (ii) from the transfer agent of WSI
                Common Shares, and any subsequent transfer agent of such shares,
                the share certificates issuable upon the exercise from time to
                time of the Exchange Right and pursuant to the Automatic
                Exchange Right and the Exchange Put Right.

                WSI and CERI irrevocably authorize their respective registrars
and transfer agents to comply with all such requests. WSI covenants that it will
supply its transfer agent with duly executed share certificates for the purpose
of completing the exercise from time to time of the Exchange Right, the
Automatic Exchange Right and the Exchange Put Right.

7.4             BOOKS AND RECORDS

                The Trustee shall keep available for inspection by WSI and CERI
at the Trustee's principal office in Toronto, Ontario correct and complete books
and records of account relating to the Trust created by this Agreement,
including without limitation, all relevant data relating to mailings and
instructions to and from Beneficiaries and all transactions pursuant to the
Exchange Right, the Automatic Exchange Right and the Exchange Put Right. On or
before January 31, 2005, and on or before January 31st in every year thereafter
(and on any other date upon request by WSI or CERI, acing reasonably, in respect
of any other period), so long as the WSI Special Voting Share is on deposit with
the Trustee, the




                                       23


Trustee shall transmit to WSI and CERI a brief report, dated as of the preceding
December 31st (or such other specified date in respect of any other requested
period), with respect to:

         (a)    the property and funds comprising the Trust Estate as of that
                date;

         (b)    the number of exercises of the Exchange Right, if any, and the
                aggregate number of Exchangeable Shares received by the Trustee
                on behalf of Beneficiaries in consideration of the issuance and
                delivery by WSI of WSI Common Shares in connection with the
                Exchange Right, during the calendar year ended on such December
                31st (or such other specified date in respect of any other
                requested period); and

         (c)    any action taken by the Trustee in the performance of its duties
                under this Agreement which it had not previously reported and
                which, in the Trustee's opinion, materially affects the Trust
                Estate.

7.5             INCOME TAX RETURNS AND REPORTS

                The Trustee shall, to the extent necessary, and as advised by
counsel, cause to be prepared and filed on behalf of the Trust appropriate
United States and Canadian income tax returns and any other returns or reports
as may be required by applicable law or pursuant to the rules and regulations of
any securities exchange or other trading system through which the Exchangeable
Shares are traded. In connection therewith, the Trustee may obtain the advice
and assistance of such experts or advisors as the Trustee considers necessary or
advisable (who may be experts or advisors to WSI or CERI). If requested by the
Trustee, WSI or CERI shall retain qualified experts or advisors for the purpose
of providing such tax advice or assistance. Further, the Trustee shall provide
draft copies of any such returns and reports to WSI and CERI prior to their
being filed and shall permit WSI and CERI to comment thereon and shall consider
in good faith any comments made by WSI or CERI.

7.6             INDEMNIFICATION PRIOR TO CERTAIN ACTIONS BY TRUSTEE

                The Trustee shall exercise any or all of the rights, duties,
powers or authorities vested in it by this Agreement at the request, order or
direction of any Beneficiary upon such Beneficiary furnishing to the Trustee
reasonable funding, security and indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee therein or thereby, provided
that no Beneficiary shall be obligated to furnish to the Trustee any such
security or indemnity in connection with the exercise by the Trustee of any of
its rights, duties, powers and authorities with respect to the WSI Special
Voting Share pursuant to Article 4, subject to Section 7.14, and with respect to
the Exchange Right pursuant to Article 5, subject to Section 7.14, and with
respect to the Automatic Exchange Right and the Exchange Put Right pursuant to
Article 5.

                None of the provisions contained in this Agreement shall require
the Trustee to expend or risk its own funds or otherwise incur financial
liability in the exercise of any of its rights, powers, duties, or authorities
unless funded, given security and indemnified as aforesaid.

7.7             ACTION OF BENEFICIARIES

                No Beneficiary shall have the right to institute any action,
suit or proceeding or to exercise any other remedy authorized by this Agreement
for the purpose of enforcing any of its rights or for the execution of any trust
or power hereunder unless the Beneficiary has requested the Trustee to take or
institute such action, suit or proceeding and furnished the Trustee with the
funding, security and indemnity referred to in Section 7.6 and the Trustee shall
have failed to act within a reasonable time







thereafter. In such case, but not otherwise, the Beneficiary shall be entitled
to take proceedings in any court of competent jurisdiction such as the Trustee
might have taken; it being understood and intended that no one or more
Beneficiaries shall have any right in any manner whatsoever to affect, disturb
or prejudice the rights hereby created by any such action, or to enforce any
right hereunder or the Voting Rights, the Exchange Rights, the Automatic
Exchange Right or the Exchange Put Right except subject to the conditions and in
the manner herein provided, and that all powers and trusts hereunder shall be
exercised and all proceedings at law shall be instituted, had and maintained by
the Trustee, except only as herein provided, and in any event for the equal
benefit of all Beneficiaries.

7.8             RELIANCE UPON DECLARATIONS

         (a)    The Trustee shall not be considered to be in contravention of
                any of its rights, powers, duties and authorities hereunder if,
                when required, it acts and relies in good faith upon lists,
                (including any Lists), notices, statutory declarations,
                certificates (including share certificates and Officers'
                Certificates), opinions or reports or other paper or documents
                furnished pursuant to the provisions hereof or required by the
                Trustee to be furnished to it in the exercise of its rights,
                powers, duties and authorities hereunder if such lists
                (including Lists), notices, statutory declarations, certificates
                (including share certificates and Officers' Certificates),
                opinions or reports or other paper or documents comply with the
                provisions of Section 7.9, if applicable, and with any other
                applicable provisions of this Agreement.

         (b)    Any other provision of this Agreement notwithstanding, the
                Trustee as trustee under this Agreement shall have no obligation
                to ensure or verify compliance with any applicable laws or rules
                or regulatory requirements (including those of any securities
                commission or securities exchange or other relevant trading
                system), or articles or by-laws of WSI or CERI, on the issuance
                or delivery of WSI Common Shares or the transfer of any
                Exchangeable Shares, occurring in connection with or upon any
                exercise of the Exchange Right, Automatic Exchange Right, and
                the Exchange Put Right. Except to the extent it may be
                specifically advised in writing to the contrary by legal
                counsel, the Trustee as trustee under this Agreement shall be
                entitled to regard all transfers of Exchangeable Shares and the
                issuance and delivery of all WSI Common Shares related to the
                exercise of the Exchange Right, Automatic Exchange Right, and
                the Exchange Put Right, upon the presumption that such transfers
                and issuances and deliveries are permissible pursuant to all
                applicable laws and rules and regulatory requirements (including
                those of any securities commission or securities exchange or
                other relevant trading system), and the articles and by-laws of
                WSI or CERI, as applicable, and the terms of this Agreement and
                the Exchangeable Shares Provisions. Except to the extent it may
                be specifically advised in writing to the contrary by legal
                counsel or WSI or CERI in the case of specifically identified
                Beneficiaries, the Trustee may assume for all purposes of this
                Agreement that the address of any Beneficiary as shown on the
                register of holders of Exchangeable Shares maintained by the
                registrar or transfer agent of the Exchangeable Shares is the
                Beneficiary's actual address for the time being and is also
                determinative of the Beneficiary's residency for the time being.
                Any other provision of this Agreement notwithstanding, the
                Trustee shall not be responsible for verifying or determining at
                any time (a) whether an Insolvency Event or any event which,
                with the giving of notice or the passage of time or both would
                be an Insolvency Event, has in fact occurred; (b) whether the
                solvency requirements of any applicable law will or will not
                permit CERI to redeem all Retracted Shares or, if less than all,
                how many, (and shall be entitled to rely on any notification
                given by CERI in this regard); (c) whether applicable law
                establishes a record date for any WSI Meeting, or WSI Consent
                or, if applicable law does establish any such





                record date, what the date so established is, and the Trustee
                shall be entitled to accept as valid and lawful for all purposes
                any record date established or stated by WSI for any WSI Meeting
                or WSI Consent unless advised in writing by legal counsel of a
                different record date established by applicable law.

7.9             EVIDENCE AND AUTHORITY TO TRUSTEE

                WSI and/or CERI shall furnish to the Trustee evidence of
compliance with the conditions provided for in this Agreement relating to any
action or step required or permitted to be taken by WSI and/or CERI or the
Trustee under this Agreement or as a result of any obligation imposed under this
Agreement, including, without limitation, in respect of the Voting Rights or the
Exchange Right or the Automatic Exchange Right or the Exchange Put Right and the
taking of any other action to be taken by the Trustee at the request of, or on
the application of, WSI and/or CERI, promptly, if and when:

         (a)    such evidence is required by any other Section of this Agreement
                to be furnished to the Trustee in accordance with the terms of
                this Section 7.9; or

         (b)    the Trustee, in the exercise of its rights, powers, duties and
                authorities under this Agreement, gives WSI and/or CERI written
                notice requiring it to furnish such evidence in relation to any
                particular action or obligation or matter specified in such
                notice.

                Such evidence shall consist of an Officer's Certificate of WSI
and/or CERI or a statutory declaration or a certificate made by persons entitled
to sign an Officer's Certificate stating that any such condition has been
complied with in accordance with the terms of this Agreement.

                Whenever such evidence relates to a matter other than the Voting
Rights, the Exchange Right, the Automatic Exchange Right or the Exchange Put
Right or the taking of any other action to be taken by the Trustee at the
request or on the application of WSI and/or CERI, and except as otherwise
specifically provided herein, such evidence may consist of a report or opinion
of any solicitor, attorney, auditor, accountant, appraiser, valuator, engineer
or other expert or any other person whose qualifications give authority to a
statement made by him, provided that if such report or opinion is furnished by a
director, officer or employee of WSI and/or CERI it shall be in the form of an
Officer's Certificate or a statutory declaration.

                Each statutory declaration, Officer's Certificate, opinion or
report furnished to the Trustee as evidence of compliance with a condition
provided for in this Agreement shall include a statement by the person giving
the evidence:

         (a)    declaring that he has read and understands the provisions of
                this Agreement relating to the condition in question;

         (b)    describing the nature and scope of the examination or
                investigation upon which he based the statutory declaration,
                certificate, statement or opinion; and

         (c)    declaring that he has made such examination or investigation as
                he believes is necessary to enable him to make the statements or
                give the opinions contained or expressed therein.

7.10            EXPERTS, ADVISERS AND AGENTS

                The Trustee may:




         (a)    in relation to these presents act, or not act, and rely on the
                opinion or advice of or information obtained from any solicitor,
                attorney, auditor, accountant, appraiser, valuator, engineer or
                other expert, whether retained by the Trustee or by WSI and/or
                CERI or otherwise, and may retain or employ such assistants as
                in its reasonable opinion may be necessary to the proper
                discharge of its powers and duties and determination of its
                rights hereunder and may pay proper and reasonable compensation
                for all such legal and other advice or assistance as aforesaid.
                The fees of such experts are to be part of the Trustee's fees
                hereunder; and

         (b)    employ such agents and other assistants as it may reasonably
                require for the proper determination and/or discharge of its
                powers and duties hereunder, and may pay reasonable remuneration
                for all services performed for it (and shall be entitled to
                receive reasonable remuneration for all services performed by
                it) in the discharge of the trusts hereof and compensation for
                all disbursements, costs and expenses made or incurred by it in
                the discharge of its duties hereunder and in the management of
                the Trust.

7.11            TRUSTEE NOT REQUIRED TO GIVE SECURITY

                The Trustee shall not be required to give any bond or security
in respect of the execution of the trusts, rights, duties, powers and
authorities of this Agreement or otherwise in respect of the premises.

7.12            TRUSTEE NOT BOUND TO ACT ON REQUEST

                Except as in this Agreement otherwise specifically provided, the
Trustee shall not be bound to act in accordance with any direction or request of
WSI and/or CERI or of the directors thereof until a duly authenticated copy of
the instrument or resolution containing such direction or request shall have
been delivered to the Trustee, and the Trustee shall be empowered to act upon
any such copy purporting to be authenticated and believed by the Trustee to be
genuine.

7.13            AUTHORITY TO CARRY ON BUSINESS

                The Trustee represents to WSI and CERI that at the date of
execution and delivery by it of this Agreement it is authorized to carry on the
business of a trust company in Canada but if, notwithstanding the provisions of
this Section 7.13, it ceases to be so authorized to carry on business, the
validity and enforceability of this Agreement and the Voting Rights, the
Exchange Right, the Automatic Exchange Right and the Exchange Put Right shall
not be affected in any manner whatsoever by reason only of such event but the
Trustee shall, within 90 days after ceasing to be authorized to carry on the
business of a trust company in Canada, either become so authorized or resign in
the manner and with the effect specified in Article 10.

7.14            CONFLICTING CLAIMS

                If conflicting claims or demands are made or asserted with
respect to any interest of any Beneficiary in any Exchangeable Shares, including
any disagreement between the heirs, representatives, successors or assigns
succeeding to all or any part of the interest of any Beneficiary in any
Exchangeable Shares, resulting in conflicting claims or demands being made in
connection with such interest, then the Trustee shall be entitled, at its sole
discretion, to refuse to recognize or to comply with any such claims or demands.
In so refusing, the Trustee may elect not to exercise any Voting Rights,
Exchange Rights, Automatic Exchange Right or Exchange Put Right subject to such
conflicting claims or demands and, in so doing, the Trustee shall not be or
become liable to any person on account of such election or its failure







or refusal to comply with any such conflicting claims or demands. The Trustee
shall be entitled to continue to refrain from acting and to refuse to act until:

         (a)    the rights of all adverse claimants with respect to the Voting
                Rights, Exchange Right, Automatic Exchange Right or Exchange Put
                Right subject to such conflicting claims or demands have been
                adjudicated by a final judgment of a court of competent
                jurisdiction; or

         (b)    all differences with respect to the Voting Rights, Exchange
                Right, Automatic Exchange Right or Exchange Put Right subject to
                such conflicting claims or demands have been conclusively
                settled by a valid written agreement binding on all such adverse
                claimants, and the Trustee shall have been furnished with an
                executed copy of such agreement certified to be in full force
                and effect.

                If the Trustee elects to recognize any claim or comply with any
demand made by any such adverse claimant, it may in its discretion require such
claimant to furnish such surety bond or other security satisfactory to the
Trustee as it shall deem appropriate to fully indemnify it as between all
conflicting claims or demands.

7.15            ACCEPTANCE OF TRUST

                The Trustee hereby accepts the Trust created and provided for by
and in this Agreement and agrees to perform the same upon the terms and
conditions herein set forth and to hold all rights, privileges and benefits
conferred hereby and by law in trust for the various persons who shall from time
to time be Beneficiaries, subject to all the terms and conditions herein set
forth.

