10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2005

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.)
(Exact name of registrant as specified in its charter)

Delaware	01-0780204
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

1122 International Blvd., Suite 601, Burlington, Ontario, Canada L7L 6Z8
(Address of principal executive offices and zip code)

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

     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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

     The number of shares of Common Stock, $0.01 par value, of the registrant outstanding at October 25, 2005 was 100,015,916 (assuming exchange of all exchangeable shares not held by Waste Services, Inc.).

TABLE OF CONTENTS

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements		2
Condensed Consolidated Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004		2
Unaudited Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2005 and 2004		3
Unaudited Condensed Consolidated Statement of Shareholders’ Equity for the nine months ended September 30, 2005		4
Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2005 and 2004		5
Notes to Unaudited Condensed Consolidated Financial Statements		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		27
Item 3. Quantitative and Qualitative Disclosures About Market Risk		40
Item 4. Controls and Procedures		40
PART II. OTHER INFORMATION
Item 1. Legal Proceedings		40
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41
Item 3. Defaults upon Senior Securities		41
Item 4. Submission of Matters to a Vote of Security Holders		41
Item 5. Other Information		41
Item 6. Exhibits		41
Signatures		42
EX-10.1 EMPLOYMENT AGREEMENT, DAVID SUTHERLAND-YOEST
EX-31.1 SECTION 302 CERTIFICATION OF THE CEO
EX-31.2 SECTION 302 CERTIFICATION OF THE CFO
EX-32.1 SECTION 906 CERTIFICATION OF THE CEO AND CFO

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

	September 30,			December 31,
	2005			2004
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,512		$	8,507
Accounts receivable (net of allowance for doubtful accounts of $836 and $1,264 as of September 30, 2005 and December 31, 2004, respectively)		54,174			47,856
Prepaid expenses and other current assets		8,219			10,940
Total current assets		64,905			67,303
Property and equipment, net		134,683			130,467
Landfill sites, net		172,459			169,616
Goodwill and other intangible assets, net		334,736			327,756
Other assets		23,561			25,441
Total assets	$	730,344		$	720,583
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	25,066		$	25,949
Accrued expenses and other current liabilities		48,133			42,533
Short-term financing and current portion of long-term debt		1,174			1,166
Total current liabilities		74,373			69,648
Long-term debt		279,333			276,214
Accrued closure, post-closure and other obligations		20,268			10,974
Cumulative mandatorily redeemable Preferred Stock (net of discount of $3,980 and $8,426 as of September 30, 2005 and December 31, 2004, respectively)		79,599			64,971
Total liabilities		453,573			421,807
Commitments and contingencies
Shareholders’ equity:
Common stock $0.01 par value; 500,000,000 shares authorized; 93,523,322 and 90,358,196 shares issued and outstanding as of September 30, 2005 and December 31, 2004, respectively		935			904
Additional paid-in capital		353,898			345,904
Treasury stock at cost; 500,000 shares as of September 30, 2005 and December 31, 2004		(1,235	)		(1,235	)
Options, warrants and deferred stock-based compensation		29,741			28,282
Accumulated other comprehensive income		35,836			29,133
Accumulated deficit		(142,404	)		(104,212	)
Total shareholders’ equity		276,771			298,776
Total liabilities and shareholders’ equity	$	730,344		$	720,583

The accompanying notes are an integral part of these condensed consolidated financial statements.

2

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2005			2004			2005			2004
Revenue	$	101,751		$	94,615		$	286,120		$	217,558
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		73,507			69,462			208,090			155,752
Selling, general and administrative expense		13,613			18,395			42,985			41,064
Settlement with sellers of Florida Recycling		(4,120	)		(8,635	)		(4,120	)		(8,635	)
Depreciation, depletion and amortization		11,400			9,712			31,548			22,993
Foreign exchange gain and other		844			21			607			(352	)
Income from operations		6,507			5,660			7,010			6,736
Interest expense		7,274			5,681			21,272			24,263
Changes in fair value of warrants		—			(532	)		—			(111	)
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		5,392			4,535			15,348			12,844
Loss before income taxes		(6,159	)		(4,024	)		(29,610	)		(30,260	)
Income tax provision		3,252			1,695			8,582			5,033
Loss before cumulative effect of change in accounting principle		(9,411	)		(5,719	)		(38,192	)		(35,293	)
Cumulative effect of change in accounting principle, net of provision for income taxes of nil and $132 for the nine months ended September 30, 2005 and 2004, respectively		—			—			—			225
Net loss	$	(9,411	)	$	(5,719	)	$	(38,192	)	$	(35,068	)
Basic and diluted loss per share:
Basic and diluted loss per share before cumulative effect of change in accounting principle	$	(0.10	)	$	(0.06	)	$	(0.39	)	$	(0.41	)
Cumulative effect of change in accounting principle		—			—			—			—
Loss per share — basic and diluted	$	(0.10	)	$	(0.06	)	$	(0.39	)	$	(0.41	)
Weighted average common shares outstanding — basic and diluted		99,413			96,854			98,345			85,484

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

For the Nine Months Ended September 30, 2005

(In thousands)

														Accumulated
											Options, Warrants			Other
								Treasury			and Deferred			Comprehensive					Total
	Common Stock				Additional			Stock			Stock-Based			Income		Accumulated			Shareholders’
	Shares		Amount		Paid-in Capital			at Cost			Compensation			(Loss)		Deficit			Equity
Balance, December 31, 2004		90,358	$	904	$	345,904		$	(1,235	)	$	28,282		$	29,133	$	(104,212	)	$	298,776
Common shares and warrants issued		2,926		28		7,252			—			630			—		—			7,910
Exercise of options and warrants		161		2		769			—			(250	)		—		—			521
Deferred stock-based compensation		—		—		—			—			1,079			—		—			1,079
Conversion of exchangeable shares		78		1		(1	)		—			—			—		—			—
Other paid-in capital		—		—		(26	)		—			—			—		—			(26	)
Foreign currency translation adjustment		—		—		—			—			—			6,703		—			6,703
Net loss		—		—		—			—			—			—		(38,192	)		(38,192	)
Balance, September 30, 2005		93,523	$	935	$	353,898		$	(1,235	)	$	29,741		$	35,836	$	(142,404	)	$	276,771

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,
	2005			2004
Cash flows from operating activities:
Net loss	$	(38,192	)	$	(35,068	)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation, depletion, and amortization		31,548			22,993
Non-cash component of settlement with sellers of Florida Recycling		(4,120	)		(1,235	)
Cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs		15,348			12,844
Amortization of debt issue costs		1,057			9,930
Deferred income tax provision		8,582			5,033
Non-cash stock-based compensation (benefit)		1,079			(648	)
Cumulative effect of change in accounting principle, net of tax		—			(225	)
Foreign exchange loss (gain)		630			(72	)
Other non-cash items		884			(159	)
Changes in operating assets and liabilities (excluding the effects of acquisitions):
Accounts receivable		(5,322	)		(11,045	)
Prepaid expenses and other current assets		2,473			(8,443	)
Accounts payable		(1,537	)		10,665
Accrued expenses and other current liabilities		4,171			6,122
		16,601			10,692
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(6,595	)		(164,319	)
Capital expenditures		(27,399	)		(33,593	)
Proceeds from asset sales and business divestitures		1,735			9,939
Deposits for business acquisitions and other		(793	)		(1,203	)
		(33,052	)		(189,176	)
Cash flows from financing activities:
Proceeds from issuance of debt		4,000			280,000
Principal repayments of debt and capital lease obligations		(1,263	)		(184,706	)
Sale of common shares and warrants		7,125			53,600
Proceeds from release of restricted cash and release of collateral supporting letters of credit		—			24,101
Proceeds from the exercise of options and warrants		521			1,041
Fees paid for financing transactions		—			(13,472	)
		10,383			160,564
Effect of exchange rate changes on cash and cash equivalents		73			262
Decrease in cash and cash equivalents		(5,995	)		(17,658	)
Cash and cash equivalents, beginning of period		8,507			21,062
Cash and cash equivalents, end of period	$	2,512		$	3,404

The accompanying notes are an integral part of these condensed consolidated financial statements

5

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization of Business and Basis of Presentation

     The accompanying unaudited condensed 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”, “Waste Services (CA)” 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. Our operating strategy is disposal-based whereby we enter geographic markets with attractive growth or positive competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. Our operations are domiciled in the United States and Canada. Our Canadian operations are located in two regions, Eastern and Western Canada and our U.S. operations are located in Florida, Texas and Arizona. As part of our business strategy to expand into the U.S., 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, became 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 transaction, the historical equity balances of Capital were reclassified into the equity of Waste Services.

     These condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany transactions and accounts have been eliminated. All figures are presented in thousands of U.S. dollars, except share and per share data, or except where expressly stated as being in Canadian dollars (“C$”) or in millions. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2004, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2004. Income taxes during these interim periods have been provided for based upon our anticipated annual effective income tax rate. Certain reclassifications have been made to the prior period financial statement amounts to conform to the current presentation. Due to the seasonal nature of our business, operating results for interim periods are not necessarily indicative of the results for full years.

