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04-03-07 Item 27
South Miami Ad- America ft 1 1 CITY OF SOUTH MIAMI ° INCORPORATED fit o Rio OFFICE OF THE CITY MANAGER INTER-OFFICE MEMORANDUM 2001 To: The Honorable Mayor Feliu and Members of the City Commission Via: Yvonne S. McKinley, City Manager From: W. Ajibola Balogun, REM, CIFEA, Assistant City Manager Date: April 3, 2007 Agenda Item No.: Subject: Request to approve non - exclusive franchise agreement with Waste Services of Florida (WSI) for commercial solid waste collection services. Resolution: AN ORDINANCE OF THE MAYOR AND CITY COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA, RELATING TO FRANCHISES; AUTHORIZING THE EXECUTION OF A NONEXCLUSIVE FRANCHISE AGREEMENT WITH WASTE SERVICES OF FLORIDA, INC. (WSI) FOR AN INITIAL ONE YEAR PERIOD, RENEWABLE FOR SUCCESSIVE ONE YEAR PERIODS, UPON APPLICATION OF THE FRANCHISEE, AND APPROVAL OF THE APPLICATION BY THE CITY COMMISSION. PUBLIC HEARING; PROVIDING FOR A $5,000 ANNUAL FEE TO THE CITY; AND A 20'% PAYMENT OF THE FRANCHISEES' GROSS RECEIPTS TO THE CITY; PROVIDING FOR STANDARDS OF INSURANCE; PROTOCOL FOR PROVIDING SERVICES; PROVIDING FOR SEVERABILITY, ORDINANCES IN CONFLICT, AND AN EFFECTIVE DATE Request: To authorize the execution of a non - exclusive franchise agreement with Waste Services of Florida (WSI) for commercial solid waste collection services for an initial one year period, renewable for successive one year period upon application of the franchisee, and approval of the application by the City Commission. Reason /Need: The U.S. Department of Justice recently issued final approval to Waste Services of Florida, Inc. (WSI) to acquire Allied Waste's South Florida operations, which consists of a collection company (Browning- Ferris Industries, known as "BFI "); a transfer station that is permitted to process 800 tons per day; and a materials recovery facility providing services in Miami -Dade County. As you know, BFI is one of our commercial solid waste collection franchisee. Since Section 11 -7 of our City Code precludes the transfer of the franchise from BFI to WSI, WSI has filed an application to become a commercial solid waste collection franchisee with the City of South Miami. In accordance with Section 11 -9, of the City's Code of Ordinances WSI has submitted the required items in order to evaluate the franchise request: (1) The applicant's name, address, and telephone number (primary office information and telephone number of all offices within the county which are supervisory to the office serving the city); (2) Evidence of insurance as required under section 11 -11, of the city's code of ordinances; (3) A complete list of the vehicles which will be used to service accounts in the city (year, make, model number and license plate number of each vehicle); (4) Evidence that proposed franchisee has obtained all required county, state, and federal licenses or permits required to engage in the business of garbage or solid waste collection; (5) Evidence that the proposed franchisee has made arrangements to dispose all garbage and solid waste collected by it outside the city limits, in a facility designed and licensed for the disposal of garbage and solid waste and which meets all requirements of law; (6) The name, address, business telephone and home telephone of one or more responsible managerial employees who may be contacted by the appropriate city officials in the event of an emergency; (7) If the applicant is other than a natural person, sufficient information to identify the shareholders, partners or other persons holding any legal or beneficial interest in the applicant in the excess of 10 percent; and (8) A performance bond in the amount of $100,000.00 with good and sufficient sureties conditioned upon the compliance of the terms of chapter 11, of the city's code of ordinances, and such form as the city attorney may require. Cost: N/A Funding Source: N/A Backup Documentation: ❑ Proposed Ordinance Proposed Non - Exclusive Franchise Agreement ❑ Required application items per Section 11 -9 of the City's Code of Ordinance ❑ Florida Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services, Inc. Ll Delaware Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services,, Inc. 0 Letter from County Manager, George M. Burgess, regarding Assignment of Department of Solid Waste Management Contracts to Waste Services, Inc. from BFI /Allied Waste. Page 2 of 2 I ORDINANCE NO.: 2 3 AN ORDINANCE OF THE MAYOR AND CITY COMMISSION OF 4 THE CITY OF SOUTH MIAMI, FLORIDA, RELATING TO 5 FRANCHISES; AUTHORIZING THE EXECUTION OF A 6 NONEXCLUSIVE FRANCHISE AGREEMENT WITH WASTE 7 SERVICES OF FLORIDA, INC. (WSI) FOR AN INITIAL ONE YEAR 8 PERIOD, RENEWABLE FOR SUCCESSIVE ONE YEAR PERIODS, 9 UPON APPLICATION OF THE FRANCHISEE, AND APPROVAL OF 10 THE APPLICATION BY THE CITY COMMISSION. PUBLIC HEARING; 11 PROVIDING FOR A $5,000 ANNUAL FEE TO THE CITY; AND A 20% 12 PAYMENT OF THE FRANCHISEES' GROSS RECEIPTS TO THE CITY; 13 PROVIDING FOR STANDARDS OF INSURANCE; PROTOCOL FOR 14 PROVIDING SERVICES; PROVIDING FOR SEVERABILITY, 15 ORDINANCES IN CONFLICT, AND AN EFFECTIVE DATE. 16 17 WHEREAS, the Mayor and City Commission of the City of South Miami previously 18 granted a solid waste collection franchise to BFI; and, 19 20 WHEREAS, BFI, a current South Miami solid waste collection franchisee shall cease to 21 exist, as the U.S. Department of Justice has provided its final approval to Waste Services of 22 Florida, Inc. (WSI) to acquire Allied Waste's South Florida operations, consisting of a collection 23 company (Browning - Ferris Industries, known as BFI), a transfer station that is permitted to 24 process 800 tons per day, and a materials recovery facility providing service in Miami -Dade 25 County Florida; and, 26 27 WHEREAS, the city code, at section 11 -7 precludes the transfer of the franchise from 28 BFI to WSI; and 29 30 WHEREAS, based upon the foregoing, WSI has filed an application to become a solid 31 waste collection franchisee with the City of South Miami; and, 32 33 WHEREAS, pursuant to section 11 -9, of the city's code of ordinances WSI has provided 34 the items required by the city commission in order to evaluate the franchise request, which 35 application requires: 36 37 (1) the applicant's name, address, and telephone number (primary office information 38 and telephone number of all offices within the county which are supervisory to the office serving 39 the city); 40 (2) evidence of insurance as required under section 11 -11, of the city's code of 41 ordinances; 42 (3) a complete list of the vehicles which will be used to service accounts in the city 43 (year, make, model number and license plate number of each vehicle); 44 (4) Evidence that proposed franchisee has obtained all required county, state, and 45 federal licenses or permits required to engage in the business of garbage or solid waste 46 collection; Additions shown by underlining and deletions shown by ever-striking. 1 (5) evidence that the proposed franchisee has made arrangements to dispose all 2 garbage and solid waste collected by it outside the city limits, in a facility designed and licensed 3 for the disposal of garbage and solid waste and which meets all requirements of law; 4 (6) the name, address, business telephone and home telephone of one or more 5 responsible managerial employees who may be contacted by the appropriate city officials in the 6 event of an emergency; 7 (7) . if the applicant is other than a natural person, sufficient information to identify the 8 shareholders, partners or other persons holding any legal or beneficial interest in the applicant in 9 the excess of 10 percent; and 10 (8) a performance bond in the amount of $100,000.00 with good and sufficient 11 sureties conditioned upon the compliance of the terms of chapter 11, of the city's code of 12 ordinances, and such form as the city attorney may require. 13 14 WHEREAS, the Mayor and City Commission desire to approve the franchise request 15 subject to acceptance of the terms and conditions set forth in the attached franchise agreement, 16 having determined that such consent is consistent with federal, state, and municipal law and in 17 the best interest of the city. 18 19 NOW, THEREFORE, BE IT ORDAINED BY THE MAYOR AND CITY 20 COMMISSION OF THE CITY OF SOUTH MIAMI, FLORIDA: 21 22 Section 1. The above whereas clauses are incorporated by reference. 23 24 Section 2. The city approves the request for a solid waste collection franchise for 25 Waste Services of Florida, Inc. (WSI), as provided for in the attached exhibit 1, which is 26 incorporated by reference. 27 28 Section 3. WSI, pursuant to section 11 -10 of the city's code of ordinances shall pay 29 to the city an annual fee of $5,000. In addition, the franchisee shall pay to the city a franchise fee 30 of 20 percent of the franchisees' gross receipts from accounts within the city serviced by the 31 franchisee. This fee shall be in addition to any occupational license taxes levied by the city 32 upon the franchisee's business activities. 33 34 Section 4. The city manager of the City of South Miami is authorized to enter into, 35 execute the attached contract and deliver in the name and on behalf of the City of South Miami a 36 certificate, along with such other documents as may be necessary evidencing the franchise 37 without further act of this governing body. This franchise shall be for a one year period, with a 38 possible renewal, annually, upon approval of the City Commission of the application. 39 40 Section 5. If any section, clause, sentence, or phrase of this ordinance is for any 41 reason held invalid or unconstitutional by a court of competent jurisdiction, the holding shall not 42 affect the validity of the remaining portions of this ordinance. 43 44 Section 6. All ordinances or parts of ordinances in conflict with the provisions of this 45 ordinance are repealed. 46 Additions shown by underlining and deletions shown by ever - g. l 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Section 7. This ordinance shall take effect immediately upon enactment. PASSED AND ADOPTED this , day of , 2007. ATTEST: CITY CLERK READ AND APPROVED AS TO FORM Luis R. Figueredo, Nagin Gallop & Figueredo, P.A., Office of City Attorney APPROVED: MAYOR 1St Reading — 2nd Reading — COMMISSION VOTE: Mayor Feliu: Vice Mayor Wiscombe: Commissioner Birts: Commissioner Palmer: Commissioner Beckman: Additions shown by underlining and deletions shown by evefstfiking. NON - EXCLUSIVE FRANCHISE AGREEMENT THIS NON - EXCLUSIVE FRANCHISE AGREEMENT (this "agreement ") dated as of the day of , 2007 is made and entered into by and between the CITY OF SOUTH MIAMI, FLORIDA, a Florida municipal corporation ( "City "), and WASTE SERVICES OF FLORIDA, INC. a Delaware Corporation ( "W.S.L" or the "franchisee "),. WITNESSETH: WHEREAS, pursuant to chapter 11, of the City's code of ordinances, a non exclusive franchise for waste collection services may be issued upon application to the City Commission; and, WHEREAS, W.S.I., providing mutli- regional integrated solid waste services desires to provide collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers within Miami -Dade County; and, WHEREAS, the U.S. Department. of Justice has provided its final approval to a transaction wherein WSI will be acquiring Allied Waste's South Florida operations, consisting of a collection company (Browning - Ferris Industries, known as BFI, a transfer station that is permitted to process 800 tons per day, and a materials recovery facility providing service in Miami -Dade County, Florida; and, WHEREAS, BFI currently :holds a solid waste collection franchise with the City of South Miami, however, pursuant to chapter 11, a franchise may not be transferred to a third party; and, WHEREAS, a new franchise may issue, upon application and approval of the City Commission; and, WHEREAS, WSI has filed an application with the City manager requesting to provide solid waste services within the City of South Miami; and, WHEREAS, WSI and the City each desire to enter into this non exclusive franchise agreement, in conformance with the requirements of chapter 11 of the City's code of ordinances. NOW THEREFORE, in consideration of $10.00 and other good and valuable consideration, the receipt and legal sufficiency of which the parties acknowledge, and in further consideration of mutual covenants contained in this agreement, the parties agree as follows: Section 1. Whereas clauses. The above Whereas clauses (i.e., recitals) are incorporated and made a part of this agreement. Section 2. Definitions. For the purposes of this agreement, the following terms will have the meanings defined below: Biomedical /biohazardous waste shall mean any solid waste or liquid waste which may present a threat of infection to humans. 'The term includes but is not limited to, non - liquid human tissue and body parts; laboratory and veterinary waste which contains human disease Page 1 of 15 causing agents; used disposable sharps, human blood, human blood products and body fluids; and other materials which in the opinion of the department of health and rehabilitation services represent a significant risk of infections to persons outside the generating facility. Biological waste shall mean solid waste that causes or has the capability of causing disease or infection and includes, but is not limited to biohazards waste, diseased or dead animals, and other waste capable of transmitting pathogens to humans or animals. City shall mean the City of South Miami, Miami -Dade County, Florida, and its successors and assigns. Commercial establishments shall mean any business establishment of any nature or kind whatsoever other than a residential unit. Commercial solid waste shall mean every waste accumulation, including but not limited to, dust, paper, paper cartons, cardboard cartons, excelsior, rags, garbage, plastics, metal containers, bulky waste and other waste which is usually attendant to the operations of commercial businesses or multifamily residences. Construction and demolition debris shall mean and include all waste requiring collection and disposal, including but not limited to materials which are recyclable, from any construction, demolition, or renovation site located within the City. Consumer or Customer shall mean any person, firm, or public or private entity served by the franchisee within the municipal boundaries of the City. Director shall mean the director of public works. Franchise shall mean the rights granted to franchisee under this agreement. Franchisee shall mean the franchisee named above in this agreement and its successors and assigns. Garbage shall mean every refuse accumulation of animal, fruit, vegetable, or organic matter that attends the preparation, use, cooking and detailing in, or storage of, meats, fish, fowl, fruit, or vegetables, and decay, putrefaction, and the generation of noxious or offensive gases or odors, or which, during or after decay, may serve as breeding or feeding material for flies or other germ carrying insects. Garbage can or container shall mean a container made of galvanized metal, durable plastic or other suitable material of a capacity not less than ten (10) gallons and not to exceed thirty gallons approved for use by the City manager or his/her designee. Gross receipt shall mean the entire amount of fees billed by a franchisee, exclusive of state sales taxes provided by law from any person within the City for garbage, hazardous, industrial, biomedical, biological, or solid waste construction and demolition, debris, trash, litter refuse, and/or rubbish collection, removal and disposal. Page 2 of 15 WSI CSM Hazardous waste shall mean solid waste, or a combination of solid wastes, which because of its quantity, concentration, or physical, chemical, or infectious characteristics, may cause, or significantly contribute to an increase in mortality or an increase in serious irreversible or incapacitating reversible illness or may pose a substantial present or potential hazard to human health or the environment when improperly transported, disposed of, stored, treated, or otherwise managed. Industrial waste shall mean any and all debris and waste products generated by manufacturing, food processing (except restaurants), land clearing, any commercial shrubbery or tree cutting, building construction or alteration (except do- it- yourself home projects) and public works type construction projects whether performed by a government unit or by contract. Infectious waste shall mean those wastes which may cause disease or may reasonably be suspected of harboring pathogenic organisms. Included are wastes resulting from the operation of medical clinics, hospitals, and other facilities producing wastes which may consist of, but are not limited to, diseased human and animal parts, contaminated bandages, pathological specimens, hypodermic needles, contaminated clothing and surgical gloves. Loose refuse shall mean any refuse, either garbage or trash stored in and collected from any type of container other than a mechanical container or garbage can. Refuse which is collected from the ground is considered loose refuse. Mechanical container shall mean and include any detachable metal container designed or intended to be mechanically dumped into a loader /packer type of garbage truck used by the franchisee. Performance bond shall mean the form of security approved by the City and furnished by the franchisee as required as a guarantee that the franchisee will execute the work in accordance with the terms of chapter 11, of the City's code of ordinances and will pay all lawful claims. Permit per account fee shall mean the annual charge assessed by the City to nonexclusive franchises for each account with whom they contract for the provision of services. Recyclable materials shall mean those materials which are capable of being recycled and which would otherwise be processed or disposed of as a solid waste. Refuse shall mean both rubbish and garbage or a combination or mixture of rubbish and garbage, including paper, glass, metal and other discarded matter, excluding recyclable materials. Refuse containers shall mean garbage can, garbage container, automated domestic garbage container, domestic trash container and commercial refuse container. Refuse regulations shall herein refer to regulations prescribed by the City together with such administrative rules, regulations and procedures as may be established under or pursuant to chapter 11, of the City's code of ordinances. Page 3 of 15 WSI CSM Solid waste shall mean refuse, yard trash, clean debris, white goods, special waste, refuse or other discarded materials. Special waste shall mean solid wastes that can require special handling and management, including, but not limited to, radioactive materials, asbestos, whole tires, used tires, used oil, lead -acid batteries, mercury lights and biological wastes. Temporary roll- off /container fee shall mean the one time charge paid, per account, to the City for each large container and/or roll -off utilized by franchisees to provide contracted removal and disposal of waste from commercial construction and demolition, renovation and other similar accounts. Section 3. Grant. Franchisee is granted for a period of one year from the date of this agreement, a non - exclusive right, privilege and franchise, to provide solid waste collection services to the City, its inhabitants, businesses, industries. This franchise may be extended by the consent of the City Commission. This grant of authority to franchisee is strictly limited to the provision of solid waste collection services.. No franchise granted by the City shall be deemed the property of the holder thereof. Section 4. Assignment. Pursuant to chapter 11, of the City code, no sale, assignment, or transfer of the rights granted in this agreement shall be allowed. Any transfer shall require a new application for franchise and request for approval by the City commission, as required under 11- 7, of the City code. Thereafter, the City may, by ordinance approve and consent to the new franchisee, which approval shall not be unreasonably withheld or delayed; provided, however, that any sale, assignment or transfer decreed by a court of competent jurisdiction in any receivership or bankruptcy proceedings shall not be governed by the provision of this section. Franchisee may, without obtaining the City's consent, pledge this franchise and, or the facilities as security, provided, however, in the event of a foreclosure of the pledge, the City shall have the right to revoke the franchise under section 16 below. Section 5. Compliance with laws. The franchisee agrees to abide by all the rules and regulations and ordinances which the City has passed or might pass in the future, and further agrees to abide by any established reasonable policy which the City commission or its duly authorized representative has passed, established, or will establish; provided, however, it is not intended that the City shall have the right of altering or breaching the terms of this agreement. Notwithstanding anything to the contrary, the provisions of this section shall only apply to the regulations, rules and laws of the City, whether enacted or adopted by ordinance or otherwise, as shall be not in conflict with or preempted by the rules, regulations, and laws of other State of Florida or federal governmental authorities or agencies governing the transportation or disposal of solid waste. Section 6. Service Standards. All garbage and solid waste collection service provided within the City shall meet the following minimum requirements; (1) All solid waste or garbage collection shall begin no earlier than 7:00 a.m. Collection shall cease no later than 6:00 p.m. In case of an emergency, collection may be Page 4 of 15 WSI CSM permitted at other times provided that the franchisee has received prior verbal approval from the City manager, to be later evidenced by a written memorandum confirming the approval. Should the franchisee not confirm and obtain in writing the approval to operate on an emergency basis it shall be presumed that the franchisee did not obtain such approval. (2) All trash or solid waste collected within the City shall transported to an appropriately licensed dump or transfer or receiving station located outside the City limits. No transfer station or the facility for the temporary storage of garbage or solid waste other than the receptacles at the premises serviced shall be permitted with the City. (3) No vehicle used for the collection of garbage or solid waste shall be permitted to be parked, stopped or stored with in the City except fro the time reasonably required to empty garbage or solid waste containers at the premises being served or to comply with traffic laws. The franchisee shall be responsible for the maintenance of all garbage or trash containers or dumpsters in a clean and sanitary manner. All equipment shall be kept in good repair, appearance and in a sanitary and clean condition at all times. The Franchisee shall have available reserve equipment that can be put into service within two hours of any breakdown. Such reserve equipment shall be of adequate size and capaCity in order for franchisee to perform its contractual duties. A list of the franchisee's equipment shall be given to the City at the time of each annual audit. (4) Equipment is to be painted uniformly with the name of the franchisee, business telephone number of the vehicle in letter not less than two inches high on each side of the vehicle. All vehicles shall be numbered and a record shall be kept of the vehicle to which each number is assigned. No advertising shall be permitted on the vehicles, except of events sponsored by the City. (5) All containers used for the purpose of storing garbage shall be emptied no less often than two times weekly, or more often as the City manager determines that the health and welfare of the public requires additional pick -ups. Pick -ups shall be as evenly spaced as possible. (6) The franchisee shall be responsible for the condition of all containers provided for the storage of garbage or solid waste. All containers used for the storage of garbage or solid waste shall be sanitized and otherwise maintained on a regular basis. (7) Each garbage can, dumpster, or other container for the storage of garbage shall be of such design as to prevent the infestation of the container by insects or vermin. (8) Each franchisee shall be responsible for determining the type of garbage or solid waste generated by its customers and assuring the proper disposal of the garbage or solid waste. By way of example, franchisees servicing medical offices or buildings containing medical . offices shall be responsible for assuring that the used bandages, dressings, needles and the like are disposed in a manner appropriate for such items. Page 5of15 WSI CSM (9) Each franchisee's solid waste collection employee shall wear a uniform shirt bearing the company's name. The franchisee shall furnish to such employee an identifying badge not less than two and a half inches in diameter with numbers and letters at least one inch height, uniform and type. Employees shall be required to wear such badges while on duty. The franchisee shall provide, at its expense, a suitable office located within close proximity to the county where telephone complaints shall be received, recorded and handled during normal working hours of each week and shall provide for prompt handling of emergency complaints along with the special emergency complaints or calls. (10) Each vehicle operator shall, at all times, carry a valid driver's license for the type of vehicle that is being driven. (11) The franchisee shall assure that its employees serve the public in a courteous, helpful and impartial manner. The Franchisee's collection employees will be required to follow the regular walk for pedestrians while on private property. No trespassing by employees will be allowed, nor crossing the property of neighboring premises unless residents or owners of both properties shall have given permission. Care shall be taken to prevent damage to property including, but not limited to garbage cans, carts, racks, trees, shrubs, flowers and other plants. (12) Franchisee shall notify all customers in writing about complaint procedures, rates and regulations. A copy of the procedures and any amendments or updates shall be provided to the City. (13) Except for servicing of durripsters and servicing construction sites, a franchisee that contracts for servicing of any property shall provide garbage collection service and all related services required by the property. (14) The City reserves the power to deny a franchisee's vehicles access to certain streets, alleys and public way inside the City in route to the disposal site where it is in the interest of the general public to do so because of the condition of the streets. A franchisee shall not interrupt the regular schedule or quality of service because of street closures less than eight hours in duration. The City shall notify the franchisee of street closures of longer duration and arrangements for service will be made in a manner satisfactory to the franchisee and the City. Customers shall receive reasonable notification of the schedules provided by the franchisee prior to commencement of service. Notification, material, methods and frequency of delivery shall be approved by the City. Only local truck routes shall be used in transit, unless specifically for the purpose of collection. (15) In case of a storm, the City manager or his/her designee may grant the franchisee a reasonable variance from regular schedules and routes. As soon as practicable after a storm, the franchisee shall advise the City manager and the customer of the estimated time required before regular schedules and routes can be resumed. (16) The performance of any act by the City or franchisee may be delayed or suspended at any time while, but only so long as, either party is hindered in, or prevented from Page 6 of 15 WSI CSM performance by acts of nature, war, rebellion, strikes, lockouts, or any other cause beyond the reasonable control of the affected person. Section 7. Performance bonds. A. Within ten (10) business days after its acceptance of the terms and conditions of this agreement, the franchisee shall file with the City clerk, a bond in the amount of $100,000 having as a surety a company qualified to do business in the State of Florida and reasonably acceptable to the City (the "performance bond "). The performance bond shall secure the full and faithful performance by the franchisee of all requirements, duties and obligations imposed upon the franchisee by the provisions of this agreement. The performance bond shall provide that the surety shall give sixty (60) days prior written notice of any cancellation thereof to the City. The franchisee shall cause the performance bond to be renewed or replaced and in effect at all times throughout the term of this agreement. B. Recovery by the City under a performance bond or under insurance shall not limit the franchisee's indemnification obligations set forth in section 8 of this agreement with respect to its operations, provided that the City shall not be entitled to double recovery. Recovery by the City under either a bond or insurance is in addition to all other rights of the City, whether specified in this agreement or authorized by law, provided that the City shall not be entitled to double recovery. If a performance bond required by this agreement and previously approved by the City is suspended, voided, or cancelled and not replaced, then the occurrence shall be a violation of this agreement, subject to the notice and cure periods and remedies provided in section 15 of this agreement. C. Accidents or damages and relocation. In permitting the franchisee to operate within the City, franchisee understands that the City shall not be liable to the franchisee for any accident, personal injury, property damage or any claim or damage that may occur in the course of construction, operation or maintenance, by franchisee, its employees, agents, contractors, sublessees or licensees of any of its facilities, .except to the extent caused by the willful misconduct or gross negligence of the City or its employees, contractors or agents. Nothing in this agreement shall be construed to affect in any way the City's rights, privileges, and immunities under the doctrine of `'sovereign immunity" as set forth in section 768.28, Florida Statutes. Section 8. Indemnification. Franchisee agrees to indemnify, defend, and hold harmless the City, its officers, agents and employees from and against any and all claims, suits, actions, and causes of action, as well as the costs of removal, remediation and monitoring of a condition of environmental contamination arising during the term of this franchise and resulting in personal injury, loss of life, or damage to property sustained by any person or entity, caused by or arising out of franchisee's (or its contractors', subcontractors' employees' or agents') negligent construction, operation or maintenance of franchisee's solid waste collection system facilities within the City, including all costs, attorneys' fees, expenses, including any appeal, and including the investigations and defense of any action or proceeding and any order, judgment or decree which may be entered in any action or proceeding, except to the extent caused by or Page 7of15 WSI CSM arising out of the negligence, strict liability, intentional torts or criminal acts of the City, its officers, agents, employees or contractors. In the event that a judgment covered by the foregoing indemnity shall be rendered in any suit or action against the City, the franchisee shall either fully satisfy or bond the judgment within sixty (60) days after the franchisee shall have received written notice from the City of the judgment following the final determination of the suit or action, if determined adversely to the City. If the franchisee shall fail to satisfy or bond the judgment within the designated time period set forth in this agreement, then the failure shall be a violation of this agreement subject to the notice and cure periods and remedies provided in section 15 of this agreement. Nothing in this agreement shall be construed to affect in any way the City's rights, privileges, and immunities under the doctrine of "sovereign immunity" as set forth in section 768.28, Florida 'Statutes. The 'provisions of this section shall survive the termination of this agreement. The City shall provide notice to Franchisee of any and all claims, suits, made so that the Franchisee is provided the option to defent or participate. Section 9. Insurance. The franchisee shall keep in full force and effect at all times during the exercise of its franchise : (1) comprehensive general liability insurance with a minimum aggregate combined single limit of liability of $3,000,000; and (2) property damage insurance with a minimum aggregate combined single limit of liability of $1,000,00. The terms and conditions of these policies shall provide for the protection and indemnification of the City with respect to claims of any persons suffering injury, loss or damage to person or property by reason of the construction, operation or maintenance of the solid waste collection services. The City shall be named as an additional insured. The franchisee shall hold the City harmless for any premiums due, and to the extent covered by the franchisee's indemnity in section 8 above, the amounts of deductibles or claims under the policies. A certificate of insurance shall be filed with the City clerk or with the City risk manager if the franchisee is notified in writing of the name and address of the risk manager. Every insurance policy shall contain a provision whereby every company executing the policy shall obligate itself to notify the City clerk, in writing, at least 30 days prior to the effective date of any cancellation of the policy. Business Automobile liability with minimum limits of Three Hundred Thousand Dollars ($300,000.00) per occurrence combined single limit for bodily Injury Liability and Property Damage Liability. Coverage must be afforded on a form no more restrictive than the latest edition of Business Automobile Liability Policy, without restrictive endorsements, as filed by the Insurance Services Office and must include: Owned Vehicles; Hired and Non -owned Vehicles; and Employers' Non - Ownership; and Employers' Liability with a limit of One Hundred Thousand Dollars ($100,000.00) each accident. Worker's compensation Insurance to apply for all employees in compliance with the "Workers' Compensation Law" of the State of Florida and all applicable federal laws. If any operations are to be undertaken on or about navigable waters, coverage must be included for the US Longshoremen & Harbor Workers Act and Jones Act. Each insurance policy shall be subject to the reasonable acceptance and approval of the City attorney. Any primary insurance policy must be issued by an insurance company having a rating of B +: VI or better in Best Insurance Guide. Any excess policy used must be issued by Page 8of15 WSI CSM underwriters reasonably acceptable to the Clity attorney. All insurance required hereunder may be maintained by the franchisee, by an affiliate of the franchisee, by self - insurance or pursuant to a master or so- called blanket policy of insurance. Section 10. Franchisee's rules. Franchisee shall have the right to make and enforce reasonable rules and regulations as it may deem necessary for providing its solid waste collection services and the prudent conduct of its business, provided that the rules and regulations shall not be in conflict with the laws, rules, and other regulatory authorities of the City, or Miami -Dade County, or the State of Florida. Section 11. Accounts and records. The accounts and records of the franchisee appertaining to solid waste collection service rendered hereunder shall be maintained as required under applicable state and federal laws, rules and regulations in compliance with generally accepted accounting methods, and be open at all reasonable times for inspection by the duly authorized representatives of the City upon reasonable written advance notice as provided below. The franchisee shall establish and maintain. appropriate accounts and records in such detail that revenues within the limits of the City are consistently declared separately from all other revenues. All records shall be maintained for a minimum of three years, or longer if required by applicable regulatory bodies other than the City. The City, by its duly authorized representative, shall have the right during business hours, and upon reasonable advance notice (48 hours prior written notice), to inspect and/or audit the books and records of the franchisee that evidence the franchise fees and computations of franchise fee payments made by the franchisee to the City. If the City decides to inspect franchisee's books and records, specifically franchise fee payments made to the City and franchise fee computations, the franchisee shall permit a City representative to review (upon 48 hours prior written notice) the pertinent portion of franchisee's books and records including billing records at the franchisee's office where these records are housed, during normal business hours, upon reasonable advance notice. Information required of franchisee„ At least annually, but not more frequently than quarterly, as determined by the City, the franchisee shall supply the following information on a form and in a manner prescribed by the finance director: a listing, as of the reporting date, of the names and addresses of each customer, the addresses of each location serviced, and schedule of rates charged by the franchisee. Section 12. Franchise fee. In further consideration for the rights and privileges granted under this agreement and the costs and obligations undertaken by the City (due to the use of the City's streets, alleys, roadways, and other property, and for wear and tear) as a result of this agreement, the franchisee agrees to pay to the City an annual fee of $5,000 ; plus a franchise fee of 20 percent of the franchisees' gross receipts from accounts within the City serviced by franchisee. This fee shall be in addition to any occupational license taxes levied by the City upon the franchisee's business activities. Notwithstanding the earlier execution of this agreement, the franchise fee shall be effective beginning on the first day of the first calendar month immediately following the execution of this'agreement (the "franchise fee commencement date "). By way of example and not limitation, if this agreement is executed in February 2007, then the franchise fee commencement date shall be'March 1, 2007. Page 9of15 WSI CSM The franchisee, by accepting the franchise, shall deliver to the City finance department a true and correct statement of gross :receipts generated during the previous month from its services rendered with the City on or before the last day of each month. Payments of fees shall be made on a monthly basis to the City finance department on or before the last day of each month, representing gross receipts collected the previous month. The franchisee shall on or before 30 days following the close of each fiscal year deliver to the finance director a statement of its annual gross receipts generated from accounts within the City prepared by an independent certified public accountant reflecting gross receipts within the City for the preceding fiscal year. For the purposes of confirming the franchise fee paid under this section, the franchisee shall provide to the City the documentation specified in section 11 above supporting its gross receipts for each month. The City shall have the right to conduct an independent review of the books and records of the franchisee relating to the calculation of the franchisee fee, and shall have the right to require an audit of the franchisee's books and records, as provided above. If any audit or examination discloses an underpayment to the City greater than twenty (20) percent of a required payment, in addition to payment of the underpayment, the franchisee shall pay for the expenses of the audit and a penalty equal to three (3) times the underpayment. Otherwise, the City shall bear the cost of the audit. The underpayment shall be paid within thirty (30) days after receipt of demand from the City. In the event that the franchisee overpays to the City the amount of any franchise fees payable under this agreement or any utility or public service tax, the City shall refund the amount of the overpayment to the franchisee within thirty (30) days after delivery to the City of written notice of the overpayment, together with reasonable documentation thereof. Vehicle registration fees. Each and every franchisee shall pay, in addition to the fees imposed herein, an annual vehicle registration fee which shall be in the amount of $25.00 for each vehicle shown on the list required to be submitted as part of the franchise application. This fee shall apply to renewals of registration, as well. Permit per account fee. Franchisee agrees to remit to the City a permit, per account fee, of $50.00 for each account contracted with„ of which no more than $25.00 may be passed on to the commercial business. Roll- off /container permit fee. Franchisee agrees to remit to the City a roll- off/container permit fee in the amount of $50.00, per account, for temporary (not to exceed 90 days) roll -off container(s) utilized by franchisee in the course of its provision of construction, renovation and demolition material collection and disposal. Section 13. City's power to revoke franchise, amend regulations. The City reserves unto itself the power to revoke all :Franchises granted, to change or limit the rights granted, or to otherwise modify the franchises, in its sole discretion, by ordinance duly enacted by the City commission. Such action shall not be deemed a taking of a property, contract, or other right of any franchisee, it being the express intention of this section to reserve unto the City, the power, in its sole discretion, to alter the methods of garbage collection employed in the City, and the manner in which to service garbage collections delivered within the City. The City further Page 10 of 15 WSI CSM reserves the power to amend chapter I I of the City's code of ordinances, related to Garbage and Trash, from time to time at the sole discretion of the City commission, and shall not be estopped to do so, notwithstanding the grant of any franchise or franchises to any person. Section 14. Annexation by ity_. Promptly after the City's annexation of any property, the City shall provide the franchisee with written notice of the annexation. The notice shall contain a description of the annexed property sufficient to enable the franchisee to determine which, if any, of its consumers are located in the annexed territory. Beginning on the first day of the next calendar quarter that occurs at least thirty (30) days after the franchisee receives a written annexation notice from the City, the portion of the franchisee's solid waste collection system that may be located within. the annexed territory (including the streets, alleys or public grounds located in the annexed territory) shall be subject to the terms of this franchise; provided that, notwithstanding anything to the contrary, in the event that lands are annexed by the City and the Miami -Dade County Code or other applicable law provides for a retention of the franchise fee generated from the lands annexed by the City or otherwise provides for the payment of the franchise fee, then the franchise fee generated from consumers located on the lands shall instead be paid as provided by the law. Section 15. Default and termination. (1) Any material violation by the franchisee of any of the covenants, terms and conditions of, this agreement, or material default by the franchisee in observing or carrying into effect any of the covenants, terms and conditions of this agreement, shall authorize and empower the City to terminate this agreement and all rights hereunder, provided, however, that before action by the City shall become operative and effective, the franchisee shall have been served by the City with a written notice setting forth all matters pertinent to the violation or default, and describing the action of the City with respect thereto, and franchisee shall have had a period of :five days after service of the notice within which to cure the violation or default; provided that if the violation or default is not susceptible of cure within five days, the franchisee shall have additional time as is reasonably necessary to cure the violation or default so long as franchisee has commenced to cure the violation or default within the five day period and thereafter is diligently prosecuting the cure to completion and provided. The City may extend that period upon appropriate representations and assurances by the franchisee that corrections are being made. However, any extension will not be considered or deemed a waiver by the City of franchisee's lack of compliance. The City may allow continuation of this agreement for as long as the- City deems appropriate, despite a breach or forfeiture as described in this section, in order to ensure continuation of service to consumers. Continuation of the arrangement will not be deemed a waiver of the City's claim of a breach or forfeiture. In the event that the franchisee, upon receipt of the written notice from the City, does not desist from the violation within the time prescribed above, then the franchisee shall be deemed to have forfeited, and amiulled all of franchisee's franchise, grants, privileges, rights licenses and immunities granted under this agreement. The franchisee is required to make every reasonable effort to maintain operation and service at all times even in the event of any work stoppage by its employees. The finance director's five day prior written notice shall provide the franchisee an opportunity to dispute the finance director's findings. The finance director shall provide the franchisee an opportunity for an informal hearing, if requested within five days of receipt of the deficiency findings /default. In the event the franchisee disputes the decision of the finance director, the franchisee may appeal such decision directly to the City Commission. Page 11 of 15 WSI CSM (2) Nothing in this agreement shall limit or restrict any legal rights that the City may possess arising from any alleged violation. of this agreement; provided that in the event of a conflict between any other rights and the provisions of this section 15, the provisions of this section 15 (including, without limitation, the franchisee's cure rights set forth in this section 15) shall control (3) Non- payment by the franchisee of fees or failure to file the required report shall be grounds for termination, after ten (10)days' prior written notice, without hearing before the finance director. (4) Any decision of the finance director under this section, with the exception of subsection 3 above, may be required upon written request by the aggrieved franchisee to the City manager. Notice of appeal should be filed in writing with the finance director no more than ten days after receipt of written notice that the franchise with franchisee is terminated by the City. (5) The City manager shall set the date and time for hearing the appeal. The hearing shall be held not less than 14 or no more than 60 days after receipt of the notice of appeal. The City manager or his/her designee shall either affirm the decision of the director or direct the director to issue or reinstate the franchise, with or without conditions. (6) Franchisee shall comply with section 11 -16, of the City's code of ordinances entitled << Enforcement and administrative fines << , which code section is incorporated by reference into this agreement. Section 16. Insolvency or bankruptcy of franchisee. In the event of a final adjudication of bankruptcy of the franchisee, the City shall have full power and authority to terminate, revoke and cancel any and all rights granted under the provisions of this agreement. Section 17. Changes in