<SUBMISSION>
<ACCESSION-NUMBER>0000950129-02-003824
<TYPE>10-Q
<PUBLIC-DOCUMENT-COUNT>6
<PERIOD>20020630
<FILING-DATE>20020802
<FILER>
<COMPANY-DATA>
<CONFORMED-NAME>WASTE MANAGEMENT INC
<CIK>0000823768
<ASSIGNED-SIC>4953
<IRS-NUMBER>731309529
<STATE-OF-INCORPORATION>DE
<FISCAL-YEAR-END>1231
</COMPANY-DATA>
<FILING-VALUES>
<FORM-TYPE>10-Q
<ACT>34
<FILE-NUMBER>001-12154
<FILM-NUMBER>02718070
</FILING-VALUES>
<BUSINESS-ADDRESS>
<STREET1>1001 FANNIN STREET
<STREET2>STE 4000
<CITY>HOUSTON
<STATE>TX
<ZIP>77002
<PHONE>7135126200
</BUSINESS-ADDRESS>
<MAIL-ADDRESS>
<STREET1>1001 FANNIN STREET
<STREET2>SUITE 4000
<CITY>HOUSTON
<STATE>TX
<ZIP>77002
</MAIL-ADDRESS>
<FORMER-COMPANY>
<FORMER-CONFORMED-NAME>USA WASTE SERVICES INC
<DATE-CHANGED>19920703
</FORMER-COMPANY>
</FILER>
<DOCUMENT>
<TYPE>10-Q
<SEQUENCE>1
<FILENAME>h98566e10vq.txt
<DESCRIPTION>WASTE MANAGEMENT, INC. - PERIOD ENDED JUNE 30,2002
<TEXT>
<PAGE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-Q

<Table>
<C>          <S>
 (Mark One)
    [X]      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002

                                   OR




    [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
             OF THE SECURITIES EXCHANGE ACT OF 1934

             FOR THE TRANSITION PERIOD FROM           TO
</Table>

                         COMMISSION FILE NUMBER 1-12154

                             WASTE MANAGEMENT, INC.
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                            <C>
                   DELAWARE                                      73-1309529
       (State or other jurisdiction of                        (I.R.S. Employer
        incorporation or organization)                      Identification No.)
</Table>

                                  1001 FANNIN
                                   SUITE 4000
                              HOUSTON, TEXAS 77002
                    (Address of principal executive offices)

                                 (713) 512-6200
              (Registrant's telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [X]  No [ ]

     The number of shares of Common Stock, $.01 par value, of the registrant
outstanding at July 31, 2002 was 611,658,364 (excluding treasury shares of
18,658,919).

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>

                                     PART I

ITEM 1. FINANCIAL STATEMENTS.

                             WASTE MANAGEMENT, INC.

                          CONSOLIDATED BALANCE SHEETS
               (IN MILLIONS, EXCEPT SHARE AND PAR VALUE AMOUNTS)

<Table>
<Caption>
                                                               JUNE 30,     DECEMBER 31,
                                                                 2002           2001
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
Current assets:
  Cash and cash equivalents.................................    $   720       $   730
  Accounts receivable, net of allowance for doubtful
     accounts of $64 and $73, respectively..................      1,482         1,355
  Notes and other receivables...............................        263           314
  Parts and supplies........................................         77            83
  Deferred income taxes.....................................        419           426
  Prepaid expenses and other................................        159           216
                                                                -------       -------
     Total current assets...................................      3,120         3,124
Property and equipment, net.................................     10,485        10,357
Goodwill....................................................      5,035         4,998
Other intangible assets, net................................        111           123
Other assets................................................      1,077           888
                                                                -------       -------
     Total assets...........................................    $19,828       $19,490
                                                                =======       =======
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable..........................................    $   556       $   672
  Accrued liabilities.......................................      2,164         2,160
  Deferred revenues.........................................        398           374
  Current portion of long-term debt.........................        383           515
                                                                -------       -------
     Total current liabilities..............................      3,501         3,721
Long-term debt, less current portion........................      8,236         7,709
Deferred income taxes.......................................      1,263         1,127
Environmental liabilities...................................        873           825
Other liabilities...........................................        650           703
                                                                -------       -------
     Total liabilities......................................     14,523        14,085
                                                                -------       -------
Minority interest in subsidiaries...........................         15            13
                                                                -------       -------
Commitments and contingencies
Stockholders' equity:
  Common stock, $.01 par value; 1,500,000,000 shares
     authorized; 630,329,583 and 630,331,591 shares issued,
     respectively...........................................          6             6
  Additional paid-in capital................................      4,521         4,523
  Retained earnings.........................................      1,412         1,057
  Accumulated other comprehensive loss......................       (140)         (148)
  Restricted stock unearned compensation....................         (1)           (2)
  Treasury stock at cost, 18,972,457 and 2,313,883 shares,
     respectively...........................................       (508)          (44)
                                                                -------       -------
     Total stockholders' equity.............................      5,290         5,392
                                                                -------       -------
     Total liabilities and stockholders' equity.............    $19,828       $19,490
                                                                =======       =======
</Table>

                See notes to consolidated financial statements.
                                        1
<PAGE>

                             WASTE MANAGEMENT, INC.

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                              THREE MONTHS       SIX MONTHS
                                                             ENDED JUNE 30,    ENDED JUNE 30,
                                                             ---------------   ---------------
                                                              2002     2001     2002     2001
                                                             ------   ------   ------   ------
<S>                                                          <C>      <C>      <C>      <C>
Operating revenues.........................................  $2,825   $2,915   $5,434   $5,634
                                                             ------   ------   ------   ------
Costs and expenses:
  Operating (exclusive of depreciation and amortization
     shown below)..........................................   1,689    1,732    3,254    3,378
  Selling, general and administrative......................     359      398      746      787
  Depreciation and amortization............................     313      341      607      676
  Restructuring............................................      --       --       37       --
  Asset impairments and unusual items......................      --        3       (6)       8
                                                             ------   ------   ------   ------
                                                              2,361    2,474    4,638    4,849
                                                             ------   ------   ------   ------
Income from operations.....................................     464      441      796      785
                                                             ------   ------   ------   ------
Other income (expense):
  Interest expense.........................................    (116)    (147)    (232)    (301)
  Interest income..........................................       5       10        9       27
  Minority interest........................................      (2)      (2)      (3)      (3)
  Other income, net........................................       1        2        3        8
                                                             ------   ------   ------   ------
                                                               (112)    (137)    (223)    (269)
                                                             ------   ------   ------   ------
Income before income taxes.................................     352      304      573      516
Provision for income taxes.................................     135      113      219      202
                                                             ------   ------   ------   ------
Income before extraordinary item and cumulative effect of
  changes in accounting principle..........................     217      191      354      314
Extraordinary loss on early retirement of debt, net of
  income tax benefit of $1 in 2002 and 2001................      --       --       (1)      (1)
Cumulative effect of changes in accounting principle, net
  of income tax expense of $0 in 2002 and $2 in 2001.......      --       --        2        2
                                                             ------   ------   ------   ------
Net income.................................................  $  217   $  191   $  355   $  315
                                                             ======   ======   ======   ======
Basic earnings per common share:
  Income before extraordinary item and cumulative effect of
     changes in accounting principle.......................  $ 0.35   $ 0.31   $ 0.57   $ 0.50
  Extraordinary item.......................................      --       --       --       --
  Cumulative effect of changes in accounting principle.....      --       --       --       --
                                                             ------   ------   ------   ------
Net income.................................................  $ 0.35   $ 0.31   $ 0.57   $ 0.50
                                                             ======   ======   ======   ======
Diluted earnings per common share:
  Income before extraordinary item and cumulative effect of
     changes in accounting principle.......................  $ 0.35   $ 0.30   $ 0.57   $ 0.50
  Extraordinary item.......................................      --       --       --       --
  Cumulative effect of changes in accounting principle.....      --       --       --       --
                                                             ------   ------   ------   ------
Net income.................................................  $ 0.35   $ 0.30   $ 0.57   $ 0.50
                                                             ======   ======   ======   ======
</Table>

                See notes to consolidated financial statements.
                                        2
<PAGE>

                             WASTE MANAGEMENT, INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN MILLIONS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                SIX MONTHS
                                                              ENDED JUNE 30,
                                                              ---------------
                                                              2002     2001
                                                              -----   -------
<S>                                                           <C>     <C>
Cash flows from operating activities:
  Net income................................................  $ 355   $   315
  Adjustments to reconcile net income to net cash provided
     by operating activities:
       Provision for bad debts..............................     17         5
       Depreciation and amortization........................    607       676
       Deferred income tax provision........................    110       101
       Minority interest in subsidiaries....................      3         3
       Net gain on disposal of assets.......................     (3)      (12)
       Effect of asset impairments and unusual items........     (6)        8
     Change in assets and liabilities, net of effects of
      acquisitions and divestitures:
          Receivables.......................................    (39)      (36)
          Prepaid expenses and other current assets.........     (7)        3
          Other assets......................................    (31)      (11)
          Accounts payable and accrued liabilities..........   (152)     (179)
          Deferred revenues and other liabilities...........     30        (7)
                                                              -----   -------
Net cash provided by operating activities...................    884       866
                                                              -----   -------
Cash flows from investing activities:
  Acquisitions of businesses, net of cash acquired..........    (64)      (65)
  Capital expenditures......................................   (552)     (474)
  Proceeds from divestitures of businesses, net of cash
     divested, and other sales of assets....................     71        26
  Other.....................................................     96        64
                                                              -----   -------
Net cash used in investing activities.......................   (449)     (449)
                                                              -----   -------
Cash flows from financing activities:
  New borrowings............................................    498       953
  Debt repayments...........................................   (468)   (1,086)
  Common stock repurchases..................................   (500)       --
  Exercise of common stock options and warrants.............     23        38
  Other.....................................................     --       (19)
                                                              -----   -------
Net cash used in financing activities.......................   (447)     (114)
                                                              -----   -------
Effect of exchange rate changes on cash and cash
  equivalents...............................................      2        (1)
                                                              -----   -------
Increase (decrease) in cash and cash equivalents............    (10)      302
Cash and cash equivalents at beginning of period............    730        94
                                                              -----   -------
Cash and cash equivalents at end of period..................  $ 720   $   396
                                                              =====   =======
</Table>

                See notes to consolidated financial statements.
                                        3
<PAGE>

                             WASTE MANAGEMENT, INC.

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
                   (IN MILLIONS, EXCEPT SHARES IN THOUSANDS)
                                  (UNAUDITED)

<Table>
<Caption>
                                                                            ACCUMULATED
                                  COMMON STOCK     ADDITIONAL                  OTHER       RESTRICTED STOCK   TREASURY STOCK
                                ----------------    PAID-IN     RETAINED   COMPREHENSIVE       UNEARNED       ---------------
                                SHARES    AMOUNT    CAPITAL     EARNINGS       LOSS          COMPENSATION     SHARES   AMOUNT
                                -------   ------   ----------   --------   -------------   ----------------   ------   ------
<S>                             <C>       <C>      <C>          <C>        <C>             <C>                <C>      <C>
Balance, December 31, 2001....  630,332     $6       $4,523      $1,057        $(148)            $(2)          2,314   $ (44)
  Net income..................       --     --           --         355           --              --              --      --
  Common stock issued upon
    exercise of stock options
    and warrants, including
    tax benefit of $6.........       --     --           (3)         --           --              --          (1,336)     32
  Common stock repurchases....       --     --           --          --           --              --          18,199    (500)
  Earned compensation related
    to restricted stock.......       --     --           --          --           --               1              --      --
  Deferred loss on hedged
    instruments, net of tax
    benefit of $16............       --     --           --          --          (24)             --              --      --
  Unrealized loss on
    marketable securities, net
    of tax benefit of $3......       --     --           --          --           (5)             --              --      --
  Cumulative translation
    adjustment of foreign
    currency statements.......       --     --           --          --           37              --              --      --
  Other.......................       (2)    --            1          --           --              --            (205)      4
                                -------     --       ------      ------        -----             ---          ------   -----
Balance, June 30, 2002........  630,330     $6       $4,521      $1,412        $(140)            $(1)         18,972   $(508)
                                =======     ==       ======      ======        =====             ===          ======   =====
</Table>

                See notes to consolidated financial statements.
                                        4
<PAGE>

                             WASTE MANAGEMENT, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

     The consolidated financial statements of Waste Management, Inc., a Delaware
corporation, and subsidiaries ("Waste Management" or the "Company") presented
herein are unaudited. In the opinion of management, these financial statements
include all adjustments, which, except as described elsewhere herein, are of a
normal recurring nature, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the periods presented. The
results for interim periods are not necessarily indicative of results for the
entire year. The financial statements presented herein should be read in
connection with the financial statements included in the Company's Annual Report
on Form 10-K for the year ended December 31, 2001.

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
certain estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and disclosure of the contingent
assets and liabilities at the date of the financial statements. These estimates
and assumptions will also affect the reported amounts of certain revenues and
expenses during the reporting period. Actual results could differ materially
based on any changes in estimates and assumptions that the Company uses in the
preparation of its financial statements. Additionally, the estimates and
assumptions used in landfill airspace amortization and final closure and
post-closure rates per ton and environmental remediation liabilities require
significant engineering and accounting input. The Company reviews these
estimates and assumptions no less than annually. In many circumstances, the
ultimate outcome of these estimates and assumptions may not be known for decades
into the future. Actual results could differ materially from these estimates and
assumptions due to changes in environmental-related regulations or future
operational plans, and the inherent imprecision associated with estimating
matters so far into the future. See "Management's Discussion and Analysis"
elsewhere herein.

     In the Company's Annual Report on Form 10-K for the year ended December 31,
2001, the Company reported accrued interest of $137 million as a component of
accounts payable. In its Quarterly Report on Form 10-Q for the quarter ended
March 31, 2002, the Company started reporting accrued interest as a component of
accrued liabilities instead of accounts payable. In order to conform the prior
period presentation of accrued interest to the current period presentation, the
Company has reclassified the $137 million of accrued interest at December 31,
2001 to accrued liabilities in the consolidated balance sheet presented
elsewhere herein.

     During the second quarter of 2002, the Company reviewed the accounting and
reporting for certain contractual arrangements entered into in the mid-1980s
relating to a waste-to-energy plant owned by a subsidiary of Wheelabrator
Technologies Inc. ("WTI"). The Company acquired a majority interest in WTI, and
thus, the subsidiary plant in 1990. In 1998, the Company became the 100% owner
of WTI, and thus, the subsidiary plant. Under the arrangements, WTI's subsidiary
owns and operates the plant, but the contracting communities that the plant
serves pay all debt and debt service related to the plant. Although the
contracting communities have funded all of the debt payments during the
seventeen years of operation of the plant, WTI's subsidiary is the borrower
under the debt. Therefore, the Company has concluded that the assets and
liabilities associated with these arrangements should be reflected on the
Company's balance sheet. As a result, the Company recorded an increase in
property, plant and equipment in the second quarter of 2002 of approximately $72
million; an increase in other long-term assets of approximately $52 million; an
increase in debt of approximately $114 million (which includes the current
portion of approximately $20 million); and an increase in other liabilities of
$5 million. The Company also recognized income of $5 million in the current
period. The current arrangements with the contracting communities expire in 2005
at which time the debt will be paid in full. Upon expiration of those
arrangements WTI's subsidiary will retain ownership of the plant.

                                        5
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

1.  LONG-TERM DEBT

     Long-term debt consisted of the following (in millions):

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2002         2001
                                                              --------   ------------
<S>                                                           <C>        <C>
Senior notes and debentures, interest of 6.375% to 8.75%
  through 2032..............................................   $6,687       $6,169
4% Convertible subordinated notes due 2002..................       --          427
5.75% Convertible subordinated notes due 2005 (2% interest
  rate and 3.75% issuance discount).........................       31           31
Tax-exempt and project bonds, principal payable in periodic
  installments, maturing through 2032, fixed and variable
  interest rates ranging from 1.23% to 10.0% (weighted
  average interest rate of 4.66%) at June 30, 2002..........    1,692        1,404
Installment loans, notes payable and other, interest from 5%
  to 12% (average interest rate of 8.4%), maturing through
  2019......................................................      209          193
                                                               ------       ------
                                                                8,619        8,224
Less current portion........................................      383          515
                                                               ------       ------
                                                               $8,236       $7,709
                                                               ======       ======
</Table>

     On June 27, 2002, the Company replaced its $750 million syndicated 364 day
line of credit with a $620 million syndicated revolving credit facility (the
"Three Year Revolver"). The Company maintained its $1.75 billion syndicated
revolving credit facility (the "Five Year Revolver"). No balances were
outstanding from the Company's revolving credit facilities as of December 31,
2001 or June 30, 2002. The Three Year Revolver matures in June 2005 and the Five
Year Revolver matures in June 2006. As of June 30, 2002, the Company had letters
of credit in the aggregate amount of approximately $1,570 million (of which
approximately $1,450 million were issued under the revolving credit facilities)
that generally have terms allowing automatic renewal after a year. At June 30,
2002, the Company had unused and available credit capacity under these
facilities of approximately $920 million.

     In May 2002, the Company privately placed $500 million of 7 3/4% senior
unsecured notes due May 15, 2032. Interest on the notes is due on November 15
and May 15 of each year. The net proceeds of the offering were approximately
$498 million, after deducting underwriters' discounts and expenses. The Company
used a portion of these proceeds to pay the $300 million of 6.625% senior notes
that matured on July 15, 2002, and has invested the remaining proceeds in cash
equivalent investments pending their expected use for repayment of a portion of
senior notes that will mature during 2002.

     During the first quarter of 2002, the Company refinanced approximately $49
million of fixed-rate tax-exempt bonds maturing in 2011 with variable-rate
tax-exempt bonds maturing in 2022. As a result, the Company incurred prepayment
penalties and other fees for a total extraordinary item charge, net of tax
benefit, of approximately $1 million. Also, in the first quarter of 2002, the
Company retired its 4% convertible subordinated notes due February 2002 by
payment of $427 million to the holders of the outstanding notes.

     The Company has $285.7 million of 7.7% senior notes due October 1, 2002 and
$350 million of 6.5% senior notes due December 15, 2002. The Company has
classified these borrowings as long-term at June 30, 2002 and December 31, 2001
based upon its ability to use its revolving credit facilities, which are both
long-term, to refinance these borrowings. The Company intends to use the
remaining funds received from its May 2002 $500 million senior issuance and
other sources of long-term financing to refinance the borrowings. However, if
other sources of long-term financing are not available, the Company intends to
use its revolving credit facilities.

                                        6
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company manages its debt portfolio by using interest rate derivatives
to achieve a desired position of fixed and floating rate debt, which is
approximately 65% fixed and 35% floating at June 30, 2002. Interest rate swap
agreements that were outstanding as of December 31, 2001 and June 30, 2002 are
set forth in the table below (in millions):

<Table>
<Caption>
                                                                                             NET FAIR
AS OF                   NOTIONAL AMOUNT    RECEIVE      PAY            MATURITY DATE          VALUE
-----                  -----------------   --------   --------   -------------------------   --------
                       (IN U.S. DOLLARS)
<S>                    <C>                 <C>        <C>        <C>                         <C>
December 31, 2001....       $   20         Floating    Fixed     Through December 31, 2012     $(2)
December 31, 2001....       $1,750          Fixed     Floating      Through May 1, 2018        $--
June 30, 2002........       $   20         Floating    Fixed     Through December 31, 2012     $(2)
June 30, 2002........       $2,350          Fixed     Floating      Through May 1, 2018        $52
</Table>

     The significant terms of the interest rate contracts and the underlying
debt instrument are identical. Accordingly, the interest rate contracts for
which we receive a fixed rate and pay a floating rate are recorded at fair value
and changes in fair value of these interest rate contracts are deferred as an
adjustment to the carrying value of the underlying debt instruments and
recognized in interest expense over the life of the underlying debt instruments.

     The carrying value of senior notes and debentures have been increased by
approximately $102 million and $60 million as of June 30, 2002 and December 31,
2001, respectively, related to the accounting for interest rate swap contracts.
As of June 30, 2002 and December 31, 2001, $50 million and $60 million,
respectively, of this increase related to remaining unamortized accumulated fair
value adjustments from interest rate swaps that were terminated in 2001.
Approximately $2 million is included as an increase to the tax-exempt and
project bonds classification at both June 30, 2002 and December 31, 2001,
respectively, for swaps that were terminated in 2001. Interest rate contracts
reduced interest expense by $23 million and $43 million for the three and six
months ended June 30, 2002, respectively, and $5 million and $6 million for the
three and six months ended June 30, 2001, respectively.

     The Company also entered into financing transactions in February 2001 and
during the second quarter of 2002 to secure the then current market interest
rate in anticipation of senior unsecured note issuances. At June 30, 2002, these
cash flow hedges resulted in a deferred loss, net of taxes, of $22 million,
which is included in accumulated other comprehensive income. Approximately $1
million of this deferred loss is expected to be reclassified into interest
expense over the next 12 months.

     During June 2002, the Company entered into forward contracts and
cross-currency swaps with notional amounts of $165 million Canadian dollars to
mitigate the risk of foreign currency exchange rate fluctuations associated with
the conversion of Canadian dollars into US dollars. The current fair value of
these cash flow hedges at June 30, 2002 are not material to the Company's
financial statements. The Company had no foreign currency derivatives
outstanding at December 31, 2001.

2.  INCOME TAXES

     The difference in federal income taxes computed at the federal statutory
rate and reported income taxes for the three and six months ended June 30, 2002
is primarily due to state and local income taxes, offset in part by
non-conventional fuel tax credits. For the three and six months ended June 30,
2001, the difference is primarily due to state and local income taxes,
non-deductible costs related to acquired intangibles and non-deductible costs
associated with the impairment and divestiture of certain businesses.
Additionally, in the second quarter of 2001, scheduled Canadian federal and
provincial tax rate reductions resulted in a tax benefit of $42 million, which
was offset in part by a tax expense of $30 million related to the Company's plan
to repatriate certain Canadian capital and earnings previously deemed
permanently invested in Canada.

                                        7
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

3.  2002 RESTRUCTURING

     In March 2002, the Company adopted a new organizational structure designed
to better align collection, transport, recycling and disposal resources within
market areas. The Company believes the new structure will yield a number of
benefits, including clearer accountability and responsibility for business
performance and profitability in specific markets; simplification of structure;
cost savings through consolidation of duplicate administrative and other support
functions; improved utilization of operating assets; and better customer
responsiveness.

     As of June 30, 2002, all of the Company's operations other than WTI and
Canadian Waste Services ("CWS") were restructured to reduce the number of field
layers of management from four to three and the number of field layers that have
administrative and functional staff from four to two. Under the new structure,
the Company's approximately 1,200 operating sites, including waste collection
depots, transfer stations, landfills and recycling facilities, were restructured
into approximately 85 newly established Market Areas. These Market Areas are
responsible for the sales and marketing of the Company's services and for
directing the delivery of service by the districts. The Market Area is also the
profit center, and the districts, all of which used to be profit centers, became
cost centers. Each large Market Area is headed by a Vice President and the
others are headed by a General Manager. The Market Areas consolidate financial
reporting and provide a range of assistance in the areas of finance and
accounting, procurement, people, market planning and development, fleet
services, recycling, legal services, engineering, regulatory compliance, safety
and public affairs to support the districts. These Market Areas all report to
one of four Groups that divide the United States geographically, and which were
formerly known as the Company's "Areas." CWS, which was restructured in July
2002, and WTI were the fifth and sixth Groups under the previous structure and
continue as the fifth and sixth Groups under the new structure.

     In March 2002, the Company recorded a $37 million pre-tax charge for costs
associated with the implementation of the new structure, including $34 million
for employee severance and benefit costs and $3 million related to abandoned
operating lease agreements. Under the new structure, approximately 1,800
field-level administrative and operational positions have been eliminated. The
Company's obligation for severance payments will continue during the second half
of 2002 and, in some cases, into 2003. As of June 30, 2002, payments of $22
million for employee severance and benefits and for abandoned leases had been
recorded against the liability that was established in March 2002.

     The Company expects to incur an additional $5 million of restructuring
expenses in the second half of 2002 primarily related to the relocation of
employees and the consolidation of facilities to support the new organizational
structure, which includes organizational changes in the third quarter of 2002 to
the Company's CWS operations.

4.  EARNINGS PER SHARE

     The following reconciles the number of common shares outstanding at June 30
of each year to the weighted average number of common shares outstanding and the
weighted average number of common and

                                        8
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

dilutive potential common shares outstanding for the purposes of calculating
basic and diluted earnings per common share (shares in millions):

<Table>
<Caption>
                                                          THREE MONTHS       SIX MONTHS
                                                         ENDED JUNE 30,    ENDED JUNE 30,
                                                         ---------------   ---------------
                                                          2002     2001     2002     2001
                                                         ------   ------   ------   ------
<S>                                                      <C>      <C>      <C>      <C>
Number of common shares outstanding at end of period...  611.4    626.0    611.4    626.0
  Effect of using weighted average common shares
     outstanding.......................................    3.9     (0.6)     9.2     (1.4)
                                                         -----    -----    -----    -----
Basic common shares outstanding........................  615.3    625.4    620.6    624.6
  Dilutive effect of common stock options and
     warrants..........................................    3.9      4.2      4.1      4.1
  Dilutive effect of convertible subordinated notes....     --     12.3      1.7       --
                                                         -----    -----    -----    -----
Diluted common shares outstanding......................  619.2    641.9    626.4    628.7
                                                         =====    =====    =====    =====
</Table>

     For the six months ended June 30, 2002, interest expense (net of taxes) of
$1 million has been added to net income for the diluted earnings per share
calculation. For the three months ended June 30, 2001, interest expense (net of
taxes) of $3 million has been added to net income for the diluted earnings per
share calculation. For the six months ended June 30, 2001 and for the three
months ended June 30, 2002, the effect of the Company's convertible subordinated
notes are excluded from the diluted earnings per share calculation because the
inclusion of such items would be antidilutive.

     At June 30, 2002, there were approximately 48.2 million shares of common
stock potentially issuable with respect to stock options, warrants and
convertible debt, which could dilute basic earnings per share in the future.

5.  DERIVATIVE INSTRUMENT POTENTIALLY SETTLED IN COMMON STOCK

     In March 2002, the Company entered into an accelerated stock repurchase
master agreement to facilitate the repurchase of shares of its common stock
under its stock buy back program announced in February 2002. The transactions
under the agreement may, as described below, be settled in shares of the
Company's common stock.

     Pursuant to the agreement, the Company may from time to time enter into
transactions to purchase shares from the counterparty for a notional amount
equal to the fair market value of the shares on the date that it elects to
purchase. Six months from the date of purchase, the parties enter into a
settlement pursuant to which, if the weighted average daily market prices for
the stock during such six month period (other than certain days during which the
Company is entitled to purchase in the market) times the number of shares
initially purchased is greater than the notional amount, the Company will pay
the counterparty the difference. If the weighted average daily market price for
the valuation period times the number of shares initially purchased is less than
the notional amount, the counterparty will pay the Company the difference.
Subject to certain conditions, the Company has the option of paying its
settlement amount, if any, in shares of its common stock or with cash. Were the
Company to settle in shares of common stock, it would issue those shares out of
treasury.

     In the first quarter of 2002, the Company entered into a transaction to
purchase stock under the agreement, purchasing approximately 10.9 million shares
at $27.46 per share for a total of approximately $300 million. The Company
accounted for the initial payment as a purchase of treasury stock and has
classified the future settlement with the counterparty as an equity instrument.
Under the agreement, the number of shares to be issued by the Company, if the
Company were required to pay the counterparty and elected to net settle in
shares, is capped at ten million shares. The settlement will not occur until
September 2002, and therefore, the Company is unable at this time to predict the
number of shares, if any, it would have to issue were it to elect that payment
option.

                                        9
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Based on the Company's weighted average stock price through June 30, 2002,
the Company would receive in cash approximately $6 million from the counterparty
to settle the contracts. However, for every one dollar of change in the weighted
average price of the Company's common stock during the valuation period, the
settlement amount would change by $10.9 million.

6.  COMPREHENSIVE INCOME

     Comprehensive income is as follows (in millions):

<Table>
<Caption>
                                                           THREE MONTHS    SIX MONTHS
                                                               ENDED          ENDED
                                                             JUNE 30,       JUNE 30,
                                                           -------------   -----------
                                                           2002    2001    2002   2001
                                                           -----   -----   ----   ----
<S>                                                        <C>     <C>     <C>    <C>
Net income...............................................  $217    $191    $355   $315
                                                           ----    ----    ----   ----
Other comprehensive income:
  Changes in minimum pension liability adjustment, net of
     taxes...............................................    --      --      --      3
  Unrealized gain (loss) on derivative instruments.......   (24)     (3)    (24)     7
  Unrealized gain (loss) on marketable securities, net of
     taxes...............................................    (2)      4      (5)     8
  Foreign currency translation adjustment................    36      43      37     (3)
                                                           ----    ----    ----   ----
Other comprehensive income...............................    10      44       8     15
                                                           ----    ----    ----   ----
Total comprehensive income...............................  $227    $235    $363   $330
                                                           ====    ====    ====   ====
</Table>

     The components of accumulated other comprehensive loss were as follows (in
millions):

<Table>
<Caption>
                                                              JUNE 30,   DECEMBER 31,
                                                                2002         2001
                                                              --------   ------------
<S>                                                           <C>        <C>
Minimum pension liability adjustment, net of taxes..........   $  (1)       $  (1)
Accumulated unrealized gain resulting from changes in fair
  values of derivative instruments, net of taxes............     (18)           5
Accumulated unrealized gain reclassified into earnings, net
  of taxes..................................................      (5)          (4)
Accumulated unrealized gain on marketable securities, net of
  taxes.....................................................       1            6
Cumulative foreign currency translation adjustment..........    (117)        (154)
                                                               -----        -----
                                                               $(140)       $(148)
                                                               =====        =====
</Table>

7.  ENVIRONMENTAL LIABILITIES

     The Company has material financial commitments for final closure and
post-closure obligations with respect to the landfills it owns or operates.
Estimates of final closure and post-closure costs are developed using input from
the Company's engineers and accountants and are reviewed by management,
typically at least once per year. Adjustments for final closure and post-closure
estimates are accounted for prospectively over the remaining capacity of the
landfill. The estimates are based on the Company's interpretation of current
requirements and proposed regulatory changes. For landfills, the present value
of final closure and post-closure liabilities is accrued using a calculated rate
per ton and charged to expense as airspace is consumed. Each year the Company
revises its calculated rate per ton to reflect accretion on the present value of
the liability. The revised rate per ton is calculated by dividing the revised
present value of the liability, less the accumulated liability recognized to
date, by the estimated remaining capacity of the landfill. The present value of
total estimated final closure and post-closure costs will be fully accrued for
each landfill at the time the site discontinues accepting waste and is closed.
Final closure and post-closure accruals consider estimates for the final cap and
cover for the site, methane gas control, leachate management and groundwater
monitoring, and

                                        10
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

other operational and maintenance costs to be incurred after the site
discontinues accepting waste, which is generally expected to be for a period of
up to thirty years after final site closure. For purchased disposal sites, the
Company assesses and records a present value-based final closure and
post-closure liability at the time the Company assumes closure responsibility.
This liability is based on the estimated final closure and post-closure costs
and the percentage of airspace used as of the date the Company has assumed the
closure responsibility. Thereafter, the difference between the final closure and
post-closure liability recorded at the time of acquisition and the present value
of total estimated final closure and post-closure costs to be incurred is
accrued using the calculated rate and charged to operating costs as airspace is
consumed.

     In the United States, the final closure and post-closure requirements are
established by the EPA's Subtitles C and D regulations, as implemented and
applied on a state-by-state basis. The costs to comply with these requirements
could increase in the future as a result of legislation or regulation.

     The Company routinely reviews and evaluates sites that require remediation,
including sites listed on the EPA's National Priorities List ("NPL sites"). The
Company considers whether the Company was an owner, operator, transporter, or
generator at the site, the amount and type of waste hauled to the site and the
number of years the Company was connected with the site. The Company also
reviews the same information with respect to other named and unnamed potentially
responsible parties ("PRPs"). The Company then reviews the estimated cost for
the likely remedy, which is based on management's judgment and experience in
remediating such sites for the Company as well as for unrelated parties,
information available from regulatory agencies as to costs of remediation, and
the number, financial resources and relative degree of responsibility of other
PRPs who may be liable for remediation of a specific site, as well as the
typical allocation of costs among PRPs. These estimates are sometimes a range of
possible outcomes. In those cases, the Company uses the amount within the range
that constitutes its best estimate. If no amount within the range appears to be
a better estimate than any other, the Company uses the amounts that are the low
ends of the ranges in accordance with Statement of Financial Accounting
Standards No. 5, Accounting for Contingencies, and its interpretations. Were the
Company to use the high ends of such ranges, it is reasonably possible that the
Company's potential liability would be approximately $258 million higher on a
discounted basis in the aggregate than the estimate recorded in the consolidated
financial statements as of June 30, 2002. As used in this context, "reasonably
possible" means the Company believes it is more than remote but less than
likely.

     As of June 30, 2002, the Company or its subsidiaries had been notified that
they are potentially responsible parties in connection with 77 locations listed
on the NPL at which the Company's liability has not been rendered remote as a
result of a settlement, judgment or other facts. Of the 77 NPL sites at which
claims remain unliquidated, 17 are sites that the Company currently owns. All of
the NPL sites owned by the Company were initially developed by others as
landfill disposal facilities. At each of the 17 owned facilities, the Company is
working with the appropriate government agency to characterize or remediate
identified site problems. In addition, at these 17 owned facilities, the Company
has either agreed with other liable parties on an arrangement for sharing the
costs of remediation or is pursuing resolution of an allocation formula. The 60
NPL sites at which claims against the Company remain unliquidated and that are
not owned by the Company are at different procedural stages under Superfund. At
some of these sites, the Company's liability is well defined as a consequence of
governmental decisions as to the appropriate remedy and agreements among liable
parties as to the share each will pay for implementing that remedy. At others
where no remedy has been selected or the liable parties have been unable to
agree on an appropriate allocation, the Company's future costs are uncertain,
and as they become estimable, could have a material adverse effect on the
Company's financial statements.

     Estimates of the Company's degree of responsibility for remediation of a
particular site and the method and ultimate cost of remediation require a number
of assumptions and are inherently difficult, and the ultimate outcome may differ
materially from current estimates. It is possible that technological, regulatory
or enforcement developments, the results of environmental studies, the inability
to identify other PRPs, the

                                        11
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

inability of other PRPs to contribute to the settlements of such liabilities, or
other factors could necessitate the recording of additional liabilities that
could be material. Additionally, the Company's ongoing review of its remediation
liabilities could result in revisions that could cause upward or downward
adjustments to income from operations. These adjustments could be material in
any given period.

     Where the Company believes that both the amount of a particular
environmental liability and the timing of the payments are reliably
determinable, the cost in current dollars is inflated until expected time of
payment and then discounted to present value. The inflation rate and discount
rate, which are based on the rates for United States Treasury bonds, are
reviewed on an annual basis. At both June 30, 2002 and December 31, 2001, the
inflation rate and discount rate were 2.0% and 5.5%, respectively. The accretion
of the interest related to the discounted environmental liabilities for
operating landfills is included in the annual calculation of the landfill's
final closure and post-closure cost per ton and is charged to operating costs as
landfill airspace is consumed.