     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, potential liabilities in connection with outstanding litigation and deferred taxes.

     A portion of our operations is domiciled in Canada, for each reporting period we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, the reported results of our 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

6

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

affected and conversely expenses are unfavorably affected. Assets and liabilities of Canadian operations are 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 are 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. 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.

     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 the effect of currently outstanding exchangeable shares of Waste Services (CA) (not held by Waste Services) that are the functional and economic equivalent of our outstanding common shares. Diluted earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock purchase warrants and stock options using the treasury stock method. Due to the net losses for the three and nine months ended September 30, 2005 and 2004, basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti-dilutive. Potentially dilutive securities not included in the diluted loss per share calculation, due to net losses, are as follows (unaudited) (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Options to purchase common shares		70		67		52		915
Warrants to purchase common shares		2,453		2,636		2,261		5,194
Dilutive securities		2,523		2,703		2,313		6,109

     For purposes of computing net income (loss) per common share — basic and diluted, for the three and nine months ended September 30, 2005, the weighted average number of shares of common stock outstanding includes the effect of 6,492,594 and 6,513,857 exchangeable shares of Waste Services (CA), respectively, as if they were shares of our outstanding common stock from July 31, 2004, the date our migration transaction was completed. For the three and nine months ended September 30, 2004, the weighted average number of shares of common stock outstanding includes the effect of 8,935,995 and 9,131,068 exchangeable shares of Waste Services (CA), respectively, as if they were shares of our common stock outstanding from July 31, 2004.

2. New Accounting Pronouncements

     In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), Share-Based Payment, (“SFAS 123(R)”), which amends SFAS No. 123, Accounting for Stock-Based Compensation (“SFAS 123”), and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS 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 123. Generally, the approach to determining fair value under the original pronouncement has not changed. However, there are revisions to the accounting guidelines, such as accounting for forfeitures, that will change our accounting for stock-based awards in the future.

7

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     The original effective date of SFAS 123(R) was the first interim or annual reporting period beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission amended Rule 4-01(a) of Regulation S-X in order to delay the effective date of SFAS 123(R). The amendment requires that public entities apply the provisions of SFAS 123(R) beginning with the first annual reporting period of the registrant’s first fiscal year beginning on or after June 15, 2005. As a result of the amendment, SFAS 123(R) will be effective for us at the beginning of the first quarter of 2006. We expect to adopt the provisions of SFAS 123(R) using the prospective method, which results in the recognition of compensation expense for all awards granted after the effective date, and using the SFAS 123 note disclosure for all previously granted share-based awards that remain unvested at the effective date. We have not yet determined the financial impact that the new standard is expected to have on our financial statements.

3. Property and Equipment

     Property and equipment consist of the following:

	September 30,		December 31,
	2005		2004
	(Unaudited)
Land and buildings	$	27,799	$	18,872
Vehicles		101,363		101,215
Containers, compactors, landfill and recycling equipment		69,804		61,550
Furniture, fixtures, other office equipment and leasehold improvements		10,365		8,562
Total property and equipment		209,331		190,199
Less: accumulated depreciation		74,648		59,732
Property and equipment, net	$	134,683	$	130,467

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

Landfill Sites

     Landfill sites consist of the following:

	September 30,		December 31,
	2005		2004
	(Unaudited)
Landfill sites	$	201,793	$	188,616
Less: accumulated depletion		29,334		19,000
Landfill sites, net	$	172,459	$	169,616

     The changes in landfill sites for the nine months ended September 30, 2005 and 2004 are as follows (unaudited):

8

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2005			2004
Balance, beginning of period	$	169,616		$	117,541
Landfill purchase price		3,000			41,982
Landfill site construction		7,833			11,555
Additional asset retirement obligations		1,270			534
Depletion		(9,564	)		(5,166	)
Divestitures		—			(154	)
Capitalized interest		—			178
Purchase price allocation adjustments for prior acquisitions		—			5,905
Effect of foreign exchange rate fluctuations		304			377
Change in accounting principle		—			(2,474	)
Balance, end of period	$	172,459		$	170,278

     By the terms of the purchase agreement entered into with the sellers of Cactus Waste Systems, LLC, additional purchase consideration is payable to the sellers based upon the Cactus Landfill achieving certain average tons per day thresholds in any quarter. Pursuant to this provision, we have incurred $3.0 million of additional landfill purchase price, of which $1.5 million was paid in the third quarter of 2005. Up to an additional $15.0 million in purchase consideration may be payable to the sellers.

Accrued Closure, Post-Closure and Other Obligations

     Accrued closure, post-closure and other obligations consist of the following:

	September 30,		December 31,
	2005		2004
	(Unaudited)
Accrued closure and post-closure obligations	$	8,413	$	6,390
Deferred income tax liability		11,360		3,984
Other obligations		495		600
	$	20,268	$	10,974

     Accrued closure and post-closure obligations include 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 for the nine months ended September 30, 2005 and 2004 are as follows (unaudited):

9

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	2005		2004
Balance, beginning of period	$	6,390	$	7,737
Acquisitions		—		52
Accretion		540		342
Additional asset retirement obligations		1,270		534
Divestitures		—		(146	)
Purchase price allocation adjustments for prior acquisitions		—		(92	)
Effect of foreign exchange rate fluctuations		213		132
Change in accounting principle		—		(2,831	)
Balance, end of period	$	8,413	$	5,728

5. Goodwill and Other Intangible Assets

     Goodwill and other intangible assets consist of the following:

	September 30,			December 31,
	2005			2004
	(Unaudited)
Other intangible assets subject to amortization:
Customer relationships and contracts	$	35,441		$	50,495
Non-competition agreements and other		3,152			4,126
		38,593			54,621
Less: accumulated amortization:
Customer relationships and contracts		(10,747	)		(5,913	)
Non-compete agreements and other		(1,757	)		(1,782	)
Other intangible assets subject to amortization, net		26,089			46,926
Goodwill		308,647			280,830
Goodwill and other intangible assets, net	$	334,736		$	327,756

     The changes in goodwill for the nine months ended September 30, 2005 and 2004 are as follows (unaudited):

	2005						2004
	U.S.		Canada		Total		Total
Balance, beginning of period	$	195,575	$	85,255	$	280,830	$	144,544
Acquisitions		9		162		171		143,075
Divestitures		—		—		—		(8,599	)
Effect of foreign exchange rate fluctuations		—		2,898		2,898		2,190
Purchase price allocation adjustments for prior acquisitions		24,748		—		24,748		(6,108	)
Balance, end of period	$	220,332	$	88,315	$	308,647	$	275,102

     During the first six months of 2005, we revised our estimate of the fair value of customer relationships, non-compete arrangements and certain vehicles and containers acquired as part of the acquisition of Florida Recycling Services, Inc. (“Florida Recycling”).

10

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     Pursuant to the agreement entered into in September, 2004 with the sellers of Florida Recycling by which we adjusted the purchase price paid for the shares of Florida Recycling, in the third quarter of 2005, we received title to the Sanford Recycling and Transfer Station in Sanford, Florida. The facility is valued at the cost incurred to acquire the property and construct the facility to its percentage of completion at such date. The gain recognized on the settlement approximated $4.1 million.

6. Other Assets

     Other assets consist of the following:

	September 30,		December 31,
	2005		2004
	(Unaudited)
Debt and redeemable Preferred Stock issue costs, net of accumulated amortization of $4,119 as of September 30, 2005 and $2,271 as of December 31, 2004	$	9,132	$	10,833
Acquisition deposits and deferred acquisition costs		13,707		12,576
Deferred income taxes		—		1,202
Other assets		722		830
	$	23,561	$	25,441

7. Debt

     Debt consists of the following:

	September 30,			December 31,
	2005			2004
	(Unaudited)
Senior Secured Credit Facilities:
Revolving credit facility due April 2009, floating interest rate at 8.31% as of September 30, 2005 and 6.71% as of December 31, 2004	$	19,000		$	15,000
Term loan facility due April 2011, floating interest rate at 8.26% as of September 30, 2005 and 6.78% as of December 31, 2004		98,500			99,250
Senior Subordinated Notes due 2014, fixed interest rate at 9.5% as of September 30, 2005 and December 31, 2004		160,000			160,000
Other subordinated promissory notes payable due 2017, fixed interest rate at 6.67% as of September 30, 2005 and December 31, 2004		3,007			3,130
		280,507			277,380
Less: current portion		(1,174	)		(1,166	)
Long-term portion	$	279,333		$	276,214

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 term loan requires quarterly installments of $0.25 million due each March 31, June 30,

11

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

September 30 and December 31 through March 31, 2010 and quarterly installments of $23.5 million due thereafter through March 31, 2011. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are collateralized by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Additionally, 65% of the common shares of Waste Services’ first tier foreign subsidiaries are pledged to secure obligations under the Credit Facilities.

     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.