                                   ARTICLE 8
                                  COMPENSATION

8.1             FEES AND EXPENSES OF THE TRUSTEE

                WSI and CERI jointly and severally agree to pay the Trustee
reasonable compensation for all of the services rendered by it under this
Agreement and will reimburse the Trustee for all reasonable expenses (including,
but not limited to, taxes other than taxes based on the net income of the
Trustee, fees paid to legal counsel and other experts and advisors and travel
expenses) and disbursements, including the cost and expense of any suit or
litigation of any character and any proceedings before any governmental agency
reasonably incurred by the Trustee in connection with its duties under this
Agreement; provided that WSI and CERI shall have no obligation to reimburse the
Trustee for any expenses or disbursements paid, incurred or suffered by the
Trustee in any suit or litigation in which the Trustee is determined to have
acted in bad faith or with negligence, recklessness or wilful misconduct. Any
amount owing under this Section or otherwise under this Agreement and unpaid
thirty (30) days after request for such payment with appropriate supporting
documentation, shall bear interest from the expiration of such thirty (30) day
period at a rate per annum equal to the then current reasonable rate charged by
the Trustee. The obligation in this Section shall survive the resignation or
removal of the Trustee and the termination of the trusts created by this
Agreement.




                                   ARTICLE 9
                   INDEMNIFICATION AND LIMITATION OF LIABILITY

9.1             INDEMNIFICATION OF THE TRUSTEE

                WSI and CERI jointly and severally agree to indemnify and hold
harmless the Trustee and each of its directors, officers, employees and agents
appointed and acting in accordance with this Agreement (collectively, the
"INDEMNIFIED PARTIES") against all claims, losses, damages, reasonable costs,
penalties, fines and reasonable expenses (including reasonable expenses of the
Trustee's legal counsel) which, without fraud, negligence, recklessness, wilful
misconduct or bad faith on the part of such Indemnified Party, may be paid,
incurred or suffered by the Indemnified Party by reason or as a result of the
Trustee's acceptance or administration of the Trust, its compliance with its
duties set forth in this Agreement, or any written or oral instruction delivered
to the Trustee by WSI or CERI pursuant hereto.

                In no case shall WSI or CERI be liable under this indemnity for
any claim against any of the Indemnified Parties unless WSI and CERI shall be
notified by the Trustee of the written assertion of a claim or of any action
commenced against the Indemnified Parties, promptly after any of the Indemnified
Parties shall have received any such written assertion of a claim or shall have
been served with a summons or other first legal process giving information as to
the nature and basis of the claim. Subject to (ii) below, WSI and CERI shall be
entitled to participate at their own expense in the defence and, if WSI and CERI
so elect at any time after receipt of such notice, either of them may assume the
defence of any suit brought to enforce any such claim. The Trustee shall have
the right to employ separate counsel in any such suit and participate in the
defence thereof, but the fees and expenses of such counsel shall be at the
expense of the Trustee unless: (i) the employment of such counsel has been
authorized by WSI or CERI; or (ii) the named parties to any such suit include
both the Trustee and WSI or CERI and the Trustee shall have been advised by
counsel acceptable to WSI or CERI that there may be one or more legal defences
available to the Trustee that are different from or in addition to those
available to WSI or CERI and that, in the judgment of such counsel, would
present a conflict of interest were a joint representation to be undertaken (in
which case WSI and CERI shall not have the right to assume the defence of such
suit on behalf of the Trustee but shall be liable to pay the reasonable fees and
expenses of counsel for the Trustee). This indemnity shall survive the
termination of this Agreement and the resignation or removal of the Trustee.

9.2             LIMITATION OF LIABILITY

                The Trustee shall not be held liable for any loss which may
occur by reason of depreciation of the value of any part of the Trust Estate or
any loss incurred on any investment of funds pursuant to this Agreement, except
to the extent that such loss is attributable to the fraud, negligence,
recklessness, wilful misconduct or bad faith on the part of the Trustee.

                                   ARTICLE 10
                                CHANGE OF TRUSTEE

10.1            RESIGNATION

                The Trustee, or any trustee hereafter appointed, may at any time
resign by giving written notice of such resignation to WSI and CERI specifying
the date on which it desires to resign, provided that such notice shall not be
given less than 30 days before such desired resignation date unless WSI and CERI
otherwise agree and provided further that such resignation shall not take effect
until the date of the appointment of a successor trustee and the acceptance of
such appointment by the successor trustee. Upon





receiving such notice of resignation, WSI and CERI shall promptly appoint a
successor trustee, which shall be a corporation organized and existing under the
laws of Canada or any province therein and authorized to carry on the business
of a trust company in Canada, by written instrument in duplicate, one copy of
which shall be delivered to the resigning trustee and one copy to the successor
trustee. Failing the appointment and acceptance of a successor trustee, a
successor trustee may be appointed by order of a court of competent jurisdiction
upon application of one or more of the parties to this Agreement. If the
retiring trustee is the party initiating an application for the appointment of a
successor trustee by order of a court of competent jurisdiction, WSI and CERI
shall be jointly and severally liable to reimburse the retiring trustee for its
legal costs and expenses incurred in connection with same.

10.2            REMOVAL

                The Trustee, or any trustee hereafter appointed, may (provided a
successor trustee is appointed) be removed at any time on not less than 30 days'
prior notice by written instrument executed by WSI and CERI, in duplicate, one
copy of which shall be delivered to the trustee so removed and one copy to the
successor trustee.

10.3            SUCCESSOR TRUSTEE

                Any successor trustee appointed as provided under this Agreement
shall execute, acknowledge and deliver to WSI and CERI and to its predecessor
trustee an instrument accepting such appointment. Thereupon the resignation or
removal of the predecessor trustee shall become effective and such successor
trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, duties and obligations of its predecessor under this
Agreement, with the like effect as if originally named as trustee in this
Agreement. However, on the written request of WSI and CERI or of the successor
trustee, the trustee ceasing to act shall, upon payment of any amounts then due
it pursuant to the provisions of this Agreement, execute and deliver an
instrument transferring to such successor trustee all the rights and powers of
the trustee so ceasing to act. Upon the request of any such successor trustee,
WSI, CERI and such predecessor trustee shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers.

10.4            NOTICE OF SUCCESSOR TRUSTEE

                Upon acceptance of appointment by a successor trustee as
provided herein, WSI and CERI shall cause to be mailed notice of the succession
of such trustee hereunder to each Beneficiary specified in a List. If WSI or
CERI shall fail to cause such notice to be mailed within 10 days after
acceptance of appointment by the successor trustee, the successor trustee shall
cause such notice to be mailed at the expense of WSI and CERI.

                                   ARTICLE 11
                                 WSI SUCCESSORS

11.1            CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.

                WSI shall not consummate any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other person or, in the case of a
merger, of the continuing corporation resulting therefrom unless, but may do so
if:

         (a)    such other person or continuing corporation (herein called the
                "WSI SUCCESSOR"), by operation of law, becomes, without more,
                bound by the terms and provisions of this





                Agreement or, if not so bound, executes, prior to or
                contemporaneously with the consummation of such transaction, a
                trust agreement supplemental hereto and such other instruments
                (if any) as are satisfactory to the Trustee, acting reasonably,
                and in the opinion of legal counsel to the Trustee are
                reasonably necessary or advisable to evidence the assumption by
                the WSI Successor of liability for all moneys payable and
                property deliverable hereunder and the covenant of such WSI
                Successor to pay and deliver or cause to be delivered the same
                and its agreement to observe and perform all the covenants and
                obligations of WSI under this Agreement; and

         (b)    such transaction shall, to the satisfaction of the Trustee,
                acting reasonably, and in the opinion of legal counsel to the
                Trustee, be upon such terms and conditions as to preserve
                substantially and not impair in any material respect any of the
                rights, duties, powers and authorities of the Trustee or of the
                Beneficiaries hereunder.

11.2            VESTING OF POWERS IN SUCCESSOR

                Whenever the conditions of Section 11.1 have been duly observed
and performed, the Trustee, WSI Successor and CERI shall, if required by Section
11.1, execute and deliver the supplemental trust agreement provided for in
Article 12 and thereupon the WSI Successor shall possess and from time to time
may exercise each and every right and power of WSI under this Agreement in the
name of WSI or otherwise and any act or proceeding by any provision of this
Agreement required to be done or performed by the Board of Directors of WSI or
any officers of WSI may be done and performed with like force and effect by the
directors or officers of such WSI Successor.

11.3            WHOLLY-OWNED SUBSIDIARIES

                Subject to section 4.6 of the Arrangement Agreement, nothing
herein shall be construed as preventing the amalgamation or merger of any
wholly-owned direct or indirect subsidiary of WSI with or into WSI or the
winding-up, liquidation or dissolution of any wholly-owned subsidiary of WSI
provided that all of the assets of such subsidiary are transferred to WSI or
another wholly-owned direct or indirect subsidiary of WSI and any such
transactions are expressly permitted by this Article 11.

                                   ARTICLE 12
                  AMENDMENTS AND SUPPLEMENTAL TRUST AGREEMENTS

12.1            AMENDMENTS, MODIFICATIONS, ETC.

                This Agreement may not be amended or modified except by an
agreement in writing executed by WSI, CERI and the Trustee and approved by the
Beneficiaries in accordance with section 10.2 of the Share Provisions.

12.2            MINISTERIAL AMENDMENTS

                Notwithstanding the provisions of Section 12.1, the parties to
this Agreement may in writing, at any time and from time to time, without the
approval of the Beneficiaries, amend or modify this Agreement for the purposes
of:

         (a)    adding to the covenants of any or all parties hereto for the
                protection of the Beneficiaries hereunder provided that the
                board of directors of each of CERI and WSI shall be of the good
                faith opinion (confirmed in writing by each to the Trustee) that
                such additions will not be prejudicial to the rights or
                interests of the Beneficiaries;




         (b)    making such amendments or modifications not inconsistent with
                this Agreement as may be necessary or desirable with respect to
                matters or questions which, in the good faith opinion of the
                board of directors of each of WSI and CERI (confirmed in writing
                by each to the Trustee) and in the opinion of the Trustee,
                having in mind the best interests of the Beneficiaries, it may
                be expedient to make, provided that such boards of directors and
                the Trustee, acting on the advice of counsel, shall be of the
                opinion that such amendments and modifications will not be
                prejudicial to the interests of the Beneficiaries; or

         (c)    making such changes or corrections which, on the advice of
                counsel to WSI, CERI and the Trustee, are required for the
                purpose of curing or correcting any ambiguity or defect or
                inconsistent provision or clerical omission or mistake or
                manifest error, provided that the Trustee, acting on the advice
                of counsel, and the board of directors of each of WSI and CERI
                shall be of the opinion that such changes or corrections will
                not be prejudicial to the rights and interests of the
                Beneficiaries.

12.3            MEETING TO CONSIDER AMENDMENTS

                CERI, at the request of WSI, shall call a meeting or meetings of
the Beneficiaries for the purpose of considering any proposed amendment or
modification requiring approval pursuant hereto. Any such meeting or meetings
shall be called and held in accordance with the articles and by-laws of CERI,
the Share Provisions and all applicable laws. The Trustee shall have no duty
under this Agreement to monitor or enforce compliance by CERI with the
requirements of this section 12.3.

12.4            CHANGES IN CAPITAL OF WSI AND CERI

                At all times after the occurrence of any event contemplated
pursuant to section 2.7 or 2.8 of the Support Agreement or otherwise, as a
result of which either WSI Common Shares or the Exchangeable Shares or both are
in any way changed, and after the Trustee has been notified in writing of such
occurrence in reasonable detail by WSI or CERI, this Agreement shall forthwith
be amended and modified as necessary in the opinion of counsel in order that it
shall apply with full force and effect, mutatis mutandis, to all new securities
into which WSI Common Shares or the Exchangeable Shares or both are so changed
and the parties hereto shall execute and deliver a supplemental trust agreement
giving effect to and evidencing such necessary amendments and modifications.

12.5            EXECUTION OF SUPPLEMENTAL TRUST AGREEMENTS

                No amendment to or modification or waiver of any of the
provisions of this Agreement otherwise permitted hereunder shall be effective
unless made in writing and signed by all of the parties hereto. From time to
time CERI (when authorized by a resolution of its board of directors), WSI (when
authorized by a resolution of the Board of Directors) and the Trustee may,
subject to the provisions of these presents, and they shall, when so directed by
these presents, execute and deliver by their proper officers, trust agreements
or other instruments supplemental hereto, which thereafter shall form part
hereof, for any one or more of the following purposes:

         (a)    evidencing the succession of WSI Successors and the covenants of
                and obligations assumed by each such WSI Successor in accordance
                with the provisions of Article 11 and the successors of any
                successor trustee in accordance with the provisions of Article
                10;

         (b)    making any additions to, deletions from or alterations of the
                provisions of this Agreement or the Voting Rights, the Exchange
                Right, the Automatic Exchange Right or the Exchange Put Right
                which, in the opinion of the Trustee, in reliance on a
                certificate of





                CERI, will not be prejudicial to the interests of the
                Beneficiaries or are, in the opinion of counsel to the Trustee,
                necessary or advisable in order to incorporate, reflect or
                comply with any legislation, the provisions of which apply to
                WSI, CERI, the Trustee or this Agreement; and

         (c)    for any other purposes not inconsistent with the provisions of
                this Agreement, including without limitation, to make or
                evidence any amendment or modification to this Agreement as
                contemplated hereby, provided that, in the opinion of the
                Trustee, in reliance on a certificate of CERI, the rights of the
                Trustee and Beneficiaries will not be prejudiced thereby.

                                   ARTICLE 13
                                   TERMINATION

13.1            TERM

                The Trust created by this Agreement shall continue until the
earliest to occur of the following events:

         (a)    no outstanding Exchangeable Shares are held by a Beneficiary;

         (b)    each of WSI and CERI elects in writing to terminate the Trust
                and such termination is approved by the Beneficiaries in
                accordance with section 10.2 of the Share Provisions; and

         (c)    21 years after the death of the last survivor of the descendants
                of His Majesty King George VI of Canada and the United Kingdom
                of Great Britain and Northern Ireland living on the date of the
                creation of the Trust.

13.2            SURVIVAL OF AGREEMENT

                This Agreement shall survive any termination of the Trust and
shall continue until there are no Exchangeable Shares outstanding held by a
Beneficiary; provided, however, that the provisions of Articles 8 and 9 shall
survive any such termination of this Agreement.

                                   ARTICLE 14
                                     GENERAL

14.1            SEVERABILITY

                If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this Agreement shall not in any way be affected or impaired thereby
and the agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.

14.2            ENUREMENT

                This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns and to
the benefit of the Beneficiaries.