     Liabilities for final closure, post-closure and environmental remediation
costs consisted of the following (in millions):

<Table>
<Caption>
                                   JUNE 30, 2002                        DECEMBER 31, 2001
                        ------------------------------------   ------------------------------------
                        FINAL CLOSURE/                         FINAL CLOSURE/
                         POST-CLOSURE    REMEDIATION   TOTAL    POST-CLOSURE    REMEDIATION   TOTAL
                        --------------   -----------   -----   --------------   -----------   -----
<S>                     <C>              <C>           <C>     <C>              <C>           <C>
Current (in accrued
  liabilities)........       $ 56           $ 55       $111         $ 55           $ 66       $121
Long-term.............        600            273        873          570            255        825
                             ----           ----       ----         ----           ----       ----
                             $656           $328       $984         $625           $321       $946
                             ====           ====       ====         ====           ====       ====
</Table>

     The changes to environmental liabilities are as follows (in millions):

<Table>
<Caption>
                                                              SIX MONTHS
                                                                 ENDED
                                                               JUNE 30,
                                                              -----------
                                                              2002   2001
                                                              ----   ----
<S>                                                           <C>    <C>
Beginning balance...........................................  $946   $962
Expense.....................................................    32     34
Spending....................................................   (30)   (42)
Acquisitions, divestitures and other adjustments............    36      9
                                                              ----   ----
Ending balance..............................................  $984   $963
                                                              ====   ====
</Table>

8.  COMMITMENTS AND CONTINGENCIES

     Financial instruments -- The Company has provided letters of credit,
performance bonds, trust agreements, financial guarantees and insurance policies
to support tax-exempt bonds, contracts, performance of landfill final closure
and post-closure requirements, and other obligations. The Company also uses
captive insurance, or insurance policies issued by a wholly-owned insurance
company, the sole business of which is to issue such policies to the Company, in
order to secure such obligations. In those instances where the use of captive
insurance is not acceptable, the Company generally has available alternative
bonding mechanisms. Because virtually no claims have been made against these
financial instruments in the past, management does not expect that these
instruments will have a material adverse effect on the Company's consolidated
financial statements. The Company has not experienced any unmanageable
difficulty in obtaining performance bonds or letters of credit for its current
operations. However, the tragic events of September 11, 2001, as well as
recently publicized financial difficulties of several large public companies,
have had an impact on the financial status of a number of insurance, surety and
reinsurance providers, which could cause an increase in the cost

                                        12
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and a decrease in the availability of surety and insurance coverages available
to the Company in the future. The Company has arranged for new sources of
bonding capacity and continues to evaluate a number of options for further
capacity increases.

     For the 14 months ended January 1, 2000, the Company insured certain risks,
including auto, general and workers' compensation, with Reliance National
Insurance Company ("Reliance"). On June 11, 2001, the ultimate parent of
Reliance, Reliance Group Holdings, Inc., filed for bankruptcy under Chapter 11
of the Bankruptcy Code of 1978, as amended (the "Bankruptcy Code"). On October
3, 2001, Reliance was placed in liquidation by a Pennsylvania Court. The Company
has determined that it will have coverage through various state insurance
guarantee funds in some, but not all, of the jurisdictions where it is subject
to claims that would have been covered by the Reliance insurance program. While
it is not possible to predict the outcome of proceedings involving Reliance, the
Company believes that because of the various insurance guarantee funds and
potential recoveries from the liquidation, it is unlikely that events relating
to Reliance will have a material adverse impact on the Company's financial
statements.

     Environmental matters -- The Company's business is intrinsically connected
with the protection of the environment. As such, a significant portion of the
Company's operating costs and capital expenditures could be characterized as
costs of environmental protection. Such costs may increase in the future as a
result of legislation or regulation. However, the Company believes that it
generally tends to benefit when environmental regulation increases, which may
increase the demand for its services, and that it has the resources and
experience to manage environmental risk.

     For more information regarding commitments and contingencies with respect
to environmental matters, see Note 7.

     Litigation -- A group of companies that sold assets in exchange for common
stock in March 1996 to Waste Management Holdings, Inc. ("WM Holdings"), which
was acquired by the Company in July 1998 (the "WM Holdings Merger"), brought an
action against the Company in March 2000 for breach of contract and fraud, among
other things. The parties have agreed to resolve this dispute through
arbitration, which is currently scheduled for November 2002. The extent of
damages, if any, in the dispute has not yet been determined.

     In December 1999, an individual brought an action against the Company, five
former officers of WM Holdings, and WM Holdings' former auditor, Arthur Andersen
LLP ("Andersen"), in Illinois state court on behalf of a proposed class of
individuals who purchased WM Holdings common stock before November 3, 1994, and
who held that stock through February 24, 1998, for alleged acts of common law
fraud, negligence, and breach of fiduciary duty. In May 2001, the court granted
in part and denied in part the defendants' motion to dismiss. This action is
currently in the discovery stage and the extent of possible damages, if any, has
not yet been determined.

     To the extent that the Company is liable for any damages in the lawsuits
described above, it may be able to seek reimbursement of some of these damages
from a third party. However, it is reasonably possible that if any such
reimbursement is ultimately sought, the Company would not be successful in
collecting such amounts, and the Company would be required to recognize an
additional loss.

     On July 6 and July 29, 1999, the Company announced that it had lowered its
expected earnings per share for the three months ended June 30, 1999. On August
3, 1999, the Company provided additional information regarding its expected
earnings for that period, including that its reported operating income for the
three months ended March 31, 1999 might have included certain unusual pre-tax
income items. More than 30 lawsuits based on one or more of these announcements
were filed against the Company and certain of its current and former officers
and directors. These lawsuits were consolidated into a single action pending in
the United States District Court for the Southern District of Texas (the
"Southern District of Texas Court"). On

                                        13
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

May 8, 2000, the court entered an order appointing the Connecticut Retirement
Plan and Trust Funds as lead plaintiff and appointing the law firm of Goodkind
Labaton Rudoff & Suchrow LLP as lead plaintiff's counsel.

     The lead plaintiff filed its Amended Consolidated Class Action Complaint
(the "Complaint") on July 14, 2000. The Complaint pleads claims on behalf of a
putative class consisting of all purchasers and acquirers of Company securities
(including common stock, debentures and call options), and all sellers of put
options, from June 11, 1998 through November 9, 1999. The Complaint also pleads
additional claims on behalf of two putative subclasses: (i) the "Merger
Subclass," consisting of all WM Holdings stockholders who received Company
common stock pursuant to the WM Holdings Merger, and (ii) the "Eastern Merger
Subclass," consisting of all Eastern Environmental Services, Inc. ("Eastern")
stockholders who received Company common stock pursuant to the Company's
acquisition of Eastern on December 31, 1998.

     Among other things, the plaintiff alleges that the Company and certain of
its current and former officers and directors (i) made misrepresentations in the
registration statement and prospectus filed with the SEC in connection with the
WM Holdings Merger, (ii) made knowingly false earnings projections for the three
months ended June 30, 1999, (iii) failed to adequately disclose facts relating
to its earnings projections that the plaintiff claims would have been material
to purchasers of the Company's common stock and (iv) made separate and distinct
misrepresentations about the Company's operations and finances on and after July
29, 1999, culminating in the Company's pre-tax charge of $1.76 billion in the
third quarter of 1999. The plaintiff also alleges that certain of the Company's
current and former officers and directors sold common stock between May 10, 1999
and June 9, 1999 at prices known to have been inflated by material misstatements
and omissions. The plaintiff in this action seeks damages with interest, costs
and such other relief as the court deems proper. Defendants filed a motion to
dismiss on October 3, 2000. On August 16, 2001, the court granted the motion in
part and denied it in part, allowing the plaintiff to replead its claims.

     On November 7, 2001, the Company announced that it had reached a settlement
agreement with the plaintiff in this case, resolving all claims against it as
well as claims against its current and former officers and directors. The
agreement provides for a payment of $457 million to members of the class and for
the Company to consent to the certification of a class for the settlement of
purchasers or acquirers of the Company's securities from June 11, 1998 through
November 9, 1999. Additionally, as part of the settlement agreement, the Company
presented, and its stockholders approved at the 2002 annual meeting of
stockholders, a binding proposal to amend the Company's certificate of
incorporation so that all directors are elected annually. A hearing was held
April 29, 2002 at which the settlement was approved. The settlement approval is
still subject to any appeals that may be filed within thirty days of the
approval becoming final. There is currently a motion to vacate pending before
the court, and the appeal period will begin to run once that motion has been
decided.

     Also on November 7, 2001, the Company announced that it would receive $20
million (less fees of approximately $5 million awarded to counsel for the
derivative plaintiffs) as a result of a settlement reached between the
derivative plaintiffs and Andersen in a stockholder derivative suit filed on
July 3, 2001 in Texas state court against Andersen, as the Company's independent
auditor. The Company has recorded a receivable from Andersen in the amount of
approximately $20 million. The derivative plaintiffs alleged, among other
things, that Andersen engaged in professional malpractice in connection with
certain services that it performed for the Company. Andersen informed the
Company that neither the complaint nor the settlement affected its independence
in 2001 or prior years, when Andersen served as the Company's independent
auditor. The settlement was approved in May 2002. Andersen's payment will become
due at the same time the Company's payment to the plaintiffs in settlement of
the class action lawsuit described above becomes due, which is the date that all
time periods for appeal have lapsed or the judgment becomes final after all
appeals have been exhausted. Because of current motions before the Court and the
possible appeals process, the Company cannot predict when the class action
payment will be due, and thus cannot predict when the Andersen receivable will
become due. Although Andersen has experienced highly publicized negative events
and has recently announced significant curtailments in its business, the Company
presently has no reason to believe that the

                                        14
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

settlement amount will not be paid and the receivable that the Company has
recorded will not be collected. Any prolonged delays in the payment ultimately
becoming due could make such payment more uncertain, depending on Andersen's
financial status at such time. If such uncertainties develop in the future, it
is reasonably possible that the Company will be required to write down the
receivable up to the full amount due from Andersen.

     On June 29, 2000, a putative class action was filed against the Company in
Delaware state court by a class of former Eastern stockholders falling within
the scope of the Eastern Merger Subclass described above. The plaintiffs allege
that the Company stock they received in exchange for their Eastern shares was
overvalued for the same reasons alleged in the consolidated class actions in
Texas. The named plaintiffs in the Delaware case have excluded themselves from
the Texas class action settlement. The case is still at a relatively early
stage, and the amount of damages, if any, cannot yet be determined.

     Three sellers of individual businesses to the Company or to a company later
acquired by the Company have also brought lawsuits, alleging that for reasons
similar to those in the consolidated Texas class actions described above, the
stock that they received in the sales of their businesses was overvalued. The
first such lawsuit was brought in Virginia state court in July 2000. The
Company's demurrer in that case was denied in January 2002. The plaintiff in the
Virginia case has excluded himself from the Texas class action settlement. The
second seller's lawsuit was brought in Michigan state court in May 2001. After
the Company removed this case to federal court, the plaintiffs filed another new
lawsuit in Michigan state court alleging only state law claims and also filed a
duplicative complaint in the Southern District of Texas Court. The Company
reached a settlement with the plaintiffs in the Michigan state and federal
lawsuits in April 2002. The third seller's lawsuit was brought in California
state court in July 2001, with an amended complaint filed in December 2001. The
parties to this lawsuit entered into a settlement agreement in April 2002.

     Two groups of stockholders have filed separate lawsuits in state courts in
Texas against the Company and certain of its former officers. The petitions
allege that the plaintiffs are substantial stockholders of the Company's common
stock who intended to sell their stock in 1999, or to otherwise protect
themselves against loss, but that the individual defendants made false and
misleading statements regarding the Company's prospects that, along with public
statements, induced the plaintiffs to retain their stock or not to take other
measures. Plaintiffs assert that the value of their retained stock declined
dramatically. Plaintiffs assert claims for fraud, negligent misrepresentation,
and conspiracy. The Texas state court granted the Company's motion for summary
judgment in the first of these cases in March 2002, which the plaintiffs have
appealed. The second of these cases is in an early stage, and the extent of
damages, if any, cannot yet be determined.

     The Company's business is intrinsically connected with the protection of
the environment, and there is the potential for the unintended or unpermitted
discharge of materials into the environment. From time to time, the Company pays
fines or penalties in environmental proceedings relating primarily to waste
treatment, storage or disposal facilities. As of June 30, 2002, there were nine
proceedings involving Company subsidiaries where the sanctions involved in each
could potentially exceed one hundred thousand dollars. The matters involve
allegations that subsidiaries (i) operated a hazardous waste incinerator in such
a way that its air emissions exceeded permit limits, (ii) engaged in the
importation and disposal of hazardous waste in contravention of applicable
federal regulations, (iii) are responsible for remediation of landfill gas and
chemical compounds required pursuant to a Unilateral Administrative Order
associated with an NPL site, (iv) are responsible for late performance of work
required under a Unilateral Administrative Order, (v) improperly operated a
solid waste landfill and caused excess odors, (vi) failed to monitor leachate
flow in a timely fashion and operated a solid waste landfill that potentially
had a compromised leachate collection system, (vii) violated the state's clean
water act, (viii) under-reported solid waste volumes that were received at a
municipal solid waste landfill, and (ix) did not comply with air regulations
requiring control of emissions at a closed landfill. The Company does not
believe that the fines or other penalties in these matters will,

                                        15
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

individually or in the aggregate, have a material adverse effect on the
Company's financial condition or results of operations.

     On April 23, 2002, the EPA and the United States Department of Justice
filed a consent decree in federal court finalizing a settlement agreement
reached between Waste Management of Massachusetts, Inc. ("WMMA") and the EPA
arising out of violations relating to management of chlorofluorocarbons ("CFCs")
that were alleged to have occurred in periods prior to July 1998. Under the
consent decree, which was entered in July 2002, WMMA will pay a $0.8 million
civil penalty and spend $2.6 million on environmental projects that involve the
installation of pollution control devices on 150 Boston school buses and the
payment for the supply of cleaner burning low sulfur fuel for the buses, as well
as the creation of a recreational open space area on a 4.5 acre waterfront
property owned by the City of Boston.

     It is not possible at this time to predict the impact that the above
lawsuits, proceedings, investigations and inquiries may have on the Company, nor
is it possible to predict whether any other suits or claims may arise out of
these matters in the future. The Company and each of its subsidiaries intend to
defend themselves vigorously in all the above matters. However, it is reasonably
possible that the outcome of any present or future litigation, proceedings,
investigations or inquiries may have a material adverse impact on their
respective financial conditions or results of operations in one or more future
periods.

     The Company and certain of its subsidiaries are also currently involved in
other routine civil litigation and governmental proceedings relating to the
conduct of their business. The outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty and these matters could,
individually or in the aggregate, have a material adverse impact on the
Company's financial statements.

     Other -- The Company is a party to an agreement pursuant to which it is
obligated to purchase certain operating assets in Canada no later than December
2005. However, there is an option in the agreement that allows either party to
cause an earlier purchase. The purchase price is based on certain calculations
of the financial performance of the assets to be acquired, which will be
determined at the time of purchase. In addition, the Company subcontracted
certain business to the owner of the assets to be purchased. The owner has
informed the Company that it believes the Company is required to repurchase the
subcontracted business. The Company strongly disagrees with this position. The
Company does not currently believe that the purchase or other liabilities
associated with its relationship with this third party will have a material
effect on its financial statements.

     The Company is currently under audit by the Internal Revenue Service and
from time to time is audited by other taxing authorities. The Company is fully
cooperating with all audits, but plans to defend its positions vigorously. These
audits are in various stages of completion. An unfavorable audit assessment by
the taxing authorities could have a material effect on the Company's financial
statements.

9.  SEGMENT AND RELATED INFORMATION

     The Company's one reportable segment consists of its NASW operations. The
NASW operations provide integrated waste management services consisting of
collection, transfer, disposal (solid waste landfill, hazardous waste landfill
and waste-to-energy facilities), recycling, independent power production plants
("IPPs"), and other miscellaneous services to commercial, industrial, municipal
and residential customers throughout the United States, Puerto Rico and Canada.
The Company has broken out its one reportable segment in the table shown below
into "NASW (excluding WTI)" and "WTI," to provide more detailed information.
NASW (excluding WTI) includes the Company's Eastern, Midwest, Western, Southern
and CWS Groups plus its national recycling operations. WTI is the Company's
sixth Group and consists of the Company's waste-to-energy and independent power
production facilities. The Company's previously reported segment that consisted
of waste management services in international markets outside of North America
and non-solid waste services, all of which were divested by March 31, 2002, is
shown in the table below as "Other."

                                        16
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Summarized financial information concerning the Company's reportable
segments is shown in the following table (in millions). Prior period information
has been restated to conform to the current year presentation.

<Table>
<Caption>
                                                  NASW
                                     -------------------------------
                                          NASW                                  CORPORATE
                                     (EXCLUDING WTI)   WTI    TOTAL    OTHER   FUNCTIONS(A)   TOTAL
                                     ---------------   ----   ------   -----   ------------   ------
<S>                                  <C>               <C>    <C>      <C>     <C>            <C>
Three Months Ended:
June 30, 2002
Net operating revenues(b),(c)......      $2,646        $179   $2,825   $ --       $  --       $2,825
EBIT(d),(e)........................         490          62      552     --         (88)         464
June 30, 2001
Net operating revenues(b),(c)......      $2,667        $200   $2,867   $ 48       $  --       $2,915
EBIT(d),(e)........................         527          63      590     (1)       (148)         441
Six Months Ended:
June 30, 2002
Net operating revenues(b),(c)......      $5,080        $346   $5,426   $  8       $  --       $5,434
EBIT(d),(e)........................         879          97      976     (2)       (178)         796
June 30, 2001
Net operating revenues(b),(c)......      $5,172        $380   $5,552   $ 82       $  --       $5,634
EBIT(d),(e)........................         991          92    1,083    (17)       (281)         785
</Table>

---------------

(a)  Corporate functions include the corporate treasury, legal, information
     technology, corporate tax, corporate insurance, management of closed
     landfills and related insurance recoveries, centralized service center and
     other typical administrative functions.

(b)  Other operations are net of intersegment revenue with NASW of $0 and $1
     million for the three and six months ended June 30, 2002, respectively, and
     $13 million and $19 million for the corresponding periods of 2001. There
     are no other significant sales between reportable segments. However, WTI
     operations are net of intrasegment revenue with NASW (excluding WTI) of $14
     million and $29 million for the three and six months ended June 30, 2002,
     respectively, and $12 million and $27 million for the corresponding periods
     of 2001. Additionally, NASW (excluding WTI) operations are net of
     intrasegment revenue with WTI of $5 million and $10 million for the three
     and six months ended June 30, 2002, respectively, and $6 million and $12
     million for the corresponding periods of 2001.

(c)  The Company's operating revenues tend to be somewhat lower in the winter
     months, primarily due to the lower volume of construction and demolition
     waste. The volumes of industrial and residential waste in certain regions
     where the Company operates also tends to decrease during the winter months.
     The Company's first and fourth quarter results of operations typically
     reflect this seasonality. In addition, particularly harsh weather
     conditions may result in the temporary suspension of certain of our
     operations.

(d)  EBIT is defined as "Earnings Before Interest and Taxes" and equals income
     from operations on the consolidated statements of operations. EBIT is an
     earnings measurement used by management to evaluate operating performance.

(e)  For those items included in the determination of EBIT, the accounting
     policies of the segments are generally the same as those described in the
     summary of significant accounting policies in the Company's Form 10-K for
     the year ended December 31, 2001, except as it relates to goodwill. EBIT in
     2001 included goodwill amortization of $39 million and $78 million for the
     three and six months ended June 30, 2001, respectively, of which $29
     million and $58 million for the three and six months ended June 30, 2001
     was in the NASW (excluding WTI) operations, $8 million and $16 million for
     the three and six months ended June 30, 2001 was in the WTI operations, and
     $2 million and $4 million for the three and six months ended June 30, 2001
     was in the corporate function. As discussed in Note 12, the Company ceased
     the amortization of its goodwill in conjunction with the adoption of SFAS
     No. 142 on January 1, 2002. In 2002, the Company's corporate functions
     began charging its NASW operations an expense similar to what those NASW
     operations' goodwill amortization would have been had the Company not been
     required to adopt SFAS No. 142. For the three and six months ended June 30,
     2002, this charge increased EBIT for the corporate functions by $37 million
     and $73 million, respectively, and decreased EBIT for the WTI operations by
     $8 million and $15 million, respectively, and the NASW (excluding WTI)
     operations by $29 million and $58 million, respectively.

                                        17
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

10.  WASTE PAPER DERIVATIVES AND HEDGING ACTIVITIES

     The Company enters into waste paper swap agreements and other derivative
instruments to secure margins on certain paper products to be sold from its
material recovery facilities. The Company expects to achieve the margins by
entering into transactions to mitigate the variability in cash flows from sales
of waste paper products at floating prices, resulting in a fixed price being
received from sales of such products. The Company accounts for these derivatives
as cash flow hedges. As of June 30, 2002, the net fair value of these
derivatives was a $5 million liability.

     In addition, the Company has entered into waste paper swap agreements for
trading purposes with certain counterparties that have issued letters of credit
to the Company to support their credit worthiness. For both the three and six
months ended June 30, 2002, the Company increased revenues by approximately $3
million for waste paper swap agreements not designated as hedges.

     For the three and six months ending June 30, 2001 the Company recorded a
gain of $1 million and $7 million, respectively, related to derivative
agreements with Enron North America Corp. ("Enron") as an offset to operating
expenses. In the fourth quarter of 2001, the Company reclassified its
year-to-date net waste paper swap mark-to-market adjustments to be an adjustment
to revenue instead of operating expenses. On December 2, 2001, Enron declared
bankruptcy under Chapter 11 of the Bankruptcy Code of 1978, as amended (the
"Bankruptcy Code"). Due to the uncertainty of Enron's ability to satisfy all of
its financial commitments, the Company determined that all of its waste paper
derivatives with Enron had zero fair value at December 31, 2001. In February
2002, the Company terminated its derivative instruments with Enron. The Company
carries a deferred gain as of June 30, 2002, which is included in accumulated
other comprehensive income, of approximately $5 million related to its waste
paper derivatives with Enron that had qualified through November 2001 as cash
flow hedges. This deferred gain is being amortized into earnings as the
forecasted transactions that were previously hedged actually occur. The deferred
gain related to waste paper derivatives that previously qualified as hedges that
are expected to be reclassified into earnings over the next twelve months is
approximately $3 million.

11.  CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

     WM Holdings ("Guarantor"), which is 100% owned by the Company ("Parent"),
has fully and unconditionally guaranteed all of the senior indebtedness of the
Parent, as well as the Parent's 4% convertible subordinated notes that matured
and were repaid in February 2002. The Parent has fully and unconditionally
guaranteed all of the senior indebtedness of WM Holdings, as well as WM
Holdings' 5.75% convertible subordinated debentures due 2005. However, none of
the Company's nor WM Holdings' debt is guaranteed by any of the Parent's
indirect subsidiaries or WM Holdings' subsidiaries ("Non-Guarantors").
Accordingly, the following unaudited condensed consolidating balance sheet as of
June 30, 2002 and the condensed consolidating balance sheet as of December 31,
2001, the unaudited condensed consolidating statements of operations for the
three and six months ended June 30, 2002 and 2001, along with the related
unaudited condensed consolidating statements of cash flows, have been provided
below (in millions).

                                        18
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                     CONDENSED CONSOLIDATING BALANCE SHEETS
                                 JUNE 30, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                             PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                             ------   ---------   --------------   ------------   ------------
<S>                                          <C>      <C>         <C>              <C>            <C>
                                                    ASSETS
Current assets:
  Cash and cash equivalents................  $  792    $   --        $   (72)        $    --        $   720
  Other current assets.....................      --         4          2,396              --          2,400
                                             ------    ------        -------         -------        -------
                                                792         4          2,324              --          3,120
Property and equipment, net................      --        --         10,485              --         10,485
Intercompany and investment in
  subsidiaries.............................   8,928     4,997         (7,909)         (6,016)            --
Other assets...............................      66       165          5,992              --          6,223
                                             ------    ------        -------         -------        -------
    Total assets...........................  $9,786    $5,166        $10,892         $(6,016)       $19,828
                                             ======    ======        =======         =======        =======

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt........  $    4    $  276        $   103         $    --        $   383
  Accounts payable and other accrued
    liabilities............................      64        45          3,009              --          3,118
                                             ------    ------        -------         -------        -------
                                                 68       321          3,112              --          3,501
Long-term debt, less current portion.......   4,406     2,342          1,488              --          8,236
Other liabilities..........................      22         1          2,763              --          2,786
                                             ------    ------        -------         -------        -------
  Total liabilities........................   4,496     2,664          7,363              --         14,523
Minority interest in subsidiaries..........      --        --             15              --             15
Stockholders' equity.......................   5,290     2,502          3,514          (6,016)         5,290
                                             ------    ------        -------         -------        -------
  Total liabilities and stockholders'
    equity.................................  $9,786    $5,166        $10,892         $(6,016)       $19,828
                                             ======    ======        =======         =======        =======
</Table>

                               DECEMBER 31, 2001

<Table>
<Caption>
                                             PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                             ------   ---------   --------------   ------------   ------------
<S>                                          <C>      <C>         <C>              <C>            <C>
                                                    ASSETS
Current assets:
  Cash and cash equivalents................  $  757    $   --        $   (27)        $    --        $   730
  Other current assets.....................      --        --          2,394              --          2,394
                                             ------    ------        -------         -------        -------
                                                757        --          2,367              --          3,124
Property and equipment, net................      --        --         10,357              --         10,357
Intercompany and investment in
  subsidiaries.............................   8,989     5,517         (8,665)         (5,841)            --
Other assets...............................      30        21          5,958              --          6,009
                                             ------    ------        -------         -------        -------
    Total assets...........................  $9,776    $5,538        $10,017         $(5,841)       $19,490
                                             ======    ======        =======         =======        =======

                                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Current portion of long-term debt........  $  431    $   --        $    84         $    --        $   515
  Accounts payable and other accrued
    liabilities............................      73        51          3,082              --          3,206
                                             ------    ------        -------         -------        -------
                                                504        51          3,166              --          3,721
Long-term debt, less current portion.......   3,860     2,645          1,204              --          7,709
Other liabilities..........................      20         2          2,633              --          2,655
                                             ------    ------        -------         -------        -------
  Total liabilities........................   4,384     2,698          7,003              --         14,085
Minority interest in subsidiaries..........      --        --             13              --             13
Stockholders' equity.......................   5,392     2,840          3,001          (5,841)         5,392
                                             ------    ------        -------         -------        -------
  Total liabilities stockholders' equity...  $9,776    $5,538        $10,017         $(5,841)       $19,490
                                             ======    ======        =======         =======        =======
</Table>

                                        19
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                        THREE MONTHS ENDED JUNE 30, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                       ------   ---------   --------------   ------------   ------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................   $ --      $ --          $2,825          $  --          $2,825
Costs and expenses...................     --        --           2,361             --           2,361
                                        ----      ----          ------          -----          ------
Income from operations...............     --        --             464             --             464
                                        ----      ----          ------          -----          ------
Other income (expense):
  Interest income (expense), net.....    (58)      (39)            (14)            --            (111)
  Equity in subsidiaries, net of
     taxes...........................    254       278              --           (532)             --
  Minority interest..................     --        --              (2)            --              (2)
  Other, net.........................     --         1              --             --               1
                                        ----      ----          ------          -----          ------
                                         196       240             (16)          (532)           (112)
                                        ----      ----          ------          -----          ------
Income before income taxes...........    196       240             448           (532)            352
Provision for (benefit from) income
  taxes..............................    (21)      (14)            170             --             135
                                        ----      ----          ------          -----          ------
Net income...........................   $217      $254          $  278          $(532)         $  217
                                        ====      ====          ======          =====          ======
</Table>

                        THREE MONTHS ENDED JUNE 30, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                       ------   ---------   --------------   ------------   ------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................   $ --      $ --          $2,915          $  --          $2,915
Costs and expenses...................     --        --           2,474             --           2,474
                                        ----      ----          ------          -----          ------
Income from operations...............     --        --             441             --             441
                                        ----      ----          ------          -----          ------
Other income (expense):
  Interest income (expense), net.....    (73)      (49)            (15)            --            (137)
  Equity in subsidiaries, net of
     taxes...........................    237       268              --           (505)             --
  Minority interest..................     --        --              (2)            --              (2)
  Other, net.........................     --        --               2             --               2
                                        ----      ----          ------          -----          ------
                                         164       219             (15)          (505)           (137)
                                        ----      ----          ------          -----          ------
Income before income taxes...........    164       219             426           (505)            304
Provision for (benefit from) income
  taxes..............................    (27)      (18)            158             --             113
                                        ----      ----          ------          -----          ------
Net income...........................   $191      $237          $  268          $(505)         $  191
                                        ====      ====          ======          =====          ======
</Table>

                                        20
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
                         SIX MONTHS ENDED JUNE 30, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                       ------   ---------   --------------   ------------   ------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................  $  --      $ --          $5,434          $  --          $5,434
Costs and expenses...................     --        --           4,638             --           4,638
                                       -----      ----          ------          -----          ------
Income from operations...............     --        --             796             --             796
                                       -----      ----          ------          -----          ------
Other income (expense):
  Interest income (expense), net.....   (114)      (79)            (30)            --            (223)
  Equity in subsidiaries, net of
     taxes...........................    427       476              --           (903)             --
  Minority interest..................     --        --              (3)            --              (3)
  Other, net.........................     --         1               2             --               3
                                       -----      ----          ------          -----          ------
                                         313       398             (31)          (903)           (223)
                                       -----      ----          ------          -----          ------
Income before income taxes...........    313       398             765           (903)            573
Provision for (benefit from) income
  taxes..............................    (42)      (29)            290             --             219
                                       -----      ----          ------          -----          ------
Income before extraordinary item and
  cumulative effect of change in
  accounting principle...............    355       427             475           (903)            354
Extraordinary item...................     --        --              (1)            --              (1)
Cumulative effect of change in
  accounting principle...............     --        --               2             --               2
                                       -----      ----          ------          -----          ------
Net income...........................  $ 355      $427          $  476          $(903)         $  355
                                       =====      ====          ======          =====          ======
</Table>

                         SIX MONTHS ENDED JUNE 30, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                       PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                       ------   ---------   --------------   ------------   ------------
<S>                                    <C>      <C>         <C>              <C>            <C>
Operating revenues...................  $  --      $  --         $5,634          $  --          $5,634
Costs and expenses...................     --         --          4,849             --           4,849
                                       -----      -----         ------          -----          ------
Income from operations...............     --         --            785             --             785
                                       -----      -----         ------          -----          ------
Other income (expense):
  Interest income (expense), net.....   (148)      (100)           (26)            --            (274)
  Equity in subsidiaries, net of
     taxes...........................    408        471             --           (879)             --
  Minority interest..................     --         --             (3)            --              (3)
  Other, net.........................     --         --              8             --               8
                                       -----      -----         ------          -----          ------
                                         260        371            (21)          (879)           (269)
                                       -----      -----         ------          -----          ------
Income before income taxes...........    260        371            764           (879)            516
Provision for (benefit from) income
  taxes..............................    (55)       (37)           294             --             202
                                       -----      -----         ------          -----          ------
Income before extraordinary item and
  cumulative effect of change in
  accounting principle...............    315        408            470           (879)            314
Extraordinary item...................     --         --             (1)            --              (1)
Cumulative effect of change in
  accounting principle...............     --         --              2             --               2
                                       -----      -----         ------          -----          ------
Net income...........................  $ 315      $ 408         $  471          $(879)         $  315
                                       =====      =====         ======          =====          ======
</Table>

                                        21
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

                CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 2002
                                  (UNAUDITED)

<Table>
<Caption>
                                                         PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                         ------   ---------   --------------   ------------   ------------
<S>                                                      <C>      <C>         <C>              <C>            <C>
Cash flows from operating activities:
  Net income...........................................  $ 355      $ 427         $  476          $(903)         $ 355
  Equity in earnings of subsidiaries, net of taxes.....   (427)      (476)            --            903             --
  Other adjustments and charges........................    (12)       (10)           551             --            529
                                                         -----      -----         ------          -----          -----
Net cash provided by (used in) operating activities....    (84)       (59)         1,027             --            884
                                                         -----      -----         ------          -----          -----
Cash flows from investing activities:
  Acquisitions of businesses, net of cash acquired.....     --         --            (64)            --            (64)
  Capital expenditures.................................     --         --           (552)            --           (552)
  Proceeds from divestitures of businesses, net of cash
    divested, and other sales of assets................     --         --             71             --             71
  Other................................................     --         --             96             --             96
                                                         -----      -----         ------          -----          -----
Net cash used in investing activities..................     --         --           (449)            --           (449)
                                                         -----      -----         ------          -----          -----
Cash flows from financing activities:
  New borrowings.......................................    498         --             --             --            498
  Debt repayments......................................   (427)       (24)           (17)            --           (468)
  Common stock repurchases.............................   (500)        --             --             --           (500)
  Exercise of common stock options and warrants........     23         --             --             --             23
  (Increase) decrease in intercompany and investments,
    net................................................    525         83           (608)            --             --
                                                         -----      -----         ------          -----          -----
Net cash provided by (used in) financing activities....    119         59           (625)            --           (447)
                                                         -----      -----         ------          -----          -----
Effect of exchange rate changes on cash and cash
  equivalents..........................................     --         --              2             --              2
                                                         -----      -----         ------          -----          -----
Increase (decrease) in cash and cash equivalents.......     35         --            (45)            --            (10)
Cash and cash equivalents at beginning of period.......    757         --            (27)            --            730
                                                         -----      -----         ------          -----          -----
Cash and cash equivalents at end of period.............  $ 792      $  --         $  (72)         $  --          $ 720
                                                         =====      =====         ======          =====          =====
</Table>

                CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                         SIX MONTHS ENDED JUNE 30, 2001
                                  (UNAUDITED)

<Table>
<Caption>
                                                         PARENT   GUARANTOR   NON-GUARANTORS   ELIMINATIONS   CONSOLIDATED
                                                         ------   ---------   --------------   ------------   ------------
<S>                                                      <C>      <C>         <C>              <C>            <C>
Cash flows from operating activities:
  Net income...........................................  $ 315      $ 408         $  471          $(879)        $   315
  Equity in earnings of subsidiaries, net of taxes.....   (408)      (471)            --            879              --
  Other adjustments and charges........................    (24)        (4)           579             --             551
                                                         -----      -----         ------          -----         -------
Net cash provided by (used in) operating activities....   (117)       (67)         1,050             --             866
                                                         -----      -----         ------          -----         -------
Cash flows from investing activities:
  Acquisitions of businesses, net of cash acquired.....     --         --            (65)            --             (65)
  Capital expenditures.................................     --         --           (474)            --            (474)
  Proceeds from divestitures of businesses, net of cash
    divested, and other sales of assets................     --         --             26             --              26
  Other................................................     --         --             64             --              64
                                                         -----      -----         ------          -----         -------
Net cash used in investing activities..................     --         --           (449)            --            (449)
                                                         -----      -----         ------          -----         -------
Cash flows from financing activities:
  New borrowings.......................................    594         --            359             --             953
  Debt repayments......................................   (320)      (400)          (366)            --          (1,086)
  Exercise of common stock options and warrants........     38         --             --             --              38
  Other................................................     --         --            (19)            --             (19)
  (Increase) decrease in intercompany and investments,
    net................................................     64        453           (517)            --              --
                                                         -----      -----         ------          -----         -------
Net cash provided by (used in) financing activities....    376         53           (543)                          (114)
                                                         -----      -----         ------          -----         -------
Effect of exchange rate on cash and cash equivalents...     --         --             (1)            --              (1)
                                                         -----      -----         ------          -----         -------
Increase (decrease) in cash and cash equivalents.......    259        (14)            57             --             302
Cash and cash equivalents at beginning of period.......    174         14            (94)            --              94
                                                         -----      -----         ------          -----         -------
Cash and cash equivalents at end of period.............  $ 433      $  --         $  (37)         $  --         $   396
                                                         =====      =====         ======          =====         =======
</Table>

                                        22
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

12.  NEW ACCOUNTING PRONOUNCEMENTS

  SFAS NO. 141 AND SFAS NO. 142

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, Accounting for Business Combinations
("SFAS No. 141"), and Statement of Financial Accounting Standards No. 142,
Accounting for Goodwill and Other Intangible Assets ("SFAS No. 142"). SFAS No.
141 requires that all business combinations be accounted for using the purchase
method of accounting and prohibits the pooling-of-interests method for business
combinations initiated after June 30, 2001. According to SFAS No. 142, goodwill
that arose from business combinations after June 30, 2001 cannot be amortized.
In addition, SFAS No. 142 required the continuation of the amortization of
goodwill and all intangible assets through December 31, 2001. The amortization
of existing goodwill ceased on January 1, 2002. SFAS No. 142 requires a two-step
impairment approach for goodwill. Companies must first determine whether
goodwill is impaired and if so, they must value that impairment based on the
amount by which the book value exceeds the estimated fair value. Companies have
six months from the date they initially apply SFAS No. 142 to test goodwill for
impairment and any impairment charge resulting from the initial application of
the new accounting pronouncement must be classified as the cumulative effect of
a change in accounting principle. Thereafter, goodwill must be tested for
impairment annually and impairment losses must be presented in the operating
section of the income statement unless they are associated with a discontinued
operation. In those cases, any impairment losses will be included, net of tax,
within the results of discontinued operations.