     On October 4, 2004, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment included changes to certain of the financial and other covenants contained in the Credit Facilities and increased the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until we met certain target leverage ratios, as defined, availability under the amended revolving credit facility was reduced to $50.0 million, up to $12.5 million of which was available to our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of September 30, 2005, $11.9 million of capacity was available under the revolving credit facility. Currently, 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 required us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On March 28, 2005, we issued 2,640,845 shares of common stock and 264,085 warrants to Mr. Michael G. DeGroote for net proceeds of approximately $6.8 million. The warrants to purchase 264,085 shares of common stock are at an exercise price of $2.84 per share and are exercisable until March 28, 2010.

     On October 26, 2005, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amended Credit Facilities, among other items, decreases the current interest rate on our term loan by 125 basis points to 325 basis points over Eurodollar loans. In addition, the amendment restores access under the revolving credit facility to $60.0 million, up to $15.0 million of which is available to our Canadian operations.

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 Senior Subordinated Notes mature on April 15, 2014. Interest on the Senior Subordinated Notes is payable semi annually on October 15 and April 15. The Senior 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 Senior 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 Senior 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 of our Credit Facilities.

     The Senior 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

12

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

unsecured, senior subordinated basis by all of our existing and future domestic restricted subsidiaries. Our Canadian operations are not guarantors under the Subordinated Notes.

     The Senior 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.

     In April 2004, we also entered into a Registration Rights Agreement with the initial purchaser of the Senior Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Senior Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we offer to exchange the Senior 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; and (iii) commence and consummate an exchange offer within 30 days of the registration statement being declared effective.

     Prior to the third quarter of 2005, we had not complied with (i), (ii) and (iii) of the requirements of the Registration Rights Agreement described previously, and accordingly, we were required to pay liquidated damages to the holders of the notes. These liquidated damages were expensed as incurred and were payable, in cash, at the same time as interest payments due under the Subordinated Notes. During the third quarter, the registration statement was filed and declared effective, and the exchange offer was commenced and consummated. As of September 28, 2005 we were no longer required to pay liquidated damages.

8. Cumulative Mandatorily Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of cumulative mandatorily 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 at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 shares of common stock 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 and 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 shares as of any date of determination. The liquidation preference approximated $83.6 million as of September 30, 2005.

     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. 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 Senior 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

13

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

the Senior Subordinated Notes (April 15, 2014); (ii) the date on which our Credit Facilities and the Senior 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 the 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 date 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 the 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.

9. Commitments and Contingencies

Environmental Risks

     We are subject to liability for environmental damage that our 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 our 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 condensed consolidated financial statements, we estimate the range of reasonably possible losses related to environmental matters to be insignificant and we are not aware of any such environmental liabilities that would be material to our operations or financial condition.

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, state, provincial 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.

14

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

     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 the third quarter of 2005, we settled the action commenced against us by Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.) in the Court of Queen’s Bench of Alberta in February of 2003 in which Waste Management alleged that we had breached a landfill tipping agreement with them and sought damages of approximately C$1.3 million. By the terms of the settlement, Waste Management’s claim and our counterclaim were dismissed without costs.

     Our President and Chief Operating Officer, Charles A. Wilcox, is a defendant in a breach of contract suit filed by Waste Management, Inc. which is more fully described in our annual report for the year ended December 31, 2004 as filed on Form 10-K. Mr. Wilcox is subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management. In April 2005, Waste Management filed an amended petition and application for injunction naming us as a defendant to the suit, claiming, among other things, tortious interference with contractual relations and seeking compensatory damages from us. We intend to vigorously defend this claim both with respect to liability and damages.

     In March 2005, we filed a Complaint against Waste Management, Inc. in the U.S. 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 could be liable for treble damages, or in excess of $75.0 million.

     No provision has been made in these financial statements for the above matters. We do not currently 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.

Surety Bonds, Letters of Credit and Insurance

     Municipal solid waste service contracts and 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 September 30, 2005 and December 31, 2004, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $73.4 million and $67.7 million, respectively, to collateralize our obligations.

     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. Adjustments, if any, to our reserves will be reflected in the period in which the adjustments are known. As of September 30, 2005 and included in the $73.4 million of bonds and letters of credit previously discussed, we have posted a letter of credit with our U.S. insurer of approximately $8.4 million to secure the liability for losses within the deductible limit.

15

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Other Contractual Arrangements

     During December 2003, we issued 600,000 common shares as part of the purchase price of an acquisition. In connection with this acquisition, 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 the loss on sale of shares below $4.75 per share.

     From time to time and in the ordinary course of business we may enter into certain acquisitions whereby we will also enter into a royalty agreement. These agreements are usually based upon the amount of waste deposited at our landfill sites or in certain instances our transfer stations. Royalties are expensed as incurred and recognized as a cost of operations.

10. Authorized Capital Stock and Migration Transaction

Total Shares

     We are authorized to issue a total of 505,000,000 shares of capital stock consisting of:

• 500,000,000 shares of common stock, par value 0.01 per share; and

• 5,000,000 shares of preferred stock, par value 0.01 per share, of which 100,000 shares have been designated as Series A Preferred Stock and one share has been designated as Special Voting Preferred Stock.

Preferred Stock

     The Series A Preferred Stock with a par value of $0.01 per share and a liquidation preference of $1,000.00 per share, have the powers, preferences and other special rights and the qualifications, limitations and restrictions that are set forth in the Certificate of Designations of Series A Preferred Stock as amended. 55,000 shares of Series A Preferred Stock are currently outstanding. The Special Voting Preferred Stock have the rights, preference, and limitations set forth in the Certificate of Designation of Special Voting Preferred Stock. One share of Special Voting Preferred Stock is presently outstanding.

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, 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, now Waste Services (CA), became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under Section 182 of the Business Corporations Act (Ontario) and consisted primarily of: (i) the exchange of 87,657,035 common shares of Capital for 87,657,035 shares of common stock of Waste Services; and (ii) the conversion of the remaining 9,229,676 common shares of Capital held by non-U.S. residents who elected to receive exchangeable shares into 9,229,676 exchangeable shares of Waste Services (CA). 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 Waste Services (CA) are the economic and functional equivalent of our common stock. Holders of exchangeable shares: (i) will receive the same dividends as holders of shares of common

16

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

stock; and (ii) will be entitled to vote on the same matters as holders of shares of our common stock. Such voting is accomplished through the one share of Special Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, which will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are included as additional paid-in capital.

     Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), 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.

11. Employee and Director Stock Option Plans and Option Grants

     We account for our stock-based plans 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 unaudited pro forma information, determined as if we had accounted for our employee stock options under the fair value recognition provisions of SFAS 123, is illustrated in the following table (unaudited):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net loss attributable to Common Shareholders as reported	$	(9,411	)	$	(5,719	)	$	(38,192	)	$	(35,068	)
Stock-based employee compensation expense pursuant to SFAS No. 123		(2,381	)		(2,853	)		(7,217	)		(7,561	)
Pro forma net loss attributable to Common Shareholders	$	(11,792	)	$	(8,572	)	$	(45,409	)	$	(42,629	)
Basic and diluted loss per share:
As reported	$	(0.10	)	$	(0.06	)	$	(0.39	)	$	(0.41	)
Pro forma	$	(0.12	)	$	(0.09	)	$	(0.46	)	$	(0.50	)

     The fair value of options granted is estimated using the Black-Scholes option pricing model using the following assumptions:

	Three Months Ended September 30,			Nine Months Ended September 30,
	2005		2004	2005	2004
Annual dividend yield		—	—	—	—
Weighted-average expected life (years)		N/A	3.0 years	2.8 years	3.0 years
Risk-free interest rate		N/A	2.57% to 4.62%	2.57% to 4.62%	2.57% to 4.62%
Volatility		N/A	71%	74%		53%

     Our 1997 and 1999 Stock Option Plans are described in our consolidated financial statements for the year ended December 31, 2004 filed on Form 10-K. Our options are denominated in U.S. and Canadian dollars. During the nine months ended September 30, 2005, 815,000 options to purchase shares of our common stock were granted at exercise prices equal to the fair value on the date of grant. As of September 30, 2005, the weighted average exercise price for options outstanding was $4.47 and C$6.37 for U.S. and Canadian dollar denominated options, respectively. During the nine months ended September 30, 2005, 15,000 options were exercised and 656,964 options expired or

17

WASTE SERVICES, INC.

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

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

were forfeited. As of September 30, 2005, the aggregate number of options outstanding entitled holders to purchase 12,796,000 shares of common stock at prices ranging from $2.70 to $6.25 and C$4.05 to C$18.05 for U.S. and Canadian dollar denominated options, respectively.

12. Comprehensive Gain (Loss)

     Comprehensive gain (loss) includes the effects of foreign currency translation. Comprehensive gain (loss) for the three and nine months ended September 30, 2005 and 2004 are as follows (unaudited):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2005			2004			2005			2004
Net loss	$	(9,411	)	$	(5,719	)	$	(38,192	)	$	(35,068	)
Foreign currency translation adjustment		10,314			9,761			6,703			4,346
Comprehensive gain (loss)	$	903		$	4,042		$	(31,489	)	$	(30,722	)

13. 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 (“SFAS 131”). In making this determination, we considered our organizational 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 and 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. For further information regarding our segments see Note 14.