14.3            NOTICES TO PARTIES

                All notices and other communications required or permitted to be
given pursuant to any provision of this Agreement shall be given or made in
writing and shall be deemed to be validly given if served personally, including
by prepaid courier delivery, or by telecopy, in each case addressed to the
particular party at:

         (a)    if to WSI or CERI, at:

                Waste Services, Inc.
                1122 International Blvd, Suite 601
                Burlington, Ontario
                L7L 6Z8

                Attention:        General Counsel
                Fax No.:          (905) 319-9408

         (b)    if to the Trustee, at:

                Computershare Trust Company of Canada
                9th Floor, North Tower
                100 University Avenue
                Toronto, ON
                M5J 2Y1

                Attention:     Manager, Corporate Trust Services
                Fax No.:       (416) 981-9777

or at such other address of which any party may, from time to time, advise the
other parties by notice in writing given in accordance with the foregoing. Any
notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof, unless
such day is not a Business Day or unless such delivery occurs after 5:00 p.m.
(local time) in which case it shall be deemed to have been given and received on
the immediately following Business Day.

14.4            NOTICE TO BENEFICIARIES

                Any and all notices to be given and any documents to be sent to
any Beneficiaries may be given or sent to the address of such Beneficiary shown
on the register of holders of Exchangeable Shares in any manner permitted by the
by-laws of CERI from time to time in force in respect of notices to shareholders
and shall be deemed to be received (if given or sent in such manner) at the time
specified in such by-laws, the provisions of which by-laws shall apply mutatis
mutandis to notices or documents as aforesaid sent to such Beneficiaries. The
Trustee shall have no duty under this Agreement to monitor or enforce compliance
by any of WSI or CERI with the requirements of this section. Any and all notices
to be given and any documents to be sent or delivered to any Beneficiaries by
the Trustee may be given or sent to the address of such Beneficiary shown on the
register of holders of Exchangeable Shares maintained by the registrar or
transfer agent of the Exchangeable Shares and shall be delivered or sent by mail
(or otherwise communicated in the same manner as WSI utilized in communications
to holders of WSI Common Shares, subject to the Trustee being advised in writing
of such method and such method being reasonably available to the Trustee).




14.5            JURISDICTION

                This Agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein.

14.6            ATTORNMENT

                Each of the Trustee, WSI and CERI agrees that any action or
proceeding arising out of or relating to this Agreement may be instituted in the
courts of Ontario, waives any objection which it may have now or hereafter to
the venue of any such action or proceeding, irrevocably submits to the
jurisdiction of the said courts in any such action or proceeding, agrees to be
bound by any judgment of the said courts and not to seek, and hereby waives, any
review of the merits of any such judgment by the courts of any other
jurisdiction and WSI hereby appoints CERI at its registered office in the
Province of Ontario as attorney for service of process.

14.7            COUNTERPARTS

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

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


                             WASTE SERVICES, INC.


                             By:
                                    --------------------------------------------
                             Name:  Ivan R. Cairns
                             Title: Executive Vice-President and General Counsel


                             WASTE SERVICES (CA) INC.


                             By:
                                    --------------------------------------------
                             Name:  Ivan R. Cairns
                             Title: Executive Vice-President and General Counsel


                             COMPUTERSHARE TRUST COMPANY OF CANADA


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

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

EX-4.10

                                                                    EXHIBIT 4.10

                                SUPPORT AGREEMENT

                MEMORANDUM OF AGREEMENT made the 31st day of July, 2004,

AMONG:

                     WASTE SERVICES, INC., a corporation existing under the laws
                     of the State of Delaware (hereinafter referred to as "WSI")

                                     - and -

                     CAPITAL ENVIRONMENTAL HOLDINGS COMPANY, an unlimited
                     liability company existing under the laws of the Province
                     of Nova Scotia (hereinafter referred to as "CAPITAL
                     HOLDINGS")

                                     - and -

                     WASTE SERVICES (CA) INC., a corporation existing under the
                     laws of the Province of Ontario (hereinafter referred to as
                     "CERI")


                WHEREAS in connection with an arrangement agreement (the
"ARRANGEMENT AGREEMENT") made June 9, 2004 among CERI, WSI and Capital Holdings,
certain holders of common shares in the capital of CERI will receive and hold
exchangeable shares in the capital of CERI (the "EXCHANGEABLE SHARES") pursuant
to the plan of arrangement (the "ARRANGEMENT") contemplated by the Arrangement
Agreement;

                AND WHEREAS, pursuant to the Arrangement Agreement, WSI, Capital
Holdings and CERI have agreed to execute a support agreement substantially in
the form of this Agreement;

                NOW THEREFORE in consideration of the respective covenants and
agreements herein contained and for other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged), the parties hereto
covenant and agree as follows:

                                   ARTICLE 1
                         DEFINITIONS AND INTERPRETATION

1.1             DEFINED TERMS

                "AGREEMENT" means this agreement, including any Schedule or
Exhibits to this agreement, as it may be amended or supplemented from time to
time in accordance with the provisions hereof. Unless there is something in the
subject matter or context inconsistent therewith, every other capitalized term
or expression used herein and not otherwise defined herein shall have the
meaning ascribed thereto in the rights, privileges, restrictions and conditions
(collectively, the "SHARE PROVISIONS") attaching to the Exchangeable Shares as
set out in the articles of arrangement of CERI in respect of the Arrangement.




1.2             INTERPRETATION NOT AFFECTED BY HEADINGS

                The division of this Agreement into Articles, Sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this Agreement. Unless
otherwise indicated, all references to an "Article" or "Section" followed by a
number or a letter refer to the specified Article or Section of this Agreement.
The terms "this Agreement", "hereof", "herein" and "hereunder" and similar
expressions refer to this Agreement and not to any particular Article, Section
or other portion hereof and include any agreement or instrument supplementary or
ancillary hereto.

1.3             DATE, NUMBER, GENDER

                If any date on which any action is required to be taken under
this Agreement is not a Business Day, such action shall be required to be taken
on the next succeeding Business Day. Words importing the singular number only
shall include the plural and vice versa. Words importing any gender shall
include all genders.

                                   ARTICLE 2
                            COVENANTS OF WSI AND CERI

2.1             COVENANTS REGARDING EXCHANGEABLE SHARES, CERI OPTIONS AND CERI
                WARRANTS

                So long as any Exchangeable Shares, CERI Options or CERI
Warrants not owned by WSI or its affiliates are outstanding, WSI will:

         (a)    not take any action that will result in the declaration or
                payment of any dividend or other distribution on the WSI Common
                Shares unless (i) CERI shall simultaneously declare or pay, as
                the case may be, a dividend or distribution economically
                equivalent thereto (as provided for in the Share Provisions) on
                the Exchangeable Shares and CERI shall have sufficient money or
                other assets or authorized but unissued securities available to
                enable the due declaration and the due and punctual payment, in
                accordance with applicable law, of any such dividend or other
                distribution on the Exchangeable Shares, and (ii) if the
                dividend or other distribution is a stock dividend or other
                distribution of stock, in lieu of such dividend CERI effects a
                corresponding and contemporaneous and economically equivalent
                (as determined in accordance with Section 2.7(d)) subdivision of
                the outstanding Exchangeable Shares and CERI shall have
                sufficient authorized but unissued securities available to
                enable the subdivision;

         (b)    advise CERI sufficiently in advance of the declaration by WSI of
                any dividend or other distribution on WSI Common Shares and take
                all such other actions as are reasonably necessary, in
                co-operation with CERI, to ensure that (i) the respective
                declaration date, record date and payment date for a dividend or
                other distribution on the Exchangeable Shares shall be the same
                as the declaration date, record date and payment date for such
                dividend or other distribution on the WSI Common Shares, and
                (ii) the record date, if any, and effective date for the
                subdivision referred to in Section 2.1(a) shall be the same as
                the record date and payment date for such dividend or other
                distribution on the WSI Common Shares;




         (c)    ensure that the record date for any dividend or other
                distribution declared on WSI Common Shares is not less than 10
                Business Days after the declaration date of such dividend;

         (d)    take all such actions and do all such things as are reasonably
                necessary or desirable to enable and permit CERI, in accordance
                with applicable law, to pay and otherwise perform its
                obligations with respect to (i) the satisfaction of the
                Liquidation Amount, the Retraction Price or the Redemption Price
                in respect of each issued and outstanding Exchangeable Share
                (other than Exchangeable Shares owned by WSI or its affiliates)
                upon the liquidation, dissolution or winding-up of CERI or any
                other distribution of assets of CERI among its shareholders for
                the purpose of winding up its affairs, the delivery of a
                Retraction Request by a holder of Exchangeable Shares or a
                redemption of Exchangeable Shares by CERI, as the case may be,
                including without limitation all such actions and all such
                things as are necessary or desirable to enable and permit CERI
                to cause to be delivered WSI Common Shares to the holders of
                Exchangeable Shares in accordance with the provisions of Article
                5, 6 or 7, as the case may be, of the Share Provisions, and (ii)
                the CERI Options and the CERI Warrants, including without
                limitation all such actions and all such things as are necessary
                or desirable to enable or permit CERI to cause to be delivered
                WSI Common Shares to the holders of CERI Options and CERI
                Warrants upon exercise thereof in accordance with the terms
                thereunder;

         (e)    take all such actions and do all such things as are reasonably
                necessary or desirable to enable and permit Capital Holdings, in
                accordance with applicable law, to pay or otherwise perform its
                obligations arising upon the exercise by it of the Liquidation
                Call Right, the Retraction Call Right or the Redemption Call
                Right, including without limitation all such actions and all
                such things as are necessary or desirable to enable and permit
                Capital Holdings to cause to be delivered WSI Common Shares to
                the holders of Exchangeable Shares in accordance with the
                provisions of the Liquidation Call Right, the Retraction Call
                Right or the Redemption Call Right, as the case may be, and cash
                in respect of declared and unpaid dividends; and

         (f)    except in connection with any event, circumstance or action
                which causes or could cause the occurrence of a Redemption Date,
                not exercise its vote as a shareholder to initiate the voluntary
                liquidation, dissolution or winding up of CERI or any other
                distribution of the assets of CERI among its shareholders for
                the purpose of winding up its affairs, nor take any action or
                omit to take any action that is designed to result in the
                liquidation, dissolution or winding up of CERI or any other
                distribution of the assets of CERI among its shareholders for
                the purpose of winding up its affairs.

2.2             SEGREGATION OF FUNDS

                WSI will cause CERI to deposit a sufficient amount of funds in a
separate account of CERI and segregate a sufficient amount of such other assets
and property as is necessary to enable CERI to pay dividends when due and to pay
or otherwise satisfy its respective obligations under Articles 5, 6 or 7 of the
Share Provisions, as applicable.




2.3             RESERVATION OF WSI COMMON SHARES

                WSI hereby represents, warrants and covenants in favour of CERI
and Capital Holdings that WSI has reserved for issuance and will, at all times
while any Exchangeable Shares (other than Exchangeable Shares held by WSI or its
affiliates), CERI Options or CERI Warrants are outstanding, keep available, free
from pre-emptive and other rights, out of its authorized and unissued capital
stock such number of WSI Common Shares (or other shares or securities into which
WSI Common Shares may be reclassified or changed as contemplated by Section
2.7): (a) as is equal to the sum of (i) the number of Exchangeable Shares issued
and outstanding from time to time, (ii) the number of Exchangeable Shares
issuable upon the exercise of all rights to acquire Exchangeable Shares
outstanding from time to time, and (iii) the number of WSI Common Shares
issuable upon the exercise of all CERI Options and CERI Warrants, and (b) as are
now and may hereafter be required to enable and permit WSI to meet its
obligations under the Voting and Exchange Trust Agreement and under any other
security or commitment pursuant to which WSI may now or hereafter be required to
issue WSI Common Shares, to enable and permit Capital Holdings to meet its
obligations under each of the Liquidation Call Right, the Retraction Call Right
and the Redemption Call Right and to enable and permit CERI to meet its
obligations hereunder and under the Share Provisions.

2.4             NOTIFICATION OF CERTAIN EVENTS

                In order to assist WSI to comply with its obligations hereunder
and to permit Capital Holdings to exercise the Liquidation Call Right, the
Retraction Call Right and the Redemption Call Right, CERI will notify WSI and
Capital Holdings of each of the following events at the time set forth below:

         (a)    in the event of any determination by the board of directors of
                CERI to institute voluntary liquidation, dissolution or
                winding-up proceedings with respect to CERI or to effect any
                other distribution of the assets of CERI among its shareholders
                for the purpose of winding up its affairs, at least 30 days
                prior to the proposed effective date of such liquidation,
                dissolution, winding-up or other distribution;

         (b)    promptly, upon the earlier of receipt by CERI of notice of, and
                CERI otherwise becoming aware of, any threatened or instituted
                claim, suit, petition or other proceeding with respect to the
                involuntary liquidation, dissolution or winding-up of CERI or to
                effect any other distribution of the assets of CERI among its
                shareholders for the purpose of winding up its affairs;

         (c)    immediately, upon receipt by CERI of a Retraction Request;

         (d)    on the same date on which notice of redemption is given to
                holders of Exchangeable Shares, upon the determination of a
                Redemption Date in accordance with the Share Provisions;

         (e)    as soon as practicable upon the issuance by CERI of any
                Exchangeable Shares or rights to acquire Exchangeable Shares
                (other than the issuance of Exchangeable Shares and rights to
                acquire Exchangeable Shares in exchange for outstanding common
                shares of CERI pursuant to the Arrangement); and

         (f)    at such other time and in such other manner and with respect to
                such other events as may be contemplated by the Share
                Provisions.




2.5             DELIVERY OF WSI COMMON SHARES TO CERI AND CAPITAL HOLDINGS

                In furtherance of its obligations under Sections 2.1(d) and (e)
hereof, upon notice from CERI or Capital Holdings of any event that requires
CERI or Capital Holdings to cause to be delivered WSI Common Shares to any
holder of Exchangeable Shares, CERI Options or CERI Warrants, WSI shall
forthwith allot, issue and deliver or cause to be delivered to CERI or Capital
Holdings (unless CERI or Capital Holdings already has sufficient WSI Common
Shares) the requisite number of WSI Common Shares to be allotted to, received
by, and issued to or to the order of, the former holder of the surrendered
Exchangeable Shares, as CERI or Capital Holdings shall direct, or the holder of
the exercised CERI Option or CERI Warrant, as CERI may direct. All such WSI
Common Shares shall be duly authorized and validly issued as fully paid and
non-assessable and shall be free and clear of any lien, claim or encumbrance.