provisions of this agreement. No amendment, modification, waiver or discharge of this agreement, or any ' subpart (including, without limitation, this sentence) shall be valid or effective unless in writing and signed by the party against whom enforcement of the amendment, modification, waiver or discharge is sought and then only to the extent set forth in writing. Minor changes in the terms and conditions of this agreement may be made by written agreement between the City and the franchisee without the approval of the City commission, provided, however, that this section shall not be construed as conferring authority to make any changes in or modifications of the provisions of this agreement which would be repugnant to or inconsistent with basic factors or principles underlying the terms and conditions of this agreement, unless agreed to in writing by the franchisee and approved by the City commission. Section 18. Limitation of liability for breach of contract. Nothing contained in this agreement is in any way intended to be a waiver of the limitation placed upon the City's liability as set forth in section 768.28, Florida Statutes. Section 19. No third -party rights. It is the express intent of the City and the franchisee that neither this agreement nor any of its provisions shall create any rights in third - parties. Page 12 of 15 WSI CSM Section 20. Franchisee as independent contractor. When performing under this agreement, the franchisee's status shall be that of an independent contractor and not an agent, servant, employee or representative of the City in the performance of work pursuant to this agreement. No term or provision of this agreement, or act of the franchisee (or its employees, contractors, or subcontractors) shall be construed as changing this status. Section 21. Repealing section. All ordinances or parts of ordinances in conflict with the provisions of this agreement are repealed. Section 22. Saving_ provision. If any term, condition, provision, section, part of section, paragraph, sentence or clause of this agreement, to any extent, be held by a court of competent jurisdiction to be invalid, illegal or unenforceable ( "impaired provision ") the remaining terms, conditions and provisions shall remain valid in all other respects and continue to be effective. With respect to the impaired provision, the City and the franchisee shall enter into good faith negotiations and proceed with due diligence to draft a term, condition or provision that will achieve the original intent of the parties to this agreement. In the event of a subsequent change in applicable law so that the impaired provision is no longer impaired, and the impaired provision has not been renegotiated by mutual agreement of the City and the franchisee, upon reasonable notice by the City, that provision shall return to full force and effect without further action by the City and shall thereafter be binding on the franchisee and the City. Section 23. Mediation. Any claim or dispute arising out of or related to this agreement shall be subject to informal mediation as a condition precedent to the institution of legal or equitable proceedings by either party to this agreement. Both parties waive any right to arbitration. The parties shall share the mediator's fee and any filing fees equally. The mediation shall be held in Miami -Dade County, Florida, unless another location is mutually agreed upon. Contracts reached in mediation shall be enforceable as settlement contracts in the circuit court for the 11th Judicial Circuit for the State of Florida. Section 24. Jurisdiction and venue. For the purposes of this agreement, Florida law shall govern the terms of this agreement. Venue shall be in Miami -Dade County, Florida. Section 25. Right of the City to intervene. The City reserves to itself the right to intervene in any suit, action or proceeding involving any provision of this agreement. Franchisee agrees to advise the City of any suits. Section 26. Attorneys' . Except as otherwise provided, the City and the franchisee agree that if litigation becomes necessary to enforce any of the obligations, terms, and conditions of this franchise, the prevailing party shall be entitled to recover a reasonable amount of attorneys' fees and court costs, including paralegal costs, and fees and costs on appeal, from the non- prevailing party. However, in no event shall either party be held liable for prejudgment interest. Section 27. Warranty of authority. The signatories to this agreement warrant that they are duly authorized by action of their respective City commission, board of directors or other Page 13 of 15 WSI CSM authority to execute this agreement and to bind the party on whose behalf the signatory signed this agreement to the promises, terms, conditions and warranties contained in this agreement. Section 28. Entire agreement. This agreement contains the entire agreement between the parties with respect to the subject matter of this agreement and supersedes any and all prior and contemporaneous negotiations, representations, understandings and agreements, whether written or oral, all of which are merged into this agreement. Section 29. Headings. The headings of sections and subsections of this agreement are for convenience of reference only ,and are riot intended to restrict, affect, or be of any weight in the interpretation or construction of the provisions of sections or subsections. Section 30. No waiver. Neither the City nor the franchisee shall be excused from complying with any of the terms and conditions of this agreement by any failure of the other (including its affiliates, employers, or agents) to insist upon or seek compliance with any term or condition. Waiver of a condition in this agreement may solely occur upon the express written approval of the party against whom enforcement of the waiver is sought, as provided for in section 22. Section 31. Construction of this agreement. This agreement has been prepared by the parties and was thoroughly reviewed and extensively modified during negotiations between the City and the franchisee and their respective legal counsel. The parties agree that this document is a product of all of their efforts, that it expresses their mutual understandings, and that it should not be interpreted in favor of either party or against either of them merely because of the parties' initial efforts in preparing it. Each party shall bear its own costs to draft and negotiate this agreement. Section 32. Notices. All notices, demands, requests, consents, approvals or other communications (collectively, "notices ") required or permitted to be given hereunder or which are given with respect to this agreement shall be effective only if in writing and delivered by personal service, or delivered to an overnight courier service with guaranteed next day delivery or mailed by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: To the franchisee: Waste Services of Florida, Inc. 5002 T -Rex Avenue Suite 200 Boca Raton, FL 33431 Attention: Mr. Vahe Gabriel with a copy to: Alan L. Gabriel, Esq. Weiss Serota Helfrnan, et al, P.A. 200 East Broward Boulevard Suite 1.900 Ft. Lauderdale, Florida 33301 Page 14 of 15 WSI CSM To the City : Yvonne Soler McKinley, City Manager City of South;Miami 6130 Sunset Drive South Miami, Florida 33143 with a copy to: Luis R. Figueredo, City Attorney Nagin Gallop Figueredo, P.A. 18001 Old Cutler Road, Suite 556 Palmetto Bay, Florida 33157 or to the other address as the party shall have specified most recently by like notice. The attorneys for the parties to this agreement are respectively authorized to give any notice permitted under this agreement. Any notice given as provided under this section shall be deemed received as follows: if delivered by personal service, on the date so delivered; if delivered to an overnight courier service, on the business day immediately following delivery to service; and if mailed, on the third business day after mailing. IN WITNESS WHEREOF, the parties have executed this agreement as of the date first written above. ATTEST: City Clerk Approved as to form: Luis R. Figueredo, Nagin Gallop & Figueredo, P.A. Office of City Attorney WITNESS: Witness to sign above Print Name: CITY OF SOUTH MIAMI, a Florida municipal corporation By: Name: Yvonne Soler McKinlev Its: City Manager Waste Services of Florida, Inc.,a Delaware Corporation By: Name: Its: Page 15 of 15 WSI CSM 1 1 i 1 1 1 1 i WEIS S SEI3OTA HELFMAN PASTORIZA COLE & BONISKE, P.A. MITCHELL A. BIERMAN NINA L. BONISKE MITCHELL J. BURNSTEIN JAMIE ALAN COLE STEPHEN J. HELFMAN GILBERTO PASTORIZA MICHAEL S. POPOK JOSEPH H. SEROTA SUSAN L. TREVARTHEN RICHARD JAY WEISS DAVID M. WOLPIN LYNN M. DANNHEISSER IGNACIO G. DEL VALLE DOUGLAS R. GONZALES MELISSA P. ANDERSON* LILLIAN ARANGODE LA HOZ* JAMES E. BAKER JEFF P.H. CAZEAU RAQUEL ELEJABARRIETA CHAD FRIEDMAN ALAN L. GABRIEL* Via Hand Delivery ATTORNEYS AT LAW BROWARD OFFICE GREGORY A. HAILE JOHN J. KENDRICK III 200 EAST BROWARD BOULEVARD * KAREN LIEBERMAN SUITE 1900 JOHANNA M. LUNDGREN FORT LAUDERDALE, FLORIDA 33301 ANDREW W. MAI MATTHEW H.MANDEL. PAMIMAUGHAM TELEPHONE 954 - 763 -4242 ALEXANDER L. PALENZUELA -MAORI FACSIMILE 954 - 764 -7770 YUNIOR PIREIRO WWW.WSH- LAW.COM JOHN J. QUICK ANTHONY L. RECIO MIAMI -DADE OFFICE SCOTT A. ROBIN 2525 PONCE DE LEON BOULEVARD * SUITE 700 GAIL D. SEROTA* CORAL GABLES, FLORIDA 33134 JONATHAN C. SHAMRES TELEPHONE .305 - 854 -0800 * FACSIMILE 305- 854 -2323 ESTRELLITA S. SIBILA EDUARDO M. SOTO MICHAEL L. STINES *OF COUNSEL JOSE S. TALAVERA STEVEN E. TAYLOR LAURA K. WENDELL* JAMES E. WHITE CLINTON A. WRIGHT III* Eve A. Boutsis, Esq. Office of City Attorney to the City of South Miami Nagin Gallop Figueredo, P.A. 18001 Old Cutler Road, Suite 556 Palmetto Bay, Florida 33157 February 28, 2007 Re: Application for Solid Waste 'Collection Franchise by Waste Services of Florida, Inc. Dear Ms. Boutsis: ' This office represents Waste Services of Florida, Inc. ( "WSI "). As you may know, WSI is in the process of acquiring Allied Waste's South Florida assets, including Browning- Ferris Industries known as BFI. When the acquisition is complete, the entity known as BFI will no longer exist. As a result, WSI would like to assume BFI's responsibility and provide solid waste collection services to the City of South Miami ( "City "). Please accept this letter and the following documents as WSI's formal application for a franchise from the City in conformity with Section 11 -19 of the City's Code of Ordinances: 1. WSI's primary office information and telephone numbers of all its offices within the county which will oversee the services provided to the City, a list of vehicles which will be used by WSI to service the accounts within the City, a statement that all garbage and solid waste will be properly disposed of in a facility which meets all requirements of law, and emergency contact information for several managerial employees; L Eve A. Boutsis, Esq. February 28, 2007 Page 2 2. Evidence of insurance in amounts acceptable under Section 11 -11 of the City Code; 3. Letter from the Federal Trade Commission documenting expiration of the mandatory waiting period; 4. Form 10 -K filing and Exhibit 21.1; 5. A payment bond in the amount of $1,800,000.00; 6. Certificates of Good Standing; issued by the State of Florida and the State of Delaware; 7. Names and identifying information for all officers holding more than a 10% interest in WSI; 8. A performance bond in the amount of $100,000.00; 9. Corporate entity chart; and 10. Current Florida municipal references. We look forward to serving all of the City's solid waste needs. If you require anything further, please do not hesitate to contact this office. Please advise when this item will be scheduled to be heard by the City Commission. t Alan L. Gabriel PRM : seo h 1026.001 Enclosures cc: Mr. Kirk Muter, Waste Services, Inc. Mr. Vahe Gabriel, Waste Services, Inc. Ms. Jeanmarie Manze Massa, BFI Waste Systems Richard Jay Weiss, Esq. r WEISS SEHOTA HELFMAN PASTORIZA COLE 'Se BONISHE, P.A. Applicant Name, Address and Telephone Number: Waste Services of Florida, Inc 3840 NW 37th Court Miami, FL 33142 305 - 680 -3800 Required Vehicle Information: 1996 Mack Front Load N039GF (Truck # 930) 1994 Mack Roll -Off N3580G (Truck # 4089) 2000 Mack Roll -Off N61 84G (Truck # 4126) 1993 Mack Rear -Load N9988G (Truck # 5270 cardboard) Waste Disposal Information: Waste Services of Florida, Inc. will dispose of all garbage and solid waste that is collected in the City of South Miami outside the city limits in a facility designated for disposal of garbage and solid waste and which meets all requirements of law. These facilities include Miami -Dade County's Solid Waste Management System where WSI has assumed BFI'S contract for solid waste disposal, as well as other Florida DEP approved and permitted sites, to include the J.E.D. landfill operated by Omni Waste of Osceola County. Emergency Contact Information: Juan Carlos Romero, General Manager, 3840 NW 37th Court, Miami, Florida 33142, (Office) 305 - 638 -3800, (Cell) 305- 219 -9271 David Eberlin, Operations Manager, 3840 NW 37" Court, Miami, Florida, 33142, (Office) 305 - 638 -3800, (Cell) 786 -295 -8026 f 1 1 V»VYIZUV I r ! !g Z! FAA � | � �! |� | | . | � . . � . I � • � � • / % .... . . � \ ; : ! - •; \ ! � ( ca r �. J CD f ^ � C -1 - . f .. � m� . . C3 qq } /Q \\ % \ i ` kk / / S cy . / % � VG/ yof AIVV I &L%.L L ( ; 6L z Mdl WWVV(fV14 4 A p'n C S N; F; ur Nj W3 t 2 § R! th. to c�a C-3 CD CO N 40 co 21 »,�p I &„irx ,4zI rPAA -4 w,v zv 4 . !� .. . . i \ # \ \/\ 2 \P-1 k s2i �. � � ■g �� cn . v . . .■ ��� \\ . rp 2c, : \ . qE e 7 7.e. - .. @¢ . . C3 §� j _ A& CO --i;c . ° ° 4 - !t @ @ 'CA) © � ¥ ; © ¥ e E4% V6 /Vy / /VV / C'2Cl 11:61 rklA IQVUfk /V16 �M�I�� }iiii" ' . I��wwy� r I ' � f i Ii co m m r—ll CD IWO r-30 _ 47 m �wr; C G 1 m� �y N Z W A NC3 RM o�N m N � CD tft- m j2= i ACORDTM CERTIFICATE OF LIABILITY INSURANCE page 1 of 2 I 02/23/2007 PRODUCER 877- 945 -7378 THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE 26 Century North America, Inc. ALTER THIS CERTIFICATE DOES COVERAGE AFFORDED BY THE POLICIES BELOW 26 Century Blvd. P. 0, Box 305191 Nashville, TN 372305191 INSURERS AFFORDING COVERAGE NAIC# INSURED waste Services of Florida, Inc. INSURERA:National Union Fire Ins. Co. of Pittsburg 19445 -001 3840 NW 37th Court INSURERB:ACE American Insurance Company 22667 -007 Miami, FL 33142 INSURER C: American Home Assurance Company 19380 -004 D: E: COVERAGES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY PERIOD INDICATED. NOTWITHSTANDING THE POLICIES REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH THIS CERTIFICATE MAY BE ISSUED OR ANY MAY PERTAIN, THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. AGGREGATE LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS. INSR DD' TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE DATE MMIDDIYY POLICY EXPIRATION DATE MM /DD/YY LIMITS LTR INSR GENERAL LIABILITY 5760827 12�1�2006 12�1�2007 EACH OCCURRENCE $ 2,000,000 DAMAGETORENTED PREMISES Eaoccurence $ 300,000 A R GENERAL LIABILITY MED EXP (Anyone person) $ X COMMERCIAL CLAIMS MADE � OCCUR PERSONAL &ADV INJURY $ 2,000,000 GENERAL AGGREGATE $ 1010001000 PRODUCTS- COMPIOPAGG $ 4,000,000 GEN'L AGGREGATE LIMIT APPLIES PER: PRO- LOC POLICY JECT AUTOMOBILE LIABILITY 5836615 12/1/2006 12/1/2007 COMBINED SINGLE LIMIT $ 2,000,000 A (Ea accident) X ANY AUTO ALL OWNED AUTOS BODILY INJURY $ (Per person) SCHEDULED AUTOS HIREDAUTOS BODILY INJURY $ (Per accident) NON -OWNED AUTOS PROPERTYDAMAGE $ (Per accident) GARAGE LIABILITY AUTO ONLY -EA ACCIDENT $ ANY AUTO OTHERTHAN EAACC $ $ AUTO ONLY: AGG EXCESS LIABILITY XOOG23715089 12/1/2006 12/1/2007 EACH OCCURRENCE $ 51000,000 B MADE AGGREGATE $ 5100010 0 X OCCUR CLAIMS $ DEDUCTIBLE $ X1 RETENTION $ 25 00 0 OER $ WORKERS COMPENSATION AND 2920483 12/1/2006 12/1/2007 X TORYLIAMITS `, EMPLOYERS' LIABILITY E.L. EACH ACCIDENT $ 2,000,000 ANY PROPRIETORIPAR ECUTIVE OFFICERIMEMBER EXCLUDED? E.L. DISEASE - EA EMPLOYEE $ 2,000,000 If yes, describe under SPECIAL PROVISIONS below E.L. DISEASE - POLICY LIMIT $ 2,000,000 OTHER OF OPERATIONSILOCATIONSNEHICLES !EXCLUSIONS ADDED BY ENDORSEMENTISPECIAL PROVISIONS DESCRIPTION is agreed that City Of South Miami is included as Additional Insured as respects to General It to work being performed by or on behalf but solely of the named insured if Liability, oinaregards by contract required CERTIFICATE City of South Miami 6130 Sunset Dr South Miami, FL 33143 SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE EXPIRATION DATE THEREOF, THE ISSUING INSURER WILL ENDEAVOR TO MAIL 30 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT, BUT FAILURE TO DO SO SHALL IMPOSE NO OBLIGATION OR LIABILITY OF ANY KIND UPON THE INSURER, ITS AGENTS OR REPRESENTATIVES. . 7 RIZE REPRESE " NE Coll:1901575 Tpl:601259 Ce :8604957 ©ACORD CORPORATION 1988 Page 2 of 2 IMPORTANT If the certificate holder is an ADDITIONAL INSURED, the policy(ies) must be endorsed. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). If SUBROGATION IS WAIVED, subject to the terms and conditions of the policy, certain policies may require an endorsement. A statement on this certificate does not confer rights to the certificate holder in lieu of such endorsement(s). DISCLAIMER The Certificate of Insurance on the reverse side of this form does not constitute a contract between the issuing insurer(s), authorized representative or producer, and the certificate holder, nor does it affirmatively or negatively amend, extend or alter the coverage afforded by the policies listed thereon. ACORD 25 (2001/08) I ` G UNITED STATES OF AMERICA FEDERAL TRADE COMMISSION Washington, D.C. 20580 Bureau of Competition Premerger Notification Office July 27, 2006 Anthony W Swisher, Esq, Akin Gump Strauss Hauer & Feld, LLP Robert S. Strauss Building 1333 New Hampshire Ave., NW Washington, DC 20036 USA Re: Premerger Notification Transaction Number: 20061488 Waste Services, Inc. Dear Mr. Swisher: The Premerger Notification Office of the Federal Trade Commission and the Antitrust Division of the Department of Justice have received completed Notification and Report Forms from all parties with respect to the proposed acquisition by Waste Services, Inc. of certain assets of Allied Waste Industries, Inc.; E Leasing Company, LLC; S Leasington Company, LLC from Allied Waste Industries, Inc. The waiting period required by Section 7A(b)(1) of the Clayton Act, 15 U.S.C. Section 18a(b)(1), will commence and expire on the dates listed below, unless extended by a request for additional information or documentary material, pursuant to 16 C.F.R. Section 803.20, or, if requested by either person, early termination of the waiting period is granted pursuant to 16 C.F.R. Section 803.11. Waiting Period Commences: . July 26, 2006 Waiting Period Expires: August 25, 2006 at 11:59pm If you have any questions concerning this matter, please contact me at 202 -326 -3167. Sincerely, c Compliance Specialist 17 -6 x 10kW I ZARD FORM 10 -K WASTE SERVICES, INC. - WSII Filed: March 14, 2006 (period: December 31, 2005) Annual report which provides a comprehensive overview of the company for the past year INDEX TO FORM 10 - -K FOR THE YEAR ENDED DECEMBER 31, 2005 Page 1 9 14 14 14 15 16 17 18 38 39 39 39 40 40 43 47 49 51 51 i PART CAUTIONARY STATEMENT REGARDING FORWARD— LOOKING STATEMENTS This annual report on Form 10 —K contains certain "forward— looking statements" within the meaning of Section 2 1 E of the Securities Exchange Act of 1934. 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. 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: • our substantial indebtedness and the significant restrictive; covenants in our various credit facilities and our ability to finance acquisitions with cash on hand, debt or equity offerings; • our ability to implement a refinancing plan for our mandatorily redeemable preferred stock and to achieve the expected benefits; • our ability to maintain and perform our financial assurance obligations; • 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 this annual report on Form 10 —K under "Item lA — Risk Factors ". If one or more of these risks or uncertainties affects future events and circumstances, or if underlying assumptions do not materialize, actual results may vary materially from those described in this annual, report as anticipated, believed, estimated or expected, and this could have a material adverse effect on our business, financial condition and the results of our operations. Further, any forward- looking statement speaks only as of the date on which it is made, and except as required by law, we undertake no obligation to update any forward— looking statement to reflect events or circumstances after the date on which it is made or to reflect the occurrence of anticipated or unanticipated events or circumstances. I Item 1. Business Overview Waste Services, Inc. ( "Waste Services ") and its wholly owned subsidiaries (collectively, "we," "us" or "our ") is a multi — regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, ' industrial and residential customers in the United States and 1 Canada. 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. We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia), while the U.S. is organized into three regions, Florida, Texas and Arizona. Accordingly, we have five operating segments, three in the United States and two in Canada. We do not have significant (in volume or dollars) inter — segment operation — related transactions. For more information regarding our segments refer to our Consolidated Financial Statements. Waste Services was incorporated in Delaware in 2003 under the name Omni Waste, Inc. In 2003, we changed our name to Waste Services, Inc. By way of a migration transaction that was completed July 31, 2004, we are the successor to Capital Environmental Resource Inc. now Waste Services (CA) Inc. ( "Waste Services (CA) "). As a result of the migration transaction Waste Services (CA) became our indirect subsidiary and Waste Services became the parent company. Our corporate offices are located at 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6;Z8. Our telephone number is (905) 319 - 1.237. We file annual reports on Form 10 —K, quarterly reports on :Form 10 —Q, current reports on Form 8 —K and other filings with the Securities and Exchange Commission ( "SEC "). The public may read and copy any materials we file with the SEC at the SEC's Office of Public Reference at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1- 800 —SEC -0330. The SEC also maintains an intemet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The internet address is http: / /www.sec.gov. We make available, at no charge through our website address at http : / /www.wasteservicesinc.com, our annual reports on Form 10 —K, quarterly reports on Form 10 —Q, current reports on Form 8 —K and amendments to these reports filed or furnished with the SEC as soon as reasonably practicable after we electronically file such material with, or furnish it to the SEC. Information on our website does not form a part of this annual report. U Our Business Strategy Q Our goal is to be a highly profitable, multi— regional solid waste services company in North America with leading market positions in each of the markets we serve. In order to achieve this goal, we intend to: Maximize Density and Vertical Integration of Operations. We believe that achieving a high degree of density and vertical integration of operations leads to higher profitability and returns on invested capital. In each of our local markets, we seek to maximize the density of our collection routes, which allows us to leverage our facilities and vehicle fleet by increasing the number of customers served and revenue generated by each route. In addition, we seek to vertically integrate our operations where possible, using transfer stations to link collection operations with our landfills to increase internalization of waste volume. By securing and controlling the solid waste stream from collection through disposal, we are able to achieve cost savings for our collection operations, while at the same time providing our landfills with more stable and predictable waste volume and enhancing returns on the capital invested in these facilities. In our efforts to maximize vertical integration, we periodically evaluate markets where we are not internalized for possible divestiture or asset swap transactions to enhance density and/or internalization in existing markets where we are vertically integrated. Provide Consistent, Superior Customer Service. Our long —germ growth and profitability will be driven,, in_large part, by our ability to provide consistent, superior service to our customers. We believe that our local and regional operating focus allows us to respond effectively to customer needs on a local basis, as well as maintain strong relationships with our commercial, municipal and residential accounts. In each of our markets, customer retention and new account generation are key areas of focus for our local managers. Maintain a Decentralized Operating Management Structure with Centralized Controls and Information Systems. The solid waste industry is a local and regional business by nature, where we believe that asset investment, customer relationships, pricing and operational productivity are most effectively managed on a local and regional basis. We have structured our operating management team on a geographically decentralized basis, because we believe that talented, experienced and focused local management are in the best position to make effective, profitable decisions regarding local operations and to provide strong customer service. Our senior management team provides significant oversight and guidance for our local management, developing operating goals and standards tailored to each market, but does not impose corporate directives regarding certain local operating decisions. While our operating management structure is decentralized, all of our operations adhere to uniform corporate policies and financial controls and utilize integrated information systems. Our information systems provide both corporate and local management with comprehensive, consistent and timely operating and financial data, enabling them to maintain detailed, ongoing visibility of the performance and trends in each of our local market operations, Execute a Disciplined, Disposal —Based Growth Strategy. Our growth strategy consists of both "tuck —in" acquisitions within an existing market, which typically consist of collection operations or transfer stations, and new geographic market entries for which we first secure disposal capacity. In either case, we focus on maximizing cash flow and return on invested capital. For tuck —in acquisitions, we only pursue opportunities that: • are complementary to our existing infrastructure, allowing us to increase the density of our collection routes or enhance asset utilization; or • increase the waste volume that can be internalized into our transfer stations and landfills. For new market entries, we will only pursue opportunities where we can: • benefit from (i) above - average underlying economic or population growth, or (ii) a changing competitive or regulatory environment that could lead to above — average growth for solid waste services; • establish a leading market position over time in the local markets in which we operate; and • initially secure a disposal facility and become vertically integrated with the ability to secure significant waste volume that we collect and transfer to our own landfill or transfer stations. Operations We provide our services on a geographic basis in three regions in the United States: Florida, Arizona and Texas; and in two regions in Canada: Eastern and Western. For a discussion on the seasonality of our business, see Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operations — Seasonality." A summary of the collection, recycling, transfer station, landfill disposal and other services that we provide as of December 31, 2005 is as follows: Total East West _. __ Total. Transfer stations 3 2 1 6 8 2 10 16 _. Recycling.fact htles 5' 9, Landfills 2 1 1 4 1 2 3 7 During the first quarter of 2006, we entered into agreements to acquire a collection operation, two transfer stations and a construction and demolition landfill site in Florida, subject to it obtaining an expansion permit. 3 Collection Services We provide collection services to approximately 126,000 cotmercial and industrial customers and approximately 6,961,000 residential customers, as of December 31, 2005. We have a front —line collection fleet size of approximately 1,000 vehicles with an average fleet age of approximately six years. Commercial and Industrial Collection. We perform commercial and industrial collection services principally under one to five year service agreements, which typically contain provisions for automatic renewal and which prohibit the customer from terminating the agreement prior to its expiration date without incurring a penalty. Roll —off containers are also provided to our customers for temporary services, such as for construction projects, under short —term purchase orders. Stationary compactors are rented to customers, allowing them to compact their waste at their premises prior to its collection. Commercial and industrial collection vehicles normally require one operator. We provide two to eight cubic yard containers to commercial customers and ten to fifty cubic yard containers to industrial customers, including our roll - -off accounts. Charges for our commercial and industrial services are determined by a variety of factors, including collection frequency, level of service, route density, the type, volume and weight of the waste collected, type of equipment and containers furnished, the distance to the disposal or processing facility, the cost of disposal or processing, and prices charged by competitors for similar services. Our contracts with commercial and industrial customers typically allow us to pass on increased costs resulting from variable items such as disposal and fuel costs and surcharges. Our ability to pass on price increases is however sometimes limited by the terms of our contracts. Residential Collection. Our residential waste collection services are provided under a variety of contractual arrangements, including contracts with municipalities, owners and operators of large residential complexes and mobile home parks, and homeowners associations. In certain markets, we also provide residential subscription services to individual homeowners. Our contracts with municipalities are typically for a fixed term of from 3 to 10 years. Charges for residential services to municipalities are determined based upon the number of homes serviced as well as the frequency of service. These contracts often contain a formula, generally based on a predetermined published price index, for adjustments to charges to cover increases in some, but not all, of our operating costs. Certain of our contracts with municipalities also contain renewal provisions or capital commitments. Charges for residential solid waste collection services provided on a subscription basis are based primarily on route density, the frequency and level of service, the distance to the disposal or transfer facility, the cost of disposal or transfer and prices we charge in the market for similar services. Transfer Station Services Our transfer stations allow us to internalize our collection volume to the landfills we own. They also receive solid waste from third parties. Waste received at our transfer station is compacted and transferred, generally by third —party subcontractors, for disposal to our own or third —party landfills. We charge third— parties fees to dispose of their waste at our transfer stations. Transfer station fees are generally based on the cost of processing, transportation and disposal. We also may enter into long —term put or pay disposal arrangements whereby third —party customers can secure disposal capacity with us at pre — arranged fixed rates or pay a penalty equal to the number of tons below die required tonnage multiplied by that disposal rate. - We believe that the benefits of using our transfer stations include improved utilization of our collection infrastructure and better relationships with municipalities and private operators that deliver waste to our transfer stations, which can lead to additional growth opportunities. We believe that transfer stations will become increasingly important to our operations as new landfills are opening further away from metropolitan areas and waste needs to travel further for disposal in large metropolitan markets. 4 Commercial and Residential Recycling Services We offer collection and processing services to our municipal, commercial and industrial customers for a variety of recyclable materials, including cardboard, office paper, plastic containers, glass bottles, fiberboard, and ferrous and aluminum metals. In some markets, we operate material recovery facilities that are used to sort, bale and ship recyclable materials to market. We also deliver recyclable materials that we collect to third parties for processing and resale. In an effort to reduce our exposure to commodity price fluctuations on recycled materials, where competitive pressures permit, we charge collection or processing fees for recycling volume collected from our commercial customers. We may also manage our exposure to commodity price fluctuations through the use of commodity brokers, which arrange for the sale of recyclable material collected in our operations to third party purchasers. We believe that recycling will continue to be an important component of municipal solid waste management plans due to the public's environmental awareness and regulations that mandate or encourage recycling. Landfill Disposal Services We charge our landfill customers a tipping fee on a per ton or per yard basis for disposing of their solid waste at our landfills. We generally base our landfill tipping fees on market factors and the type and weight or volume of the waste deposited. We may enter into long —term put or pay disposal arrangements whereby third —party customers can secure disposal capacity at our landfills at pre — arranged fixed rates or pay a penalty equal to the number of tons below the required tonnage multiplied by that disposal rate. We dispose of the solid waste we collect in one of four ways: (i) at our own landfills; (ii) through our own transfer stations; (iii) at municipally —owned landfills; or (iv) at third —party landfills or transfer stations. In markets where we do not have our own landfills, we seek to secure favorable long —term disposal arrangements with municipalities or private owners of landfills or transfer stations. In some markets, we may enter into put or pay disposal arrangements with third party operators of disposal facilities. These types of arrangements allow us to fix our disposal costs, but also expose us to the risk that if our tonnage declines and we are unable to deliver the minimum tonnage, we will be required to pay the penalty. Other Specialized Services We offer other specialized services consisting primarily of sales and leasing of compactor equipment and portable toilet services for special events or construction sites. Local/ Regional Operating Structure We manage our business on a locallregional basis. Each of our operating regions also has a number of operating districts where the business is managed on a local basis. From a management perspective, each region has a regional Vice President or Manager who reports to our President and Chief Operating Officer. Reporting to the regional Vice Presidents or :Managers are district managers who are responsible for the day —to —day operations of their districts, including supervising their sales force, maintaining service quality, implementing our health and safety and environmental programs and overseeing contract administration. District managers work closely with the regional Vice Presidents or Managers to execute business plans and identify business development opportunities. This structure is designed to . _..__ _ __ ____ _. _ provide decision — making authority to our district managers who are closest to the needs of the customers they serve in the community. This localized approach allows us to quickly identify and address customer needs, manage local operating dynamics and take advantage of market opportunities. Sales and Marketing We market our services on a decentralized basis principally through our district managers and direct sales representatives. Our sales representatives visit customers on a regular basis and call upon potential new customers within a specified territory or service area. These sales representatives receive a portion of their compensation based on meeting certain incentive targets. 5 We have a diverse customer base, with no single contract or customer representing more than 2.0% of consolidated revenue for the year ended December 31, 2005. Competition The solid waste services industry is highly competitive and fragmented. We compete with large, national solid waste services companies, as well as smaller regional solid waste services companies of varying sizes and resources. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than we have. We also compete with operators of alternative disposal facilities, and with municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees or tax revenue as well as their ability to regulate flow of waste streams. The U.S. solid waste industry currently includes three large national waste companies: Waste Management, Inc., Allied Waste Industries, Inc. and Republic Services, Inc. Waste Management of Canada Corporation, and BFI Canada, Inc. are our significant competitors in Canada. We compete for collection, transfer and disposal volume based primarily on the price and quality of service. From time to time, competitors may reduce the prices of their services in an effort to expand their market share or service areas or to win competitively bid municipal contracts. These practices may cause us to reduce the prices of our services or, if we elect not to do so, to lose business. Competition exists not only for collection, transfer and disposal volume, but also for acquisition candidates. We generally compete for acquisition candidates with publicly owned regional and large national solid waste services companies. Government Regulation Our facilities and operations in the United States and Canada are subject to significant and evolving federal, state, provincial and local environmental, health and safety and land use laws and regulations that impose significant compliance burdens and risks upon us and require us to obtain permits or approvals from various government agencies. We incur recurring, annual operating and capital costs in complying with this regulatory regime. Most permits or approvals must be periodically renewed. Renewals of our landfill permits may result in the imposition of additional conditions that could increase cell development and operating costs above currently anticipated levels, or may limit the type, quantity or quality of waste that may be accepted at the site, thereby reducing operating revenue. Approvals and permits may also be modified or revoked by the issuing agency, impacting operating revenue, and civil or criminal fines and penalties may be imposed for our failure to comply with the terms of our permits and approvals and applicable regulations. In addition, in connection with landfill expansions or increases in transfer station capacities, we will incur significant capital costs in order to meet applicable environmental standards that are a condition to the approval of such expansions or increases. The principal statutes and regulations that affect our operations are summarized below: The Resource Conservation and Recovery Act of 1976, as amended, or RCRA, regulates the generation, treatment, storage, handling, transportation and disposal of solid waste and requires states to develop programs to ensure the safe disposal of solid waste. The Subtitle D Regulations, which govern solid waste landfills, include location restrictions, facility design standards, operating criteria, closure and post — closure requirements, financial assurance requirements, groundwater monitoring requirements, methane gas emission control requirements, groundwatersemediation standards. and corrective action requirements. The Subtitle D Regulations_ also require certain landfill sites to meet stringent liner design criteria to keep leachate out of groundwater. All of the states in which we currently operate have adopted regulations or programs as stringent as, or more stringent than, the Subtitle D Regulations. The Federal Water Pollution Control Act of 1972, as amended, or Clean Water Act, regulates the discharge of pollutants from landfill and other sites into waters of the United States. If run —off from our transfer stations or of collected leachate from our landfills is discharged into surface waters, the Clean Water Act requires us to obtain a discharge permit, conduct sampling and monitoring and, under certain circumstances, reduce the quantity of pollutants in the discharge. Our landfills are also required to comply with the EPA's storm water regulations issued in November 1990, which are designed to prevent contaminated landfill storm water run —off from flowing into surface waters. The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or CERCLA, establishes a program for the investigation and cleanup of facilities from which a release of any hazardous substance into the environment has occurred or is threatened. CERCLA imposes strict joint and several liability for the cleanup of facilities on current owners and operators of the site, owners and operators of the site at the time of the disposal of the hazardous substances, any person who arranges for the transportation, disposal or treatment of the hazardous substances, and transporters of waste containing hazardous substances, who select the disposal and treatment facilities. CERCLA also imposes liability for the cost of evaluation and remediation of any damage to natural resources. The costs of a CERCLA investigation and cleanup can be very substantial and liability is not dependent upon a deliberate discharge of a hazardous substance. If we were found to be a responsible party for a CERCLA cleanup, the enforcing agency could hold us, or any other generator, transporter or the owner or operator of the contaminated facility, responsible for all investigative and remedial costs, even if others were also liable. While CERCLA gives a responsible party the right to bring a contribution action against other responsible parties, the ability to obtain reimbursement from others could be limited by the ability to find other responsible parties, prove the extent of their responsibility and by the financial resources of these other parties. The Clean Air Act of 1970, as amended or Clean Air Act, regulates emissions of air pollutants. The EPA has developed standards that may apply to our landfills depending on the date of construction, location, the materials disposed of at the landfill and the volume of the landfill emissions. The EPA has also issued standards regulating the disposal of asbestos containing materials under the Clean Air Act. Our disposal and collection operations are required to meet certain pennitting requirements under the Clean Air Act. We may be required to install methane gas recovery systems at our landfills to meet emission standards under the Clean Air Act. All of the federal statutes described above contain provisions authorizing, under certain circumstances, the institution of lawsuits by private citizens to enforce the provisions of the statutes. In addition to a penalty award to the U.S. government, some of these statutes authorize an award of attorneys' fees to parties successfully advancing such an action. The Occupational Safety and Health Act of 1970, as amended, ( "OSHA ") and provincial occupation health and safety laws in Canada establish employer responsibilities for worker health and safety, including the obligation to maintain a workplace free of recognized injury causing hazards and to implement certain health and safety training programs. Various OSHA standards apply to our operations, including standards concerning notices of hazards, the handling of asbestos and asbestos — containing materials and worker training and emergency response programs. In addition to these federal regulations which are a applicable to our U.S. operations, each state or province in which we operate has laws and regulations governing the generation, storage, treatment, handling, transportation and disposal of solid waste, occupational health and safety, water and air pollution and, in most cases, the siting, design, operation, maintenance, closure and post — closure care of landfills and transfer stations. Many municipalities also have ordinances, local laws and regulations that affect our operations. These include zoning and health measures which may limit solid waste management activities to specified sites or activities, impose flow control restrictions that direct the delivery of solid wastes to specific facilities or regulate discharges into municipal sewers from our solid waste facilities, laws that grant the right to establish franchises for collection services and then put these franchises out for bid, and bans or other restrictions on the movement of solid wastes into a municipality. Permits or other land use approvals for our landfalls, as well as state, provincial or local laws and regulations, may specify the quantity of waste that may be accepted at the landfill during a given time period, specify the types of waste that may be accepted at the landfill or the areas from which waste may be accepted - at a landfill. Changes in landfill design standards for landfills may require us to construct or operate future landfill cells and infrastructure to a higher and potentially more costly standard than currently anticipated. There has been an increasing trend to mandate and encourage waste reduction at the source and waste recycling, and to prohibit or restrict the disposal of certain types of solid wastes, such as yard wastes, leaves and tires, in landfills. The enactment of regulations reducing the volume and types of wastes available for transport to and disposal in landfills could affect the ability of our transfer stations and landfills to operate at full capacity. Employees As of December 31, 2005, we employed approximately 2,100 full —time employees, including approximately 120 persons categorized as professionals or managers, approximately 1,700 employees involved in collection, transfer, disposal and recycling operations, and approximately 280 sales, clerical, data processing or other administrative employees. In Canada, non — salaried employees in 14 of our 22 collection operations are governed by collective agreements, one of which is to be renewed in 2006. We are not aware of any current organizing efforts among our non— unionized employees and believe that relations with our employees are good. Executive Officers The following table sets forth information regarding our executive officers as of March 1, 2006: Name Age Position Since David Sutherland —Yoest 49 Chairman and Chief Executive Officer September 6, 2001 Charles A. Wilcox 53 President and Chief Operating Officer July 14, 2004 Ivan R. Cairns 60 Executive Vice President, General Counsel and January 5, 2004 Secretary Mark A. Pytosh 41 Executive Vice President February 23, 2004 Chief Financial Officer May 18, 2005 Brian A. Goebel 38 Vice President, Chief Accounting Officer and October 1, 2003 Corporate Controller Certain biographical information regarding each of our executive officers is set forth below: David Sutherland —Yoest has been our Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland —Yoest also held the position of Chairman and Chief Executive Officer of H2O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H2O Technologies Ltd. from March 2000 to January 2004. Mr. Sutherland —Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairman and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland —Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning — Ferris Industries, Ltd. Charles A. Wilcox was appointed our President and Chief Operating Officer effective July 14, 2004. Prior to joining us, Mr. Wilcox worked for Waste Management, Inc. from December 1994 where he held_ the positions of Senior Vice President, Market Planning and Development and prior to that Senior Vice President, Eastern Group. Ivan R. Cairns was appointed our Executive Vice President, General Counsel and Corporate Secretary effective January 5, 2004. Prior to joining us, Mr. Cairns served as Senior Vice President and General Counsel at Laidlaw International Inc. and was Senior Vice President and General Counsel at its predecessor, Laidlaw Inc., for over 20 years. In June 2001, Laidlaw Inc., and four of its direct and indirect subsidiaries, filed voluntary petitions for bankruptcy under the U.S. Bankruptcy Code and also commenced Canadian insolvency proceedings. In June 2003, these companies emerged from bankruptcy and the Canadian insolvency proceedings. Mark A. Pytosh was appointed our Executive Vice President effective February 23, 2004 and Chief Financial Officer effective May 18, 2005. Prior to joining us, Mr. Pytosh was a. Managing Director in Investment Banking at Lehman Brothers where he focused on working with clients in the industrial sector, including leading the firm's banking efforts in the solid waste industry. Before joining Lehman Brothers in 2000, Mr. Pytosh had 15 years of investment banking experience at Donaldson, Lufkin & Jenrette and Kidder, Peabody. Brian A. Goebel was appointed our Vice President, Chief Accounting Officer and Corporate Controller effective October 1, 2003. From December 1999 until joining us, Mr. Goebel, a Certified Public Accountant, held the position of Assistant Controller, ANC Rental Corporation, which owned Alamo and National Car Rental. From January 1997 to December 1999, Mr. Goebel was a Director of Corporate Accounting for AutoNation, Inc. Prior to joining AutoNation, Inc., Mr. Goebel spent eight years in the Business Assurance practice of Coopers & Lybrand, LLP. Item 1A. Risk Factors Our indebtedness may make us more vulnerable to unfavorable economic conditions and competitive pressures, limit our ability to borrow additional funds, require us to dedicate or reserve a large portion of cash flow from operations to service debt, and limit our ability to take actions that would increase our revenue and execute our growth strategy As of December 31, 2005, we had total outstanding debt and capital lease obligations of $286.7 million. Our debt is primarily comprised of a $60.0 million revolving credit facility due in April 2009, none of which was outstanding at December 31, 2005, while $18.7 million of capacity was used to support outstanding letters of credit, a $123.25 million term loan maturing in March 2011 and $160.0 million in senior subordinated notes maturing in April 2014. The senior credit facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries, as well as by a pledge of 65% of the common shares of our first tier foreign subsidiaries, including Waste Services (CA). Our Canadian operations guarantee and pledge all of their assets only in support of the $15.0 million portion of the revolving credit facility available to them. The amount of our indebtedness owed under the senior credit facilities and senior subordinated notes may have adverse consequences for us, including making us more vulnerable to unfavorable economic conditions and competitive pressures, limiting our ability to borrow additional funds, requiring us to dedicate or reserve a large portion of cash flow from operations to service debt, limiting our ability to plan for or react to changes in our business and industry and placing us at a disadvantage compared to competitors with less debt in relation to cash flow. The credit facilities contain covenants and restrictions that could limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. Any failure by us to comply with these covenants and restrictions will, unless waived by the lenders, result in an immediate obligation to repay indebtedness. If such events occurred, we would be required to refinance or obtain capital from other sources, including sales of additional debt or equity or the sale of assets, in order to meet our repayment obligations. We may not be successful in obtaining alternative sources of funding to repay these obligations should events of default occur. We also have outstanding 55,000 shares of redeemable preferred stock that entitle the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears. As our credit facilities do not permit us to declare and pay cash. dividends, these dividend payments accrue. We are required to redeem this preferred stock by no later than May 6, 2015. We may redeem the preferred stock by payment of $1,000 per share plus all accrued and unpaid dividends. Until May 6, 2006, we may redeem all or any part of the preferred stock by payment of an amount calculated as if the preferred stock were redeemed on May 6, 2006, or approximately $92.7 million for all of the preferred stock. Our business is capital intensive and may consume cash in excess of cash flow from our operations and borrowings Our ability to remain competitive, sustain our growth and maintain our operations largely depends on our cash flow from operations and our access to capital. We intend to fund our cash needs through our operating cash flow and borrowings under our senior credit facilities. We may require additional equity or debt financing to fund our growth and debt repayment obligations. Additionally, we have provided for our liabilities related to our closure and post — closure obligations. As we undertake acquisitions, expand our operations, and deplete our landfills, our cash expenditures will increase. As a result, working capital levels may decrease and require financing. If we must close a landfill sooner than we currently anticipate, or if we reduce our estimate of a landfill's remaining available air space, we may be required to incur such cash expenditures earlier than originally anticipated. Expenditures for closure and post — closure obligations may increase as a result of any federal, state or local government regulatory action taken to accelerate such expenditures. These factors could substantially increase our cash expenditures and therefore impair our ability to invest in our existing or new facilities. We may need to refinance our existing debt obligations to pay the principal amounts due at maturity. In addition, we may need additional capital to fund future acquisitions and the integration of the businesses that we acquire. Our business may not generate sufficient cash flow, we may not be able to obtain sufficient funds to enable us to pay our debt obligations and capital expenditures or we may not be able to refinance on commercially reasonable terms, if at all. We may be unable to obtain or maintain the environmental and other permits, licenses and approvals we need to operate our business, which could adversely affect our earnings and cash flow We are subject to significant environmental and land use laws and regulations. To own and operate solid waste facilities, including landfills and transfer stations, we must obtain and maintain licenses or permits, as well as zoning, environmental and other land use approvals. It has become increasingly difficult, costly and time— consuming to obtain required permits and approvals to build, operate and expand solid waste management facilities. The process often takes several years, requires numerous hearings and compliance with zoning, environmental and other requirements and is resisted by citizen, public interest and other groups. The cost of obtaining permits could be prohibitive. We may not be able to obtain and maintain the permits and approvals needed to own, operate or expand our solid waste facilities. Moreover, the enactment of additional laws and regulations or the more stringent enforcement of existing laws and regulations could increase the costs associated with our operations. Any of these occurrences could reduce our expected earnings and cash flow. In some markets in which we operate, permitting requirements may be prohibitive and may differ between those required of us and those required of our competitors. Our inability to obtain and maintain permits for solid waste facilities may adversely affect our ability to service our customers and compete in these markets, thereby resulting in reduced operating revenue. In addition, stringent controls on the design, operation, closure and post — closure care of solid waste facilities could require us to undertake investigative or remedial activities, curtail operations, close a facility temporarily or permanently, or modify, supplement or replace equipment or facilities at substantial costs resulting in reduced profitability and cash flow. - — -Any failure to maintain- the - required financial assurance or insurance to support existing or_ future service_ contracts may_ prevent us from meeting our contractual obligations, and we may be unable to bid on new contracts or retain existing contracts resulting in reduced operating revenue and earnings Municipal solid waste services contracts and permits to operate transfer stations, landfills and recycling facilities typically require us to obtain performance bonds, letters of credit or other means of financial assurance to secure our contractual performance. Such contracts and permits also typically require us to maintain adequate insurance coverage. We carry a broad range of insurance coverage and retain certain insurance exposure that we believe is customary for a company of our size. If our obligations were to exceed 10 our estimates, there could be a material adverse effect on our results of operations. We satisfy these financial assurance requirements by providing performance bonds or letters of credit. Our ability to obtain performance bonds or letters of credit is generally dependent on our creditworthiness. Also, the issuance of letters of credit reduces the availability of our revolving credit facilities for other purposes. Our bonding arrangements are generally renewed annually. If we are unable to renew our bonding arrangements on favorable terms or at all or enter into arrangements with new surety providers, we would be unable to meet our existing contractual obligations that require the posting of performance bonds, and we would be unable to bid on new contracts. This would reduce our operating revenue and our earnings. Our acquisition strategy maybe unsuccessful if we are unable to identify and complete future acquisitions and integrate . acquired assets or businesses and this subjects us to risks that may have a material adverse effect on our results of operations Part of our strategy to expand our business and increase our revenue and profitability is to pursue the acquisition of disposal —based and collection assets and businesses. We have identified a number of acquisition candidates, both in the United States and Canada. However, we may not be able to acquire these candidates at prices or on terms and conditions that are favorable to us. Furthermore, we expect to finance future acquisitions through a combination of seller financing, cash from operations, borrowings under our financing facilities or issuing additional equity or debt securities. Our ability to execute our acquisition strategy also depends upon other factors, including our ability to obtain financing on favorable terms, the successful integration of acquired businesses and our ability to effectively compete in the new markets we enter. If we are unable to identify suitable acquisition candidates or successfully complete and integrate acquisitions, we may not realize the expected benefits from our acquisition growth strategy, including any expected benefits from the proposed vertical integration of acquired operations and our existing disposal facilities. Our business strategy depends in part upon vertically integrating our operations. If we are unable to permit, expand or renew permits for our existing landfill sites or enter into agreements that provide us with access to landfill sites and acquire, lease or otherwise secure access to transfer stations, this may reduce our profitability and cash flow Our ability to execute our business strategy depends in part on our ability to permit, expand or renew permits for our existing landfills, develop new landfill sites in proximity to our operations, enter into agreements that will give us long —term access to landfill sites in our markets and to acquire, lease or otherwise secure access to transfer stations that permit us to internalize our collection volume to our own landfill sites. Permits to expand landfills are often not approved until the remaining permitted disposal capacity of a landfill is very low. We may not be able to purchase additional landfill sites, renew the permits for or expand existing landfill sites, negotiate or renegotiate agreements to obtain a long —term advantage for landfill costs or permit or renew permits for transfer stations that allow us to internalize the waste we collect. If we were to exhaust our permitted capacity at our landfills, our ability to expand internally could be limited, and we could be required to cap and close our landfills and dispose of collected waste at more distant landfills or at landfills operated by our competitors or other third parties. In Alberta, Canada, regulations require landfills to be re— approved every 10 years, thereby providing the regulator an opportunity to add potentially more stringent or costly design or operating conditions to the permit or prevent the renewal of the permit. Our landfill located in Alberta, Canada must complete this re— approval process by October 2006. Our inability to secure favorable arrangements (through ownership of landfills or otherwise) for the disposal of collected waste would increase our disposal costs and could result in the loss of business to competitors with more - favorable disposal options thereby reducing our profitability and cash flow. Changes in legislative or regulatory requirements may cause changes in the landfill site permitting process. These changes could make it more difficult or costly for us to obtain or renew landfill permits. Technical design requirements, as approved, may need modification at some future point in time, which could result in higher development and construction costs than projected. Our current estimates of future disposal capacity may change as a result of changes in design requirements prescribed by legislation, construction 11 requirements and changes in the expected waste density over the life of a landfill site. The density of waste used to convert the available airspace at a landfill into tons may be different than estimated because of variations in operating conditions, including waste compaction practices, site design, climate and the nature of the waste. Any exposure to environmental liabilities, to the extent not adequately covered by insurance, could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions We could be held liable for environmental damage at solid waste facilities that we own or operate, including damage to neighboring landowners and residents for contamination of the air, soil, groundwater, surface water and drinking water. Our liability could extend to damage resulting from pre — existing conditions and off —site contamination caused by pollutants or hazardous substances that we or our predecessors arranged to transport, treat or dispose of at other locations. We are also exposed to liability risks from businesses that we acquire because these businesses may have liabilities that we fail or are unable to discover, including noncompliance with environmental laws. Our insurance program may not cover all liabilities associated with environmental cleanup or remediation or compensatory damages, punitive damages, fines, or penalties imposed on us as a result of environmental damage caused by our operations or those of any predecessor. The incurring of liabilities for environmental damages that are not fully covered by insurance could adversely affect our liquidity and could result in significant expenses, which would reduce the funds we have available for other purposes, including debt service and reduction and acquisitions. We face competition from large and small solid waste services companies and may be unable to successfully compete with other solid waste companies reducing our operating marlins The markets in which we operate are highly competitive and require substantial labor and capital resources. We compete with large, national solid waste services companies as well as smaller regional solid waste services companies. Some of our competitors are better capitalized, have greater name recognition and greater financial, operational and marketing resources than us, or may otherwise be able to provide services at a lower price. We also compete with operators of alternative disposal facilities and municipalities that maintain their own waste collection and disposal operations. Public sector operators may have financial advantages over us because of their access to user fees and similar charges as well as to tax revenue. Responding to this competition may result in reduced operating margins. Further, competitive pressures may make our internal growth strategy of improving; service and increasing sales penetration difficult or impossible to execute. The termination or non — renewal of existing customer contracts, or the failure to obtain new customer contracts, could result in declining revenue We derive a portion of our revenue from municipal contracts that require competitive bidding by potential service providers. Although we intend to continue to bid on municipal contracts and to re —bid some of our existing municipal contracts, such contracts may not be maintained or won in the future. We may be unable to meet bonding requirements for municipal contracts at a reasonable cost to us or at all. These requirements may limit our ability to bid for some municipal contracts and may favor some of our competitors. If we - are unable -to compete successfully for municipal contracts because of bonding or other requirements, we may, lose important sources of revenue. We also derive a portion of our revenue from non — municipal contracts, which generally have a term of one to five years. Some of these contracts permit our customers to terminate them before the end of the contractual term. Any failure by us to replace revenue from contracts lost through competitive bidding, termination or non— renewal within a reasonable time period could result in a decrease in our operating revenue and our earnings. 12 I 0 F We depend on third parties for disposal of solid waste and if we cannot maintain disposal arrangements with them we could incur significant costs that would result in reduced operating margins and revenue We currently deliver a portion of the solid waste we collect to municipally owned disposal facilities and to privately owned or operated disposal facilities. If municipalities increase their disposal rates or if we cannot obtain and maintain disposal arrangements with private owners or operators, we could incur significant additional costs and, if we are not able to pass these cost increases on to our customers because of competitive pressures, this could result in reduced operating margins and revenue. Labor unions may attempt to organize our non--unionized employees, which may result in increased operating expenses Some of our employees in Canada have chosen to be represented by unions, and we have negotiated collective bargaining agreements with them. Labor unions may make attempts to organize our non — unionized employees. The negotiation of any collective bargaining.agreement could divert management's attention away from other business matters. If we are unable to negotiate acceptable collective bargaining agreements, we may have to wait through "cooling —off' periods, which are often followed by union — initiated work stoppages, including strikes. Unfavorable collective bargaining agreements, work stoppages or other labor disputes may result in increased operating expenses and reduced operating revenue. Our operating margins and profitability may be negatively impacted by increased fuel and energy costs Although fuel and energy costs account for a relatively small portion of our total operating costs, sustained increases in such costs, which we are unable to pass on to our customers because of competitive pressures or contractual limitations, could lower our operating margins and negatively impact our profitability. The industry in which we operate is seasonal and decreases in revenue during winter months may have an adverse effect on our results of operations, particularly for our Canadian operations Our operating revenue tends to be somewhat lower in the fall and winter months for our Canadian operations, reflecting the lower volume of solid waste generated during those periods. Our first and fourth quarter results typically reflect this seasonality. In addition, particularly harsh weather conditions may result in temporary slowdowns or suspension of certain of our operations or higher labor and operational costs, any of which could have a material adverse effect on our results of operations. Our Canadian operations subject its to currency translation risk, which could cause our results to fluctuate significantly from period to period A portion of our operations are domiciled in Canada; as such, we translate the results of our operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet date, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders' equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operation are re— measured. from U.S. dollars into Canadian dollars and then translated into U.S„ dollars. The effects of re— measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates. 13 Changes to patterns regarding disposal of waste could adversely affect our results of operations by reducing the volume of waste available for collection and disposal and thus reducing our earnings Waste reduction programs may reduce the volume of waste available for collection and disposal in some areas where we operate. Some areas in which we operate offer alternatives to landfill disposal, such as recycling and composting. In addition, state, local, and provincial authorities increasingly mandate recycling and waste reduction at the source and prohibit the disposal of certain types of waste, such as yard waste, at landfills. Any significant adverse change in regulation or patterns regarding disposal of waste could have a material adverse effect on our earnings by reducing the level of demand for our services, resulting in decreased revenue and the earnings we are able to generate. Limits on export of waste and any disruptions to the cross— border flow of waste may adversely affect our results of operations by increasing our costs of disposal There is limited disposal capacity available in Ontario, Canada, a market in which we have significant operations. As a result, a significant portion of the solid waste collected in Ontario is transported to sites in the United States for disposal. Disruptions in the cross — border flow of waste, or periodic closures of the border to solid waste would cause us to incur more costs due to the increased time our trucks may be required to spend at border check — points or increased processing or sorting requirements. Additionally, our trucks might be required to travel further to dispose of their waste in other areas of Ontario. Disruptions in the cross - border flow of waste could also result in a lack of disposal capacity available to our Ontario market at a reasonable price or at all. These disruptions could have a material adverse effect on our operating results by increasing our costs of disposal in the Ontario market and thereby decreasing our operating margins and could result in the loss of business to competitors with more favorable disposal options. Item 1B. Unresolved Staff Comments None. Item 2. Properties Our principal executive offices are in leased premises in Burlington, Ontario and in Boca Raton, Florida. We also have leased administrative offices in Alberta and Ontario. Our principal property and equipment consist of land, buildings, vehicles and equipment, substantially all of which are encumbered by liens in favor of our lenders under our revolving and term loan credit facilities. The following table summarizes the real properties used in our operations as of December 31, 2005: Collection Transfer Recycling Leased We use approximately 1,000 front —line waste collection vehicles in our operations. We believe that our vehicles, equipment and operating properties are adequate for our current operations. However, we expect to continue to make investments in additional equipment and property for expansion, replacement of assets and in connection with future acquisitions. Item 3. Legal Proceedings In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, 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 that is required for our operations. From time to time, we may also be subject to actions brought by citizens' groups or adjacent landowners or residents in 14 connection with the permitting and licensing of transfer stations and landfills or alleging environmental damage or violations of the permits and licenses pursuant to which we operate. 'We may become party to various lawsuits pending for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a solid waste management business. In December 2002, Waste Management of Canada Corporation (formerly Canadian Waste Services Inc.), or Canadian Waste, one of our competitors, commenced an action in the Court of Queen's Bench of Alberta against us and one of our former employees in Western Canada who had previously been employed by Canadian Waste. The action alleges breach of the employment contract between the former employee and Canadian Waste, and breach of fiduciary duties. The action also alleges that we participated in those alleged breaches. The action seeks damages in the amount of approximately C$14.5 million, and an injunction enjoining the employee from acting contrary to his alleged employment contract and fiduciary duties. In July 2004, Waste Management, Inc. or Waste Management filed a suit in the District Court of Harris County, Texas against Charles A. Wilcox, our President and Chief Operating Officer. The suit is for breach of contract, including breach of a non — competition agreement, and for a temporary and permanent injunction. Mr. Wilcox is subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management. In April 2005, Waste Management filed an amended petition and application for injunction naming us as a defendant to the suit and claiming, among other things, tortious interference with contractual relations and seeking compensatory damages from us. We intend to vigorously defend these actions both with respect to liability and damages, and no provisions have been made in these financial statements for the above matters. As of the date of this report, we do not believe that the reasonably possible losses in respect of all or any of these matters would have a material adverse impact on our business, financial condition, results of operations or cash flows. In March 2005, we filed a Complaint against Waste Management, Inc. in the United States District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste Management sought to prevent us from establishing ourselves as an effective competitor to Waste Management in the State of Florida, by tortiously interfering with our business relationships and committing antitrust violations under both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste Management. If we are successful in our suit under antitrust laws, Waste Management would be liable for treble damages or in excess of $75.0 million. Item 4. Submission of Matters to a Vote of Security Holders On December 21, 2005, we held an annual meeting of our shareholders. At the meeting, Lucien Remillard and Jack E. Short were re— elected as directors to hold office until the 2008 annual meeting of shareholders. The following table sets forth the number of votes cast for or withheld for each director nominee: Director For Withheld Lucien Remillard 73,787,206 11,776,106 Jack E. Short 76,579,740 8,983,572 15 The directors whose terns of office as director continued after the meeting were: David Sutherland — Yoest, Gary W. DeGroote, Michael B. Lazar, George E. Matelich, Wallace L. Timmeny and Michael J. Verrochi. FART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information Since March 8, 2004, our common shares have been traded on the Nasdaq National Market. From September 22, 2000 through March 7, 2004, our common shares were traded on the Nasdaq SmallCap Market. The following table provides high and low common share price information for each quarter within our last two fiscal years: Hiah Low Year', ended December 31 � Z(l`QS : First Quarter $ 382 $ 313 econ S. Quarter..: :.. �. 4 33:. Third Quarter 4 04 Fourth.Quarter .. .... 3 6z,,__.__ 3.27 Year ended December 31 2004 $ 511' e Second Quarter 5,37 Third carter Q �. , ,...... Fourth Quarter 3.91 2.41 Holders As of March 1, 2006, there were 105 holders of record of our common shares (including holders of record of exchangeable shares of Waste Services (CA)). Dividends We have not paid cash dividends on our common shares to date. The terms of our senior secured credit facilities prohibit us from paying cash dividends without the consent of our lenders. See Item 7 — "Management Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Senior Secured Credit Facilities ". We currently intend to retain our future earnings, if any, to finance the growth, development and expansion of our business and repayment of indebtedness. Accordingly, we do not intend to declare or pay any cash dividends on our common shares in the immediate future. The declaration, payment and amount of future cash dividends, if any, will be at the discretion of our board of directors after taking into account various factors. These factors include our financial condition, results of operations, cash flows from operations, current and anticipated capital requirements and expansion plans, the income tax laws then in effect and the requirements of applicable laws. Recent Sales of Unregistered Securities In August 2005, we issued 285,715 shares of our common stock valued at approximately $1.1 million in a private placement transaction in connection with an exchange of real property in Florida. This stock issuance 16 was exempt from the registration requirements pursuant to Section 4 (2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that it did not involve a public offering. Repurchases of Securities None. Item 6. Selected Financial Data The following tables set forth our selected consolidated financial data for the periods indicated and are qualified by reference to, and should be read in conjunction with our Consolidated Financial Statements and the Notes thereto, which are included elsewhere in this annual report, especially Note 3 as it relates to our business combinations, significant asset acquisitions and dispositions, and Item 7 — "Management's Discussion and Analysis of Financial Condition and Results of Operation." The financial data as of December 31, 2005, 2004, 2003, 2002 and 2001 and for each of the years then ended have been derived from our audited Consolidated Financial Statements. The selected consolidated financial data as of December 31, 2005, 2004, 2003, 2002 and 2001 and for each of the years then ended have been prepared in accordance with accounting principles generally accepted in the United States. For Each of the Years Ended December 31 2005 2004 2003 2002 2001 (in rhonsnnds. except ner share amounts) _........ iJata ... Revenue $ 382,446 $ 310,785 $ 126,750 $ 98,846 $ 93,241 Income.(loss) from.operations " 11,026 _, 7,51`,7 (5;046), 9,67 Income (loss) before cumulative effect of change in accounting principle _ _ (50,290) (48,379) (22,898) 2,127 (19,668 Basic and diluted loss per share before cumulative effect of change in accounting rn in (0.55) (1.99) (0.39) (1 60) Basic and diluted loss per share (0.51) (0.55) (1.98) (0.3 o. Cash flows from operating activities 24,623 24,697 .,446 17 IAs of December 31 _2005 2004 2003 2002 2001 (In thousands) Balance.Sfieetl)ata, .. Cash and cash equivalents $ 8,887 $ 8,507 $ 21,062 1. $ 1,775 $ 2,469 Property; equ�pmentand landfill sites, net 305,391 ! 300083" 1.92;062. 58,994: 36;708`" Goodwill and other intangible assets, net 329,471 327,756 163,380 66,596 55,089 otal assets.. 728,389 < 149,022 Total debt and capital lease obligations (exclusive of cumulative mandatorily � redeemable Preferred Stock) 286 669 278 > 363 177,449 53,645 53,005 Cumulative ,mandatorilyredeemable P re toc. " �. �. 776 408,205 t . .. Total share holders' equity 264 491 298 117 77,817 45,913 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion is based on, and should be read in- conjunction with Item 6. "Selected Financial Data" and our Consolidated Financial Statements and Notes thereto contained elsewhere in this annual report. Overview We are a multi — regional, integrated solid waste services company, providing collection, transfer, landfill disposal and recycling services for commercial, industrial and residential customers. 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 located in the United States and Canada. Our U.S. operations are located in Florida, Texas and Arizona and our Canadian operations are located in Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia). Sources of Revenue Our revenue consists primarily of fees charged to customers for solid waste collection, landfill disposal, transfer and recycling services. Q We derive our collection revenue from services provided to commercial, industrial and residential customers. Collection services 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. Q 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. 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 three to ten years and contain a formula, generally based on a 18 predetermined published price index, for 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. 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. We may also manage our exposure to commodity price fluctuations through the use of commodity brokers who will arrange for the sale of recyclable materials from our collection operations to third party purchasers. Expense Structure Our cost of operations primarily includes tipping fees and related disposal costs, labor and related benefit costs, equipment maintenance, fuel, vehicle, liability 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 third party 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 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 competitive 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 best control 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 cert ain 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 19 acquired, these costs are incorporated in the cost of the acquired business. We expense indirect and internal costs including executive salaries, overhead and travel costs related to acquisitions as they are incurred. Recent Developments On February 6, 2006 we announced the signing of definitive agreements to acquire Liberty Waste, LLC ( "Liberty Waste ") and Sun Country Materials, LLC ( "Sun Country Materials ") to expand our operations in the Tampa, Florida market. Liberty Waste is a collection operation based in Tampa with two transfer stations located in Tampa and Clearwater. The transfer stations are both permitted to accept construction and demolition and Class III waste volumes. Sun Country Materials owns a construction and demolition landfill located in Hillsborough County, Florida that is currently seeking an expansion permit. These acquisitions will complement our existing operations in the Tampa market. In addition, we will be able to internalize our existing construction and demolition waste volumes and those of Liberty Waste into the acquired landfill. The transactions are both subject to certain customary closing conditions, with the landfill acquisition also subject to the receipt of the expansion permit. The purchase price for the two businesses is $38.5 million, consisting of $13.0 million in cash, $19.0 million in shares of our common stock and $6.5 million of previous cash deposits. As additional deposits, we issued a letter of credit for $3.0 million and 946,372 shares of our common stock. The number of shares of common stock to be issued for the balance of the purchase price is determined by dividing the consideration amount by the average closing price of a share of our common stock for the ten trading days preceding the date of issuance. Critical Accounting Estimates General Our discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosure of contingent assets and liabilities. On an ongoing basis we evaluate our estimates, including those related to areas that require a significant level of judgment or are otherwise subject to an inherent degree of uncertainty. These areas include allowances for doubtful accounts, landfill airspace, intangible and long —lived assets, closure and post — closure liabilities, revenue recognition, income taxes and commitments and contingencies. We base our estimates on historical experience, our observance of trends in particular areas, information or valuations and various other assumptions that we believe to be reasonable under the circumstances and which form the basis for making judgments about the carrying value of assets and liabilities that may not be readily apparent from other sources. Actual amounts could differ significantly from amounts previously estimated. We believe that of our significant accounting policies (refer to the Notes to Consolidated Financial Statements contained elsewhere in this annual report), the following may involve a higher degree of judgment and complexity: Revenue Recognition We recognize revenue when services, such as providing collection services or accepting waste at our disposal facilities, are rendered. Amounts billed to customers prior to providing the related services are reflected as deferred revenue and reported as revenue in the period in which the services are rendered. Accounts Receivable and Allowance for Doubtful Accounts We maintain an allowance for doubtful accounts based on their expected collectibility. We perform credit evaluations of our significant customers and establish an allowance for doubtful accounts based on the aging of our receivables, payment performance factors, historical trends, and other information. In general, we reserve a portion of those receivables outstanding more than 90 days and 100% of those outstanding over 120 days. We 20 s evaluate and revise our reserve on a monthly basis based upon a review of specific accounts outstanding and our history of uncollectible accounts. Business Acquisitions and Goodwill We account for business acquisitions using the purchase method of accounting. The total cost of an acquisition is allocated to the underlying net assets based on their respective estimated fair values. As part of this allocation process, management must identify and attribute values and estimated lives to the intangible assets acquired. Such determinations involve considerable judgment, and often involve the use of significant estimates and assumptions, including those with respect to future cash inflows and outflows, discount rates and asset lives. These determinations will affect the amount of amortization expense recognized in future periods. Assets acquired in a business combination that will be re —sold are valued at fair value less cost to sell. Results of operating these assets are recognized currently in the period in which those operations occur. We account for goodwill in accordance with Statement of Financial Accounting Standards ( "SFAS ") No. 142, "Goodwill and Other Intangible Assets" and test goodwill for impairment using the two —step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. We have defined our reporting units to be consistent with our operating segments: Eastern Canada, Western Canada, Florida, Texas and Arizona. In determining the fair value, we may utilize: (i) discounted future cash flows; (ii) operating results based upon a comparative multiple of earnings or revenues; (iii) offers from interested investors, if any; or (iv) appraisals. Significant estimates used in the fair value calculation utilizing discounted future cash flows include, but are not limited to: (i) estimates of future revenue and expense growth by reporting unit; (ii) future estimated effective tax rates, which we estimate to range between 37% and 40 %; (iii) future estimated rate of capital expenditures as well as future required investments in working capital; (iv) estimated average cost of capital, which we estimate to range between 8.0% and 9.0 %; and (v) the future terminal value of our reporting unit, which is based upon its ability to exist into perpetuity. Significant estimates used in the fair value calculation utilizing market value multiples include but are not limited to: (i) estimated future growth potential of the reporting unit; (ii) estimated multiples of revenue or earnings a willing buyer is likely to pay; and (iii) estimated control premium a willing buyer is likely to pay. Judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of the acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with the acquired businesses is impaired. Additionally, as the valuation of identifiable goodwill requires significant estimates and judgment about future performance, cash flows and fair value, our future results could be affected if these current estimates of future performance and fair value change. Any resulting impairment loss could have a material adverse impact on our financial condition and results of operations. Acquisition deposits and deferred acquisition costs include capitalized incremental direct costs associated with proposed business combinations that are currently being negotiated. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged to earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. Indirect and internal costs, including executive salaries, overhead and travel costs related to acquisitions, are expensed as incurred. Long —Lived Assets We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long —lived assets including amortizing intangible assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long —lived asset group; (ii) a significant adverse change in the extent or manner in which a long —lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors 21 or in the business climate that could affect the value of a long —lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long —lived asset or asset group; (v) a current — period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long —lived asset or asset group; or (vi) a current expectation that, more likely than not, a long —lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. Upon recognition of an event, as previously described, we use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long —lived assets in assessing their recoverability. We measure impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long —lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; or (ii) the present value of estimated expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows. Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier then its contractual maturity, any remaining deferred financing costs are charged to earnings. Fees paid to lenders for amendments are deferred and expensed over the remaining life of the facility; ancillary professional fees relating to an amendment are expensed as incurred. Landfill Sites Landfill sites are recorded at cost. Capitalized landfill costs include expenditures for land, permitting costs, cell construction costs and environmental structures. Capitalized permitting and cell construction costs are limited to direct costs relating to these activities, including legal; engineering and construction costs associated with excavation, liners and site berms, leachate management facilities and other costs associated with environmental management equipment and structures. Costs related to acquiring land, excluding the estimated residual value of un— permitted, non — buffer land, and costs related to permitting and cell construction are depleted as airspace is consumed using the units —of— consumption method. Environmental structures, which include leachate collection systems, methane collection systems and groundwater monitoring wells, are charged to expense over the shorter of their useful life or the life of the landfill. Capitalized landfill costs may also include an allocation of the purchase price paid for the landfills. For landfills purchased as part of a group of several assets, the purchase price assigned to the landfill is determined based upon the discounted expected future cash flows of the landfill relative to the other assets within the acquired group. If the landfill meets our expansion criteria, the purchase price is further allocated between permitted airspace and expansion airspace based upon the ratio of permitted versus probable expansion airspace to total available airspace. Landfill sites are amortized using the units —of— consumption method over the total available airspace including probable expansion airspace where appropriate. We assess the carrying value of our landfill sites in accordance with the provisions of SFAS No. 144. These provisions, as well as possible instances that may lead to impairment, are addressed in "Long —Lived Assets ". There are certain indicators previously discussed that require significant judgment and understanding of the waste industry when applied to landfill development or expansion. We identified three sequential steps that landfills generally follow to obtain expansion permits. These steps are as follows: (i) obtaining approval from local authorities; (ii) submitting a permit application to state or provincial authorities; and (iii) obtaining permit approval from state or provincial authorities. Before expansion airspace is included in our calculation of total available disposal capacity, the following criteria must be met: (i) the land associated with the expansion airspace is either owned by us or is controlled by us pursuant to an option agreement; (ii) we are committed to supporting the expansion project financially and with appropriate resources; (iii) there are no identified fatal flaws or impediments associated with the 22 project, including political impediments; (iv) progress is being :made on the project; (v) the expansion is attainable within a reasonable time frame; and (vi) based upon senior management's review of the status of the permit process to date we believe it is more likely than not the expansion pennit will be received within the next five years. Upon meeting our expansion criteria, the rates used at each applicable landfill to expense costs to acquire, construct, close and maintain a site during the post— closure period are adjusted to include probable expansion airspace and all additional costs to be capitalized or accrued associated with the expansion airspace. Once expansion airspace meets the criteria for inclusion in our calculation of total available disposal capacity, management continuously monitors each site's progress in obtaining the expansion permit. If at any point it is determined that an expansion area no longer meets the required criteria, the probable expansion airspace is removed from the landfill's total available capacity and the rates used at the landfill to expense costs to acquire, construct, close and maintain a site during the post— closure period are adjusted accordingly. Changes in engineering estimates are primarily driven by landfill design, compaction and density. These changes primarily effect our depletion rates per ton or tonne, as applicable. The following table reflects landfill capacity activity for permitted landfills owned by us for each of the three years ended December 31, 2005, 2004 and 2003 (in thousands of cubic yards): December 31. 