                                        23
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     In accordance with the Company's adoption of SFAS No. 141, the Company
utilizes the purchase method of accounting for its business combinations. In
accordance with the Company's adoption of SFAS No. 142, the Company has not
amortized goodwill from any acquisitions that occurred after June 30, 2001. The
Company has no intangible assets, other than goodwill, that have ceased being
amortized upon adoption of SFAS No. 142.

     Adopting SFAS No. 141 required the Company to write-off net negative
goodwill of approximately $2 million, which was recorded as a credit to
cumulative effect of change in accounting principle in the first quarter of
2002. In accordance with SFAS No. 142, goodwill is required to be tested for
impairment at the reporting unit, which is generally defined as an operating
segment or a component of an operating segment in certain circumstances. For the
purposes of applying SFAS No. 142, the Company has identified seven reporting
units , which are the six components in NASW (excluding WTI) and WTI, as
described in Note 9, Segment and Related Information. The Company incurred no
impairment of goodwill upon its initial adoption of SFAS No. 142. However, there
can be no assurance that goodwill will not be impaired at any time in the
future.

     The following schedule reflects the three and six months ended June 30,
2001 adjusted net income (excluding goodwill and negative goodwill amortization)
as compared to the results of operations for the three and six months ended June
30, 2002 (in millions, except per share amounts).

<Table>
<Caption>
                                                          THREE MONTHS       SIX MONTHS
                                                         ENDED JUNE 30,    ENDED JUNE 30,
                                                         ---------------   ---------------
                                                          2002     2001     2002     2001
                                                         ------   ------   ------   ------
<S>                                                      <C>      <C>      <C>      <C>
Reported net income....................................  $ 217    $ 191    $ 355    $ 315
Add back: goodwill amortization, net of taxes..........     --       31       --       62
                                                         -----    -----    -----    -----
Adjusted net income....................................  $ 217    $ 222    $ 355    $ 377
                                                         =====    =====    =====    =====
BASIC EARNINGS PER COMMON SHARE:
Reported net income....................................  $0.35    $0.31    $0.57    $0.50
Goodwill amortization, net of taxes....................     --     0.05       --     0.10
                                                         -----    -----    -----    -----
Adjusted net income....................................  $0.35    $0.36    $0.57    $0.60
                                                         =====    =====    =====    =====
DILUTED EARNINGS PER COMMON SHARE:
Reported net income....................................  $0.35    $0.30    $0.57    $0.50
Goodwill amortization, net of taxes....................     --     0.05       --     0.10
                                                         -----    -----    -----    -----
Adjusted net income....................................  $0.35    $0.35    $0.57    $0.60
                                                         =====    =====    =====    =====
</Table>

     The Company's intangible assets as of June 30, 2002 were comprised of the
following (in millions):

<Table>
<Caption>
                                                                           LICENSES,
                                                               COVENANTS    PERMITS
                                                                NOT-TO-       AND
                                              CUSTOMER LISTS    COMPETE      OTHER     TOTAL
                                              --------------   ---------   ---------   -----
<S>                                           <C>              <C>         <C>         <C>
Intangible assets...........................       $127          $ 95         $18      $ 240
Less accumulated amortization...............        (70)          (53)         (6)      (129)
                                                   ----          ----         ---      -----
                                                   $ 57          $ 42         $12      $ 111
                                                   ====          ====         ===      =====
</Table>

     Intangible assets are recorded at cost and amortized on a straight-line
basis. Customer lists are generally amortized over five to seven years.
Covenants not-to-compete are amortized over the term of the agreement, which is
generally three to five years. Licenses, permits and other intangible assets are
amortized over the terms of the related agreement or the Company's estimate of
the useful life if there are no definite terms.

                                        24
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Landfill operating permits are not presented above and are included in landfill
assets and amortized using the Company's landfill amortization method. The
intangible asset amortization expense estimated as of December 31, 2001, for the
five years following 2001 is as follows (in millions):

<Table>
<Caption>
2002   2003   2004   2005   2006
----   ----   ----   ----   ----
<S>    <C>    <C>    <C>    <C>
$34    $30    $22    $13     $7
</Table>

     As of June 30, 2002, the amount of goodwill attributable to WTI was
approximately $783 million. The remaining goodwill balance of approximately
$4,252 million was attributable to NASW (excluding WTI).

  SFAS NO. 143

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable
obligations associated with the retirement of tangible long-lived assets and
provides the accounting and reporting requirements for such obligations. SFAS
No. 143 requires amounts initially recognized as an asset retirement obligation
to be measured at fair value. The recognized asset retirement cost is
capitalized as part of the cost of the asset and is depreciated over the useful
life of the asset. The Company expects to adopt SFAS No. 143 beginning January
1, 2003 and to record a cumulative effect of a change in accounting principle.

     SFAS No. 143 will impact the Company's accounting for its landfill
operations. Costs associated with future capping activities that occur during
the operating life of a landfill, which are currently recognized on an
undiscounted basis over the operating life of the landfill as airspace is
consumed, will be accounted for as an asset retirement obligation under SFAS No.
143, on a discounted basis. The Company expects to recognize landfill retirement
obligations, which relate to capping, other closure and post-closure activities,
over the operating life of a landfill as landfill airspace is consumed. These
obligations will be initially measured at estimated fair value. Fair value will
be measured on a present value basis, using a credit-adjusted, risk-free rate,
which will be a higher rate than the risk-free rate the Company currently uses
for discounting its final closure and post-closure obligations. Interest will be
accreted on landfill retirement obligations using the effective interest method.
Landfill retirement costs, which will be capitalized as part of the landfill
asset, will be amortized using the Company's existing landfill accounting
practices. The Company is addressing which of its other assets may be affected
by the provisions of SFAS No. 143. The Company's management has not yet
determined the pro forma, cumulative or future effects of the adoption of SFAS
No. 143 on its results of operations or financial position. The adoption of SFAS
No. 143 will have no effect on the Company's cash flow.

  SFAS NO. 144

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standard No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of
Financial Accounting Standards No. 121. SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more divestiture transactions. SFAS No. 144
also requires that an impairment loss be recognized for assets held-for-use when
the carrying amount of an asset, or group of assets if the cash flows from those
assets cannot be independently and separately identified, is not recoverable.
The carrying amount of an asset or asset group is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset or asset group, excluding interest charges.
Estimates of future cash flows used to test the recoverability of a long-lived
asset or asset group must incorporate a company's own assumptions about its use
of the asset or asset group and must factor in all available evidence. The
Company adopted SFAS No. 144 on January 1,

                                        25
<PAGE>
                             WASTE MANAGEMENT, INC.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002. Upon initial application of SFAS No. 144, certain previously held-for-sale
assets did not meet SFAS No. 144 criteria to be held-for-sale because their
anticipated sale is in 2003. However, under the transition provisions of SFAS
No. 144, the Company has until December 31, 2002 to either sell these assets or
meet the new held-for-sale criteria to avoid reclassifying the assets to
held-for-use.

  SFAS NO. 145

     In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS No.
145"). SFAS No. 145 requires that gains and losses from extinguishment of debt
be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for the Company beginning January 1, 2003. Upon the adoption of SFAS
No. 145, the Company will reclassify certain items in its prior period
statements of operations to conform to the presentation required by SFAS No.
145. Under SFAS No. 145, the Company will report gains and losses on the
extinguishment of debt in pre-tax earnings rather than in extraordinary items.

  SFAS NO. 146

     In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructuring, involuntarily terminating employees, and consolidating
facilities, initiated after December 31, 2002.

                                        26
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS.

     When we make statements containing projections about our accounting and
finances, about our plans and objectives for the future, about our future
economic performance or statements containing any other projections or estimates
about our assumptions relating to these types of statements, we are making
forward-looking statements. The statements usually relate to future events and
anticipated revenues, earnings or other aspects of our operations or operating
results. We make these statements in an effort to keep stockholders and the
public informed about our business, and have based them on our current
expectations about future events. You should view such statements with caution.
These statements are not guarantees of future performance or events. All phases
of our business are subject to uncertainties, risks and other influences, many
of which we have no control over. Any of these factors, either alone or taken
together, could have a material adverse effect on us and could change whether
any forward-looking statement ultimately turns out to be true. Additionally, we
assume no obligation to update any forward-looking statements as a result of
future events or developments.

     Outlined below are some of the risks that we face and that could affect our
business and financial statements for the remainder of 2002 and beyond. However,
they are not the only risks that we face. There may be additional risks that we
do not presently know or that we currently believe are immaterial which could
also impair our business.

     -  possible changes in our estimates of site remediation requirements,
        final closure and post-closure obligations, compliance and other audits
        and regulatory developments;

     -  the possible impact of regulations on our business, including the cost
        to comply with regulatory requirements and the potential liabilities
        associated with disposal operations, as well as our ability to obtain
        and maintain permits needed to operate our facilities;

     -  the effect of limitations or bans on disposal or transportation of
        out-of-state waste or certain categories of waste;

     -  possible charges against earnings for certain shut down operations and
        uncompleted acquisitions or development or expansion projects;

     -  possible charges to asset impairments or further impairments to
        long-lived assets resulting from changes in circumstances or future
        business events or decisions;

     -  the effects that trends toward requiring recycling, waste reduction at
        the source and prohibiting the disposal of certain types of wastes could
        have on volumes of waste going to landfills and waste-to-energy
        facilities;

     -  the effect the weather has on our quarter to quarter results, as well as
        the effect of extremely harsh weather on our operations;

     -  the effect that price fluctuations on commodity prices may have on our
        operating revenues;

     -  the outcome of litigation;

     -  whether there will be any appeals to the approval of the $457 million
        class action lawsuit settlement;

     -  the effect competition in our industry could have on our ability to
        maintain margins, including uncertainty relating to competition with
        governmental sources that enjoy competitive advantages from tax-exempt
        financing and tax revenue subsidies;

     -  our ability to successfully implement our new organization plan, improve
        the productivity of acquired operations and use our asset base and
        strategic position to operate more efficiently;

     -  our ability to accurately assess all of the pre-existing liabilities of
        companies we have acquired and to successfully integrate the operations
        of acquired companies with our existing operations;

     -  possible diversions of management's attention and increases in operating
        expenses due to efforts by labor unions to organize our employees;
                                        27
<PAGE>

     -  possible increases in operating expenses due to fuel price increases or
        fuel supply shortages;

     -  the effects of general economic conditions, including the ability of
        insurers to fully or timely meet their contractual commitments and of
        surety companies to continue to issue surety bonds;

     -  possible defaults under our credit agreements if cash flows are less
        than we expect or capital expenditures are more than we expect, and the
        possibility that we cannot obtain additional capital on acceptable terms
        if needed; and

     -  possible errors or problems with our recently deployed and in process
        enterprise-wide software and technology systems.

  GENERAL

     Waste Management, Inc. is its industry's leading provider of integrated
waste services in North America. Through our subsidiaries, we provide
collection, transfer, recycling and resource recovery, and disposal services. We
are also a leading developer, operator and owner of waste-to-energy facilities
in the United States. Our customers include commercial, industrial, municipal
and residential customers, other waste management companies, governmental
entities and independent power markets.

     In addition to our North America solid waste ("NASW") operations, we
previously reported additional operations in our WM International and Non-Solid
Waste segments. All of our WM International operations and most of our Non-Solid
Waste operations were sold in 2000 and 2001. Beginning in 2001, we reported a
segment called "Other," comprised of our remaining non-core operations, which
included our geosynthetic manufacturing and installation services and
independent power production plants ("IPPs"). The geosynthetic manufacturing and
installation services were sold in February 2002. In the third quarter of 2001,
we reclassified all but one of our IPPs from held-for-sale to held-for-use and
in the first quarter of 2002, reclassified the IPPs from the "Other" reportable
segment to the Wheelabrator Technologies Inc. ("WTI") operations included in our
single reportable segment, NASW.

  CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS

     In preparing our financial statements, we make several estimates and
assumptions that affect our assets and liabilities and revenues and expenses for
our one reportable segment, NASW operations. We must make these estimates and
assumptions because certain of the information that is used in the preparation
of our financial statements is dependent on future events, cannot be calculated
with a high degree of precision from data available or is simply not capable of
being readily calculated based on generally accepted methodologies. In some
cases, these estimates are particularly difficult to determine and we must
exercise significant judgment. The most difficult, subjective and complex
estimates and the assumptions that deal with the greatest amount of uncertainty
are related to our accounting for landfills, environmental liabilities and asset
impairments, as described below.

     Accounting for Landfills -- We account for certain costs at our landfills
using the "units-of-consumption" method, which means we expense amounts for
certain landfill costs and landfill final closure and post-closure costs for
each unit of waste as it is accepted for disposal at the landfills. This
accounting method requires us to make estimates and assumptions, as described
below. Any changes in our estimates are made prospectively.

        Landfill Costs -- We estimate the total cost to develop each landfill
     site to its final capacity. This includes certain projected landfill site
     costs that are uncertain because they are dependent on future events that
     may or may not occur. These costs include amounts previously capitalized
     (net of accumulated airspace amortization), and future projected costs for
     common site costs (purchase and development costs), liner construction
     costs, operating construction costs, and capitalized interest costs.

        Final Closure and Post-Closure Costs -- The costs for final closure and
     post-closure obligations at landfills we own or operate are generally
     estimated based on our interpretations of current requirements and proposed
     or anticipated regulatory changes. The estimates for landfill final closure
     and post-closure costs also consider when the costs would actually be paid
     and factor in, where appropriate, inflation and

                                        28
<PAGE>

     discount rates. The possibility of changing legal and regulatory
     requirements and the forward looking nature of these types of costs make
     any estimation or assumption less certain.

        Available Airspace -- Our engineers determine the remaining capacity at
     our landfills by estimating the available airspace. This is done by using
     surveys and other methods to calculate, based on height restrictions and
     other factors, how much airspace is left to fill and how much waste can be
     disposed of before the landfill has reached its final capacity.

        Expansion Airspace -- We will also consider currently unpermitted
     airspace in our estimate of remaining capacity in certain circumstances.
     First, to include airspace associated with an expansion effort, we must
     generally expect the expansion permit application to be submitted within
     one year, and the expansion permit to be received within five years.
     Second, we must believe the success of obtaining the expansion permit is
     probable, using the following criteria:

     -  Personnel are actively working to obtain land use and local and state
        approvals for an expansion of an existing landfill;

     -  At the time the expansion is added to the permitted site life, it is
        probable that the approvals will be received within the normal
        application and processing time periods for approvals in the
        jurisdiction in which the landfill is located;

     -  Either we or the respective landfill owners have a legal right to use or
        obtain land to be included in the expansion plan;

     -  There are no significant known technical, legal, community, business, or
        political restrictions or similar issues that could impair the success
        of such expansion;

     -  Financial analysis has been completed, and the results demonstrate that
        the expansion has a positive financial and operational impact; and

     -  Airspace and related costs, including additional final closure and
        post-closure costs, have been estimated based on conceptual design.

        These criteria are initially evaluated by our field-based engineers,
     accountants, managers and others to identify potential obstacles to
     obtaining the permits. However, our policy provides that, based on the
     facts and circumstances of a specific landfill, exceptions to these
     criteria may be permitted. Exceptions to these criteria must be approved
     through a landfill-specific approval process that includes the approval
     from the Chief Financial Officer and a review by the Audit Committee of the
     Board of Directors on a quarterly basis. Of the 101 landfill sites with
     expansions at June 30, 2002, 27 landfills required the Chief Financial
     Officer to approve an exception to the criteria. Approximately two-thirds
     of these exceptions were due to legal or community issues that could impede
     the expansion process, while the remaining were primarily due to permit
     application processes beyond the one-year limit, which in most cases were
     due to state-specific permitting procedures. When we include the expansion
     airspace in our calculations of available airspace, we also include the
     projected costs for development and final closure and post-closure of the
     expansion in the amortization basis of the landfill.

        It is possible that our estimates or assumptions will ultimately turn
     out to be significantly different from actual results. In some cases we may
     be unsuccessful in obtaining an expansion permit or we may determine that
     an expansion permit that we previously thought was probable becomes
     unlikely. To the extent that such estimates, or the assumptions used to
     make those estimates, prove to be significantly different than actual
     results, or our belief that we will receive an expansion permit changes
     adversely in a significant manner, the costs of the landfill, including the
     costs incurred in the pursuit of the expansion, may be subject to
     impairment testing, as described below, and lower profitability may be
     experienced due to higher amortization rates, higher final closure and
     post-closure rates, and higher expenses or asset impairments related to the
     removal of previously included expansion airspace.

        After determining the costs at our landfills, including final closure
     and post-closure costs, and the available and probable expansion airspace,
     we then determine the per ton rate that will be expensed. We
                                        29
<PAGE>

     look at factors such as the waste stream, geography and rate of compaction,
     among others, to determine the number of tons it will take to fill the
     available and probable expansion airspace. We then divide our costs by that
     number of tons, giving us the rate per ton to expense.

     Environmental Remediation Liabilities -- Under current laws and
regulations, we may have liability for environmental damage caused by our
operations, or for damage caused by conditions that existed before we acquired a
particular site. Remedial costs are all costs relating to the remedy of any
identified situation that occurs by natural causes or human error not expected
in the normal course of business. These costs include costs relating to legal
defense, potentially responsible party ("PRP") investigation, settlement, and
consultant fees, as well as costs directly associated with site investigation
and clean up, such as materials and incremental internal costs directly related
to the remedy. We estimate costs required to remediate sites where liability is
probable based on site-specific facts and circumstances. We routinely review and
evaluate sites that require remediation, including sites listed on the EPA's
National Priorities List ("NPL sites"). We consider whether we were an owner,
operator, transporter, or generator at the site, the amount and type of waste
hauled to the site and the number of years we were connected with the site.
Next, we review the same information with respect to other named and unnamed
PRPs. We then estimate the cost for the likely remedy, which is based on:

     -  Management's judgment and experience in remediating our own and
        unrelated parties' sites;

     -  Information available from regulatory agencies as to costs of
        remediation;

     -  The number, financial resources and relative degree of responsibility of
        other PRPs who may be liable for remediation of a specific site; and

     -  The typical allocation of costs among PRPs.

     These estimates are sometimes a range of possible outcomes. In those cases,
we use the amount within the range that constitutes our best estimate. If no
amount within the range appears to be a better estimate than any other, we use
the amounts that are the low ends of the ranges in accordance with SFAS No. 5,
Accounting for Contingencies, and its interpretations. Were we to use the high
end of such ranges, it is reasonably possible that our potential liability would
be approximately $258 million higher on a discounted basis in the aggregate than
the estimate recorded in the consolidated financial statements as of June 30,
2002. As used in this context, "reasonably possible" means we believe it is more
than remote but less than likely.

     Asset Impairments -- Our long-lived assets, including landfills and
landfill expansions, are carried on our financial statements based on their cost
less accumulated depreciation or amortization. However, accounting standards
require us to write-down these assets if they become impaired. If significant
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable, we perform a test of recoverability by comparing the
carrying value of the asset or asset group to its undiscounted expected future
cash flows. If the carrying values are in excess of undiscounted expected future
cash flow, we measure any impairment by comparing the fair value of the asset to
its carrying value. Fair value is determined by either an actual third-party
evaluation or an internally developed discounted projected cash flow analysis of
the asset. Cash flow projections are sometimes based on a group of assets,
rather than a single asset. If cash flows cannot be separately and independently
identified for a single asset, we will determine whether an impairment has
occurred for the group of assets for which we can identify the projected cash
flows. If the fair value of an asset is determined to be less than the carrying
amount of the asset or asset group, an impairment in the amount of the
difference is recorded in the period that the triggering event occurs.

     Typical indicators that an asset may be impaired include:

     -  A significant decrease in the market price of an asset or asset group;

     -  A significant adverse change in the extent or manner in which an asset
        or asset group is being used or in its physical condition;

     -  A significant adverse change in legal factors or in the business climate
        that could affect the value of an asset or asset group, including an
        adverse action or assessment by a regulator;

                                        30
<PAGE>

     -  An accumulation of costs significantly in excess of the amount
        originally expected for the acquisition or construction of a long-lived
        asset;

     -  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

     -  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.

     If any of these indicators occur, we review the asset to determine whether
there has been an impairment. Several of these indicators are beyond our
control, and we cannot predict with any certainty whether or not they will
occur. Additionally, estimating future cash flows requires significant judgment
and our projections may vary from cash flows eventually realized.

RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001

     The following table presents, for the periods indicated, the period to
period change in dollars (in millions) and percentages for the respective
consolidated statements of operations line items.

<Table>
<Caption>
                                                    PERIOD TO PERIOD     PERIOD TO PERIOD
                                                     CHANGE FOR THE       CHANGE FOR THE
                                                      THREE MONTHS          SIX MONTHS
                                                     ENDED JUNE 30,       ENDED JUNE 30,
                                                     2002 AND 2001        2002 AND 2001
                                                    ----------------     ----------------
<S>                                                 <C>      <C>         <C>      <C>
STATEMENT OF OPERATIONS:
Operating revenues................................  $ (90)     (3.1)%    $(200)     (3.5)%
                                                    -----                -----
Costs and expenses:
  Operating (exclusive of depreciation and
     amortization shown below)....................    (43)     (2.5)      (124)     (3.7)
  Selling, general and administrative.............    (39)     (9.8)       (41)     (5.2)
  Depreciation and amortization...................    (28)     (8.2)       (69)    (10.2)
  Restructuring...................................     --        --         37       N/A
  Asset impairments and unusual items.............     (3)   (100.0)       (14)   (175.0)
                                                    -----                -----
                                                     (113)     (4.6)      (211)     (4.4)
                                                    -----                -----
Income from operations............................     23       5.2         11       1.4
                                                    -----                -----
Other income (expense):
  Interest expense................................     31      21.1         69      22.9
  Interest and other income, net..................     (6)    (50.0)       (23)    (65.7)
  Minority interest...............................     --        --         --        --
                                                    -----                -----
                                                       25      18.2         46      17.1
                                                    -----                -----
Income before income taxes........................     48      15.8         57      11.0
Provision for income taxes........................     22      19.5         17       8.4
                                                    -----                -----
Income before extraordinary items and cumulative
  effect of changes in accounting principle.......  $  26      13.6%     $  40      12.7%
                                                    =====                =====
</Table>

                                        31
<PAGE>

     The following table presents, for the periods indicated, the percentage
relationship that the respective consolidated statements of operations line
items bear to operating revenues:

<Table>
<Caption>
                                                          THREE MONTHS       SIX MONTHS
                                                         ENDED JUNE 30,    ENDED JUNE 30,
                                                         ---------------   ---------------
                                                          2002     2001     2002     2001
                                                         ------   ------   ------   ------
<S>                                                      <C>      <C>      <C>      <C>
STATEMENT OF OPERATIONS:
Operating revenues.....................................  100.0%   100.0%   100.0%   100.0%
                                                         -----    -----    -----    -----
Costs and expenses:
  Operating (exclusive of depreciation and amortization
     shown below)......................................   59.8     59.4     59.9     60.0
  Selling, general and administrative..................   12.7     13.7     13.7     14.0
  Depreciation and amortization........................   11.1     11.7     11.2     12.0
  Restructuring........................................     --       --      0.7       --
  Asset impairments and unusual items..................     --      0.1     (0.1)     0.1
                                                         -----    -----    -----    -----
                                                          83.6     84.9     85.4     86.1
                                                         -----    -----    -----    -----
Income from operations.................................   16.4     15.1     14.6     13.9
                                                         -----    -----    -----    -----
Other income (expense):
  Interest expense.....................................   (4.1)    (5.0)    (4.3)    (5.3)
  Interest and other income, net.......................    0.3      0.4      0.2      0.6
  Minority interest....................................   (0.1)    (0.1)      --       --
                                                         -----    -----    -----    -----
                                                           3.9      4.7     (4.1)    (4.7)
                                                         -----    -----    -----    -----
Income before income taxes.............................   12.5     10.4     10.5      9.2
Provision for income taxes.............................    4.8      3.8      4.0      3.6
                                                         -----    -----    -----    -----
Income before extraordinary items and cumulative effect
  of changes in accounting principle...................    7.7%     6.6%     6.5%     5.6%
                                                         =====    =====    =====    =====
</Table>

  OPERATING REVENUES

     For the three and six months ended June 30, 2002, our operating revenues
decreased $90 million, or 3.1%, and $200 million, or 3.5%, respectively, as
compared to the corresponding 2001 periods. Of the amounts, $42 million and $126
million, respectively, was attributable to lower operating revenues from our
NASW operations for the three and six months ended June 30, 2002 as compared to
the corresponding prior year periods. The remainder was primarily due to
divestitures of non-NASW operations.

     Our NASW operating revenues generally come from fees charged for our
collection, disposal, and transfer station services. A portion of the fees we
charge to our customers for collection services is billed in advance; a
liability for future service is recorded upon receipt of payment and operating
revenues are recognized as services are actually provided. Revenues from our
disposal operations consist of tipping fees charged to third parties based on
volume of waste being disposed of at our disposal facilities and are normally
billed monthly or semi-monthly. Fees charged at transfer stations are based on
the volume of waste deposited, taking into account our cost of loading,
transporting, and disposing of the solid waste at a disposal site. Intercompany
revenues between our operations have been eliminated in the consolidated
financial statements.

                                        32
<PAGE>

     The mix of NASW operating revenues for the three and six months ended June
30, 2002 and 2001 is reflected in the table below. The presentation of prior
period operating revenues has been conformed to the current period presentation:

                                    [CHART]

<Table>
<Caption>
                                                     THREE         THREE
                                                     MONTHS        MONTHS      SIX MONTHS    SIX MONTHS
                                                   ENDED JUNE    ENDED JUNE    ENDED JUNE    ENDED JUNE
                                                    30, 2002      30, 2001      30, 2002      30, 2001
                                                   ----------    ----------    ----------    ----------
<S>                                                <C>           <C>           <C>           <C>
Collection                                           $1,916        $1,925        $3,739        $3,779

Landfill                                             $  694        $  718        $1,289        $1,344

Transfer                                             $  375        $  384        $  691        $  712

WTI (waste-to-energy and IPPs)                       $  193        $  212        $  375        $  407

Recycling and other                                  $  161        $  154        $  295        $  301

Intercompany                                         $ (514)       $ (526)       $ (963)       $ (991)
                                                     ------        ------        ------        ------

Total                                                $2,825        $2,867        $5,426        $5,552
                                                     ======        ======        ======        ======

</Table>

     The change in NASW revenues of $42 million and $126 million for the three
and six months ended June 30, 2002, respectively, is reflected in the table
below (in millions).

<Table>
<Caption>
                                                           PERIOD TO         PERIOD TO
                                                         PERIOD CHANGE     PERIOD CHANGE
                                                         FOR THE THREE      FOR THE SIX
                                                         MONTHS ENDED       MONTHS ENDED
                                                         JUNE 30, 2002     JUNE 30, 2002
                                                           AND 2001           AND 2001
                                                         -------------     --------------
<S>                                                      <C>     <C>       <C>      <C>
Price:
  Commodity price......................................  $ 11     0.4%     $  (9)   (0.2)%
  Electricity price....................................   (18)   (0.6)       (33)   (0.6)
  Fuel price...........................................    (7)   (0.2)       (23)   (0.4)
  Other price..........................................    13     0.4         57     1.0
                                                         ----    ----      -----    ----
Total price............................................    (1)     --         (8)   (0.2)
Volume.................................................   (57)   (2.0)      (145)   (2.6)
                                                         ----    ----      -----    ----
Internal growth........................................   (58)   (2.0)      (153)   (2.8)
Acquisitions...........................................    20     0.6         38     0.7
Divestiture............................................    (3)   (0.1)        (5)   (0.1)
Foreign currency translation...........................    (1)     --         (6)   (0.1)
                                                         ----    ----      -----    ----
                                                         $(42)   (1.5)%    $(126)   (2.3)%
                                                         ====    ====      =====    ====
</Table>

     We experienced negative internal growth for the three and six months ended
June 30, 2002, as compared to the same periods of the prior year, of $57 million
or 2.0%, and $145 million or 2.6%, for the three and six months ended June 30,
2002, respectively, which is substantially volume related. The volume changes
are largely related to reduced commercial and industrial collection volumes
principally in the eastern and midwestern areas of the United States, and
reduced landfill volumes, substantially attributable to the eastern and western
areas of the United States. The lagging economy and increased competition,
particularly in the higher margin commercial and industrial collection
operations, resulted in reduced volumes. Volumes were also negatively affected
$12 million and $18 million for the three and six months ended June 30, 2002,
respectively, by lower construction activities at certain of our waste-to-energy
facilities.
                                        33
<PAGE>

     Pricing remained flat for the quarter, but declined $8 million, or 0.2%,
for the six months ended June 30, 2002. Revenue from commodity prices increased
$11 million for the three months ended June 30, 2002 and decreased $9 million
for the six months ended June 30, 2002. The increase in the current quarter is
attributable to the significant increase in OCC commodity prices beginning in
the second quarter of 2002. Reduced electricity rates in 2002 in California
compared with last year have negatively impacted revenue change due to price
from our IPPs by $18 million and $33 million for the three and six months ended
June 30, 2002, respectively. Further, reduced diesel fuel costs in the current
year resulted in revenues related to our fuel surcharge program declining $7
million and $23 million for the three and six months ended June 30, 2002,
respectively. However, we substantially offset these price declines with other
price increases of $13 million, or 0.4%, and $57 million, or 1.0%, for the three
and six months ended June 30, 2002, respectively. These price increases are
reflected primarily in the commercial and residential collection operations and
the transfer station business.

     Offsetting this negative internal growth was an increase in revenues of $20
million and $38 million for the three and six months ended June 30, 2002,
respectively, due to acquisitions of NASW business during 2002 and the full year
effect of such acquisitions that were completed in 2001. We also experienced a
decrease in revenue of $4 million and $11 million for the three and six months
ended June 30, 2002, respectively, due to divestitures of NASW operations and
the effect of foreign currency fluctuations related to the Canadian dollar.

 OPERATING COSTS AND EXPENSES (EXCLUSIVE OF DEPRECIATION AND AMORTIZATION SHOWN
 BELOW)

     Our operating costs and expenses include direct and indirect labor and
related taxes and benefits, fuel, maintenance and repairs of equipment and
facilities, tipping fees paid to third party disposal facilities and transfer
stations, and accruals for future landfill final closure and post-closure costs
and environmental remediation. Certain direct landfill development expenditures
are capitalized and amortized over the estimated useful life of a site as
capacity is consumed, and include acquisition, engineering, grading,
construction, capitalized interest, and permitting costs. All indirect expenses,
such as administrative salaries and general corporate overhead, are expensed in
the period incurred.

     Operating costs and expenses decreased $43 million, or 2.5%, and $124
million, or 3.7%, for the three and six months ended June 30, 2002,
respectively, compared to the prior year periods. As a percentage of operating
revenues, operating costs and expenses were 59.8% and 59.9% for the three and
six months ended June 30, 2002, respectively, and 59.4% and 60.0% for the
corresponding prior year periods. In March 2002 we implemented cost cutting
initiatives and restructured our field based operations. These savings, as a
percentage of operating revenues, were offset by the effect of reduced revenues
caused by the slowing economy in North America. As a result, operating costs and
expenses as a percentage of revenue were relatively consistent for the
comparative prior periods.

 SELLING, GENERAL AND ADMINISTRATIVE

     Our selling, general and administrative expenses include management
salaries, clerical and administrative costs, professional services, facility
rentals, provision for doubtful accounts, related insurance costs and costs
related to our marketing and sales force.

     Selling, general and administrative expenses decreased $39 million, or
9.8%, and $41 million, or 5.2%, for the three and six months ended June 30,
2002, respectively, as compared to the prior year corresponding period. In
addition, as a percentage of operating revenues, our selling, general and
administrative expenses decreased from 13.7% to 12.7% for the three months ended
June 30, 2001 and 2002, respectively, and decreased from 14.0% to 13.7% for the
six months ended June 30, 2001 and 2002, respectively. This decrease in costs is
primarily attributable to our implementation of cost cutting measures, such as
reducing professional fees, the reductions associated with the March 2002
restructuring, and the effect of divestitures of operations in 2002. These
savings were offset by an increase in bad debt expense of $12 million for the
six months ended June 30, 2002 compared to the same period of 2001.

                                        34
<PAGE>

 DEPRECIATION AND AMORTIZATION

     Depreciation and amortization includes (i) amortization of intangible
assets on a straight-line basis from 3 to 40 years; (ii) depreciation of
property and equipment on a straight-line basis from 3 to 50 years; and (iii)
amortization of landfill costs on a units-of-consumption method as landfill
airspace is consumed over the estimated remaining capacity of a site. In 2001,
depreciation and amortization expense also included the amortization of goodwill
on a straight-line basis over a period of 40 years or less, commencing on the
dates of the respective acquisition.

     Depreciation and amortization expense decreased $28 million, or 8.2%, and
$69 million, or 10.2% for the three and six months ended June 30, 2002,
respectively, compared to the same three and six month periods of 2001. As a
percentage of operating revenues, depreciation and amortization expense was
11.1% and 11.2% for the three and six months ended June 30, 2002, respectively,
and 11.7% and 12.0% for the corresponding prior periods. The decrease in
depreciation and amortization expense is primarily attributable to our adoption
of Statement of Financial Accounting Standards No. 142, Accounting for Goodwill
and Other Intangible Assets ("SFAS No. 142"), which required that the
amortization of all goodwill cease on January 1, 2002. Goodwill amortization for
the three and six months ended June 30, 2001 was $39 million, or 1.3% of
operating revenues, and $78 million, or 1.4% of operating revenues,
respectively. Excluding the effect of goodwill amortization expense in 2001,
depreciation and amortization expense as a percentage of revenues increased 0.7%
and 0.6% from the three and six months ended June 30, 2001, respectively,
compared to the corresponding periods of 2002. Higher depreciation expense was
recorded in the first half of 2002 primarily due to significant truck purchases
in the last half of 2001. This was substantially offset by lower landfill
airspace amortization expense recorded in the first half of 2002 attributable to
reduced tonnage accepted at our landfills as compared to the first half of 2001.

 RESTRUCTURING

     In March 2002, we adopted a new organizational structure to better align
collection, transport, recycling and disposal resources within market areas. We
believe the new structure will yield a number of benefits, including clearer
accountability and responsibility for business performance and profitability in
specific markets; simplification of structure; cost savings through
consolidation of duplicate administrative and other support functions; improved
utilization of operating assets; and better customer responsiveness.

     As of June 30, 2002, all of our operations other than WTI and Canadian
Waste Services ("CWS") were restructured to reduce the number of field layers of
management from four to three and the number of field layers that have
administrative and functional staff from four to two. Under the new structure,
our approximately 1,200 operating sites, including waste collection depots,
transfer stations, landfills and recycling facilities, were restructured into
approximately 85 newly established Market Areas. These Market Areas are
responsible for the sales and marketing of our services and for directing the
delivery of service by the districts. The Market Area is also the profit center,
and the districts, all of which used to be profit centers, became cost centers.
Each large Market Area is headed by a Vice President and the others are headed
by a General Manager. The Market Areas consolidate financial reporting and
provide a range of assistance in the areas of finance and accounting,
procurement, people, market planning and development, fleet services, recycling,
legal services, engineering, regulatory compliance, safety and public affairs to
support the districts. These Market Areas all report to one of four Groups that
divide the United States geographically, and which were formerly known as our
"Areas." CWS, which was restructured in July 2002, and WTI were the fifth and
sixth Groups under the previous structure and continue as the fifth and sixth
Groups under the new structure.