2.6             QUALIFICATION OF WSI COMMON SHARES

                If any WSI Common Shares (or other shares or securities into
which WSI Common Shares may be reclassified or changed as contemplated by
Section 2.7) to be issued and delivered hereunder require registration or
qualification with or approval of or the filing of any document, including any
prospectus or similar document or the taking of any proceeding with or the
obtaining of any order, ruling or consent from any governmental or regulatory
authority under any Canadian or United States federal, provincial, territorial
or state securities or other law or regulation or pursuant to the rules and
regulations of any securities or other regulatory authority in the United States
or Canada or the fulfillment of any other United States or Canadian legal
requirement before such shares (or such other shares or securities) may be
issued by WSI and delivered by WSI at the direction of Capital Holdings or CERI,
if applicable, to the holder of surrendered Exchangeable Shares or in order that
such shares (or such other shares or securities) may be freely traded thereafter
(other than any restrictions of general application on transfer by reason of a
holder being a "control person" for purposes of Canadian provincial securities
law or an "affiliate" of WSI for purposes of United States federal or state
securities law), WSI will in good faith expeditiously take all such actions and
do all such things as are reasonably necessary or desirable to cause such WSI
Common Shares (or such other shares or securities) to be and remain duly
registered, qualified or approved under United States and/or Canadian law, as
the case may be. WSI will in good faith expeditiously take all such actions and
do all such things as are reasonably necessary or desirable to cause all WSI
Common Shares (or such other shares or securities) to be delivered hereunder to
be listed, quoted or posted for trading on all stock exchanges and quotation
systems on which outstanding WSI Common Shares (or such other shares or
securities) have been listed by WSI and remain listed and are quoted or posted
for trading at such time.

2.7             ECONOMIC EQUIVALENCE

                So long as any Exchangeable Shares not owned by WSI or its
affiliates are outstanding:

         (a)    WSI will not without prior approval of CERI and the prior
                approval of the holders of the Exchangeable Shares given in
                accordance with section 10.2 of the Share Provisions:

                (i)     issue or distribute WSI Common Shares (or securities
                        exchangeable for or convertible into or carrying rights
                        to acquire WSI Common Shares) to the holders of all or
                        substantially all of the then outstanding WSI Common
                        Shares by way of stock dividend or other distribution,
                        other than an issue of WSI Common Shares (or securities
                        exchangeable for or convertible into or carrying rights
                        to acquire WSI Common Shares) to holders of WSI Common
                        Shares who





                        exercise an option to receive dividends in WSI Common
                        Shares (or securities exchangeable for or convertible
                        into or carrying rights to acquire WSI Common Shares)
                        not issued at a discount and without financial
                        preference to the corresponding cash dividend in lieu of
                        receiving cash dividends or pursuant to any dividend
                        reinvestment plan or similar arrangement; or

                (ii)    issue or distribute rights, options or warrants to the
                        holders of all or substantially all of the then
                        outstanding WSI Common Shares entitling them to
                        subscribe for or to purchase WSI Common Shares (or
                        securities exchangeable for or convertible into or
                        carrying rights to acquire WSI Common Shares); or

                (iii)   issue or distribute to the holders of all or
                        substantially all of the then outstanding WSI Common
                        Shares (A) shares or securities of WSI of any class
                        other than WSI Common Shares (other than shares
                        convertible into or exchangeable for or carrying rights
                        to acquire WSI Common Shares, subject to Section
                        2.7(a)(i) hereof), (B) rights, options or warrants other
                        than those referred to in Section 2.7(a)(ii) above, (C)
                        evidences of indebtedness of WSI or (D) assets of WSI,

                unless the economic equivalent of such WSI Common Shares (or
                securities exchangeable for or convertible into or carrying
                rights to acquire WSI Common Shares), rights, options, warrants,
                shares, securities, evidences of indebtedness or other assets is
                issued or distributed or otherwise provided by CERI
                simultaneously to holders of the Exchangeable Shares; provided
                that, for greater certainty, the above restrictions shall not
                apply to any securities issued or distributed by WSI in order to
                give effect to and to consummate the transactions contemplated
                by, and in accordance with, the Arrangement Agreement.

         (b)    WSI will not without the prior approval of CERI and the prior
                approval of the holders of the Exchangeable Shares given in
                accordance with section 10.2 of the Share Provisions:

                (i)     subdivide, redivide or change the then outstanding WSI
                        Common Shares into a greater number of WSI Common
                        Shares;

                (ii)    reduce, combine, consolidate or change the then
                        outstanding WSI Common Shares into a lesser number of
                        WSI Common Shares; or

                (iii)   reclassify or otherwise change WSI Common Shares or
                        effect an amalgamation, merger, reorganization or other
                        transaction affecting WSI Common Shares,

                unless the same or an economically equivalent change shall
                simultaneously be made to, or in the rights of the holders of,
                the Exchangeable Shares and at least 7 days prior written notice
                thereof is given to the holders of the Exchangeable Shares.

         (c)    WSI will ensure that the record date for any event referred to
                in Sections 2.7(a) or 2.7(b) above, or (if no record date is
                applicable for such event) the effective date for any such
                event, is not less than five Business Days after the date on
                which such event is declared or announced by WSI (with
                contemporaneous notification thereof by WSI to CERI).




         (d)    The board of directors of CERI shall determine, in good faith
                and in its sole discretion, economic equivalence for the
                purposes of any event referred to in Sections 2.7(a) or 2.7(b)
                above and each such determination shall be conclusive and
                binding on WSI. In making each such determination, the following
                factors shall, without excluding other factors determined by the
                board of directors of CERI to be relevant, be considered by the
                board of directors of CERI:

                (i)     in the case of any stock dividend or other distribution
                        payable in WSI Common Shares, the number of such shares
                        issued in proportion to the number of WSI Common Shares
                        previously outstanding;

                (ii)    in the case of the issuance or distribution of any
                        rights, options or warrants to subscribe for or purchase
                        WSI Common Shares (or securities exchangeable for or
                        convertible into or carrying rights to acquire WSI
                        Common Shares), the terms of such rights, options or
                        warrants and the relationship between the exercise price
                        of each such right, option or warrant and the Current
                        Market Price of a WSI Common Share;

                (iii)   in the case of the issuance or distribution of any other
                        form of property (including without limitation any
                        shares or securities of WSI of any class other than WSI
                        Common Shares, any rights, options or warrants other
                        than those referred to in Section 2.7(d)(ii) above, any
                        evidences of indebtedness of WSI or any assets of WSI),
                        the relationship between the fair market value (as
                        determined by the board of directors of CERI, acting
                        reasonably) of such property to be issued or distributed
                        with respect to each outstanding WSI Common Share and
                        the Current Market Price of a WSI Common Share; and

                (iv)    in the case of any subdivision, redivision or change of
                        the then outstanding WSI Common Shares into a greater
                        number of WSI Common Shares or the reduction,
                        combination, consolidation or change of the then
                        outstanding WSI Common Shares into a lesser number of
                        WSI Common Shares or any amalgamation, merger,
                        reorganization or other transaction affecting WSI Common
                        Shares, the effect thereof upon the then outstanding WSI
                        Common Shares.

         (e)    CERI agrees that, to the extent required, upon due notice from
                WSI, CERI will use its best efforts to take or cause to be taken
                such steps as may be necessary for the purposes of ensuring that
                appropriate dividends are paid or other distributions are made
                by CERI, or subdivisions, redivisions or changes are made to the
                Exchangeable Shares, in order to implement the required economic
                equivalent effect with respect to the WSI Common Shares and
                Exchangeable Shares as provided for in this Section 2.7.

2.8             TENDER OFFERS

                In the event that a tender offer, share exchange offer, issuer
bid, take-over bid or similar transaction with respect to WSI Common Shares (an
"OFFER") is proposed by WSI or is proposed to WSI or its shareholders and is
recommended by the board of directors of WSI, or is otherwise effected or to be
effected with the consent or approval of the board of directors of WSI, and the
Exchangeable Shares are not redeemed by CERI or purchased by Capital Holdings
pursuant to the Redemption Call Right, WSI will expeditiously and in good faith
take all such actions and do all such things as are necessary or





desirable to enable and permit holders of Exchangeable Shares (other than WSI
and its affiliates) to participate in such Offer to the same extent and on an
economically equivalent basis as the holders of WSI Common Shares, without
discrimination. Without limiting the generality of the foregoing, WSI will
expeditiously and in good faith take all such actions and do all such things as
are reasonably necessary or desirable to ensure that holders of Exchangeable
Shares may participate in each such Offer without being required to retract
Exchangeable Shares as against CERI (or, if so required, to ensure that any such
retraction, shall be effective only upon, and shall be conditional upon, the
closing of such Offer and only to the extent necessary to tender or deposit to
the Offer). Nothing herein shall affect the rights of CERI to redeem (or Capital
Holdings to purchase pursuant to the Redemption Call Right) Exchangeable Shares,
as applicable, in the event of a WSI Control Transaction.

2.9             OWNERSHIP OF OUTSTANDING SHARES

                Without the prior approval of CERI and the prior approval of the
holders of the Exchangeable Shares given in accordance with section 10.2 of the
Share Provisions, WSI covenants and agrees in favour of CERI that, as long as
any outstanding Exchangeable Shares are owned by any Person other than WSI or
any of its affiliates, WSI will be, and remain, the direct or indirect
beneficial owner of all issued and outstanding CERI Common Shares and all of the
issued and outstanding shares in the capital of Capital Holdings.

2.10            WSI AND AFFILIATES NOT TO VOTE EXCHANGEABLE SHARES

                WSI covenants and agrees that it will appoint and cause to be
appointed proxyholders with respect to all Exchangeable Shares held by it and
its affiliates for the sole purpose of attending each meeting of holders of
Exchangeable Shares in order to be counted as part of the quorum for each such
meeting. WSI further covenants and agrees that it will not, and will cause its
affiliates not to, exercise any voting rights which may be exercisable by
holders of Exchangeable Shares from time to time pursuant to the Share
Provisions or pursuant to the provisions of the OBCA (or any successor or other
corporate statute by which CERI may in the future be governed) with respect to
any Exchangeable Shares held by it or by its affiliates in respect of any matter
considered at any meeting of holders of Exchangeable Shares.

2.11            RULE 10B-18 PURCHASES

                For certainty, nothing contained in this Agreement, including
without limitation the obligations of WSI contained in Section 2.8 hereof, shall
limit the ability of WSI or CERI to make a "Rule 10b-18 Purchase" of WSI Common
Shares pursuant to Rule 10b-18 of the United States Securities Exchange Act of
1934, as amended, or any successor provision thereof.

                                   ARTICLE 3
                                 WSI SUCCESSORS

3.1             CERTAIN REQUIREMENTS IN RESPECT OF COMBINATION, ETC.

                WSI shall not consummate any transaction (whether by way of
reconstruction, reorganization, consolidation, merger, transfer, sale, lease or
otherwise) whereby all or substantially all of its undertaking, property and
assets would become the property of any other Person or, in the case of a
merger, of the continuing corporation resulting therefrom unless:

         (a)    such other Person or continuing corporation (the "WSI
                SUCCESSOR") by operation of law, becomes, without more, bound by
                the terms and provisions of this Agreement or, if not so





                bound, executes, prior to or contemporaneously with the
                consummation of such transaction, an agreement supplemental
                hereto and such other instruments (if any) as are reasonably
                necessary or advisable to evidence the assumption by the WSI
                Successor of liability for all moneys payable and property
                deliverable hereunder and the covenant of such WSI Successor to
                pay and deliver or cause to be delivered the same and its
                agreement to observe and perform all the covenants and
                obligations of WSI under this Agreement;

         (b)    in the event that WSI Common Shares are reclassified or
                otherwise changed as part of such transaction, the same or an
                economically equivalent change is simultaneously made to, or in
                the rights of the holders of, the Exchangeable Shares; and

         (c)    such transaction shall be upon such terms and conditions as to
                substantially preserve and not impair in any material respect
                any of the rights, duties, powers and authorities of the other
                parties hereunder or the holders of Exchangeable Shares.

3.2             VESTING OF POWERS IN SUCCESSOR

                Whenever the conditions of Section 3.1 have been duly observed
and performed, the parties, if required by Section 3.1, shall execute and
deliver the supplemental agreement provided for in Section 3.1(a) and thereupon
the WSI Successor shall possess and from time to time may exercise each and
every right and power of WSI under this Agreement in the name of WSI or
otherwise and any act or proceeding by any provision of this Agreement required
to be done or performed by the board of directors of WSI or any officers of WSI
may be done and performed with like force and effect by the directors or
officers of such WSI Successor.

3.3             WHOLLY-OWNED SUBSIDIARIES

                Nothing herein shall be construed as preventing (i) the
amalgamation or merger of any wholly-owned direct or indirect subsidiary of WSI
with or into WSI, (ii) the winding-up, liquidation or dissolution of any
wholly-owned subsidiary of WSI, provided that all of the assets of such
subsidiary are transferred to WSI or another wholly-owned direct or indirect
subsidiary of WSI or (iii) any other distribution of the assets of any
wholly-owned direct or indirect subsidiary of WSI among the shareholders of such
subsidiary for the purpose of winding up its affairs and any such transactions
are expressly permitted by this Article 3.

                                   ARTICLE 4
                                     GENERAL

4.1             TERM

                This Agreement shall come into force and be effective as of the
date hereof and shall terminate and be of no further force and effect at such
time as no Exchangeable Shares (or securities or rights convertible into or
exchangeable for or carrying rights to acquire Exchangeable Shares) are held by
any Person other than WSI and any of its affiliates.

4.2             CHANGES IN CAPITAL OF WSI AND CERI

                At all times after the occurrence of any event contemplated
pursuant to Sections 2.7 and 2.8 hereof or otherwise, as a result of which
either WSI Common Shares or the Exchangeable Shares or





both are in any way changed, this Agreement shall forthwith be amended and
modified as necessary in order that it shall apply with full force and effect,
mutatis mutandis, to all new securities into which WSI Common Shares or the
Exchangeable Shares or both are so changed and the parties hereto shall execute
and deliver an agreement in writing giving effect to and evidencing such
necessary amendments and modifications.

4.3             SEVERABILITY

                If any provision of this Agreement is held to be invalid,
illegal or unenforceable, the validity, legality or enforceability of the
remainder of this Agreement shall not in any way be affected or impaired thereby
and this Agreement shall be carried out as nearly as possible in accordance with
its original terms and conditions.

4.4             AMENDMENTS, MODIFICATIONS

                Subject to Sections 4.2, 4.3 and 4.5, this Agreement may not be
amended or modified except by an agreement in writing executed by CERI, Capital
Holdings and WSI and approved by the holders of the Exchangeable Shares in
accordance with section 10.2 of the Share Provisions.