14. Condensed Consolidating Financial Statements

     Waste Services is the primary obligor under the Subordinated Notes, however Waste Services has no independent assets or operations, and the guarantees of our 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. Presented below are our Condensed Consolidating Balance Sheets as of September 30, 2005 (unaudited) and December 31, 2004 and the related Unaudited Condensed Consolidating Statements of Operations for the three and nine months ended September 30, 2005 and 2004 and the Unaudited Condensed Consolidating Statements of Cash Flows for the nine months ended September 30, 2005 and 2004 of our guarantor subsidiaries, our U.S. operating and reporting segment, (“Guarantors”) and the subsidiaries which are not guarantors, our Canadian operating and reporting segment (“Non-guarantors”):

18

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	September 30, 2005
	Guarantors		Non-Guarantors		Eliminations			Consolidated
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	766	$	1,746	$	—		$	2,512
Accounts receivable, net		25,965		28,209		—			54,174
Prepaid expenses and other current assets		4,519		3,700		—			8,219
Total current assets		31,250		33,655		—			64,905
Property and equipment, net		68,417		66,266		—			134,683
Landfill sites, net		161,394		11,065		—			172,459
Goodwill and other intangible assets, net		244,871		89,865		—			334,736
Other assets		10,243		13,318		—			23,561
Investment in subsidiaries		202,660		—		(202,660	)		—
Due from affiliate		—		21,032		(21,032	)		—
Total assets	$	718,835	$	235,201	$	(223,692	)	$	730,344
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,522	$	12,544	$	—		$	25,066
Accrued expenses and other current liabilities		37,625		10,508		—			48,133
Short-term financing and current portion of long-term debt		1,174		—		—			1,174
Total current liabilities		51,321		23,052		—			74,373
Long-term debt		279,333		—		—			279,333
Accrued closure, post-closure and other obligations		10,779		9,489		—			20,268
Due to affiliate		21,032		—		(21,032	)		—
Cumulative Mandatorily Redeemable Preferred Stock, net		79,599		—		—			79,599
Total liabilities		442,064		32,541		(21,032	)		453,573
Shareholders’ equity:
Common stock of Waste Services, Inc		935		—		—			935
Other equity		275,836		202,660		(202,660	)		275,836
Total shareholders’ equity		276,771		202,660		(202,660	)		276,771
Total liabilities and shareholders’ equity	$	718,835	$	235,201	$	(223,692	)	$	730,344

19

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	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
Goodwill and other intangible assets, net		240,578		87,178		—			327,756
Other assets		12,105		13,336		—			25,441
Investment in subsidiaries		192,115		—		(192,115	)		—
Due from affiliate		—		8,869		(8,869	)		—
Total assets	$	702,485	$	219,082	$	(200,984	)	$	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
Due to affiliate		8,869		—		(8,869	)		—
Cumulative Mandatorily Redeemable Preferred Stock, net		64,971		—		—			64,971
Total liabilities		403,709		26,967		(8,869	)		421,807
Shareholders’ equity:
Common stock of Waste Services, Inc.		904		—		—			904
Other equity		297,872		192,115		(192,115	)		297,872
Total shareholders’ equity		298,776		192,115		(192,115	)		298,776
Total liabilities and shareholders’ equity	$	702,485	$	219,082	$	(200,984	)	$	720,583

20

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Three Months Ended September 30, 2005
	Guarantors			Non-Guarantors		Eliminations			Consolidated
	(Unaudited)
Revenue	$	55,985		$	45,766	$	—		$	101,751
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		43,501			30,006		—			73,507
Selling, general and administrative expense		8,038			5,575		—			13,613
Settlement with sellers of Florida Recycling		(4,120	)		—		—			(4,120	)
Depreciation, depletion and amortization		6,101			5,299		—			11,400
Foreign exchange gain and other		35			809		—			844
Income from operations		2,430			4,077		—			6,507
Equity earnings in investees		(2,152	)		—		2,152			—
Interest expense		7,238			36		—			7,274
Cumulative Mandatorily Redeemable Preferred Stock dividends and amortization of issue costs		5,392			—		—			5,392
Loss before income taxes		(8,048	)		4,041		(2,152	)		(6,159	)
Income taxes		1,363			1,889		—			3,252
Loss before cumulative effect of change in accounting principle		(9,411	)		2,152		(2,152	)		(9,411	)
Cumulative effect of change in accounting principle, net of provision for income taxes of nil		—			—		—			—
Net loss	$	(9,411	)	$	2,152	$	(2,152	)	$	(9,411	)

21

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Three Months Ended September 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Revenue	$	55,926		$	38,689		$	—		$	94,615
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		43,683			25,779			—			69,462
Selling, general and administrative expense		12,577			5,818			—			18,395
Settlement with sellers of Florida Recycling		(8,635	)		—						(8,635	)
Depreciation, depletion and amortization		5,314			4,398			—			9,712
Foreign exchange gain and other		—			21			—			21
Income from operations		2,987			2,673			—			5,660
Equity loss of investees		74			8,413			(8,487	)		—
Interest expense		3,936			1,745			—			5,681
Changes in fair value of warrants		—			(532	)		—			(532	)
Cumulative Mandatorily Redeemable Preferred Stock dividends and amortization of issue costs		4,535			—			—			4,535
Loss before income taxes		(5,558	)		(6,953	)		8,487			(4,024	)
Income taxes		1,278			417			—			1,695
Loss before cumulative effect of change in accounting principle		(6,836	)		(7,370	)		8,487			(5,719	)
Cumulative effect of change in accounting principle, net of provision for income taxes of nil		—			—			—			—
Net loss	$	(6,836	)	$	(7,370	)	$	8,487		$	(5,719	)

22

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Nine Months Ended September 30, 2005
	Guarantors			Non-Guarantors		Eliminations			Consolidated
	(Unaudited)
Revenue	$	163,076		$	123,044	$	—		$	286,120
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		125,570			82,520		—			208,090
Selling, general and administrative expense		25,859			17,126		—			42,985
Settlement with sellers of Florida Recycling		(4,120	)		—		—			(4,120	)
Depreciation, depletion and amortization		17,302			14,246		—			31,548
Foreign exchange gain and other		(18	)		625		—			607
Income (loss) from operations		(1,517	)		8,527		—			7,010
Equity earnings in investees		(3,844	)		—		3,844			—
Interest expense		21,082			190		—			21,272
Cumulative Mandatorily Redeemable Preferred Stock dividends and amortization of issue costs		15,348			—		—			15,348
Loss before income taxes		(34,103	)		8,337		(3,844	)		(29,610	)
Income taxes		4,089			4,493		—			8,582
Loss before cumulative effect of change in accounting principle		(38,192	)		3,844		(3,844	)		(38,192	)
Cumulative effect of change in accounting principle, net of provision for income taxes of nil		—			—		—			—
Net loss	$	(38,192	)	$	3,844	$	(3,844	)	$	(38,192	)

23

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Nine Months Ended September 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Revenue	$	114,157		$	103,401		$	—		$	217,558
Operating and other expenses:
Cost of operations (exclusive of depreciation, depletion and amortization)		85,765			69,987			—			155,752
Selling, general and administrative expense		24,899			16,165			—			41,064
Settlement with sellers of Florida Recycling		(8,635	)		—			—			(8,635	)
Depreciation, depletion and amortization		11,473			11,520			—			22,993
Foreign exchange gain and other		—			(352	)		—			(352	)
Income from operations		655			6,081			—			6,736
Equity loss of investees		74			41,804			(41,878	)		—
Interest expense (income)		25,110			(847	)		—			24,263
Changes in fair value of warrants		—			(111	)		—			(111	)
Cumulative Mandatorily Redeemable Preferred Stock dividends and amortization of issue costs		12,844			—			—			12,844
Loss before income taxes		(37,373	)		(34,765	)		41,878			(30,260	)
Income taxes		2,854			2,179			—			5,033
Loss before cumulative effect of change in accounting principle		(40,227	)		(36,944	)		41,878			(35,293	)
Cumulative effect of change in accounting principle, net of provision for income taxes $132		—			225			—			225
Net loss	$	(40,227	)	$	(36,719	)	$	41,878		$	(35,068	)

24

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Nine months ended September 30, 2005
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Cash flows from operating activities:	$	(7,726	)	$	24,327		$	—		$	16,601
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(6,112	)		(483	)		—			(6,595	)
Capital expenditures		(19,034	)		(8,365	)		—			(27,399	)
Proceeds from business divestitures		1,382			353			—			1,735
Deposits for business acquisitions and other		(58	)		(735	)		—			(793	)
Intercompany		—			(15,318	)		15,318			—
		(23,822	)		(24,548	)		15,318			(33,052	)
Cash flows from financing activities:
Proceeds from issuance of debt		4,000			—			—			4,000
Principal repayments of debt and capital lease obligations		(873	)		(390	)		—			(1,263	)
Sale of common shares and warrants		7,125			—			—			7,125
Proceeds from the exercise of options and warrants		521			—			—			521
Intercompany		15,318			—			(15,318	)		—
		26,091			(390	)		(15,318	)		10,383
Effect of exchange rate changes on cash and cash equivalents		—			73			—			73
Decrease in cash and cash equivalents		(5,457	)		(538	)		—			(5,995	)
Cash and cash equivalents, beginning of period		6,223			2,284			—			8,507
Cash and cash equivalents, end of period	$	766		$	1,746		$	—		$	2,512