     In March 2002, we recorded a $37 million pre-tax charge for costs
associated with the implementation of the new structure, including $34 million
for employee severance and benefit costs and $3 million related to abandoned
operating lease agreements. Under the new structure, approximately 1,800
field-level administrative and operational positions have been eliminated. Our
obligation for severance payments will continue during the second half of 2002
and, in some cases, into 2003. As of June 30, 2002, payments of $22 million for
employee severance and benefits and for abandoned leases had been recorded
against the liability that was established in March 2002.

                                        35
<PAGE>

     We expect to incur an additional $5 million of restructuring expenses in
the second half of 2002 primarily related to the relocation of employees and the
consolidation of facilities to support the new organizational structure, which
includes organizational changes in the third quarter of 2002 to our CWS
operations.

 ASSET IMPAIRMENTS AND UNUSUAL ITEMS

     During the first quarter of 2002, we recorded a net credit to asset
impairments and unusual items primarily due to a reversal of a loss contract
reserve of approximately $4 million and adjustments of $5 million for revisions
of estimated losses on assets held-for-sale. These amounts were partially offset
by asset impairment charges primarily relating to our 2002 restructuring
efforts. We incurred no such costs during the second quarter of 2002.

     For the three and six months ended June 30, 2001, asset impairments and
unusual items were primarily attributable to our divestiture activities, offset
in part by a reversal of a loss contract reserve that was determined to be
excessive after a favorable renegotiation of that specific contract.

 INTEREST EXPENSE

     Interest expense decreased by $31 million and $69 million for the three and
six months ended June 30, 2002, respectively, as compared to the corresponding
periods in 2001. Interest rate swap contracts reduced interest expense by $23
million and $43 million for the three and six months ended June 30, 2002,
respectively, and $5 million and $6 million for the corresponding prior year
periods. The remaining decrease in interest expense between the second quarter
of 2002 and 2001 is primarily due to the repayment or refinancing of debt
instruments throughout 2001 and into 2002 at lower interest rates.

 PROVISION FOR INCOME TAXES

     We recorded a provision for income taxes of $135 million and $219 million
for the three and six months ended June 30, 2002, respectively, and $113 million
and $202 million for the corresponding periods of 2001. The difference in
federal income taxes computed at the federal statutory rate and reported income
taxes for the three and six months ended June 30, 2002 is primarily due to state
and local income taxes, offset in part by non-conventional fuel tax credits. For
the three and six months ended June 30, 2001, the difference is primarily due to
state and local income taxes, non-deductible costs related to acquired
intangibles and non-deductible costs associated with the impairment and
divestiture of certain businesses. Additionally, in the second quarter of 2001,
scheduled Canadian federal and provincial tax rate reductions resulted in a tax
benefit of $42 million, which was offset in part by a tax expense of $30 million
related to our plan to repatriate certain Canadian capital and earnings
previously deemed permanently invested in Canada.

 EXTRAORDINARY ITEMS

     During the first quarter of 2002, we refinanced approximately $49 million
of fixed-rate tax exempt bonds maturing in 2011 with variable-rate tax exempt
bonds maturing in 2022. As a result, we incurred prepayment penalties and other
fees for a total charge, net of tax benefit, of approximately $1 million.

     In the first quarter of 2001, the Company, working with local governmental
authorities, refinanced $339 million of fixed-rate tax-exempt bonds maturing
through 2008 with $326 million of variable-rate tax-exempt bonds maturing
through 2011 and $17 million of fixed-rate bonds that matured later in 2001. We
recorded a net extraordinary loss of $1 million for the remaining unamortized
premium and issuance costs related to the retired debt.

 CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLE

     As a result of adopting Statement of Financial Accounting Standards
("SFAS") No. 141, "Accounting for Business Combinations," on January 1, 2002, we
were required to write-off amounts of negative goodwill that had been recorded
in prior periods through purchase accounting. The aggregate amount of negative

                                        36
<PAGE>

goodwill was $2 million and was recorded as a credit to cumulative effect of
change in accounting principle in the first quarter of 2002.

     SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," as amended, became effective for the Company as of January 1, 2001.
Adoption of SFAS No. 133, as amended, resulted in a gain, net of tax, of
approximately $2 million in the first quarter of 2001.

LIQUIDITY AND CAPITAL RESOURCES

     The following is a summary of our cash balances and cash flows for the six
months ended June 30, 2002 and 2001 (in millions):

<Table>
<Caption>
                                                                SIX MONTHS
                                                              ENDED JUNE 30,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
Cash and cash equivalents at the end of the period..........  $ 720    $ 396
                                                              =====    =====
Cash provided by operating activities.......................  $ 884    $ 866
                                                              =====    =====
Cash used in investing activities...........................  $(449)   $(449)
                                                              =====    =====
Cash used in financing activities...........................  $(447)   $(114)
                                                              =====    =====
</Table>

     We generated cash flows from operations of $884 million for the six months
ended June 30, 2002. During that period, we spent $449 million for investing
activities, which was comprised of capital expenditures of $552 million and
acquisitions of businesses of $64 million, offset by proceeds from sales of
assets and cash generated from other investing activities of $167 million. In
addition, we used $447 million for financing activities, which included $500
million spent for our stock buy back program, offset by $30 million of net debt
borrowings and $23 million from exercises of common stock options and warrants.

     For the six months ended June 30, 2001, we generated cash flows from
operations of approximately $866 million. We used $449 million for our investing
activities during the six months ended June 30, 2001. Included in our investing
activities for this period were capital expenditures of $474 million and
acquisitions of solid waste businesses of $65 million offset by proceeds from
sales of assets and other investing activities of $90 million. In addition, we
used $114 million for financing activities which is primarily comprised of $133
million of net debt reductions offset by proceeds from exercises of common stock
options and warrants and other financing activities.

     The following summary of free cash flows has been prepared to highlight and
facilitate understanding of the primary cash flow elements. It is not intended
to replace the consolidated statements of cash flows for the six months ended
June 30, 2002 and 2001, which were prepared in accordance with generally
accepted accounting principles. Adjusted free cash flow in the table below,
which is not a measure of financial performance in accordance with generally
accepted accounting principles, is defined as cash flows from operations less
capital expenditures and then adjusted for certain cash flow activity that the
Company considers as unusual for the respective periods.

                                        37
<PAGE>

     The analysis of free cash flows for the six months ended June 30, 2002 and
2001 is as follows (in millions):

<Table>
<Caption>
                                                                SIX MONTHS
                                                              ENDED JUNE 30,
                                                              ---------------
                                                               2002     2001
                                                              ------   ------
<S>                                                           <C>      <C>
EBITDA(a)...................................................  $1,434   $1,469
Interest paid, net of interest rate swap receipts...........    (242)    (312)
Taxes paid..................................................     (56)     (19)
Change in assets and liabilities, net of effects of
  acquisitions and divestitures, and other..................    (252)    (272)
                                                              ------   ------
Net cash provided by operating activities...................     884      866
Capital expenditures........................................    (552)    (474)
                                                              ------   ------
Free cash flow..............................................     332      392
Adjustments:
  Payments for terminating the WM Holdings' defined benefit
     pension plan...........................................      --       13
  Accounting and consulting services........................      --       64
  Litigation settlements....................................      --       38
  Other.....................................................      --       (1)
                                                              ------   ------
Adjusted free cash flow.....................................  $  332   $  506
                                                              ======   ======
</Table>

---------------

(a)  EBITDA is defined herein as income from operations excluding depreciation
     and amortization, asset impairments and unusual items, and restructuring
     related expenses. EBITDA is not a measure of financial performance under
     generally accepted accounting principles, but we have provided it here
     because we understand that such information is used by certain investors
     when analyzing the Company's financial position and performance.

     The Company operates in a capital intensive business and continuing access
to various financing sources is vital to our operations. In the past, we have
been successful in obtaining financing from a variety of sources on terms we
consider attractive. Based on several key factors we believe are considered by
credit rating agencies and financial markets to be important in determining our
future access to financing, we expect to continue to maintain access to capital
sources in the future. These factors include:

     - the essential nature of the services we provide and our large and diverse
       customer base;

     - our ability to generate strong and consistent cash flows;

     - our asset base; and

     - our commitment to maintaining a moderate financial profile and
       disciplined capital allocation.

     Our strategy is to meet our capital needs and contractual obligations first
from internally generated funds. We also have bank borrowings available for our
capital needs and contractual obligations. Finally, we also, when appropriate,
will obtain financing from issuing debt or common stock.

     As of June 30, 2002, we had a $620 million syndicated revolving credit
facility (the "Three Year Revolver"), which was increased to $650 million by
August 2002, and a $1.75 billion syndicated revolving credit facility (the "Five
Year Revolver"). No balances were outstanding from the Company's revolving
credit facilities as of December 31, 2001 or June 30, 2002. The Three Year
Revolver matures in June 2005 and the Five Year Revolver matures in June 2006.
As of June 30, 2002, we had letters of credit in the aggregate amount of
approximately $1,570 million (of which approximately $1,450 million are issued
under the revolving credit facilities) that generally have terms allowing
automatic renewal after a year. At June 30, 2002, we had unused and available
credit capacity under these facilities of approximately $920 million.

     We manage our debt portfolio by using interest rate derivatives to achieve
our desired position of fixed and floating rate debt of approximately 65% fixed
and 35% floating at June 30, 2002. In addition, we

                                        38
<PAGE>

periodically enter into financing transactions to secure the then current market
interest rate in anticipation of senior debt issuances.

     In May 2002, we privately placed $500 million of 7 3/4% senior unsecured
notes due May 15, 2032. Interest on the notes is due on November 15 and May 15
of each year. The net proceeds of the offering were approximately $498 million,
after deducting underwriters' discounts and expenses. We used a portion of these
proceeds to pay the $300 million of 6.625% senior notes that matured on July 15,
2002, and have invested the remaining proceeds in cash equivalent investments
pending their expected use for repayment of a portion of senior notes that will
mature during 2002.

     We believe that our available short-term and long-term capital resources
are sufficient to fund our capital expenditure and working capital requirements,
scheduled debt payments, interest and income tax obligations and other
obligations including acquisitions and share repurchases described below. Our
capital requirements include (i) capital expenditures for construction and
expansion of landfill sites, as well as new trucks and equipment for collection
operations, (ii) refurbishments and improvements at waste-to-energy facilities
and (iii) business acquisitions. We currently expect to spend approximately $700
million for capital expenditures and approximately $185 million for the
purchases of businesses during the final half of 2002.

     We have $285.7 million of 7.7% senior notes due October 1, 2002 and $350
million of 6.5% senior notes due December 15, 2002. We intend to use the
remaining funds received from our May 2002 $500 million senior issuance and
other sources of long-term financing to refinance the borrowings. However, if
other sources of long-term financing are not available, we intend to use our
revolving credit facilities. Consequently, we have classified these borrowings
as long-term at June 30, 2002 and December 31, 2001 based upon our ability to
use our revolving credit facilities, which are both long-term, to refinance
these borrowings.

     In February 2002 we announced that our Board of Directors had approved a
stock buy back program for up to $1 billion in annual repurchases for each of
the next three years. The purchases will be made in open market purchases or
privately negotiated transactions primarily using cash flows from operations.

     In March 2002, we entered into an accelerated stock repurchase master
agreement to facilitate the repurchase of shares of our common stock. Pursuant
to the agreement, we may from time to time enter into transactions to purchase
shares from the counterparty for a notional amount equal to the fair market
value of the shares on the date that we elect to purchase. Six months from the
date of purchase, the parties enter into a settlement pursuant to which, if the
weighted average daily market prices for the stock during such six month period
(other than certain days during which we are entitled to purchase in the market)
times the number of shares initially purchased is greater than the notional
amount, we will pay the counterparty the difference. If the weighted average
daily market price for the valuation period times the number of shares initially
purchased is less than the notional amount, the counterparty will pay us the
difference. We have the option of paying the settlement amount, if any, in
shares of our common stock or with cash. Were we to settle in shares of common
stock, we would issue those shares out of treasury.

     In the first quarter of 2002, we entered into a transaction to purchase
stock under the agreement, purchasing approximately 10.9 million shares at
$27.46 per share for a total of approximately $300 million. We accounted for the
initial payment as a purchase of treasury stock and have classified the future
settlement with the counterparty as an equity instrument. Under the agreement,
the number of shares to be issued, if we were required to pay the counterparty
and elected to net settle in shares, is capped at ten million shares. The
settlement will not occur until September 2002, and therefore, we are unable at
this time to predict the number of shares, if any, we would have to issue were
we to elect that payment option.

     Based on our weighted average stock price through June 30, 2002, and July
31, 2002, we would expect to receive in cash approximately $6 million and $14
million, respectively, from the counterparty to settle the contracts. However,
for every one dollar of change in the weighted average price of our common stock
during the valuation period, the settlement amount would change by $10.9
million.

     We have also engaged in open market purchases of our common stock during
those periods when, per Company policy, there is an open trading window. During
the second quarter of 2002, excluding the transaction under the accelerated
stock repurchase master agreement, we had repurchased approximately
                                        39
<PAGE>

7.3 million shares for a total of approximately $200 million. As previously
announced, our intention is to repurchase up to $1 billion each year, and we
currently expect that we will have purchased very close to that amount at the
end of 2002.

     In November 2001, we announced that we had entered into an agreement to
settle the consolidated class action lawsuit filed against us in July 1999
alleging violations of the federal securities laws by payment of $457 million to
the class members. We expect our net cash outflow, after considering insurance,
tax deductions and related settlement costs, to be approximately $230 to $240
million. The Court approved the settlement in April 2002; however, there is
currently a motion to vacate pending before the Court. If the Court denies the
motion, a thirty day appeal period will begin. If an appeal is filed, the
judgment will not become final until all appeals are exhausted or dismissed. We
do not have to pay the settlement until the judgment is final. However, our
settlement fund began to accrue interest, at the Federal Funds rate, beginning
June 30, 2002. We currently expect that we will fund the settlement in late
2002.

SPECIAL PURPOSE ENTITIES

     On June 30, 2000, two limited liability companies ("LLCs") were established
to purchase interests in existing leveraged lease financings at three
waste-to-energy facilities that we operate under an agreement with the owner.
John Hancock Life Insurance Company ("Hancock") has a 99.5% ownership in one of
the LLCs. The second LLC is 99.5% collectively owned by Hancock and the CIT
Group ("CIT"). We have a 0.5% interest in both LLCs. Hancock and CIT made an
initial investment of approximately $167 million in the LLCs. The LLCs used
these proceeds to purchase the three waste-to-energy facilities that we operate
and assumed the seller's indebtedness related to these facilities. Under the LLC
agreements the LLCs shall be dissolved upon the occurrence of any of the
following events: (i) a written decision of all the members of the LLCs to
dissolve the LLCs, (ii) December 31, 2063, (iii) the entry of a decree of
judicial dissolution under the Delaware Limited Liability Company Act, or (iv)
the LLCs cease to own any interest in these waste-to-energy facilities.
Additionally, income, losses and cash flows are allocated to the members based
on their initial capital account balances until Hancock and CIT achieve targeted
returns; thereafter, the amounts will be allocated 20% to Hancock and CIT and
80% to us. We do not expect Hancock and CIT to achieve the targeted returns in
2002. We account for the underlying leases as operating leases. As of June 30,
2002, the remaining aggregate lease commitments related to these waste-to-energy
facilities are $389 million.

     Under the LLC agreements, if we exercise certain renewal options under the
leases, we will be required to make capital contributions to the LLCs for the
difference, if any, between fair market rents and the scheduled renewal rents.
We are required under certain circumstances to make capital contributions to the
LLCs in the amount of the difference between the stipulated loss amounts and
termination values under the LLC agreements to the extent they are different
from the underlying lease agreements. We believe that the occurrence of these
circumstances is remote.

     We are the manager of the LLCs but there are significant limitations on the
powers of the manager under the LLC agreements. Accordingly, we account for our
interest in the LLCs under the equity method of accounting. These investments
have a carrying value of approximately $1 million at both June 30, 2002 and
December 31, 2001. If we were required to consolidate the LLCs, we would record
approximately $420 million in assets, and $209 million of debt as of June 30,
2002. The remaining balance that would be recorded would primarily be minority
interest. There would be no material net impact to our results of operations if
we consolidated the LLCs instead of accounting for them under the equity method.

ACCOUNTING FOR STOCK OPTIONS

     We account for our stock-based compensation using the intrinsic value
method prescribed by Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," as amended, under which no compensation cost for
stock options is recognized when granted with an exercise price equal to fair
value. Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS No. 123"), establishes accounting and annual
disclosure requirements for options granted after 1995 using a fair-value-based
method of accounting. As of June 30, 2002, we had 47.6 million stock options and
warrants

                                        40
<PAGE>

outstanding. The weighted average fair value per share of stock options and
warrants granted during the three and six months ended June 30, 2002 was $9.17
and $9.24, respectively. This value is estimated using the Black-Scholes
option-pricing model, a formula that calculates an assumed value of stock
options based on appreciation and interest assumptions. The fair value
calculation using Black-Scholes is not necessarily indicative of the actual
value of a stock option.

     If we applied the recognition provisions of SFAS No. 123, we would have
recognized additional compensation expense of approximately $32 million, or
$(0.03) per share, and $59 million, or $(0.06) per share, for the three and six
months ended June 30, 2002, respectively.

SEASONALITY AND INFLATION

     Our operating revenues tend to be somewhat lower in the winter months,
primarily due to the lower volume of construction and demolition waste. The
volumes of industrial and residential waste in certain regions where we operate
also tend to decrease during the winter months. Our first and fourth quarter
results of operations typically reflect this seasonality. In addition,
particularly harsh weather conditions may result in the temporary suspension of
certain of our operations.

     We believe that inflation has not had, and is not expected to have, any
material adverse effect on the results of our operations in the near future.

NEW ACCOUNTING PRONOUNCEMENTS

  SFAS NO. 141 AND SFAS NO. 142

     In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
and SFAS No. 142. SFAS No. 141 requires that all business combinations be
accounted for using the purchase method of accounting and prohibits the
pooling-of-interests method for business combinations initiated after June 30,
2001. According to SFAS No. 142, goodwill that arose from purchases after June
30, 2001 cannot be amortized. In addition, SFAS No. 142 required the
continuation of the amortization of goodwill and all intangible assets through
December 31, 2001. The amortization of existing goodwill ceased on January 1,
2002. After January 1, 2002, SFAS No. 142 requires a two-step impairment
approach for goodwill. Companies must first determine whether goodwill is
impaired and if so, they must value that impairment based on the amount by which
the book value exceeds the estimated fair value. Companies have six months from
the date they initially apply SFAS No. 142 to test goodwill for impairment and
any impairment charge resulting from the initial application of the new
accounting pronouncement must be classified as the cumulative effect of a change
in accounting principle. Thereafter, goodwill must be tested for impairment
annually and impairment losses must be presented in the operating section of the
income statement unless they are associated with a discontinued operation. In
those cases, any impairment losses will be included, net of tax, within the
results of discontinued operations.

     In accordance with our adoption of SFAS No. 141, we will continue to use
the purchase method of accounting for our business combinations. In accordance
with our adoption of SFAS No. 142, we have not amortized goodwill from any
acquisitions that occurred after June 30, 2001. We have no intangible assets,
other than goodwill, that have ceased being amortized upon adoption of SFAS No.
142.

     Adopting SFAS No. 141 required us to write-off net negative goodwill of
approximately $2 million, which was recorded as a credit to cumulative effect of
change in accounting principle in the first quarter of 2002. In accordance with
SFAS No. 142, goodwill is required to be tested for impairment at the reporting
unit, which is generally defined as an operating segment or a component of an
operating segment in certain circumstances. For the purposes of applying SFAS
No. 142, we have identified seven reporting units, which are the six components
of our NASW (excluding WTI) and WTI, as described in Note 9, "Segment and
Related Information" to the financial statements included herein. We incurred no
impairment of goodwill upon our initial adoption of SFAS No. 142. However, there
can be no assurance that goodwill will not be impaired at any time in the
future.

     The following schedule reflects the three and six months ended June 30,
2001 adjusted net income (excluding goodwill and negative goodwill amortization)
as compared to the results of operations for the three and six months ended June
30, 2002 (in millions, except per share amounts).

                                        41
<PAGE>

<Table>
<Caption>
                                                          THREE MONTHS       SIX MONTHS
                                                         ENDED JUNE 30,    ENDED JUNE 30,
                                                         ---------------   ---------------
                                                          2002     2001     2002     2001
                                                         ------   ------   ------   ------
<S>                                                      <C>      <C>      <C>      <C>
Reported net income....................................  $ 217    $ 191    $ 355    $ 315
Add back: goodwill amortization, net of taxes..........     --       31       --       62
                                                         -----    -----    -----    -----
Adjusted net income....................................  $ 217    $ 222    $ 355    $ 377
                                                         =====    =====    =====    =====
BASIC EARNINGS PER COMMON SHARE:
Reported net income....................................  $0.35    $0.31    $0.57    $0.50
Goodwill amortization, net of taxes....................     --     0.05       --     0.10
                                                         -----    -----    -----    -----
Adjusted net income....................................  $0.35    $0.36    $0.57    $0.60
                                                         =====    =====    =====    =====
DILUTED EARNINGS PER COMMON SHARE:
Reported net income....................................  $0.35    $0.30    $0.57    $0.50
Goodwill amortization, net of taxes....................     --     0.05       --     0.10
                                                         -----    -----    -----    -----
Adjusted net income....................................  $0.35    $0.35    $0.57    $0.60
                                                         =====    =====    =====    =====
</Table>

     Our intangible assets as of June 30, 2002 were comprised of the following
(in millions):

<Table>
<Caption>
                                                            COVENANTS   LICENSES,
                                                 CUSTOMER    NOT-TO-     PERMITS
                                                  LISTS      COMPETE    AND OTHER    TOTAL
                                                 --------   ---------   ----------   -----
<S>                                              <C>        <C>         <C>          <C>
Intangible assets..............................    $127       $ 95         $18       $ 240
Less accumulated amortization..................     (70)       (53)         (6)       (129)
                                                   ----       ----         ---       -----
                                                   $ 57       $ 42         $12       $ 111
                                                   ====       ====         ===       =====
</Table>

     Intangible assets are recorded at cost and amortized on a straight-line
basis. Customer lists are generally amortized over five to seven years.
Covenants not-to-compete are amortized over the term of the agreement, which is
generally three to five years. Licenses, permits and other intangible assets are
amortized over the terms of the related agreement or the Company's estimate of
the useful life if there are no definite terms. Landfill operating permits are
not presented above and are recognized in a combined basis with other landfill
assets and amortized using our landfill amortization method. The intangible
asset amortization expense estimated as of December 31, 2001, for the five years
following 2001 is as follows (in millions):

<Table>
<Caption>
2002   2003   2004   2005   2006
----   ----   ----   ----   ----
<S>    <C>    <C>    <C>    <C>
$34    $30    $22    $13     $7
</Table>

     As of June 30, 2002, the amount of goodwill attributable to WTI was
approximately $783 million. The remaining goodwill balance of approximately
$4,252 million was attributable to NASW (excluding WTI).

  SFAS NO. 143

     In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations ("SFAS No. 143"). SFAS No. 143 applies to all legally enforceable
obligations associated with the retirement of tangible long-lived assets and
provides the accounting and reporting requirements for such obligations. SFAS
No. 143 requires amounts initially recognized as an asset retirement obligation
to be measured at fair value. The recognized asset retirement cost is
capitalized as part of the cost of the asset and is depreciated over the useful
life of the asset. We expect to adopt SFAS No. 143 beginning January 1, 2003 and
to record a cumulative effect of a change in accounting principle.

     SFAS No. 143 will impact our accounting for our landfill operations. Costs
associated with future capping activities that occur during the operating life
of a landfill, which are currently recognized on an undiscounted basis over the
operating life of the landfill as airspace is consumed, will be accounted for as
an

                                        42
<PAGE>

asset retirement obligation under SFAS No. 143, on a discounted basis. We expect
to recognize landfill retirement obligations, which relate to capping and other
closure and post-closure activities, over the operating life of a landfill as
landfill airspace is consumed and the obligation is incurred. These obligations
will be initially measured at estimated fair value. Fair value will be measured
on a present value basis, using a credit-adjusted, risk-free rate, which will be
a higher rate than the risk-free rate we currently use for discounting final
closure and post-closure obligations. Interest will be accreted on landfill
retirement obligations using the effective interest method. Landfill retirement
costs, which will be capitalized as part of the landfill asset, will be
amortized using our existing landfill accounting practices. We are addressing
which of our other assets may be affected by the provisions of SFAS No. 143. Our
management has not yet determined the pro forma, cumulative or future effects of
the adoption of SFAS No. 143 on our results of operations or financial position.
The adoption of SFAS No. 143 will have no effect on our cash flow.

  SFAS NO. 144

     In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS No. 144"), which supersedes Statement of
Financial Accounting Standards No. 121. SFAS No. 144 establishes a single
accounting method for long-lived assets to be disposed of by sale, whether
previously held and used or newly acquired, and extends the presentation of
discontinued operations to include more divestiture transactions. SFAS No. 144
also requires that an impairment loss be recognized for assets held-for-use when
the carrying amount of an asset, or group of assets if the cash flows from those
assets cannot be independently and separately identified, is not recoverable.
The carrying amount of an asset or asset group is not recoverable if it exceeds
the sum of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset or asset group, excluding interest charges.
Estimates of future cash flows used to test the recoverability of a long-lived
asset or asset group must incorporate the entity's own assumptions about its use
of the asset or asset group and must factor in all available evidence. We
adopted SFAS No. 144 on January 1, 2002. Upon initial application of this
Statement, certain previously held-for-sale assets did not meet SFAS No. 144
criteria to be held-for-sale because their anticipated sale is in 2003. However,
under the transition provisions of SFAS No. 144, we have until December 31, 2002
to either sell these assets or meet the new held-for-sale criteria to avoid
reclassifying the assets to held-for-use.

  SFAS NO. 145

     In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 145, Rescission of FASB Statements No. 4, 44,
and 64, Amendment of FASB Statement No. 13, and Technical Corrections ("SFAS No.
145"). SFAS No. 145 requires that gains and losses from extinguishment of debt
be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for us beginning January 1, 2003. Upon the adoption of SFAS No. 145,
we will reclassify certain items in our prior period statements of operations to
conform to the presentation required by SFAS No. 145. Under SFAS No. 145, we
will report gains and losses on the extinguishment of debt in pre-tax earnings
rather than in extraordinary items.

  SFAS NO. 146

     In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, Accounting for Costs Associated with
Exit or Disposal Activities ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructurings, involuntarily terminating employees, and consolidating
facilities initiated after December 31, 2002.

                                        43
<PAGE>

                                    PART II

ITEM 1. LEGAL PROCEEDINGS.

     Information regarding our legal proceedings can be found under the
"Litigation" section of Note 8, Commitments and Contingencies, to the
consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     At our 2002 Annual Meeting of Stockholders held on May 17, 2002, a proposal
to elect the nominees listed in the following table as directors of the Company
was submitted to a vote of our stockholders. The following table also shows the
results of voting as to each nominee:

<Table>
<Caption>
                                                                  FOR       WITHHELD
                                                              -----------   ---------
<S>                                                           <C>           <C>
Pastora San Juan Cafferty...................................  541,439,895   9,007,888
Steven G. Rothmeier.........................................  541,483,380   8,964,403
</Table>

     At the same meeting, the following proposals were also adopted by our
stockholders. The voting was as follows:

<Table>
<Caption>
                                                       FOR        AGAINST     WITHHELD
                                                   -----------   ----------   ---------
<S>                                                <C>           <C>          <C>
Ratification of Ernst & Young LLP as our
  independent auditors for the fiscal year ending
  December 31, 2002..............................  538,230,517   10,084,086   2,132,800
Amendment to Certificate of Incorporation to
  provide for election of directors annually.....  483,768,342    2,456,795   3,028,342
</Table>

     The following proposal was submitted to our stockholders, but was not
approved. The vote was as follows:

<Table>
<Caption>
                                                     FOR         AGAINST      WITHHELD
                                                  ----------   -----------   ----------
<S>                                               <C>          <C>           <C>
Require disclosure of management's plan to
  oppose privatization..........................  17,564,495   457,281,324   14,407,650
</Table>

ITEM 5. OTHER INFORMATION.

     None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)Exhibits:

<Table>
<Caption>
 EXHIBIT NO.                                DESCRIPTION
 -----------                                -----------
 <C>          <S>   <C>
     3.1      --    Second Amended and Restated Certificate of Incorporation of
                    Waste Management, Inc.
     3.2      --    Bylaws (as amended) of Waste Management, Inc.
    10.1      --    Waste Management, Inc. Retirement Savings Restoration Plan.
    10.2      --    Revolving Credit Agreement dated the 27th day of June, 2002,
                    by and among Waste Management, Inc., Waste Management
                    Holdings, Inc., each of the financial institutions party
                    thereto, and Fleet National Bank as administrative agent,
                    J.P. Morgan Securities Inc. and Banc of America Securities
                    LLC as joint lead arrangers and joint book managers,
                    JPMorgan Chase Bank and Bank of America, N.A. as
                    co-syndication agents, and Deutsche Bank AG, New York Branch
                    and Citibank, N.A. as co-documentation agent.
    12        --    Computation of Ratio of Earnings to Fixed Charges.
</Table>

     (b) Reports on Form 8-K:

     None.

                                        44
<PAGE>

                                   SIGNATURES

     Pursuant to the requirements 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 MANAGEMENT, INC.

                                          By:    /s/ WILLIAM L. TRUBECK
                                            ------------------------------------
                                                     William L. Trubeck
                                                Executive Vice President and
                                                Chief Administrative Officer
                                               (Principal Financial Officer)

                                          WASTE MANAGEMENT, INC.

                                          By:     /s/ ROBERT G. SIMPSON
                                            ------------------------------------
                                                     Robert G. Simpson
                                                     Vice President and
                                                  Chief Accounting Officer
                                               (Principal Accounting Officer)

Date: August 2, 2002

                                        45
<PAGE>

                               INDEX TO EXHIBITS

<Table>
<Caption>
EXHIBIT
  NO.                                   DESCRIPTION
-------                                 -----------
<S>       <C>   <C>
  3.1     --    Second Amended and Restated Certificate of Incorporation of
                Waste Management, Inc.
  3.2     --    Bylaws (as amended) of Waste Management, Inc.
 10.1     --    Waste Management, Inc. Retirement Savings Restoration Plan.
 10.2     --    Revolving Credit Agreement dated the 27th day of June, 2002,
                by and among Waste Management, Inc., Waste Management
                Holdings, Inc., each of the financial institutions party
                thereto, and Fleet National Bank as administrative agent,
                J.P. Morgan Securities Inc. and Banc of America Securities
                LLC as joint lead arrangers and joint book managers,
                JPMorgan Chase Bank and Bank of America, N.A. as
                co-syndication agents, and Deutsche Bank AG, New York Branch
                and Citibank, N.A. as co-documentation agent.
 12       --    Computation of Ratio of Earnings to Fixed Charges.
</Table>

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.1
<SEQUENCE>3
<FILENAME>h98566exv3w1.txt
<DESCRIPTION>SECOND AMENDED CERTIFICATE OF INCORPORATION
<TEXT>
<PAGE>
                                                                     EXHIBIT 3.1

                  SECOND RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                             WASTE MANAGEMENT, INC.


         Waste Management, Inc., a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), hereby certifies as follows:

1. The name of the Corporation is Waste Management, Inc., and the name under
which the Corporation was originally incorporated is USA Waste Services, Inc.
The date of filing of its original Certificate of Incorporation with the
Secretary of State was April 28, 1995.

2. This Second Restated Certificate of Incorporation restates and integrates and
further amends the Restated Certificate of Incorporation of this Corporation by
amending Article Ninth to provide for the election of directors annually.

3. The text of the Restated Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:

         First: The name of the Corporation is "Waste Management, Inc."

         Second: The registered office of the Corporation in the State of
         Delaware is located at Corporation Trust Center, 1209 Orange Street in
         the City of Wilmington, County of New Castle. The name and address of
         its registered agent is The Corporation Trust Company, Corporation
         Trust Center, 1209 Orange Street, Wilmington, Delaware 19801.

         Third: The nature of the business, objects and purposes to be
         transacted, promoted or carried on by the Corporation is:

                  To engage in any lawful activity for which corporations may be
         organized under the General Corporation Law of Delaware.

         Fourth: The total number of shares of capital stock which the
         Corporation shall have authority to issue is one billion, five hundred
         and ten million (1,510,000,000), divided into one billion, five hundred
         million (1,500,000,000) shares of Common Stock of the par value of one
         cent ($0.01) per share and ten million (10,000,000) shares of Preferred
         Stock of the par value of one cent ($0.01) per share.

                  A. No holder of Common Stock or Preferred Stock of the
                  Corporation shall have any pre-emptive, preferential, or other
                  right to purchase or subscribe for any shares of the unissued
                  stock of the Corporation or of any stock of the Corporation to
                  be issued by reason of any increase of the authorized capital
                  stock of the Corporation or of the number of its shares,



                                      -1-
<PAGE>

                  or of any warrants, options, or bonds, certificates of
                  indebtedness, debentures, or other securities convertible into
                  or carrying options or warrants to purchase stock of the
                  Corporation or of any stock of the Corporation purchased by it
                  or its nominee or nominees or other securities held in the
                  treasury of the Corporation, whether issued or sold for cash
                  or other consideration or as a dividend or otherwise other
                  than, with respect to Preferred Stock, such rights, if any, as
                  the Board of Directors in its discretion from time to time may
                  grant and at such price as the Board of Directors in its
                  discretion may fix.

                  B. The holders of Common Stock shall have the right to one
                  vote per share on all questions to the exclusion of all other
                  classes of stock, except as by law expressly provided, as
                  otherwise herein expressly provided or as contained within a
                  certificate of designation, with respect to the holders of any
                  other class or classes of stock.

                  C. The Board of Directors is authorized, subject to
                  limitations prescribed by law, by resolution or resolutions to
                  provide for the issuance of shares of Preferred Stock in
                  series, and by filing a certificate pursuant to the applicable
                  law of the State of Delaware, to establish from time to time
                  the number of shares to be included in each such series, and
                  to fix the designation, powers, preferences, and rights of the
                  shares of each such series and the qualifications, limitations
                  or restrictions thereof. The authority of the Board with
                  respect to each series shall include, but not be limited to,
                  determination of the following:

                           (1) The number of shares constituting that series and
                  the distinctive designation of that series;

                           (2) The dividend rights and dividend rate on the
                  shares of that series, whether dividends shall be cumulative,
                  and, if so, from which date or dates, and the relative rights
                  of priority, if any, of payment of dividends on shares of that
                  series;

                           (3) Whether that series shall have voting rights, in
                  addition to the voting rights provided by law, and, if so, the
                  terms of such voting rights;

                           (4) Whether that series shall have conversion or
                  exchange privileges, and, if so, the terms and conditions of
                  such conversion or exchange including provision for adjustment
                  of the conversion or exchange rate in such events as the Board
                  of Directors shall determine;

                           (5) Whether or not the shares of that series shall be
                  redeemable, and, if so, the terms and conditions of such
                  redemption, including the date or dates upon or after which
                  they shall be redeemable,



                                      -2-
<PAGE>

                  and the amount per share payable in cash on redemption, which
                  amount may vary under different conditions and at different
                  redemption dates;

                           (6) Whether that series shall have a sinking fund for
                  the redemption or purchase of shares of that series, and, if
                  so, the terms and amount of such sinking fund;

                           (7) The rights of the shares of that series in the
                  event of voluntary or involuntary liquidation, dissolution or
                  winding up of the Corporation, and the relative rights of
                  priority, if any, of payment of shares of that series;

                           (8) Any other relative rights, preferences and
                  limitations of that series; or

                           (9) Any or all of the foregoing terms.