4.5             MINISTERIAL AMENDMENTS

                Notwithstanding the provisions of Section 4.4, the parties to
this Agreement may in writing at any time and from time to time, without the
approval of the holders of the Exchangeable Shares, amend or modify this
Agreement for the purposes of:

         (a)    adding to the covenants of any or all parties, provided that the
                board of directors of each of CERI, Capital Holdings and WSI
                shall be of the good faith opinion that such additions will not
                be prejudicial to the rights or interests of the holders of the
                Exchangeable Shares;

         (b)    making such amendments or modifications not inconsistent with
                this Agreement as may be necessary or desirable with respect to
                matters or questions which, in the good faith opinion of the
                board of directors of each of CERI, Capital Holdings and WSI, it
                may be expedient to make, provided that each such board of
                directors shall be of the good faith opinion that such
                amendments or modifications will not be prejudicial to the
                rights or interests of the holders of the Exchangeable Shares;
                or

         (c)    making such changes or corrections which, on the advice of
                counsel to CERI, Capital Holdings and WSI, are required for the
                purpose of curing or correcting any ambiguity or defect or
                inconsistent provision or clerical omission or mistake or
                manifest error, provided that the boards of directors of each of
                CERI, Capital Holdings and WSI shall be of the good faith
                opinion that such changes or corrections will not be prejudicial
                to the rights or interests of the holders of the Exchangeable
                Shares.

4.6             MEETING TO CONSIDER AMENDMENTS

                CERI, at the request of WSI, shall call a meeting or meetings of
the holders of the Exchangeable Shares for the purpose of considering any
proposed amendment or modification requiring approval pursuant to Section 4.4
hereof. Any such meeting or meetings shall be called and held in accordance with
the articles and by-laws of CERI, the Share Provisions and all applicable laws.




4.7             AMENDMENTS ONLY IN WRITING

                No amendment to or modification or waiver of any of the
provisions of this Agreement otherwise permitted hereunder shall be effective
unless made in writing and signed by all of the parties hereto.

4.8             ENUREMENT

                This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their respective successors and permitted assigns. No
party may assign or transfer all or any part of its rights and obligations under
this Agreement without the prior written consent of the other parties hereto and
the consent of the holders of Exchangeable Shares given in accordance with
section 10.2 of the Share Provisions.

4.9             NOTICES TO PARTIES

                All notices and other communications required or permitted to be
given pursuant to any provision of this Agreement shall be given or made in
writing and shall be deemed to be validly given if served personally, including
by prepaid courier delivery, or by telecopy, in each case addressed to the
particular party at:

                in the case of each of WSI, Capital Holdings and CERI:

                Waste Services (CA) Inc.
                1122 International Blvd
                Suite 601
                Burlington, Ontario
                L7L 6Z8

                Attention:        General Counsel
                Fax No.:          (905) 319-9408

or at such other address of which any party may, from time to time, advise the
other parties by notice in writing given in accordance with the foregoing. Any
notice or other communication given personally shall be deemed to have been
given and received upon delivery thereof and if given by telecopy shall be
deemed to have been given and received on the date of receipt thereof, unless
such day is not a Business Day or unless such delivery occurs after 5:00 p.m.
(local time), in which case it shall be deemed to have been given and received
on the immediately following Business Day.

4.10            JURISDICTION

                This Agreement shall be construed and enforced in accordance
with the laws of the Province of Ontario and the laws of Canada applicable
therein.

4.11            ATTORNMENT

                Each of the parties hereto agrees that any action or proceeding
arising out of or relating to this Agreement may be instituted in the courts of
Ontario, waives any objection which it may have now or hereafter to the venue of
any such action or proceeding, irrevocably submits to the jurisdiction of the
said courts in any such action or proceeding, agrees to be bound by any judgment
of the said courts and not to seek, and hereby waives, any review of the merits
of any such judgment by the courts of any other



jurisdiction and WSI hereby appoints CERI at its registered office in the
Province of Ontario as attorney for service of process.






4.12            COUNTERPARTS

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

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


                                   WASTE SERVICES, INC.


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


                                   CAPITAL ENVIRONMENTAL HOLDINGS COMPANY


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


                                   WASTE SERVICES (CA) INC.


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

EX-10.13

                                                                   EXHIBIT 10.13

                              WASTE SERVICES, INC.

                         EXECUTIVE EMPLOYMENT AGREEMENT


This Employment Agreement (the "Agreement") is dated as of July 1, 2004 by and
between WASTE SERVICES, INC., a Delaware corporation (the "Company") and CHARLES
A. WILCOX (the "Executive"):

WHEREAS, the Company desires to employ Executive in an executive capacity and
Executive desires to enter into the Company's employ upon the terms and subject
to the conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises and agreements set forth
herein, the receipt and adequacy of which are hereby acknowledged, the parties
hereto agree as follows:

1.       EMPLOYMENT.

The Company shall employ Executive, and Executive shall be employed by the
Company, upon the terms and subject to the conditions set forth in this
Agreement, effective as of July 1, 2004 (the "Effective Date"); provided,
however that as a condition to effectiveness of this Agreement, the Company and
Executive shall have entered into an Indemnification Agreement substantially in
the form of Exhibit A attached hereto.

2.       TERM OF EMPLOYMENT.

The period of Executive's employment under this Agreement (the "Employment
Term") shall begin on the Effective Date and shall continue until Executive's
employment is terminated in accordance with Section 5 below.

3.       DUTIES AND RESPONSIBILITIES.

(a)      Executive shall serve as President and Chief Operating Officer of the
         Company and shall report to the Chief Executive Officer of the Company.
         In such capacity, Executive shall have responsibility and authority for
         corporate development, and shall perform the duties necessary to carry
         out those responsibilities and exercise that authority, as may be
         assigned to Executive from time to time by the Chief Executive Officer
         and/or by the Board of Directors of the Company (the "Board of
         Directors") or a duly authorized committee thereof.

(b)      During the Employment Term, Executive shall devote his full time and
         attention during normal business hours to the affairs of the Company
         and use his best efforts to perform faithfully and efficiently his
         duties and responsibilities; provided, however, that subject to the
         limitations of Section 8 hereof and to the prior approval of the Chief
         Executive Officer of the Company, Executive may serve on corporate,
         industry, civic or charitable Boards or committees as long as such
         activities do not interfere with the performance of Executive's
         responsibilities to the Company. Executive agrees to act at all times
         in the best interests of the Company and to take no action or make any
         statement, oral or written, which could reasonably be expected by
         Executive to injure the Company's business, financial condition,
         results of operations, prospects, interests or reputation.

(c)      Executive agrees to comply at all times during the Employment Term with
         all applicable policies, rules, codes and regulations of the Company in
         effect from time to time, including, without limitation, all applicable
         codes of ethics or conduct and all policies regarding trading in the
         Company's common stock.

4.       COMPENSATION AND BENEFITS.

(a)      BASE SALARY. During the Employment Term, the Company shall pay
         Executive a base salary at the annual rate of $450,000 USD, or such
         higher rate as may be determined from time to time by the Board of
         Directors or a duly authorized committee thereof (such amount, as
         increased from time to time, the "Base Salary"). Such Base Salary shall
         be paid on the Company's regular pay days in accordance with the
         Company's standard payroll practice for executive officers, subject
         only to such payroll and withholding deductions as may be required by
         law and other deductions applied generally to employees of the Company
         for insurance and other employee benefit plans. For all purposes under
         this Agreement, Executive's Base





         Salary shall include any amount which is deferred under any
         nonqualified plan or arrangement of the Company.

(b)      INCENTIVE COMPENSATION.

         (i)    ANNUAL CASH BONUS. In addition to the Base Salary, Executive
                shall be eligible for an annual cash bonus (either pursuant to a
                bonus or incentive plan or program of the Company or otherwise)
                for each fiscal year during the Employment Term. Executive's
                target annual cash bonus will be equal to 100% (the "Target
                Bonus Rate") of his Base Salary in effect at the beginning of
                the relevant fiscal year, except that Executive's Target Bonus
                Rate shall be 75% of his annual rate of base salary for 2004.
                The amount of the annual cash bonus, which may be higher or
                lower than the Target Bonus Rate, shall be determined by the
                Board of Directors or a duly authorized committee thereof based
                upon applicable corporate and individual performance targets
                established by the Board of Directors or such committee in its
                sole discretion (the "Annual Bonus"). For all purposes under
                this Agreement, Executive's Annual Bonus shall include any
                amount which is deferred under any nonqualified plan or
                arrangement of the Company.

         (ii)   LONG-TERM OR SUPPLEMENTAL INCENTIVE COMPENSATION. Executive
                shall be eligible to participate in any supplemental and/or
                long-term incentive compensation plans or programs (which may
                consist of stock options, restricted stock, long-term cash
                awards or other forms of long-term or supplemental incentive
                compensation) generally made available to full-time senior
                executive officers of the Company.

(c)      BENEFIT PLANS. Executive shall be eligible to participate in and
         receive benefits under all retirement, health and welfare benefit
         plans, programs and arrangements which are from time to time available
         to full-time senior executive officers of the Company in accordance
         with the terms and conditions of such plans, programs and arrangements
         in effect from time to time. Such benefit plans, programs and
         arrangements will include family medical, family dental and family
         vision benefit plans and short-term and long-term disability plans, and
         may include, without limitation, life insurance plans, accidental death
         insurance plans, travel accident insurance plans, savings and
         retirement plans and pension plans (all such benefit plans, the
         "Benefit Plans"). At his option, Executive may pay directly the
         premiums for coverage under the above-mentioned disability plans and
         have the Company pay to him, as additional income, an amount equal to
         the amount of those premiums. Executive agrees to submit to a physical
         examination from time to time as requested by the Company to facilitate
         Executive's participation in one or more Benefit Plans. The Company may
         terminate or reduce benefits under any such plans, programs or
         arrangements to the extent such reductions apply uniformly to all
         full-time senior executive officers of the Company, and Executive's
         benefits shall be reduced or terminated accordingly. The Company's
         obligations under this Section 4(c) are expressly conditioned on
         Executive and his family dependents taking all reasonable actions
         (including but not limited to enrolling in all health and welfare
         benefit programs, plans and arrangements which are from time to time
         available to the Company's full-time senior executive officers as and
         when Executive and his family dependents become eligible to participate
         in such programs, plans and arrangements) and providing all information
         as the Company shall reasonably request and as is necessary for the
         Company to fulfill such obligations.

(d)      VACATION. In addition to normal statutory holidays recognized by the
         Company, Executive shall be entitled to the greater of (a) four weeks
         of paid vacation for each fiscal year during the Employment Term and
         (b) such other amount of paid vacation as may be afforded executive
         officers under the Company's policies in effect from time to time
         ("Vacation Time").

(e)      EXPENSE REIMBURSEMENT. The Company shall promptly reimburse Executive
         for travel and other out-of-pocket expenses incident to his position in
         accordance with the Company's customary practices applicable to
         full-time senior executive officers. To the extent that these expense
         reimbursements are reportable as taxable income, they will be grossed
         up to include the tax due on them.

(f)      REIMBURSEMENT OF CERTAIN TAX EXPENSES. The Company shall, upon written
         demand by Executive accompanied by supporting invoices, promptly
         reimburse Executive for all costs and expenses (including reasonable
         legal, accounting and other advisory fees) incurred by Executive to (i)
         determine, in any tax year of Executive, the tax consequences to
         Executive of any amount payable (or reimbursable) under Section 7
         hereof, or (ii) prepare responses to an Internal Revenue Service audit
         of, and to otherwise





         defend, his personal income tax return for any year during the
         Employment Term or to defend himself in any administrative proceeding
         or civil litigation relating to any such tax return, in each case that
         is occasioned by or related to any audit by the Internal Revenue
         Service of the Company's income tax returns; provided, however, in no
         event shall the Company be required to reimburse Executive for costs
         and expenses in excess of seventy-five thousand United States dollars
         ($75,000 USD) in any given fiscal year pursuant to this Section 4(e).

(g)      FRINGE BENEFITS AND PERQUISITES. Executive shall be eligible to
         participate in and receive benefits under all fringe benefit plans,
         practices, policies and programs of the Company to the same extent, and
         subject to the same terms and conditions, as those arrangements are
         made available to full-time senior executive officers of the Company.

5.       TERMINATION OF EMPLOYMENT.

Executive's employment under this Agreement may be terminated under any of the
circumstances set forth in this Section 5. Upon termination, Executive (or his
beneficiaries or estate as the case may be) shall be entitled to receive the
compensation and benefits described in Section 6 and, if applicable, Section 7
below.

(a)      DEATH. Executive's employment hereunder shall terminate automatically
         upon Executive's death.

(b)      TOTAL DISABILITY. The Company may terminate Executive's employment
         hereunder, by written notice to Executive delivered in accordance with
         Sections 5(g) and 16 hereof, upon a determination pursuant to this
         Section 5(b) that Executive is "Totally Disabled." For purposes of this
         Agreement, For the purposes of this provision, "Totally Disabled" shall
         have the same meaning as it has under the long-term disability policy
         covering Executive pursuant to paragraph 4(c) herein. Executive's
         receipt of disability benefits under the Company's long-term disability
         plan shall be deemed conclusive evidence of Total Disability for
         purposes of this Agreement.

(c)      TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
         Executive's employment hereunder for "Cause" at any time, by written
         notice to Executive delivered in accordance with Sections 5(g) and 15
         hereof.

         (i)    For purposes of this Agreement, the term "Cause" shall mean any
                of the following: (A) conviction of a crime (including
                conviction on a nolo contendre plea) involving the commission by
                Executive of a felony or of a misdemeanor involving, in the good
                faith judgment of the Board of Directors, fraud, dishonesty or
                moral turpitude; (B) Executive's deliberate and continual
                refusal to perform the duties and responsibilities assigned to
                Executive under this Agreement (other than as a result of
                vacation permitted under this Agreement, sickness, illness or
                injury); (C) fraud or embezzlement by Executive, determined in
                accordance with the Company's normal, internal investigative
                procedures consistently applied; (D) gross misconduct or gross
                negligence by Executive in connection with the business of the
                Company or an Affiliate (as defined herein) unless Executive
                reasonably believed, in good faith, that his acts or omissions
                were in or not opposed to the best interests of the Company
                (without intent of Executive to gain therefrom, directly or
                indirectly, a profit to which he was not legally entitled); or
                (E) any material breach by Executive of any of the provisions of
                Section 8 of this Agreement or of any provisions of the
                Confidentiality and Proprietary Information Agreement (as
                defined herein); provided, however, that the occurrence of an
                act or omission covered by clauses (B), (D) or (E) of this
                paragraph 5(c)(i) shall not constitute "Cause" if Executive
                remedies such act or omission within ten (10) business days
                after delivery by the Company of written notice to Executive in
                accordance with Section 15 hereof specifying in reasonable
                detail the facts and circumstances believed by the Company to
                constitute such "Cause."

         (ii)   Any determination of Cause under this Agreement shall be made by
                resolution duly adopted by the affirmative vote of at least
                two-thirds of the members of the Board of Directors (not
                including Executive if Executive is a member of the Board of
                Directors) at a meeting of the Board of Directors called and
                held for that purpose; provided that Executive shall have been
                given written notice of such meeting by certified mail at least
                ten (10) business days prior to the meeting and shall have been
                given the opportunity to be heard by the Board of Directors
                before such resolution is passed. The failure by the Company to
                follow the procedures set forth in this Section 5(c)(ii)





                shall result in the termination of the Executive's employment
                being deemed to be a termination by the Company without Cause.