25

WASTE SERVICES, INC.
(Successor of Capital Environmental Resource Inc. now known as Waste Services (CA) Inc.)
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

	Nine months ended September 30, 2004
	Guarantors			Non-Guarantors			Eliminations			Consolidated
	(Unaudited)
Cash flows from operating activities:	$	(4,915	)	$	15,607		$	—		$	10,692
Cash flows from investing activities:
Cash used in business combinations and significant asset acquisitions, net of cash acquired		(163,195	)		(1,124	)		—			(164,319	)
Capital expenditures		(22,294	)		(11,299	)		—			(33,593	)
Proceeds from business divestitures		9,939			—			—			9,939
Deposits for business acquisitions and other		1,440			(2,643	)		—			(1,203	)
Intercompany		—			(70,232	)		70,232			—
		(174,110	)		(85,298	)		70,232			(189,176	)
Cash flows from financing activities:
Proceeds from issuance of debt		280,000			—			—			280,000
Principal repayments of debt and capital lease obligations		(183,741	)		(965	)		—			(184,706	)
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			9,668			—			24,101
Proceeds from the exercise of options and warrants		—			1,041			—			1,041
Fees paid for financing transactions		(10,549	)		(2,923	)		—			(13,472	)
Intercompany		70,232			—			(70,232	)		—
		170,375			60,421			(70,232	)		160,564
Effect of exchange rate changes on cash and cash equivalents		—			262			—			262
Decrease in cash and cash equivalents		(8,650	)		(9,008	)		—			(17,658	)
Cash and cash equivalents, beginning of period		8,843			12,219			—			21,062
Cash and cash equivalents, end of period	$	193		$	3,211		$	—		$	3,404

26

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein as well as our annual report on Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission, including the factors set forth in the section titled “Disclosure Regarding Forward-Looking Statements” and factors affecting future results as well as our other filings made with the Securities and Exchange Commission.

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. Our operating strategy is disposal-based, whereby we enter geographic markets with attractive growth or positive competitive characteristics by acquiring and developing landfill disposal capacity, then acquiring and developing waste collection and transfer operations. Our operations are primarily domiciled in the United States and Canada. Our Canadian operations are located in two regions, Eastern and Western Canada and our U.S. operations are located in Florida, Texas and Arizona.

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 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. Certain of 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 through subscription arrangements with individual homeowners. 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 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 or per yard 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.

27

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. Additionally, we may manage exposure to commodity price fluctuations through the use of commodity brokers who will accept materials and arrange for delivery to third party 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 where possible, using transfer stations to link collection operations with our landfills to increase internalization of our waste volume. Internalization lowers our disposal costs by allowing us to eliminate tipping fees otherwise paid to an independent landfill or transfer station operator. We believe that internalization provides us with a competitive advantage by allowing us to be a low cost provider in our markets. We expect that our internalization will gradually increase over time as we develop our network of transfer stations and maximize delivery of collection volumes to our 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 that the age and condition of our vehicle 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 that this enables us to minimize our repair and maintenance costs, safety and insurance costs and employee turnover related costs.

     Selling, general and administrative expenses include managerial costs, information systems, sales force, administrative expenses and professional fees.

     Depreciation, depletion and amortization 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 from such intangibles.

     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 to current 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.

Results of Operations for the Three and Nine Months Ended September 30, 2005 and 2004

     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, the reported results of our operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as

28

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 are 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 are 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.

     Our consolidated results of operations for the three and nine months ended September 30, 2005 and 2004 by geographic segment are as follows (in thousands):

	Three Months Ended September 30, 2005
	U.S.					Canada					Total
Revenue	$	55,985		100.0	%	$	45,766		100.0	%	$	101,751		100.0	%
Operating expenses:
Cost of operations		43,501		77.7	%		30,006		65.6	%		73,507		72.2	%
Selling, general and administrative expense		8,038		14.4	%		5,643		12.3	%		13,681		13.4	%
Stock-based compensation expense		—		0.0	%		(68	)	-0.1	%		(68	)	-0.1	%
Settlement with sellers of Florida Recycling		(4,120	)	-7.4	%		—		0.0	%		(4,120	)	-4.0	%
Depreciation, depletion and amortization		6,101		10.9	%		5,299		11.6	%		11,400		11.2	%
Foreign exchange loss and other		35		0.1	%		809		1.7	%		844		0.9	%
Income from operations	$	2,430		4.3	%	$	4,077		8.9	%	$	6,507		6.4	%

	Three Months Ended September 30, 2004
	U.S.					Canada				Total
Revenue	$	55,926		100.0	%	$	38,689	100.0	%	$	94,615		100.0	%
Operating expenses:
Cost of operations		43,683		78.1	%		25,779	66.6	%		69,462		73.4	%
Selling, general and administrative expense		12,577		22.5	%		5,432	14.0	%		18,009		19.0	%
Stock-based compensation expense		—		0.0	%		386	1.0	%		386		0.4	%
Settlement with sellers of Florida Recycling		(8,635	)	-15.4	%		—	0.0	%		(8,635	)	-9.1	%
Depreciation, depletion and amortization		5,314		9.5	%		4,398	11.5	%		9,712		10.3	%
Foreign exchange loss and other		—		0.0	%		21	0.1	%		21		0.0	%
Income from operations	$	2,987		5.3	%	$	2,673	6.9	%	$	5,660		6.0	%

29

	Nine Months Ended September 30, 2005
	U.S.					Canada				Total
Revenue	$	163,076		100.0	%	$	123,044	100.0	%	$	286,120		100.0	%
Operating expenses:
Cost of operations		125,570		77.0	%		82,520	67.1	%		208,090		72.7	%
Selling, general and administrative expense		25,859		15.9	%		16,047	13.0	%		41,906		14.6	%
Stock-based compensation expense		—		0.0	%		1,079	0.9	%		1,079		0.4	%
Settlement with sellers of Florida Recycling		(4,120	)	-2.5	%		—	0.0	%		(4,120	)	-1.4	%
Depreciation, depletion and amortization		17,302		10.6	%		14,246	11.6	%		31,548		11.0	%
Foreign exchange loss and other		(18	)	0.0	%		625	0.6	%		607		0.2	%
Income (loss) from operations	$	(1,517	)	-1.0	%	$	8,527	6.8	%	$	7,010		2.5	%

		Nine Months Ended September 30, 2004
		U.S.					Canada					Total
Revenue		$	114,157		100.0	%	$	103,401		100.0	%	$	217,558		100.0	%
Operating expenses:
	Cost of operations		85,765		75.1	%		69,987		67.7	%		155,752		71.6	%
	Selling, general and administrative expense		24,873		21.8	%		16,839		16.3	%		41,712		19.2	%
	Stock-based compensation expense (benefit)		26		0.0	%		(674	)	-0.7	%		(648	)	-0.3	%
	Settlement with sellers of Florida Recycling		(8,635	)	-7.6	%		—		0.0	%		(8,635	)	-4.0	%
	Depreciation, depletion and amortization		11,473		10.1	%		11,520		11.1	%		22,993		10.6	%
	Foreign exchange loss and other		—		0.0	%		(352	)	-0.3	%		(352	)	-0.2	%
Income from operations		$	655		0.6	%	$	6,081		5.9	%	$	6,736		3.1	%

Revenue

     A summary of our revenue is as follows (in thousands):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2005					2004					2005					2004
Collection	$	83,841		75.6	%	$	81,135		80.4	%	$	238,977		77.2	%	$	182,622		78.9	%
Landfill disposal		13,081		11.8			7,453		7.4			31,211		10.1			16,481		7.1
Transfer stations		10,345		9.3			8,200		8.1			28,791		9.3			19,375		8.4
Material recovery facilities		2,563		2.3			3,007		3.0			8,200		2.6			7,820		3.4
Other specialized services		1,055		1.0			1,137		1.1			2,876		0.8			5,378		2.2
		110,885		100.0	%		100,932		100.0	%		310,055		100.0	%		231,676		100.0	%
Intercompany elimination		(9,134	)				(6,317	)				(23,935	)				(14,118	)
	$	101,751				$	94,615				$	286,120				$	217,558

     Revenue was $101.8 million and $94.6 million for the three months ended September 30, 2005 and 2004, respectively, an increase of $7.2 million or 7.6%. Revenue for our U.S. operations is flat for the three months ended September 30, 2005, with a slight increase of $0.1 million or 0.2%, driven by price increases of $3.3 million, of which $1.4 million relates to fuel surcharges, increased volume at our landfill sites of $1.8 million and other organic

30

volume growth of $2.0 million. These increases were offset by divestitures of previously acquired operations of $1.2 million and other decreases of $5.8 million, primarily relating to hurricane related volumes in Florida during 2004. Revenue for our Canadian operations increased $7.1 million or 18.3%, due to price increases of $2.4 million, of which $1.1 million related to fuel surcharges, increased volume at our landfill sites primarily of $1.2 million, and the favorable effects of foreign exchange movements of $3.6 million, offset by a slight volume decrease of $0.1 million.