                  D. Except where otherwise set forth in the resolution or
                  resolutions adopted by the Board of Directors of the
                  Corporation providing for the issue of any series of Preferred
                  Stock created thereby, the number of shares comprising such
                  series may be increased or decreased (but not below the number
                  of shares then outstanding) from time to time by like action
                  of the Board of Directors of the Corporation. Should the
                  number of shares of any series be so decreased, the shares
                  constituting such decrease shall resume the status which they
                  had prior to adoption of the resolution originally fixing the
                  number of shares of such series.

                  E. Shares of any series of Preferred Stock which have been
                  redeemed (whether through the operation of a sinking fund or
                  otherwise), purchased or otherwise acquired by the
                  Corporation, or which, if convertible or exchangeable, have
                  been converted into or exchanged for shares of stock of any
                  other class or classes, shall have the status of authorized
                  and unissued shares of Preferred Stock and may be reissued as
                  a part of the series of which they were originally a part or
                  may be reclassified or reissued as part of a new series of
                  Preferred Stock to be created by resolution or resolutions of
                  the Board of Directors or as part of any other series of
                  Preferred Stock, all subject to the conditions or restrictions
                  adopted by the Board of Directors of the Corporation providing
                  for the issue of any series of Preferred Stock and to any
                  filing required by law.

         Fifth: The Corporation is to have perpetual existence.

         Sixth: Elections of directors need not be by written ballot unless the
         bylaws of the Corporation shall so provide. Meetings of stockholders
         may be held within or without the State of Delaware, as the bylaws may
         provide. The books of the Corporation may be kept (subject to any
         provision contained in the statutes of the



                                      -3-
<PAGE>

         State of Delaware) outside the State of Delaware at such place or
         places as may be designated from time to time by the Board of Directors
         or in the bylaws of the Corporation.

         Seventh: No director of the Corporation shall be personally liable to
         the Corporation or its stockholders for monetary damages for breach of
         fiduciary duty as a director, provided that this provision shall not
         eliminate or limit the liability of a director (i) for any breach of
         the director's duty of loyalty to the Corporation or its stockholders,
         (ii) for acts or omissions not in good faith or which involve
         intentional misconduct or a knowing violation of law, (iii) under
         Section 174 of the General Corporation Law of Delaware or any amendment
         thereto or successor provision thereto, or (iv) for any transaction
         from which the director derived an improper personal benefit. If the
         General Corporation Law of Delaware hereafter is amended to authorize
         the further elimination or limitation of the liability of directors,
         then the liability of a director of the Corporation, in addition to the
         limitation on personal liability provided herein, shall be limited to
         the fullest extent permitted by the amended General Corporation Law of
         Delaware. Neither this Second Restated Certificate of Incorporation nor
         any amendment, alteration, or repeal of this Article, nor the adoption
         of any provision of the Second Restated Certificate of Incorporation
         inconsistent with this Article, shall adversely affect, eliminate, or
         reduce any right or protection of a director of the Corporation
         hereunder with respect to any act, omission or matter occurring, or any
         action, suit, or claim that, but for this Article, would accrue or
         arise, prior to the time of such amendment, modification, repeal, or
         adoption of an inconsistent provision. All references in this Article
         to a "director" shall also be deemed to refer to such person or
         persons, if any, who pursuant to a provision of the Second Restated
         Certificate of Incorporation in accordance with subsection (a) of
         Section 141 of the Delaware General Corporation Law, exercise or
         perform any of the powers or duties otherwise conferred or imposed upon
         the Board of Directors by the Delaware General Corporation Law.

         Eighth: This Corporation shall, to the maximum extent permitted from
         time to time under the law of the State of Delaware, indemnify and upon
         request shall advance expenses to any person who is or was a party or
         is threatened to be made a party to any threatened, pending or
         completed action, suit, proceeding or claim, whether civil, criminal,
         administrative or investigative, by reason of the fact that such person
         is or was or has agreed to be a director or officer of this Corporation
         or any of its direct or indirect subsidiaries or while such a director
         or officer is or was serving at the request of this Corporation as a
         director, officer, partner, trustee, employee or agent of any
         corporation, partnership, joint venture, trust or other enterprise,
         including service with respect to employee benefit plans, against
         expenses (including attorney's fees and expenses), judgments, fines,
         penalties and amounts paid in settlement incurred in connection with
         the investigation, preparation to defend or defense of such action,
         suit, proceeding or claim; provided, however, that the foregoing shall
         not require this Corporation to indemnify or advance expenses to any
         person in connection with any action, suit,



                                      -4-
<PAGE>

         proceeding, claim or counterclaim initiated by or on behalf of such
         person. Such indemnification shall not be exclusive of other
         indemnification rights arising under any bylaws, agreement, vote of
         directors or stockholders or otherwise and shall inure to the benefit
         of the heirs and legal representatives of such person. Any person
         seeking indemnification under this Article shall be deemed to have met
         the standard of conduct required for such indemnification unless the
         contrary shall be established.

         Ninth:   (A) Except as otherwise provided in this Second Restated
                  Certificate of Incorporation or the bylaws of the Corporation
                  relating to the rights of the holders of any class or series
                  of Preferred Stock, voting separately by class or series, to
                  elect additional directors under specified circumstances, the
                  number of directors of the Corporation shall be as fixed from
                  time to time by, or in the manner provided in, the bylaws of
                  the Corporation. Unless approved by at least two-thirds of the
                  incumbent directors, the number of directors which shall
                  constitute the whole Board of Directors shall be no fewer than
                  three and no more than nine.

                  (B) Commencing with the election of directors at the 2003
                  Annual Meeting of Stockholders, all directors, other than
                  those who may be elected by the holders of any class or series
                  of Preferred Stock voting separately by class or series, shall
                  be elected annually. Notwithstanding the foregoing provision
                  of this Article, each director shall serve until his successor
                  is duly elected and qualified or until his earlier death,
                  resignation or removal.

                  (C) Except as otherwise provided pursuant to the provisions of
                  this Second Restated Certificate of Incorporation or the
                  bylaws of the Corporation relating to the rights of the
                  holders of any class or series of Preferred Stock, voting
                  separately by class or series, to elect directors under
                  specified circumstances, any director or directors may be
                  removed from office at any time, with or without cause but
                  only by the affirmative vote, at any annual meeting or special
                  meeting (as the case may be) of the stockholders, of not less
                  than two-thirds of the total number of votes of the then
                  outstanding shares of capital stock of the Corporation
                  entitled to vote generally in the election of directors,
                  voting together as a single class, but only if notice of such
                  proposal was contained in the notice of such meeting.

                  (D) In the event of any increase or decrease in the authorized
                  number of directors, the newly created or eliminated
                  directorships resulting from such increase or decrease shall
                  be appointed or determined by the Board of Directors. No
                  decrease in the authorized number of directors constituting
                  the Board of Directors shall shorten the term of any incumbent
                  director.



                                      -5-
<PAGE>

                  (E) Vacancies in the Board of Directors, however caused, and
                  newly-created directorships shall be filled solely by a
                  majority vote of the directors then in office, whether or not
                  a quorum, and any director so chosen shall hold office until
                  his successor is duly elected and qualified or until his
                  earlier death, resignation or removal.

                  (F) Notwithstanding the foregoing, whenever the holders of any
                  one or more classes or series of Preferred Stock issued by the
                  Corporation shall have the right, voting separately by class
                  or series, to elect directors at an annual or special meeting
                  of stockholders, the election, term of office, filling of
                  vacancies, and other features of such directorships shall be
                  governed by the terms of this Second Restated Certificate of
                  Incorporation applicable thereto, and such directors so
                  elected shall not be divided into classes pursuant to this
                  Article unless expressly provided by such terms.

                  (G) Notwithstanding any other provision of this Second
                  Restated Certificate of Incorporation or the bylaws of the
                  Corporation (and notwithstanding the fact that a lesser
                  percentage may be specified by law, this Second Restated
                  Certificate of Incorporation or the bylaws of the
                  Corporation), the affirmative vote, at any regular meeting or
                  special meeting of the stockholders, of not less than
                  two-thirds of the total number of votes of the then
                  outstanding shares of capital stock of the Corporation
                  entitled to vote generally in the election of directors,
                  voting together as a single class, shall be required to amend
                  or repeal, or to adopt any provision inconsistent with the
                  purpose or intent of, this Article, but only if notice of the
                  proposed alteration or amendment was contained in the notice
                  of such meeting.

         Tenth: In furtherance of, and not in limitation of, the powers
         conferred by statute, the Board of Directors is expressly authorized to
         adopt, amend or repeal the bylaws of the Corporation, or adopt new
         bylaws, without any action on the part of the stockholders; provided,
         however, that no such adoption, amendment or repeal shall be valid with
         respect to bylaw provisions which have been adopted, amended or
         repealed by the stockholders; and further provided, that bylaws adopted
         or amended by the Directors and any powers thereby conferred may be
         amended, altered or repealed by the stockholders.

         Eleventh: The Corporation reserves the right at any time, and from time
         to time, to amend, alter, change, or repeal any provision contained in
         this Second Restated Certificate of Incorporation, and other provisions
         authorized by the laws of the State of Delaware at the time in force
         may be added or inserted, in the manner now or hereafter prescribed by
         law; and all rights, preferences, and privileges of whatsoever nature
         conferred upon stockholders, directors, or any other persons whomsoever
         by and pursuant to this Second Restated Certificate of Incorporation in
         its present form or as hereafter amended are granted subject to the
         rights reserved in this Article; provided, however, that the
         Corporation shall not amend



                                      -6-
<PAGE>

         Article Ninth to be effective on a date other than a date on which
         directors are elected.

4. This Second Restated Certificate of Incorporation was duly adopted by vote of
the stockholders in accordance with Section 242 and 245 of the General
Corporation Law of the State of Delaware.

         IN WITNESS WHEREOF, WASTE MANAGEMENT, INC. has caused this Second
Restated Certificate of Incorporation to be signed by David P. Steiner, its
Senior Vice President, General Counsel and Corporate Secretary, this 24th day of
May, 2002.

                                       WASTE MANAGEMENT, INC.



                                       /s/ David P. Steiner
                                       -----------------------------------------
                                       David P. Steiner
                                       Senior Vice President, General Counsel
                                         and Corporate Secretary



                                      -7-

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3.2
<SEQUENCE>4
<FILENAME>h98566exv3w2.txt
<DESCRIPTION>BYLAWS AS AMENDED
<TEXT>
<PAGE>
                                                                     EXHIBIT 3.2

                                     BY-LAWS

                                       OF

                             WASTE MANAGEMENT, INC.
                        (f/k/a USA WASTE SERVICES, INC.)
                               AS OF MAY 17, 2002

                                    ARTICLE I

                                     OFFICES


                  SECTION 1.1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware shall be the registered office named in
the original Certificate of Incorporation of the Corporation, or such other
office as may be designated from time to time by the Board of Directors in the
manner provided by law. Should the Corporation maintain a principal office or
place of business within the State of Delaware, such registered office need not
be identical to such principal office or place of business of the Corporation.

                  SECTION 1.2. Other Offices. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
Corporation may require.


                                   ARTICLE II

                            MEETINGS OF STOCKHOLDERS


                  SECTION 2.1. Place of Meetings. All meetings of the
stockholders shall be held at the principal office of the Corporation, or at
such other place either within or without the State of Delaware and at such date
and time as shall be designated from time to time by the Board of Directors and
stated in the notice or waivers of notice of the meeting.

                  SECTION 2.2. Voting List. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order for each class of stock, and
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be opened to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall be
specified in the notice, or if not so specified, at the place where the meeting
is to be held.



                                       1
<PAGE>

The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.

                  SECTION 2.3. Annual Meetings. An annual meeting of the
stockholders, for the election of directors to succeed those whose terms expire
and for the transaction of such other business as may properly come before the
meeting, shall be held at such place, within or without the State of Delaware,
on such date, and at such time as the Board of Directors shall fix each year and
set forth in the notice of the meeting, which date shall be within 13 months
subsequent to the later of the date of incorporation or the last annual meeting
of stockholders.

                  SECTION 2.4. Special Meeting. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may be called by the Chairman of
the Board (if any), by the Chief Executive Officer, or by written order of a
majority of the directors, but such special meetings may not be called by any
other person or persons. The Chairman, Chief Executive Officer, or directors so
calling any such meeting shall fix the date and time of, and the place (either
within or without the State of Delaware) for, the meeting.

                  SECTION 2.5. Notice of Meeting. Written notice of the annual,
and each special meeting of stockholders, stating the place, date and hour and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called, shall be given to each stockholder entitled to vote thereat, not less
than ten nor more than 60 days before the meeting. Such notice may be delivered
either personally or by mail. If mailed, notice is given when deposited in the
United States mail, postage prepaid, directed to the stockholder at his address
as it appears on the records of the Corporation.

                  SECTION 2.6. Quorum. The holders of a majority of the stock
issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at any meeting of stockholders
for the transaction of business except as otherwise provided by statute or by
the Certificate of Incorporation. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.

                  Notwithstanding the other provisions of the Certificate of
Incorporation or these by-laws, the chairman of the meeting or the holders of a
majority of the shares of such stock, present in person or represented by proxy,
although not constituting a quorum, shall have power to adjourn, postpone, or
recess the meeting from time to time, without notice other than announcement at
the meeting of the time and place of the adjourned, postponed, or recessed
meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting. At such adjourned meeting at which a quorum shall be
present or represented any business may be transacted which might have been
transacted at the meeting as originally notified.



                                       2
<PAGE>

                  SECTION 2.7. Voting. When a quorum is present at any meeting
of the stockholders, the vote of the holders of a majority of the stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which, by express
provision of the statutes, of the Certificate of Incorporation or of these
by-laws, a different vote is required, in which case such express provision
shall govern and control the decision of such question. Where a separate vote by
class is required, the affirmative vote of the majority of shares of such class
present in person or represented by proxy at the meeting shall be the act of
such class. Every stockholder having the right to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting shall be entitled to vote in person, or by proxy appointed by
an instrument in writing subscribed by such stockholder, bearing a date not more
than three years prior to voting, unless such instrument provides for a longer
period, and filed with the Secretary of the Corporation, or such other officer
as the Board of Directors may from time to time determine by resolution, before,
or at the time of, the meeting.

                  All proxies shall be received and taken charge of and all
ballots shall be received and canvassed by the secretary of the meeting who
shall decide all questions touching upon the qualification of voters, the
validity of the proxies, and the acceptance or rejection of votes, unless an
inspector or inspectors shall have been appointed by the chairman of the
meeting, in which event such inspector or inspectors shall decide all such
questions. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and coupled with an interest sufficient in law to support an
irrevocable power. If such instrument shall designate two or more persons to act
as proxies, unless such instrument shall provide the contrary, a majority of
such persons present at any meeting at which their powers thereunder are to be
exercised shall have and may exercise all the powers of voting or giving
consents thereby conferred, or if only one be present, then such powers may be
exercised by that one, or, if an even number attend and a majority do not agree
on any particular issue, each proxy so attending shall be entitled to exercise
such powers in respect of the same portion of the shares as he is of the proxies
representing such shares.

                  SECTION 2.8. Voting of Stock of Certain Holders; Elections:
Inspectors. Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxy as the by-laws of such
corporation may prescribe, or in the absence of such provision, as the Board of
Directors of such corporation may determine. Shares standing in the name of a
deceased person may be voted by the executor or administrator of such deceased
person, either in person or by proxy. Shares standing in the name of a guardian,
conservator or trustee may be voted by such fiduciary, either in person or by
proxy, but no fiduciary shall be entitled to vote shares held in such fiduciary
capacity without a transfer of such shares into the name of such fiduciary.
Shares standing in the name of a receiver may be voted by such receiver. A
stockholder whose shares are pledged shall be entitled to vote such shares,
unless in the transfer by the pledgor on the books of the Corporation, he has
expressly empowered the pledgee to vote thereon, in which case only the pledgee,
or his proxy, may represent the stock and vote thereon.

                  If shares or other securities having voting power stand of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the



                                       3
<PAGE>

contrary and is furnished with a copy of the instrument or order appointing them
or creating the relationship wherein it is so provided, their acts with respect
to voting shall have the following effect:

                  (a) If only one votes, his act binds all;

                  (b) If more than one vote, the act of the majority so voting
         binds all;

                  (c) If more than one vote, but the vote is evenly split on any
         particular matter, each fraction may vote the securities in question
         proportionally, or any person voting the shares, or a beneficiary, if
         any, may apply to the Court of Chancery or such other court as may have
         jurisdiction to appoint an additional person to act with the persons so
         voting the shares, which shall then be voted as determined by a
         majority of such persons and the person appointed by the Court. If the
         instrument so filed shows that any such tenancy is held in unequal
         interests, a majority or even-split for the purpose of this subsection
         shall be a majority or even-split in interest.

                  All voting of stockholders shall be taken by written ballots,
each of which shall state the name of the stockholder or proxy voting and such
other information as may be required under the procedure established for the
meeting. At any meeting at which a vote is taken by ballots, the chairman of the
meeting may appoint one or more inspectors, each of whom shall subscribe an oath
or affirmation to execute faithfully the duties of inspector at such meeting
with strict impartiality and according to the best of his ability. Such
inspector shall receive the ballots, count the votes and make and sign a
certificate of the result thereof. The chairman of the meeting may appoint any
person to serve as inspector, except no candidate for the office of director
shall be appointed as inspector.

                  Unless otherwise provided in the Certificate of Incorporation,
cumulative voting for the election of directors shall be prohibited.

                  SECTION 2.9. Conduct of Meeting. The meetings of the
stockholders shall be presided over by the Chairman of the Board (if any), or if
he is not present, by the Vice Chairman of the Board (if any, but if there is
more than one, the Vice Chairman who is senior in terms of time as such), or if
neither the Chairman of the Board (if any) nor the Vice Chairman of the Board
(if any) is present, by the President, or if neither the Chairman of the Board
(if any), the Vice Chairman of the Board (if any) nor President is present, by a
chairman elected at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of such meetings, or if he is not present, an Assistant
Secretary shall so act; if neither the Secretary nor an Assistant Secretary is
present, then a secretary shall be appointed by the chairman of the meeting. The
chairman of any meeting of stockholders shall determine the order of business
and the procedure at the meeting, including such regulation of the manner of
voting and the conduct of discussion as seem to him in order. Unless the
chairman of the meeting of stockholders shall otherwise determine, the order of
business shall be as follows:

         (a) Calling of meeting to order.

         (b) Election of a chairman and the appointment of a secretary if
necessary.



                                       4
<PAGE>

         (c) Presentation of proof of the due calling of the meeting.

         (d) Presentation and examination of proxies and determination of a
quorum.

         (e) Reading and settlement of the minutes of the previous meeting.

         (f) Reports of officers and committees.

         (g) The election of directors if an annual meeting, or a meeting called
for that purpose.

         (h) Unfinished business.

         (i) New business.

         (j) Adjournment.

                  SECTION 2.10. Treasury Stock. The Corporation shall not vote,
directly or indirectly, shares of its own stock owned by it; and such shares
shall not be counted in determining the total number of outstanding shares.

                  SECTION 2.11. Fixing Record Date. The Board of Directors may
fix in advance a date, not exceeding 60 days preceding the date of any meeting
of stockholders or any adjournment thereof, or the date for payment of any
dividend or distribution, or the date for the allotment of rights, or the date
when any change, or conversion or exchange of capital stock shall go into
effect, or a date in connection with obtaining express consent to corporate
action in writing without a meeting, as a record date for the determination of
the stockholders entitled to notice of or to vote at, any such meeting and any
adjournment thereof, or entitled to receive payment of such dividend or
distribution, or to receive any such allotment of rights, or to exercise the
rights in respect of any such change, conversion or exchange of capital stock,
or to give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to such notice of, and to vote at, any such meeting and any adjournment
thereof, or to receive payment of such dividends or distribution, or to receive
such allotment of rights, or to exercise such rights, or to give such consent,
as the case may be, notwithstanding any transfer of any stock on the books of
the corporation after any such record dated fixed as aforesaid. With respect to
a meeting of stockholders, the record date shall not be less than ten days
before the date of such meeting.

                  If the Board of Directors does not fix a record date for any
meeting of the stockholders, the record date for determining stockholders
entitled to notice of or to vote at such meeting shall be at the close of
business on the day next preceding the day on which notice is given, or, if in
accordance with Section 5.2 of these by-laws notice is waived, at the close of
business on the day next preceding the day on which the meeting is held. The
record date for determining stockholders for any other purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of stockholders of record entitled
to



                                       5
<PAGE>

notice of or to vote at a meeting of stockholders shall apply to any adjournment
of the meeting; provided, however, that the Board of Directors may fix a new
record date for the adjourned meeting.

                  SECTION 2.12. Stockholder Proposals. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual or special meeting business must be (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Chairman
of the Board, the President, or the Board of Directors, (b) otherwise properly
brought before the meeting by or at the direction of the Chairman of the Board,
the President, or the Board of Directors, or (c) otherwise properly brought
before the meeting by a stockholder.

         No proposal by a stockholder shall be presented at an annual or special
meeting of stockholders unless such stockholder shall provide the Board of
Directors or the Secretary of the Corporation with timely written notice of
intention to present a proposal for action at the forthcoming meeting of
stockholders, which notice shall include (a) the name and address of such
stockholder, (b) the number of voting securities he or she holds of record and
which he or she holds beneficially, (c) the text of the proposal to be presented
at the meeting, (d) a statement in support of the proposal, and (e) any material
interest of the stockholder in such proposal. To be timely, a stockholder's
notice with respect to an annual meeting of stockholders must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than 120 days nor more than 150 days in advance of the date the
Corporation's proxy statement was released to stockholders in connection with
the previous year's annual meeting of stockholders; provided, however, that if
no annual meeting was held the previous year or the date of the annual meeting
has been changed by more than 30 calendar days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to be
timely must be so received at least 80 days prior to the date the Corporation
intends to distribute its proxy statement with respect to such meeting. To be
timely, a stockholder's notice with respect to a special meeting must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder to be timely must be so received not later than the
close of business on the fifth (5th) day following the day on which such notice
of the date of the special meeting was mailed or such public disclosure was
made. Any stockholder may make any other proposal at an annual or special
meeting of stockholders and the same may be discussed and considered, but unless
stated in writing and filed with the Board of Directors or the Secretary prior
to the date set forth above, no action with respect to such proposal shall be
taken at such meeting and such proposal shall be laid over for action at an
adjourned, special, or annual meeting of the stockholders taking place no
earlier than 120 days after such meeting.

         This provision shall not prevent the consideration and approval or
disapproval at an annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as provided in this Section
2.12. Notwithstanding anything in the by-laws to the contrary, no business shall
be conducted at any annual or special meeting except in accordance with the
procedures set forth in this Section 2.12. The chairman of the annual meeting or
a special meeting shall, if the facts warrant,



                                       6
<PAGE>

determine and declare to the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this Section 2.12,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.

         Notwithstanding any other provision of these by-laws, the Corporation
shall be under no obligation to include any stockholder proposal in its proxy
statement materials or otherwise present any such proposal to stockholders at a
special or annual meeting of stockholders if the Board of Directors reasonably
believes the proponents thereof have not complied with Sections 13 and 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder, and the Corporation shall not be required to include in
its proxy statement material to stockholders any stockholder proposal not
required to be included in its proxy material to stockholders in accordance with
such Act, rules, or regulations.

                  SECTION 2.13. Nomination of Directors. Only persons who are
nominated in accordance with the procedures of this Section 2.13 shall be
eligible for election as directors. Subject to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation, nominations for the election of directors may be
made by the Board of Directors or by any stockholder entitled to vote in the
election of directors generally who complies with the notice procedures set
forth in this Section 2.13. Any stockholder entitled to vote in the election of
directors generally may nominate one or more persons for election as a director
at a meeting only if timely written notice of such stockholder's intent to make
such nomination or nominations has been given, either by personal delivery or by
U.S. mail, first class postage prepaid, return receipt requested, to the
Secretary of the Corporation.

         To be timely, a stockholder's notice shall be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
120 days nor more than 150 days in advance of the date the Corporation's proxy
statement was released to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that if no annual meeting was
held the previous year or the date of the annual meeting has been changed by
more than 30 calendar days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received at least 80 days prior to the date the Corporation intends to
distribute its proxy statement with respect to such meeting. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination, (b) the name, age, business address, and home address of the
person or persons to be nominated; (c) the principal occupation of the person or
persons nominated; (d) a representation that the stockholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting and intends to appear at the
meeting to nominate the person or persons specified in the notice; (e) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (f) such other information regarding each nominee proposed by such
stockholder as would be required to be included in a proxy statement filed
pursuant to the rules of the Securities and Exchange Commission, had the nominee
been nominated, or intended to be nominated, by the Board of Directors; and (g)
the consent of each nominee to serve as a director of the Corporation if so
elected. At the request of the



                                       7
<PAGE>

Board of Directors any person nominated by the Board of Directors for election
as a director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee.

         No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 2.13. The chairman of the meeting shall, if the facts warrant, determine
and declare to the meeting that a nomination was not made in accordance with the
procedures prescribed by the by-laws, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.


                                   ARTICLE III

                               BOARD OF DIRECTORS

                  SECTION 3.1. Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors, which may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by law or by the Certificate of Incorporation
or by these by-laws directed or required to be exercised or done by the
stockholders.

                  SECTION 3.2. Number, Election and Term. Except as otherwise
provided in the Certificate of Incorporation relating to the rights of the
holders of any class or series of Preferred Stock, voting separately by class or
series, to elect additional directors under specified circumstances, the number
of directors of the Corporation shall initially be the number specified in the
Certificate of Incorporation, and subject to the following sentence, such number
may be increased or decreased by a resolution duly adopted by the Board of
Directors. Unless approved by at least two-thirds of the incumbent directors,
the number of directors which shall constitute the whole Board of Directors
shall be no fewer than three and no more than nine. Unless otherwise provided in
the Certificate of Incorporation, directors need not be residents of Delaware or
stockholders of the Corporation.

         Commencing with the election of directors at the 2003 annual meeting of
stockholders, all directors, other than those who may be elected by the holders
of any class or series of Preferred Stock, voting separately by class or series,
shall be elected annually. Notwithstanding the foregoing provision of this
Article, each director shall serve until his successor is duly elected and
qualified or until his earlier death, resignation or removal.

                  SECTION 3.3. Vacancies, Additional Directors and Removal From
Office. Except as otherwise provided pursuant to the provisions of the
Certificate of Incorporation relating to the rights of the holders of any class
or series of Preferred Stock, voting separately by class or series, to elect
directors under specified circumstances, any director or directors may be
removed from office at any time, with or without cause but only by the
affirmative vote, at any regular meeting or special meeting (as the case may be)
of the Board of Directors or of the stockholders, of not less than two-thirds of
the incumbent members of the Board of Directors (not taking into account the
directors being removed) or two-thirds of the total number of votes of the then
outstanding shares of capital



                                       8
<PAGE>

stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, but only if notice of such
proposal was contained in the notice of such meeting.

         In the event of any increase or decrease in the authorized number of
directors, the newly created or eliminated directorships resulting from such
increase or decrease shall be appointed or determined by the Board of Directors.
Vacancies in the Board of Directors, however caused, and newly-created
directorships shall be filled solely by a majority vote of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
until his successor is duly elected and qualified, subject, however, to prior
death, resignation, retirement, disqualification or removal from office. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director.

                  SECTION 3.4. Regular Meeting. A regular meeting of the Board
of Directors shall be held each year, without notice other than this by-law, at
the place of, and immediately following, the annual meeting of stockholders if a
quorum is present; and other regular meetings of the Board of Directors shall be
held each year, at such time and place as the Board of Directors may provide, by
resolution, either within or without the State of Delaware, without notice other
than such resolution.

                  SECTION 3.5. Special Meeting. A special meeting of the Board
of Directors may be called by the Chairman of the Board (if any) or by the Chief
Executive Officer and shall be called by the Secretary on the written request of
any two directors. The Chairman or Chief Executive Officer so calling, or the
directors so requesting, any such meeting shall fix the time and place, either
within or without the State of Delaware, of holding such meeting.

                  SECTION 3.6. Notice of Special Meeting. Personal written,
telegraphic, cable or wireless notice of special meetings of the Board of
Directors shall be given to each director at least 24 hours prior to the time of
such meeting. Any director may waive notice of any meeting. The attendance of a
director at any meeting shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.

                  SECTION 3.7. Place of Meetings; Order of Business. The
directors may hold their meetings and may have an office and keep the books of
the Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from time
to time determine by resolution. The Chairman of the Board shall preside at all
meetings of the Board of Directors. In the absence of the Chairman of the Board,
a Chairman shall be elected from the directors present. The Secretary of the
Corporation shall act as Secretary of all meetings of the directors; but in the
absence of the Secretary, the Chairman may appoint any person to act as
Secretary of the meeting. At all meetings of the Board of Directors business
shall be transacted in such order as shall from time to time be determined by
the Chairman of the Board, or in his absence by the director elected as chairman
of the meeting.

                  SECTION 3.8. Quorum and Participation. A majority of the Board
of Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of



                                       9
<PAGE>

the Board of Directors, except as may be otherwise specifically provided by
statute, by the Certificate of Incorporation or by these by-laws. Members of the
Board of Directors, may participate in a meeting of the Board of Directors or
such committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other and such participation shall constitute presence in
person and attendance at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.

                  SECTION 3.9. Presumption of Assent. A director who is present
at a meeting of the Board of Directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof. Such right to dissent shall not apply to
a director who voted in favor of such action.

                  SECTION 3.10. Action Without Meeting. Unless otherwise
restricted by the Certificate of Incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof as provided in Article IV of these by-laws, may be
taken without a meeting, if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.

                  SECTION 3.11. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority to
fix the compensation of directors. No provision of these by-laws shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.

                  SECTION 3.12. Approval or Ratification of Acts or Contracts by
Stockholders. The Board of Directors in its discretion may submit any act or
contract for approval or ratification at any annual meeting of the stockholders,
or at any special meeting of the stockholders called for the purpose of
considering any such act or contract, and any act or contract that shall be
approved or be ratified by the vote of the stockholders holding a majority of
the issued and outstanding shares of stock of the Corporation entitled to vote
and present in person or by proxy at such meeting (provided that a quorum is
present), shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it has been approved or ratified by every stockholder of the
Corporation. In addition, any such act or contract may be approved or ratified
by the written consent of stockholders holding a majority of the issued and
outstanding shares of capital stock of the Corporation entitled to vote and such
consent shall be as valid and as binding upon the Corporation and upon all the
stockholders as if it had been approved or ratified by every stockholder of the
Corporation.



                                       10
<PAGE>

                                   ARTICLE IV

                             COMMITTEES OF DIRECTORS


                  SECTION 4.1. Designation, Powers and Name. The Board of
Directors shall designate a Nominating and Governance Committee, a Compensation
Committee, and an Audit Committee and may, by resolution passed by a majority of
the whole Board, designate one or more other committees, each such committee to
consist of one or more of the directors of the Corporation. Any such designated
committee shall have and may exercise such of the powers and authority of the
Board of Directors in the management of the business and affairs of the
Corporation as may be provided in these by-laws or such resolution. Any such
designated committee may authorize the seal of the Corporation to be affixed to
all papers which may require it. No such committee shall have the power or
authority in reference to amending the Certificate of Incorporation (except that
a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors
as provided by statute, fix the designation and any of the preferences or rights
of such shares relating to dividends, redemption, dissolution, any distribution
of assets of the Corporation or the conversion into, or the exchange of such
shares for, shares of any other class or classes or any other series of the same
or any other class or classes of stock of the Corporation or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending the by-laws of the Corporation; and, unless the resolution, by-laws,
or Certificate of Incorporation expressly so provide, no such committee shall
have the power or authority to declare a dividend, to authorize the issuance of
stock, or to adopt a certificate of ownership and merger. The Board of Directors
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of such committee.
In the absence or disqualification of any member of such committee or
committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
or committees shall have such name or names and such limitations of authority as
may be determined from time to time by the By-laws, by the Charter for such
committee adopted by the Board of Directors, or by a resolution adopted by the
Board of Directors.

                  SECTION 4.2. Procedure; Meetings; Quorum. Any committee
designated pursuant to Section 4.1 shall keep regular minutes of its proceedings
and report the same to the Board of Directors when requested, shall fix its own
rules or procedures to the extent not otherwise set forth in the Charter or
resolution with respect to such committee adopted by the Board of Directors, and
shall meet at such times and at such place or places as may be provided by such
rules, by the Charter for such committee adopted by the Board of Directors, or
by resolution of such committee or resolution of the Board of Directors. At
every meeting of any such committee, the presence of a majority of all the
members thereof shall constitute a quorum and the affirmative vote of a majority
of the members present shall be necessary for the adoption by it of any
resolution. Unless otherwise restricted by the Certificate of Incorporation or
by these by-laws, the members of any committee designated by these by-laws or
the Board of Directors, may participate in a meeting of such committee by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting may hear each other, and such
participation shall constitute presence in person at such meeting. Unless
otherwise restricted by the



                                       11
<PAGE>

Certificate of Incorporation or these by-laws, any action required or permitted
to be taken at any meeting of any committee of the Board of Directors may be
taken without a meeting if all members of such committee consent thereto in
writing and the writing or writings are filed with the minutes of the
proceedings of the committee.

                  SECTION 4.3. Compensation. Members of special or standing
committees may be allowed compensation for attending committee meetings, if the
Board of Directors shall so determine.


                                    ARTICLE V

                                     NOTICE


                  SECTION 5.1. Methods of Giving Notice. Whenever under the
provisions of the statutes, the Certificate of Incorporation or these by-laws,
notice is required to be given to any director, member of any committee or
stockholder, such notice shall be in writing and delivered personally or mailed
to such director, member or stockholder; provided that in the case of a director
or a member of any committee such notice may be given orally or by telephone,
telegram, telegraphic, cable or wireless transmission. If mailed, notice to a
director, member of a committee or stockholder shall be deemed to be given when
deposited in the United States mail first class in a sealed envelope, with
postage therein prepaid, addressed, in the case of a stockholder, to the
stockholder at the stockholder's address as it appears on the records of the
corporation or, in the case of a director or a member of a committee, to such
person at his business address. If sent by telegram, notice to a director or
member of a committee shall be deemed to be given when the telegram, so
addressed, is delivered to the telegraph company. Notice shall be deemed to have
been given on the date of any telegraphic, cable or wireless transmission.

                  SECTION 5.2. Written Waiver. Whenever any notice is required
to be given under the provisions of the statutes, the Certificate of
Incorporation or these by-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the stockholders, directors, or
members of a committee of directors need be specified in any written waiver of
notice unless so required by the Certificate of Incorporation or the by-laws.



                                       12
<PAGE>

                                   ARTICLE VI

                                    OFFICERS


                  SECTION 6.1. Officers. The officers of the Corporation shall
be a Chairman of the Board, one or more Vice Chairmen of the Board, a Chief
Executive Officer, a President, one or more Vice Presidents, any one or more of
which may be designated Executive Vice President or Senior Vice President, a
Secretary, a Controller, and such other officers as the Board of Directors may
elect or appoint. The Board of Directors may appoint such other officers and
agents, including Assistant Vice Presidents, Assistant Secretaries and Assistant
Controllers, as it shall deem necessary, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined by the Board. Any two or more offices, may be held by the same person
unless the Certificate of Incorporation provides otherwise. No officer shall
execute, acknowledge, verify or countersign any instrument on behalf of the
Corporation in more than one capacity, if such instrument is required by law, by
these by-laws or by any act of the Corporation to be executed, acknowledged,
verified or countersigned by two or more officers. The Chairman of the Board
shall be elected from among the directors. With the foregoing exceptions, none
of the other officers need be a director, and none of the officers need be a
stockholder of the Corporation.