(d)      TERMINATION BY EXECUTIVE FOR GOOD REASON. Executive may terminate his
         employment hereunder for Good Reason after delivery by Executive of
         written notice to the Company in accordance with Sections 5(g) and 15
         hereof within sixty (60) days after the occurrence of a Good Reason
         Event (as hereinafter defined). For purposes of this Agreement, "Good
         Reason" means the occurrence of any of the following events (each a
         "Good Reason Event") without Executive's written consent during the
         Employment Term:

         (i)    A change in Executive's responsibilities or titles or any other
                action by the Company which represents a material diminution of
                Executive's position, status or authority, except in connection
                with or as a result of the termination of Executive's employment
                pursuant to any provision of this Section 5 (a "Dimunition");
                provided, however that such Dimunition shall not constitute
                "Good Reason" or a "Good Reason Event" if the Company remedies
                such Dimunition within ten (10) business days after delivery by
                Executive of written notice to the Company in accordance with
                Section 15 hereof specifying in reasonable detail the facts and
                circumstances believed by Executive to constitute such
                Dimunition.

         (ii)   A reduction by the Company in Executive's Base Salary.

         (iii)  A material breach by the Company of Section 4(c) hereof;
                provided, however that such a breach shall not constitute "Good
                Reason" or a "Good Reason Event" if the Company remedies such
                breach within ten (10) business days after delivery by Executive
                of written notice to the Company in accordance with Section 15
                hereof specifying in reasonable detail the facts and
                circumstances believed by Executive to constitute a material
                breach of Section 4(c).

         (iv)   The failure by the Company to pay Executive any material amount
                of his Base Salary, or any material amount of other
                compensation, that is due and payable under this Agreement
                within ten (10) business days after Executive makes written
                demand for such amount.

         (v)    The failure by the Company to enter into a written agreement
                with any entity that purchases all or substantially all of the
                assets of the Company or any entity into which the Company is
                merged (each a "Successor") pursuant to which such Successor
                agrees to assume all of the obligations of the Company under
                this Agreement at and effective as of the closing of such sale
                of assets or merger.

(e)      VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate his
         employment hereunder without Good Reason at any time during the
         Employment Term after providing thirty (30) days' written notice to the
         Company delivered in accordance with Sections 5(g) and 15 hereof.

(f)      TERMINATION BY THE COMPANY WITHOUT CAUSE. At any time during the
         Employment Term, the Company may terminate Executive's employment
         hereunder without Cause by written notice to Executive delivered in
         accordance with Sections 5(g) and 15 hereof. For purposes of this
         Agreement, Executive's employment will be deemed to have been
         terminated "Without Cause" if Executive is terminated by the Company
         for any reason other than Death pursuant to Section 5(a), Total
         Disability pursuant to Section 5(b), or Cause pursuant to Section 5(c).

(g)      NOTICE OF TERMINATION. Any termination of Executive's employment by the
         Company for Cause pursuant to Section 5(c), without Cause pursuant to
         Section 5(f), or as a result of Executive's Total Disability pursuant
         to Section 5(b), or by Executive for Good Reason pursuant to Section
         5(d), shall be communicated by Notice of Termination to the other party
         hereto given in accordance with this Agreement. For purposes of this
         Agreement, a "Notice of Termination" means a written notice which (i)
         indicates the specific termination provision in this Agreement relied
         upon, (ii) sets forth in reasonable detail the facts and circumstances
         claimed to provide a basis for termination of Executive's employment
         under the provision so indicated, and (iii) specifies the effective
         date of termination, if such date is other than the date of receipt of
         such notice (which effective date shall not be (A) less than ten (10)
         business days after the giving of such notice in the case of
         termination by Executive for Good Reason or (B) more than 15 days after
         the giving of such notice in all other cases). Any voluntary
         termination of Executive's employment by Executive





         pursuant to Section 5(e) shall be communicated by written notice to
         the Company specifying (i) that Executive wishes to terminate his
         employment with the Company pursuant to Section 5(e) hereof and (ii)
         indicating the effective date of termination (which effective date
         shall not be less than 30 days after the giving of such notice).

6.       COMPENSATION AND BENEFITS FOLLOWING TERMINATION OF EMPLOYMENT.

In the event that Executive's employment hereunder is terminated, Executive
shall be entitled to the following compensation and benefits upon such
termination:

(a)      COMPENSATION AND BENEFITS PAYABLE FOLLOWING TERMINATION FOR ANY REASON.
         The following compensation and benefits shall be payable upon
         termination of Executive's employment under this Agreement for any
         reason:

         (i)    Executive or his beneficiaries or estate shall be entitled to
                receive, within fourteen (14) days after the effective date of
                termination, any accrued but unpaid Base Salary for services
                rendered by Executive to the Company prior to the date of
                termination, any accrued but unpaid expenses required to be
                reimbursed under this Agreement, and cash compensation (at a
                rate per day equal to the Base Salary divided by the number of
                business days in the relevant year) for any accrued Vacation
                Time that remained unused by the Executive at the time of
                termination; and

         (ii)   Any earned benefits to which Executive (or his beneficiaries or
                estate) may be entitled pursuant to the plans, policies and
                arrangements referred to in Sections 4(b), 4(c) and 4(g) hereof
                shall be determined and paid in accordance with the terms of
                such plans, policies and arrangements. In the case of
                compensation previously deferred by Executive, all amounts
                previously deferred and not yet paid by the Company shall be
                paid to Executive (or his beneficiaries or estate) within
                fourteen (14) days after the effective date of termination
                unless such payment is inconsistent with the terms of any
                payment election made by Executive with respect to such deferred
                compensation.

(b)      TERMINATION BY REASON OF DEATH. In the event that Executive's
         employment is terminated by reason of Executive's death, the Company
         shall pay Executive's estate the following compensation and benefits in
         addition to the compensation and benefits provided for in Section 6(a)
         above:

         (i)    Executive's estate shall be entitled to be paid:

                (A)        Executive's Base Salary at the rate in effect
                           immediately prior to Executive's date of death on the
                           Company's regular pay days for a period of three (3)
                           years from the effective date of termination as if
                           his employment had continued until the end of such
                           three (3)-year period; and

                (B)        an aggregate amount equal to three (3) times the
                           average of the Annual Bonuses paid to Executive in
                           the three (3) most recently completed fiscal years
                           preceding the effective date of termination, without
                           regard to whether the payment of all or any portion
                           of such Annual Bonus has been deferred (such average
                           being hereinafter referred to as the "Bonus
                           Average"), which shall be paid in equal installments
                           on the Company's regular pay days over the course of
                           thirty-six (36) months from the effective date of
                           termination; provided, however, that if at the time
                           of termination Executive has not been employed by
                           the Company for three fiscal years, the Bonus
                           Average shall be deemed for all purposes of this
                           Agreement to equal Executive's Target Bonus Rate
                           multiplied by his Base Salary at the rate in effect
                           immediately prior to the effective date of
                           termination. The Company may purchase insurance to
                           cover all or any part of the obligations set forth in
                           this Section 6(b)(i) and Executive agrees to submit
                           to a physical examination from time to time to
                           facilitate the procurement or renewal of such
                           insurance. Any proceeds of such insurance paid to
                           Executive or his beneficiaries or estate shall be
                           considered a portion of the payments required to be
                           made to Executive pursuant to this Section 6(b)(i)
                           and shall not be in addition thereto.

         (ii)   Executive's dependents shall be entitled to continue to receive
                medical, dental and vision insurance coverage at least equal in
                type and amount to that made available to dependents of
                full-




                time senior executives of the Company immediately prior to
                Executive's death for a period of three (3) years from the
                effective date of termination, or until Executive's dependents
                become eligible for substantially equivalent employer-provided
                health insurance benefits from any other person or business
                entity, whichever occurs first. In the event that participation
                in any such plan, program or arrangement of the Company is
                prohibited, the Company will arrange to provide benefits
                substantially similar to those benefits which Executive's
                dependents would have been entitled to receive under such plan,
                program or arrangement for such period.

         (iii)  All of Executive's then outstanding options to purchase shares
                of the Company's common stock shall be vested and exercisable in
                accordance with the terms of the stock option plan of the
                Company pursuant to which such options were granted (the
                "Governing Stock Option Plan") as then in effect.

(c)      TERMINATION BY REASON OF TOTAL DISABILITY. In the event that
         Executive's employment is terminated by reason of Executive's Total
         Disability pursuant to Section 5(b) hereof, the Company shall pay
         Executive the following compensation and benefits in addition to the
         compensation and benefits provided for in Section 6(a) above:

         (i)    Subject to Section 6(c)(ii) below, Executive shall be entitled
                to be paid:

                (A)        his Base Salary at the rate in effect immediately
                           prior to the effective date of termination on the
                           Company's regular pay days for a period of three (3)
                           years from the effective date of termination as if
                           his employment had continued until the end of such
                           three (3) year period; and

                (B)        an aggregate amount equal to three (3) times the
                           Bonus Average, which shall be paid in equal
                           installments on the Company's regular pay days over
                           the course of thirty-six (36) months from the
                           effective date of termination.

         (ii)   Whenever compensation is payable to Executive under Section
                6(c)(i) during a period in which he is partially or totally
                disabled, and such disability would (except for the provisions
                hereof) entitle Executive to disability income or salary
                continuation payments from the Company according to the terms of
                any plan or program presently maintained or hereafter
                established by the Company, the disability income or salary
                continuation paid to Executive pursuant to any such plan or
                program shall be considered a portion of the payments required
                to be made to Executive pursuant to this Section 6(c) and shall
                not be in addition thereto. If disability income is payable
                directly to Executive by an insurance company under the terms of
                an insurance policy paid for by the Company, the amounts paid to
                Executive by such insurance company shall be considered a
                portion of the payment to be made to Executive pursuant to this
                Section 6(c) and shall not be in addition thereto.

         (iii)  Executive and his dependents shall be entitled to continue to
                receive medical, dental and vision insurance coverage at least
                equal in type and amount to that made available to full-time
                senior executives of the Company immediately prior to the
                effective date of termination for a period of three (3) years
                from the effective date of termination, or until Executive
                becomes eligible for substantially equivalent employer-provided
                health insurance benefits from any other person or business
                entity, whichever occurs first. In the event that participation
                in any such plan, program, or arrangement of the Company is
                prohibited, the Company will arrange to provide benefits
                substantially similar to those benefits which Executive would
                have been entitled to receive under such plan, program, or
                arrangement, for such period.

         (iv)   All of Executive's then outstanding options to purchase shares
                of the Company's common stock shall be vested and exercisable in
                accordance with the terms of the Governing Stock Option Plan, as
                then in effect.

(d)      TERMINATION FOR CAUSE. In the event that Executive's employment is
         terminated by the Company for Cause pursuant to Section 5(c) hereof,
         the Company shall not be obligated to make any payments to Executive
         under this Agreement on or following the effective date of termination,
         other than the compensation and benefits provided for in Section 6(a)
         above.




(e)      VOLUNTARY TERMINATION BY EXECUTIVE. In the event that Executive
         terminates his employment without Good Reason pursuant to Section 5(e)
         hereof, the Company shall not be obligated to make any payments to
         Executive under this Agreement on or following the date of termination,
         other than the compensation and benefits provided for in Section 6(a)
         above.

(f)      TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY EXECUTIVE FOR GOOD
         REASON. In the event that Executive's employment is terminated by the
         Company without Cause pursuant to Section 5(f) hereof or by Executive
         for Good Reason pursuant to Section 5(d) hereof, the Company shall pay
         to Executive the following compensation and benefits in addition to the
         compensation and benefits provided for in Section 6(a) above:

         (i)      Executive  shall be entitled to be paid:

                  (A)      his Base Salary at the rate in effect immediately
                           prior to the effective date of termination on the
                           Company's regular pay days for a period of three (3)
                           years from the effective date of termination as if
                           his employment had continued until the end of such
                           three (3) year period; and

                  (B)      an aggregate amount equal to three (3) times the
                           Bonus Average, which shall be paid in equal
                           installments on the Company's regular pay days over
                           the course of thirty-six (36) months from the
                           effective date of termination.

         (ii)     Executive and his dependents shall be entitled to continue to
                  receive medical, dental and vision insurance coverage at least
                  equal in type and amount to that made available to full-time
                  senior executives of the Company immediately prior to the
                  effective date of termination for a period of three (3) years
                  from the effective date of termination, or until Executive
                  becomes eligible for substantially equivalent
                  employer-provided health insurance benefits from any other
                  person or business entity, whichever occurs first. In the
                  event that participation in any such plan, program or
                  arrangement of the Company is prohibited, the Company will
                  arrange to provide benefits substantially similar to those
                  benefits which Executive would have been entitled to receive
                  under such plan, program or arrangement for such period.

         (iii)    All of Executive's then outstanding options to purchase shares
                  of the Company's common stock shall be vested and exercisable
                  in accordance with the terms of the Governing Stock Option
                  Plan, as then in effect;

         provided, however, that if the Company terminates Executive's
         employment without Cause or Executive terminates his employment with
         the Company for Good Reason within the one-year period preceding, or
         within the two-year period following, a "Change of Control", Executive
         shall be paid the compensation and benefits provided for in Section 7
         hereof rather than the compensation and benefits provided for in this
         Section 6(f).

(g)      NO OTHER BENEFITS OR COMPENSATION. Except as may be provided under this
         Agreement or under the terms of any Compensation Plans or Benefit Plans
         in effect and applicable to Executive on the effective date of
         termination, Executive shall have no right to receive any other
         compensation, or to participate in any other plan, arrangement or
         benefit after such termination and all other obligations of the Company
         and rights of Executive under this Agreement shall terminate effective
         as of the effective date of termination.

7.       CHANGE OF CONTROL.

(a)      RESIGNATION FOLLOWING CHANGE OF CONTROL. If (i) the Company terminates
         Executive's employment without Cause or Executive terminates his
         employment with the Company for Good Reason and (ii) a "Change of
         Control" has occurred within the two-year period preceding, or within
         the one-year period following, the effective date of termination,
         Executive shall be entitled to the compensation described in this
         Section 7 in addition to the compensation and benefits provided for in
         Section 6(a) above and in lieu of the compensation and benefits
         provided for in Section 6(f) above:




         (i)      a lump sum amount equal to three(3) times the sum of (A) and
                  (B) below:

                  (A)      his Base Salary at the rate in effect immediately
                           prior to the effective date of termination; and

                  (B)      the Bonus Average.