     Revenue was $286.1 million and $217.6 million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $68.5 million or 31.5%. The increase in revenue for the nine months ended September 30, 2005 for our U.S. operations of $48.9 million or 42.8% was driven by price increases of $7.3 million, of which $2.8 million related to fuel surcharges, increased volume at our landfill sites of $5.5 million, other organic volume growth of $6.9 million, acquisitions of $33.0 million and other increases of approximately $2.0 million, offset by other decreases of approximately $5.8 million, primarily related to 2004 hurricane related volumes in Florida during 2004. The increase in revenue for our Canadian operations of $19.6 million or 19.0% was due to price increases of $5.7 million, of which $2.5 million related to fuel surcharges, increased volume at our landfill sites, primarily due to special waste projects, of $3.5 million, other organic volume growth of $1.0 million and the favorable effects of foreign exchange movements of $9.5 million, offset by decreases of $0.1 million.

     At the end of the third quarter, we ceased collection services on certain domestic lower margin residential contracts with annualized revenue of approximately $20.0 million.

Cost of Operations

     Cost of operations was $73.5 million and $69.5 million for the three months ended September 30, 2005 and 2004, respectively, an increase of $4.0 million or 5.8%. As a percentage of revenue, cost of operations was 72.2% and 73.4% for the three months ended September 30, 2005 and 2004, respectively.

     The decrease in cost of operations for our U.S. operations of $0.2 million or 0.5% was primarily driven by decreased subcontracted labor costs offset by increased fuel and insurance costs. The decline in subcontracted labor costs was due to hurricane related work in 2004 that was not recurring in 2005. As a percentage of revenue, cost of operations in our domestic operations was 77.7% and 78.1% for the three months ended September 30, 2005 and 2004, respectively. This increase in our domestic gross margin is primarily due to low margin hurricane related work in the third quarter of 2004 not recurring in 2005, offset by higher fuel and operating support costs. As compared to Canada, our lower margins in the United States are primarily driven by a higher mix of lower margin collection revenue in the United States. We expect that our domestic operating margins will improve as we increase internal and external volumes at our landfills and recently opened transfer station facility, implement operational improvements and cease collection services on certain domestic lower margin residential contracts.

     The increase in cost of operations for our Canadian operations of $4.2 million or 16.3% was due to increased fuel costs of $0.6 million or 2.3%, increased equipment and building repair and maintenance costs of $0.5 million or 2.0%, increased insurance costs of $0.2 million or 0.8%, increased labor, disposal and other costs of $0.6 million or 2.3% and the unfavorable effects of foreign exchange movements of $2.3 million or 8.9%. Cost of operations as a percentage of revenue improved to 65.6% from 66.6% for the three months ended September 30, 2005 as compared to the same period in the previous year. This increase in gross margin is due to an increased contribution from higher margin landfill business, primarily due to special waste projects, offset by increased fuel costs and other operating costs.

     Cost of operations was $208.1 million and $155.8 million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $52.3 million or 33.6%. As a percentage of revenue, cost of operations was 72.7% and 71.6% for the nine months ended September 30, 2005 and 2004, respectively.

     The increase in cost of operations for our U.S. operations of $39.8 million or 46.4% was primarily driven by a full period of cost related to acquisitions made during the second quarter of 2004, the opening of our domestic

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transfer stations and landfill operations, as well as increased fuel costs. As a percentage of revenue, cost of operations in our domestic operations was 77.0% and 75.1% for the nine months ended September 30, 2005 and 2004, respectively. This decline in our domestic gross margin is primarily due to the acquisition of lower margin collection operations. As compared to Canada, our lower margins in the United States are primarily driven by a higher mix of lower-margin residential collection revenue in the United States.

     The increase in cost of operations for our Canadian operations of $12.5 million or 17.9% was due to increased fuel costs of $1.5 million or 2.1%, increased disposal volumes and sub-contractor costs of $1.4 million or 2.0%, increased equipment and building repair and maintenance costs of $1.2 million or 1.8%, increased labor, insurance and other costs of $2.0 million or 2.9% and the unfavorable effects of foreign exchange movements of $6.4 million or 9.1%. Cost of operations as a percentage of revenue improved to 67.1% from 67.7% for the nine months ended September 30, 2005 as compared to the same period in the previous year. The increase in gross margin is due to an increased percentage of higher margin landfill business, offset by increased fuel costs.

Selling, general and administrative expense

     Selling, general and administrative expenses, excluding stock-based compensation expense, were $13.7 million and $18.0 million for the three months ended September 30, 2005 and 2004, respectively, a decrease of $4.3 million or 23.9%. As a percentage of revenue, selling, general and administrative expense was 13.4% and 19.0% for the three months ended September 30, 2005 and 2004, respectively. The overall decrease in selling, general and administrative expense is primarily due to severance related charges of $2.7 million, professional fees related to our banking amendments, migration transaction and legal actions of $1.0 million, lower provisions for doubtful accounts of $0.8 million and reductions in other overhead costs of $0.2 million. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $0.4 million. We expect to continue to review our overhead in order to optimize cost saving opportunities.

     Selling, general and administrative expenses, excluding stock-based compensation expense, was $41.9 million and $41.7 million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $0.2 million or 0.5%. As a percentage of revenue, selling, general and administrative expense was 14.6% and 19.2% for the nine months ended September 30, 2005 and 2004, respectively. The increase in selling, general and administrative expense is primarily due to a full period of costs related to acquisitions made in the second quarter of 2004 coupled with increased legal and professional costs of $0.2 million. Offsetting these increases are decreases in severance related costs of $2.3 million and lower provisions for doubtful accounts of $0.8 million. Selling, general and administrative expense at our Canadian operations declined primarily due to cost saving initiatives coupled with overhead costs being shifted to the domestic corporate office. The unfavorable effects of foreign exchange movements increased selling, general and administrative expenses by $1.2 million.

Stock-based compensation expense (benefit)

     Stock-based compensation expense (benefit) relates to options and warrants issued to certain employees and consultants for which variable accounting applies. Stock-based compensation expense (benefit), which is partially based on changes in our stock price, was $(0.1) million and $0.4 million for the three months ended September 30, 2005 and 2004, respectively, and was $1.1 million and $(0.6) million for the nine months ended September 30, 2005 and 2004, respectively.

Settlement with sellers of Florida Recycling

     In April 2004, we completed the acquisition of the issued and outstanding shares of Florida Recycling Services, Inc. (“Florida Recycling”). Shortly after its acquisition, the performance of the operations of Florida Recycling was below our expectations and we engaged an independent third party to conduct a review of Florida Recycling’s business. Based on the results of this review, the 2003 financial statements of Florida Recycling, provided by the sellers, contained misstatements and could not be relied upon. During the first half of 2005 these financial

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statements were re-audited by our independent auditors. 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, are recorded as income in accordance with SFAS No. 141. In the third quarter of 2005 and as part of the September 2004 settlement, we received title to the Sanford Recycling and Transfer Station in Sanford, Florida. The facility is valued at the cost incurred to acquire the property and construct the facility to its percentage of completion at such date. The gain recognized on the settlement approximated $4.1 million.

Depreciation, depletion and amortization

     Depreciation, depletion and amortization was $11.4 million and $9.7 million for the three months ended September 30, 2005 and 2004, respectively, an increase of $1.7 million or 17.5%. As a percentage of revenue, depreciation, depletion and amortization was 11.2% and 10.3% for the three months ended September 30, 2005 and 2004, respectively. The overall increase in depreciation, depletion and amortization for the three months ended September 30, 2005, as compared to the same period in the prior year, is primarily due to increases in landfill disposal volumes coupled with overall higher average depletion rates per ton. Landfill depletion rates ranged from $1.07 to $8.10 and $1.14 to $7.73 per ton for our operating U.S. landfills during the three months ended September 30, 2005 and 2004, respectively. Landfill depletion rates ranged from C$2.57 to C$17.80 and C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the three months ended September 30, 2005 and 2004, respectively. The change in depletion rates both domestically and in Canada is primarily due to changes in engineering estimates.

     Depreciation, depletion and amortization was $31.5 million and $23.0 million for the nine months ended September 30, 2005 and 2004, respectively, an increase of $8.5 million or 37.0%. As a percentage of revenue, depreciation, depletion and amortization remained relatively flat at 11.0% and 10.6% for the nine months ended September 30, 2005 and 2004, respectively. The overall increase in depreciation, depletion and amortization for the nine months ended September 30, 2005, as compared to the same period in the prior year, is primarily attributable to increases in landfill disposal volumes due to the opening of our landfill and transfer station sites and the inclusion for a full period of our 2004 acquisitions, coupled with overall higher average depletion rates per ton. Landfill depletion rates ranged from $1.07 to $8.10 and $1.14 to $7.73 per ton for our operating U.S. landfills during the nine months ended September 30, 2005 and 2004, respectively. The change in the depletion rate per ton was primarily due to the opening of our Arizona and Texas landfills as well as changes in engineering estimates. Landfill depletion rates ranged from C$2.57 to C$17.80 and C$3.31 to C$15.88 per tonne for our operating Canadian landfills during the nine months ended September 30, 2005 and 2004, respectively. The change in depletion per tonne was primarily due to changes in engineering estimates.