2005 Balance, Changes in Balance, Beginning Landfills Landfills Engineering Airspace End V., ted:States :. _.. . Permit ted capacity 268,883 (414) (2,381) 266,088 Probable expan ion capacity., Total available airspace? R7 1 RI Number of site's 4 — Canada P,ermrtted= capacity, 1.1,642 11.75 ... ;'. (879) .' 11`;878.'.:.. Probable expansion capacity — Total available airspace ... Number of sites 3 — — — 3 Total ` Permitted capacity f 280,525 701 (3,260) 277,966 " Probable expansion capacity „' ; . 1$:30'0 •, 18 "300... . Total available airspace �QR R�5 �9F OFF Number o� sites . 23 December 31 2004 Balance, Changes Balance, December 31 2003 Balance, Changes Balance ,,, Beginning Landfills Landfills Engineering Airspace End of Year Acquired Divested Estimates Consumed of Year United States Permitted capacity - 26,084 — 26,084 18:°300 P,iobable expanslon,capactty, - — — y' Total available airspace Accrued Closure and Post — Closure Obligations We recognize as an asset, an amount equal to the fair value of the liability for an asset retirement obligation. The asset is then depleted consistent with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Additionally, we recognize a liability for the present value of the estimated future asset retirement obligation. The liability will 24 Beginning Landfills Landfills Engineering Airspace End of Year Acauired Divested Estimates Consumed of Year Permitted capacity 26,084 244,000 (94) — (1,107) 268,883 Probable expansion capacity . 18,300 - `; — �. — , , — 18,300 "- Total available airspace �aa nnn �R7 I R 1 Number of sites - � 3" . � 2 � � _ • � ; (1��. 4 Canada Permitted'capaciy . 10,871 - 1,430 — — (659) ..11642:; Probable expansion capacity — — — — — Tota1`available airspace �Q.$71.�... ���i� "' "- •�� Number of sites 2 1 — — — 3 Total. Permitted capacity 36,955 245,430 (94) (1,766) 280,525 ` 11 bable expansion capacity '18.300 ;i — = — "`18.300; Total available airspace �SZS.i. 745 azn � `` � , •� �qR R�5 ��.... Number of sites 7 .'. December 31 2003 Balance, Changes Balance ,,, Beginning Landfills Landfills Engineering Airspace End of Year Acquired Divested Estimates Consumed of Year United States Permitted capacity - 26,084 — 26,084 18:°300 P,iobable expanslon,capactty, - — — y' Total available airspace Accrued Closure and Post — Closure Obligations We recognize as an asset, an amount equal to the fair value of the liability for an asset retirement obligation. The asset is then depleted consistent with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Additionally, we recognize a liability for the present value of the estimated future asset retirement obligation. The liability will 24 be adjusted for: (i) additional liabilities incurred or settled; (ii) accretion of the liability to its future value; and (iii) revisions in the estimated cash flows relative to closure and post — closure costs. As further discussed in Note 2 to the Consolidated Financial Statements, effective January 1, 2004 we changed our methodology used to define an obligating event. Accrued closure and post — closure obligations represent an estimate of the future obligation associated with closure and post — closure monitoring of the solid waste landfills owned by us. Site — specific closure and post— closure engineering cost estimates are prepared for the landfills we own. The impact of changes in estimates, based on an annual update, is accounted for on a prospective basis. We calculate closure and post — closure liabilities by estimating the total future obligation in current dollars, increasing the obligations based upon the expected date of the expenditure using an inflation rate of 2.5% and discounting the resultant total to its present value using a 9.5% credit — adjusted risk —free discount rate. For 2006, we expect to use an inflation rate of approximately 2.5% and a discount rate of approximately 8.0 %. Accretion of discounted cash flows associated with the closure and post — closure obligations is accrued over the estimated life of the landfill. Accounting for Income Taxes We use the asset and liability method to account for income taxes. Significant management judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against net deferred tax assets. In preparing the Consolidated Financial Statements, we are required to estimate the income taxes in each of the jurisdictions in which we operate. This process involves estimating the actual current tax liability together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, depreciation on property, plant and equipment and losses for tax and accounting purposes. These differences result in deferred tax assets, which include tax loss carry— forwards, and liabilities, which are included within the consolidated balance sheet. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. To the extent a valuation allowance is established or increased in a period, we include an expense within the tax provision of the consolidated statement of operations. Risk Management Our U.S. —based automobile, general liability and workers' compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers' compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. We have collateral requirements that are set by the insurance companies, which underwrite our insurance programs. Collateral requirements may change from time to time, based on, among other things, the size of our business, our claims experience, financial performance or credit quality and retention levels. As of December 31, 2005 we had posted letters of credit with our U.S. insurer of $8.4 million to cover the liability for losses within the deductible limit. During the first quarter of 2006, we increased this letter of credit to $9.3 million. Provisions for retained claims are made by charges to expense based upon periodic evaluations by management of the estimated ultimate liabilities on reported and unreported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become known. Translation and Re— Measurement of Foreign Currency A portion of our operations is domiciled in Canada; as such, for each reporting period we translate the results of operations and financial condition of our Canadian operations into U.S. dollars. Therefore, 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 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 25 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. Operating Results Results of Operations far each of the Three Years Ended December 31, 2005, 2004 and 2003 The following tables set forth our consolidated results of operations for each of the three years ended December 31, 2005, 2004 and 2003 (in thousands): zoos U.S. Canada Total Revenue $ 216,115 100:0% $ 166,331 100'.0% $- 382,446 ' 100.0 %> Operating expenses: Cost of operations = . , 1. 165;316 ,: 76.5% 111,0.13: 66.8 %0 276,329 ° 72:3 /o Selling, general and administrative 33,288 15.4% 23,197 14.0% 56,485 14.8% expense Settlement with'sellers of Flonda % — " 0.0% (4,120). —1:1% ;Recycling Depreciation, depletion and 23,598 10.9% 19,356 116% 42,954 112% amortization Foreign exchange loss (gain) and —0.1 Income (loss) from operations,..: t� mmW, ...I I JQA 2004 Operating expenses 223;397 9% Cost fz t ooperaion 126;406 75 2 %. 96,991 68, 0% Selling, general and administrative I ooZ 77 79f, 15_'i% 54.679 17.6% Depreciation, depletion and amortization 17,888 10.6% 16,316 11.4% 34,204 11.0% .n nor. /'2771. Income (loss) from operations 26 2003 U.S. Canada Total Operating expenses: Cost,dfoperatioris' 1,300 73.7% 93,377 84,677, 66.8 %. Selling, general and administrative 4,617 261.6% 25,815 20.6% 30,432 24.0% expense o Depreciation, depletion and =�0 1'1.3% 1'4,727 _. 11.8P/o 14,927_ 11:8°10 amorti2ation,. Foreign exchange loss and other , 0.0% 1.760 ---L4-(/)o 1.760 1_4% Loss `from. operations `; $..(4i521 ��° ..�•�" '�� Revenue A summary of our revenue, by service line, for each of the three years ended December 31, 2005, 2004 and 2003 is as follows (in thousands): 2005 2004 2003 Collection $ 317;687 76:6°10 $, 259,983. 78:x% ? 103,21'5.. 74.0% I Landfill disposal 44,913 10.8% 27,101 8.2% 13473 9.4% Transfer station 3$,055 ;' 10,306 , • „9.2 %„ 2.5% 27,892 10,531 8:4% 3.2% - 17;315 4,859 3.5% Material recove facilities 166;331 $ 29,074 142,718 23,978 310,785 Revenue was $382.4 million and $310.8 million for the years ended December 31, 2005 and 2004, respectively, an increase of $71.6 million or 23.1 %. The increase in revenue in 2005 for our Florida operations of $42.9 million or 29.8% was driven by price ' increases of $10.1 million, of which $3.5 million related to fuel surcharges, increased volume at our landfill sites of $5.2 million, other organic volume growth of $5.8 million and acquisitions of $33.3 million. Offsetting these increases were decreases of $6.5 million related to 2004 hurricane volumes and other decreases of $5.0 million, primarily related to our exiting of certain. lower margin _ . residential collection contracts. These contracts, which expired or were divested at, or around, the end of the third quarter of 2005, had annualized revenue of approximately $20.0 million. The increase in revenue in 2005 for our Canadian operations of $23.6 million or 16.5% was due to price increases of $7.7 million, of which $3.1 million related to fuel surcharges, increased volume at our landfill sites, primarily due to special waste projects, of $3.7 million, other organic volume growth of $1.4 million and the favorable effects of foreign exchange movements of $11.2 million, offset by other decreases of $0.4 million. 27 1 i The increase in revenue in 2005 for our other operating segments of $5.1 million or 21.3% was due to price increases of $0.8 million, of which $0.4 million related to fuel surcharges, increased volume at our landfill sites of $1.3 million, other organic volume growth of $4.7 million, offset by other decreases of $1.7 million. Revenue was $310.8 million and $126.8 million for the years ended December 31, 2004 and 2003, respectively, an increase of $184.0 million or in excess of 100 %. The increase in revenue in 2004 for our Florida operations of $144.1 million was driven by acquisitions of $126.5 million, volume at our new landfills of $7.5 million and internal growth of $10.1 million. Our internal growth in Florida was driven primarily by hurricane related collection volumes during 2004. The increase in revenue in 2004 for our Canadian operations of $17.7 million or 14.2% was due to increased volume of $4.2 million, price increases of $3.7 million, acquisitions of $0.4 million and the favorable effects of foreign exchange movements of $9.4 million. The increase in revenue in 2004 for our other operating segments of $22.2 million or in excess of 100% was due to acquisitions of $21.4 million and landfill volume at our new landfills and internal growth of $0.8 million. Cost of Operations Cost of operations was $276.3 million and $223.4 million for the years ended December 31, 2005 and 2004, respectively, an increase of $52.9 million or 23.7 %. As a percentage of revenue, cost of operations was 72.2% and 71.9% for the years ended December 31, 2005 and 2004, respectively. The increase in cost of operations in 2005 for our U.S. operations of $38.9 million or 30.8% was primarily driven by a full period of cost related to acquisitions made in Florida during the second quarter of 2004, higher overall operating and labor costs in our Florida operations, the opening of our domestic transfer stations and landfill operations in Arizona and Texas and increased fuel costs. As a percentage of revenue, cost of operations in our domestic operations was 76.4% and 75.2% for the year ended December 31, 2005 and 2004, respectively. This decline in our domestic gross margin is primarily due to the acquisition of lower margin collection operations in Florida. As compared to Canada, our lower margins in the United States are primarily driven by lower- margin residential collection business and higher operating costs in the United States. The increase in cost of operations in 2005 for our Canadian operations of $14.0 million or 14.5% was due to increased fuel costs of $1.8 million or 1.9 %, increased equipment and building repair and maintenance costs of $1.7 million or 1.8 %, increased disposal volumes and sub - contractor costs of $1.2 million or 1.2 %, increased labor, insurance and other costs of $1.8 million or 1.9% and the unfavorable effects of foreign exchange movements of $7.5 million or 7.7 %. Cost of operations as a percentage of revenue improved to 66.7% from 68.0% for the year ended December :31, 2005 as compared to the previous year. The increase in gross margin is due to an increased percentage of higher margin landfill business, offset by increased operating costs. Cost of operations was $223.4 million and $84.7 million for the years ended December 31, 2004 and 2003, respectively, an increase of $138.7 million or in excess of 100.0 %. As a percentage of revenue, cost of operations was 71.9% and 66.8% for the years ended December 31, 2004 and 2003, respectively. The increase in cost of operations in 2004 for our United States operations of $125.1 million or in excess. of 100% was .primarily driven by acquisitions in both Florida and Arizona and an increase in .landfill operating costs at our recently opened landfill sites in both Florida and Arizona. As a percentage of revenue, cost of operations in our domestic operations was 75.2% and 73.7% for the years ended December 31, 2004 and 2003, respectively. Our lower margins in the United States, as compared to Canada, were primarily driven by the higher mix of lower margin collection revenue in the United States. The increase in cost of operations in 2004 for our Canadian operations of $13.6 million or 16.3% was due to disposal and sub - contractor costs of $3.0 million or 3.6 %, increased labor of $3.0 million or 3.6 %, and fuel and other operating costs of $0.8 million or 1.0 %. The unfavorable effects of foreign exchange movements increased cost of operations by $6.8 million or 8.1 %. The increase in disposal, subcontractor, and labor costs in aggregate dollars and as a percentage of revenue was due to increased disposal volumes as well as higher 28 transportation and fuel costs in our Canadian operations coupled with a higher mix of lower margin collection revenue. Selling, General and Administrative Expense Selling, general and administrative expense was $56.5 million and $54.7 million for the years ended December 31, 2005 and 2004, respectively, an increase of $1.8 million or 3.3 %. As a percentage of revenue, selling, general and administrative expense was 14.8% and 17.6% for the years ended December 31, 2005 and 2004, respectively. Our stock based compensation expense (benefit) was $1.1 million and $(0.1) million for the years ended December 31, 2005 and 2004, respectively. The overall increase in selling, general and administrative expense is primarily due to the adverse effect of foreign exchange movements of $1.5 million. After eliminating the effects of foreign exchange movements, the reduction in selling, general and administrative expense is due primarily to lower provisions for corporate severance related costs of $0.9 million, doubtful accounts in our Arizona operations of $0.9 million and lower overall insurance costs of $0.6 million. Offsetting these decreases are $1.5 million of increases in legal and professional costs, labor and other related overhead costs, in part due to acquisitions in 2004. Separately, due to fourth quarter 2005 results not meeting management expectations we reversed $0.3 million of accrued bonus. Selling, general and administrative expense was $54.7 million and $30.4 million for the years ended December 31, 2004 and 2003, respectively, an increase of $24.3 million or 79.9 %. As a percentage of revenue, selling, general and administrative expense was 17.6% and 24.0% for the years ended December 31, 2004 and 2003, respectively. Our stock based compensation expense (benefit) was $(0.1) million and $2.7 million for the years ended December 31, 2004 and 2003, respectively. The overall increase in selling, general and administrative expense was primarily due to acquisitions in the U.S., and to increased salaries, systems and other overhead costs incurred in connection with our expansion into the U.S. In the year ended December 31, 2004, we incurred legal and professional fees of $0.8 million in connection with our migration transaction. Concurrent with our bank amendment in 2004, we incurred approximately $0.8 million of legal and professional fees that were currently expensed. During 2004, our compliance efforts with Sarbanes —Oxley increased our overhead spending on third party professionals by approximately $0.9 million. Separately, during the third quarter of 2004 and as part of our cost reduction initiatives, we reduced our workforce by approximately 55 employees and incurred approximately $2.7 million in severance charges and other related costs, of which $1.7 million related to our former President. The unfavorable effects of foreign exchange movements increased selling, general and administrative expense by $1.5 million. 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) is partially based on changes in our stock price. As of January 1, 2006, we will change our method of accounting for stock based compensation. See Note 2 of our Notes to Consolidated Financial Statements. 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 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 closing market price as of September 24, 2004) with a total value of approximately $8.6 million, are recorded as income. 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. We believe such 29 cost approximates fair value at such date. The gain recognized on the settlement approximated $4.1 million for 2005. Depreciation, Depletion and Amortization Depreciation, depletion and amortization was $43.0 million and $34.2 million for the years ended December 31, 2005 and 2004, respectively, an increase of $8.8 million or 25.7 %. As a percentage of revenue, depreciation, depletion and amortization remained relatively flat at 11.2% and 11.0% for the years ended December 31, 2005 and 2004, respectively. The overall increase in depreciation, depletion and amortization for the year ended December 31, 2005, as compared to the prior year, is primarily attributable to increases in landfill disposal volumes at our domestic and Canadian landfill sites, coupled with overall higher average depletion rates per ton. The unfavorable effects of foreign exchange movements increased depreciation, depletion and amortization by $1.3 million. 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 year ended December 31, 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 Canadian landfills during the years ended December 31, 2005 and 2004, respectively. The change in the depletion rate per tonne was primarily due to changes in engineering estimates. Depreciation, depletion and amortization was $34.2 million and $14.9 million for the years ended December 31, 2004 and 2003, respectively, an increase of $19.3 million or in excess of 100.0 %. As a percentage of revenue, depreciation, depletion and amortization was 11.0% and 11.8% for the years ended December 31, 2004 and 2003, respectively. The overall increase in depreciation, depletion and amortization was primarily due to our acquisitions in the United States coupled with depletion at three landfills that were opened during 2004. The unfavorable effects of foreign exchange movements increased depreciation, depletion and amortization by $1.1 million. Landfill depletion rates during the year ended December 31, 2004 ranged from $1.14 to $7.73 per ton for our operating U.S. landfills and C$3.31 to C$15.88 per tonne for our operating Canadian landfills. Foreign Exchange Loss (Gain) and Other Foreign exchange loss (gain) and other was $(0.2) million, $(0.4) million and $1.8 million for the years ended December 31, 2005, 2004 and 2003, respectively. The foreign exchange loss and other relates to the re— measuring of U.S. dollar denominated monetary accounts into Canadian dollars. The other gains or losses primarily relate to sales of equipment or properties. Interest Expense The components of interest expense, including cumulative mandatorily redeemable preferred stock dividends and amortization of issue costs, for the years ended December 31, 2005, 2004 and 2003 are as follows: Credit facility and Senior Subordinated Note interest: 25,374 19,858 4,011 Amorhzahpri of.debtissue,costs 3,281 ' ...' Capitalized interest Other Interest eperise — (178) 14:14 ' 864 '= 986 :?< T AR AM Interest expense was $49.2 million and $48.4 million for the years ended December 31, 2005 and 2004, respectively, an increase of $0.8 million or 1.7 %. The increase in cash interest expense for the year is due to overall 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 due to the full amortization in 2004 of the 30 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 7.80% and 7.11% for the years ended December 31, 2005 and 2004, respectively. As is discussed further in Liquidity and Capital Resources, through the first three quarters of 2005 we incurred liquidated damages (penalty interest) due to the delay of the registration of our Senior Subordinated Notes. During the third quarter of 2005, the registration statement was filed and declared effective and the exchange offer was commenced and consummated. The liquidated damages were $1.1 million and $0.2 million for the years ended December 31, 2005 and 2004, respectively. As of September 28, 2005, we were no longer subject to liquidated damages. Interest expense was $48.4 million and $18.4 million for the years ended December 31, 2004 and 2003, respectively, an increase of $30.0 million or in excess of 100.0 %. The increase in interest expense is due primarily to: (i) increased amortization of debt issue costs, which includes a $6.5 million charge for the remaining unamortized debt issue costs associated with the repayment of our 364 —day Credit Facility in April 2004, (ii) increased interest expense relative to our senior credit facilities and Senior Subordinated Notes, and (iii) increased non —cash dividends and amortization of issue costs relative to our cumulative mandatorily redeemable Preferred Stock. The weighted average interest rate on credit facility borrowings was 7.11 % and 6.54% for the years ended December 31, 2004 and 2003, respectively. Changes in fair value of warrants pending registration Due to the nature of certain financial penalties within the registration rights agreement in our April 2004 equity private placement, the common shares, warrants and related proceeds from the offering were classified outside of shareholders' equity until the registration was declared effective during August of 2004. Such amounts were reclassified to permanent equity during the third quarter of 2004. There were no penalties associated with this registration. Income Tax Provision (Benefit) The income tax provision (benefit) was $12.1 million, $7.6 million and $(0.6) million for the years ended December 31, 2005, 2004 and 2003, respectively. The income tax provision is in excess of amounts at the combined federal and state /provincial statutory rates due to the non — deductible nature of dividends accrued on our Preferred Stock, coupled with valuation allowances on our net operating losses in the United States. As of December 31, 2005, we had $93.1 million of net operating loss carry— forwards, of which, $79.8 million related to our U.S. operations. Refer to our Consolidated Financial Statements for the amount of net operating loss carry— forwards expiring in each future year. We have determined that the realization of the future tax benefit related to the Canadian loss carry— forwards totaling $13.3 million is more likely than not and accordingly, have not provided a tax valuation allowance against the benefit of these tax loss carry— forwards as they are expected to be utilized through future operations and certain tax planning strategies. Due to the start—up nature of our U.S. operations, we have provided a 100% valuation allowance for our net operating loss carry— forwards generated in the United States. Separately, changes in our ownership structure in the future could result in limitations on the utilization of loss carry— forwards, as imposed by Section 382 of the U.S. Internal Revenue Code. Liquidity and Capital Resources Our principal capital requirements are to fund capital expenditures, debt service and business and asset acquisitions. Significant sources of liquidity are cash on hand, working capital, borrowings from our Credit Facilities and proceeds from debt and equity issuances. Senior Secured Credit Facilities On April 30, 2004, we entered into 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 31 facility in the amount of $100.0 million. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the common shares of Waste Services' first tier foreign subsidiaries, including Waste Services (CA), are pledged to secure obligations under the Credit Facilities. As of December 31, 2005, there were no amounts outstanding on the revolving credit facility, while $18.7 million of capacity was used to support outstanding letters of credit. As of June 30, 2004, we failed to meet certain of the financial covenants contained in the Credit Facilities. On October 4, 2004, we entered into an amendment to the credit agreement with the administrative agent for the lenders. The amendment included changes to certain of the financial and other covenants contained in the Credit Facilities and increased the 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 for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. 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 common stock purchase warrants for net proceeds of approximately $6.8 million in satisfaction of this covenant. On October 26, 2005, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment, 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 restored access under the revolving credit facility to $60.0 million, up to $15.0 million of which is available to our Canadian operations. On December 28, 2005, we entered into another amendment to the Credit Facilities, which provided for the incurrence of up to $50.0 million of additional tenn loans under a new term loan tranche, as provided for under the terms of our existing Credit Facilities. We drew $25.0 million of this facility at closing to refinance amounts then outstanding under our existing revolving credit facility. The $25.0 million available portion of the new term loan tranche is available on a delayed draw basis until March 30, 2006 for the financing of potential acquisitions that are otherwise: permitted under the terns of the Credit Facilities and that do not materially increase total leverage on a pro forma basis. Our Credit Facilities, as amended, contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) minimum consolidated interest coverage; (ii) maximum total leverage; and (iii) maximum senior secured leverage. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. The following table sets forth our financial covenant levels for each of the next four quarters: Maximum Consolidated Maximum Senior Secured Minimum Consolidated Consolidated Leverage Interest Coverage Fiscal Quarter Leverage Ratio Ratio Ratio FQ12006 ` 5 25 ?1 00. , 2 2`5 1,.0.0 FQ2 2006 5.25:1.00 21..25.:1.00 2.00 1 00 2:2 1 00 2.00 1 OQ;.. _ . FQ4 2006 4.75:1.00 2.25:1.00 2.25:1.00 As of December 31, 2005, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods. 32 Senior Subordinated Notes On April 30, 2004, we completed a private offering of 91/2% Senior Subordinated Notes ( "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 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 indebtedness under 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 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 entered into a Registration Rights Agreement with the initial purchaser of the Senior Subordinated Notes in which we agreed to file a registration statement for the exchange of the Senior Subordinated Notes for registered notes with identical terms and have such registration declared effective within specified time frames. Prior to the third quarter of 2005, as we had not complied with these requirements of the Registration Rights Agreement, 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 of 2005, 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. Equity Placements On April 30, 2004, we raised approximately $50.7 million, after deducting expenses of approximately $2.9 million, from the sale of 13,400,000 shares of our common stock and warrants to purchase 1,340,000 common shares in private placement transactions to certain investors. Sanders Morris Harris Inc. acted as the placement agent for the issuance and was paid a placement agent fee of approximately $2.7 million. Don A. Sanders, a director of ours at the time of such issuance, is a principal of Sanders Morris Harris Inc. On March 4, 2005, we exercised our put rights under our standby purchase agreement with Michael DeGroote, and issued 2,640,845 shares of common stock to Mr. DeGroote for net proceeds of approximately $6.8 million. Additionally, we issued warrants to purchase 264,085 shares of common stock at an exercise price of $2.84 per share. The warrants remain exercisable until March 2010. This equity infusion was required as a condition to our Credit Facilities. 33 Cumulative Mandatory Redeemable Preferred Stock In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the "Preferred Stock ") to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively "Kelso "), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February and June 2004 (the "Subscription Agreement "), at a price of $1,000 per share. We also issued to Kelso warrants to purchase 7,150,000 shares of our common stock (on a one — for —one basis) for $3.00 per share. The warrants are exercisable at anytime until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non — voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum ' compounding and accruing quarterly in arrears. The liquidation preference approximated $87.3 million as of December 31, 2005. The Preferred Stock entitles the holders to a liquidation preference of $1,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such share as of any date of determination. As we are not permitted to declare and pay cash dividends pursuant to the terms of our Credit Facilities, the dividends are accrued. 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 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 to redeem approximately $156.1 million of principal and accrued dividends, 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, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the 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 Preferred Stock gave notice requiring the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference of $1,000 per share. If the sale day has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date. Also pursuant to the Amended Certificate of Designations, if we become subject to a liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit Agreement dated April 30, 2004) or in the event of a change of control (as such term is defined in the Amended Certificate of Designations), all payments and other distributions to holders of Preferred Stock will be subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as provided for in the Amended Certificate of Designations, or the distribution of additional shares or other equity securities to the holders of Preferred Stock, so long as such additional shares or other equity securities are subject to at least equivalent subordination provisions. In addition, the Amended Certificate of Designations prohibits us from making any payment or distribution to the holders of Preferred Stock in the event of a sale of our assets, or the exercise by the holders of the Preferred Stock of their right to require payment of the liquidation_ amount of their shares as a result of the failure to consummate a sale of our assets as described in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to the terms of the agreement then governing our Credit Facilities. Migration Transaction Effective July 31, 2004, we entered into a migration transaction by which our corporate structure was reorganized so that Waste Services became the ultimate parent company of our corporate group. Prior to the 34 migration transaction, Waste Services was a subsidiary of Waste Services (CA). After the migration transaction, Waste Services (CA) became a subsidiary of Waste Services. 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 Waste Services (CA) for 87,657,035 shares of our common stock; and (ii) the conversion of the remaining 9,229,676 common shares of Waste Services (CA) 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 our common 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, who will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are a component of our common equity. Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), or after the redemption date, our Canadian holding company, Capital Environmental Holdings Company will have the right to purchase each exchangeable share for a share of our common stock, plus all declared and unpaid dividends on the exchangeable share. Unless certain events occur, such redemption date will not be earlier than December 31, 2016. Holders of exchangeable shares also have the right at any time at their option, to exchange their exchangeable shares for shares of our common stock. Surety Bonds and Letters of Credit Municipal solid waste services contracts, permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. As of December 31, 2005, we had provided customers, various regulatory authorities and our insurer with such bonds and letters of credit amounting to approximately $65.5 million to collateralize our obligations, of which $18.7 million relates to estimated closure and post closure obligations at our landfills and transfer stations. We expect future increases in these levels of financial assurance relative to our closure and post closure obligations as we utilize capacity at our landfills. Cash Flows The following discussion relates to the major components of the changes in cash flows for the years ended December 31, 2005, 2004 and 2003. Cash Flows from Operating Activities Cash provided by operating activities was $24.6 million and $24.7 million for the years ended December 31, 2005 and 2004, respectively. The increase in cash provided by operating activities is primarily due to cash generated from our operations. Cash provided by operating activities was $24.7 million and $9.4 million for the years ended December 31, 2004 and 2003, respectively. The increase in cash provided by operating activities was primarily due to cash generated from -our Canadian operations and domestic acquisitions as well as improvements in working capital. Cash Flows used in Investing Activities Cash used in investing activities was $39.5 million and $198.2 million for the years ended December 31, 2005 and 2004, respectively. The decrease in cash used in investing activities is primarily due to the various business acquisitions we completed during 2004, which used $164.8 million of cash, coupled with lower capital 35 expenditures as compared to 2004 of $12.6 million„ offset by minor asset acquisitions and contingent purchase price payments of $8.1 million in 2005. We expect our capital expenditures to range from $42.0 million to $45.0 million for all of 2006. 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, proceeds from asset sales and the issuance of additional debt and /or equity securities. Cash used in deposits for business acquisitions primarily relates to ongoing negotiations with Lucien Remillard, one of our directors, concerning the potential acquisition of the solid waste collection and disposal business assets owned by a company controlled by Mr. Remillard in Quebec, Canada. In connection with these negotiations, we have reimbursed Mr. Remillard'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 used in investing activities was $198.2 million and $195.6 million for the years ended December 31, 2004 and 2003, respectively, The increase in cash used in investing activities was primarily due to the various business acquisitions we completed during 2004, which used $164.8 million of cash, and increased capital expenditures by $21.8 million as compared to 2003. Proceeds from business divestitures of $14.2 million primarily related to the sale of non —core assets acquired as part of the Allied and Florida Recycling transactions. Cash Flows from Financing Activities Cash provided by financing activities was $14.9 million and $160.7 million for the years ended December 31, 2005 and 2004, respectively. The decrease in cash provided by financing activities is due to our debt and equity private placements of $336.6 million in 2004 not recurring to the same extent in 2005. In 2005, we issued $25.0 million under our credit facilities and equity private placements of $7.5 million. Cash provided by financing activities was $160.7 million and $205.1 million for the years ended December 31, 2004 and 2003, respectively. The decrease in cash flows from financing activities was due to overall lower equity offerings and related proceeds offset by releases of cash collateral supporting outstanding letters of credit. 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(8) 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. As a result of the amendment to Rule 4 -01(a) adopted in April 2005, 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(8) using the modified prospective method, which will result in the recognition of compensation expense for all awards granted after the effective date and all previously granted share —based awards that remain unvested at the effective date. As a result of adopting SFAS 123(8) we expect our stock based compensation costs related to those options outstanding at December 31, 2005 and continuing to vest, to approximate $2.0 million for the year .ended. _.... December 31, 2006. 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 36 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 wanner climates than our Canadian operations, is less significant than on our Canadian operations. Off - Balance Sheet Financing We have no off - balance sheet debt or similar obligations, other than our letters of credit and performance and surety bonds discussed previously, which are not debt. We have no transactions or obligations with related parties that are not disclosed, consolidated into or reflected in our reported results of operations or financial position. We do not guarantee any third party debt. We have entered into a put or pay disposal agreement with RCI Environment Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM 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 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 the notes to our Consolidated Financial Statements. On January 17, 2006, Waste Management drew C$0.3 million against the letter of credit posted by us to secure RCI's obligations, as such we have provided for the draw as of December 31, 2005. The companies within the RCI group are controlled by a director of ours and/or individuals related to that director. Tabular Disclosure of Contractual Obligations We have various commitments primarily related to funding of short-term debt, our Preferred Stock, closure and post - closure obligations and capital and operating lease commitments. You should also read our discussion regarding "Liquidity and Capital Resources" earlier in this Item 7 — "Management's :Discussion and Analysis of Financial Condition and Results of Operations ". The following table provides details regarding our contractual obligations and other commercial commitments subsequent to December 31, 2005 (in thousands): Beyond 5 Oneratine lease commitments 5,359 4,656 4,016 2,773 1 3tS9 I,2Sy:) t i,uaa Construction commitments - - 7,014 — — — — (1) Refer to the notes contained in our Consolidated Financial Statements included elsewhere in this annual report for information relative to interest repayment provisions. 37 (2) This table includes our cumulative mandatorily redeemable Preferred Stock, which must be redeemed in full no later than May 2015. The future payment of $156.1 million represents the principal, plus accrued dividends at 17.75% compounded quarterly to May 6, 2009, which is the earliest date Kelso may require us to repay the obligation. If we do not redeem by May 6, 2009, Kelso may require us to initiate a sale of our assets on terms acceptable to our Board of Directors. (3) Future payments on closure and post — closure obligations are not discounted and contemplate full utilization of current and probable expansion airspace. Other Contractual Arrangements As a condition of the purchase of the Cactus Landfill in Arizona, the sellers are entitled to additional purchase consideration upon the landfill achieving certain average tons per day thresholds in any quarter. Should the landfill achieve a maximum 5,000 tons per day, the total contingent payments would not exceed $18.0 million. During 2005, we paid $3.0 million relative to our obligation under this agreement. 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 of disposal facilities 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. In the normal course of our business, we have other commitments and contingencies relating to environmental and legal matters. For a further discussion of commitments and contingencies, see our Consolidated Financial Statements contained elsewhere in this annual report. In addition certain of our executives are retained under employment agreements. These employment agreements vary in term and related benefits. Refer to Item 11 — "Executive Compensation" contained elsewhere in this annual report for a more detailed discussion of our employment agreements. Item 7A. Quantitative and Qualitative Disclosures About Market Risk A portion of our operations are domiciled in Canada; as such, we translate the results of our operations and financial condition of our Canadian operations into U.S. dollars. Therefore, our reported results of operations and financial condition are subject to changes in the exchange relationship between the two currencies. For example, as the relationship of the Canadian dollar strengthens against the U.S. dollar our revenue is favorably affected and conversely our expenses are unfavorably affected. Assets and liabilities of Canadian operations have been translated from Canadian dollars into U.S. dollars at the exchange rates in effect at the relevant balance sheet date, and revenue and expenses of Canadian operations have been translated from Canadian dollars into U.S. dollars at the average exchange rates prevailing during the period. Unrealized gains and losses on translation of the Canadian operations into U.S. dollars are reported as a separate component of shareholders' equity and are included in comprehensive income (loss). Separately, monetary assets and liabilities denominated in U.S. dollars held by our Canadian operation are re— measured from U.S. dollars into Canadian dollars and then translated into U.S. dollars. The effects of re— measurement are reported currently as a component of net income (loss). Currently, we do not hedge our exposure to changes in foreign exchange rates. For the years ended December 31., 2005 _. and 2004 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 $0.6 million. As of December 31, 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 Eurodollar loans as defined. A 25 basis point increase in base interest rates relative to our revolving and term facilities would increase annual cash interest expense by approximately $0.2 million. 38 Item 8. Financial Statements and Supplementary Data All financial statements and supplementary data that are required by this Item are listed in Part IV, Item 15 of this annual report and are presented beginning on Page F -1. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not Applicable Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported accurately within the time periods specified in the Securities and Exchange Commission's ( "SEC ") rules and forms. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer ( "CEO ") and Chief Financial Officer ( "CFO "), of the effectiveness of the design and operation of our disclosure controls and procedures (pursuant to Exchange Act Rule 13a -15). Based upon this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective. The conclusions of the CEO and CFO from this evaluation were communicated to the Audit Committee. Changes in Internal Control Over Financial Reporting There were no changes in our internal control over financial reporting that occurred during our last fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 39 Management's Report on Internal Control Over Financial Reporting The report is included in Item 8 of this annual report. Attestation Report of Registered Public Accounting Firm The report is included in Item 8 of this annual report. Item 9B. Other Information None. PART III Item 10. Directors and Executive Officers of the Registrant Directors The following table sets forth certain information with respect to our directors as of March 1, 2006: Name Aee Since Position David Sutherland —Yoest 49 September 6, 2001 Chairman, Chief Executive Gary W. DeGroote(3) Michael B. Lazar(3) George E. Matelich(2) Lucien Remillard Jack E. Short(1)(2) Wallace L. Timmeny(1)(2)(3) Michael J. Verrochi(1)(2) (1) Member of the Audit Committee. (2) Member of the Governance Committee. (3) Member of the Compensation Committee. Biographical information regarding each of our directors is set forth below: David Sutherland —Yoest has been Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland —Yoest also held the position of Chairman and Chief Executive Officer of H2O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H2O Technologies Ltd. -from March 2000 to January 2004. Mr. Sutherland -Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairn ian and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland —Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning — Ferris Industries, Ltd. Gary W. DeGroote has been a director since September 6, 2001. Mr. DeGroote has been the President and sole director of GWD Management Inc., a private investment holding company since 1981. From 1991 to 1995, Mr. DeGroote was President and a director of Republic Environmental Systems Ltd. From 1976 through 11989, Mr. DeGroote served in various positions at Laidlaw Waste Systems Ltd. and its affiliates, including as Vice President and served as a member of the board of directors of Laidlaw Inc. from 1983 to 1989. Mr. DeGroote also serves as a director of Century Business Services, Inc. 40 Officer and Director 50 September 6, 2001 Director 36 May 6, 2003 Director 49 May 6, 2003 Director 58 September 6, 2001 Director 65 July 28, 2004 Director 68 July 28, 2004 Director 66 July 28, 2004 Director Biographical information regarding each of our directors is set forth below: David Sutherland —Yoest has been Chairman and Chief Executive Officer and a director since September 6, 2001. Mr. Sutherland —Yoest also held the position of Chairman and Chief Executive Officer of H2O Technologies Ltd., a water purification company, from March 2000 to October 2003 and served as a director of H2O Technologies Ltd. -from March 2000 to January 2004. Mr. Sutherland -Yoest served as the Senior Vice President — Atlantic Area of Waste Management, Inc. from July 1998 to November 1999. From August 1996 to July 1998, he was the Vice Chairn ian and Vice President — Atlantic Region of USA Waste Services, Inc., or USA Waste and the President of Canadian Waste Services, Inc., which, during such time, was a subsidiary of USA Waste. Prior to joining USA Waste, Mr. Sutherland —Yoest was President, Chief Executive Officer and a director of Envirofil, Inc. Between 1981 and 1992, he served in various capacities at Laidlaw Waste Systems, Inc. and Browning — Ferris Industries, Ltd. Gary W. DeGroote has been a director since September 6, 2001. Mr. DeGroote has been the President and sole director of GWD Management Inc., a private investment holding company since 1981. From 1991 to 1995, Mr. DeGroote was President and a director of Republic Environmental Systems Ltd. From 1976 through 11989, Mr. DeGroote served in various positions at Laidlaw Waste Systems Ltd. and its affiliates, including as Vice President and served as a member of the board of directors of Laidlaw Inc. from 1983 to 1989. Mr. DeGroote also serves as a director of Century Business Services, Inc. 40 Michael B. Lazar has been a director since May 6, 2003. Mr. Lazar is the Chief Operating Officer of BlackRock Kelso Capital, a business development company that provides debt and equity capital to middle market companies. Prior to joining BlackRock Kelso Capital in 2005, Mr. Lazar was a Managing Director and Principal at Kelso & Company having joined in 1993. Prior to joining Kelso, Mr. Lazar worked in the Acquisition Finance Group at Chemical Securities, Inc. (predecessor to JP Morgan Securities, Inc.). Mr. Lazar began his career in the Corporate Finance and Structured Finance Groups at Chemical Bank. Mr. Lazar is also a director of Endurance Business Media, Inc.. Mr. Lazar is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock, George E. Matelich has been a director since May 6, 2003. Mr. Matelich has been a Managing Director of Kelso & Company since 1990. Mr. Matelich has been affiliated with Kelso & Company since 1985. Mr. Matelich serves as a director of Coffeyville Resources LLC, Optigas, Inc. and as a Trustee of the University of Puget Sound. Mr. Matelich is a nominee to the Board of Directors of Kelso Investment Associates VI, L.P. and KEP VI, LLC, affiliates of Kelso & Company, as holders of our Preferred Stock. Lucien Remillard has been a director since September 6, 2001. Mr. Remillard has been the President and Chief Executive Officer of RCI Environnement Inc., a waste management company, since 1997. From 1981 to 1995, Mr. Remillard was the President and Chief Executive Officer of Intersan, Inc., a waste management company. Mr. Remillard has also served as a director of the Greater Montreal Area Comite Paritaire des Boueurs, the organization regulating labor relations for the Montreal solid waste removal industry, since 1983. Mr. Remillard is also Chairman of the board of directors of Remstar Corporation, an independent distribution and film production company. Jack E. Short became a director on July 28, 2004. In July 2001, Mr. Short was appointed by the Federal Bankruptcy court for Northern Oklahoma to act as plan agent in the consolidated bankruptcy of Manchester Gas Storage, Inc., and MGL, Inc. In March 2004, a court order was given to close the case and discharge the plan agent. In June 2002, Mr. Short was appointed to the board of T.D. Williamson, Inc. and serves on the finance and audit committees of that company. In July 2004, Mr. Short was appointed to the board of AAON, Inc. and serves on the audit and governance committees. Mr. Short was a partner at PricewaterhouseCoopers LLP from 1976 to 1981 and was readmitted to the partnership in 1987 and was a partner until his retirement in 2001. From 1981 to 1987, Mr. Short was in private industry. In 1994, Mr. Short was appointed for a five —year term to the Oklahoma Board of Accountancy, serving as its chairman for two of those years. Wallace L. Timmeny became a director on July 28, 2004. Mr. Timmeny has been a partner in the law firm of Dechert LLP since 1996. Mr. Timmeny is a past chairman of the Executive Council of the Securities Law Committee of the Federal Bar Association. From 1965 to 1979, Mr. Timmeny was an attorney with the U.S. Securities and Exchange Commission and ultimately the deputy director of its Division of Enforcement. Mr. Timmeny serves on the board of directors for Friedman, Billings, Ramsey Group, Inc. Michael J. Verrochi became a director on July 28, 2004. Mr. Verrochi is currently Chairman and Chief Executive Officer of Verrochi Realty Trust and Chairman and Chief Executive Officer of Monadnock Mountain Spring Water. Mr. Verrochi served in senior executive positions, including Executive Vice — President, with Browning — Ferris Industries, Inc., a solid waste management company, and as a member of its board of directors. We have a separately designated standing Audit Committee. The members of the Audit Committee are Jack E. Short, Wallace L. Timmeny and Michael J. Verrochi. The Board has determined that we have at least one financial expert on our Audit Committee, Jack E. Short, who is an independent director. Section 16(a) Beneficial Ownership Reporting Compliance Based solely on a review of reports of ownership, reports of changes of ownership and written representations under Section 16 (a) of the Exchange Act that were furnished to us during fiscal 2005 for persons who were, at any time during fiscal 2005, our directors or executive officers or beneficial owners of 41 more than 10% of the outstanding shares of our common stock, all filing requirements for reporting persons were met except by David Sutherland —Yoest who filed one late report with respect to one transaction and Westbury Bermuda Ltd. which filed one late report with respect to one transaction. Code of Ethics We have adopted a Code of Business Conduct and Ethics which applies to all of our employees, including our Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer and Corporate Controller. A copy of the Code of Business Conduct and Ethics may be accessed on our website http: / /www,wasteservicesinc.com. 42 Item 11. Executive Compensation Compensation Paid to Named Executive Officers The following table provides information relating to compensation for our last three fiscal years for each person who served as the Chief Executive Officer during fiscal 2005 and our four other most highly compensated executive officers serving at the end of 2005. The amounts shown include compensation for services in all capacities that were provided to us and to our direct and indirect subsidiaries and predecessors. Summary Compensation Table (1) All our named executive officers took a salary reduction of 20% of their base salary during the last 4 months of 2004. (2) Consists of $900 in term life insurance premiums. (3) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. (4) Consists of $6,740 in contributions to our Canadian deferred profit sharing plan and $1,860 in term life insurance premiums. (5) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. (6) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. 43 Long -Term ICompensation Awards Annual Compensation Securities ' Underlying Salary Bonus Options/ All Other ' Name and Principal Position Year _ ($)(1) ($) SARS Compensation (In thousands of U.S. dollars, except securities underlying options /SARS) ' David Sutherl and-Yo est 2005 $ 589.0 $ 224.0 - $ 0.9(2) Chairman and Chief Executive Officer 2004 476.7 - - - 2003 223.1 428.3 1,000,000 - Charles A. Wilcox 2005 463.5 151.2 - 25.2(3) President and Chief Operating Officer 2004 192.1 125.0 1,250,000 11.5 ffedive;'July.14,.2004 8.6(4) Ivan R. Cairns 2005 399.1 147.8 - 4.8 Executive Vice - President, General 2004 330.3 - - Counsel and Corporate Secretary Effective January 5, 2004 2003 - - 600,000 - Mark A. Pytosh 2005 399.2 134.4 - 25.2(5) Executive Vice - President, Effective 2004 312.3 - 1,500,000 18.9 February 23, 2004 Chief;Financial Officer, Effective X003 May 1.8: 2005 Brian A. Goebel 2005 207.4 75.0 30,000 25.2(6) Vice - President, Controller and Chief 2004 194.4 25.0 75,000 22.4 Accounting Officer Effective October 1, 2003 2003 35.0 54.4 75,000 1.8 (1) All our named executive officers took a salary reduction of 20% of their base salary during the last 4 months of 2004. (2) Consists of $900 in term life insurance premiums. (3) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. (4) Consists of $6,740 in contributions to our Canadian deferred profit sharing plan and $1,860 in term life insurance premiums. (5) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. (6) Consists of $23,500 in health insurance premiums and $1,740 in term life insurance premiums. 43 Directors' Compensation The Board of Directors has determined that non — employee directors will receive the following compensation for acting as directors effective from July 31, 2004: • $15,000 as an annual retainer for each Director • $20,000 as additional annual retainer for Chair of the Audit Committee • $15,000 as an additional retainer for members of the Audit Committee • $5,000 as an additional annual retainer for Chair of the Compensation Committee • $5,000 as additional annual retainer for the Chair of the Corporate Governance Committee • $1,500 or $500 per meeting participation in person or by telephone, respectively. Employment Agreements David Sutherland— Yoest. Mr. Sutherland —Yoest has served as our Chairman and Chief Executive Officer since September 6, 2001. On October 26, 2005, we amended Mr. Sutherland — Yoest's employment agreement to reflect terms and conditions substantially similar to those in the employment agreements we have with our other senior executive officers. The agreement continues until terminated and provides for a base salary of $500,000.00 per year, subject to future increases as determined by the Board or the Compensation Committee, and eligibility for a performance based cash bonus with a target of 100% of his base salary. By the terms of the agreement, if we terminate Mr. Sutherland — Yoest's employment other than for "cause" or if he terminates his employment with us for "good reason" ( as such terms are defined in the employment agreement), he is entitled to continuance of his base salary _ for a _ period of 3 years and to receive three times his average bonus in the prior three fiscal years ( "Bonus Average ") in equal installments over 36 months and all options then outstanding will vest and continue to be exercisable in accordance with the terms of the stock option plan pursuant to which such options were granted, as then in effect. If a change of control has occurred within two years preceding or one year after the effective date of termination of his employment by us without "cause" or by Mr. Sutherland — Yoest for "good reason" or if a change of control has occurred within six months preceding the effective date of termination where Mr. Sutherland — Yoest terminates his employment without "good reason ", then Mr. Sutherland —Yoest is entitled to be paid a lump sum of three times the sum of his base salary and Bonus Average. Mr. Sutherland — Yoest's employment agreement also provides for 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 of time following his termination. Charles A. Wilcox. Mr. Wilcox is employed as our President and Chief Operating Officer pursuant to the terms of an employment agreement dated as of July 1, 2004. The agreement continues until terminated 44 and provides for a base salary of $450,000, subject to annual review, and eligibility for a performance based cash bonus with a target of 75% of his base salary in 2004 and thereafter, of 100% of his base salary. Mr. Wilcox received a one —time bonus of $125,000 at the time of entering into his employment agreement. By the terms of the agreement, if we terminate Mr. Wilcox's employment other than for "cause" or if he terminates his employment with us for "good reason" ( as such terms are defined in the employment agreement), he is entitled to continuance of his base salary for a. period of three years months and to receive three times his average bonus in the prior three fiscal years ( "Bonus Average ") in equal installments over 36 months and all options then outstanding will vest and continue to be exercisable in accordance with the terns of the stock option plan pursuant to which such options were granted, as then in effect. If a change of control has occurred within two years preceding or one year after the effective date of termination of his employment by us without "cause" or by Mr. Wilcox for "good reason ", then Mr. Wilcox is entitled to be paid a lump sum of three times the sum of his base salary and Bonus Average. Mr. Wilcox's employment agreement also provides for benefits and perquisites, some of which will continue after his tennination, and prohibits Mr. Wilcox from competing against us during the term of his employment and for a specified period of time following his tennination. Ivan R. Cairns. Mr. Cairns is employed as our Executive Vice — President, General Counsel and Corporate Secretary pursuant to an employment agreement effective January 5, 2004. The agreement continues until terminated and provides for a base salary of $330,000, subject to annual review and eligibility for a performance based cash bonus with a target of 100% of his base salary. By the terms of the agreement, if we tenminate Mr. Cairns' employment other than for "cause ", death or disability or if he terminates his employment with us for "good reason" ( as such terns are defined in the employment agreement), he is entitled to continuance of his base salary for a period of two years and to receive two times his average bonus in the prior three fiscal years ( "Bonus Average ") in equal installments over 24 months and all options then outstanding will vest and continue to be exercisable in accordance with the terms of the stock option plan pursuant to which such options were granted, as then in effect. If a change of control has occurred within two years preceding or one year after the effective date of termination of his employment by us without "cause" or by Mr. Cairns for "good reason ", then Mr. Cairns is entitled to be paid a lump sum of three times the sum of his base salary and Bonus Average. On termination by reason of death or disability, Mr. Cairns' entitlement is to be paid his base salary for a period for three years and his Bonus Average in equal installments over 36 months and all of his options then outstanding vest and continue to be exercisable in accordance with the terms of the plan pursuant to which the options were granted, as then in effect. Mr. Cairns' employment agreement also provides for benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Cairns from competing against us during the term of his employment and for a specified period of time following his termination. Mark A. Pytosh. Mr. Pytosh is employed as our Executive Vice — President and Chief Financial Officer pursuant to an employment agreement dated February 23, 2004. The agreement continues until terminated and provides for a base salary of $400,000, subject to annual review and eligibility for a performance based cash bonus with a target of 100% of his base salary. By the terms of the agreement, if we terminate Mr. Pytosh's employment other than for "cause" or if he terminates his employment with us for "good reason" ( as such terms are defined in the employment agreement), he is entitled to continuance of his base salary for a period of two years and to receive 3 times his average bonus in the prior three fiscal years ( "Bonus Average ") in equal installments over 36 months and all options then outstanding will vest and continue to be exercisable in accordance with the terms of the stock option plan pursuant to which such options were granted, as then in effect. If a change of control has occurred within two years preceding or one year after the effective date of termination of his employment by us without "cause" or by Mr. Pytosh for "good reason ", then Mr. Pytosh is entitled to be paid a lump sum of three times the sum of his base salary and Bonus Average. On termination by reason of death or disability, Mr.Pytosh's entitlement is to be paid his base salary for a period for three years and his Bonus Average in equal installments over 36 months and all of his options then outstanding vest and continue to be exercisable in accordance with the terms of the plan pursuant to which the options were granted, as then in effect. Mr. Pytosh employment agreement also provides for benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Pytosh from competing against us during the term of his employment and for a specified period of time following his termination. 45 Brian A. Goebel. Mr. Goebel is employed as our Vice — President, Controller and Chief Accounting Officer pursuant to an employment agreement dated October 1, 2003. The agreement is for continuous one year terms, provides for annual compensation of an amount fixed by the Chief Financial Officer and eligibility for a performance based cash bonus with a target of 60% of his base salary. By the terms of the agreement, if we terminate Mr. Goebel's employment without "cause ", or if he terminates his employment with us for "good reason" (as such terms are defined in the employment agreement), Mr. Goebel is entitled to continuance of his base salary for a period of twelve months and all options then outstanding will vest and be exercisable in accordance with the terms of the plan pursuant to which the options were granted, as then in effect. Mr. Goebel's employment agreement also provides for certain benefits and perquisites, some of which will continue after his termination, and prohibits Mr. Goebel from competing against us during the term of his employment and for a specified period of time following his termination. Compensation Committee Interlocks and Insider Participation Wallace L. Timmeny, Chair, Gary W. DeGroote and Michael B. Lazar served as the members of our Compensation Committee during 2005. None of the members of our Compensation Committee are officers or employees or former officers or employees of ours or of any of our subsidiaries. The following is a description of transactions in the period January 1, 2004 to March 1, 2006 between us and any member of our Compensation Committee or any related person to any member of our Compensation Committee: During 2004, David Sutherland — Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft. During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (199 1) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote's brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from Cdn.$0.1 million to Cdn.$0.2 million per year in increments over the term of the lease. On October 4, 2004, we entered into a standby purchase agreement with Michael G. DeGroote, the father of Gary W. DeGroote, pursuant to which we could require Mr. Michael DeGroote to purchase shares of our common stock for a purchase price of $7.5 million. Mr. Michael DeGroote received a fee of $0.4 million upon execution of the standby purchase agreement. On March 4, 2005, we exercise our put right under the agreement and on March 28, 2005, we issued 2,640,845 shares of our common stock to Mr. Michael DeGroote for a consideration of $2.84 per share, being 85% of the average closing bid price of our common stock for the ten trading days ending on the second trading day preceding March 28, 2005. Mr. Michael DeGroote also received warrants to purchase 264,085 shares of our common stock at an exercise price of $2.84 per share. These warrants remain exercisable until March 28, 2010. An additional fee of $0.4 million was paid to Mr. Michael DeGroote on March 28, 2005. In February 2004, we paid Kelso & Company, L.P. a $0.5 million fee in connection with services related to the arrangement of the senior secured credit facilities that were entered into on December 31, 2003. Michael B. Lazar is a nominee of Kelso & Company, L.P. to our Board and was a Managing Director of Kelso & Company, L.P. at the time of such payment. 46 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The following table sets forth information regarding the beneficial ownership of our shares of common stock and exchangeable shares as of March 1, 2006, by each person or entity that is known by us to own more than 5% of the shares of common stock and exchangeable shares. As of that date, the number of issued and outstanding shares in our capital stock was 100,990,643 including exchangeable shares of Waste Services (CA) not owned directly or indirectly by us. Shares Beneficially Owned Percentage of Number of Total Issued Common /Exchangeable Common/Exchangeable Name of Beneficial Owner(1) Shares Shares Westbury (Bermuda) Limited(2) 20;559,973:; 19:9% : .. Prides Capital Partners, LLC(3) 10,100,230 Kelso & Company:,"L:P(4) 7 1150,000 David Sutherland— Yoest(5) 5,470,183 5.3% (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. In general, a person who has voting power or investment power with respect to securities is treated as a beneficial owner of those securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of March 1, 2006 count as outstanding for computing the percentage beneficially owned by the person holding these options or warrants. (2) Consists of 18,076,640 shares of common stock and 2,483,333 shares of common stock issuable upon the exercise of warrants. The stockholder of Westbury Bermuda Limited is Westbury Trust. The trustees of Westbury Trust are Robert Martyn, Gary W. DeGroote and Rick Burdick. The address for Westbury Bermuda Limited is Victoria Hall, 11 Victoria Street, P.O. Box HM 1065, Hamilton, Bermuda, HMEX. (3) Based on information contained in a Form 13 —D/ A filed with the Securities Exchange Commission by Prides Capital Partners, LLC on February 16, 2006. The principal business office of Prides Capital Partners, LLC is 200 High Street, Suite 700, Boston MA 02110. (4) Consists of 6,435,000 shares of common stock issuable upon the exercise of warrants issued to Kelso Investment Associates VI, L.P. and 715,000 shares of common stock issuable upon the exercise of warrants issued to KEP VI, LLC. Kelso Investment Associates VI, L.P. and KEP VI, LLC are affiliates of Kelso & Company, L.P. The address of Kelso & Company, L.P. is 320 Park Avenue, 24th Floor, New York, New York, 10022. (5) Consists of 1,949,497 exchangeable shares of Waste Services (CA) Inc. owned by D.S.Y. Investments Ltd., of which Mr. Sutherland —Yoest is the sole director and stockholder, as well as 755,486 shares of common stock owned by Mr. Sutherland —Yoest personally, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable warrants to purchase common shares, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable options, 500,000 shares of common stock owned by Mr. Sutherland — Yoest's wife and 265,200 shares of common stock owned by Mr. Sutherland — Yoest's daughter which Mr. Sutherland —Yoest may be deemed to beneficially own. Mr. Sutherland —Yoest disclaims beneficial ownership with respect to the shares owned by his wife and his daughter. The address of Mr. Sutherland —Yoest is c/o Waste Services, Inc., 1122 International Blvd., Suite 601, Burlington, Ontario L7L 6Z8. 47 0 Information regarding share ownership as of March 1, 2006 of our directors and named executive officers is set forth below: * Less than one (1 %) percent. (1) In general, a person who has voting power or investment power with respect to securities is treated as a beneficial owner of those securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of March 1, 2006 count as outstanding for computing the percentage beneficially owned by the person holding these options or warrants. (2) Percentages based upon 100,990,643 shares of common stock outstanding as of March 1, 2006, which includes 6,326,882 exchangeable shares of Waste Services (CA) Inc. not owned directly or indirectly by us. (3) Consists of 1,949,497 exchangeable shares of Waste Services (CA) Inc. owned by D.S.Y. Investments Ltd., of which Mr. Sutherland —Yoest is the sole director and stockholder, as well as 755,486 shares of common stock owned by Mr. Sutherland —Yoest personally, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable warrants to purchase common shares, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable options, 500,000 Common Shares owned by Mr. Sutherland — Yoest's wife and 265,200 shares of common stock owned by Mr. Sutherland — Yoest's daughter, which Mr. Sutherland —Yoest may be deemed to beneficially own. Mr. Sutherland —Yoest disclaims beneficial ownership with respect to the shares owned by his wife and his daughter. (4) Consists of 2,275,000 exchangeable shares of Waste Services (CA) Inc. owned by GWD Management Inc., and 110,000 shares of common stock issuable upon exercise of currently exercisable options to purchase shares of our common stock issued to Mr. DeGroote. Mr. DeGroote is the controlling stockholder and director of GWD Management Inc. (5) Consists of 728,797 shares of common stock owned by Mr. Matelich, 900 shares of common stock owned by Mr. Matelich's children and 45,000 shares of common stock issuable upon the exercise of currently exercisable options to purchase common shares issued to Mr. Matelich. Mr. Matelich disclaims beneficial ownership of the shares owned by his children. Mr. Matelich is a Managing Director of Kelso & Company, L.P. Affiliates of Kelso &..Company, L.P. own currently exercisable warrants to purchase 7,150,000 shares of common stock. Mr. Matelich disclaims beneficial ownership of the shares owned by affiliates of Kelso & Company, L.P. (6) Consists of 1,500,000 exchangeable shares of Waste Services (CA) Inc. owned by Historic Investments Inc., 1,478,497 shares of common stock owned by The Victoria Bank (Barbados) Incorporated, and 95,000 shares of common stock issuable upon the exercise of currently exercisable options issued to Mr. Remillard. Mr. Remillard is the controlling stockholder of Historia Investments Inc. and is indirectly 48 Outstanding % of Name Shares(1) Shares(2) David Sutherland— Yoesto.) 5;470,183 5.3 %. Lucien Remillard(6) 3,073,497 3.0% Gary W. DeGroote(.4) 2;385,000 2.4% George E. Matelich(5) 774,697 Ivan "R. Cairns(7) 602,5 , Mark A. Pytosh 520,000 Charles A. J4Vilcox :. 400;000 . Michael J. Verrochi 385,739 * Brian A. Goebel(8):, ;. 150,00.0 Wallace L. Timmen y 15,500 * 1Vlictiael,B..Lazar °:'. :::14;562 .. Jack E. Short 10.000 as agioip 2perso All °executive.officers and ditectois , . 113 %� , * Less than one (1 %) percent. (1) In general, a person who has voting power or investment power with respect to securities is treated as a beneficial owner of those securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days of March 1, 2006 count as outstanding for computing the percentage beneficially owned by the person holding these options or warrants. (2) Percentages based upon 100,990,643 shares of common stock outstanding as of March 1, 2006, which includes 6,326,882 exchangeable shares of Waste Services (CA) Inc. not owned directly or indirectly by us. (3) Consists of 1,949,497 exchangeable shares of Waste Services (CA) Inc. owned by D.S.Y. Investments Ltd., of which Mr. Sutherland —Yoest is the sole director and stockholder, as well as 755,486 shares of common stock owned by Mr. Sutherland —Yoest personally, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable warrants to purchase common shares, 1,000,000 shares of common stock issuable upon the exercise of currently exercisable options, 500,000 Common Shares owned by Mr. Sutherland — Yoest's wife and 265,200 shares of common stock owned by Mr. Sutherland — Yoest's daughter, which Mr. Sutherland —Yoest may be deemed to beneficially own. Mr. Sutherland —Yoest disclaims beneficial ownership with respect to the shares owned by his wife and his daughter. (4) Consists of 2,275,000 exchangeable shares of Waste Services (CA) Inc. owned by GWD Management Inc., and 110,000 shares of common stock issuable upon exercise of currently exercisable options to purchase shares of our common stock issued to Mr. DeGroote. Mr. DeGroote is the controlling stockholder and director of GWD Management Inc. (5) Consists of 728,797 shares of common stock owned by Mr. Matelich, 900 shares of common stock owned by Mr. Matelich's children and 45,000 shares of common stock issuable upon the exercise of currently exercisable options to purchase common shares issued to Mr. Matelich. Mr. Matelich disclaims beneficial ownership of the shares owned by his children. Mr. Matelich is a Managing Director of Kelso & Company, L.P. Affiliates of Kelso &..Company, L.P. own currently exercisable warrants to purchase 7,150,000 shares of common stock. Mr. Matelich disclaims beneficial ownership of the shares owned by affiliates of Kelso & Company, L.P. (6) Consists of 1,500,000 exchangeable shares of Waste Services (CA) Inc. owned by Historic Investments Inc., 1,478,497 shares of common stock owned by The Victoria Bank (Barbados) Incorporated, and 95,000 shares of common stock issuable upon the exercise of currently exercisable options issued to Mr. Remillard. Mr. Remillard is the controlling stockholder of Historia Investments Inc. and is indirectly 48 the controlling stockholder of The Victoria Bank (Barbados) Incorporated, and is deemed to beneficially own the common and exchangeable shares owned by each such entity Mr. Remillard disclaims beneficial ownership of the common and exchangeable shares owned by The Victoria Bank (Barbados) Incorporated and Historia Investments Inc. (7) Consists of 600,000 options to acquire common shares that are currently exercisable and 2,500 shares of common stock owned by Mr. Cairns. (8) Consists of 150,000 options to acquire common shares that are currently exercisable or are exercisable within 60 days of March 1, 2006. Securities Authorized for Issuance under Equity Compensation Plans The following table summarizes securities authorized for issuance under our existing equity compensation plans as of December 31, 2005: Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans Number of Securities to Weighted— Average (Excluding Securities to be be Issued upon Exercise Exercise Price o Issued upon Exercise of of Outstanding Options, Outstanding Options, Outstanding Options, Plan Category Warrants and Rights Warrants ts and Rkh Warrants or Rights) Equity compensation p' ars approved by,seciinty holders ::. .. 12,563500 , Equity compensation plans not approved by security holders 1,000,000(2) $ 2.70 — 1~otal� NMI A. (1) Under our 1999 Stock Option Plan, we may grant options to a maximum of 19% of our issued common shares and common share equivalents outstanding from time to time. (2) Warrants to purchase 1,000,000 shares of our common stock, at an exercise price of $2.70 per share, were granted to David Sutherland —Yoest in September 2001 as a term of the commencement of his employment. All of the warrants have vested and will expire in September 2011. The warrants are exercisable until their expiration so long as Mr. Sutherland —Yoest is an ' employee. In the event of a change of control, or if Mr. Sutherland — Yoest's employment is terminated by reason of death, disability or by us without cause, the warrants continue to be exercisable as if Mr. Sutherland —Yoest had remained an employee. ' If Mr. Sutherland — Yoest's employment is terminated by his voluntary resignation or by us for cause, all vested warrants may be exercised within 180 days of the date of such termination. Item 13. Certain Relationships and Related Transactions Other than those listed in this section, we have not entered into any material transactions during the period beginning on January 1, 2004 through March 1, 2006 in which anyone who currently holds a position as director or officer, or held more than 5% of our common stock, or any member of the immediate family of any such person or shareholder has or had any interest. Advisory Services In February 2004, we paid Kelso & Company, L.P. a $0.5 million fee in connection with services related to the arrangement of the senior secured credit facilities that were entered into on. December 31, 2003. Two of our directors are nominees to the Board of Kelso & Company, L.P. and are affiliates of Kelso & Company, L.P. George E. Matelich is a Managing Director of Kelso & Company, L.P., and Michael B. Lazar, at the time of the payments to Kelso & Company, L.P. was a Managing Director. 49 Placement Agent Fees Sanders Morris Harris Inc. or SMH acted as placement agent on the issuance of 1,340,000 common shares and were paid a placement agent fee of approximately $2.7 million on April 30, 2004. SMH is a beneficial owner of our common stock and Don A. Sanders, a director at the time that the payments were made, is a principal of SMH. Lease of Premises In 2003, we assumed a lease of premises from David Sutherland — Yoest. The lease, with annual rent and operating costs of less than $0.1 million, expired on March 31, 2005. Florida Recycling Acquisition On April 30, 2004, we acquired from Larry Henk, our then President and Chief Operating Officer, 3% of the total issued common stock of Florida Recycling Services, Inc., or FRS which Mr. Henk had acquired prior to his commencing his employment with us. Mr. Henk was paid approximately $3.0 million in cash and was issued 277,500 Common Shares as consideration. Under an agreement with the sellers of FRS entered into prior to Mr. Henk's employment, Mr. Henk was paid a fee of approximately $2.5 million by the sellers following the closing of our acquisition of the shares of FRS. In September 2004 pursuant to an agreement with the sellers of FRS, Mr. Henk agreed to repay $22,500 of the proceeds he received and return 15,000 common shares to us. Standby Purchase Agreement In March 2005, we sold 2,640,845 shares of our common stock and 264,085 common stock purchase warrants for net proceeds of approximately $6.8 million to Michael G. DeGroote, Gary W. DeGroote's father, pursuant to a standby purchase agreement entered into on September 30, 2004. The shares were sold to Mr. DeGroote at a purchase price equal to 85% of the average of the closing prices of our common stock during the period from the eleventh trading day through the second trading day preceding March 28, 2005. The warrants have an exercise price of $2.84 per share and are exercisable until March 28, 2010. We paid Mr. DeGroote a commitment fee of $0.4 million at the time of entering into the standby purchase agreement and a further commitment fee of $0.4 million on March 28, 2005. Other Transactions During 2004, David Sutherland — Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote, a director and member of our Compensation Committee at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft. Stanley A. Sutherland, the father —in —law of David Sutherland — Yoest, our Chairman and Chief Executive Officer, was employed by us in 2005 as Executive Vice President and Chief Operating Officer, Western Canada and received $0.5 million in employment compensation for the year ended December 31, 2005. This compensation was consistent with compensation paid to other executives in similar positions. During 2004 and 2005, David Sutherland — Yoest, our Chairman and Chief Executive Officer, conducted ongoing negotiations with Lucien Remillard, a director, with respect to our potential acquisition of the RCI Companies, a solid waste collection and disposal operation owned by Mr. Remillard in Quebec. In connection with these negotiations, we reimbursed Mr Remillard's company for expenses in the aggregate amount of approximately C$3.2 million for services provided by third parties to December 31, 2005 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a solid waste landfill. If an acquisition of the business is not completed, we will not be reimbursed for the expenses we have incurred. Additionally, on November 22, 2002, we entered into a Put or Pay Disposal Agreement with the RCI Companies, and Intersan, a subsidiary of Waste Management of Canada Corporation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. On January 17, 50 2006, C$0.3 million was drawn against the letter of credit as more fully described in Note 12 contained in our Notes to Consolidated Financial Statements included elsewhere in this annual report. During 2004, we entered into a lease of office premises in an office tower in Burlington, Ontario owned by Westbury International (199 1) Corporation, a property development company controlled by Michael H. DeGroote, Gary W. DeGroote's brother. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years, with a right to extend for a further five years. Base rent escalates from C$0.1 million to C$0.2 million per year in increments over the term of the lease. Item 14. Principal Accountant Fees and Services Audit Fees Audit fees billed or expected to be billed for the 2005 and 2004 audit by BDO Seidman, LLP approximate $1.2 million and $1.3 million, respectively. Audit fees billed and paid for 2005 and 2004 quarterly reviews approximated $300,000 and $344,000, respectively. Audit — Related Fees Audit — related fees billed and paid in 2005 were $0.6 million, and primarily related to our re —audit of Florida Recycling for each of the three years ended December 31, 2003. Audit — related fees billed in 2004 approximated $10,000. Tax Fees Tax related fees were approximately nil and $40,000 in 2005 and 2004, respectively for BDO Seidman, LLP. All Other Fees All other fees were nil in 2005 and 2004 for BDO Seidman, LLP. Pre — Approval Policies and Procedures The audit committee approves all audit, audit — related services, tax services and other services provided by our auditors. Any services provided by BDO Seidman, LLP that are not specifically included within the scope of the audit must be pre— approved by the audit committee in advance of any engagement. Under the Sarbanes —Oxley Act of 2002, audit committees are permitted to approve certain fees for audit — related services, tax services and other services pursuant to a de minimus exception prior to the completion of an audit engagement. In 2005, none of the fees paid to BDO Seidman, LLP were approved pursuant to the de minimus exception. PART IV Item 15. Exhibits and Financial Statement Schedules Consolidated Financial Statements (1) Consolidated Financial Statements Management's Report on Internal Control over Financial Reporting Reports of Independent Registered Public Accounting Firms Consolidated Balance Sheets Consolidated Statements of Operations and Comprehensive Loss Consolidated Statements of Shareholders' Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 51 (2) Financial Statement Schedules Schedule II — Valuation and Qualifying Accounts schedule has been omitted as the required information is included in the Notes to Consolidated Financial Statements included herewith. All other schedules have been omitted because they are not applicable. (3) Exhibits Documents filed as exhibits to this report or incorporated by reference: 2.1 Plan of Arrangement under Section 182 of the Business Corporations Act (Ontario). (Incorporated by reference to Exhibit 2.1 to Form 10 —K (No. 000 - 25955) filed March 16, 2004). 3.1 Amended and Restated Certificate of Incorporation of Waste Services, Inc. (Incorporated by reference to Exhibit 3.1 to Form 8 —K (No. 000 - 25955) filed August 2, 2004). 3,2 Provisions for Exchangeable Shares of Waste Services (CA) Inc. (Incorporated by reference to Exhibit 3.2 3.3 to Form 10 —K (No. 000 - 25955) filed March 16, 2004). Certificate of Designation of Special Voting Preferred Stock of Waste Services, Inc. (Incorporated by reference to Exhibit 3.2 to Form 8 —K (No. 000 - 25955) filed August 2, 2004). 3.4 By —law No. 1 of Waste Services, Inc. (Incorporated by reference to Exhibit 3.3 to Form 8 —K 3.5 (No. 000 - 25955) filed August 2, 2004). Certificate of Designations of Waste Services, Inc. (Incorporated by reference to Exhibit 1.3 to Form 20 —F 3.6 (No. 000 - 25955) filed July 15, 2003). Amended Certificate of Designations of Waste Services, Inc. (Incorporated by reference to Exhibit 4.1 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 4.1 Preferred Subscription Agreement dated as of May 6, 2003, among Waste Services, Inc., Capital Environmental Resource Inc., Kelso Investment Associates VI, L.P. and KEP VI LLC (Incorporated by reference to Exhibit 4.4 to Form 20 —F (No. 000 - 25955) filed July 15, 2003). 4.2 Amending Agreement No. 1 to Preferred Subscription Agreement dated as of February 13, 2003, among Waste Services, Inc., Capital Environmental Resource Inc., Kelso Investment Associates VI, L.P. and KEP VI, LLC (Incorporated by reference to Exhibit 4.1 to Form 6 —K (No. 000 - 25955) filed February 26, 4.3 2004). Amending Agreement No. 2 to Preferred Subscription Agreement dated June 8, 2004 (Incorporated by reference to Exhibit 4.1 to Form 8 —K (No. 00- 25955) filed June 9, 2004). 4.4 Agreement effective as of December 28, 2005 between Waste Services, Inc. and Kelso Investment 4.5 Associates VI, L.P. and KEP VI, LLC. Form of Warrants to Purchase Common Stock by and between the Company and certain investors (Incorporated by reference to Exhibit 4.2 to Form 20 —F (No. 000 - 25955) filed July 15, 2003). 4.6 Warrant Agreement dated as of May 6, 2003, between Waste Service Inc., and certain holders of the Preferred Stock (Incorporated by reference to Exhibit 4.6 to Form 20 —F (No. 000 - 25955) filed July 15, 4.7 2003). Warrant, dated July 27, 2001 issued by us to David Sutherland —Yoest (Incorporated by reference.to _. Exhibit 4.8 to Form 20 —F (No. 000 - 25955) filed July 12, 2002). 4.8 Form of Warrant to Purchase Common Shares by and between Capital Environmental Resource Inc. and certain investors. (Incorporated by reference to Exhibit 4.4 to Form 8 —K (No. 000 - 25955) filed May 10, 4.9 2004). Indenture regarding 9112% Senior Subordinated Notes among Waste Services, Inc., the Guarantors and Wells Fargo Bank, National Association, as trustee, dated as of April 30, 2004 (Incorporated by reference to Exhibit 4.3 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 4.10 Supplemental Indenture dated as of August 8, 2005 to the Notes Indenture among Sanford Recycling and Transfer, Inc., Waste Services, Inc., the other guarantors and Wells Fargo Bank, National Association, as Trustee (Incorporated by reference to Exhibit 4.2 to Form S -4 (No. 333 - 127444) filed August 11, 2005). 52 4.11 Supplemental Indenture dated as of November 29, 2005 to the Notes Indenture among WSI Waste Services of Texas, LP., Waste Services, Inc., the other guarantors and Wells Fargo Bank, National Association, as Trustee. 4.12 Support Agreement among Waste Services, Inc. Capital Environmental Resource Inc. (Incorporated by reference to Exhibit 4.9 to Form 10 —K (No. 000 - 25955) filed March 16, 2004). 4.13 Support Agreement dated July 31, 2004, among Waste Services, Inc. and Michael DeGroote (Incorporated by reference to Exhibit 10 to Form 8 —K (No. 000 - 25955) filed March 16, 2004). 4.14 Standby Purchase Agreement dated as of September 30, 2004 between Waste Services, Inc. and Michael DeGroote (Incorporated by reference to Exhibit 10.2 to Form 8 —K (No. 000 - 25955) filed on October 5, 2004). 10.1 Capital Environmental Resource Inc. 1999 Stock Option Plan (Incorporated by reference to Exhibit 4 to Schedule 13D dated February 5, 2002 and filed by certain holders of the Company's Common Shares with the Commission on February 15, 2002). 10.2 Amended and Restated Stock Purchase Agreement dated as of March 11, 2004, by and among Waste Services, Inc., certain affiliates of Waste Services, Inc., Capital Environmental Resource Inc., Florida Recycling Services, Inc. and certain affiliates thereof (Incorporated by reference to Exhibit 10.5 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 10.3 First Amendment to Amended and Restated Stock Purchase Agreement and Settlement Agreement dated September 24, 2004 (Incorporated by Reference to Exhibit 10.2 to Form 8 —K (No. 000 - 25955) filed September 24, 2004). 10.4 Form of Subscription Agreement dated as of April 30, 2004, between Capital Environmental Resource Inc. and certain investors. (Incorporated by reference to Exhibit 10.1 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 10.5 Form of Registration Rights Agreement dated as of April 30, 2004, among us and certain investors. (Incorporated by Reference to Exhibit 10.2 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 10.6 91/2% Senior Subordinated Notes Registration Rights Agreement dated April 20, 2004. (Incorporated by reference to Exhibit 10.3 to Form 8 —K (No. 000 - 25955) filed May 10, 2004). 10.7 Amended and Restated Credit Agreement dated as of April 30, 2004 among Capital Environmental Resource Inc., Waste Services, Inc,., the several lenders from time to time parties thereto, Lehman Brothers Inc., as Arranger, CIBC World Markets Corp., as Syndication Agent, Bank of America, N.A., as Documentation Agent, Canadian Imperial Bank of Commerce, as Canadian Agent, and Lehman Commercial Paper Inc., as Administrative Agent. (Incorporated by reference to Exhibit 10.4 to Form 8 —K (No. 000 - 25955) filed May 20, 2004). 10.8 First Amendment to Amended and Restated Credit Agreement dated as of August 25, 2004 (Incorporated by reference to Exhibit 10.1 to Form 8 —K (No. 000 - 25955) field August 27, 2004). 10.9 Second Amendment to Amended and Restated Credit Agreement dated as of October 4, 2004 (Incorporated by reference to Exhibit 10.1 to Form 8 —K (No. 000 - 25955) filed October 5, 2004). 10.10 Third Amendment to Amended and Restated Credit Agreement dated as of October 26, 2005 (Incorporated by reference to Exhibit 20.1 to Form 10 —K (No. 000 - 25955) filed October 26, 2005). 10.11 Fourth Amendment to Amended and Restated Credit Agreement dated as of December 28, 2005 (Incorporated by reference to Exhibit 20.1 to Form 8 —K (No. 000 - 25955) filed December 28, 2005. 10.12 - Employment Agreement dated as of October 26, 2005 between Waste Services, Inc. and David. _.... _ _. .._ Sutherland —Yoest (Incorporated by reference to Exhibit 10.1 to Form 10—Q (No. 000 - 25955) filed October 31, 2005). 10.13 Employment Agreement dated as of July 1, 2004 between Waste Services, Inc. and Charles A. Wilcox (Incorporated by reference to Exhibit 10.13 to Form 10 —K (No. 000 - 25955) filed March 16, 2004). 10.14 Employment Agreement dated January 5, 2004, between Capital Environmental Resource Inc., Waste Services, Inc. and Ivan R. Cairns. (Incorporated by reference to Exhibit 10.1 to Form 10 —Q (No. 000 - 25955), filed May 17, 2004). 10.15 Employment Agreement dated as of February 23, 2004, between Capital Environmental Resource Inc., Waste Services, Inc. and Mark A. Pytosh. (Incorporated by reference to Exhibit 10.2 to Form 10 —Q (No. 000 - 25955), filed May 17, 2004). 53 10.16 Employment Agreement dated October 1, 2003, between Capital Environmental Resource Inc. and Brian A. Goebel (Incorporated by reference to Exhibit 4.27 to Form 20 —F for the year ended December 31, 2003 (No. 000 - 25955), filed March 31, 2004). 14.1 Code of Ethics (Incorporated by reference to Exhibit 14.1 to Form 10 —K for the year ended December 31, 2003 (No. 000 - 25955), filed June 9, 2004), 16.1 Letter from BDO Dunwoody LLP to the Securities and Exchange Commission dated July 27, 2004 (Incorporated by reference to Exhibit 16.1 to Form 8 —K (No. 000 - 25955), filed July 27, 2004). 18.1 Letter regarding change in accounting principle executed by BDO Dunwoody LLP on May 12, 2004 (Incorporated by reference to Exhibit 18.1 to Form 10 —Q for the quarterly period ended March 31, 2004 (No. 000 - 25955), filed May 17, 2004). 21.1 List of Subsidiaries. 23.1 Consent of BDO Seidman, LLP. 23.2 Consent of BDO Dunwoody LLP. 31.1 Certification pursuant to Rule 15d -14(a) under the Securities Exchange Act of 1934 as amended of David Sutherland — Yoest, Chief Executive Officer. 31.2 Certification pursuant to Rule 15d -14(a) under the Securities Exchange Act of 1934 as amended of Mark A. Pytosh, Chief Financial Officer. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the U.S. Sarbanes —Oxley Act of 2002. 