         (ii)     Executive and his dependents shall be entitled to continue to
                  receive medical, dental and vision insurance coverage at least
                  equal in type and amount to that made available to full-time
                  senior executives of the Company immediately prior to the
                  effective date of termination for a period of three (3) years
                  from the effective date of termination, or until Executive
                  becomes eligible for employer-provided health insurance
                  benefits from any other person or business entity (whether or
                  not those health insurance benefits are comparable to the
                  health insurance benefits provided by the Company), whichever
                  occurs first. In the event that participation in any such
                  plan, program, or arrangement of the Company is prohibited,
                  the Company will arrange to provide benefits substantially
                  similar to those benefits which Executive would have been
                  entitled to receive under such plan, program, or arrangement,
                  for such period.

         (iii)    All of Executive's then outstanding options to pursuant shares
                  of the Company's common stock shall be vested and exercisable
                  in accordance with the terms of the Governing Stock Option
                  Plan as then in effect.

(b)      DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, a
         "Change of Control" shall be deemed to have occurred upon the happening
         of any of the following:

         (i)      the sale or lease of all or substantially all of the assets of
                  the Company to any other person or entity other than a direct
                  or indirect wholly-owned subsidiary or parent of the Company;

         (ii)     a merger, amalgamation, consolidation or other reorganization
                  of the Company with any other entity (other than a direct or
                  indirect wholly-owned subsidiary or parent of the Company) in
                  which the Company is not the surviving entity or becomes owned
                  entirely by another entity, unless at least 50% of the
                  outstanding voting securities of the surviving or parent
                  corporation, as the case may be, immediately following such
                  transaction are beneficially held by the same persons and/or
                  entities that beneficially held the outstanding voting
                  securities of the Company immediately prior to such
                  transaction, and such outstanding voting securities are
                  beneficially held by such persons and/or entities in the same
                  proportion as such persons and/or entities beneficially held
                  the outstanding voting securities of the Company immediately
                  prior to such transaction;

         (iii)    the acquisition of beneficial ownership, as such term is
                  defined in the Securities Exchange Act of 1934, as amended
                  (the "Exchange Act") in a single transaction or series of
                  related transactions (by tender offer or otherwise), of more
                  than 50% of the voting securities of the Company by a single
                  person or entity (other than the Company or any affiliate (as
                  such term is defined in Rule 12b-2 under the Exchange Act) of
                  the Company (each an "Affiliate"), a trustee or any other
                  fiduciary or committee of any employee benefit plan of the
                  Company, or any corporation owned, directly or indirectly, by
                  the stockholders of the Company in substantially the same
                  proportions as their ownership of the stock of the Company) or
                  "group" within the meaning of Section 13(d)(3) of the Exchange
                  Act, whether through the acquisition of previously issued and
                  outstanding voting securities or of voting securities that
                  have not been previously issued, or any combination thereof;

         (iv)     the voluntary or involuntary dissolution, liquidation or
                  winding up of the Company, or the adoption of any resolution
                  with respect thereto; or

         (v)      the individuals who constituted the Board of Directors as of
                  the Effective Date (the "Incumbent Board") ceasing for any
                  reason to constitute at least a majority of the Board of
                  Directors; provided, that any person becoming a director whose
                  election or nomination for election was approved by a majority
                  of the members of the Incumbent Board shall be considered, for
                  purposes of this Agreement, a member of the Incumbent Board;
                  and provided further that, notwithstanding anything herein to
                  the contrary, a Change of Control shall not be deemed to have
                  occurred in connection with (i) any public offering of the
                  common stock of the Company for cash; (ii) any





                  transaction with an entity or group that includes, is
                  affiliated with or is wholly or partially controlled by, one
                  or more executive officers of the Company in office
                  immediately prior to the transaction that would otherwise
                  constitute a Change of Control; (iii) any capital raising
                  transaction (including any investment by one or more private
                  equity funds) for the purpose of financing acquisitions
                  specifically identified by the Board of Directors of the
                  Company; or (iv) the U.S. Reorganization Transaction.

(c)      CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. In the event that any
         portion of the payments or benefits provided to Executive under this
         Agreement or pursuant to any other plan, arrangement or agreement
         between Executive and the Company or any Affiliate thereof
         (collectively, "Total Payments") would be subject to the tax (the
         "Excise Tax") imposed by Section 4999 of the Code or any similar tax
         that may hereafter be imposed, then Executive shall be entitled to
         receive an additional payment (the "Gross-up Payment") in an amount
         which, when combined with the net amount of the Total Payments retained
         by Executive after giving effect to the application of the Excise Tax
         and all other applicable taxes on the Total Payments (including any
         interest or penalties imposed with respect to such taxes), will result
         in receipt by Executive of a Gross-up Payment equal to the Excise Tax
         imposed upon the Total Payments.

         (i)      Determination by Accounting Firm. Subject to the provisions of
                  Section 7(c)(ii) below, all determinations required to be made
                  under this Section 7(c), including whether a Gross-up Payment
                  is required, the amount of the Gross-Up Payment and the
                  assumptions to be utilized in arriving at such determination,
                  shall be made by the Company's independent auditors or such
                  other certified public accounting firm reasonably acceptable
                  to Executive as may be designated by the Company (the
                  "Accounting Firm"). The Accounting Firm shall provide detailed
                  calculations supporting the Gross-up Payment to the Company
                  and Executive. All fees and expenses of the Accounting Firm
                  shall be paid solely by the Company. Any Gross-Up Payment, as
                  determined pursuant to this Section 7(c), shall be paid by the
                  Company to Executive not later than the due date for the
                  payment of any Excise Tax. Any determination by the Accounting
                  Firm shall be binding upon the Company and Executive. As a
                  result of the uncertainty in the application of Section 4999
                  of the Code at the time of the initial determination by the
                  Accounting Firm hereunder, it is possible that Gross-Up
                  Payments which will not have been made by the Company should
                  have been made ("Underpayment"), consistent with the
                  calculations required to be made hereunder. In the event that
                  the Company exhausts its remedies pursuant to Section 7(c)(ii)
                  and Executive thereafter is required to make a payment of any
                  Excise Tax, the Accounting Firm shall determine the amount of
                  the Underpayment that has occurred and any such Underpayment
                  shall be promptly paid by the Company to or for Executive's
                  benefit.

         (ii)     The Company's Right to Contest Excise Tax. Executive agrees to
                  notify the Company in writing of any claim by the Internal
                  Revenue Service that, if successful, would require the payment
                  by the Company of the Gross-Up Payment. Such notification
                  shall be given as soon as practicable but no later than ten
                  (10) business days after Executive is informed in writing of
                  such claim and shall apprise the Company of the nature of such
                  claim and the date on which such claim is requested to be
                  paid. Executive shall not pay such claim prior to the
                  expiration of the 30-day period following the date on which
                  Executive gives such notice to the Company (or such shorter
                  period ending on the date that any payment of taxes with
                  respect to such claim is due). If the Company notifies
                  Executive in writing prior to the expiration of such period
                  that it desires to contest such claim, Executive agrees to:

                  (A)      give the Company any information reasonably requested
                           by the Company relating to such claim,

                  (B)      take such action in connection with contesting such
                           claim as the Company shall reasonably request in
                           writing from time to time, including, without
                           limitation, accepting legal representation with
                           respect to such claim by an attorney reasonably
                           selected by the Company;

                  (C)      cooperate with the Company in good faith in order to
                           effectively contest such claim, and

                  (D)      permit the Company to participate in any proceedings
                           relating to such claim;




                  provided, however, that the Company agrees to bear and pay
                  directly all costs and expenses (including additional interest
                  and penalties) incurred in connection with such contest and
                  shall indemnify and hold Executive harmless, on an after-tax
                  basis, for any Excise Tax or income tax (including interest
                  and penalties with respect thereto) imposed as a result of
                  such representation and payment of costs and expenses. Without
                  limitation on the foregoing provisions of this Section
                  7(c)(ii), the Company shall control all proceedings taken in
                  connection with such contest and, at its sole option, may
                  pursue or forego any and all administrative appeals,
                  proceedings, hearings and conferences with the taxing
                  authority in respect of such claim and may, at its sole
                  option, either direct Executive to pay the tax claimed and sue
                  for a refund or contest the claim in any permissible manner,
                  and Executive agrees to prosecute such contest to a
                  determination before any administrative tribunal, in a court
                  of initial jurisdiction and in one or more appellate courts,
                  as the Company shall determine; provided, however, that if the
                  Company directs Executive to pay such claim and sue for a
                  refund, the Company shall advance the amount of such payment
                  to Executive, on an interest-free basis, and shall indemnify
                  and hold Executive harmless, on an after-tax basis, from any
                  Excise Tax or income tax (including interest or penalties with
                  respect thereto) imposed with respect to such advance or with
                  respect to any imputed income with respect to such advance;
                  and further provided that any extension of the statute of
                  limitations relating to payment of taxes for Executive's
                  taxable year with respect to which such contested amount is
                  claimed to be due is limited solely to such contested amount.
                  Furthermore, the Company's control of the contest shall be
                  limited to issues with respect to which a Gross-Up Payment
                  would be payable hereunder and Executive shall be entitled to
                  settle or contest, as the case may be, any other issue raised
                  by the Internal Revenue Service or any other taxing authority.

         (iii)    Repayment to the Company. If, after the receipt by Executive
                  of an amount advanced by the Company pursuant to Section
                  7(c)(ii), Executive becomes entitled to receive any refund
                  with respect to such claim, Executive shall promptly pay to
                  the Company the amount of such refund (together with any
                  interest paid or credited thereon after taxes applicable
                  thereto). Executive shall be entitled to deduct from any
                  payment made to the Company pursuant to the previous sentence
                  the amount of any taxes that Executive previously paid on the
                  amount of such payment. If, after the receipt by Executive of
                  an amount advanced by the Company pursuant to Section
                  7(c)(ii), a determination is made that Executive is not
                  entitled to any refund with respect to such claim and the
                  Company does not notify Executive in writing of its intent to
                  contest such denial of refund prior to the expiration of
                  thirty (30) days after such determination, then such advance
                  shall be forgiven and shall not be required to be repaid and
                  the amount of such advance shall offset, to the extent
                  thereof, the amount of Gross-Up Payment required to be paid.

(d)      Notwithstanding anything herein to the contrary, to the extent that
         Executive has received payments of Base Salary pursuant to Section
         6(f)(i) hereof at a time when a "Change of Control" occurs, such
         payments shall be deducted from the lump sum payment required to be
         made to Executive pursuant to Section 7(a)(i) hereof.

8.       RESTRICTIVE COVENANTS

(a)      COMPETITIVE ACTIVITY. Executive covenants and agrees that at all times
         during Executive's employment with the Company, and during the
         Non-Compete Period (as defined below), Executive will not, acting alone
         or in conjunction with others, without the prior written consent of the
         Company, directly or indirectly, engage or participate in, assist,
         render services to or for, or have any active interest or involvement
         in, whether as an employee, principal, agent, consultant, creditor,
         lender, advisor, employer, officer, director, stockholder (excluding
         holdings by Executive of up to 3% of the voting stock of any
         corporation subject to the periodic reporting requirements of the
         Exchange Act), partner, proprietor or in any other individual or
         representative capacity in or with, any person, entity or business
         which competes, directly or indirectly, with the Company or any
         Affiliate in any of the business areas or territories in which the
         Company or any Affiliate then conducts business or with any development
         opportunity being pursued by the Company during the Non-Compete Period.
         (b) NON-SOLICITATION. Executive covenants and agrees that at all times
         during Executive's employment with the Company, and during the
         Non-Compete Period, Executive will not, without the prior written
         consent of the Company, directly or indirectly (i) induce, solicit or
         entice any customer of the Company or any customer of any Affiliate to
         patronize any person, business or entity which competes, directly or
         indirectly, with the Company or such Affiliate in any





         of the business areas or territories in which the Company or such
         Affiliate then conducts business; (ii) canvass, solicit or accept any
         business from any customer of the Company or any customer of any
         Affiliate (other than in connection with the performance by Executive
         of his duties and responsibilities for the Company in accordance with
         this Agreement) in any of the business areas or territories in which
         the Company or any Affiliate of the Company then conducts business;
         (iii) request or advise any customer of the Company or any customer of
         any Affiliate to withdraw, curtail or cancel such customer's business
         with the Company or such Affiliate in any of the business areas or
         territories in which the Company or any Affiliate of the Company then
         conducts business; (iv) contact, communicate with or solicit any
         prospect that the Company is actively pursuing or any prospect that any
         Affiliate is actively pursuing (other than in connection with the
         performance by Executive of his duties for the Company in accordance
         with this Agreement); (v) disclose to any other person, entity or
         business the names or addresses of any customer or acquisition prospect
         of the Company or any customer or acquisition prospect of any Affiliate
         (other than as required in connection with the performance by Executive
         of his duties for the Company in accordance with this Agreement); (vi)
         cause, solicit, entice or induce any employee of the Company or any
         employee of any Affiliate to leave the employ of the Company or such
         Affiliate, or to accept employment with, or compensation from,
         Executive or any person, entity or business (other than the Company or
         any Affiliate) with which Executive is affiliated or by whom Executive
         is employed; or (vii) use any customer lists or customer leads, mail,
         telephone numbers, printed material or other information obtained from
         the Company or any Affiliate or any employee of any of the foregoing
         (other than in connection with the performance by Executive of his
         duties for the Company in accordance with this Agreement).

(c)      NON-DISPARAGEMENT.

         (i)      Executive covenants and agrees that Executive shall not engage
                  in any pattern of conduct that involves the making or
                  publishing of written or oral statements or remarks
                  (including, without limitation, the repetition or distribution
                  of derogatory rumors, allegations, negative reports or
                  comments) which are disparaging, deleterious or damaging to
                  the integrity, reputation or good will of the Company or any
                  Affiliate or any member of management of the Company or any
                  Affiliate.

         (ii)     The Company covenants and agrees that it shall not engage in
                  any pattern of conduct that involves the making or publishing
                  of written or oral statements or remarks (including, without
                  limitation, the repetition or distribution of derogatory
                  rumors, allegations, negative reports or comments) which are
                  disparaging, deleterious or damaging to the integrity or
                  reputation of Executive.

(d)      PROTECTED INFORMATION. Executive recognizes and acknowledges that
         Executive has had and will continue to have access to various
         confidential and proprietary information concerning the Company and its
         Affiliates which is of a special and unique value. As a condition to
         commencement of Executive's employment hereunder, Executive shall
         execute a Confidentiality and Proprietary Rights Agreement in
         substantially the form of Exhibit C attached hereto (the
         "Confidentiality and Proprietary Rights Agreement"). Any breach by
         Executive of the Confidentiality and Proprietary Rights Agreement shall
         be considered a breach of this Agreement.