                  SECTION 6.2. Term of Office. Each officer shall hold office
until his successor shall have been chosen and shall have qualified or until his
death or the effective date of his resignation or removal, or until he shall
cease to be a director in the case of the Chairman and Vice Chairman.

                  SECTION 6.3. Removal and Resignation. Any officer or agent
elected or appointed by the Board of Directors may be removed, with or without
cause, by the affirmative vote of a majority of the Board of Directors whenever,
in its judgment, the best interests of the Corporation shall be served thereby,
but such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. Election or appointment of an officer or agent shall
not of itself create contract rights. Any officer may resign at any time by
giving written notice to the Corporation. Any such resignation shall take effect
at the date of the receipt of such notice or at any later time specified
therein, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.

                  SECTION 6.4. Vacancies. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise, may be filled by
the Board of Directors for the unexpired portion of the term.

                  SECTION 6.5. Salaries. The salaries of all officers and agents
of the Corporation shall be fixed by the Board of Directors or pursuant to its
direction; no officer shall be prevented from receiving such salary by reason of
his also being a director.

                  SECTION 6.6. Chairman of the Board. The Chairman of the Board
(if such office is created by the Board) shall have all powers and shall perform
all duties incident to the office of



                                       13
<PAGE>

Chairman of the Board. The Chairman shall preside at all meetings of the Board
of Directors or of the stockholders of the Corporation. In the Chairman's
absence, such duties shall be attended to by the Vice Chairman of the Board (if
any, but if there is more than one, the Vice Chairman who is senior in terms of
time as such) or (if there is no Vice Chairman) by the President. The Chairman
shall formulate and submit to the Board of Directors or the Executive Committee
(if any) matters of general policy of the Corporation and shall have such other
powers and perform such other duties as usually appertain to the office or as
may be prescribed by the Board of Directors or the executive committee. The
Chairman of the Board may hold such other offices as the Board of Directors may
determine.

                  SECTION 6.7. Vice Chairmen of the Board. In the absence of the
Chairman of the Board, or in the event of his inability or refusal to act, the
Vice Chairman (if any, but if there is more than one, the Vice Chairman who is
senior in terms of time as such) shall perform the duties and exercise the
powers of the Chairman of the Board, and when acting shall have all the powers
of and be subject to all the restriction upon the Chairman of the Board. In the
absence of the Chairman of the Board, such Vice Chairman shall preside at all
meetings of the Board of Directors or of the stockholders of the Corporation. In
the Chairman's and Vice Chairmen's absence, such duties shall be attended to by
the President. The Vice Chairmen shall perform such other duties, and shall have
such other powers, as from time to time may be assigned to them by the Board of
Directors or the Executive Committee (if any).

                  SECTION 6.8 Chief Executive Officer. The Chief Executive
Officer shall be the chief executive officer of the Corporation and, subject to
the control of the Board of Directors, shall in general manage, supervise, and
control the properties, business, and affairs of the Corporation with all such
powers as may be reasonably incident to such responsibilities. Unless the Board
of Directors otherwise determines, the Chief Executive Officer shall have the
authority to agree upon and execute all leases, contracts, evidences of
indebtedness, and other obligations in the name of the Corporation. In the
absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the Stockholders and (should he be a director) of the Board
of Directors. He may also preside at any such meeting attended by the Chairman
of the Board if he is so designated by the Chairman. He shall have the power to
appoint and remove subordinate officers, agents, and employees, except those
elected or appointed by the Board of Directors. The Chief Executive Officer
shall keep the Board of Directors and the Executive Committee fully informed and
shall consult them concerning the business of the Corporation. He shall perform
all other duties normally incident to the office of Chief Executive Officer and
such other duties, and shall have such other powers, as may be prescribed by the
stockholders, the Board of Directors or the Executive Committee (if any) from
time to time.

                  SECTION 6.9 President. The President shall be the chief
operating officer of the Corporation and, subject to the control of the Chief
Executive Officer and the Board of Directors, shall in general manage, supervise
and control the properties, business and day-to-day affairs of the Corporation
with all such powers as may be reasonably incident to such responsibilities. In
the absence of the Chief Executive Officer, or in the event of his inability or
refusal to act, the President shall perform the duties and exercise the powers
of the Chief Executive Officer. In the absence of the Chairman of the Board and
the Chief Executive Officer, the President shall preside at all meetings of



                                       14
<PAGE>

the Stockholders and (should he be a director) of the Board of Directors. He may
also preside at any such meeting attended by the Chairman of the Board if he is
so designated by the Chairman. He shall have the power to appoint and remove
subordinate officers, agents and employees, except those elected or appointed by
the Board of Directors. Unless the Board of Directors otherwise determines, the
President shall have the authority to agree upon and execute all leases,
contracts, evidences of indebtedness, and other obligations in the name of the
Corporation. The President shall keep the Board of Directors, the Executive
Committee, and the Chief Executive Officer fully informed and shall consult them
concerning the business of the Corporation. He shall vote, or give a proxy to
any other officer of the Corporation to vote all shares of stock of any other
corporation standing in the name of the Corporation and shall exercise any and
all rights and powers which this Corporation may possess by reason of its
ownership of securities in such other corporation; provided that the Board of
Directors may from time to time, by resolution, confer like powers upon any
other person or persons. In general the President shall have all powers and
shall perform all other duties normally incident to the office of President and
such other duties, and shall have such other powers, as may be prescribed by
these by-laws, the Board of Directors, or the Executive Committee (if any) from
time to time. In the discretion of the Board of Directors, the President may
also serve as chief executive officer of the Corporation.

                  SECTION 6.10. Vice Presidents. The Board of Directors may
appoint such Vice Presidents, including, Executive or Senior Vice Presidents, as
it may determine to be in the best interests of the Corporation. In the absence
of the President, or in the event of his inability or refusal to act, the
Executive Vice President (or in the event there shall be no Vice President
designated Executive Vice President, any Vice President designated by the Board)
shall perform the duties and exercise the powers of the President, and when so
acting shall have all the powers of and be subject to all the restrictions upon
the President. In the absence of a designation by the Board of Directors of a
Vice President to perform the duties of the President, or in the event of his
absence or inability or refusal to act, the Vice President who is present and
who is senior in terms of time as a Vice President of the Corporation shall so
act. Any Vice President may sign, with the Secretary or Assistant Secretary,
certificates for shares of the Corporation. Each Vice President shall perform
all duties incident to the office of Vice President and shall have such powers
and perform such other duties, as from time to time may be assigned to him by
these by-laws or by the Chief Executive Officer, the President, the Board of
Directors, or the Executive Committee (if any).

                  SECTION 6.11. Secretary. The Secretary shall (a) keep the
minutes of the meetings of the stockholders, the Board of Directors, and
committees of directors; (b) see that all notices are duly given in accordance
with the provisions of these by-laws and as required by law; (c) be custodian of
the corporate records and of the seal of the Corporation, and see that the seal
of the Corporation or a facsimile thereof is affixed to all certificates for
shares prior to the issue thereof and to all documents, the execution of which
on behalf of the Corporation under its seal is duly authorized in accordance
with the provisions of these by-laws and attest the affixation of the seal of
the Corporation thereto; (d) keep or cause to be kept a register of the post
office address of each stockholder which shall be furnished by such stockholder;
(e) sign with the President, or an Executive Vice President or Vice President,
certificates for shares of the Corporation, the issue of which shall have been
authorized by resolution of the Board of Directors; (f) have general charge of
the stock transfer books of the Corporation; and (g) in general, shall have such
other powers and



                                       15
<PAGE>

shall perform all duties normally incident to the office of Secretary and such
other duties, and shall have such other powers, as from time to time may be
assigned to him by these by-laws, the Chief Executive Officer, the President,
the Board of Directors, or the Executive Committee (if any).

                  SECTION 6.12. Controller. The Controller shall (a) have charge
and custody of and be responsible for all funds and securities of the
Corporation; receive and give receipts for moneys due and payable to the
Corporation from any source whatsoever and deposit all such moneys in the name
of the Corporation in such banks, trust companies, or other depositories as
shall be selected in accordance with the provisions of Section 7.3 of these
by-laws; (b) prepare, or cause to be prepared, for submission at each regular
meeting of the Board of Directors, at each annual meeting of the stockholders,
and at such other times as may be required by the Board of Directors, the
President or the executive committee (if any), a statement of financial
condition of the Corporation in such detail as may be required; and (c) in
general, shall have all powers and shall perform all the duties incident to the
office of Controller and such other duties, and shall have such other powers, as
from time to time may be assigned to him by these by-laws, the Chief Executive
Officer, the President, the Board of Directors, or the Executive Committee (if
any). If required by the Board of Directors, the Controller shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the Board of Directors shall determine.

                  SECTION 6.13. Assistant Secretary or Controller. The Assistant
Secretaries and Assistant Controllers shall, in general, perform such duties and
have such powers as shall be assigned to them by the Secretary or the
Controller, respectively, or by the Chief Executive Officer, the President, the
Board of Directors or the Executive Committee. The Assistant Secretaries and
Assistant Controller shall, in the absence or inability or refusal to act of the
Secretary or Controller, respectively, perform all functions and duties which
such absent officers may delegate, but such delegation shall not relieve the
absent officer from the responsibilities and liabilities of his office. The
Assistant Secretaries may sign, with the President or a Vice President,
certificates for shares of the Corporation, the issue of which shall have been
authorized by a resolution of the Board of Directors. The Assistant Controllers
shall respectively, if required by the Board of Directors, give bonds for the
faithful discharge of their duties in such sums and with such sureties as the
Board of Directors shall determine.


                                   ARTICLE VII

                         CONTRACTS, CHECKS AND DEPOSITS

                  SECTION 7.1. Contracts. Except as otherwise provided in these
by-laws or by law or as otherwise directed by the Board of Directors, the
Chairman of the Board, the Chief Executive Officer, the President, and Vice
President, or the Secretary shall be authorized to execute and deliver, in the
name and on behalf of the Corporation, all agreements, bonds, contracts, deeds,
mortgages, and other instruments, either for the Corporation's own account or in
a fiduciary or other capacity, and the seal of the Corporation, if appropriate
shall be affixed thereto by any such officer or the Secretary or an Assistant
Secretary. The Board of Directors, the Chairman of the Board, the Chief
Executive Officer, or the President or, if designated by the Board of Directors,
the Chairman of the



                                       16
<PAGE>

Board, the Chief Executive Officer, or the President, any Vice President or the
Secretary, may authorize any other officer, employee, or agent to execute and
deliver, in the name and on behalf of the Corporation, agreements, bonds,
contracts, deeds, mortgages, and other instruments, either for the Corporation's
own account or in a fiduciary or other capacity, and, if appropriate, to affix
the seal of the Corporation thereto. The grant of such authority by the Board of
Directors or any such officer may be general or confined to specific conditions.
Subject to the foregoing provisions, the Board of Directors may authorize any
officer, officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.

                  SECTION 7.2. Checks, Etc. All checks, demands, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation, shall be signed and, if so required by the Board
of Directors, shall be countersigned by such officer or officers or such agent
or agents of the Corporation, and in such manner, as shall be determined by the
Board of Directors.

                  SECTION 7.3. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the Board of
Directors may select. Checks, drafts, bills of exchange, acceptances, notes,
obligations, and orders for payment of money made payable to the Corporation may
be endorsed for deposit to the credit of the Corporation with a duly authorized
depositary by the Controller and/or such other officers or persons as the Board
of Directors from time to time may designate.

                  SECTION 7.4. Loans. No loans and no renewals of any loans
shall be contracted on behalf of the Corporation except as authorized by the
Board of Directors. When authorized so to do, any officer or agent of the
Corporation may effect loans and advances for the Corporation from any bank,
trust company, or other institution or from any individual, corporation, or
firm, and for such loans and advances may make, execute, and deliver promissory
notes, bonds, or other evidences of indebtedness of the Corporation. When
authorized so to do, any officer or agent of the Corporation may pledge,
hypothecate, or transfer as security for the payment of any and all loans,
advances, indebtedness, and liabilities of the Corporation, any and all stocks,
securities, and other real or personal property at any time held by the
Corporation and to that end may endorse, assign, and deliver same. Such
authority may be general or confined to specific instances.


                                  ARTICLE VIII

                              CERTIFICATES OF STOCK

                  SECTION 8.1. Issuance. The shares of the Corporation shall be
represented by certificates, provided that the Board of Directors may provide by
resolution that some or all classes or series of the Corporation's stock may be
uncertificated shares. Any such resolution shall not apply to shares represented
by a certificate until such certificate is surrendered. Notwithstanding the
adoption of such a resolution by the Board of Directors, every holder of stock
represented by



                                       17
<PAGE>

certificates and upon request every holder of uncertificated shares shall be
entitled to a certificate or certificates showing the number of shares of stock
registered in his name on the books of the Corporation. The certificates shall
be in such form as may be determined by the Board of Directors, shall be issued
in numerical order and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares (and if
the stock of the Corporation shall be divided into classes or series, the class
or series of such shares) and shall be signed by the Chairman of the Board, the
Chief Executive Officer, the President or a Vice President and by the Secretary
or an Assistant Secretary or the Controller or Assistant Controller. Any of or
all of the signatures on the certificate may be facsimiles. The stock record
books and the blank stock certificate books shall be kept by the Secretary, or
at the office of such transfer agent or transfer agents as the Board of
Directors may from time to time by resolution determine. In case any officer,
transfer agent or registrar who shall have signed or whose facsimile signature
or signatures shall have been placed upon any such certificate or certificates
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued by the Corporation, such certificate may nevertheless be
issued by the Corporation with the same effect as if such person were such
officer, transfer agent or registrar at the date of issue.

                  If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class of stock; provided that, except as otherwise
provided by statute, in lieu of the foregoing requirements there may be set
forth on the face or back of the certificate which the Corporation shall issue
to represent such class or series of stock, a statement that the Corporation
will furnish to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the Corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this Section 8.1
or otherwise required by statute or with respect to this Section 8.1 a statement
that the Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights. Except as otherwise expressly provided by law, the rights and
obligations of the holders of uncertificated stock and the rights and
obligations of the holders of certificates representing stock of the same class
and series shall be identical.

                  All certificates surrendered to the corporation for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except that in the case of a lost, stolen, destroyed or mutilated
certificate a new one may be issued therefor upon such terms and with such
indemnity, if any, to the Corporation as the Board of Directors may prescribe.
Certificates shall not be issued representing fractional shares of stock.



                                       18
<PAGE>

                  SECTION 8.2. Lost Certificates. The Board of Directors may
direct a new certificate of stock or uncertificated shares to be issued in place
of any certificate theretofore issued by the Corporation alleged to have been
lost, stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
or to give the Corporation a bond in such sum as it may deem sufficient to
indemnify it against any claim that may be made against the Corporation on
account of the alleged loss, theft or destructions of any such certificate or
the issuance of such new certificate or uncertificated shares, or both.

                  SECTION 8.3. Transfers. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and register the
transaction upon its books. Upon presentation to the Corporation or the transfer
agent of the Corporation of an instruction with a request to transfer, pledge or
release an uncertificated share or shares, it shall be the duty of the
Corporation to register the transfer, pledge or release upon its books, and
shall provide the registered owner with such notices as may be required by law.
Transfers of shares shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney and filed with the Secretary of the Corporation or the transfer agent.

                  SECTION 8.4. Registered Stockholders. The Corporation shall be
entitled to treat the registered owner of any share or shares of stock whether
certificated or uncertificated as the holder in fact thereof and, accordingly,
shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by the laws
of the State of Delaware.

                  SECTION 8.5. Regulations Regarding Certificates. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.


                                   ARTICLE IX

                                    DIVIDENDS

                  SECTION 9.1. Declaration. Dividends upon the capital stock of
the Corporation, subject to the provisions of the Certificate of Incorporation,
if any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of capital stock, subject to the provisions of the Certificate of
Incorporation.



                                       19
<PAGE>

                  SECTION 9.2. Reserve. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Board of Directors from time to time, in its absolute
discretion, shall think proper as a reserve or reserves to meet contingencies,
or for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Board of Directors shall think
conducive to the interest of the Corporation, and the directors may modify or
abolish any such reserve in the manner in which it was created.

                                    ARTICLE X

                                 INDEMNIFICATION

                  SECTION 10.1. Third Party Actions. This Corporation shall, to
the maximum extent permitted from time to time under the law of the State of
Delaware, indemnify and upon request shall advance expenses to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit, proceeding or claim, whether civil, criminal,
administrative or investigative (other than an action by or in the name of the
Corporation) by reason of the fact that such person is or was or has agreed to
be a director, officer, employee, or agent of this Corporation or any of its
direct or indirect subsidiaries or while such person is or was serving at the
request of this Corporation as a director, officer, partner, trustee, employee
or agent of any corporation, partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, against
expenses (including attorney's fees and expenses), judgments, fines, penalties
and amounts paid in settlement actually and reasonably incurred in connection
with the investigation, preparation to defend or defense of such action, suit,
proceeding or claim if such person acted in good faith and in a manner such
person reasonably believed to be in or not opposed to the best interest of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe such person's conduct was unlawful; provided,
however, that the foregoing shall not require this Corporation to indemnify or
advance expenses to any person in connection with any action, suit, proceeding,
claim or counterclaim initiated by or on behalf of such person. Such
indemnification shall not be exclusive of other indemnification rights arising
under any by-laws, agreement, vote of directors or stockholders or otherwise and
shall inure to the benefit of the heirs and legal representatives of such
person. Any person seeking indemnification under this Section 10.1 shall be
deemed to have met the standard of conduct required for such indemnification
unless the contrary shall be established.

                  SECTION 10.2. Actions By or in the Right of the Corporation.
This Corporation shall, to the maximum extent permitted from time to time under
the law of the State of Delaware, indemnify and upon request shall advance
expenses to any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit, proceeding or claim by or
on the right of the Corporation to procure a judgment in its favor by reason of
the fact that such person is or was or has agreed to be a director, officer,
employee, or agent of this Corporation or any of its direct or indirect
subsidiaries or while such person is or was serving at the request of this
Corporation as a director, officer, partner, trustee, employee or agent of any
corporation, partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, against expenses (including
attorney's fees and expenses), judgments, fines,



                                       20
<PAGE>

penalties and amounts paid in settlement actually and reasonably incurred in
connection with the investigation, preparation to defend or defense of such
action, suit, proceeding or claim if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interest of the Corporation, and except that no indemnification shall be made
with respect to any claim, issue, or matter as to which such person shall have
been adjudged to be liable to the Corporation unless and only to the extent that
the Delaware Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Delaware
Court of Chancery or such other court shall deem proper. Such indemnification
shall not be exclusive of other indemnification rights arising under any
by-laws, agreement, vote of directors or stockholders or otherwise and shall
inure to the benefit of the heirs and legal representatives of such person. Any
person seeking indemnification under this Section 10.2 shall be deemed to have
met the standard of conduct required for such indemnification unless the
contrary shall be established.

                  SECTION 10.3. Successful Defense. To the extent that a
director, officer, employee, or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit, or proceeding referred
to in Sections 10.1 or 10.2 or in defense of any claim, issue, or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonable incurred by him in connection therewith.

                  SECTION 10.4. Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against any liability
asserted against such person and incurred by such person in any such capacity,
or arising out of such person's status as such, whether or not the Corporation
would have the power to indemnify such person against such liability under the
provisions of this Article X of the by-laws.

                  SECTION 10.5. Definitions. For purposes of this Article X,
reference to the "Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence has continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the provisions
of this Article X with respect to the resulting or surviving corporation as such
person would have with respect to such constituent corporation if its separate
existence had continued.

                  For purposes of this Article X, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to any employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to an



                                       21
<PAGE>

employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of the
Corporation" as referred to in this Article X.

                  SECTION 10.6. Survival; Preservation of Other Rights. The
foregoing indemnification provisions shall be deemed to be a contract between
the Corporation and each director, officer, employee, and agent who serves in
any such capacity at any time while these provisions as well as relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such director, officer, employee,
or agent.

         The indemnification provided by this Article X shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding officer, and shall continue as to a person who
has ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.



                                       22
<PAGE>

                                   ARTICLE XI

                                  MISCELLANEOUS

                  SECTION 11.1. Seal. The Board of Directors may provide a
suitable seal, containing the name of the corporation, and the words "Corporate
Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or otherwise reproduced.

                  SECTION 11.2. Books. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors.

                  SECTION 11.3. Fiscal Year. The fiscal year of the Corporation
shall be such as established from time to time by the Board of Directors.

                  SECTION 11.4. Resignations. Any director, member of a
committee, or officer may resign at any time. Such resignation shall be made in
writing and shall take effect at the time specified therein, or if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.

                  SECTION 11.5. Facsimile Signatures. In addition to the
provisions for the use of facsimile signatures elsewhere specifically authorized
in these by-laws, facsimile signatures of any officer or officers of the
Corporation may be used whenever and as authorized by the Board of Directors.

                  SECTION 11.6. Reliance upon Books, Reports and Records. Each
director and each member of any committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the Corporation by any of its
officers, or by an independent certified public accountant, or by an appraiser
selected with reasonable care by the Board of Directors or by any such
committee, or in relying in good faith upon other records of the Corporation.


                                   ARTICLE XII

                                    AMENDMENT

                  If provided in the Certificate of Incorporation of the
Corporation, the Board of Directors shall have the power to adopt, amend and
repeal from time to time by-laws of the Corporation, subject to the right of the
stockholders entitled to vote with respect thereto to amend or repeal such
by-laws as adopted or amended by the Board of Directors.



                                       23

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.1
<SEQUENCE>5
<FILENAME>h98566exv10w1.txt
<DESCRIPTION>RETIREMENT SAVINGS RESTORATION PLAN
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.1


                             WASTE MANAGEMENT, INC.
                       RETIREMENT SAVINGS RESTORATION PLAN

                 As Amended and Restated Effective April 1, 2001


<PAGE>
                                TABLE OF CONTENTS

<Table>
<Caption>

                                                                                                                PAGE
                                                                                                                ----
<S>                                                                                                             <C>
ARTICLE 1  INTRODUCTION...........................................................................................1

         1.1 Purpose of Plan......................................................................................1
         1.2 Status of Plan.......................................................................................1

ARTICLE 2  DEFINITIONS............................................................................................1

         2.1 "Account"............................................................................................1
         2.2 "Base Salary"........................................................................................1
         2.3 "Beneficiary"........................................................................................1
         2.4 "Bonus"..............................................................................................1
         2.5 "Bonus Deferral".....................................................................................2
         2.6 "Change in Control"..................................................................................2
         2.7 "Code"...............................................................................................2
         2.8 "Company"............................................................................................2
         2.9 "Deferral Form"......................................................................................2
         2.10 "Effective Date"....................................................................................2
         2.11 "Elective Deferral".................................................................................2
         2.12 "Eligible Employee".................................................................................2
         2.13 "Employee"..........................................................................................2
         2.14 "Employer"..........................................................................................2
         2.15 "ERISA".............................................................................................2
         2.16 "Limit".............................................................................................2
         2.17 "Matched Deferral"..................................................................................2
         2.18 "Matching Allocation"...............................................................................2
         2.19 "Participant".......................................................................................3
         2.20 "Payment Form"......................................................................................3
         2.21 "Plan"..............................................................................................3
         2.22 "Plan Administrator"................................................................................3
         2.23 "Plan Committee"....................................................................................3
         2.24 "Plan Year".........................................................................................3
         2.25 "Qualified Plan"....................................................................................3
         2.26 "Total Compensation"................................................................................3
         2.27 "Transferred Amount"................................................................................3

ARTICLE 3  ELIGIBILITY AND PARTICIPATION..........................................................................3

         3.1 Eligibility..........................................................................................3
         3.2 Participation........................................................................................4
         3.3 Suspension of Participation..........................................................................4
</Table>



                                       i
<PAGE>
                                TABLE OF CONTENTS
                                   (continued)

<Table>
<Caption>

                                                                                                                PAGE
                                                                                                                ----

<S>                                                                                                             <C>
ARTICLE 4  DEFERRALS AND CONTRIBUTIONS............................................................................4

         4.1 Elective Deferrals...................................................................................4
         4.2 Bonus Deferrals......................................................................................4
         4.3 Elections............................................................................................4
         4.4 Matching Allocations.................................................................................5

ARTICLE 5  ACCOUNTS...............................................................................................6

         5.1 Accounts.............................................................................................6
         5.2 Investments..........................................................................................6
         5.3 Statements...........................................................................................6

ARTICLE 6  VESTING................................................................................................6


ARTICLE 7  DISTRIBUTION OF ACCOUNTS...............................................................................7

         7.1 Election as to Time and Form of Payment..............................................................7
         7.2 Death................................................................................................7
         7.3 Unforeseeable Emergency..............................................................................8
         7.4 Early Distribution...................................................................................8
         7.5 Taxes................................................................................................9

ARTICLE 8  PLAN ADMINISTRATION....................................................................................9

         8.1 Plan Administration and Interpretation...............................................................9
         8.2 Powers, Duties, Procedures...........................................................................9
         8.3 Information..........................................................................................9
         8.4 Indemnification of Plan Administrator................................................................9

ARTICLE 9  AMENDMENT AND TERMINATION.............................................................................10

         9.1 Authority to Amend and Terminate....................................................................10
         9.2 Existing Rights.....................................................................................10

ARTICLE 10 MISCELLANEOUS.........................................................................................10

         10.1 No Funding.........................................................................................10
         10.2 General Creditor Status............................................................................10
         10.3 Non-assignability..................................................................................10
         10.4 Limitation of Participant's Rights.................................................................11
         10.5 Participants Bound.................................................................................11
         10.6 Satisfaction of Claims; Unclaimed Benefits.........................................................11
         10.7 Not Contract of Employment.........................................................................11
         10.8 Severability.......................................................................................11
         10.9 Headings...........................................................................................11
</Table>

                                       ii


<PAGE>

                             WASTE MANAGEMENT, INC.
                       RETIREMENT SAVINGS RESTORATION PLAN

                 As Amended and Restated Effective April 1, 2001



                                    ARTICLE 1
                                  INTRODUCTION

         1.1 PURPOSE OF PLAN. Waste Management, Inc. (the "Company") established
the Waste Management, Inc. Retirement Savings Restoration Plan (the "Plan") to
provide certain eligible employees a means to defer a portion of their base
salary and/or their bonus to save for retirement. The Plan is primarily designed
to give these eligible employees an additional avenue to defer amounts that are
in addition to and otherwise limited from deferral under the Waste Management
Retirement Savings Plan due to certain limitations established under the
Internal Revenue Code for such plan. The Plan is hereby amended and restated
effective April 1, 2001.

         1.2 STATUS OF PLAN. The Plan is intended to be an unfunded plan
maintained by the Company "primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees"
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA, and the
Plan shall be interpreted and administered consistent with this intent.

                                    ARTICLE 2
                                   DEFINITIONS

         Wherever used herein, the following terms have the meanings set forth
below, unless a different meaning is clearly required by the context:

         2.1 "ACCOUNT" means an account established for the benefit of a
Participant under Section 5.1, which may include one or more sub-accounts.

         2.2 "BASE SALARY" means the annual base salary rate payable by an
Employer to an Eligible Employee for services performed during any Plan Year
that would be includible in the Eligible Employee's gross income for such year
determined before deductions made with respect to this Plan, the Qualified Plan,
or any other plan maintained by an Employer permitting pre-tax contributions,
such as an Employer-sponsored plan established under Code Section 125. Base
Salary does not include income from stock option exercises, Bonuses and Bonus
Deferrals under this Plan, or any other type of incentive award.

         2.3 "BENEFICIARY" means the beneficiary or beneficiaries designated by
a Participant or otherwise under Section 7.2 to receive an amount, if any,
payable from such Participant's Account upon the death of the Participant.

         2.4 "BONUS" means the annual bonus payable under the Company's
management incentive plan.



                                       1
<PAGE>

         2.5 "BONUS DEFERRAL" means the portion of a Bonus that is deferred by a
Participant under Section 4.2 with respect to a Plan Year.

         2.6 "CHANGE IN CONTROL" means a Change in Control as such term is
defined in the Company's 1996 Stock Option Plan for Non-Employee Directors, as
amended from time to time.

         2.7 "CODE" means the Internal Revenue Code of 1986, as amended from
time to time, and the regulations and rulings issued thereunder. Reference to
any section or subsection of the Code includes reference to any comparable or
succeeding provisions of any legislation that amends, supplements or replaces
such section or subsection.

         2.8 "COMPANY" means Waste Management, Inc., a Delaware corporation, or
any successor corporation thereto.

         2.9 "DEFERRAL FORM" means the document or documents, voice response or
electronic media prescribed by the Plan Administrator pursuant to which a
Participant may make elections to defer a portion of the Participant's Base
Salary and/or all or a portion of the Participant's Bonus.

         2.10 "EFFECTIVE DATE" means April 1, 2001, the date of the
establishment of the Plan.

         2.11 "ELECTIVE DEFERRAL" means the portion of Base Salary the receipt
of which is deferred by a Participant under Section 4.1 with respect to a Plan
Year.

         2.12 "ELIGIBLE EMPLOYEE" means an Employee who satisfies the
eligibility requirements set forth in Article 3.

         2.13 "EMPLOYEE" means an employee of an Employer who is an eligible
employee within the meaning of the Qualified Plan.

         2.14 "EMPLOYER" means the Company or an affiliated corporation of the
Company that is an adopting employer under the Qualified Plan.

         2.15 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations and rulings issued thereunder.
Reference to any section or subsection of ERISA includes reference to any
comparable or succeeding provisions of any legislation that amends, supplements
or replaces such section or subsection.

         2.16 "LIMIT" means the Code Section 402(g) limit, and for 2001 the Code
Section 401(a)(17), under the Qualified Plan.

         2.17 "MATCHED DEFERRAL" means a Participant's Elective Deferrals and
Bonus Deferrals under the Plan after the Participant reaches the Limit.

         2.18 "MATCHING ALLOCATION" means an allocation by the Employer for the
benefit of a Participant who is an Eligible Employee, as described in Section
4.4.



                                       2
<PAGE>

         2.19 "PARTICIPANT" means a current or former Eligible Employee who
participates in the Plan in accordance with Article 3 or maintains an Account
balance hereunder.

         2.20 "PAYMENT FORM" means the document or documents, voice response or
electronic media prescribed by the Plan Administrator pursuant to which a
Participant shall elect the time and form for distribution of his or her Account
balance, as provided under Article 7.

         2.21 "PLAN" means the Waste Management, Inc. Deferral Savings Plan as
provided herein and as amended from time to time.

         2.22 "PLAN ADMINISTRATOR" means the individual, individuals or
committee designated by the Company as responsible for the administration of the
Plan. Unless the Company determines otherwise, the Administrative Committee of
the Waste Management Employee Benefit Plans (the "Administrative Committee")
shall be the Plan Administrator. Notwithstanding the foregoing, in the event of
a Change in Control, the Plan Administrator shall be those individuals who were
members of the Board of Directors of the Company immediately prior to the Change
in Control and who continue as directors of the Company thereafter, but if there
are no continuing directors, the Plan Administrator shall be the Compensation
Committee of the Board of Directors of the Company as constituted prior to the
Change in Control.

         2.23 "PLAN COMMITTEE" means the committee designated by the Company as
having the authority to amend and/or terminate the Plan. Unless the Company
determines otherwise, the Plan Committee shall consist of the same members as
the Administrative Committee.

         2.24 "PLAN YEAR" means the calendar year; provided, that, for
administrative purposes the initial Plan year shall begin on the Effective Date
and end on December 31, 2001.

         2.25 "QUALIFIED PLAN" means the Waste Management Retirement Savings
Plan, as amended from time to time.

         2.26 "TOTAL COMPENSATION" means for a Plan Year the sum of an Eligible
Employee's Base Salary and Bonus.

         2.27 "TRANSFERRED AMOUNT" means the amount transferred, if any, from
the USA Waste Services, Inc. Executive Deferral Plan to this Plan pursuant to a
Participant's voluntary election.

                                    ARTICLE 3
                          ELIGIBILITY AND PARTICIPATION

         3.1 ELIGIBILITY.

         (a) An Employee whose stated Base Salary and target Bonus as of the
first day of a Plan Year exceeds the annual compensation limit established under
Code Section 401(a)(17) for such Plan Year shall be eligible to participate in
the Plan for such Plan Year. For any Plan Year beginning on or after January 1,
2002, an Employee shall be eligible to participate in the Plan for a Plan Year
if his or her stated Base Salary for the year before the Plan Year equals or
exceeds




                                       3
<PAGE>

$170,000, or if the Employee is hired during the Plan Year, his or her stated
Base Salary on the Employee's date of hire equals or exceeds $170,000.

         (b) Prior to each Plan Year, the Plan Administrator shall determine the
identity of those Employees who are eligible to commence their participation in
the Plan pursuant to Section 3.1(a) and those Participants who may continue
their participation in the Plan for such Plan Year pursuant to Section 3.1(a).
The Plan Administrator will notify those Employees of their eligibility to
participate (or continue participation) in the Plan and provide them with a
Deferral Form. The Plan Administrator shall have the sole discretion to
determine eligibility pursuant to the Plan.

         3.2 PARTICIPATION. An Eligible Employee who properly completes a
Deferral Form shall become a Participant in the Plan on the first date as of
which an Elective Deferral or Bonus Deferral is credited to his or her Account.
A Participant in the Plan shall continue to be a Participant so long as any
amount remains credited to his or her Account.

         3.3 SUSPENSION OF PARTICIPATION. If the Plan Administrator determines
that a Participant currently making Elective Deferrals or receiving Matching
Allocations no longer satisfies the eligibility requirements of Section 3.1(a)
during the Plan Year, the Plan Administrator may suspend the Participant's
Elective Deferrals and Matching Allocations until the next following Plan Year
as of which the Participant again satisfies such eligibility requirements. In
such circumstance, the Plan Administrator shall notify the Participant of such
suspension. If the Participant's participation is suspended as described in this
Section 3.3 and the Plan Administrator determines that the Participant again
satisfies the eligibility requirements of Section 3.1(a), the Plan Administrator
shall notify the Participant, and the Participant shall be permitted to resume
active participation in the Plan as of the next following Plan Year.

                                    ARTICLE 4
                           DEFERRALS AND CONTRIBUTIONS

         4.1 ELECTIVE DEFERRALS. With respect to any Plan Year, an Eligible
Employee may irrevocably elect to defer, on a pre-tax basis, up to 25% (in whole
percentages) of his or her Base Salary. Such an election is a separate and
independent election from an election to defer compensation under the Qualified
Plan.

         4.2 BONUS DEFERRALS. With respect to any Plan Year, an Eligible
Employee may irrevocably elect to defer all or a portion of his or her Bonus (in
whole percentages). Notwithstanding the foregoing, the amount of an Eligible
Employee's Bonus eligible for deferral in a given Plan Year shall not exceed the
Bonus reduced by sum of any before-tax contributions made to the Qualified Plan
and the amount necessary to satisfy the tax due for FICA with respect to such
Bonus.

         4.3 ELECTIONS.

         (a) TIME FOR MAKING DEFERRAL ELECTIONS.

                  (i)      ELECTIVE DEFERRALS.



                                       4
<PAGE>

                           (A)      Generally. An election to defer Base Salary
                                    shall be made prior to the calendar year in
                                    which the Base Salary is earned; provided,
                                    that, for the Plan Year beginning on the
                                    Effective Date, such elections shall be made
                                    prior to April 1, 2001 and shall only be
                                    effective for Base Salary earned on and
                                    after such date. The Plan Administrator will
                                    notify each Eligible Employee of the
                                    applicable election period and deadline for
                                    filing such elections.

                           (B)      Newly Eligible Employees. In the case of an
                                    Eligible Employee in his or her first year
                                    of employment, an election to defer Base
                                    Salary must be made within 30 days after the
                                    Eligible Employee begins employment and at
                                    least five business days before the
                                    commencement of the first payroll period for
                                    which the election is effective. Such
                                    elections are effective only with respect to
                                    Base Salary earned after the effective date
                                    of the election.