54 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. WASTE SERVICES, INC. /s/ David Sutherland —Yoest David Sutherland —Yoest Chairman of the Board, Chief Executive Officer and Director March 13, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ David Sutherland —Yoest Chairman of the Board, March 13, Chief Executive Officer 2006 David Sutherland —Yoest Director /s/ Mark A. Pytosh Executive Vice President and March 13, Chief Financial Officer 2006 Mark A. Pytosh /s/ Brian A. Goebel Vice President, Corporate Controller and Chief March 13, — Accounting Officer 2006 Brian A. Goebel /s/ Gary W. DeGroote Director March 13, 2006 Gary W. DeGroote /s/ Michael B. Lazar Director March 13, 2006 Michael B. Lazar /s/ George E. Matelich Director March 13, 2006 George E. Matelich /s/ Lucien Remillard Director March 13, 2006 Lucien Remillard /s/ Jack E. Short Director March 13, 2006 Jack E. Short /s/ Wallace L. Timmeny Director March 13, 2006 Wallace L. Timmeny /s/ Michael J. Verrochi Director March 13, 2006 Michael J. Verrochi 55 MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management including the Chief Executive Officer and the Chief Financial Officer, is responsible for establishing and maintaining adequate internal controls over financial reporting, as defined in Rules 13a -15(f) and 15d -15(f) of the Securities Exchange Act of 1934, as amended. Our internal controls were designed to provide reasonable assurance as to the reliability of our financial reporting and the preparation and presentation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States, as well as to safeguard assets from unauthorized use or disposition. We conducted an evaluation of the effectiveness of our internal controls over financial reporting as of December 31, 2005 based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. This evaluation included review of the documentation of controls, evaluation of the design effectiveness of controls, testing of the operating effectiveness of controls and a conclusion on this evaluation. Through this evaluation, we did not identify any material weaknesses in our internal controls. There are inherent limitations in the effectiveness of any system of internal controls over financial reporting; however, based on our evaluation, we have concluded that our internal controls over financial reporting were effective as of December 31, 2005. BDO Seidman, LLP, an independent registered public accounting firm, has issued an attestation report on our assessment of internal control over financial reporting, which is included herein. F -2 Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting To the Board of Directors and Stockholders of Waste Services, Inc. We have audited management's assessment, included in the accompanying Management's Report on Internal Control over Financial Reporting appearing under Item 8 of Part II of this Form 10 —K, that Waste Services, Inc. (the "Company ") maintained effective internal control over financial reporting as of Decernber 31, 2005, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. A company's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. F -3 i 1 We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of the Company as of December 31, 2005 and 2004 and the related consolidated statements of operations and comprehensive income (loss), shareholders' equity and cash flows thereon for each of the two years in the period ended December 31, 2005 and our report dated February 27, 2006 expressed an unqualified opinion on those consolidated financial statements. /s/ BDO Seidman, LLP Phoenix, Arizona February 27, 2006 F -4 I Report of Independent Registered Public Accounting Firm The Board of Directors and Stockholders of Waste Services, Inc. We have audited the accompanying consolidated balance sheets of Waste Services, Inc., (the "Company ") as of December 31, 2005 and 2004 and the related consolidated statements of operations and comprehensive income (loss), shareholders' equity and cash ' flows for each of the two years in the period ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating ' the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Waste Services, Inc. as of December 31, 2005 and 2004 and the results of its operations and cash flows for each of the two years in the period ended December 31, 2005, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 2 to the Consolidated Financial Statements, effective January 1, 2004, the Company changed its method of accounting for closure and post — closure obligations and the associated asset retirement costs. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company's internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 27, 2006 expressed an unqualified opinion thereon. Phoenix, Arizona February 27, 2006 /s/ BDO Seidman, LLP F -5 REPORT OF INDEPENDENT AUDITORS To the Shareholders of Capital Environmental Resource Inc. We have audited the consolidated statements of operations and comprehensive income (loss), shareholders' equity and cash flows of Capital Environmental Resource Inc. (the "Company ") for the year ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards in Canada and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the results of operations and cash flows of the Company for the year ended December 31, 2003 in accordance with generally accepted accounting principles in the United States. BDO DUNWOODY LLP Chartered Accountants Toronto, Ontario March 12, 2004 Comments by Auditor for U.S. Readers on Canada —U.S. Reporting Difference In the United States, reporting standards for auditors require the addition of an explanatory paragraph when there is a change in accounting principle that has a material effect on the comparability of the Company's financial statements, such as the change described in Note 2 to the Consolidated Financial Statements. Although we conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United Stages), our report to the shareholders dated March 12, 2004 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditor's report when the change is properly accounted for and adequately disclosed in the financial statements. BDO DUNWOODY LLP Chartered Accountants Toronto, Ontario March 12, 2004 0 F -6 WASTE SERVICES, INC. CONSOLIDATED BALANCE SHEETS (In thousands of U.S. dollars, except share amounts) As of December 31, LIABILITIES AND SHAREHOLDERS'EQUITY Total liabilities and shareholders' equity T 7 ■••ERR The accompanying notes are an integral part of these Consolidated Financial Statements. F -7 Current assets. Cash and cash equivalents $'.. 8,887 " •:` $ 8,507 Accounts receivable (net allowance for doubtful accounts of $925 and $1,264 as of December 31, 2005 and 2004, respectively) 49,583 47,856 10:940 )'repaid :expenses �nd.otler current assets • • , 11,112. Total current assets 69,582 133,263 67,303 130,467 Property and equipment, net 172,128 169,616 Landfill sites, net Goodwill and other intangible assets, net ` _ 324,471 327,756 111 Other assets 23,945 25.441 LIABILITIES AND SHAREHOLDERS'EQUITY Total liabilities and shareholders' equity T 7 ■••ERR The accompanying notes are an integral part of these Consolidated Financial Statements. F -7 WASTE SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands of U.S. dollars, except per share amounts) For the Years Ended December 31, Statements of Comprehensive Loss Net;loss (50,290) $`.. (48;154) ..! ..$ (22,380); ForIeiin currency translation adjustment 6,540 13,181 19,903 The accompanying notes are an integral part of these Consolidated Financial Statements. F -8 2005 2004 2003 Revenue $ 382,446 ` $ 310;785 $ 126;750'; '. Operating and other expenses: tons (exclusive of depreciation, depletion and Cost of opera i amortization);; 276,329 223,397 84,677 Selling, general and administrative expense (exclusive of depreciation, depletion and amortization) 56,485 54,679 30,432 Settlement with s8lers'of Florida Recycling (4,120); (8,635) ; Depreciation, depletion and amortization 42,954 34,204 14,927 Foreign exchange loss (gain) and other ;: (2281. (3771 1,760 Income (loss) from operations 11,026 7,517 (5,046) Interest expense 28,1.96 ; 30838• 8,278, Changes in fair value of warrants - Cumulative'mandatorily redeemable preferred stock dividends and .:,amortization of;issue costs 20984 ;, 17.582 10,161. `. Loss before in come taxes Income tax provision, (be nef t) (38,154) 12 13 6 (40,792) 7 587 (23,485) (587): ge in accounting prce Loss before cumulative effect of chan inipl (50,290) (48,379) (22,898) Statements of Comprehensive Loss Net;loss (50,290) $`.. (48;154) ..! ..$ (22,380); ForIeiin currency translation adjustment 6,540 13,181 19,903 The accompanying notes are an integral part of these Consolidated Financial Statements. F -8 WASTE SERVICES, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY warrants — — — — Conversion of Series I Preferred to Common Stock 28 146 76,236 (28,146) (76,236) — — — ' and warrants Additional value of warrants and deferred stock —based Sale of common shares and Migration ' sellers of Florida Waste Services, Waste Services, Waste Services, — — - — — (1,235) — — (1,235) Other paid in : (CA) Inc. (CA) Inc. Inc. Accumulated Foreign currency Common Stock Preferred Stock Common Stock Additional Treasury Other Total adjustment — — — — — -- — — 13,181 — 13,181 ` Paid in Shares Comprehensive Accumulated Shareholders' ' Balance, Shares Amount Shares Amount Shares Amount Canital at Cost income Deficit Equity 2004 — — — 90.358 904 374,186 (1,2135 (In thousands of U.S. dollars and share amounts) Common shares and Balance,.: . warrants issued ' acquisitions —` — — — 2,926 29 7,881 — - — 7,910 Exercise of options I and warrants — — — — 162 2 519 — 2002 ..:35,195: $ 145,54 —; = $ -- $ 1;897 ,.$1 — $ (3,951) $ (33,678) $: Warrants issued in connection with Redeemable Preferred — — — — — — 13,774 — — 13,774 Imianca.of Series: .Preferred Stock . ; 28,146 76,236' 83,822 Issuance of Common Stock 4,850 24,812 — — — — — — — — 24 ,812 warrants — — — — Conversion of Series I Preferred to Common Stock 28 146 76,236 (28,146) (76,236) — — — ' and warrants Additional value of warrants and deferred stock —based Sale of common shares and Migration ' sellers of Florida Recycling — — — — - — — (1,235) — — (1,235) Other paid in : I oapital Foreign currency Itranslation adjustment — — — — — -- — — 13,181 — 13,181 ` Net loss — — — — — — — — (48,154 (48,154 ' Balance, December 31, 2004 — — — 90.358 904 374,186 (1,2135 29,133 (104,212 298,776 Common shares and warrants issued ' acquisitions —` — — — 2,926 29 7,881 — - — 7,910 Exercise of options I and warrants — — — — 162 2 519 — — — 521 — — _ — - 1,060 - = — 1,060 The accompanying notes are an integral part of these Consolidated Financial Statements. F -9 i i a 1I Cumulative mandatorily redeemable preferred stock (33,573) (46,209) (24,438) dividends and amortization of issue costs 20,984 17,582 10,161 Amortizatio: f&bt issue costs .. " " . .. ! 1. ;408 10,2.94 3;28,1 ' Deferred income tax provision (benefit) 11,581 7,218 (990) Non cash'stock -based com " "ensation ex `ense benefit P p. ( ) ..:; ... 1: 060 „ ,...(9:0) 2,677 . . Changes in fair value of warrants Principal repayments of debt and capital lease obligations (16,704) — Cumulative effectof change idaccounting principle net of Sale b`'common'shares aidwarrants 7;125 , , ,. 5360Q Proceeds from release of restricted cash and release of (deposits on) Foreign exchange loss (gain) 755 (90) 1,915 Q.fher c ri -ash items ,....... (229) ,.. . 8 .• • Changes in operating assets and liabilities (excluding the effects Proceeds from the issuance of cumulative mandatorily redeemable of acquisitions) Preferred Shares — — :., Accounts receivable ' �, ", . (1.20.1) 521,• ;'. 1,04;1, , , Prepaid expenses and other current assets 4,495 (2,303) (5,959) Accounts payable 3,363 3,88,6 .:...; z.. , ...., , Accrued expenses and other current liabilities (617) 11,243 3,740 ..... ..._. ... .. ,... .. _. 24 623 > >24:697 9 446 . r' Cash flows from investing activities: Capital expenditures (33,573) (46,209) (24,438) Proceeds from asset sates and business dvest>tures . •, ..,., .. , . 3198 . 14,231., .. 952 Deposits for business acquisitions and other (1,046) (1,551) (10,776) �: ;. (39 -:511) x(1.98;208) ;. . Cl'95 6331 •:.. Cash flows from financing activities 1?roceeds'from issuance of debfi and draw'on reugluing,cTedtt facility ? , ;, • , 25`Ot10, _ o , , .283,OO..Q„ .• 1.66,493 ,;, Principal repayments of debt and capital lease obligations (16,704) (187,158) (74,251) Sale b`'common'shares aidwarrants 7;125 , , ,. 5360Q Proceeds from release of restricted cash and release of (deposits on) collateral supporting letters of credit 24,341 (9,929) roceedsfrom the; issuance of;Series, lx Preferre6l'Shares.. .• • - 86,189 Proceeds from the issuance of cumulative mandatorily redeemable Preferred Shares — — 55,000 Proceeds; from the exercise ofoptitins and warrants 521,• ;'. 1,04;1, , 554, Fees paid for financing transactions (995) (14,1411 (18,967) J. 14 947 1'60.683 205.089 Effect of exchange rate changes on cash and cash equivalents 321 273 385 Increase' (decrease) in cash and cash;e n s quivalet 380 (12;555) , 19,287 " „ Cash and cash equivalents at the beginning of the year 8,507 21,062 1,775 Cash and cash equivalents at the end of the:year The accompanying notes are an integral part of these Consolidated Financial Statements. F -10 E WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 1. Organization of Business and Basis of Presentation 1 1 s i i The accompanying Consolidated Financial Statements include the accounts of Waste Services, Inc. ( "Waste Services ") 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 located in the United States and Canada. Our U.S. operations are located in Florida, Texas and Arizona and our Canadian operations are located in Eastern Canada (Ontario) and Western Canada (Alberta, Saskatchewan and British Columbia). We are the successor to Capital Environmental Resource Inc. now Waste Services (CA) Inc. ( "Waste Services (CA) "), by a migration transaction completed effective July 31, 2004. The migration transaction occurred by way of a plan of arrangement under the Business Corporations Act (Ontario) and was approved by the Ontario Superior Court of Justice. Pursuant to the plan of arrangement, holders of Waste Services (CA) common shares received shares of our common stock unless they elected to receive exchangeable shares of Waste Services (CA). The terms of the exchangeable shares of Waste Services (CA) are the functional and economic equivalent of our common stock. As a result of the migration, Waste Services (CA) became our indirect subsidiary and Waste Services became the parent company. 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, goodwill and other intangible assets, liabilities for landfill capping, closure and post — closure obligations, insurance reserves, liabilities for potential litigation and deferred taxes. Certain reclassifications have been made to prior period financial statement amounts to conform to the current presentation. All significant intercompany transactions and accounts have been eliminated. All amounts are in thousands of U.S. dollars, unless otherwise stated. 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 affected and conversely expenses are unfavorably affected. Assets and liabilities of our 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 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. F -11 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 2. Summary of Significant Accounting Policies Business Combinations and Acquisitions We allocate the purchase price of an acquired business, on a preliminary basis, to the identified assets and liabilities acquired based on their estimated fair values at the dates of acquisition„ with any residual amounts allocated to goodwill. Goodwill is allocated to our reporting units based on the reporting units that will benefit from the acquired assets and liabilities. The purchase price allocations are considered preliminary until we have obtained all required information to complete the allocation. Although the time required to obtain the necessary information will vary with circumstances specific to an individual acquisition, the "allocation period" for finalizing purchase price allocations generally does not exceed one year from the date of consummation of an acquisition. Adjustments to the allocation of purchase price may decrease those amounts allocated to goodwill and, as such, may increase those amounts allocated to other tangible or intangible assets, which may result in higher depreciation or amortization expense in future periods. Assets acquired in a business combination that will be sold are valued at fair value less cost to sell. Results of operating these assets are recognized currently in the period in which those operations occur. The value of shares issued in connection with an acquisition is based upon the average market price of our common stock during the five day period consisting of the period two days before, the day of and the two days after the terms of the acquisition are agreed to and/or announced. Cash and Cash Equivalents and Restricted Cash Cash and cash equivalents are defined as cash and short—term highly liquid deposits with initial maturities of three months or less. Concentration of Credit Risk Financial instruments that potentially subject us to credit risk consist primarily of cash and cash equivalents and trade accounts receivable. We place our cash and cash equivalents only with high credit quality financial institutions. Our customers are diversified as to both geographic and industry concentrations. Therefore, our trade accounts receivable are not subject to a concentration of credit risk. F -12 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Property and Equipment Property and equipment are recorded at cost less accumulated depreciation. Improvements or betterments, which extend the life of an asset, are capitalized. Expenditures for maintenance and repair costs are expensed as incurred. Gains and losses resulting from property and equipment retirements or disposals are credited or charged to earnings in the year of disposal. Depreciation is computed over the estimated useful life using the straight —line method as follows: Buildings 10 to 25 years Vehicles 10 years Containers, compactors and landfill and recycling equipment 5 to 12 years Furniture, fixtures and other office equipment 3 to 5 years Leasehold improvements Shorter of term of lease or estimated life Long —Lived Assets We periodically evaluate whether events and circumstances have occurred that may warrant revision of the estimated useful life of property and equipment or whether the remaining balance of property and equipment, or other long —lived assets, should be evaluated for possible impairment. Instances that may lead to an impairment include: (i) a significant decrease in the market price of a long —lived asset group; (ii) a significant adverse change in the extent or manner in which a long —lived asset or asset group is being used or in its physical condition; (iii) a significant adverse change in legal factors or in the business climate that could affect the value of a long —lived asset or asset group, including an adverse action or assessment by a regulator; (iv) an accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long —lived asset or asset group; (v) a current— period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long —lived asset or asset group; or (vi) a current expectation that, more likely than not, a long —lived asset or asset group will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. We use an estimate of the related undiscounted cash flows, excluding interest, over the remaining life of the property and equipment and long —lived assets in assessing their recoverability. We measure impairment loss as the amount by which the carrying amount of the asset(s) exceeds the fair value of the asset(s). We primarily employ two methodologies for determining the fair value of a long —lived asset: (i) the amount at which the asset could be bought or sold in a current transaction between willing parties; or (ii) the present value of estimated expected future cash flows grouped at the lowest level for which there are identifiable independent cash flows. Landfill Sites Landfill sites are recorded at cost. Capitalized landfill costs include expenditures for land, permitting costs, cell construction costs and environmental structures. Capitalized permitting and cell construction costs are limited to direct costs relating to these activities, including legal, engineering and construction costs associated with excavation, liners and site berms, leachate management facilities and other costs associated with environmental equipment and structures. Costs related to acquiring land, excluding the estimated residual value of un— permitted, non — buffer land, and costs related to permitting and cell construction are depleted as airspace is consumed using the units —of— consumption method. Environmental structures, which include leachate collection systems, methane: collection systems and groundwater monitoring wells, are charged to expense over the shorter of their useful life or the life of the landfill. F -13 s WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Capitalized landfill costs may also include an allocation of the purchase price paid for landfills. For landfills purchased as part of a group of several assets, the purchase price assigned to the landfill is determined based upon the discounted expected future cash flows of the landfill relative to the other assets within the acquired group. If the landfill meets our expansion criteria, the purchase price is ' further allocated between permitted airspace and expansion airspace based upon the ratio of permitted versus probable expansion airspace to total available airspace. Landfill sites are amortized using the units —of— consumption method over the total available airspace including probable expansion airspace where appropriate. We assess the carrying value of our landfill sites in accordance with the provisions of Statement of Financial Accounting ' Standards ( "SFAS") No. 144 "Accounting for the Impairment of Long —Lived Assets" ( "SFAS 144 "). These provisions, as well as possible instances that may lead to impairment, are addressed in the Long — ]Lived Assets discussion. We consider certain impairment indicators previously discussed that require significant judgment and understanding of the waste industry when applied to landfill development or expansion. We have identified three sequential steps that landfills generally follow to obtain expansion permits. These steps are as follows: (i) obtaining approval from local authorities; (ii) submitting a permit application to state or provincial authorities; and (iii) obtaining ' permit approval from state or provincial authorities. Before expansion airspace is included in our calculation of total available disposal capacity, the following criteria must be met: (i) the land associated with the expansion airspace is either owned by us or is controlled by us pursuant to an option agreement; (ii) we are committed to supporting the expansion project financially and with appropriate resources; (iii) there are no identified fatal flaws or impediments associated with the project, including political impediments; (iv) progress is being made on the project; (v) the expansion is attainable within a reasonable time frame; and (vi) based upon senior management's review of the status of the permit process to date, we believe it is likely the expansion permit will be received within the next five years. Upon meeting our expansion criteria, the i rates used at each applicable landfill to expense costs to acquire, construct, close and maintain a site during the post — closure period are adjusted to include probable expansion airspace and all additional costs to be capitalized or accrued associated with the expansion airspace. Once expansion airspace meets our criteria for inclusion in our calculation of total available disposal capacity, management continuously monitors each site's progress in obtaining the expansion permit. If at any point it is determined that an expansion area no longer meets the required criteria, the probable expansion airspace is removed from the landfill's total available capacity and the rates used at the landfill to expense costs to acquire, construct, close and maintain a site during the post — closure period are adjusted accordingly. Goodwill and Other Intangible Assets We account for goodwill in accordance with SFAS No. 142, "Goodwill and Other Intangible Assets" and test goodwill for impairment using the two —step process. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The first step of the goodwill impairment test compares the fair value of a reporting unit with its carrying amount, including goodwill. We have defined our reporting units to be consistent with our operating segments: Eastern Canada, Western Canada, Florida, Texas and Arizona. In determining the fair value, we may utilize: (i) discounted future cash flows; (ii) operating results based upon a comparative multiple of earnings or revenues; (iii) offers from interested investors, if any; or (iv) appraisals. Significant estimates used in the fair value calculation utilizing discounted future cash flows include, but are not limited to: (i) estimates of future revenue and expense growth by reporting unit; (ii) future estimated effective tax rates, which we estimate to range between 37% and 40 %; (iii) future estimated rate of capital expenditures as well as future required investments in working capital; (iv) estimated average cost of capital, which we estimate to range between 8.0% and 9.0 %; and (v) the future terminal value of our reporting unit, which is based upon its ability to exist into perpetuity. Significant estimates used in the fair value calculation utilizing market value multiples include but are not F -14 I s WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) limited to: (i) estimated future growth potential of the reporting unit; (ii) estimated multiples of revenue or earnings a willing buyer is likely to pay; and (iii) estimated control premium a willing buyer is likely to pay. In addition, we evaluate a reporting unit for impairment if events or circumstances change between annual tests, indicating a possible impairment. Examples of such events or circumstances include: (i) a significant adverse change in legal factors or in the business climate; (ii) an adverse action or assessment by a regulator; (iii) a more likely than not expectation that a reporting unit or a significant portion thereof will be sold; or (iv) the testing for recoverability under SFAS 144 of a significant asset group within the reporting unit. Other intangible assets primarily include customer relationships and contracts and covenants not —to— compete. Other intangible assets are recorded at their cost, less accumulated amortization and are amortized over the period we are expected to benefit by such intangibles. We periodically evaluate the carrying value and remaining estimated useful life of our other intangible assets subject to amortization in accordance with the provisions of SFAS 144. Other Non — Current Assets Acquisition deposits and deferred acquisition costs include capitalized incremental direct costs associated with proposed business combinations that are currently being negotiated. These costs remain deferred until we cease to be engaged on a regular and ongoing basis with completion of the proposed acquisition, at which point they are charged to earnings. In the event that the target is acquired, these costs are incorporated in the cost of the acquired business. Indirect and internal costs, including executive salaries, overhead and travel costs related to acquisitions, are expensed as incurred. Costs associated with arranging financing are deferred and expensed over the related financing arrangement using the effective interest method. Should we repay an obligation earlier then its contractual maturity, any remaining deferred financing costs are charged to earnings. Fair Value of Financial Instruments The book values of cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short—term nature of these instruments. Borrowings under our senior credit facilities as of December 31, 2005 have carrying values that approximate their respective fair values based on the current rate offered to us for instruments with similar market risk and maturities. The fair value of our 9.5% Senior Subordinated Notes at December 31, 2005 is estimated at $160.4 million based on the year end quoted market price. The fair value of our cumulative mandatorily redeemable Preferred Stock at December 31, 2005 is estimated at $87.3 million based upon the aggregate liquidation preference as no quoted market price is available for this security. Environmental Costs We accrue for costs associated with environmental remediation obligations when such costs are probable and can be reasonably estimated. Accruals for estimated losses from environmental remediation obligations generally are recognized no later than completion of the remedial feasibility study. Such accruals are adjusted as further information develops or circumstances change. Cost of future expenditures for environmental remediation obligations are not discounted to their present value. Accrued Closure and Post — Closure Obligations Accrued closure and post— closure obligations represent an estimate of the current value of the future obligations associated with closure and post— closure monitoring of solid waste landfills. Closure and post — closure monitoring and maintenance costs represent the costs related to cash expenditures yet to be incurred F -15 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) when a landfill facility ceases to accept waste and closes. In accruing for closure and post — closure monitoring and maintenance, site inspection, groundwater monitoring, leachate management, methane gas management and recovery, and operating and maintenance costs are considered to be incurred during the period after the facility closes. Certain of these environmental costs, principally capping and methane gas management costs, are also incurred during the operating life of the site in accordance with the landfill operating requirements. Site specific closure and post — closure engineering cost estimates are prepared annually. The impact of changes in estimates is accounted for on a prospective basis. Landfill closure and post — closure liabilities are calculated by estimating the total obligation of capping and closure events in current dollars, inflating the obligation based upon the expected date of the expenditure using an inflation rate of 2.5% and discounting the inflated total to its present value using a 9.5% credit — adjusted risk —free discount rate. Accretion of discounted cash flows associated with the closure and post closure obligations is accrued over the life of the landfill, as a charge to cost of operations. Revenue Recognition We recognize revenue when services, such as providing hauling services and accepting waste at our disposal facilities, are rendered. Amounts billed to customers prior to providing the related services, are reflected as deferred revenue and reported as revenue in the period in which the services are rendered. Royalty Arrangements It is customary in the waste industry for landfill ,acquisition agreements to include royalty arrangements. Amounts paid under these royalty arrangements are charged to operations based upon a systematic and rational allocation of the royalty over the period in which the royalty is incurred. Advertising Costs We expense advertising costs as they are incurred. Advertising expense was $1.0 million, $0.8 million and $0.5 million for the years ended December 31, 2005, 2004 and 2003, respectively. Advertising expense is included in selling, general and administrative expense on the accompanying Statements of Operations. Risk Management Our U.S. —based automobile, general liability and workers' compensation insurance coverage is subject to certain deductible limits. We retain up to $0.5 million and $0.25 million of risk per claim, plus claims handling expense under our workers' compensation and our auto and general liability insurance programs, respectively. Claims in excess of such deductible levels are fully insured subject to our policy limits. However, we have a limited claims history for our U.S. operations and it is reasonably possible that recorded reserves may not be adequate to cover future payments of claims. We have collateral requirements that are set by insurance companies, which underwrite our insurance programs. Collateral requirements may change from time to time, based on, among other things, size of our business, our claims experience, financial performance or credit quality and retention levels. As of December 31, 2005 we had posted letters of credit with our U.S. insurer of $8.4 million to cover the liability for losses within the deductible limit. Provisions for retained claims are made by charges to expense based upon periodic evaluations by management and outside actuaries of the estimated ultimate liabilities on reported and unreported claims. Adjustments, if any, to the estimated reserves resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments become F -16 The weighted — average grant —date fair value of options granted was $3.60, $2.33 and $2.42 for the years ended December 31, 2005, 2004 and 2003, respectively. Compensation expense recognized for employee stock options subject to variable accounting is based on the intrinsic value (the difference between the exercise price and quoted market price) of the options at the end of each reporting period. Changes in the intrinsic value are recognized until such options are exercised, expire or are forfeited. F -17 1 1 1 1 1 1 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ■ We account for the issuance of options or warrants for services from non — employee consultants in accordance with 23, "Accounting for Stock —Based Compensation ", by estimating the fair value of options or warrants issued using the Black — Scholes pricing model. The model's calculations include the option or warrant exercise price, the market price of our shares on the grant date, the weighted average information for risk —free interest, the contracted life of the option or warrant, expected volatility of our stock and expected dividends. The assumptions in this model approximate those disclosed in the preceding assumption table. ' If options or warrants issued as compensation to non — employees for services are fully vested and non — forfeitable at the time of issuance, the estimated value is recorded in equity and expensed when the services are performed and benefit is received as provided by FASB Emerging Issues Task Force ( "EITF ") No. 96 -18 "Accounting for Equity Instruments That Are Issued To Other Than Employees For Acquiring Or In Conjunction With Selling Goods Or Services ". Income Taxes 1 We account for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Accordingly, deferred income taxes have been provided to show the effect of temporary differences between the recognition of revenue and expenses for financial and income tax reporting purposes and between the tax basis of assets and liabilities and their reported amounts in the financial ' statements. In assessing the realizability of deferred tax assets, management assesses the likelihood that deferred tax assets will be recovered from future taxable income, and to the extent that recovery is not likely or there is insufficient operating history, a valuation allowance is established. We adjust the valuation allowance in the period management determines it is more likely than not that deferred tax assets will or will not be realized. Net Income (Loss) Per Share Information Basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period, including 6,330,382 exchangeable shares of Waste Services (CA) not owned by us as of December 31, 2005. Diluted earnings (loss) per share is calculated based on the weighted average shares of common stock outstanding, including the exchangeable shares, during the year plus the dilutive effect of common stock purchase warrants and stock options using the treasury stock method and the dilutive effects of convertible instruments using the if— converted method. Contingently issuable shares are included in the computation of basic earnings (loss) per share when issuance of the shares is no longer contingent. Due to the net losses attributable to common shareholders for the years ended December 31, 2005, 2004 and 2003, 1 basic and diluted loss per share were the same, as the effect of potentially dilutive securities would have been anti — dilutive. Change in Accounting Principle On January 1, 2003, we adopted the provisions of SFAS No. 143 "Accounting for Asset Retirement Obligations" ( "SFAS 143 "). SFAS 143 required us to change our methodology used to record liabilities related to capping, closure and post — closure of our landfill operations. Under SFAS 143, we are required to recognize as an asset, the fair value of the liability an asset retirement obligation. The asset is then depleted, consistently with other capitalized landfill costs, over the remaining useful life of the site based upon units of consumption as airspace in the landfill is consumed. Upon adoption, the liability we recognized represented the present value of the total estimated future asset retirement obligation. The methodology we used to define the cost pool related to an obligating event included total capping, closure and post— closure costs to be incurred, on a discounted basis, over the remaining life of the site. In connection with the opening of our JED Landfill in Florida in the first quarter of 2004, we re— evaluated and changed the methodology used to define an obligating event, and we segregated the cost pool for the ■ F -18 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) obligation into closure and post — closure obligations and landfill capping obligations. Effective January 1, 2004, we recognize the fair value of the liability for the closure and post— closure obligations over the life of the landfill as waste is placed in the site as opposed to at the time at which the landfill commences operations. Additionally, under our new method, we view landfill capping events, which occur in phases throughout the life of a landfill, as discrete activities that are recognized as asset retirement obligations separately from other closure and post — closure obligations. These capping events occur generally during the operating life of a landfill and can be associated with specific waste placed under an area to be capped. As a result, we use a separate capping rate per ton to recognize the principal amount of the retirement obligation and related asset associated with each capping event. We deplete the asset recorded pursuant to this approach as waste volume covered by the capping event is placed into the landfill. We believe this method is preferable as it (i) provides a better measure of the fair value of the asset retirement obligation by more precisely matching the landfill obligating events with the recognition of the fair value of the asset retirement obligation; (ii) is more consistent with our policies for the allocation of purchase price in landfill acquisitions and the related valuation of assumed retirement obligations; (iii) reflects a more accurate rate of accretion thereby creating a more accurate value of our current and future retirement obligations; and (iv) is the predominant method used in our industry. The effect of the change in methodology, had it been adopted January 1, 2003, would have been to increase net loss before cumulative effect of change in accounting principle; for the year ended December 31, 2003 by approximately $0.4 million, or $0.01 per share on basic or diluted loss per share. The effect of this change on basic or diluted loss per share as of December 31, 2004 would have been $0.01. The following table summarizes the balance sheet impact of our change in accounting methodology for asset retirement obligations under SFAS 143: Adjustment for December 31, Change in January 1, 2003 Accountine 2004 Landfill sites $ 128044 Accumulated depletion (10.503) 717 (90786) Accrued closure and Adoption of New Accounting Standard 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. As a result of the amendment to Rule 4 -01(a) adopted in April 2005, 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(8) using the modified prospective method, which will result in the recognition of compensation expense for all awards granted after the effective date and all previously granted share —based awards that remain unvested at the F -19 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 1 effective date. As a result of adopting SFAS 123(R) we expect our stock based compensation costs related to those options outstanding at December 31, 2005 and continuing to vest, to approximate $2.0 million for the year ended December 31, 2006. During December 2004, the FASB issued FASB Staff Position ( "FSP ") No. 109 -2, Accounting and Disclosure Guidance for the Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004 ( "FSP 109 -2 "), which provides guidance on 1 the accounting for the potential impact of the repatriation provisions of the American Jobs Creation Act of 2004 (the "Jobs Act ") on enterprises' income tax expense and deferred tax liability. The Jobs Act, which was signed into law on October 22, 2004, introduces ' relief on the potential income tax impact of repatriating foreign earnings and certain other provisions. FSP 109 -2 states that an enterprise is allowed time beyond the financial reporting period of enactment to evaluate the effect of the Jobs Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS 109. The Company has completed its assessment and will not repatriate any foreign earnings under the provisions of the Jobs Act. 3. Business Combinations, Significant Asset Acquisitions and Disposals of Businesses In May 2003, we acquired the JED Landfill, a newly permitted landfill in central Florida, for $68.1 million in cash, assumed liabilities of $6.2 million and the issuance of 2,050,000 common shares valued at approximately $9.7 million. In addition, we issued ' 1,200,000 common shares valued at approximately, $4.8 million in consideration for transaction related services provided to us in connection with the acquisition. The landfill commenced operations during January 2004. ' In July 2003, we purchased Cactus Waste Systems, LLC for $0,6 million in cash and a $1.2 million option that we exercised in September 2003 to purchase an 800 —acre site in Pinal County, Arizona, which had been zoned to permit the development of a landfill. ' During May 2004, we received the permits and authorizations necessary for the operation of the landfill (the "Cactus Landfill ") and as a condition of the purchase, we issued 1,250,000 common shares valued at $5.5 million to the sellers during the second quarter of 2004, which has been capitalized as a cost of the landfill. The Cactus Landfill began operations during July 2004. The sellers are entitled to additional purchase consideration upon ithe Cactus Landfill achieving certain average tons per day thresholds in any quarter. Should the landfill achieve a maximum 5,000 tons per day, the total contingent payments would not exceed $18.0 million. During 2005 we paid $3.0 million relative to our obligation under this agreement. In November 2003, we entered into an agreement to acquire the assets of Allied Waste Industries, Inc.'s ( "Allied ") northern and central Florida operations (the "Allied Assets ") for a cash purchase price of approximately $120.0 million subject to an adjustment for working capital. The primary metropolitan areas served by the Allied Assets were Tampa, Sarasota and Jacksonville, Florida. On December 31, 2003, we completed the first phase of the Allied Assets acquisition. During the first six months of 2004, we completed the acquisition of the remaining Allied Assets. In the second quarter of 2004, we divested a certain landfill and related assets and liabilities in exchange for a collection operation in the metropolitan Orlando area and cash proceeds of $10.0 million. Proceeds in excess of net assets exchanged reduced goodwill from the original Allied Assets acquisition by $8.6 million. ' In April 2004, we also completed the acquisition of the issued and outstanding shares of Florida Recycling Services, Inc. ( "Florida Recycling ") for an aggregate purchase price of approximately $99.0 million in cash, working capital. of approximately $2.2.milhon,. . and the issuance of 9,250,000 common shares valued at approximately $51.4 million. Florida Recycling's operations are based in central Florida, primarily serving the Orlando, Daytona, Fort Myers and Tampa markets. Shortly after the acquisition, the performance i 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 F -20 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) upon. During the first half of 2005 these financial 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, were recorded as income. 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 for 2005. In February 2004, we acquired a pennitted undeveloped municipal solid waste landfill in Fort Bend County, Texas (the "Fort Bend Regional Landfill "). The landfill commenced operations during August 2004. The purchase price was comprised of $5.1 million in cash, a seller financed promissory note of $5.0 million, which has since been repaid, and the issuance of 4,375,000 common shares valued at approximately $25.0 million. The Fort Bend Regional Landfill, which serves the metropolitan Houston, Texas area, is approximately 2,600 acres and has an initial permitted capacity of 47.6 million cubic yards. In addition to the landfill, we acquired a leasehold interest in a fully permitted transfer station site near Houston, which we subsequently constructed and opened in January 2005. During the first quarter of 2004, we acquired the assets of three collection businesses in the metropolitan Phoenix area for aggregate cash consideration of approximately $8.4 million plus the issuance of 989,800 common shares valued at approximately $5.7 million. Separately, in January 2004, we acquired an industrial — permitted waste landfill site in Saskatchewan, Canada. The purchase price was comprised of $1.1 million in cash and the issuance of 12,000 common shares valued at approximately $0.1 million. During 2005, we acquired minor "tuck —in" hauling assets in Canada and Arizona for aggregate cash consideration of $1.1 million. On February 6, 2006 we announced the signing of definitive agreements to acquire Liberty Waste, LLC ( "Liberty Waste ") and Sun Country Materials, LLC ( "Sun Country Materials ") to expand our operations in the Tampa, Florida market. Liberty Waste is a collection operation based in Tampa with two transfer stations located in Tampa and Clearwater. Sun Country Materials owns a construction and demolition landfill located in Hillsborough County, Florida that is currently seeking an expansion permit. The transactions are both subject to certain customary closing conditions, with the landfill acquisition also subject to the receipt of the expansion permit. The purchase price for the two businesses is $38.5 million, consisting of $13.0 million in cash, $19.0 million in shares of our common stock and $6.5 million of previous cash deposits. F -21 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Details of the net assets acquired and cash used in asset and business acquisitions for the years ended December 31 are as follows: 2004 2005 Allied Assets Florida Recvcline All Others Total 2003 Purchase price: . Cash $ 1,122 $ 45,988 $ 104,234 $ 18,350 $ 168,572 ` $ 161,371 Sellerfinanced n6te,payable , — — — 5000 5,000. Common stock and warrants — — 51,357 36.721 88.078 18,382 Total purchase price 1:122 45:988 155:591 " 60.071 261.650: 179.753 Allocated as follows: Working; capital assumedi Accounts receivable — 3,755 7,426 409 11,590 6,676 Prepaid expenses another " " 25 T82 935 69 1,186 " 324 current assets Accounts payable " . - — (8,604) (738) (9,342) (976) Accrued eip enses and'other .' current. habiittes _ (81 (870) ('4:4101 (5 '2 . (6.93.01 , _' Net workingcapital 17 3,067 (4,653) (260) (1,846) (906) P ;operty,and,equpment 810 10;728... 23:;911 6,044, ;... 40,683.` °, 131030 Landfill sites — — — 41,982 41,982 90,094 Other assets Deferred taxes — (334) (334) — Lbng =terra debt assumed' (4;429); Accrued closures, post— closure anti nher nhligations Excess purchase price to be allocated -.... Goodwill $ 172 $ 23,201 $ 108,906 $ 12,667 $ 144,774 > Other intangtble assets •, , 123 a 8:992 , , 27;156 , •, .' „ . 