Foreign exchange loss and other

     Foreign exchange loss and other was $0.8 million and nil for the three months ended September 30, 2005 and 2004, respectively, and $0.6 million and $(0.4) million for the nine months ended September 30, 2005 and 2004, respectively. The foreign exchange loss and other relates to the re-measuring of U.S. dollar denominated monetary accounts into Canadian dollars. Other items primarily relate to gains on sales of equipment.

Interest expense, preferred stock dividends and amortization of issue costs

     The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the three and nine months ended September 30, 2005 and 2004 are as follows:

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	Three Months Ended September 30,				Nine Months Ended September 30,
	2005		2004		2005		2004
Preferred Stock dividends and amortization of issue costs	$	5,392	$	4,535	$	15,348	$	12,844
Credit facility and Senior Subordinated Note interest		6,566		5,192		19,083		13,955
Amortization of debt issue costs		351		314		1,056		9,930
Capitalized interest		—		—		—		(178	)
Other interest expense		357		175		1,133		556
	$	12,666	$	10,216	$	36,620	$	37,107

     Interest expense was $12.7 million and $10.2 million for the three months ended September 30, 2005 and 2004, respectively, an increase of $2.5 million or 24.5%. Interest expense was $36.6 million and $37.1 million for the nine months ended September 30, 2005 and 2004, respectively, a decrease of $0.5 million or 1.3%. The increase in cash interest expense for the three and nine month periods in 2005 is due to higher amended rates on our Credit Facilities coupled with penalty interest on our senior subordinated notes. Amortization of debt issue costs decreased for the year to date period due to the full amortization in 2004 of the bridge financing fees of $9.9 million offset by amortization on our Credit Facilities and our senior subordinated notes. The increase in the Preferred Stock dividends is primarily due to compounding and accretion. The weighted average interest rate on secured credit facility borrowings was 8.2% and 5.0% for the three months ended September 30, 2005 and 2004, respectively and 7.7% and 7.2% for the nine months ended September 30, 2005 and 2004, respectively. As is discussed further in Liquidity and Capital Resources, through the third quarter of 2005 we incurred liquidated damages due to the delay of the registration of our Senior Subordinated Notes. During the third quarter, the registration statement was filed and declared effective and the exchange offer was commenced and consummated. The liquidated damages were $0.5 million and $1.1 million for the three and nine month ended September 30, 2005 and were $0.1 million and $0.2 million for the three and nine month ended September 30, 2004. As of September 28, 2005, we were no longer required to pay liquidated damages.

Income tax provision

     The provision for income taxes was $3.3 million and $1.7 million for the three months ended September 30, 2005 and 2004, respectively, and $8.6 million and $5.0 million for the nine months ended September 30, 2005 and 2004, respectively. We recognize a provision for income taxes despite our pre-tax loss due to the tax effect of the non-deductible dividends on our cumulative mandatorily redeemable preferred stock and provisions for foreign taxes. Additionally, due to the lack of operating history relative to our U.S. operations, we have provided a valuation allowance for our net operating loss carry-forwards generated in the U.S.

Liquidity and Capital Resources

     Our principal capital requirements are to fund capital expenditures, and to fund business debt service and asset acquisitions. Significant sources of liquidity are cash on hand, working capital, borrowings from our Credit Facilities, and proceeds from debt and/or equity issuances. The following discussion should be read in conjunction with the Unaudited Condensed Consolidated Financial Statements and Notes thereto included elsewhere herein.

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

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$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 collateralized by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian restricted subsidiaries guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Additionally, 65% of the common shares of our first tier foreign subsidiaries are pledged to secure obligations under 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 included changes to certain of the financial and other covenants contained in the Credit Facilities and increased the current interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Eurodollar loans. Until we met certain target leverage ratios, as defined, availability under the amended revolving credit facility was reduced to $50.0 million, up to $12.5 million of which was available to our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.5 million to our lenders. As of September 30, 2005, $11.9 million of capacity was available under the revolving credit facility. Currently, 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 required us to receive an equity investment of at least $7.5 million prior to March 28, 2005. On March 28, 2005, we issued 2,640,845 shares of common stock and 264,085 warrants to Mr. Michael G. DeGroote for net proceeds of approximately $6.8 million. The warrants to purchase 264,085 shares of common stock are at an exercise price of $2.84 per share and are exercisable until March 28, 2010.

     On October 26, 2005, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amended Credit Facilities, among other items, decreases the current interest rate on our term loan by 125 basis points to 325 basis points over Eurodollar loans. In addition, the amendment restores access under the revolving credit facility to $60.0 million, up $15.0 million of which is available to our Canadian operations.

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

		Maximum Consolidated
	Maximum Consolidated	Senior	Minimum Consolidated
Fiscal Quarter	Leverage Ratio	Secured Leverage Ratio	Interest Coverage Ratio
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
FQ1 2006	5.25:1.00	2.25:1.00	2.00:1.00
FQ2 2006	5.25:1.00	2.25:1.00	2.00:1.00
FQ3 2006	5.00:1.00	2.25:1.00	2.00:1.00

Senior Subordinated Notes

     On April 30, 2004, we completed a private offering of 9 1/2% Senior Subordinated Notes due 2014 for gross proceeds of $160.0 million. The Senior Subordinated Notes mature on April 15, 2014. Interest on the Senior Subordinated Notes is payable semiannually on October 15 and April 15.

     In April 2004, we also entered into a Registration Rights Agreement with the initial purchaser of the Senior Subordinated Notes in which we agreed to (i) file a registration statement with respect to the Senior Subordinated Notes within 120 days of the closing date of the issuance of the notes (August 28, 2004), pursuant to which we offer to exchange the Senior 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; and (iii) commence and consummate an exchange offer within 30 days of the registration statement being declared effective.

     Prior to the third quarter of 2005, we had not complied with (i), (ii) and (iii) of the requirements of the Registration Rights Agreement described previously, and accordingly, we were required to pay liquidated damages to the holders of the notes. These liquidated damages were expensed as incurred and were payable, in cash, at the same time as interest payments due under the Subordinated Notes. During the third quarter, the registration

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statement was filed and, declared effective, and the exchange offer was commenced and consummated. As of September 28, 2005 we were no longer required to pay liquidated damages.

Equity Placement

     As previously discussed, during the first quarter of 2005, we issued 2,640,845 shares of our common stock and 264,085 common stock purchase warrants for net proceeds of approximately $6.8 million. In the second quarter of 2005, a warrant holder exercised 146,250 warrants for proceeds of approximately $0.5 million.

Cumulative Mandatory Redeemable Preferred Stock

     In May 2003, we issued 55,000 shares of cumulative mandatorily 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 at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 shares of our common stock 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, and 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 shares as of any date of determination. The liquidation preference approximated $83.6 million as of September 30, 2005.

Migration Transaction

     As part of our business strategy to expand into the United States, we entered into a migration transaction that became effective 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. After the migration transaction, Capital, now Waste Services (CA), became our subsidiary.

     The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and consisted primarily of: (i) the exchange of 87,657,035 common shares of Capital for 87,657,035 shares our of common stock and (ii) 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 Waste Services (CA). 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.

Surety Bonds, Letters of Credit and Insurance

     Municipal solid waste services contracts and 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 September 30, 2005, we had provided customers and various regulatory authorities with such bonds and letters of credit amounting to approximately $73.4 million to collateralize our obligations. The majority of these obligations are renewed on an annual basis.

     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

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history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. Adjustments, if any, to our reserves will be reflected in the period in which the adjustments are known. In the second quarter of 2005, we received an insurance premium refund of approximately $0.4 million which served to reduce our cost of operations. As of September 30, 2005 and included in the $73.4 million of bonds and letters of credit discussed previously, we have posted a letter of credit with our U.S. insurer of approximately $8.4 million to secure the liability for losses within the deductible limit.

Cash Flows

     The following discussion relates to the major components of the changes in cash flows for the nine months ended September 30, 2005 and 2004.

Cash Flows from Operating Activities

     Cash provided by operating activities was $16.6 million and $10.7 million for the nine months ended September 30, 2005 and 2004, respectively. The increase in cash provided by operating activities is primarily due to cash generated from our operations and improvements in working capital.