                  (ii)     BONUS DEFERRALS. An election to defer Bonuses must be
                           made on or before December 31 of the Plan Year that
                           precedes the Plan Year in which the Bonus is
                           otherwise paid.

         (b) DEFERRAL FORMS; IRREVOCABILITY. All Deferral Forms for Elective and
Bonus Deferrals must be timely filed, recorded or otherwise made in the manner
prescribed by the Plan Administrator. An Eligible Employee may change a prior
election up to the date established under Section 4.3(i) or (ii), as applicable.
However, from and after the last date permitted for making such elections, all
deferral elections pursuant to this Article 4 shall be irrevocable.

         (c) NO ELECTION. A Deferral Form for a Plan Year shall not apply to
subsequent Plan Years. If no election to defer Base Salary or Bonuses is made
for a given Plan Year, no deferrals shall be made for such Plan Year.

         4.4 MATCHING ALLOCATIONS.

         (a) No later than the latest date permitted by Code Section 404 for
matching contributions under the Qualified Plan with respect to each Plan Year
thereunder (or such later date that the need for a matching contribution is
determined), the Employer shall credit a Matching Allocation to the Account of
each Participant who is an Eligible Employee and is entitled to such a
contribution pursuant to Section 4.4(b).

         (b) With respect to each payroll period after a Participant reaches the
Limit, such Participant shall receive a Matching Allocation equal to (i) 100% of
the Participant's Matched Deferrals up to 3% of the Participant's Total
Compensation, plus (ii) 50% of the Participant's Matched Deferrals in excess of
3% of the Participant's Total Compensation, up to 6% of the Participant's Total
Compensation. Notwithstanding the foregoing, the Committee, in its sole and
absolute discretion, may adjust a Participant's Matching Allocation to the
extent necessary to ensure that he or she does not receive matching
contributions under this Plan and the Qualified Plan that exceed the sum of (i)
100% of the Participant's deferrals under this Plan and elective contributions
under the Qualified Plan up to 3% of Total Compensation and (ii) 50% of the



                                       5
<PAGE>

Participant's deferrals under this Plan and elective contributions under the
Qualified Plan in excess of 3% of Total Compensation, up to 6% of Total
Compensation.

                                    ARTICLE 5
                                    ACCOUNTS

         5.1 ACCOUNTS. The Plan Administrator shall establish an Account for
each Participant to reflect Elective Deferrals, Bonus Deferrals, Matching
Allocations, if any, and Transferred Amounts made for the Participant's benefit
together with any adjustments for income, gain or loss and any payments from the
Account. A separate sub-account shall be established for Elective Deferrals,
Bonus Deferrals, if any, and Matching Allocations, if any. Elective Deferrals
shall be credited as of the end of each payroll period, and Bonus Deferrals
shall be credited as of the date on which the Bonus would otherwise be paid. The
Accounts are established solely for the purposes of tracking Elective Deferrals,
Bonus Deferrals, Matching Allocations and any income adjustments thereto. The
Accounts shall not be used to segregate assets for payment of any amounts
deferred or allocated under the Plan.

         5.2 INVESTMENTS.

         (a) Amounts credited to each Participant's Account shall be deemed
invested, in accordance with the Participant's directions, in one or more
investment funds that are available under the Plan. If a Participant does not
make investment elections with respect to amounts credited to his or her
Account, such amounts shall be deemed invested in the Moderate Asset Allocation
Fund or such other investment fund as the Investment Committee of the Waste
Management Employee Benefit Plans may direct.

         (b) A Participant shall make his or her investment fund selections at
such time as he or she files the Deferral Form, as described in Article 4.
Investments must be made in whole percentages. A Participant may change his or
her investment elections at any time, or may reallocate amounts invested among
the investment funds available under the Plan.

         (c) Expense charges for transactions performed for each Participant's
sub-account shall be debited against each respective sub-account and shall be
listed on the quarterly statement. Other Plan charges and administrative
expenses will be paid by the Employer without debit against Participant
Accounts.

         5.3 STATEMENTS. As soon as practicable following the last business day
of each calendar quarter, the Plan Administrator (or its designee) shall provide
the Participant with a statement of such Participant's Account reflecting the
deemed income, gains and losses (realized and unrealized), amounts of deferrals
and distributions with respect to such Account since the prior statement.

                                    ARTICLE 6
                                     VESTING

         Subject to the provisions of Sections 7.4, 7.5 and 8.1, a Participant
shall at all times have a fully vested and nonforfeitable right to all Elective
Deferrals, Bonus Deferrals, if any, and



                                       6
<PAGE>

Matching Allocations, if any, credited to the Participant's Account, adjusted
for deemed income, gain and loss attributable thereto.

                                    ARTICLE 7
                            DISTRIBUTION OF ACCOUNTS

         7.1 ELECTION AS TO TIME AND FORM OF PAYMENT.

         (a) GENERAL PAYMENT OPTIONS. Except as otherwise permitted in this
Article 7, a Participant may elect, on a Payment Form, one of the following
payment options for all amounts credited to a Participant's Account:

                  (i)      a lump sum payment in February of the calendar year
                           following either (A) a future date or age that occurs
                           on or after termination of employment, or (B)
                           retirement at age 65; or

                  (ii)     annual installments over a period of up to ten years
                           (as elected by the Participant), to begin in February
                           of the calendar year following a specific date or
                           age.

         Any such election shall be made in accordance with procedures and rules
established by the Plan Administrator.

         If a Participant does not make an election, distribution shall be made
in a single lump sum in February of the calendar year following the
Participant's termination of employment. Payments from a Participant's Account
may be in cash or in property, as determined by the Plan Administrator or the
trustee of any existing trust from which payment is made.

         For purposes of the Plan, a Participant shall terminate employment when
the Participant separates from service with the Company and all majority-owned
subsidiaries of the Company. However, temporary absence from employment because
of illness, vacation, approved leaves of absences, and transfers of employment
among the Company and its majority-owned subsidiaries shall not be considered a
termination of employment or an interruption of employment.

         (b) SCOPE OF ELECTIONS. The elections under this Section 7 shall apply
to all amounts credited to a Participant's Account.

         (c) PERMITTED CHANGES. Subject to approval by the Plan Administrator, a
Participant may change the payment form or date elected for distribution of his
or her Account under Section 7.1(a) before any payment is made under his or her
existing election by properly completing a new Payment Form and filing such form
with the Plan Administrator at least 12 months before the first payment is due
under the new election. Such change shall apply to all amounts credited to the
Participant's Account.

         7.2 DEATH.

         (a) If a Participant dies before payment or complete distribution (in
the case of installment payouts) of his or her Account, all amounts credited to
the Participant's Account



                                       7
<PAGE>

shall be paid to the Participant's designated Beneficiary, according to the
Participant's distribution election, unless the Plan Administrator elects, in
its sole discretion, to pay out a Participant's Account balance in a single lump
sum as soon as practicable following the date of the Participant's death.

         (b) A Participant may designate a Beneficiary by notifying the Plan
Administrator in writing, at any time before Participant's death, on a form
prescribed by the Plan Administrator for that purpose. A Participant may revoke
any Beneficiary designation or designate a new Beneficiary at any time without
the consent of a Beneficiary or any other person. If no Beneficiary is
designated or no Beneficiary survives the Participant, payment shall be made to
the Participant's surviving spouse, or, if none, to the Participant's estate.

         7.3 UNFORESEEABLE EMERGENCY. If a Participant experiences an
unforeseeable emergency, the Plan Administrator, in its sole discretion, may pay
to the Participant only that portion, if any, of the Participant's Account that
the Plan Administrator determines is necessary to satisfy such emergency,
including any amounts necessary to pay any federal, state or local income taxes
reasonably anticipated to result from the distribution. A Participant requesting
a distribution due to an unforeseeable emergency shall apply for the
distribution in writing using a form prescribed by the Plan Administrator for
that purpose and shall provide such additional information as the Plan
Administrator may require. For purposes of the Plan, an "unforeseeable
emergency" is an unanticipated emergency that is caused by an event beyond the
control of the Participant or Beneficiary and that would result in severe
financial hardship to the Participant or Beneficiary if withdrawal is not
permitted. Unforeseeable emergencies may include:

         (a) Expenses that are not covered by insurance and that the Participant
or his or her spouse or dependent has incurred as a result of, or is required to
incur in order to receive medical care;

         (b) The need to prevent the eviction of the Participant from his or her
principal residence or foreclosure on the mortgage of the Participant's
principal residence; or

         (c) Any other circumstance that is determined by the Plan
Administrator, in the Plan Administrator's sole discretion, to constitute an
unforeseeable emergency if an event or circumstance (i) cannot be relieved
through reimbursement and is not covered by insurance, (ii) cannot be reasonably
relieved by the liquidation of the Participant's or Beneficiary's assets, unless
such liquidation itself would cause a severe financial hardship, and (iii) is
consistent with the intent of Treasury Regulation Section 1.457-2(h)(4) and (5).

         7.4 EARLY DISTRIBUTION. Notwithstanding the foregoing provisions of
this Article VII or the provisions of any applicable deferral election, a
Participant may elect to receive a lump-sum payment of any or all of his or her
Account balance prior to the date prescribed in Section 7.1(a). Such payment
shall be made as soon as practicable following the date as of which the
Participant requests such payment. The Plan Administrator shall impose a penalty
for such early payment, in an amount equal to 10% of the Account balance to be
distributed, and such penalty shall be deducted from the distribution and
forfeited by the Participant.



                                       8
<PAGE>

         7.5 TAXES. Income taxes and other taxes payable with respect to an
Account shall be deducted from such Account. All federal, state or local taxes
that the Plan Administrator determines are required to be withheld from any
payments made pursuant to this Article 7 shall be withheld.

                                    ARTICLE 8
                               PLAN ADMINISTRATION

         8.1 PLAN ADMINISTRATION AND INTERPRETATION. The Plan Administrator
shall oversee the administration of the Plan. The Plan Administrator shall have
complete control and authority to determine the rights and benefits and all
claims, demands and actions arising out of the provisions of the Plan of any
Participant, Beneficiary, deceased Participant, or other person having or
claiming to have any interest under the Plan. Benefits under the Plan shall be
paid only if the Plan Administrator decides in its discretion that the Eligible
Employee, Participant or Beneficiary is entitled to them. Notwithstanding any
other provision of the Plan to the contrary, the Plan Administrator shall have
complete discretion to interpret the Plan and to decide all matters under the
Plan. Such interpretation and decision shall be final, conclusive and binding on
all Participants and any person claiming under or through any Participant, in
the absence of clear and convincing evidence that the Plan Administrator acted
arbitrarily and capriciously. Any individual serving as Plan Administrator who
is a Participant shall not vote or act on any matter relating solely to himself
or herself. When making a determination or calculation, the Plan Administrator
shall be entitled to rely on information furnished by a Participant, a
Beneficiary, the Employer or a trustee (if any). The Plan Administrator shall
have the responsibility for complying with any reporting and disclosure
requirements of ERISA.

         8.2 POWERS, DUTIES, PROCEDURES. The Plan Administrator shall have such
powers and duties, may adopt such rules and tables, may act in accordance with
such procedures, may appoint such officers or agents, may delegate such powers
and duties, may receive such reimbursements and compensation, and shall follow
such claims and appeal procedures with respect to the Plan as the Plan
Administrator may establish.

         8.3 INFORMATION. To enable the Plan Administrator to perform its
functions, the Employer shall supply full and timely information to the Plan
Administrator on all matters relating to the compensation of Participants, their
employment, retirement, death, termination of employment, and such other
pertinent facts as the Plan Administrator may require.

         8.4 INDEMNIFICATION OF PLAN ADMINISTRATOR. The Employer agrees to
indemnify and to defend to the fullest extent permitted by law any director,
officer or employee who serves as Plan Administrator (including any such
individual who formerly served as Plan Administrator) against all liabilities,
damages, costs and expenses (including reasonable attorneys' fees and amounts
paid in settlement of any claims approved by the Employer in writing in advance)
occasioned by any act or omission to act in connection with the Plan, if such
act or omission is in good faith.



                                       9
<PAGE>

                                    ARTICLE 9
                            AMENDMENT AND TERMINATION

         9.1 AUTHORITY TO AMEND AND TERMINATE. Subject to Section 9.2, the Plan
Committee shall have the right to amend or terminate the Plan at any time. If
the Plan is terminated and a trust is established (as described in Section
10.1), the Company may (a) elect to continue to maintain the trust to pay
benefits hereunder as they become due as if the Plan had not terminated, or (b)
direct the trustee to pay promptly to Participants (or their Beneficiaries) the
balance of their Accounts.

         9.2 EXISTING RIGHTS. No amendment or termination of the Plan shall
adversely affect the rights of any Participant with respect to amounts that have
been credited to his or her Account prior to the later of the date such
amendment or termination is adopted or effective.

                                   ARTICLE 10
                                  MISCELLANEOUS

         10.1 NO FUNDING. The Company intends that the Plan constitute an
"unfunded" plan for tax purposes and for purposes of Title I of ERISA; provided
that the Plan Administrator may authorize the creation of trusts and deposit
therein cash or other property, or make other arrangements to meet the Company's
obligations under the Plan, and further provided that such a trust shall be
established upon a Change in Control, if none has previously been established,
and the Company shall make a contribution to such trust effective as of the date
of the Change in Control in an amount equal to the sum of the value of all
Participant Accounts (including deemed investment gains) under the Plan as of
such date and all contributions made to the Trust as of the date of the Change
in Control shall thereafter be irrevocable until all Accounts under the Plan
have been paid in full. Such trusts or other arrangements shall be consistent
with the unfunded status of the Plan, unless the Plan Administrator otherwise
determines with the consent of each Participant. In the event that such a trust
or other arrangement is established, any Matching Allocations under the Plan may
be made in cash or in property (either in part or in whole), including common
stock of the Company.

         10.2 GENERAL CREDITOR STATUS. The Plan constitutes a mere promise by
the Company to make payments in accordance with the terms of the Plan and
Participants and Beneficiaries shall have the status of general unsecured
creditors of the Company. Nothing in the Plan will be construed to give any
employee or any other person rights to any specific assets of the Company or of
any other person.

         10.3 NON-ASSIGNABILITY. None of the benefits, payments, proceeds or
claims of any Participant or Beneficiary shall be subject to any claim of any
creditor of any Participant or Beneficiary and, in particular, the same shall
not be subject to attachment or garnishment or other legal process by any
creditor of such Participant or Beneficiary, nor shall any Participant or
Beneficiary have any right to alienate, anticipate, commute, pledge, encumber or
assign any of the benefits or payments or proceeds that he or she may expect to
receive, contingently or otherwise under the Plan.



                                       10
<PAGE>

         10.4 LIMITATION OF PARTICIPANT'S RIGHTS. Nothing contained in the Plan
shall confer upon any person a right to be employed or to continue in the employ
of an Employer, or to interfere, in any way, with an Employer's right to
terminate the employment of a Participant in the Plan at any time, with or
without cause.

         10.5 PARTICIPANTS BOUND. Any action with respect to the Plan taken by
the Plan Administrator or a trustee (if any), or any action authorized by or
taken at the direction of the Plan Administrator or a trustee (if any), shall be
conclusive upon all Participants and Beneficiaries entitled to benefits under
the Plan.

         10.6 SATISFACTION OF CLAIMS; UNCLAIMED BENEFITS. Any payment to any
Participant or Beneficiary in accordance with the provisions of the Plan shall,
to the extent thereof, be in full satisfaction of all claims under the Plan
against the Employer, the Plan Administrator and a trustee (if any) under the
Plan, and the Plan Administrator may require such Participant or Beneficiary, as
a condition precedent to such payment, to execute a receipt and release to such
effect. If any Participant or Beneficiary is determined by the Plan
Administrator to be incompetent by reason of physical or mental disability
(including minority) to give a valid receipt and release, the Plan Administrator
may cause the payment or payments becoming due to such person to be made to
another person for his or her benefit without responsibility on the part of the
Plan Administrator, the Employer or a trustee (if any) to follow the application
of such funds. In the case of a benefit payable on behalf of a Participant, if
the Plan Administrator is unable to locate the Participant or beneficiary to
whom such benefit is payable, upon the Plan Administrator's determination
thereof, such benefit shall be forfeited to the Company. Notwithstanding the
foregoing, if subsequent to any such forfeiture the Participant or beneficiary
to whom such benefit is payable makes a valid claim for such benefit, such
forfeited benefit shall be restored to the Plan by the Company.

         GOVERNING LAW AND SEVERABILITY. The Plan shall be construed,
administered, and governed in all respects under and by the laws of the State of
Texas. If any provision is held by a court of competent jurisdiction to be
invalid or unenforceable, the remaining provisions hereof shall continue to be
fully effective.

         10.7 NOT CONTRACT OF EMPLOYMENT. The adoption and maintenance of the
Plan shall not be deemed to be a contract between the Company and any person or
to be consideration for the employment of any person. Nothing herein contained
shall be deemed to give any person the right to be retained in the employ of the
Company or to restrict the right of the Company to discharge any person at any
time nor shall the Plan be deemed to give the Company the right to require any
person to remain in the employ of the Company or to restrict any person's right
to terminate his employment at any time.

         10.8 SEVERABILITY. If any provision of this Plan shall be held illegal
or invalid for any reason, said illegality or invalidity shall not affect the
remaining provisions hereof; instead, each provision shall be fully severable
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been included herein.

         10.9 HEADINGS. Headings and subheading in the Plan are inserted for
convenience only and are not to be considered in the construction of the
provisions hereof.



                                       11
<PAGE>

                                      * * *

         IN WITNESS WHEREOF, the undersigned officer of Waste Management, Inc.
has executed this document to certify its adoption by Waste Management, Inc. as
of the effective date provided herein.


                                         WASTE MANAGEMENT, INC.


                                         By:
                                             ----------------------------------

                                         Its:
                                              ---------------------------------




                                       12

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.2
<SEQUENCE>6
<FILENAME>h98566exv10w2.txt
<DESCRIPTION>REVOLVING CREDIT AGREEMENT
<TEXT>
<PAGE>
                                                                    EXHIBIT 10.2



                           REVOLVING CREDIT AGREEMENT

                            DATED AS OF JUNE 27, 2002

                                  by and among

                             WASTE MANAGEMENT, INC.
                                (the "Borrower")

                                       and

                         WASTE MANAGEMENT HOLDINGS, INC.
                                (the "Guarantor")

                                       and

                          FLEET NATIONAL BANK ("Fleet")
                          BANK OF AMERICA, N.A. ("BOA")
                          JPMORGAN CHASE BANK ("JPMCB")
                  DEUTSCHE BANK AG NEW YORK BRANCH ("Deutsche")
                           CITIBANK, N.A. ("Citibank")

                AND THE OTHER FINANCIAL INSTITUTIONS WHICH BECOME
                            A PARTY TO THIS AGREEMENT
                           (collectively, the "Banks")

                                       and

           FLEET, AS ADMINISTRATIVE AGENT (the "Administrative Agent")

                                       and

     DEUTSCHE BANK SECURITIES INC. AND CITIBANK, AS CO-DOCUMENTATION AGENTS
                         (the "Co-Documentation Agents")

                                       and

      JPMCB AND BOA, AS CO-SYNDICATION AGENTS (the "Co-Syndication Agents")

                                       and

         J.P. MORGAN SECURITIES INC. AND BANC OF AMERICA SECURITIES LLC
                 AS JOINT LEAD ARRANGERS AND JOINT BOOK MANAGERS
              (the "Joint Lead Arrangers and Joint Book Managers")




<PAGE>

                                      -ii-



                                TABLE OF CONTENTS

<Table>


<S>                                                                                                 <C>
SECTION 1.  DEFINITIONS AND RULES OF INTERPRETATION..................................................1

         Section 1.1.  Definitions...................................................................1
         Section 1.2.  Rules of Interpretation.......................................................16
         Section 1.3.  Classification of Loans and Borrowings........................................17
SECTION 2.  THE LOAN FACILITIES......................................................................17
         Section 2.1.  Commitment to Lend............................................................17
         Section 2.2.  Facility Fee..................................................................17
         Section 2.3.  Reduction and Increase of Total Commitment....................................18
                  Section 2.3.1.  Reduction of Total Commitment......................................18
                  Section 2.3.2.  Increase of Total Commitment.......................................18
         Section 2.4.  Repayment of Loans; Evidence of Debt..........................................19
         Section 2.5.  Interest on Loans.............................................................19
         Section 2.6.  Requests for Syndicated Loans.................................................20
         Section 2.7.  Election of Eurodollar Rate; Notice of Election; Interest Periods; Minimum
         Amounts.....................................................................................20
         Section 2.8.  Funds for Syndicated Loans....................................................22
         Section 2.9.  Maturity of the Loans and Reimbursement Obligations...........................22
         Section 2.10.  Optional Prepayments or Repayments of Loans..................................22
         Section 2.11.  Swing Line Loans; Settlements................................................22
SECTION 3.  LETTERS OF CREDIT........................................................................24
         Section 3.1.  Letter of Credit Commitments..................................................24
         Section 3.2.  Reimbursement Obligation of the Borrower......................................25
         Section 3.3.  Obligations Absolute..........................................................25
         Section 3.4.  Reliance by the Issuing Banks.................................................26
         Section 3.5.  Notice Regarding Letters of Credit............................................26
         Section 3.6.  Letter of Credit Fee..........................................................26
SECTION 4.  COMPETITIVE BID LOANS....................................................................26
         Section 4.1.  The Competitive Bid Option....................................................26
         Section 4.2.  Competitive Bid Loan Accounts; Competitive Bid Loans..........................26
         Section 4.3.  Competitive Bid Quote Request; Invitation for Competitive Bid Quotes..........27
         Section 4.4.  Alternative Manner of Procedure...............................................28
         Section 4.5.  Submission and Contents of Competitive Bid Quotes.............................28
         Section 4.6.  Notice to Borrower............................................................29
         Section 4.7.  Acceptance and Notice by Borrower and Administrative Agent....................30
         Section 4.8.  Allocation by Administrative Agent............................................30
         Section 4.9.  Funding of Competitive Bid Loans..............................................30
         Section 4.10.  Funding Losses...............................................................31
         Section 4.11.  Repayment of Competitive Bid Loans; Interest.................................31
SECTION 5.  Provisions Relating to All Loans and Letters of Credit...................................31
         Section 5.1.  Payments......................................................................31
         Section 5.2.  Mandatory Repayments of the Loans.............................................33
         Section 5.3.  Computations..................................................................34
</Table>




<PAGE>
                                     -iii-


<Table>
<S>                                                                                                  <C>
         Section 5.4.  Illegality; Inability to Determine Eurodollar Rate............................34
         Section 5.5.  Additional Costs, Etc. .......................................................34
         Section 5.6.  Capital Adequacy..............................................................35
         Section 5.7.  Certificate...................................................................36
         Section 5.8.  Eurodollar and Competitive Bid Indemnity......................................36
         Section 5.9.  Interest on Overdue Amounts...................................................37
         Section 5.10.  Interest Limitation..........................................................37
         Section 5.11.  Reasonable Efforts to Mitigate...............................................37
         Section 5.12.  Replacement of Banks.........................................................37
         Section 5.13.  Advances by Administrative Agent.............................................38
SECTION 6.  REPRESENTATIONS AND WARRANTIES...........................................................39
         Section 6.1.  Corporate Authority...........................................................39
         Section 6.2.  Governmental and Other Approvals..............................................39
         Section 6.3.  Title to Properties; Leases...................................................39
         Section 6.4.  Financial Statements; Solvency................................................40
         Section 6.5.  No Material Changes, Etc. ....................................................40
         Section 6.6.  Franchises, Patents, Copyrights, Etc. ........................................40
         Section 6.7.  Litigation....................................................................41
         Section 6.8.  No Materially Adverse Contracts, Etc. ........................................41
         Section 6.9.  Compliance With Other Instruments, Laws, Etc. ................................41
         Section 6.10.  Tax Status...................................................................41
         Section 6.11.  No Event of Default..........................................................41
         Section 6.12.  Holding Company and Investment Company Acts..................................41
         Section 6.13.  Absence of Financing Statements, Etc. .......................................42
         Section 6.14.  Employee Benefit Plans.......................................................42
                  Section 6.14.1.  In General........................................................42
                  Section 6.14.2.  Terminability of Welfare Plans....................................42
                  Section 6.14.3.  Guaranteed Pension Plans..........................................42
                  Section 6.14.4.  Multiemployer Plans...............................................43
         Section 6.15.  Environmental Compliance.....................................................43
         Section 6.16.  Disclosure...................................................................44
         Section 6.17.  Permits and Governmental Authority...........................................44
SECTION 7.  AFFIRMATIVE COVENANTS OF THE BORROWER....................................................44
         Section 7.1.  Punctual Payment..............................................................45
         Section 7.2.  Maintenance of U.S. Office....................................................45
         Section 7.3.  Records and Accounts..........................................................45
         Section 7.4.  Financial Statements, Certificates and Information............................45
         Section 7.5.  Existence and Conduct of Business.............................................46
         Section 7.6.  Maintenance of Properties.....................................................46
         Section 7.7.  Insurance.....................................................................47
         Section 7.8.  Taxes.........................................................................47
         Section 7.9.  Inspection of Properties, Books and Contracts.................................47
         Section 7.10.  Compliance with Laws, Contracts, Licenses and Permits; Maintenance of Material
         Licenses and Permits........................................................................47
</Table>



<PAGE>
                                      -iv-



<Table>
<S>                                                                                                  <C>
         Section 7.11.  Environmental Indemnification................................................48
         Section 7.12.  Further Assurances...........................................................48
         Section 7.13.  Notice of Potential Claims or Litigation.....................................48
         Section 7.14.  Notice of Certain Events Concerning Insurance and Environmental Claims.......49
         Section 7.15.  Notice of Default............................................................49
         Section 7.16.  Use of Proceeds..............................................................50
         Section 7.17.  Certain Transactions.........................................................50
SECTION 8.  CERTAIN NEGATIVE COVENANTS OF THE BORROWER...............................................50
         Section 8.1.  Restrictions on Indebtedness..................................................50
         Section 8.2.  Restrictions on Liens.........................................................51
         Section 8.3.  Restrictions on Investments...................................................52
         Section 8.4.  Mergers, Consolidations, Sales................................................52
         Section 8.5.  Restricted Distributions and Redemptions......................................53
         Section 8.6.  Employee Benefit Plans........................................................53
SECTION 9.  FINANCIAL COVENANTS OF THE BORROWER......................................................54
         Section 9.1.  Interest Coverage Ratio.......................................................54
         Section 9.2.  Total Debt to EBITDA..........................................................54
         Section 9.3.  Minimum Net Worth.............................................................54
SECTION 10.  CONDITIONS PRECEDENT....................................................................54
         Section 10.1.  Conditions To Effectiveness..................................................54
                  Section 10.1.1.  Corporate Action..................................................55
                  Section 10.1.2.  Loan Documents, Etc...............................................55
                  Section 10.1.3.  Certified Copies of Charter Documents.............................55
                  Section 10.1.4.  Incumbency Certificate............................................55
                  Section 10.1.5.  Certificates of Insurance.........................................55
                  Section 10.1.6.  Opinion of Counsel................................................55
                  Section 10.1.7.  Satisfactory Financial Condition..................................55
                  Section 10.1.8.  Payment of Closing Fees...........................................55
                  Section 10.1.9.  Termination of the 364 Day Loan Agreement.........................55
                  Section 10.1.10.  Closing Certificate..............................................56
SECTION 11.  CONDITIONS TO ALL LOANS.................................................................56
         Section 11.1.  Representations True.........................................................56
         Section 11.2.  Performance; No Event of Default.............................................56
         Section 11.3.  No Legal Impediment..........................................................56
         Section 11.4.  Governmental Regulation......................................................56
         Section 11.5.  Proceedings and Documents....................................................56
SECTION 12.  EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT..............................57
         Section 12.1.  Events of Default and Acceleration...........................................57
         Section 12.2.  Termination of Commitments...................................................59
         Section 12.3.  Remedies.....................................................................59
SECTION 13.  SETOFF..................................................................................60
SECTION 14.  EXPENSES................................................................................60
</Table>



<PAGE>
                                      -v-


<Table>
<S>                                                                                                  <C>
SECTION 15.  THE AGENTS..............................................................................60
         Section 15.1.  Appointment, Powers and Immunities...........................................60
         Section 15.2.  Actions By Administrative Agent..............................................61
         Section 15.3.  Indemnification..............................................................61
         Section 15.4.  Reimbursement................................................................62
         Section 15.5.  Delinquent Banks.............................................................62
         Section 15.6.  Documents....................................................................62
         Section 15.7.  Non-Reliance on Administrative Agent and Other Banks.........................62
         Section 15.8.  Resignation of Administrative Agent..........................................63
         Section 15.9.  Action by the Banks, Consents, Amendments, Waivers, Etc......................63
SECTION 16.  INDEMNIFICATION.........................................................................64
SECTION 17.  WITHHOLDING TAXES.......................................................................64
SECTION 18.  TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION...........................................66
         SECTION 18.1.  Confidentiality..............................................................66
         SECTION 18.2.  Prior Notification...........................................................67
         SECTION 18.3.  Other........................................................................67
SECTION 19.  SURVIVAL OF COVENANTS, ETC..............................................................67
SECTION 20.  ASSIGNMENT AND PARTICIPATION............................................................67
SECTION 21.  PARTIES IN INTEREST.....................................................................68
SECTION 22.  NOTICES, ETC............................................................................69
SECTION 23.  MISCELLANEOUS...........................................................................69
SECTION 24.  CONSENTS, ETC...........................................................................70
SECTION 25.  WAIVER OF JURY TRIAL....................................................................70
SECTION 26.  GOVERNING LAW; SUBMISSION TO JURISDICTION...............................................70
SECTION 27.  SEVERABILITY............................................................................71
SECTION 28.  GUARANTY................................................................................71
         Section 28.1.  Guaranty.....................................................................71
         Section 28.2.  Guaranty Absolute............................................................71
         Section 28.3.  Effectiveness; Enforcement...................................................72
         Section 28.4.  Waiver.......................................................................72
         Section 28.5.  Expenses.....................................................................73
         Section 28.6.  Concerning Joint and Several Liability of the Guarantor......................73
         Section 28.7.  Waiver.......................................................................75
         Section 28.8.  Subrogation; Subordination...................................................75
SECTION 29.  PARI PASSU TREATMENT....................................................................75
SECTION 30.  FINAL AGREEMENT.........................................................................76
</Table>

<PAGE>
                                      -vi-


                                    Exhibits

<Table>
<S>                                   <C>
        Exhibit A                     Form of Syndicated Loan Request
        Exhibit B                     Form of Letter of Credit Request
        Exhibit C                     Form of Compliance Certificate
        Exhibit D                     Form of Assignment and Acceptance
        Exhibit E                     Form of Competitive Bid Quote Request
        Exhibit F                     Form of Invitation for Competitive Bid Quotes
        Exhibit G                     Form of Competitive Bid Quote
        Exhibit H                     Form of Notice of Acceptance/Rejection of
                                        Competitive Bid Quote(s)
        Exhibit I                     Form of Letter of Credit Application

        </Table>

                                    Schedules



<Table>
<S>                                   <C>
        Schedule 1                    Banks; Commitment Percentages
        Schedule 1.1                  Existing Liens
        Schedule 6.7                  Litigation
        Schedule 6.15                 Environmental Compliance
        Schedule 8.1(d)               Existing Indebtedness
</Table>



<PAGE>


                           REVOLVING CREDIT AGREEMENT

         This REVOLVING CREDIT AGREEMENT is made as of the 27th day of June,
2002, by and among WASTE MANAGEMENT, INC., a Delaware corporation having its
chief executive office at 1001 Fannin Street, Suite 4000, Houston, Texas 77002
(the "Borrower"), WASTE MANAGEMENT HOLDINGS, INC., a wholly-owned Subsidiary of
the Borrower (the "Guarantor"), FLEET NATIONAL BANK, a national banking
association having a place of business at 100 Federal Street, Boston, MA 02110
("Fleet"), BANK OF AMERICA, N.A., a national banking association having a place
of business at 231 South LaSalle Street Chicago, IL 60697 ("BOA"), JPMORGAN
CHASE BANK, a national banking association having a place of business at 227 W.
Monroe Street, Chicago, IL 60606 ("JPMCB"), DEUTSCHE BANK AG NEW YORK BRANCH,
the duly licensed New York branch of a German corporation having its principal
place of business at 31 West 52nd Street, New York, NY 10019 ("Deutsche"),
CITIBANK, N.A., a national banking association having a place of business at 399
Park Avenue, New York, New York 10043 ("Citibank"), and each of the other
financial institutions party hereto (collectively, the "Banks"), and Fleet as
administrative agent (the "Administrative Agent"), J.P. Morgan Securities Inc.
and Banc of America Securities LLC as joint lead arrangers and joint book
managers (the "Joint Lead Arrangers and Joint Book Managers"), JPMCB and BOA as
co-syndication agents (the "Co-Syndication Agents", and together with the
Administrative Agent and the Joint Lead Arrangers and Joint Book Managers, the
"Agents"), and Deutsche Bank Securities Inc. and Citibank, as co-documentation
agents (the "Co-Documentation Agents").

         WHEREAS, the Borrower has requested certain financing arrangements and
the Banks have agreed to provide such financing arrangements on the terms set
forth herein;

         NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth herein below, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged by
the parties, this Agreement will take effect on the Effective Date, on the
following terms:

         SECTION 1. DEFINITIONS AND RULES OF INTERPRETATION.

         SECTION 1.1. DEFINITIONS. The following terms shall have the meanings
set forth in this Section 1 or elsewhere in the provisions of this Agreement
referred to below:

         Absolute Competitive Bid Loan(s). See Section 4.3(a).

         Accountants. See Section 7.4(a).

         Administrative Agent. See Preamble.

         Affected Bank. See Section 5.12.

         Agents. See Preamble.


<PAGE>
                                      -2-


         Agreement. This Revolving Credit Agreement, including the Schedules and
Exhibits hereto, as from time to time amended and supplemented in accordance
with the terms hereof.

         Applicable Base Rate. The applicable rate per annum of interest on the
Base Rate Loans as set forth in the Pricing Table.

         Applicable Eurodollar Rate. The applicable rate per annum of interest
on the Eurodollar Loans shall be as set forth in the Pricing Table.

         Applicable Facility Rate. The applicable rate per annum with respect to
the Facility Fee shall be as set forth in the Pricing Table.

         Applicable L/C Rate. The applicable rate per annum on the Maximum
Drawing Amount shall be as set forth in the Pricing Table.

         Applicable Requirements. See Section 7.10.

         Applicable Swing Line Rate. The annual rate of interest agreed upon
from time to time by the Administrative Agent and the Borrower with respect to
Swing Line Loans.

         Assignment and Acceptance. See Section 20.

         Balance Sheet Date. December 31, 2001.

         Banks. See Preamble.

         Base Rate. The higher of (a) the variable annual rate of interest so
designated from time to time by the Administrative Agent at its Loan Office as
its "prime rate," such rate being a reference rate and not necessarily
representing the lowest or best rate being charged to any customer by the
Administrative Agent, or (b) one-half of one percent (1/2%) above the Overnight
Federal Funds Effective Rate, as published by the Board of Governors of the
Federal Reserve System, as in effect from time to time. Changes in the Base Rate
resulting from any changes in the Administrative Agent's "prime rate" shall take
place immediately without notice or demand of any kind on the effective day of
such change.

         Base Rate Loans. Syndicated Loans bearing interest calculated by
reference to the Base Rate.

         BOA. See Preamble.

         Borrower. See Preamble.

         Borrowing. Means (a) Syndicated Loans of the same Type, made, converted
or continued on the same date and, in the case of Eurodollar Loans, as to which
a single Interest Period is in effect, (b) a Competitive Bid Loan or group of
Competitive Bids Loans of the same Type made on the same date and as to which a
single Interest Period is in effect or (c) Swing Line Loans.