24 36 172 16;808 .`: Total allocated $.��. $.. . . � t�� T 1 � � For 2004, the above table includes cash deposits and acquisition related costs of $4.0 million and 1,000,000 common shares and warrants valued at $5.7 million, which relate to the Florida Recycling acquisition that were paid or deposited during 2003 and were capitalized to the cost of the acquisition during 2004. During 2005 we also made the following payments related to previously completed acquisitions and other asset purchases: (i) $2.5 million as additional purchase price for working capital delivered, primarily related to the Allied Assets acquisition; and (ii) $1.5 million, 285,715 common shares valued at approximately F -22 I WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) $1.1 million and an operating facility in Pinellas with a book value of approximately $0.6 million for the acquisition of land adjacent to the Sanford Recycling and Transfer Station. We believe the primary value of an acquisition is the opportunities made available to vertically integrate operations or increase market presence within a geographic market. The following unaudited condensed consolidated pro forma statement of operations data shows the results of our operations for the years ended December 31, 2005, 2004 and 2003 as if completed business combinations had occurred at the beginning of the respective period (in thousands except per share amounts): 2005 2004 2003 Revenue z <.. , . ,. .� Net loss attributable to common shareholders M) 71� 5r I). Basic and diluted net loss per Common Share Basic and diluted pro forma weighted average number of common shares outstanding These unaudited condensed pro forma consolidated results have been prepared for comparative purposes only and are not necessarily indicative of the actual results of operations had the acquisitions taken place as of the beginning of the respective periods or the results of our future operations. Furthermore, the pro forma results do not give effect to all cost savings or incremental costs that may occur as a result of the integration and consolidation of the acquisitions. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following as of December 31, 2005 and 2004: Deferred income taxes Invento _ 1,$32 1,791 1-Y - x 1.823 Other current assets 2 159 5. Property and Equipment P466 and egitipment,:riet F -23 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Included in property and equipment are vehicles under capital leases with an aggregate cost of $2.8 million and related accumulated depreciation of $1.1 million and $0.7 million as of December 31, 2005 and 2004, respectively. 6. Landfill Sites, Accrued Closure, Post — Closure and Other Obligations ' Landfill Sites Landfill sites consist of the following as of December 31, 2005 and 2004: 2005 2004 Landfill "sites ..:. �� .... �. . -- (33,217) Less: Accumulated depletion 177 '1:7.R (19,000) 1`FQ F1R Land ill sites, net On an annual basis, we update the development cost estimates, closure and post — closure and future capacity estimates for our landfills, Future capacity estimates are updated using surveys to estimate utilized disposal capacity and remaining disposal capacity. ' These cost and capacity estimates are reviewed and approved by senior management on an annual basis. Changes in landfill sites for the years ended December 31, 2005, 2004, and 2003 are as follows: 2005 2004 2003 .at the beginning o the year", . $ " .169,16:: $ :• 117;541 " $ 12,268 ' Landfill site construction costs 10,775 12,839 "purchasepnce 3,000;" 41,982 ;90 ;094,; Landfill -. ....,; 1,777 858 Additional asset retirement obligations Purchase', price "allocat1on adlusti ,cnts foi�•prior 4cquisilions" 99 5 ",907 Depletion (13 434) (8,105) 4,789) Divestitures n (x;54) " 178 Capitalized interest "Effect of foreigil' ex _ ch'ange rate:iiictaations 3.657 " Change in accounting principle A;M Accrued Closure, Post — Closure and Other Obligations Accrued closure, post — closure and other obligations consist of the following as of December 31, 2005 and 2004: Anne Deferred income 1 84 Accrued closure and post — closure obligations include the costs associated with obligations for closure and post— closure of our landfills. The anticipated timefraine for paying these costs varies based on the remaining F -24 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) useful life of each landfill as well as the duration of the post — closure monitoring period. Changes in accrued closure and post— closure obligations for the years ended December 31, 2005, 2004 and 2003 are as follows: 2005 2004 Other intangible assets subject to amortization , 2005 2004 2003 Balance•at the begin n g, , I year ",.; $ 6,390 $ 7,737 $ 1,92.5 Additional asset retirement obligations 1,777 858 — ?cctetion 724 4. 5 Acquisitions (5,913) 52 1, 48 3 Divestitures ; Other intangible assets subject to amortization, net (146) — Purchase price allocation adjustments for prior acquisitions — (92) — > ffect of fore1gn.'exchange rate fluctuations .. , 215 . ,'; , , ,.. .:..., 349 991 Change in accounting principle — (2,831 2,883 Balance arthe end of the year The above future expenditures for closure and post— closure obligations assume full utilization of permitted and probable expansion airspace. 7. Goodwill and Other Intangible Assets Goodwill and other intangible assets consist of the following as of December 31, 2005 and 2004: 2005 2004 Other intangible assets subject to amortization , Customer relationships and contracts $ 35,394 $ 50,495 Non- competition agreements: and other 3 AJ6 38,530 54,621 Less Accumulated amortization Customer relationships and contracts (12,310) (5,913) Nori—cgmpetition agreements,atd oth (1.950), Other intangible assets subject to amortization, net 24,270 46,926 Goodwill 5 <`3020:1 : - 280 830. Goodwill and other intangible assets, net F -25 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Balance at the end of the year Balance at the end of the year Re =" T� As of December 31, 2005, the weighted average amortization period for other intangible assets is as follows Cus %mer; "relations) s arid;contracts :.. ,. l l 5' xyears P Non — competition agreements and other 3.0 years F -26 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 8. Other Assets 9. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consist of the following as of December 31, 2005 and 2004: 2005 2004 Deferred revenue '_' $ 10;205 $ 9,443 Accrued compensation, benefits and subcontractor costs 8,090 8,393 Accrued waste, disposal costs .. 7,.999 . 2426:. Accrued insurance 4,360 Ace rued" interest 4,07 ; 4;762_ Accrued acquisition costs 1,637 2,230 r„wA:,t -„nine nfrar�itat lPase'nhl;iattnns' . ..454 Other accrued expenses and current liabilities 10. Debt Debt consists of the following as of December 31, 2005 and 2004: 2005 2004 Senior, Secured Credit Facrlitis < Revnlvina credit facility. floatine interest rate at 6.71% as of December 31, 2004, due Senior Subordinated Notes, fixed interest rate at 9.5 %, due 2014 1 bu,uuU i ou,vvu ss ; Current portion . , 286,215 277,3 Le Long —term portion �?-7" F -27 U j I WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The aggregate annual principal repayments required in respect to debt as of December 31, 2005 are as follows: 2006 $" :1,365 2007 1,440 20Q8 L',5 2009 1,467 2010 89,044 Thereafter 191.446 Senior Secured Credit Facilities On April 30, 2004, we entered into Senior Secured Credit Facilities (the "Credit Facilities ") with a syndicate of lenders. The Credit Facilities consist of a five —year revolving credit facility in the amount of $60.0 million, up to $15.0 million of which is available to our Canadian operations, and a seven —year term loan facility in the amount of $100.0 million. The Credit Facilities bear interest based upon a spread over base rate or Eurodollar loans, as defined, at our option. The Credit Facilities are secured by substantially all of the assets of our U.S. restricted subsidiaries. Our Canadian operations guarantee and pledge all of their assets only in support of the portion of the revolving credit facility available to them. Separately, 65% of the common shares of Waste Services' first tier foreign subsidiaries, including Waste Services (CA), are pledged to secure obligations under the Credit Facilities. As of December 31, 2005, there were no amounts outstanding on the revolving credit facility, while $18.7 million of capacity was used to support outstanding letters of credit. As of June 30, 2004, we failed to meet certain of the financial covenants contained in the Credit Facilities. On October 4, 2004, we entered into an amendment to the credit agreement with the administrative agent for the lenders. The amendment included changes to certain of the financial and other covenants contained in the credit facilities and increased the interest rates payable on amounts outstanding by 125 basis points to 450 basis points over Euro dollar 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 for our Canadian operations. In connection with the amendment, we paid a fee of approximately $0.4 million to our lenders. 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 common stock purchase warrants for net proceeds of approximately $6.8 million in satisfaction of this covenant. On October 26, 2005, we entered into an amendment to the Credit Facilities with the administrative agent for the lenders. The amendment, 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 restored access under the revolving credit facility to $60.0 million, up to $15.0 million of which is available to our Canadian operations. On December 28, 2005, we entered into another amendment to the Credit Facilities, which provided for the incurrence of up to $50.0 million of additional term loans under a new term loan tranche, as provided for under the terms of our existing Credit Facilities. We drew $25.0 million of this facility at closing to refinance amounts then outstanding under our existing revolving credit facility. The $25.0 million un —drawn portion of the new term loan tranche is available on a delayed draw basis until March 30, 2006 for the financing of potential acquisitions that are otherwise permitted under the terms of the Credit Facilities and that do not materially increase total leverage on a pro forma basis. F -28 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Our Credit Facilities, as amended, contain certain financial and other covenants that restrict our ability to, among other things, make capital expenditures, incur indebtedness, incur liens, dispose of property, repay debt, pay dividends, repurchase shares and make certain acquisitions. Our financial covenants include: (i) minimum consolidated interest coverage; (ii) maximum total leverage; and (iii) maximum senior secured leverage. The covenants and restrictions limit the manner in which we conduct our operations and could adversely affect our ability to raise additional capital. As of December 31, 2005, we are in compliance with the financial covenants, as amended, and we expect to continue to be in compliance in future periods. Senior Subordinated Notes On April 30, 2004, we completed a private offering of 91/2% Senior Subordinated Notes ( "Subordinated Notes ") due 2014 for gross proceeds of $160.0 million. The Subordinated Notes mature on April 15, 2014. Interest on the Subordinated Notes is payable semiannually on October 15 and April 15. The Subordinated Notes are redeemable, in whole or in part, at our option, on or after April 15, 2009, at a redemption price of 104.75% of the principal amount, declining ratably in annual increments to par on or after April 15, 2012, together with accrued interest to the redemption date. In addition, prior to April 15, 2007, we may redeem up to 35.0% of the aggregate principal amount of the Subordinated Notes with the proceeds of certain equity offerings, at a redemption price equal to 109.5% of the principal amount. Upon a change of control, as such term is defined in the Indenture, we are required to offer to repurchase all the Subordinated Notes at 101.0% of the principal amount, together with accrued interest and liquidated damages, if any, and obtain the consent of our senior lenders to such payment or repay indebtedness under our Credit Facilities. The Subordinated Notes are unsecured and are subordinate to our existing and future senior secured indebtedness, including our Credit Facilities, structurally subordinated to existing and future indebtedness of our non — guarantor subsidiaries, rank equally with any unsecured senior subordinated indebtedness and senior to our existing and future subordinated indebtedness. Our obligations with respect to the Subordinated Notes, including principal, interest, premium, if any, and liquidated damages, if any, are fully and unconditionally guaranteed on an unsecured, senior subordinated basis by all of our existing and future domestic restricted subsidiaries. The Canadian operations are not guarantors under the Subordinated Notes. The Subordinated Notes contain certain covenants that, in certain circumstances and subject to certain limitations and qualifications, restrict, among other things (i) the incurrence of additional debt; (ii) the payment of dividends and repurchases of stock; (iii) the issuance of preferred stock and the issuance of stock of our subsidiaries; (iv) certain investments; (v) the repurchase of our Preferred Stock; (vi) transactions with affiliates; and (vii) certain sales of assets. In April 2004, we entered into a Registration Rights Agreement with the initial purchaser of the Senior Subordinated Notes in which we agreed to file a registration statement for the exchange of the Senior Subordinated Notes for registered notes with identical terms and have such registration statement declared effective within specified time frames. Prior to the third quarter of 2005 we were required to pay liquidated damages to the holders of the notes, as we had not yet complied with these registration requirements. These liquidated damages were expensed as incurred and were payable in cash at the same time as interest payments were due under the notes. During the third quarter of 2005, 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. 11. Cumulative Mandatorily Redeemable Preferred Shares . —Y In May 2003, we issued 55,000 shares of redeemable Preferred Stock (the "Preferred Stock ") to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively "Kelso'), pursuant to the terms of an agreement dated as of May 6, 2003, as amended in February 2004, (the "Subscription Agreement "), at a price of $1,000 per share. We also issued to Kelso 7,150,000 warrants to purchase shares of our common stock F -29 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) (on a one — for —one basis) for $3.00 per share. The warrants are exercisable at any time until May 6, 2010. The issuance of the Preferred Stock resulted in proceeds of approximately $49.5 million, net of fees of approximately $5.5 million. The shares of Preferred Stock are non — voting. The Preferred Stock entitles the holders to cash dividends of 17.75% per annum compounding and accruing quarterly in arrears. The liquidation preference approximated $87.3 million as of December 31, 2005. The Preferred Stock entitles the holders to a liquidation preference of $].,000 per share, adjusted for any stock dividend, stock split, reclassification, recapitalization, consolidation or similar event affecting the Preferred Stock, plus the amount of any accrued but unpaid dividends on such share as of any date of determination. As we are not permitted to declare and pay cash dividends pursuant to the tenns of our Credit Facilities, the dividend payments accrue. The Preferred Stock, including all accrued and unpaid dividends, must be redeemed in full by no later than May 6, 2015, Until May 6, 2006, we may redeem all or any part of the Preferred Stock on payment of the sum of $1,000 per share plus accrued and unpaid dividends calculated as if the Preferred Stock were redeemed on May 6, 2006, or approximately $92.7 million subject to the restrictions in our Credit Facilities and our Senior Subordinated Notes. If we do not exercise our option to redeem all of the Preferred Stock by May 6, 2009, Kelso may require us to initiate a sale of our assets to redeem approximately $156.1 million of principal and accrued dividends, on terms acceptable to our board consistent with the exercise of their fiduciary duties. Pursuant to an amendment to the Certificate of Designations of Waste Services dated April 30, 2004, if we determine, after conducting a sale process, that any such sale would not yield sufficient proceeds to repay in full the indebtedness then outstanding under our Credit Facilities and the redemption amount of our Senior Subordinated Notes issued on April 30, 2004, then we may elect to delay such sale. The sale date may be delayed until the earliest to occur of (i) the final maturity date of the 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 Preferred Stock gave notice requiring the initiation of a sale process, for a liquidation amount of 1.20 times the liquidation preference of $1,000 per share. If the sale day has been delayed, then we are not required to pay this increased liquidation amount until the delayed sale date. Also pursuant to the Amended Certificate of Designations, if we become subject to a liquidation or insolvency event (as such terms are defined in our Amended and Restated Credit Agreement dated April 30, 2004) or in the event of a change of control (as such tern is defined in the Amended Certificate of Designations), all payments and other distributions to holders of Preferred Stock will be subordinate to the repayment in full of our Credit Facilities. This provision does not prohibit any accrual or increase in the dividend rate or in the liquidation preference of the Preferred Stock as provided for in the Amended Certificate of Designations, or the distribution of additional shares or other equity securities to the holders of Preferred Stock, so long as such additional shares or other equity securities are subject to at least equivalent subordination provisions. In addition, the Amended Certificate of Designations prohibits us from making any payment or distribution to the holders of Preferred Stock in the event of a sale of our assets, or the exercise by the holders of the Preferred Stock of their right to require payment of the liquidation amount of their shares as a result of the failure to consummate a sale of our assets as described in the preceding paragraph, unless such payment or distribution is expressly permitted pursuant to the terms of the agreement then governing our Credit Facilities. Due to its redeemable provisions we classified the Preferred Stock as a liability. We allocated the relative fair value of the proceeds to Preferred Stock and warrants. The 7,150,000 warrants had an allocated value on the date of issue of approximately $14.8 million. The value allocated to the warrants was treated as a component of equity, with an offsetting amount treated as a discount which will accrete to interest expense F -30 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) using the effective interest method over the life of the Preferred Stock to the earliest redemption date of May 6, 2006. 12. Commitments and Contingencies Leases The following is a schedule of future minimum operating lease payments as of December 31, 2005 2006::, 2007 4,656 2008 :,. 4,016 2009 2,773 2010 2,389 Thereafter 7.895 We have entered into operating lease agreements, primarily consisting of leases for our various facilities. Total rent expense under operating leases charged to operations was approximately $4.1 million, $4.0 million and $2.2 million for the years ended December 31, 2005, 2004 and 2003, respectively. We lease certain heavy equipment and hauling vehicles under capital lease agreements, all of which are due in 2006. The assets related to these leases have been capitalized and are included in property and equipment. Surety Bonds and Letters of Credit Municipal solid waste service and other service contracts, permits and licenses to operate transfer stations, landfills and recycling facilities may require performance or surety bonds, letters of credit or other means of financial assurance to secure contractual performance. To collateralize our obligations we have provided customers, various regulatory authorities and our insurer with such bonds and letters of credit amounting to approximately $65.5 million and $67.7 million as of December 31, 2005 and 2004, respectively. The majority of these obligations expire each year and will need to be renewed. 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 the acquisition of such facilities. Pollutants or hazardous substances whose transportation, treatment or disposal was arranged by us or our predecessors, may also subject us to liability for any off —site environmental contamination caused by these pollutants or hazardous substances. Any substantial liability for environmental damage incurred by us could have a material adverse effect on our financial condition, results of operations or cash flows. As of the date of these Consolidated Financial Statements, we estimate the range of reasonably possible losses related to environmental matters to be insignificant and are not aware of any such environmental liabilities that would be material to our operations or financial condition. Disposal Agreement On November 22, 2002, we entered into a Put or Pay Disposal Agreement, or the Disposal Agreement, with RCI Environment Inc., Centres de Transbordement et de Valorisation Nord Sud Inc., RCM Environne- F-31 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) ment Inc. collectively the RCI Companies, and Intersan Inc., or Intersan, a subsidiary of Waste Management of Canada Corporation (formerly Canadian Waste Services, Inc.), pursuant to which we, together with the RCI Companies, agreed to deliver to certain of Intersan's landfill sites and transfer stations in Quebec, Canada, over the 5 year period from the date of the Disposal Agreement, 850,000 metric tonnes of waste per year, and for the next 2 years after the expiration of the first 5 year term, 710,000 metric tonnes of waste per year at a fixed disposal rate set out in the Disposal Agreement. If we and the RCI Companies fail to deliver the required tonnage, we are jointly and severally required to pay to Intersan, C$23.67 per metric tonne for every tonne below the required tonnage. If a portion of the annual tonnage commitment is not delivered to a specific site we are also required to pay C$8.00 per metric tonne for every tonne below the site specific allocation. Our obligations to Intersan are secured by a letter of credit for C$4.0 million. On January 17, 2006, Waste Management drew C$03 million against the letter of credit posted by us to secure RCI's obligations; as such we have provided for the draw as of December 31, 2005. The companies within the RCI Group are controlled by a director of ours and/or individuals related to that director. Concurrent with the Disposal Agreement, we entered into a three —year agreement with Canadian Waste Services, Inc. to allow us to deliver up to 75,000 tons in year one and up to 100,000 tons in years two and three of non — hazardous solid waste to their landfill in Michigan at negotiated fixed rates per ton, which has now expired. Collective Bargaining Agreements 1 As of December 31, 2005, approximately 45% of our employees in Canada were subject to various collective bargaining agreements. Currently, there are no significant grievances with regards to these agreements. Legal Proceedings In the normal course of our business and as a result of the extensive governmental regulation of the solid waste industry, we may periodically become subject to various judicial and administrative proceedings involving federal, provincial, state or local agencies. In these proceedings, an agency may seek to impose fines on us or revoke or deny renewal of an operating permit or license held by us. From time to time, we may also be subject to actions brought by citizens' groups, adjacent landowners or residents in connection with the permitting and licensing of transfer stations and landfills or allegations related to environmental damage or violations of the permits and licenses pursuant to which we operate„ In addition, we may become party to various claims and suits for alleged damages to persons and property, alleged violations of certain laws and alleged liabilities arising out of matters occurring during the normal operation of a waste management business. In December 2002, Waste Management of Canada Corporation (formerly Canadian Waste Service, Inc.), one of our competitors, commenced an action in the Court of Queen's Bench of Alberta against us and one of our former employees in Western Canada who had previously been employed by Canadian Waste. The action alleges breach of the employment contract between the former employee and Canadian Waste, and breach of fiduciary duties. The action also alleges that we participated in those alleged breaches. The action seeks damages in the amount of approximately C$14.5 million, and an injunction enjoining the former employee from acting contrary to his alleged employment contract: and fiduciary duties. In July 2004, Waste Management, Inc. filed a suit in the District Court of Harris County, Texas against our President and Chief Operating Officer, Charles A. Wilcox, for breach of contract, including breach of a non — competition agreement, and for a temporary and a permanent injunction. Mr. Wilcox is presently subject to a temporary order restraining him from engaging in certain activities adverse to the interests of Waste Management, Inc. In April 2005, Waste Management filed an amended petition and application for injunction F -32 1 i 1 1 1 1 1 1 1 N WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) naming us as a defendant to the suit and claiming, among other things, tortious interference with contractual relations and seeking compensatory damages from us. We intend to vigorously defend these actions both with respect to liability and damages. No provision has been made in these financial statements for the above matters. We do not believe that the possible losses in respect of all or any of these matters would have a material adverse impact on our business, financial condition, results of operations or cash flows. In March 2005, we filed a Complaint against Waste Management, Inc. in the United States District Court in the Middle District of Florida (Orlando). The Complaint alleges that Waste Management sought to prevent us from establishing ourselves as an effective ' competitor to Waste Management in the State of Florida, by tortiously interfering with our business relationships and committing antitrust violations under both federal and Florida law. We are seeking in excess of $25.0 million in damages against Waste Management. If we are successful in our suit under antitrust laws, Waste Management would be liable for treble damages, or in excess of $75.0 million. 1 Other Commitments 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. 13. Capital Stock Migration Transaction Effective July 31, 2004, we entered into a migration transaction by which our corporate structure was reorganized so that Waste Services became the ultimate parent company of our corporate group. Prior to the migration transaction, we were a subsidiary of Waste Services (CA). After the migration transaction, 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 Waste Services (CA) for 87,657,035 shares of our common stock; and (ii) the conversion of the remaining 9,229,676 common shares of Waste Services (CA) 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 our common 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 1 Voting Preferred Stock held by Computershare Trust Company of Canada as trustee, who will vote on the instructions of the holders of the exchangeable shares (one vote for each exchangeable share). As such, the exchangeable shares are classified as part of our equity. Upon the occurrence of certain events, such as the liquidation of Waste Services (CA), or after the redemption date, our Canadian holding company, Capital Environmental Holdings Company 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 F -33 II WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) than December 31, 2016. Holders of exchangeable shares also have the right at any anytime at their option, to exchange their exchangeable shares for shares of our common stock. Equity Placements On March 4, 2005, we exercised our put rights under our standby purchase agreement with Michael DeGroote, thereby requiring Mr. DeGroote to purchase shares of our common stock for $7.5 million on or before March 28, 2005. This equity infusion was required as a condition to our amended Credit Facility. On April 30, 2004, we raised approximately $50.7 million, after deducting expenses of approximately $2.9 million, from the sale of 13,400,000 common shares and warrants to purchase 1,340,000 common shares in private placement transactions to certain investors. Sanders Morris Harris Inc. acted as the placement agent for the issuance and was paid a placement agent fee of approximately $2.7 million. Don A. Sanders, a director of ours at the time of such issuance, is a principal of Sanders Morris Harris Inc. (a) The proceeds from this issue were received and recorded as of June 25, 2003; the shares were issued July 8, 2003. (b) A shareholder and certain of our officers and directors and/or their affiliates, purchased 1,762,500 Series 1 Preferred Shares in these private placement transactions. (c) -- - Separately, we recorded a tax asset of $1.3 million for the deductible portion of the fees. paid... _ .. We accounted for the issuance of the Series I Preferred Shares as the issuance of three differing securities: (i) Series 1 Preferred Shares convertible into common shares; (ii) warrants exercisable for common shares; and (iii) a beneficial conversion feature embedded in the Series 1 Preferred Shares. The gross proceeds from the offerings were allocated based upon the relative fair value of the Series 1 Preferred Shares on the commitment date (date of issue), and the warrants. The fair value of the common shares at the commitment date was compared to the gross proceeds allocated to the Series 1 Preferred Shares based upon their relative fair value. The excess of fair value of the common shares over the gross proceeds allocated to the Series 1 Preferred Shares was deemed to be the value associated with the beneficial conversion feature of the Series 1 Preferred Shares and was recorded as a non —cash dividend on the Series 1 Preferred Shares. Value ascribed to the beneficial conversion feature of the Series 1 Preferred Shares and the allocated fair value of the warrants approximated $54.6 million for the year ended December 31, 2003, which was recognized as a deemed dividend to the Series 1 Preferred Shareholders. F -34 1 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) At our annual meeting held in December 2003, the shareholders approved the conversion of the Series 1 Preferred Shares to common shares, thereby affecting the exchange on the basis of one common share for each one Series 1 Preferred Share and the exercisability of the warrants that were issued with the Series 1 Preferred Shares. Employee and Director Stock Option Plans and Option Grants Under the 1997 Stock Option Plan, we may grant options to acquire shares of our common stock up to a maximum of 10.0% of the then issued and outstanding common shares on an as converted basis. All of the options issued under the 1997 plan vested on completion of the initial public offering of our securities. No options remain outstanding under the 1997 plan as at December 31, 2005. Under the 1999 Stock Option Plan, we may grant options to acquire shares of our common stock up to a maximum of 19% of the then issued and outstanding shares of common stock and common stock equivalents, including stock options issued under the 1997 Stock Option Plan. Options granted to non — employee directors will generally vest one year from the date of grant. Options granted to employees become exercisable only after the second anniversary of the grant date, unless otherwise determined by the Compensation Committee. No option will remain exercisable later than five years after the grant date, unless the Compensation Committee determines otherwise. Upon a change of control event, options become immediately exercisable. All options granted under the 1997 and 1999 Stock Option Plans have been granted at or above market price. The weighted average exercise price of the aggregate outstanding options was $4.85, $4.91 and $4.71 as of December 31, 2005, 2004 and 2003, respectively. The weighted average contractual life of the options outstanding at December 31, 2005 was 2.6 years. The weighted average exercise price of options that were exercisable was $4.25, $3.90 and $5.07 as of December 31, 2005, 2004 and 2003, respectively. Certain of our options are priced in Canadian dollars and certain options are priced in U.S. dollars. Stock option activity, for F -35 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) covered by the 1997 and 1999 Stock Option Plans for the years ended December 31, 2005, 2004 and 2003 is as employee options follows: 2005 2004 2003 Options, outstariding;at the beginning of the year 12;652,964 7,806,699 2,435,816 op ions ranted during the year g 876,000 5,472,000 ( 1'92.500y, 5,493,000 20,000 ( ) Options `exercised during'. the year . Options forfeited during the year .: (15,000) (950,464) (433,235) (102,117) Options outstanding,at the end of the,year ;i; i �: Stia :5nn i� ASX :AAa ��� gFa 7`.ROA �g4 �gn F4g Options exercisable at the end of the year F SRS nnn Weighted average exercise pnce:;(C$ Options In C$) - $ - 6.49 Options granted $ $ = $ $ 7.37 5'.22 $ 4.05 . Options exercised :. $ 10.35 $ 8.33 $ 9 47 Options forfeited options outstanding at :the:end of the "year $ 6.37" $ 6;45 $ , .. " 6.15 Option price ranges. (C$ Options In C$) $' $ 3 $8 40 .23 $.. 5 .25' $7.28 Options granted ... $ — $ 4.05–$6.0 3 $ 4.05 Options exercised Opthons:hileited; $ ; 5.25_ $18.05 $ 5:25 -$.18 OS $ . 5.89- $14.44 Options outstanding at the end of the year $ 4.05–$18.05 $ 3.23–$18.05 $ 4.05–$ 18 05 Weighted average exercise,pnce, ' .(LT3,$ Options) , 60 $ 4 $ 4 49 Options granted exesed J.,'e °... Options rci $ 3 3.53 $ 82 .' 3 73 $ Options forfeited $ 4.98 4.45 $ 7 42 $ 6 34 Op tions.. outst and ng at th end:af the„year Option price ranges: (US$ Options) Opfigns.granted. ` ... $:<,. 3;58 $3.9b , . -'$. ".." 2 70-$6 25 $ 3 8 9$5:52 p ., Options exercised $ 3.53 , $ 2.7b $12:OQ $ $ 3.46–$4.15 „,3;:89 $ $ 4 00 =$12 Options forfeited; Options outstanding at the end of the year ;. $ 2.70 –$6.25 $ . .,,w 2.70 –$6.25 ,.•' $ 3.12 – $12.00 F -36 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) yu� Warrants issued during the year Warrants ?'exercised "during the year Warrants expired 5;230,115.. $2 ZO —$5.75 .1.3,810,515. 264,085 $2.84 1,540,000 )0 —$5.75 12,660, 00 $2.70— $3,94 15 $3.00 —$4.70 Warrants exercisable at the end of the year 1 517 $2.70 —$5.75 t 5 n�� $2.70 —$5.75 $2.70 —$3.94 The weighted average exercise price of warrants that were exercisable was $3.10, $3.11 and $3.01 as of December 31, 2005, 2004 and 2003, respectively. The weighted average remaining contractual life of warrants outstanding at December 31, 2005 was 2.7 years. 14. Income Taxes The income tax provision (benefit) for the years ended December 31, 2005, 2004 and 2003 consists of the following: Provision (benefit) for income taxes Pre -tax loss from our U.S. operations was $53.0 million, $50.7 million and $17.4 million for the years ended December 31, 2005, 2004 and 2003, respectively. Pre —tax income (loss) from our Canadian operations was $14.8 million, $9.9 million and $(6.1) million for the years ended December 31, 2005, 2004 and 2003, respectively. F -37 $ $ $ Federal - State — — . Canada 555 369 403 Current income flax provision 55` 369 Deferred: deferred 5,452 3,98,3 Foreign deferred 6 129 3,235 (990) Deferred income tax provision (benefit) ~' 11:5$.1 7.21:8 _,,. (9901 Provision (benefit) for income taxes Pre -tax loss from our U.S. operations was $53.0 million, $50.7 million and $17.4 million for the years ended December 31, 2005, 2004 and 2003, respectively. Pre —tax income (loss) from our Canadian operations was $14.8 million, $9.9 million and $(6.1) million for the years ended December 31, 2005, 2004 and 2003, respectively. F -37 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) The income tax provision of nil, $0.1 million and $0.3 million for the years ended December 31, 2005, 2004 and 2003, respectively, related to the cumulative effect of change in accounting principle and was provided at statutory rates. F -38 1 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Deferred income tax assets and liabilities consist of the following as of December 31, 2005 and 2004: 2005 2004 1. Deferred. income tax assetsi:. , Tax loss carry — U.S. $ 27,928 $ 15,955 Tax loss carry forward = Canada :... 4,763 . 123 10,602 1,753 Accruals not currently deductibles — U.S :. Less: Valuation:allowance —U:S. .. " 8.0511 f15,842):.; Net deferred tax assets 4,763 12,468 Deferred income tax habihties Book basis in property and goodwill in excess of tax basis U.S (9,436) (3,984) Book basis in property and goodwill ir1. excess of tax basis — Canada" (6,770) . (9,400) . Undistributed earnings in foreign subsidiary — U.S. — (1,8661 Net :deferied income "tax "asset (halility) Less: current portion of deferred taxes (4,763) — Net deferred"incorrie tax - "asset (liablz loz terrcn i, . , .. : �� - ..�� - Due to the lack of operating history relative to our U.S. operations, we have provided a valuation allowance for our U.S. net operating loss carryforwards and deferred tax assets, net of certain deferred tax liabilities. We have provided for current taxes on the distributed earnings of our Canadian subsidiaries in connection with certain tax planning initiatives. Gross net operating loss carry— forwards expire as follows: 2007 20Q8 9,509 9;509; 2009 3,841 3,841 Thereafter 79,796 79 796 Balance at the end of the year 1 F -39 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 15. Net Loss Per Share Information 16. Retirement Plan We sponsor a defined contribution Deferred Profit Sharing Plan ( "DPSP ") for our Canadian domiciled employees. Eligible ' employees may contribute pre —tax compensation to a Registered Retirement Savings Plan, subject to certain governmental limits and restrictions. We match 100% of the employee contributions, up to the first 3% of the employee's compensation which is deferred. Participant contributions vest immediately and employer contributions vest after two years of employment. The matched contributions 1 totaled approximately $0.5 million, $0.2 million and $0.3 million for the years ended December 31, 2005, 2004 and 2003, respectively. 1 During 2004, we established a 401(k) Plan for employees located in the United States. The domestic plan provides for employees to contribute up to 50% of their eligible compensation, subject to certain IRS limits. We match 50% of the employee contributions, up 1 to the first 6% of the employee's contribution. Participant contributions vest immediately and employer contributions vest after two years of employment. We matched contributions totaling approximately $0.4 million and $0.2 million for the years ended 1 December 31, 2005 and 2004, respectively. 1 1 1 1 1 1 1 1 i 1 1 1 1 1 17. Segment Information We have determined our operating and reporting segments pursuant to the requirements of SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." ( "SFAS 131 "). In making this determination, we considered our organization/reporting structure and the information used by our chief operating decision makers to make decisions about resource allocation and performance assessment. We are organized along geographic locations or regions within the U.S. and Canada. Our Canadian operations are organized between two regions, Eastern and Western Canada while the U.S. is organized into Florida, Texas and Arizona. We believe our Canadian geographic segments meet the "Aggregation Criteria" set forth in SFAS 131 for the following reasons: (i) these segments are economically similar, (ii) the nature of the service, waste collection and disposal, is the same and transferable across locations; (iii) the type and class of customer is consistent among regions /districts; (iv) 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 (v) the regulatory environment is consistent within Canada. We do not have significant (in volume or dollars) F -40 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) inter - segment related transactions. We have reflected both of our domestic corporate and Canadian corporate offices as "Corporate." For information regarding our geographic areas refer to Note 21. Summarized financial information concerning our reportable segments as of and for the years ended December 31, 2005, 2004 and 2003 is as follows: zoos All Other Florida Canada Operations Corporate Total Revenue - .I 187,041 $.166,3 , 3,285 $ 1,580 6382,442074 42,954 Depreciation, depletion and amortization 20,044 11;572 ', 18,045 23,622 (448) (23,220) 11,026. ; e oss) from operations :- Tncgm(l 16,581 9,670 5,603 1,719 33,573 Capital expenditures "s "398' 55 191,1Q8 101;360 37,666, 728,389 Total asset 2004 All Other Florida Canada Operations Corporate Total Revenue _ $ ;,144,089. $`. 142,718 $ .:23;978 Depreciation, d epletion and amortization 15,588 15,392 2,226 998 34,204 7,517 Income(loss)fromoperaEons• $;170 14,687 16,550: 12,054 (955).' 18,179 (16,248)- 1,289 46,209 Capital expenditures Total assets ";' .. ..._ 368;6T;9 ' 196,204 94;907 60,853 ' 720,583 " 2003 Flo_ rida Canada All Other Operations Corporate Total Revenue $ $ 124,985 $ 1,765 Depreciation, depletion and amortization 4 403 14,160 196 567 14,927 Income (loss)1xam operatiozi� ;, ', ( ) 7,851 12,721 2,332 1,534 24,438 Capital expenditures i -SZ5 92f 182:241 26.815 X6,016 470;998 18. Related Party Transactions During 2004, David Sutherland- Yoest, our Chairman and Chief Executive Officer, used the services of an aircraft owned by Gary W. DeGroote, at a total cost of C$0.2 million. This amount was based upon the fixed and operating expenses of the aircraft. Stanley A. Sutherland, the father -in -law of David Sutherland- Yoest, our Chairman and Chief Executive Officer, was employed by us in 2005 as Executive Vice President and Chief Operating Officer, Western Canada and received $0.5 million in employment compensation for the year ended December 31, 2005. This compensation was consistent with compensation paid to other executives in similar positions. During 2004 and 2005, David Sutherland - Yoest, our Chainnan and Chief Executive Officer, conducted ongoing negotiations with Lucien R6millard with respect to our potential acquisition of the solid waste collection and disposal assets owned by a company controlled by Mr. R6millard in Quebec. In connection with these negotiations, we reimbursed Mr Remillard's company for expenses in the aggregate amount of approximately C$3.2 million for services provided by third parties to December 31, 2005 in connection with preparing audited financial statements of the business and with ongoing efforts to expand the capacity of a F -41 i 1 1 1 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) solid waste landfill. There is no assurance that an acquisition of the business will be completed and, if not, we will not be reimbursed for the expenses we have incurred. We lease office premises in an office tower in Burlington, Ontario owned by Westbury International (199 1) Corporation, a property development company controlled by Michael H. DeGroote, a brother of Gary W. DeGroote, one of our directors. The leased premises consist of approximately 9,255 square feet. The term of the lease is 10.5 years commencing in 2004, with a right to extend for a further five years. Base rent escalates from C$0.1 million to C$0.2 million per year in increments over the term of the lease. We paid Kelso and Company, L.P., an affiliate of Kelso, an advisory services fee of $1.65 million in connection with the issuance of 55,000 shares of WSI Preferred Stock to Kelso in May 2003. In February 2004, we also paid Kelso and Company, L.P., a $0.5 million fee in connection with services related to the arrangement of the 364 —Day Credit Facilities that was entered into on December 31, 2003 and repaid in full on April 30, 2004. One of our directors, George E. Matelich is a Managing Director of Kelso & Company L.P. Another of our directors, Michael B. Lazar was a Managing Director of Kelso & Company, L.P from 1993 to 2005. Effective March 31, 2003, we entered into a placement agent agreement with Sanders Morris Harris Inc. ( "SMH "), pursuant to which we agreed to pay SMH a fee for Series I Preferred Shares sold through SMH. We paid SMH fees of $1.9 million pursuant to the agreement. SMH is a beneficial owner of our common shares. However, effective July 28, 2004 Don Sanders, a principal of SMH, is no longer one of our directors. During 2003, we purchased legal services for less than $0.1 million from Durkin and Durkin. A former executive officer, Thomas E. Durkin III, was an inactive partner in Durkin and Durkin. In 2003, we purchased furnishings and leasehold improvements from H2O Technologies, Ltd. for $0.3 million and assumed a lease of premises from David Sutherland— Yoest. David Sutherland — Yoest, our Chairman and Chief Executive Officer was, until October of 2003, Chairman and Chief Executive Officer of H2O Technologies, Ltd. and until January 2004, was a director of H2O Technologies, Ltd. The lease expired on March 31, 2005 and had annual rent and operating costs of less than $0.1 million. Certain affiliates of our officers and directors were purchasers of Series 1 Preferred Shares in September 2003. An independent committee consisting of David Sutherland — Yoest and George E. Matelich reviewed and approved the terms of issuance of the Series 1 Preferred Shares in which the shareholders, officers and directors or their affiliates were purchasers. In November of 2002, we entered into a Put or Pay Disposal agreement with the RCI Companies which are controlled by one of our directors, Mr. Lucien R6millard. Concurrently with the Put or Pay Disposal Agreement, we entered into a three year disposal agreement with Canadian Waste Services Inc. which provided us with access to Canadian Waste's Michigan landfill at negotiated fixed rates per ton and which expired in the third quarter of 2005. On January 17, 2006, Waste Management drew C$0.3 million against the letter of credit posted by us to secure RCI's obligations, as such we have provided for the draw as of December 31, 2005. These transactions are in the normal course of operations and are recorded at the exchange amount, which is the consideration agreed to between the respective parties. F -42 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) 19. Supplementary Cash Flow Information 20. Selected Quarterly Financial Data (unaudited) The following table summarizes the unaudited quarterly results of operations as reported for 2005 and 2004 (in thousands of U.S. dollars, except per share amounts) (See also Note 3 — Business Combinations, Significant Asset Acquisitions and Disposals of Businesses): 2005 First Second Third Fourth Ouarter Ouarter Ouarter Ouarter Revenue ' -; $ ,,'88,985. `; , ..$ ? .95,384 $ <, :101,751 $ , ;!::96;326!. j Income (loss) from operations (283) 786 6,507 4,016 Net oss �: (14;267) " (14,5114) (9,411). ,` ;(12,098) Basic and diluted loss per share $ (0.15) $ (0.15) $ (0.10) $ (0.12) Shares "iised "m compuhng.per shareamounts, • •• „ , „ , , 96,516 •, ,99,072 „ , , , 99,413 99,516:. 2004 First Second Third Fourth Ouarter Ouarter Quarter Ouarter Revenue $ 50,3:17 $. 72;626 , $...9,615 Income from operations 205 871 5,660 781 21. 