Cash Flows used in Investing Activities

     Cash used in investing activities was $33.1 million and $189.2 million for the nine months ended September 30, 2005 and 2004, respectively. The decrease in cash used in investing activities is primarily due to the various business acquisitions we completed during the first half of 2004 coupled with lower capital expenditures as compared to the same period in the prior year, offset by minor asset acquisitions and contingent purchase price payments in 2005. We intend to finance capital expenditures and business acquisitions through operating cash flow, borrowings under our Credit Facilities, subject to the limitations on our investing activities set out in the Credit Facilities Agreement, and the issuance of additional debt and/or equity securities. We expect our capital expenditures to range from $37.0 to $38.0 million for all of 2005. Cash used in deposits for business acquisitions primarily relates to ongoing negotiations with Lucien Rémillard, one of our directors, concerning the potential acquisition of the solid waste collection and disposal business assets owned by a company controlled by Mr. Rémillard in Quebec, Canada. In connection with these negotiations, we have reimbursed Mr. Rémillard’s company for services provided by third parties in connection with preparing audited financial statements of the businesses to be acquired and with ongoing efforts to expand the capacity of a solid waste landfill.

Cash Flows from Financing Activities

     Cash provided by financing activities was $10.4 million and $160.6 million for the nine months ended September 30, 2005 and 2004, respectively. The decrease in cash flows from financing activities is due to our debt offering and private placement financing transaction that were completed during the second quarter of 2004, offset by the proceeds from the sale of our common stock and common stock purchase warrants during 2005. In the first nine months of 2004, we received $24.1 million from the release of restricted cash for the acquisition of certain Allied assets and the release of collateral for letters of credit.

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 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 Environnement Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environnement 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

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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 our annual financial statements for the year ended December 31, 2004, as filed on Form 10-K.

Landfill Sites

     The following table summarizes the changes in our operating landfill capacity for the nine months ended September 30, 2005 (in thousands of cubic yards):

	Balance,		Changes in						Balance,
	Beginning		Engineering			Airspace			End
	of Period		Estimates			Consumed			of Period
United States
Permitted capacity		268,883		(414	)		(1,320	)		267,149
Probable expansion capacity		18,300		—			—			18,300
Total available airspace		287,183		(414	)		(1,320	)		285,449
Number of landfill sites		4								4
Canada
Permitted capacity		11,642		1,115			(662	)		12,095
Total available airspace		11,642		1,115			(662	)		12,095
Number of landfill sites		3								3
Total
Permitted capacity		280,525		701			(1,982	)		279,244
Probable expansion capacity		18,300		—			—			18,300
Total available airspace		298,825		701			(1,982	)		297,544
Number of landfill sites		7								7

Trend Information

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.

New Accounting Pronouncements

     Refer to the Notes to the Unaudited Condensed Consolidated Financial Statements for a discussion of new accounting pronouncements.

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Disclosure Regarding Forward-Looking Statements and Factors Affecting Future Results

     This Form 10-Q 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 revenues, capital expenditures, future cash flows and financing requirements, and those of companies or assets 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 and our ability to finance acquisitions with cash on hand, debt or equity offerings;

• 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;

• our ability to negotiate renewals of existing service agreements at favorable rates;

• our ability to enhance profitability of certain aspects of our operations in markets where we are not internalized through either divestiture or asset swaps;

• 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 our annual report on Form 10-K, as filed with the Securities and Exchange Commission for the year ended December 31, 2004, included under Item 1. of the annual report, “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 Form

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10-Q and our 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.

Item 3. 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, the reported results of our 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 are 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 are 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 the three and nine months ended September 30, 2005, 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 $0.2 million and $0.3 million, respectively.

     As of September 30, 2005, 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 rate or Eurodollar loans as defined. A 25 basis point increase in base interest rates would increase cash interest expense by approximately $0.1 million and $0.2 million for the three and nine months ended September 30, 2005, respectively.

Item 4. Controls and Procedures

Disclosure 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 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 Controls Over Financial Reporting

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

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

40

     Information regarding our legal proceedings may be found under the “Legal Proceedings” section of Note 9, “Commitments and Contingencies” to our Unaudited Condensed Consolidated Financial Statements contained herein.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     None

Item 3. Defaults upon Senior Securities

     None

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

     None

Item 5. Other Information

     Mr. Sutherland-Yoest has been employed as our Chairman and Chief Executive Officer since September 7, 2001. On October 26, 2005, we amended Mr. Sutherland-Yoest’s employment agreement to reflect terms and conditions substantially similar to those in agreements with our other senior executives. The employment agreement is for an indefinite term. Mr. Sutherland-Yoest is entitled to a base salary of $500,000, plus an annual bonus of up to 100% of his base salary, subject to satisfaction of annual performance objectives. His employment agreement provides for the following termination benefits: upon Mr. Sutherland-Yoest’s death or if we terminate Mr. Sutherland-Yoest’s employment by reason of his total disability, or upon termination of the agreement by us without cause or by Mr. Sutherland-Yoest for good reason, Mr. Sutherland-Yoest (or his beneficiaries) is 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 in monthly installments over thirty-six months and all of his options then outstanding vest and continue to be exercisable for the balance of their term. If Mr. Sutherland-Yoest’s employment is terminated by us without cause, or by him for good reason and a change of control has occurred within the two years preceding or the one year after the effective date of his termination, or his employment is terminated by him and a change of control has occurred within the six months preceding the effective date of his termination, then Mr. Sutherland-Yoest is entitled to receive a lump sum payment of three times both his base salary and his average bonus. If Mr. Sutherland-Yoest terminates his employment voluntarily or if his employment is terminated for cause, Mr. Sutherland-Yeost is entitled to receive any accrued but unpaid base salary, expenses and unearned benefits to the effective date of termination. Mr. Sutherland-Yoest’s employment agreement also provides for other customary benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Sutherland-Yoest from competing against us during the term of his employment and for a specified period following his termination.

Item 6. Exhibits

Exhibit 10.1 —	Employment Agreement dated as of October 26, 2005 between us and David Sutherland-Yoest
Exhibit 31.1 —	Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer
Exhibit 31.2 —	Section 302 Certification of Mark A. Pytosh, Chief Financial Officer
Exhibit 32.1 —	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, Waste Services, Inc. has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: October  28, 2005

By:	/s/ DAVID SUTHERLAND-YOEST
	David Sutherland-Yoest
	Chairman of the Board, Chief Executive Officer, and Director

By:	/s/ MARK A. PYTOSH
	Mark A. Pytosh
	Executive Vice President and Chief Financial Officer

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EXHIBIT INDEX

Exhibit No		Description
Exhibit 10.1	—	Employment Agreement dated as of October 26, 2005 between us and David Sutherland-Yoest
Exhibit 31.1	—	Section 302 Certification of David Sutherland-Yoest, Chief Executive Officer
Exhibit 31.2	—	Section 302 Certification of Mark A. Pytosh, Chief Financial Officer
Exhibit 32.1	—	Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

EX-10.1

EXHIBIT 10.1

WASTE SERVICES, INC.

EXECUTIVE EMPLOYMENT AGREEMENT

This Employment Agreement (the “Agreement”) is dated as of October 26, 2005 by and between WASTE SERVICES, INC., a Delaware corporation (the “Company”) and DAVID SUTHERLAND-YOEST (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 October 26, 2005 (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 Chairman and Chief Executive Officer of the Company and shall report to the Board of Directors of the Company. In such capacity, Executive shall have the responsibilities, duties and authorities provided for in the Company’s Bylaws, as amended from time to time, and as may be assigned to Executive from time to time by the Board of Directors of the Company 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 $500,000 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. 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

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	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 or Canada Revenue Agency 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 or the Canada Revenue Agency of the

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	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 15 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

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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.

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(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

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	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

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(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:

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(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.

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(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” or in the event that Executive terminates his employment without Good Reason within the six-month period following a “Change of Control”, Executive shall be

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	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, or if (i) Executive terminates his employment with the Company without Good Reason and (ii) a “Change of Control” has occurred within the six-month period preceding 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(e) or 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.

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(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

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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

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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

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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

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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.

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(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

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(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,

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	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.

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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.

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(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]

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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:	/s/ Wallace A. Timmeny
Name:	Wallace A. Timmeny
Title:	Chairman of the Compensation Committee of the Board of Directors

Date: October 26, 2005

EXECUTIVE:

By:	/s/ David Sutherland-Yoest
		David Sutherland-Yoest
		29 Colonial Crescent Oakville, Ontario L6J 4K8

Date: October 26, 2005

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EX-31.1

Exhibit 31.1

CERTIFICATION

I, David Sutherland-Yoest, certify that:

     1. I have reviewed this quarterly report on Form 10-Q 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 15d-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 most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

     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 the 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.

	By:	/s/ DAVID SUTHERLAND-YOEST
		David Sutherland-Yoest
Date: October 28, 2005		Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Mark A. Pytosh, certify that:

     1. I have reviewed this quarterly report on Form 10-Q 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 15d-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 most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

     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 the 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.

	By:	/s/ MARK A. PYTOSH
		Mark A. Pytosh
Date: October 28, 2005		Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

     In connection with the quarterly report of Waste Services, Inc. (“the Company”) on Form 10-Q for the period ended September 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, David Sutherland-Yoest, Chief Executive Officer, and Mark A. Pytosh, Chief Financial Officer, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of our knowledge:

     (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By:	/s/ DAVID SUTHERLAND-YOEST
	David Sutherland-Yoest
	Chief Executive Officer

	By:	/s/ MARK A. PYTOSH
		Mark A. Pytosh
Date: October 28, 2005		Chief Financial Officer