(e)      NON-COMPETE PERIOD. For purposes of this Agreement, the term
         "Non-Compete Period" shall have the following meanings:

         (i)      in the event (A) Executive's employment hereunder is
                  terminated by the Company without Cause pursuant to Section
                  5(f), or by Executive for Good Reason pursuant to Section
                  5(d), and (B) a Change of Control did not occur within the
                  two-year period preceding, and does not occur within the
                  one-year period following, the effective date of termination,
                  the Non-Compete Period shall mean the period beginning on the
                  effective date of termination and ending on the second
                  anniversary of the effective date of termination;

         (ii)     in the event that (A) Executive's employment hereunder is
                  terminated by the Company without Cause pursuant to Section
                  5(f), or by Executive for Good Reason pursuant to Section
                  5(d), and (B) a Change of Control occurred within the two-year
                  period preceding the effective date of termination, there
                  shall be no Non-Compete Period;

         (iii)    in the event (A) Executive's employment hereunder is
                  terminated by the Company without Cause pursuant to Section
                  5(f), or by Executive for Good Reason pursuant to Section
                  5(d), and (B) a





                  "Change of Control" occurs within the one-year period
                  following the effective date of termination, the Non-Compete
                  Period shall mean the period beginning on the effective date
                  of termination and ending on the effective date of the "Change
                  of Control";

         (iv)     in the event Executive's employment hereunder is terminated by
                  Executive voluntarily pursuant to Section 5(e), or by the
                  Company with Cause pursuant to Section 5(c), the Non-Compete
                  Period shall mean the period beginning on the effective date
                  of termination and ending on the first anniversary of the
                  effective date of termination; and

         (v)      in the event Executive's employment hereunder is terminated by
                  the Company upon Death of Executive pursuant to Section 5(a),
                  or upon the Total Disability of Executive pursuant to Section
                  5(b), there shall be no Non-Compete Period.

9.       ENFORCEMENT OF COVENANTS.

(a)      TERMINATION OF EMPLOYMENT AND FORFEITURE OF COMPENSATION.
         Notwithstanding anything in this Agreement to the contrary, in the
         event that the Board of Directors or a duly authorized committee
         thereof determines in its good faith judgment that Executive has
         violated Sections 8(a) or 8(b) hereof, the Company shall have the right
         to suspend or terminate any or all remaining payments or benefits
         payable pursuant to Section 6 and/or 7 of this Agreement. Such
         suspension or termination of benefits shall be in addition to and shall
         not limit any and all other rights and remedies that the Company may
         have against Executive.

(b)      RIGHT TO INJUNCTION. Executive acknowledges that a breach of the
         covenants set forth in Section 8 hereof will cause irreparable damage
         to the Company with respect to which the Company's remedy at law for
         damages will be inadequate. Therefore, in the event of a breach of the
         covenants set forth in Section 8 by Executive or if the Company has
         reasonable grounds to believe that a breach by Executive of the
         covenants set forth in Section 8 is imminent, Executive and the Company
         agree that the Company shall be entitled to the following particular
         forms of relief, in addition to remedies otherwise available to it at
         law or in equity; (i) injunctions, both preliminary and permanent,
         enjoining or restraining such breach or anticipatory breach and
         Executive hereby consents to the issuance thereof forthwith and without
         bond by any court of competent jurisdiction; and, in the event the
         Company prevails on the merits after all available appeals have been
         exhausted (ii) recovery of all reasonable sums expended and costs,
         including reasonable attorney's fees, incurred by the Company to
         enforce the covenants set forth in Section 8.

(c)      SEPARABILITY OF COVENANTS. The covenants contained in Section 8 hereof
         constitute a series of separate covenants, one for each applicable
         State in the United States and the District of Columbia, and one for
         each province and Territory in Canada. If in any judicial proceeding, a
         court shall hold that any of the covenants set forth in Section 8
         exceed the time, geographic, or occupational limitations permitted by
         applicable laws, Executive and the Company agree that such provisions
         shall and are hereby reformed to the maximum time, geographic, or
         occupational limitations permitted by such laws. Further, in the event
         a court shall hold unenforceable any of the separate covenants deemed
         included herein, then such unenforceable covenant or covenants shall be
         deemed eliminated from the provisions of this Agreement for the purpose
         of such proceeding to the extent necessary to permit the remaining
         separate covenants to be enforced in such proceeding. Executive and the
         Company further agree that the covenants in Section 8 shall each be
         construed as a separate agreement independent of any other provisions
         of this Agreement, and the existence of any claim or cause of action by
         Executive against the Company, whether predicated on this Agreement or
         otherwise, shall not constitute a defense to the enforcement by the
         Company of any of the covenants of Section 8.

10.      MITIGATION OF DAMAGES; ATTORNEY'S FEES

                  (a)      Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other
employment.

                  (b)      If any legal action is filed by either party to
enforce or interpret any of the provisions of this Agreement, the non-prevailing
party shall pay to the prevailing party, in addition to any other amounts
awarded in the action, all reasonable attorney's fees and other fees and costs
incurred by the prevailing party in connection





with such legal action, the amount of which shall be fixed by the court hearing
such action and made a part of any judgment rendered.

11.      WITHHOLDING OF TAXES.

The Company may withhold all legally required taxes from any compensation and
benefits payable under this Agreement.

12.      ASSIGNMENT.

Except as otherwise provided in this Agreement, this Agreement shall inure to
the benefit of, and be binding upon, the parties hereto and their respective
heirs, representatives, successors and permitted assigns. The rights, benefits
and obligations of Executive under this Agreement are personal to Executive and
no such right, benefit or obligation shall be subject to voluntary or
involuntary alienation, assignment or transfer; provided, however, that nothing
in this Section 12 shall preclude Executive from designating a beneficiary or
beneficiaries to receive any benefit payable on his death. The Company shall
require any Successor (whether by purchase of all or substantially all of the
assets of the Company, merger of the Company into another entity, or otherwise)
to assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would have been required to perform if no such
succession had taken place. Upon any such assignment, all references herein to
the Company shall be deemed to refer to such assignee.

13.      ENTIRE AGREEMENT; AMENDMENT.

This Agreement, together with all schedules, exhibits and other documents
referred to herein, shall supersede any and all existing oral or written
agreements, representations, or warranties between Executive and the Company
relating to the terms of Executive's employment by the Company. This Agreement
may not be amended, nor any provision waived, except by a written instrument
signed by the party against whom such amendment or waiver is sought to be
enforced.

14.      GOVERNING LAW; JURISDICTION.

This Agreement shall be governed by and construed in accordance with the
internal substantive laws of the State of Delaware, without giving effect to the
conflict of law principles thereof. The parties agree that all disputes, legal
actions, suits and proceedings arising out of or relating to this Agreement or
Executive's employment with the Company must be brought exclusively in a federal
district court or state court of competent jurisdiction located in the State of
Delaware. Each party hereby irrevocably consents and submits to the exclusive
jurisdiction of such courts. No legal action, suit or proceeding with respect to
this Agreement or Executive's employment with the Company may be brought in any
other forum. Each party hereby irrevocably waives all claims of immunity from
jurisdiction and any right to object on the basis that any dispute, action, suit
or proceeding brought in any such court has been brought in an improper or
inconvenient forum or venue.

15.      NOTICES.

Any notice, consent, request or other communication made or given in connection
with this Agreement shall be in writing and shall be deemed to have been duly
given if delivered personally, mailed by registered or certified mail (return
receipt requested), or by confirmed facsimile to those listed below at their
following respective addresses or at such other address as each may specify by
notice to the others:

         To the Company or Capital:

                  1122 International Blvd., Suite 601
                  Burlington, Ontario L7L 6Z8
                  Attention:  General Counsel

         To Executive:  At the address for Executive set forth on the signature
page below.




16.      MISCELLANEOUS.

(a)      WAIVER. The failure of a party to insist upon strict adherence to any
         term of this Agreement on any occasion shall not be considered a waiver
         thereof or deprive that party of the right thereafter to insist upon
         strict adherence to that term or any other term of this Agreement. The
         waiver by any party hereto of a breach of any provision of this
         Agreement shall neither operate nor be construed as a general waiver or
         as a specific waiver of any subsequent breach by any party, unless
         otherwise expressly provided in such waiver.

(b)      SEPARABILITY. Subject to Section 9 hereof, if any term or provision of
         this Agreement or application thereof to anyone or under any
         circumstances shall be determined to be invalid, illegal or
         unenforceable by any court of competent jurisdiction and cannot be
         modified to be enforceable, such term or provision shall immediately
         become null and void, leaving the remainder of this Agreement in full
         force and effect.

(c)      HEADINGS. Section headings are used herein for convenience of reference
         only and shall not affect the meaning of any provision of this
         Agreement.

(d)      RULES OF CONSTRUCTION. Whenever the context so requires, the use of the
         singular shall be deemed to include the plural and vice versa.

(e)      COUNTERPARTS. This Agreement may be executed in any number of
         counterparts, each of which so executed shall be deemed to be an
         original, and such counterparts will together constitute but one
         Agreement.

(f)      Intentionally omitted.

(g)      RELEASE. Notwithstanding anything herein to the contrary, the Company
         shall not be required to make any of the payments, or provide any of
         the benefits, to the Executive pursuant to Sections 6 or 7 hereof
         unless and until Executive executes and delivers a release of all
         claims arising out of this Executive Employment Agreement through the
         date of the release, but excluding claims for indemnification from the
         Company under the Indemnification Agreement attached hereto as Exhibit
         A, local, state or federal statutory or constitutional claims, or other
         claims not arising under this Executive Employment Agreement.

(h)      SURVIVAL. Notwithstanding anything in this Agreement to the contrary,
         the provisions of Sections 8, 9, 10, 14, 15 and 16 shall survive any
         termination of Executive's employment in accordance with their
         respective terms.


                           [SIGNATURE PAGES TO FOLLOW]





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

THE COMPANY:

WASTE SERVICES, INC.


By:
        -----------------------------------
Name:   David Sutherland-Yoest
Title:  Chairman and Chief Executive Officer

Date:   July 1, 2004


EXECUTIVE:


By:
        -----------------------------------
        Charles A. Wilcox
        11840 Stuckey Lane
        Houston, Texas  77024

Date:   July 1, 2004

EX-21.1

Exhibit 21.1

SUBSIDIARIES LIST

NAME	JURISDICTION OF INCORPORATION	OPERATING NAMES
Capital Environmental Holdings Company	Nova Scotia, Canada	n/a
Waste Services (CA) Inc.	Canada	n/a
Ram-Pak Compaction Systems Ltd.	Canada	n/a
Gap Disposal (2001) Ltd.	Saskatchewan, Canada	n/a
Waste Services of Alabama, Inc.	Delaware, United States	n/a
Waste Services of Arizona, Inc.	Delaware, United States	Arizona Waste Services
		WSI of Arizona, Inc.
		Dell Waste Systems
		ABC Disposal
		Complete Waste
		Horizon Waste Services
Cactus Waste Systems, LLC	Arizona, United States	n/a
Omni Waste of Osceola County LLC	Ohio, United States	n/a
Jacksonville Florida Landfill, Inc.	Delaware, United States	n/a
Jones Road Landfill and Recycling Ltd.	Florida, United States	n/a
Waste Services of Florida Inc.	Delaware, United States	Florida Recycling Services
Florida Recycling Services, Inc.	Illinois, United States	n/a
Florida Recycling Services, Inc.	Delaware, United States	n/a
Waste Services Limited Partner, LLC	Delaware, United States	n/a
WS General Partner, LLC	Texas, United States	n/a
Fort Bend Regional Landfill LP	Texas, United States	n/a
Ruffino Hills Transfer Station LP	Texas, United States	n/a

EX-23.1

EXHIBIT 23.1

Consent of Independent Registered Public Accounting Firm

Waste Services, Inc.

We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-117912) and on Form S-3/A (File No. 333-116795) of our reports dated March 9, 2005 relating to the consolidated financial statements of Waste Services Inc. and the effectiveness of Waste Services Inc.’s internal control over financial reporting which appear in this Form 10-K.

/s/ BDO Seidman, LLP

Los Angeles, California
March 9, 2005

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

Waste Services, Inc. (Previously Capital Environmental Resource Inc.)

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3/A (File No. 333-116795) and Form S-8 (File No. 333-117912) of our report dated March 12, 2004, relating to the consolidated financial statements which appears in the Annual Report on Form 10-K.

BDO Dunwoody LLP
Toronto, Ontario

March 9, 2005

EX-23.3

Exhibit 23.3

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement of Waste Services, Inc. on Form S-3/A (File No. 333-116795) of our report dated March 20, 2003, except for the effect of the restatement related to the beneficial conversion feature as described in Note 1 to the financial statements included in the 2002 Form 20-F/A (Amendment No. 2) of Capital Environmental Resource Inc., which is as of November 4, 2003, relating to the consolidated financial statements, which appear in Waste Services Inc.’s Annual Report to Shareholders on Form 10-K for the year ended December 31, 2004.

We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP

Chartered Accountants

Toronto, Canada
March 9, 2005

EX-23.4

Exhibit 23.4

Consent of Independent Registered Public Accounting Firm

We hereby consent to the incorporation by reference in the Registration Statement of Waste Services, Inc. on Form S-8 (File No. 333-117912) of our report dated March 20, 2003, except for the effect of the restatement related to the beneficial conversion feature as described in Note 1 to the financial statements included in the 2002 Form 20-F/A (Amendment No. 2) of Capital Environmental Resource Inc., which is as of November 4, 2003, relating to the consolidated financial statements, which appear in Waste Services Inc.’s Annual Report to Shareholders for the year ended December 31, 2004 on Form 10-K.

/s/ PricewaterhouseCoopers LLP

Chartered Accountants

Toronto, Canada
March 9, 2005

EX-31.1

EXHIBIT 31. 1

CERTIFICATION OF
DAVID SUTHERLAND-YOEST
CHIEF EXECUTIVE OFFICER

I, David Sutherland-Yoest, certify that:

I have reviewed this annual report on Form 10-K of Waste Services, Inc.

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2005

/s/ David Sutherland-Yoest  

David Sutherland-Yoest 

Chief Executive Officer 

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF
RONALD L. RUBIN
CHIEF FINANCIAL OFFICER

I, Ronald L. Rubin, certify that:

I have reviewed this annual report on Form 10-K of Waste Services, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 15, 2005

/s/ Ronald L. Rubin

Ronald L. Rubin
Chief Financial Officer

F-41

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE U.S. SARBANES-OXLEY ACT OF 2002

In connection with the annual report of Waste Services. Inc. (the “Company”) on Form 10-K for the year ended December 31, 2004, as filed with the U.S. Securities and Exchange Commission on the date hereof (the “Report”), we, David Sutherland-Yoest, Chief Executive Officer, and Ronald L. Rubin, the Chief Financial Officer certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to section 906 of the U.S. Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

     (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and

     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company

March 15, 2005

/s/ David Sutherland-Yoest

David Sutherland-Yoest
Chief Executive Officer

/s/ Ronald L. Rubin

Ronald L. Rubin
Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as a part of this report or on a separate disclosure document.

F-42