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 its 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. Presented below are Consolidating Balance Sheets F -43 WASTE SERVICES, INC. NOTES TO CONSOLIDATED ]FINANCIAL STATEMENTS — (Continued) as of December 31, 2005 and 2004 and the related Condensed Consolidating Statements of Operations and Cash Flows for each of the three years ended December 31, 2005 of Waste Services and the guarantor subsidiaries ( "Guarantors "), our domestic operations, and the subsidiaries which are not guarantors ( "Non— guarantors "), our Canadian operations. Changes in our investment in subsidiary balances are primarily affected by equity earnings in investee, changes in accumulated other comprehensive income, subsidiary F -44 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) stock -based compensation and contributions (distributions) from/to parent. These condensed consolidating statements have been re -cast to reflect Waste Services, Inc. as the parent from the earliest period presented: December 31, 2005 Non- F -45 Guarantors Guarantors Eliminations Consolidated ASSETS' Current assets: Cash and.cash equivalents ;. $ 3,681:" $ 5;206 $ - $ 8,887 Accounts receivable, net 25,438 24,145 - 49,583 Prepaid'' expenses and other current assets 3,018 8;094 11.112 Total current assets 32,137 37,445 - 69,582 Property. and equipment, net ; , . 67,354 65,909. ' ' 133;263 Landfill sites, net 162,028 10,100 - 172,128 Goodryill`anA other, intangible assets, net 243,276 , 86;195 - 329,471:': Other assets 10,391 13,554 - 23,945 Due'from affiliates 2295, (2,2.95) Investment in subsidiary 177,883 - (177,883) - ' Total ss aets.:;: - r LIABILITIES AND SHAREHOLl)1;RS" °:EQUITY - Current liabilities: Accounts payable. .,..,, , .. ,. $ , ; ' 14;66.5.:. . ' $ 11;1$7, ' . $ $ 26,1,2.;' Accrued expenses and other current liabilities 27,911 12,789 - 40,700 Short term financing and current portion of Total current liabilities 43,941 24,276 - 68,217 Long ; .term debt., ,,... ...- _., ., 28, 4'850: Accrued closure, post - closure and other obligations 12,521 13,339 - 25,860 Cumulah�e maadatorily redeemable Preferred Due to affiliates 2,295 - (2,295) (2295) Shareholders' equity Common stock `of:Waste Services, >nc ;_ 937' . , , .: ! 937 Additional paid -in capital 383,618 177,883 (177,883) 383,618 Treasury stock:of Waste Services, Accumulated other comprehensive income 35,673 35,673'' Accu"mulated;deficit (154,502) . :' (154 502;; ; Total shareholders' equity 264,491 177,883 (177,883) 264,491 Total liabilitiesand shareholders' a ai q. ty . �A� n�4' �� ' �l5 a4R �� ... ,: • �� ..�� F -45 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) I'I" LITIES" AND 'SHAREHOLDERS! EQUITY Current liabilities Accountspayable. $ `15,757. Accrued expenses and other current liabilities 31,104 11,429 42,533 Arerned elnsure. nost— closure and other Due to affiliates 2S,tS6y December 31 2004 — Tothl °atalvilities ", 403 709 :• .. Non — Shareholders' equity:904 Comrnonstocic of Waste Services; Ine„ 904,; Guarantors Guarantors Eliminations Consolidated 374,186 ASSETS 374,186 Treasurystaek of Waste.Seratces Ine Current assets Cash and cash equivalents $ ;..6,223 !; $ ` 2;284: : $ T,. $ 8,507 Accounts receivable, net 24,509 23,347 — 47,856 .Prepai, ,.expenses and otlier currei t assets 6,439 :' 4:501 10,940 Total current assets 37,171 30,132 — 67,303 Property, and equipment, n. et 64',805 , 65;662 — :130,467 , Landfill sites, net 155,710 13,906 — 169,616 Deferred 'income taxes, net Goodwill and other intangible assets, net 240,578 87,178 327,756 Otherassets, 12,106;., 13;335 =;! 25,441 . Due from affiliates . — 8,869 (8,869) — Investment in subsidiary 192..115 — . (192,1151 — Total assets `t��.��� . T)Q" I'I" LITIES" AND 'SHAREHOLDERS! EQUITY Current liabilities Accountspayable. $ `15,757. Accrued expenses and other current liabilities 31,104 11,429 42,533 Arerned elnsure. nost— closure and other Due to affiliates 2S,tS6y — 1a.aoyi — Tothl °atalvilities ", 403 709 :• .. 26:967 Shareholders' equity:904 Comrnonstocic of Waste Services; Ine„ 904,; Additional paid in capital 374,186 192,115 (192,115) 374,186 Treasurystaek of Waste.Seratces Ine (1';2'35).: ., . . ', ... ,,. Accumulated other comprehensive income 29,133 29,133 "21 „Accumulated deficits (.104,212) ., . (104 21 i Total shareholders' equity 298,776 192,115 (192 1151 298.776 F -46 F -47 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31 2005 Non — Guarantors Guarantors Eliminations Consolidated —$ Revenue $ 216,11'S< $ 166;331 $ =' 382,446: Operating and other expenses: Cost of operations (exclusive of depreciation, depletion and ariiortization) „ 165,316:; 11'1.;013 Selling, general and administrative expense (exclusive of depreciation, depletion and amortization) 33,288 23,197 56,485 Settlement with sellers of Flori&Re.cycling (4,1ZU) = ' . � ` (4,120) Depreciation, depletion and amortization 23,598 19,356 42,954 Foreign exchange gam and: other :. , .. ;> (799) 571 (228) Equity earnings in investees (5.264) — 5.264 — Incom 6s466ni operations " : .' �> 4,096C 12,194 `:(5,264) "' Interest expense 27,950 246 28,196 Cumulate' &mandatorily redeemable Preferred Stock tividends,and amo.tizatior.of,issue costs ;' 20841;: =,` 20:984 " Income (loss) before income taxes (44,838) 11,948 (5,264) (38,154) Income tax provision :... 5.452'' 6;684 — '12,136 Net income (loss) attributable to Common Shareholders �� F -47 Cumulative effect of change in accounting principle, net of provision for income taxes of $132 F -48 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31 2004 Guarantors Non — Guarantors Eliminations Consolidated $ 168,067: ", $ . ". 142;718 ;. $ 310;785 Revenue Operating and other expenses Cost of operations Cexclusive of depreciation, 96,991 —' 223397 depletion and'ariortizaton) 126,406 Selling, general and administrative expense (exclusive of depreciation, depletion and 21,796 54,679 amortization) Settlement with sellers of .Florida Recycling 32,883 (8,635)' — (8,635) 34,377 Depreciation, depletion and amortization 17,888 — 16,316 — .Foreign exchange gain and` other ,' 4.403 Equity earnings in in,vestees (4,403) 3,928: " — 7;992 (4,403)'; 7,517 Income (loss) from 00617A Ions 30,517 321 30(1 Interest expense _ "fair ;: — (11. 1 — 11) Changes to value of warrants "1.) Cumulative mandatorily redeemable Preferred Stock 17,582 dividends and amortization of issue costs "s 17.582 ( 44 171 7;782 (4,403) 40;792 . (._ ) In ne (lo s)beforemcometaxes, _ . 3983) 3,604 7 587 in come tax provision Cumulative effect of change in accounting principle, net of provision for income taxes of $132 F -48 Cumulative effect of change in accounting principle, net of provision for income taxes of $256 — 518 — 518 et:loss N .' (22,380) (5,035) 5,035; Deemed dividend on Series 1 Preferred Shares (54,572) (54,5721 Netj6s "s att "ribut" to, Shargholde>rs F -49 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2003 Non — Guarantors Guarantors Eliminations Consolidated Revenue $ .' 1,765 126,750 Operating and other expenses: Cost. of operations (exclusive of.'depreciation, deplet on and amortization) 1,300 83;377 , , • — 84,677 Selling, general and administrative expense (exclusive of depreciation, depletion and amortization) 4,617 25,815 — 30,432 Depreciation, depletion: and amortization 200.: 14;72.7 .• - •, , 14,927 ; Foreign exchange gain and other — 1,760 — 1,760 Equity loss in irivestees 5.035 Loss from operations (9,387) (694) 5,035 (5,046) Interest.expense .: 2,832 5,446 '' — 8,278:' ; Cumulative mandatorily redeemable Preferred Stock dividends and amortization of issue costs 10,161 — — 10,161 Cumulative effect of change in accounting principle, net of provision for income taxes of $256 — 518 — 518 et:loss N .' (22,380) (5,035) 5,035; Deemed dividend on Series 1 Preferred Shares (54,572) (54,5721 Netj6s "s att "ribut" to, Shargholde>rs F -49 Cash and cash equivalents at the end of the year L= L�— — F -50 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) December 31, 2005 Non — Guarantors Guarantors Eliminations Consolidated Cash provided by (used in) `operating, activities: $ (13:942) $' 38.565 $ ! `. 24,623 Cash flows from investing activities Cash ixsed,.iri business combinations and ' • . significant asset: acquisitions, riet of cash '(7,593): acquired (4.7) - (8,090) ; Capital expenditures (22,206) (11,367) — (33,573) Proceeds from asset sales and business divestitures 2,487 71'1 — 3,198 Deposits for business acquisitions and other (73) (973) — (1,046) Intercompany. (23:300) (27,385) (35,426) 23,300 (39,511) Cash>'flows.from financing activities .. - Proceeds from issuance of debt and draw on revolving credit facility 25,000 — 25,000 Principal repayments of debt and capital lease obhgat`ons. (16,16 6 )' (16,704) Sale of common shares and warrants nts 7,125 — — 7,125 Proceeds from theexercise of options and, rv. warrants 521. 521 Fees paid for financing transactions (995) — (9.95)- a erpp 44Y .: ,.....';: 23.300: 38.785 023.3001:: (538) (23,300) 14,947 Effect` of exchange rate changes on cash and cash eq nvawnts, .. .. ` .. Increase in cash and cash equivalents (2,542) ... _ . 321 2,922 — 21. .: . 380 Cash and cash equivalents at the end of the year L= L�— — F -50 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Proceeds from the exercise of options and warrants — 1,041 — Effect of exchange rate changes on cash and cash Cash and cash equivalents at the beginning of the F -51 December 3L 2004 Guarantors Non- Guarantors Eliminations Consolidated Cash flows;trom (used in) operating activities: $ (665) $ 25:362 $ —" $ 24,697 Cash flows from investing activities: Cash used in business combinations and , significant asset acquisitions, nit of cash acquired (163;555) (1,124) -- (164,679) !" Capital expenditures (33,159) (13,050) — (46,209) Proceeds from asset sales and business,, 14,231 " divestitares;, - Deposit s fbr business acquisitions and other 14,231 1,359 (2,910) — (1,551) Intercompany' f78985) 78985 (181,124) (96,069) 78,985 (198,208) Cash fluws"from.financiiigactivities Proceeds from issuance of debt and draw on revolving credit facility 283,000 — — 283,000 Principal "repayments of debt and capital'lease `obligatibns„ .• �.,' _. �;.. (T8G,031) (1,127) — (187,.158) . ._• Sale of common shares and warrants — 53,600 — 53,600 Proceeds from the exercise of options and warrants — 1,041 — Effect of exchange rate changes on cash and cash Cash and cash equivalents at the beginning of the F -51 WASTE SERVICES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) Fees paid for financing transactions (14,326) (4,641) (18,967) Intercompany 15:524 015.524} 197,222 23,391 (15,524) 205,089 FfFert nf'exchnnge Tate'clianges on;;cash and.cash: Increase in cash and cash 843 1 Cash and cash equivalents at the end of the year e F -52 19 December 31, 2003 Non — Guarantors Guarantors Eliminations Consolidated Cash "flows'from.(used"in)'operating activates: $ ' ` (2:682) $ 12:128 $ " $ 9,446 Cash flows from investing activities Cash used business combinations and..! •rr1 signcant asset acquisitions, net of cash acquired (159,913) (1;458) —; (161,371),: Capital expenditures ., (10,260) (14,178) - (24,438) Proceeds from asset sales and business divestitures - 952 = 952 Deposits for business acquisitions and other — (10,776) — (10,776) Intercompany (15,524.) — 15,524 (185,697) (25,460) 15,524 (195,633) Cash flows sfrom financing :activities, .`:.' " Proceeds from issuance of debt and draw on revolving credit facility 157,692 8,801 166,493 Principal,repayments of debt andcapttal lease . 6611 ations (1,144) (73.;107). (74,251) Proceeds from the issuance of Series 1 Preferred Shares — 86,189 — 86,189 lsroceedsfrom the issuance of cumulative mandaton1 redeemab e preferred Stock . 55,OOQ . • ... 55,000 , Deposits on collateral supporting letters of --A;. — !Q 01M Fees paid for financing transactions (14,326) (4,641) (18,967) Intercompany 15:524 015.524} 197,222 23,391 (15,524) 205,089 FfFert nf'exchnnge Tate'clianges on;;cash and.cash: Increase in cash and cash 843 1 Cash and cash equivalents at the end of the year e F -52 19 Exhibit 4.4 AGREEMENT effective as of the 28th day of December, 2005 among Waste Services, Inc., a Delaware corporation ( "WSI ") and Kelso Investment Associates VI, L.P., a Delaware limited partnership, and KEP VI, LLC, a Delaware limited liability company, (collectively, the "Kelso Parties "). WHEREAS, the Kelso Parties are the holders of all of the issued and outstanding shares of Series A Preferred Stock of WSI; AND WHEREAS, WSI has, pursuant to the Fourth Amendment to Amended and Restated Credit Agreement dated as of December 28, 2005 (the "Fourth Amendment "), agreed to incur additional indebtedness in an aggregate principal amount of up to $50 million under the incremental term loan facility pursuant to Section 10.1(b) of the Amended and Restated Credit Agreement, dated as of April 30, 2004, as amended; and AND WHEREAS, the Kelso Parties have agreed that the limitations and restrictions of the of the Amended Certificate of Designations of the Series A Preferred Stock of WSI shall be amended as provided herein. NOW, THEREFORE, it is agreed as follows: 1. Amendment to Section 5(cl. The number $320 million in the parenthetical in the last sentence of Section 5(c) is hereby amended to read "$320 million plus the amount of additional indebtedness incurred under the incremental term loan facility pursuant to the Fourth Amendment ". ill- W - t - • The definition of Amended and Restated Credit Agreement is hereby amended to provide that the aggregate term and revolving borrowings is $160 million plus the amount of additional indebtedness incurred under the incremental term loan facility pursuant to the Fourth Amendment. The definition of Committed Amount is hereby amended by inserting after the number $320 million the following: "plus the amount of additional indebtedness incurred under the incremental term loan facility pursuant to the Fourth Amendment ". 3. Certificate of Designations For the avoidance of doubt, the parties hereto hereby acknowledge and agree that the amendments to the Certificate of Designations contained in this agreement shall be deemed to be amendments to the Certificate of Designations. 4. Full Force and Effect. Except as provided herein, the Certificate of Designations shall continue in full force and effect in accordance with the provisions thereof. IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed as of the day and year first above written. WASTE SERVICES, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Executive Vice — President and General Counsel KELSO INVESTMENT ASSOCIATES VI, L.P. By: Kelso GP VI, LLC, Its general partner By: /s/ George E. Matelich George E. Matelich Managing Member KEP VI, LLC By: /s/ George E. Matelich George E. Matelich Managing Member Exhibit 4.11 SUPPLEMENTAL INDENTURE SUPPLEMENTAL INDENTURE (this "Supplemental Indenture "), dated as of November 29, 2005, among WSI Waste Services of Texas, LP, a Texas limited partnership (the "Guaranteeing Subsidiary"), a subsidiary of Waste Services, Inc. (or its permitted successor), a Delaware corporation (the "Company "), the Company, the other Guarantors (as defined in the Indenture referred to herein) party to the Indenture on the date hereof and Wells Fargo Bank, National Association, as trustee under the Indenture referred to below (the "Trustee "). WITNESSETH WHEREAS, the Company has heretofore executed and delivered to the Trustee an indenture (the "Indenture "), dated as of April 30, 2004, providing for the issuance of 9 -1/2% Senior Subordinated Notes due 2014 (the "Notes "); WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Company's Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the "Note Guarantee "); and WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture; NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows: 1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture. 2. Agreement To Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 11 thereof. 3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Company or any Guarantor (including the Guaranteeing Subsidiary) under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture, as applicable, or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. This waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. 4. NEW YORK LAW TO GOVERN. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK. 5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. 6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof. 7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Company. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written. WSI Waste Services of Texas, LP By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary SANFORD RECYCLING AND TRANSFER, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns J Vice President and Secretary WASTE SERVICES, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Executive Vice President, General Counsel and Secretary WASTE SERVICES OF FLORIDA, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary JACKSONVILLE FLORIDA LANDFILL, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary JONES ROAD LANDFILL AND RECYCLING, LTD. by its General Partner, JACKSONVILLE FLORIDA LANDFILL, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary Page 2 of 4 OMNI WASTE OF OSCEOLA COUNTY LLC By: /s/ Ivan R. Cairns Ivan R. Cairns Manager CACTUS WASTE SYSTEMS, LLC By: /s/ Ivan R. Cairns Ivan R. Cairns Manager 'WASTE SERVICES OF ARIZONA, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary WASTE SERVICES LIMITED PARTNER, LLC By: /s/ Ivan R. Cairns Ivan R. Cairns Manager WASTE SERVICES OF ALABAMA, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary WS GENERAL PARTNER, LLC by its Sole Member, WASTE SERVICES, INC. By: /s/ Ivan R. Cairns Ivan R. Cairns Executive Vice President, General Counsel and Secretary Page 3 of 4 RUFFINO HILLS TRANSFER STATION LP By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary FORT BEND REGIONAL LANDFILL LP By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary FLORIDA RECYCLING SERVICES, INC., a Delaware Corporation By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary FLORIDA RECYCLING SERVICES, INC., an Illinois Corporation By: /s/ Ivan R. Cairns Ivan R. Cairns Vice President and Secretary WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee By: /s/ Joseph P. O'Donnell Name: Joseph P. O'Donnell Title: Vice President Page 4 of 4 EXHIBIT 23.1 Consent of Independent Registered Public Accounting Firm Waste Services, Inc. We hereby consent to the incorporation by reference in the Registration Statements on Form S -8 (File No. 333 - 117912), on Form S -3 /A (File No. 333 - 116795), and on Form S -4 (File No. 333 - 127444) of our reports dated February 27, 2006 relating to the consolidated financial statements of Waste Services, Inc. and the effectiveness of Waste Services Inc.'s internal control over financial reporting which appear in this Form 10 —K. BDO Siedman, LLP Phoenix, Arizona March 10, 2006 EXHIBIT 23.2 Consent of Independent Registered Public Accounting Firm Waste Services, Inc. (Previously Capital Environmental Resource Inc.) We hereby consent to the incorporation by reference in the Registration Statements on Form S -8 (File No. 333 - 117912), Form S -3 /A (File No. 333 - 116795), and on Form S -4 (File No. 333 - 127444) of our report dated March 12, 2004, relating to the consolidated financial statements which appears in the Annual Report on Form 10 —K. BDO Dunwoody LLP Toronto, Ontario March 10, 2006 I I EXHIBIT 31.1 CERTIFICATION OF DAVID SUTHERILAND— YOEST, CHIEF EXECUTIVE OFFICER 1 I, David Sutherland — Yoest, certify that: 1. I have reviewed this annual report on Form 10 —K of Waste Services, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. ' 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15(d)- 15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a -15(f) and 15d— I5(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 1 being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 13, 2006 /s/ David Sutherland — Yoest David Sutherland — Yoest Chief Executive Officer EXHIBIT 31.2 CERTIFICATION OF MARK A. PYTOSH, CHIEF FINANCIAL OFFICER I, Mark A. Pytosh, certify that: 1. I have reviewed this annual report on Form 10 —K of Waste Services, Inc. 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a -15(e) and 15(d)-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a -15(f) and 15d- 15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant's auditors and the audit committee of registrant's board of directors (or persons - performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: March 13, 2006 /s/ Mark A. Pytosh Mark A. Pytosh Chief Financial Officer EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE U.S. SARBANES —OXLEY ACT OF 2002 In connection with the annual report of Waste Services, Inc. (the "Company ") on Form 10 —K for the year ended December 31, 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 U.S. Sarbanes —Oxley Act of 2002, that to the best of our knowledge: (i) the Report fully complies with the requirements of section 13(a) or 15(d) of the U.S. Securities Exchange Act of 1934; and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. March 13, 2006 /s/ David Sutherland — Yoest David Sutherland — Yoest Chief Executive Officer /s/ Mark A. Pytosh Mark A. Pytosh Chief Financial Officer The foregoing certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as a part of this report or on a separate disclosure document. Created by IOKWizard wvvw.IOKWizard.com POWER OF ATTORNEY Ao 42580 Bond SafeguardINSURANCE COMPANY KNOW ALL MEN BY THESE PRESENTS, that BOND SAFEGUARD INSURANCE COMPANY, an Illinois Corporation with its principal office in Lombard, Illinois, does hereby constitute and appoint: David G. Jensen, Maryann Carafello, Brandy L. Baich its true and lawful Attorney(s) -In -Fact to make, execute, seal and deliver for, and on its behalf as surely, any and all bonds, undertakings or other writings obligatory in nature of a bond. This authority is made under and by the authority of a resolution which was passed by the Board of Directors of BOND SAFEGUARD INSURANCE COMPANY on the 7th day of November, 2001 as follows: Resolved, that the President of the Company is hereby authorized to appoint and empower any representative of the Company or other person or persons as Attorney -In -Fact to execute on behalf of the Company any bonds, undertakings, policies, contracts of indemnity or other writings obligatory in nature of a bond not to exceed $1,000,000.00, One Million Dollars, which the Company might execute through its duly elected officers, and affix the seal of the Company thereto. Any said execution of such documents by an Attorney -In -Fact shall be as binding upon the Company as if they had been duly executed and acknowledged by the regularly elected officers of the Company. Any Attorney -In -Fact, so appointed, may be removed for good cause and the authority so granted may be revoked as specified in the Power of Attorney. Resolved, that the signature of the President and the seal of the Company may be affixed by facsimile on any power of attorney granted, and the signature of the Vice President, and the seal of the Company may be affixed by facsimile to any certificate of any such power and any such power or certificate bearing such facsimile signature and seal shall be valid and binding on the Company. Any such power so executed and sealed and certificate so executed and sealed shall, with respect to any bond or undertaking to which it is attached, continue to be valid and binding on the Company. IN WITNESS THEREOF, BOND SAFEGUARD INSURANCE COMPANY has caused this instrument to be signed by its President, and its Corporate seal to be affixed this 7th day of November, 2001. evFo�� BOND SAFEGUARD INSURANCE COMPANY BY i David E. Campbell President ACKNOWLEDGEMENT On this 7th day of November, 2001, before me, personally came David E. Campbell to me known, who being duly sworn, did depose and say that he is the President of BOND SAFEGUARD INSURANCE COMPANY, the corporation described in and which executed the above instrument; that he executed said instrument on behalf of the corporation by authority of his office under the By -laws of said corporation. F IAL SEAL" LE KOLLER Michele Koller c, State of Illinois Notary Public n Expires 08128107 CERTIFICATE I, the undersigned, Secretary of BOND SAFEGUARD INSURANCE COMPANY, An Illinois Insurance Company, DO HEREBY CERTIFY that the original Power of Attorney of which the foregoing is a true and correct copy, is in full force and effect and has not been revoked and the resolutions as set forth are now in force. / Signed and Sealed at Lombard, Illinois this/ Day of 20 �{O INSU� J AN c ILLINOIS ro I Z INSURANCE C� COMPANY Donald D. Buchanan Secretary State of Florida Department of State I certify from the records of this office that WASTE SERVICES OF FLORIDA, INC. is a corporation organized under the laws of Delaware, authorized to transact business in the State of Florida, qualified on December 11, 2003. The document number of this corporation is F03000006157. I further certify that said. corporation has paid all fees due this office through December 31, 2006, that its most recent annual report was filed on April 13, 2006, and its status is active. I further certify that said corporation has not filed a Certificate of Withdrawal. Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Twenty Sixth day of February, 2007 r Secretary of State Authentication ID: 900089286099- 022607- F03000006157 To authenticate this certificate,visit the following site, enter this ID, and then follow the instructions displayed. www.sunbiz.org/auth.html 'F State of or • a Department of State I certify from the records of this office that WASTE SERVICES, INC. is a corporation organized under the laws of Delaware, authorized to transact business in the State of Florida, qualified on January 11, 2006. The document number of this corporation is F06000000188. I further certify that said corporation has paid all fees due this office through December 31, 2006, and its status is active. I further certify that said corporation has not filed a Certificate of Withdrawal. Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Twenty Sixth day of February, 2007 � C a Secretary of State * * Authentication ID: 400089285394- 022607- FO6000000188 To authenticate this certificate,visit the following site, enter this ID, and then follow the instructions displayed. www.sunbiz.org/auth.html Delaware PAGE 1 11he First State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "WASTE SERVICES, INC." IS DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE TWENTY —SIXTH DAY OF FEBRUARY, A.D. 2007. AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE. AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO DATE. 3613645 8300 070227103 Harriet Smith Windsor, Secretary of State AUTHENTICATION: 5460854 DATE: 02 -26 -07 Delaware PAGE 1 ghe First State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "WASTE SERVICES OF FLORIDA, INC." IS - DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE TWENTY -SIXTH DAY OF FEBRUARY, A.D. 2007. AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE. AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO DATE. 3725781 8300 070227112 Harriet Smith Windsor, Secretary of State AUTHENTICATION: 5460857 DATE: 02 -26 -07 Division of Corporations Page 1 of 2 Foreign Profit WASTE SERVICES OF FLORIDA, INC. PRINCIPAL ADDRESS 5002 T -REX AVE STE 200 BOCA R.ATON FL 33431 Changed 04/13/2006 MAILING ADDRESS 1122 INTERNATIONAL BLVD SUITE 601 BURLINGTON ONTARIO CANADA L7L 6Z8 XX Changed 04/21/2004 Document Number FEI Number Date Filed F03000006157 200435940 12/11/2003 State Status Effective Date DE ACTIVE NONE Registered Agen Name & Address C T CORPORATION SYSTEM 1200 SOUTH PINE ISLAND ROAD PLANTATION FL 33324 Officer/Director Detail Name & Address Title CAIRNS, [VAN R 1122 INTER.NANTIONAL BLVD SUITE 601 VSD BURLINGTON ONTARIO CANADA L7L- -Z8 GOEBEL, BRIAN A 5002 T -REX AVE, STE 200 AS BOCA RATON FL 33431 sunbiz. org /scripts /cordet. exe ?a 1= DE'TFIL &n 1 =FO3 000006157 &n2 =NAMF W... 2/27/2007 PERFORMANCE BOND Bond No. 5023974 KNOW ALL MEN BY THESE PRESENTS, That we, Waste Services of Florida. Inc. as Principal, and the Bond Safeguard Insurance Company ' a Illinois corporation, as Surety, subject to the Conditions, Limitations and Exclusions of this Performance Bond, are firmly bound unto The City of South Miami 6130 Sunset Drive, South Miami, FL 33143 hereinafter referred to as the Obligee, for such monetary amount as incurred by the Obligee, not to exceed the penal sum of One Hundred Thousand and no/ 100ths ----------------------- - - - - -- ($ 100,000.000 ), as may be required to remedy any contractual default by the Principal in the performance of that certain written contract between Principal and Obligee dated for Commercial Solid Waste Franchise hereinafter referred to as the Contract; for the payment hereof, we bind ourselves, our heirs, executors, administrators and successors, jointly and severally. CONDITIONS The obligation of this Performance Bond shall be null and void unless: (1) the above Contract is in writing, and has been fully executed by both the Principal and the Obligee; (2) the Principal is actually in default under the above Contract, and is declared by the Obligee thereafter to be in default; (3) the Obligee has performed all of the obligations of the Obligee under the above Contract; and (4) the Obligee has provided written notice of the default to the Surety as promptly as possible, and in any event, within ten (10) days after such default. LIMITATIONS AND EXCLUSIONS The Surety, as the sole election and discretion of the Surety, may take any of the following actions: (1) With notice to the Obligee, provide financial assistance to the Principal to remedy any contractual default by the Principal; or, (2) Undertake the completion of the above Contract by the Surety, through its agents or through independent contractors; or, (3) Determine the amount for which the Surety may be liable to the Obligee, and as soon as a practicable thereafter, tender payment thereof to the Obligee; or, (4) Pay the full amount of the above penal sum in complete discharge and exoneration of this Performance Bond, and of all liabilities of the Surety relating thereto. If the Surety so elects to act, all payments and Expenditures by the Surety shall be applied against the above penal sum and in reduction of the limit of liability of the Surety. -2- Performance Bond The obligation of this Performance Bond Shall not include liability for loss, cost, damage, fines, penalties or expense (including attorney's fees) from personal injury (including death), or from property damage (including environmental impairment or cleanup), or from any criminal or tortuous act arising out of the performance, default or completion of the above Contract, nor shall the Surety be obligated to provide or maintain any policy undertaking of liability insurance. This bond is for a one year term beginning _ February 23, 2007 In the event of default by the Principal in the performance of the contract during the term of this bond, the Surety shall be liable only for the direct loss to the Obligee due to actual excess costs of performance of the contract up to the termination of this term of this bond. No suit shall be brought on this bond after 60 days following its termination. Neither non- renewal by the Surety, nor failure or inability of the Principal to file a replacement bond, shall constitute loss of the Obligee recoverable under this bond. The bond may be extended for additional terms at the option of the Surety, by continuation certificate executed by the Surety. Regardless of the number of years that this bond is renewed or continued via Continuation Certificate by the Surety, ' the liability hereunder shall not be cumulative and shall in no event exceed the penal sum of $ 100.000.00 The Obligation of this Performance Bond inures solely to the benefit of the obligee. No right of action shall ' accrue under this Performance Bond to or for the use of any person, firm, corporation, public or private entity other than the obligee. In the event that the Obligee is comprised of more than one person, firm corporation, public or private entity, the conditions, limitations and exclusions of this Performance Bond shall apply jointly and severally to each and all constituents of the Obligee, and the aggregate liability of the Surety to the Obligee shall in no event exceed the above penal sum. The consent of the Surety shall be required with regard to any changes or alterations in the above Contract including, but not limited to, where the cost thereof, added to prior changes or alterations, causes the aggregate cost of all changes and alterations to exceed 10 percent of the original contract price, or where the completion thereof is extended by more than 90 days. No right of action shall accrue under this Performance bond unless demand is brought by suit, action or other legal proceeding commended against the Surety within 60 days after the day that the Principal last performed labor or supplied material for the above Contract. Any and all claims and causes of action (including warranty requirement or the remedy of latent defects) not so commended shall be deemed extinguished and forever barred from action under this Performance Bond. In the event of conflict or inconsistency between the provisions of this Performance Bond and the provisions of the above Contract, the provisions of this Performance Bond shall control, or the obligation of the surety be deemed null and void to the extent of any enlargement or augmentation to the liabilities of the Surety prescribed by this Performance Bond. Signed, Sealed and Dated this 23rd day of February 2007. Waste Services of Florida. Inc. Principal By: C Bond Safeauard Insurance Comnan Surety By: David ensen Attorney -in -Fact POWER OF ATTORNEY Ao 42578 Bond SafeguardiNSURANCE COMPANY KNOW ALL MEN BY THESE PRESENTS, that BOND SAFEGUARD INSURANCE COMPANY, an Illinois Corporation with its principal office in Lombard, Illinois, does hereby constitute and appoint: David G. Jensen, Maryann Carafello, Brandy L. Baich its true and lawful Attorney(s) -In -Fact to make, execute, seal and deliver for, and on its behalf as surely, any and all bonds, undertakings or other writings obligatory in nature of a bond. This authority is made under and by the authority of a resolution which was passed by the Board of Directors of BOND SAFEGUARD INSURANCE COMPANY on the 7th day of November, 2001 as follows: Resolved, that the President of the Company is hereby authorized to appoint and empower any representative of the Company or other person or persons as Attorney -In -Fact to execute on behalf of the Company any bonds, undertakings, policies, contracts of indemnity or other writings obligatory in nature of a bond not to exceed $1,000,000.00, One Million Dollars, which the Company might execute through its duly elected officers, and affix the seal of the Company thereto. Any said execution of such documents by an Attorney -In -Fact shall be as binding upon the Company as if they had been duly executed and acknowledged by the regularly elected officers of the Company. Any Attorney -In -Fact, so appointed, may be removed for good cause and the authority so granted may be revoked as specified in the Power of Attorney. Resolved, that the signature of the President and the seal of the Company may be affixed by facsimile on any power of attorney granted, and the signature of the Vice President, and the seal of the Company may be affixed by facsimile to any certificate of any such power and any such power or certificate bearing such facsimile signature and seal shall be valid and binding on the Company. Any such power so executed and sealed and certificate so executed and sealed shall, with respect to any bond or undertaking to which it is attached, continue to be valid and binding on the Company. IN WITNESS THEREOF, BOND SAFEGUARD INSURANCE COMPANY has caused this instrument to be signed by its President, and its Corporate seal to be affixed this i'th day of November, 2001. N�0INSV, BOND SAFEGUARD INSURANCE COMPANY kVo AN C CT ILLINOIS ; Z INSURANCE } �J� C� COMPANY BY David E. Campbell President ACKNOWLEDGEMENT On this 7th day of November, 2001, before me, personally came David E. Campbell to me known, who being duly sworn, did depose and say that he is the President of BOND SAFEGUARD INSURANCE COMPANY, the corporation described in and which executed the above instrument; that he executed said instrument on behalf of the corporation by authority of his office under the By -laws of said corporation. j D F AL SEAL" E KOLLER Michele Koller State of Illinois Notary Public n Expires 08128107 CERTIFICATE I, the undersigned, Secretary of BOND SAFEGUARD INSURANCE COMPANY, An Illinois Insurance Company, DO HEREBY CERTIFY that the original Power of Attorney of which the foregoing is a true and correct copy, is in full force and effect and has not been revoked and the resolutions as set forth are now in force. Signed and Sealed at Lombard, Illinois this Day of 2061 p INSU� J n CT IN O � ILLINOIS Z INSURANCE C� COMPANY Donald D. 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O N N ::E:.;:•y.; m N m O u v d m d m m d m m m m d I� C7 LL LL J d J co d J (Z IL IL (n d LL 1 1 1 REFERENCES AND CURRENT COLLECTION CONTRACTS 1 *CITY OF MAITLAND, FLORIDA 1 Michelle del Valle — Budget Manager mdelvalle @itsmymaitland.com 1 1776 Independence lane Maitland, Florida 32751 1 407 -629 -5807 *SEMINOLE COUNTY, FLORIDA 1 David Gregory — Solid Waste Director DGreaorynir seminolecountyfl.gov 1101 East 1St Street ' Sanford, Florida 32771 407 - 665 -2022 *LAKE COUNTY, FLORIDA Gary Debo — Solid Waste Manager 13130 County Landfill Road Tavares, Florida 32778 352- 343 -6030 ext. 233 *LEE COUNTY, FLORIDA Lindsey Sampson — Solid Waste Director 10500 Buckingham Road Fort Myers, Florida 33905 239- 338 -3302 *CITY OF DELTONA, FLORIDA Dave Denny — Public Works Director 2345 Providence Blvd. Deltona, Florida 32735 386 -561 -2100 *CITY OF DAYTONA BEACH David Hand — Solid Waste Director 950 Bellevue Ave. Daytona Beach, Florida 32115 386- 671 -8080 WEISS SERoTA HELFMAN PASTORIZA COLE & B4NISKE, P.A. ATTORNEYS AT LAW MITCHELL A. BIERMAN BROWARD OFFICE NINA L. BONISKE 200 EAST BROWARD BOULEVARD MITCHELL J. SURNSTEIN JAMIE ALAN COLE SUITE 1900 STEPHEN J. HELFMAN FORT LAUDERDALE, FLORIDA 33301 GILBERTO PASTORIZA MICHAEL S. POPOK JOSEPH H. SEROTA TELEPHONE 954-763 -4242 SUSAN L. TREVARTHEN FACSIMILE 954- 764 -7770 RICHARD JAY WEISS 'w1MN•WSFI`tAWCOM DAVID M. WOLPIN Eve A. Boutsis, Esq. Office of City Attorney to the City of South Miami Nagin Gallop Figueredo, P.A. 18001 Old Cutler Road, Suite 556 Palmetto Bay, Florida 33157 Re: Requested information from Waste Services of Florida, Inc. Dear Ms. Boutsis: GREGORY A. HAILE JOHN J. KENDRICK III KAREN LIEBERMAN* JOHANNA M.LUNDGREN ANDREW W. MA1 MATTHEW H. MANDEL PAMIMAUGHAM ALEXANDER L. PALENZUELA -MAURI YUNIOR PIREIRO JOHN J. QUICK ANTHONY L..REC10 SCOTT A. ROBIN GAIL D. SEROTA' JONATHAN C.SHAMRES ESTRELLITA S. SIBILA EDUARDO M. SOTO MICHAEL L. STINES JOSE S. TALAVERA STEVEN E. TAYLOR LAURA K. WENDELL* JAMES E. WHITE CLINTON A. WRIGHT III* This letter is in follow -up to our meeting of March 9, 2007, where you requested several documents. In response to your request, enclosed please find the attached documents in the following numerical order: 1. Delaware Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services, Inc:.; 2. Florida Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services, Inc.; 3. Approval letter from Miami.-Dade County. In addition to the referenced documents, you also asked for a listing of localities within Miami -Dade County which have already been approved. In addition to Miami -Dade County, Waste Services of Florida, Inc. has requested assignment of the BFI franchise license in the City of Miami and the City of Miami Beach, and is expected to receive approval momentarily. MIAMI -DADE OFFICE LYNN M. DANNHEISSER 2525 PONCE DE LEON BOULEVARD • SUITE 700 IGNACIO G. DEL VALLE DOUGLAS R. GONZALES CORAL GABLES, FLORIDA 33134 TELEPHONE 305-654 -0600 • FACSIMILE 305- 854 -8323 MELISSA P. ANDERSON LILLIAN ARANGO DE LA HOe JAMES E. BAKER *OF COUNSEL JEFF P.H. CAZEAU RAQUEL ELEJABARRIETA CHAD FRIEDMAN ALAN L. GABRIEL* March 16, 2007 Eve A. Boutsis, Esq. Office of City Attorney to the City of South Miami Nagin Gallop Figueredo, P.A. 18001 Old Cutler Road, Suite 556 Palmetto Bay, Florida 33157 Re: Requested information from Waste Services of Florida, Inc. Dear Ms. Boutsis: GREGORY A. HAILE JOHN J. KENDRICK III KAREN LIEBERMAN* JOHANNA M.LUNDGREN ANDREW W. MA1 MATTHEW H. MANDEL PAMIMAUGHAM ALEXANDER L. PALENZUELA -MAURI YUNIOR PIREIRO JOHN J. QUICK ANTHONY L..REC10 SCOTT A. ROBIN GAIL D. SEROTA' JONATHAN C.SHAMRES ESTRELLITA S. SIBILA EDUARDO M. SOTO MICHAEL L. STINES JOSE S. TALAVERA STEVEN E. TAYLOR LAURA K. WENDELL* JAMES E. WHITE CLINTON A. WRIGHT III* This letter is in follow -up to our meeting of March 9, 2007, where you requested several documents. In response to your request, enclosed please find the attached documents in the following numerical order: 1. Delaware Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services, Inc:.; 2. Florida Certificates of Good Standing for Waste Services of Florida, Inc. and Waste Services, Inc.; 3. Approval letter from Miami.-Dade County. In addition to the referenced documents, you also asked for a listing of localities within Miami -Dade County which have already been approved. In addition to Miami -Dade County, Waste Services of Florida, Inc. has requested assignment of the BFI franchise license in the City of Miami and the City of Miami Beach, and is expected to receive approval momentarily. Eve A. Boutsis, Esq. Page 2 March lb, 2007 Finally, as to the status of any Waste Services of Florida, Inc. litigation, there is no prior or pending litigation involving Waste Services of Florida, Inc. and any governmental agency. I hope this information proves helpful to you., If you require anything further, please do not hesitate to contact me. Ver t ly you , mow,, e Alan L. Gabriel PRM:seo 1026.001 Enclosures cc: Mr. Vahe Gabriel, Waste 'Services, Inc. WIxISS SCROTA HELIFMAN PAS'TORIZA COLE & BONISILE, P.A. Defa w.are PAGE I w ,r ru The first State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "WASTE SERVICES, INC." IS DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE TWENTY -SIXTH DAY OF FEBRUARY, A.D. 2007. AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE. AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO DATE. 3613645 8300 070227103 Harriet Smith Windsor, Secretary of State AUTHENTICATION: 5460854 DATE: 02-26 -07 PAGE 1 !L)e(aware the ,first State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY "WASTE SERVICES OF FLORIDA, INC." IS DULY INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE AND IS IN GOOD STANDING AND HAS A .LEGAL CORPORATE EXISTENCE SO FAR AS THE RECORDS OF THIS OFFICE SHOW, AS OF THE TWENTY -SIXTH DAY OF FEBRUARY, A.D. 2007. AND I DO HEREBY FURTHER CERTIFY THAT THE FRANCHISE TAXES HAVE BEEN PAID TO DATE. AND I DO HEREBY FURTHER CERTIFY THAT THE ANNUAL REPORTS HAVE BEEN FILED TO DATE. 3725781 8300 070227112 Harriet Smith Windsor, Secretary of State AUTHENTICATION: 5460857 DATE: 02 -26 -07 State of Florida Department of State I certify from the records of this office that WASTE SERVICES OF FLORIDA, INC. is a corporation organized under the laws of Delaware, authorized to transact business in the State of Florida, qualified on December 11, 2003. The document number of this corporation is F03000006157. I further certify that said corporation has paid all fees due this office through December 31, 2006, that its most recent annual report was filed on April 13, 2006, and its status is active. I further certify that said corporation has not filed a Certificate of Withdrawal. Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Twenty Sixth day of February, 2047 r Secretary of State Authentication ID: 900089286099 -022607- F03000006157 To authenticate this certi6cate,visit the following site, enter this 11), and then follow the instructions displayed. www.sunblz.org/auth.html State of Florid4 Department of State I certify from the records of this office that WASTE SERVICES, INC. is a corporation organized under the laws of Delaware, authorized to transact business in the State of Florida, qualified on January 11, 2006. The document number of this corporation is F06000000188. I further certify that said corporation has paid all fees due this office through December 31, 2006, and its status is active. I further certify that said corporation has not filed a Certificate of Withdrawal Given under my hand and the Great Seal of Florida, at Tallahassee, the Capital, this the Twenty Sixth day of February, 2007 Authentication ID: 400089285394 - 022607- FO6000000188 To authenticate this certificate,visit the following site, enter this ID, and then follow the instructions displayed. www.sunbiz.orglauth.html Office of the County Manager 111 NW 1st Street • Suite 2910 M t A M [DADE Miami, Florida 33128-1994 T305-375-5311 F305-375-1262 miamidade.gov ADACoodinadon March 7, 2007 Agenda Coordination Animal Services Art In Pubtic Places Audit and Management Services Aviation Mitchell A. Bierman, Est{. Building Weiss Serota Heitman Pastoriza Cole & Boniske, P.A. Building Code Compliance 2525 Ponce De Leon Boulevard Business Development Suite 700 capita► Improvemems Coral Gables, Florida 33134 Citizens' Independent Transportation Trust Commission on Ethics and Public Trust Re: Assignment of Department of Solid Waste Management Contracts to Waste Communications Service, Inc. from BFI /Allied Waste Community Action Agency Community & Economic Development Dear Mr, Bierman: Community Relations Consumer Services We are in receipt: of your letter of February 16, 2007 regarding the purchase of assets corrections &Rehabilitation by Waste Services Inc. from Browning -Ferris Industries/Allied Waste (BFI /Allied). The cultural Awaits County is willing to consent to the assignment of the tvyo Department of Solid Waste erns Management contracts with BFI /Allied that are referenced below. Emergency Managemenl Employee Relations Regarding the Second Amended and Restated Agreement between BFI of Florida and EmpowenvientTrust Miami -Dade County for jProvision of Curbside Collection Service of Recyclable Enterprise Technology Services Materials, in accordance with Article 19 of the contract, the County consents to the Environmental Resources Managennent assignment of all rights and obligations under this contract from BFI /Allied to Waste fair Employment Plactin es Services, Inc. Finance Fie Re— Regarding the First Amended and Restated Non - Exclusive Agreement between Miami - CeneralSetvicesAdministration Dade County, Florida and Browning - Ferris Industries of North America, inc. for Historic Preservation Commitment to use the County Solid Waste management System for Municipal Solid Homelessrnrst Waste Disposal, in accordance with Article 8 of the contract, the County consents to HouiingArmw the assignment of all rights and obligations under this contract from BFVAiIied to Waste HousingFinaanceMhority Services, Inc. Human Services independent Rev w, Panel This letter does not address or consent to any assignments or agreements regarding imemationalTradeConsortium other contracts or permits that BFI /Allied has with Miami -Dade County. The other nNeniiesemces requests made in your letter are being reviewed by the appropriate departments and Medial Bominer you will be notified as they progress. Metro-Miami Action Plan Metro olitanPlanningorganization Park and Recreation Planning and Zoning Police i ;,orge. Burger Procurement Management County Manager Property Appraisal Public Ubrary System W. Honorable Carlos Alvarez, Mayor Public Wom Denis Morales, Chief of Staff, Mayor's Office Sale Neighborhood Parks Roger M. Carlton, Assistant County Manager Seaport Kathleen Woods - Richardson, Department of Solid VVa'ste,- M6tt0gbrrt�ent Soiid Waste Management Carlos Espinosa, Department of Environmental Res&ri at li lanagamaht Strategic Business Management Tom Robertson, County Attorney's Office Team Metro Transit Task Force on urban Economic Revitalization Vizcaya Museum And Gardens Y C�?3 /t.�x#�r „at..� 4 • \ l Water & Sewer o