<PAGE>
                                      -3-


         Business Day. Any day, other than a Saturday, Sunday or any day on
which banking institutions in Boston, Massachusetts or New York, New York are
authorized by law to close, and, when used in connection with a Eurodollar Loan,
a Eurodollar Business Day.

         Capitalized Leases or Capital Leases. Leases under which the Borrower
or any of its Subsidiaries is the lessee or obligor, the discounted future
rental payment obligations under which are required to be capitalized on the
balance sheet of the lessee or obligor in accordance with GAAP.

         CERCLA. See Section 6.15(a).

         Certified or certified. With respect to the financial statements of any
Person, such statements as audited by a firm of independent auditors, whose
report expresses the opinion, without qualification, that such financial
statements present fairly, in all material respects, the financial position of
such Person.

         CFO or the CAO. See Section 7.4(b).

         Class. When used in reference to any Loan or Borrowing, refers to
whether such Loan, or the Loans comprising such Borrowing, are Syndicated Loans,
Competitive Bid Loans or Swing Line Loans.

         Code. The Internal Revenue Code of 1986, as amended and in effect from
time to time.

         Co-Documentation Agents. See Preamble.

         Commitment. With respect to each Bank, such Bank's commitment to make
Syndicated Loans to, and to participate in the issuance, extension and renewal
of Letters of Credit for the account of, the Borrower, determined by multiplying
such Bank's Commitment Percentage by the Total Commitment.

         Commitment Percentage. With respect to each Bank, the percentage
initially set forth next to such Bank's name on Schedule 1 hereto, as the same
may be adjusted in accordance with Section 20.

         Competitive Bid Loan(s). A Borrowing hereunder consisting of one or
more loans made by any of the participating Banks whose offer to make a
Competitive Bid Loan as part of such Borrowing has been accepted by the Borrower
under the auction bidding procedure described in Section 4 hereof.

         Competitive Bid Loan Accounts. See Section 4.2(a).

         Competitive Bid Margin. See Section 4.5(b)(iv).

         Competitive Bid Quote. An offer by a Bank to make a Competitive Bid
Loan in accordance with Section 4.5 hereof.

         Competitive Bid Quote Request. See Section 4.3.


<PAGE>
                                      -4-



         Competitive Bid Rate. See Section 4.5(b)(v).

         Compliance Certificate. See Section 7.4(c).

         Consolidated or consolidated. With reference to any term defined
herein, shall mean that term as applied to the accounts of the Borrower and its
Subsidiaries consolidated in accordance with GAAP.

         Consolidated Earnings Before Interest and Taxes, or EBIT. For any
period, the Consolidated Net Income (or Deficit) of the Borrower and its
Subsidiaries on a consolidated basis plus, without duplication, the sum of (1)
interest expense, (2) income taxes, (3) non-cash extraordinary non-recurring
writedowns or write-offs of assets, including non-cash losses on the sale of
assets outside the ordinary course of business, (4) non-recurring extraordinary
charges for settlement or judgment costs with respect to the shareholder
lawsuits and actions brought against the Borrower or the Guarantor related to,
arising or resulting from, the restatements of financial statements or results,
lowered expected earnings announcements occurring in 1998 and 1999, alleged
misrepresentations, misstatements or omissions contained in, or the adequacy of,
any disclosure documents filed with the Securities and Exchange Commission in
1998 and 1999, as further described in the Disclosure Documents (collectively,
the "Shareholder Suits"), and (5) EBIT of the businesses acquired by the
Borrower or any of its Subsidiaries (through asset purchases or otherwise) (each
an "Acquired Business") or the Subsidiaries acquired or formed since the
beginning of such period (each a "New Subsidiary") provided that (i) the
financial statements of such Acquired Businesses or New Subsidiaries have been
audited for the most recent fiscal year ended of such Acquired Businesses or New
Subsidiaries, or (ii) the Administrative Agent consents to such inclusion after
being furnished with other acceptable financial statements, and, in each case, a
Compliance Certificate and other reasonably appropriate documentation, in form
and substance reasonably satisfactory to the Administrative Agent, with respect
to the historical operating results and balance sheet of such Acquired
Businesses or New Subsidiaries (which information to the knowledge of the
officer executing such certificate is correct in all material respects) are
provided to the Administrative Agent, to the extent that each of items (1)
through (4) was deducted in determining Consolidated Net Income (or Deficit) in
the relevant period, minus non-cash extraordinary gains on the sale of assets
outside the ordinary course of business to the extent included in Consolidated
Net Income (or Deficit).

         Consolidated Earnings Before Interest, Taxes, Depreciation and
Amortization or EBITDA. For any period, EBIT plus (a) depreciation expense, and
(b) amortization expense to the extent the same would be included in the
calculation of Consolidated Net Income (or Deficit) for such period, determined
in accordance with GAAP.

         Consolidated Net Income (or Deficit). The consolidated net income (or
deficit) of the Borrower and its Subsidiaries on a consolidated basis, after
deduction of all expenses, taxes, and other proper charges, determined in
accordance with GAAP.

         Consolidated Net Worth. The sum of the par value of the capital stock
(excluding treasury stock), capital in excess of par or stated value of shares
of capital stock, retained earnings (minus accumulated deficit) and any other
account which, in accordance with GAAP, constitute stockholders' equity, of the
Borrower and its Subsidiaries determined



<PAGE>
                                      -5-


on a consolidated basis, excluding the effect of any foreign currency
transactions computed pursuant to Financial Accounting Standards Board Statement
No. 52, as amended, supplemented or modified from time to time, or otherwise in
accordance with GAAP.

         Consolidated Tangible Assets. Consolidated Total Assets less the sum
of:

                  (a) the total book value of all assets of the Borrower and its
         Subsidiaries properly classified as intangible assets under generally
         accepted accounting principles, including such items as goodwill, the
         purchase price of acquired assets in excess of the fair market value
         thereof, trademarks, trade names, service marks, customer lists, brand
         names, copyrights, patents and licenses, and rights with respect to the
         foregoing; plus

                  (b) all amounts representing any write-up in the book value of
         any assets of the Borrower or its Subsidiaries resulting from a
         revaluation thereof subsequent to the Balance Sheet Date.

         Consolidated Total Assets. All assets of the Borrower and its
Subsidiaries determined on a consolidated basis in accordance with GAAP.

         Consolidated Total Interest Expense. For any period, the aggregate
amount of interest expense required by GAAP to be paid or accrued during such
period on all Indebtedness of the Borrower and its Subsidiaries outstanding
during all or any part of such period, including capitalized interest expense
for such period.

         Co-Syndication Agents. See Preamble.

         Defaulting Bank. See Section 5.12.

         Defaults. See Section 12.1.

         Deutsche. See Preamble.

         Disclosure Documents. The Borrower's financial statements referred to
in Section 6.4 and filings made by the Borrower or the Guarantor with the
Securities and Exchange Commission that were publicly available prior to the
Effective Date which were provided to the Banks.

         Disposal. See "Release".

         Distribution. The declaration or payment of any dividend or other
return on equity on or in respect of any shares of any class of capital stock,
any partnership interests or any membership interests of any Person (other than
dividends or other such returns payable solely in shares of capital stock,
partnership interests or membership units of such Person, as the case may be);
the purchase, redemption, or other retirement of any shares of any class of
capital stock, partnership interests or membership units of such Person,
directly or indirectly through a Subsidiary or otherwise; the return of equity
capital by any Person to its shareholders, partners or members as such; or any
other distribution on or in respect of any shares of any class of capital stock,
partnership interest or membership unit of such Person.


<PAGE>
                                      -6-


         Dollars or US$ or $ or U.S. Dollars. Dollars in lawful currency of the
United States of America.

         Drawdown Date. The date on which any Loan is made or is to be made, or
any amount is paid by an Issuing Bank under a Letter of Credit.

         EBIT. See definition of Consolidated Earnings Before Interest and
Taxes.

         EBITDA. See definition of Consolidated Earnings Before Interest, Taxes,
Depreciation and Amortization.

         Effective Date. The date on which the conditions precedent set forth in
Section 10.1 hereof are satisfied.

         Employee Benefit Plan. Any employee benefit plan within the meaning of
Section 3(3) of ERISA maintained or contributed to by the Borrower, any of its
Subsidiaries, or any ERISA Affiliate, other than a Multiemployer Plan.

         Environmental Laws. See Section 6.15(a).

         EPA. See Section 6.15(b).

         ERISA. The Employee Retirement Income Security Act of 1974, as amended
and in effect from time to time.

         ERISA Affiliate. Any Person which is treated as a single employer with
the Borrower or any of its Subsidiaries under Section 414 of the Code.

         ERISA Reportable Event. A reportable event within the meaning of
Section 4043 of ERISA and the regulations promulgated thereunder with respect to
a Guaranteed Pension Plan as to which the requirement of notice has not been
waived.

         Eurocurrency Reserve Rate. For any day with respect to a Eurodollar
Loan, the maximum rate (expressed as a decimal) at which the Administrative
Agent would be required to maintain reserves under Regulation D of the Board of
Governors of the Federal Reserve System (or any successor or similar regulations
relating to such reserve requirements) against "Eurocurrency Liabilities" (as
that term is used in Regulation D), if such liabilities were outstanding. The
Eurocurrency Reserve Rate shall be adjusted automatically on and as of the
effective date of any change in the Eurocurrency Reserve Rate.

         Eurodollar Business Day. Any day on which commercial banks are open for
international business (including dealings in Dollar deposits) in London or such
other eurodollar interbank market as may be selected by the Administrative Agent
in its sole discretion acting in good faith.

         Eurodollar Competitive Bid Loan(s). See Section 4.3(a).

         Eurodollar Lending Office. Initially, the office of each Bank set forth
in the administrative materials provided to the Administrative Agent;
thereafter, upon notice to


<PAGE>
                                      -7-


the Administrative Agent, such other office of such Bank that shall be making or
maintaining Eurodollar Loans.

         Eurodollar Loans. Syndicated Loans bearing interest calculated by
reference to the Eurodollar Rate.

         Eurodollar Rate. For any Interest Period with respect to a Eurodollar
Loan, (a) the rate of interest equal to the rate determined by the
Administrative Agent at which Dollar deposits for such Interest Period are
offered based on information presented on Page 3750 of the Dow Jones Market
Service (formerly known as the Telerate Service) (or on any successor or
substitute page of such service, or any successor to or substitute for such
service, providing rate quotations comparable to those currently provided on
such page of such service, as determined by the Administrative Agent from time
to time) as of 11:00 a.m. (London time) two (2) Eurodollar Business Days prior
to the first day of such Interest Period, or (b) if such rate is not shown at
such place, the rate of interest equal to (i) the rate per annum at which the
Administrative Agent's Eurodollar Lending Office is offered Dollar deposits at
approximately 10:00 a.m. (New York time) two (2) Eurodollar Business Days prior
to the beginning of such Interest Period in the interbank eurodollar market
where the eurodollar operations of such Eurodollar Lending Office are
customarily conducted, for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount comparable to the amount
of the Eurodollar Loan of the Administrative Agent to which such Interest Period
applies, divided by (ii) a number equal to 1.00 minus the Eurocurrency Reserve
Rate, if applicable.

         Events of Default. See Section 12.1.

         Facility Fee. See Section 2.2.

         Financial Affiliate. A subsidiary of the bank holding company
controlling any Bank, which subsidiary is engaging in any of the activities
permitted by Section 4(e) of the Bank Holding Company Act of 1956 (12 U.S.C.
Section 1843).

         Five Year Revolving Credit Facility. That certain Revolving Credit
Agreement dated as of June 29, 2001 by and among the Borrower, the Guarantor,
BOA, JPMCB (f/k/a The Chase Manhattan Bank), Deutsche and the other banks party
thereto, and Fleet as administrative agent thereunder, J.P. Morgan Securities
Inc. and Banc of America Securities LLC, as joint lead arrangers and joint book
managers thereunder, BOA and JPMCB as co-syndication agents thereunder and
Deutsche and Citibank, as co-documentation agents thereunder, as amended from
time to time.

         Fleet. See Preamble.

         generally accepted accounting principles or GAAP. (i) When used in
Section 9, whether directly or indirectly through reference to a capitalized
term used therein, means (A) principles that are consistent with the principles
promulgated or adopted by the Financial Accounting Standards Board and its
predecessors, in effect for the fiscal year ended on the Balance Sheet Date, and
(B) to the extent consistent with such principles, the accounting practice of
the Borrower reflected in its financial statements for the year ended on the
Balance Sheet Date, and (ii) when used in general, other than as provided


<PAGE>
                                      -8-


above, means principles that are (A) consistent with the principles promulgated
or adopted by the Financial Accounting Standards Board and its predecessors, as
in effect from time to time, and (B) consistently applied with past financial
statements of the Borrower adopting the same principles, provided that in each
case referred to in this definition of "generally accepted accounting
principles" a certified public accountant would, insofar as the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion (other than a qualification regarding changes in generally accepted
accounting principles) as to financial statements in which such principles have
been properly applied.

         Guaranteed Obligations. See Section 28.1.

         Guaranteed Pension Plan. Any employee pension benefit plan within the
meaning of Section 3(2) of ERISA maintained or contributed to by the Borrower,
its Subsidiaries or any ERISA Affiliate the benefits of which are guaranteed on
termination in full or in part by the PBGC pursuant to Title IV of ERISA, other
than a Multiemployer Plan.

         Guarantor. See Preamble.

         Guaranty. Any obligation, contingent or otherwise, of a Person
guaranteeing or having the economic effect of guaranteeing any Indebtedness or
other obligation of any other Person (the "primary obligor") in any manner,
whether directly or indirectly, and including any obligation of the guarantor,
direct or indirect, (a) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation or to purchase (or
to advance or supply funds for the purchase of) any security for the payment
thereof, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness or other obligation of the
payment thereof, (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness or other obligation, or (d)
as an account party in respect of any letter of credit or letter of guaranty
issued to support such Indebtedness or obligation; provided, that the term
Guaranty shall not include endorsements for collection or deposit in the
ordinary course of business.

         Hazardous Substances. See Section 6.15(b).

         Indebtedness. Collectively, without duplication, whether classified as
Indebtedness, an Investment or otherwise on the obligor's balance sheet, (a) all
indebtedness for borrowed money, (b) all obligations for the deferred purchase
price of property or services (other than trade payables incurred in the
ordinary course of business which either (i) are not overdue by more than ninety
(90) days, or (ii) are being disputed in good faith and for which adequate
reserves have been established in accordance with GAAP), (c) all obligations
evidenced by notes, bonds, debentures or other similar debt instruments, (d) all
obligations created or arising under any conditional sale or other title
retention agreement with respect to property acquired (even though the rights
and remedies of the seller or lender under such agreement in the event of
default are limited to repossession or sale of such property), (e) all
obligations, liabilities and indebtedness under Capitalized Leases, (f) all
obligations, liabilities or indebtedness (contingent or otherwise) under surety,
performance bonds, or any other bonding arrangement, (g) Guaranties with respect
to all Indebtedness of others referred to in clauses (a) through (f)


<PAGE>
                                      -9-


above, and (h) all Indebtedness of others referred to in clauses (a) through (f)
above secured or supported by (or for which the holder of such Indebtedness has
an existing right, contingent or otherwise, to be secured or supported by) any
Lien on the property or assets of the Borrower or any Subsidiary, even though
the owner of the property has not assumed or become liable, contractually or
otherwise, for the payment of such Indebtedness; provided that if a Permitted
Receivables Transaction is outstanding and is accounted for as a sale of
accounts receivable under generally accepted accounting principles, Indebtedness
shall also include the additional Indebtedness, determined on a consolidated
basis, which would have been outstanding had such Permitted Receivables
Transaction been accounted for as a borrowing.

         Interest Period. With respect to each Loan (a) initially, the period
commencing on the Drawdown Date of such Loan and ending on the last day of one
of the periods set forth below, as selected by the Borrower in accordance with
this Agreement (i) for any Base Rate Loan or Swing Line Loan, the first day of
the month; (ii) for any Eurodollar Loan, 1, 2, 3, or 6 months; (iii) for any
Absolute Competitive Bid Loan, from 7 through 180 days; and (iv) for any
Eurodollar Competitive Bid Loan, 1, 2, 3, 4, 5, or 6 months; and (b) thereafter,
each period commencing on the last day of the next preceding Interest Period
applicable to such Loan and ending on the last day of one of the periods set
forth above, as selected by the Borrower in accordance with this Agreement or if
such period has no numerically corresponding day, on the last Business Day of
such period; provided that any Interest Period which would otherwise end on a
day which is not a Business Day shall be deemed to end on the next succeeding
Business Day; provided further that for any Interest Period for any Eurodollar
Loan or Eurodollar Competitive Bid Loan, if such next succeeding Business Day
falls in the next succeeding calendar month, such Interest Period shall be
deemed to end on the next preceding Business Day; and provided further that no
Interest Period shall extend beyond the Maturity Date.

         Interim Balance Sheet Date. March 31, 2002.

         Investments. All expenditures made by a Person and all liabilities
incurred (contingently or otherwise) by a Person for the acquisition of stock
(other than the stock of Subsidiaries), or Indebtedness of, or for loans,
advances, capital contributions or transfers of property to, or in respect of
any Guaranties or other commitments as described under Indebtedness, or
obligations of, any other Person, including without limitation, the funding of
any captive insurance company (other than loans, advances, capital contributions
or transfers of property to any Subsidiaries or Guaranties with respect to
Indebtedness of any Subsidiary, limited to such Person's pro rata equity
interest in such Subsidiary). In determining the aggregate amount of Investments
outstanding at any particular time: (a) the amount of any Investment represented
by a Guaranty shall be taken at not less than the principal amount of the
obligations guaranteed and still outstanding; (b) there shall be included as an
Investment all interest accrued with respect to Indebtedness constituting an
Investment unless and until such interest is paid; (c) there shall be deducted
in respect of each such Investment any amount received as a return of capital
(but only by repurchase, redemption, retirement, repayment, liquidating dividend
or liquidating distribution); (d) there shall not be deducted in respect of any
Investment any amounts received as earnings on such Investment, whether as
dividends, interest or otherwise, except that accrued interest included as
provided in the foregoing clause (b) may be deducted when paid; and (e)


<PAGE>
                                      -10-


there shall not be deducted from the aggregate amount of Investments any
decrease in the value thereof.

         Issuance Fee. See Section 3.6.

         Issuing Banks. The Bank(s) issuing Letters of Credit, which shall be
(a) JPMCB, BOA, Fleet, Bank One, N.A., BNP Paribas, Wachovia Bank, National
Association, Suntrust Bank, and Deutsche Bank AG New York Branch and (b) such
other Banks as agreed to by the Borrower and the Administrative Agent.

         Joint Lead Arrangers and Joint Book Managers. See Preamble.

         JPMCB. See Preamble.

         Bank Affiliate. (a) with respect to any Bank, (i) a Person that
directly, or indirectly through one or more intermediaries, possesses, directly
or indirectly, the power to direct or cause the direction of the management or
policies of such Bank, whether through the ability to exercise voting power, by
contract or otherwise or is controlled by or is under common control with such
Bank (an "Affiliate") of such Bank or (ii) any entity (whether a corporation,
partnership, trust or otherwise) that is engaged in making, purchasing, holding
or otherwise investing in bank loans and similar extensions of credit in the
ordinary course of its business and is administered or managed by a Bank or an
Affiliate of such Bank and (b) with respect to any Bank that is a fund which
invests in bank loans and similar extensions of credit, any other fund that
invests in bank loans and similar extensions of credit and is managed by the
same investment advisor as such Bank or by an Affiliate of such investment
advisor.

         Letter of Credit Applications. Letter of credit applications in the
form attached hereto as Exhibit I, unless otherwise agreed upon by the Borrower
and the Issuing Bank from time to time which are entered into pursuant to
Section 3 hereof, as such Letter of Credit Applications are amended, varied or
supplemented from time to time; provided, however, in the event of any conflict
or inconsistency between the terms of any Letter of Credit Application and this
Agreement, the terms of this Agreement shall control.

         Letter of Credit Fee. See Section 3.6.

         Letter of Credit Participation. See Section 3.1(b).

         Letter of Credit Request. See Section 11.5.

         Letters of Credit. Letters of credit issued or to be issued by the
Issuing Banks under Section 3 hereof for the account of the Borrower.

         Lien. With respect to any asset, (a) any mortgage, deed of trust, lien
(statutory or otherwise), pledge, hypothecation, encumbrance, charge, security
interest, assignment, deposit arrangement or other restriction in, on or of such
asset, (b) the interest of a vendor or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.


<PAGE>
                                      -11-


         Loan Documents. This Agreement, the Letter of Credit Applications, the
Letters of Credit and any documents, instruments or agreements executed in
connection with any of the foregoing, each as amended, modified, supplemented,
or replaced from time to time.

         Loan Office. The Administrative Agent's office located in Boston,
Massachusetts, or at such other location as the Administrative Agent may
designate from time to time.

         Loans. Collectively, the Syndicated Loans, the Swing Line Loans and the
Competitive Bid Loans.

         Majority Banks. The Banks with greater than fifty percent (50%) of the
Total Commitment; provided that in the event that the Total Commitment has been
terminated, the Majority Banks shall be the Banks holding greater than fifty
percent (50%) of the aggregate outstanding principal amount of the Obligations
on such date.

         Material Adverse Effect. A material adverse effect on (a) the business,
assets, operations, or financial condition of the Borrower and the Subsidiaries
taken as a whole, (b) the ability of the Borrower or the Guarantor to perform
any of its obligations under any Loan Document to which it is a party, or (c)
the rights of, or remedies or benefits available to, the Administrative Agent or
any Bank under any Loan Document.

         Material Subsidiary. Any Subsidiary which, at the time such
determination is made, has assets, revenues, or liabilities of at least
$20,000,000 or more.

         Maturity Date. June 27, 2005.

         Maximum Drawing Amount. The maximum aggregate amount from time to time
that the beneficiaries may draw under outstanding Letters of Credit.

         Moody's. Moody's Investors Service, Inc.

         Multiemployer Plan. Any multiemployer plan within the meaning of
Section 3(37) of ERISA maintained or contributed to by the Borrower, any of its
Subsidiaries, or any ERISA Affiliate.

         New Lending Office. See Section 5.1(d).

         Non-U.S. Bank. See Section 5.1(c).

         Notes. Notes issued according to Section 2.4(e).

         Obligations. All indebtedness, obligations and liabilities of the
Borrower to any of the Banks and the Administrative Agent arising or incurred
under this Agreement or any of the other Loan Documents or in respect of any of
the Loans made or Reimbursement Obligations incurred or the Letters of Credit,
or any other instrument at any time evidencing any thereof, individually or
collectively, existing on the date of this Agreement or arising thereafter,
direct or indirect, joint or several, absolute or contingent, matured or
unmatured, liquidated or unliquidated, secured or unsecured, arising by
contract, operation of law or otherwise.


<PAGE>
                                      -12-


         Overnight Federal Funds Effective Rate. The overnight federal funds
effective rate as published by the Board of Governors of the Federal Reserve
System, as in effect from time to time, or if such rate is not published, the
average of the quotations at approximately 11:00 a.m. New York time for the day
of such transaction(s), received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.

         PBGC. The Pension Benefit Guaranty Corporation created by Section 4002
of ERISA and any successor entity or entities having similar responsibilities.

         Permitted Liens. Any of the following Liens:

         (a) Liens for taxes not yet due or that are being contested in
compliance with Section 7.8;

         (b) carriers', warehousemen's, maritime, mechanics, materialmen's,
repairmen's or other like Liens arising in the ordinary course of business that
are being contested in good faith by appropriate proceedings and for which
adequate reserves with respect thereto have been set aside as required by GAAP;

         (c) pledges and deposits made in the ordinary course of business in
compliance with workmen's compensation, unemployment insurance and other social
security laws or regulations;

         (d) Liens to secure the performance of bids, trade contracts (other
than for Indebtedness), leases (other than Capital Leases), statutory
obligations, surety and appeal bonds, suretyship, performance and landfill
closure bonds and other obligations of a like nature incurred in the ordinary
course of business;

         (e) zoning restrictions, easements, rights-of-way, restrictions on use
of property and other similar encumbrances incurred in the ordinary course of
business which, in the aggregate, are not substantial in amount and do not
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;

         (f) the Liens on Schedule 1.1 hereto securing the obligations listed on
such Schedule and any replacement Lien securing any renewal, extension or
refunding of such obligations if the amount secured by such renewal, extension
or refunding Lien shall not exceed the amount of the outstanding obligations
secured by the Lien being replaced at the time of such renewal, extension or
refunding (plus transaction costs, including premiums and fees, related to such
renewal, extension or refunding) and if such replacement Lien shall be limited
to the substantially the same property that secured the Lien so replaced;

         (g) legal or equitable encumbrances deemed to exist by reason of the
existence of any litigation or other legal proceeding or arising out of a
judgment or award with respect to which an appeal is being prosecuted in good
faith by appropriate action and with respect to which adequate reserves are
being maintained and, in the case of judgment liens, execution thereon is
stayed;


<PAGE>
                                      -13-


         (h) rights reserved or vested in any municipality or governmental,
statutory or public authority to control or regulate any property of the
Borrower or any Subsidiary, or to use such property in a manner that does not
materially impair the use of such property for the purposes for which it is held
by the Borrower or such Subsidiary;

         (i) any obligations or duties affecting the property of the Borrower or
any of its Subsidiaries to any municipality, governmental, statutory or public
authority with respect to any franchise, grant, license or permit;

         (j) Liens filed in connection with sales of receivables by any of the
Subsidiaries (other than the Guarantor) to a wholly-owned special purpose
financing Subsidiary for purposes of perfecting such sales, provided that no
third party has any rights with respect to such Liens or any assets subject
thereto;

         (k) any interest or title of a lessor under any sale lease-back
transaction entered into by the Borrower or any Subsidiary conveying only the
assets so leased back to the extent the related Indebtedness is permitted under
Section 8.1 hereof;

         (l) Liens created or deemed to be created under Permitted Receivables
Transactions at any time provided such Liens do not extend to any property or
assets other than the trade receivables sold pursuant to such Permitted
Receivables Transactions, interests in the goods or products (including returned
goods and products), if any, relating to the sales giving rise to such trade
receivables; any security interests or other Liens and property subject thereto
(other than on any leases or related lease payment rights or receivables between
the Borrower and any of its Subsidiaries, as lessors or sublessors) from time to
time purporting to secure the payment by the obligors of such trade receivables
(together with any financing statements signed by such obligors describing the
collateral securing such trade receivables) pursuant to such Permitted
Receivables Transactions; and

         (m) Liens securing other Indebtedness permitted under Sections 8.1(d)
and (e);

provided that the aggregate amount of all Indebtedness and liabilities secured
by all Liens permitted in subsections (k), (l) and (m) shall not exceed 15% of
Consolidated Tangible Assets at any time.

         Permitted Receivables Transaction. Any sale or sales of, and/or
securitization of, any accounts receivable of the Borrower and/or any of its
Subsidiaries (the "Receivables") pursuant to which (a) the Borrower and its
Subsidiaries realize aggregate net proceeds of not more than $750,000,000 at any
one time outstanding, including, without limitation, any revolving purchase(s)
of Receivables where the maximum aggregate uncollected purchase price (exclusive
of any deferred purchase price) for such Receivables at any time outstanding
does not exceed $750,000,000, and (b) which Receivables shall not be discounted
more than 25%.

         Person. Any individual, corporation, partnership, joint venture,
limited liability company, trust, unincorporated association, business, or other
legal entity, and any government or any governmental agency or political
subdivision thereof.

         Pricing Table:


<PAGE>
                                      -14-


<Table>
<Caption>
                                                                                                       APPLICABLE
                    SENIOR PUBLIC              APPLICABLE         APPLICABLE        APPLICABLE         EURODOLLAR
  LEVEL              DEBT RATING             FACILITY RATE         L/C RATE         BASE RATE             RATE
  -----             ------------             -------------        ----------        ----------         ----------
<S>         <C>                              <C>                  <C>             <C>             <C>

    1       Greater than or equal to            0.1000%             0.6500%       Base Rate per   Eurodollar Rate plus
            BBB+ by Standard & Poor's or       per annum           per annum          annum              0.6500%
            greater than or equal to                                                                    per annum
            Baa1 by Moody's

    2       BBB by Standard & Poor's or         0.1250%             0.8750%       Base Rate per   Eurodollar Rate plus
            Baa2 by Moody's                    per annum           per annum          annum              0.8750%
                                                                                                        per annum

    3       BBB- by Standard & Poor's or        0.2000%             0.9250%       Base Rate per   Eurodollar Rate plus
            Baa3 by Moody's                    per annum           per annum          annum              0.9250%
                                                                                                        per annum

    4       BB+ by Standard & Poor's or         0.2750%             1.2250%       Base Rate per   Eurodollar Rate plus
            Ba1 by Moody's                     per annum           per annum          annum              1.2250%
                                                                                                        per annum

    5       Less than or equal to BB by         0.3250%             1.4250%         Base Rate     Eurodollar Rate plus
            Standard & Poor's or less          per annum           per annum       plus 0.2000%          1.4250%
            than or equal to Ba2 by                                                 per annum           per annum
            Moody's
</Table>

The applicable rates charged for any day shall be determined by the higher
Senior Public Debt Rating in effect as of that day, provided that if the higher
Senior Public Debt Rating is more than one level higher than the lower Senior
Public Debt Rating, the applicable rate shall be set at one level above the
lower Senior Public Debt Rating.

         RCRA. See Section 6.15(a).

         Real Property. All real property heretofore, now, or hereafter owned,
operated, or leased by the Borrower or any of its Subsidiaries.

         Reimbursement Obligation. The Borrower's obligation to reimburse the
applicable Issuing Bank and the Banks on account of any drawing under any Letter
of Credit, all as provided in Section 3.2.

         Release. Shall have the meaning specified in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C.
Sections 9601 et seq. ("CERCLA") and the term "Disposal" (or "Disposed") shall
have the meaning specified in the Resource Conservation and Recovery Act of
1976, 42 U.S.C. Sections 6901 et seq. ("RCRA") and regulations promulgated
thereunder; provided, that in the event either CERCLA or RCRA is amended so as
to broaden the meaning of any term defined


<PAGE>
                                      -15-


thereby, such broader meaning shall apply as of the effective date of such
amendment and provided further, to the extent that the laws of Canada or a
state, province, territory or other political subdivision thereof wherein the
property lies establish a meaning for "Release" or "Disposal" which is broader
than specified in either CERCLA, or RCRA, such broader meaning shall apply to
the Borrower's or any of its Subsidiaries' activities in that state, province,
territory or political subdivision.

         Replacement Bank. See Section 5.12.

         Replacement Notice. See Section 5.12.

         Senior Public Debt Rating. The ratings of the Borrower's public
unsecured long-term senior debt, without third party credit enhancement, issued
by Moody's and Standard & Poor's.

         Shareholder Suits. See the definition of "Consolidated Earnings Before
Interest and Taxes, or EBIT."

         Standard & Poor's. Standard & Poor's Ratings Services, a division of
The McGraw-Hill Companies, Inc.

         Subsidiary. Any corporation, association, trust, or other business
entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority of the
outstanding capital stock or other interest entitled to vote generally and whose
financial results are required to be consolidated with the financial results of
the designated parent in accordance with GAAP.

         Swap Contracts. All obligations in respect of interest rate, currency
or commodity exchange, forward, swap, or futures contracts or similar
transactions or arrangements entered into to protect or hedge the Borrower and
its Subsidiaries against interest rate, exchange rate or commodity price risks
or exposure, or to lower or diversify their funding costs.

         Swap Obligations. The maximum amount of any termination or loss payment
required to be paid by the Borrower or any Subsidiary with respect to any Swap
Contract if such Swap Contract were, at the time of determination, to be
terminated by reason of any event of default or early termination event
thereunder, whether or not such event of default or early termination event has
in fact occurred, provided that, solely with respect to Swap Contracts which are
either (a) entered into between the Borrower or any of its Subsidiaries with an
investment grade company, or (b) entered into between the Borrower or any of its
Subsidiaries with third parties whose obligations thereunder are secured, such
maximum amount of termination or loss payment shall be net of any termination or
loss payment required to be paid to the Borrower or any Subsidiary by such
counterparty (other than the Borrower or another Subsidiary) with respect to any
Swap Contract if such Swap Contract were, at the time of determination, to be
terminated by reason of any event of default or early termination event
thereunder, whether or not such event of default or early termination event has
in fact occurred.

         Swing Line Loans. See Section 2.11(a).


<PAGE>
                                      -16-


         Swing Line Settlement. The making or receiving of payments, in
immediately available funds, by the Banks to or from the Administrative Agent in
accordance with Section 2.11 hereof to the extent necessary to cause each Bank's
actual share of the outstanding amount of the Syndicated Loans to be equal to
such Bank's Commitment Percentage of the outstanding amount of such Syndicated
Loans, in any case when, prior to such action, the actual share is not so equal.

         Swing Line Settlement Amount. See Section 2.11(b).

         Swing Line Settlement Date. See Section 2.11(b).

         Swing Line Settling Bank. See Section 2.11(b).

         Syndicated Loan Request. See Section 2.6(a).

         Syndicated Loans. A Borrowing hereunder consisting of one or more loans
made by the Banks to the Borrower under the procedure described in Section
2.1(a) and Section 2.11 hereof.

         Terminated Plans. The Waste Management, Inc. Pension Plan and The Waste
Management of Alameda County, Inc. Retirement Plan.

         Total Commitment. Initially $620,000,000, as such amount may be
increased or reduced in accordance with the terms hereof, or, if such Total
Commitment has been terminated pursuant to Section 2.3.1 or Section 12.2 hereof,
zero.

         Total Debt. The sum, without duplication, of all (1) Indebtedness of
the Borrower and its Subsidiaries on a consolidated basis under subsections (a)
through (h) of the definition of "Indebtedness" (provided, however, that
Indebtedness (A) under subsection (f) of the definition of "Indebtedness" shall
be included in such calculation only to the extent that a surety has been called
upon to make payment on a bond, and (B) with respect to Permitted Receivables
Transactions shall not be included in such calculation), plus (2) Swap
Obligations, plus (3) non-contingent reimbursement obligations of the Borrower
and its Subsidiaries with respect to drawings under any letters of credit.

         Type. When used in reference to any Loan, refers to whether the rate of
interest on such Loan is determined by reference to the Eurodollar Rate, the
Base Rate or, in the case of a Competitive Bid Loan, whether it is a Eurodollar
Competitive Bid Loan or Absolute Competitive Bid Loan.

         SECTION 1.2. RULES OF INTERPRETATION.

                  (a) Unless otherwise noted, a reference to any document or
         agreement (including this Agreement) shall include such document or
         agreement as amended, modified or supplemented from time to time in
         accordance with its terms and the terms of this Agreement.

                  (b) The singular includes the plural and the plural includes
         the singular.

                  (c) A reference to any law includes any amendment or
         modification to such law.


<PAGE>
                                      -17-


                  (d) A reference to any Person includes its permitted
         successors and permitted assigns.

                  (e) Accounting terms capitalized but not otherwise defined
         herein have the meanings assigned to them by generally accepted
         accounting principles applied on a consistent basis by the accounting
         entity to which they refer.

                  (f) The words "include", "includes" and "including" are not
         limiting.

                  (g) All terms not specifically defined herein or by generally
         accepted accounting principles, which terms are defined in the Uniform
         Commercial Code as in effect in the State of New York, have the
         meanings assigned to them therein.

                  (h) Reference to a particular "Section " refers to that
         section of this Agreement unless otherwise indicated.

                  (i) The words "herein", "hereof", "hereunder" and words of
         like import shall refer to this Agreement as a whole and not to any
         particular section or subdivision of this Agreement.

         SECTION 1.3. CLASSIFICATION OF LOANS AND BORROWINGS.

                  For purposes of this Agreement, Loans may be classified and
         referred to by Class (e.g., a "Syndicated Loan") or by Type (e.g., a
         "Eurodollar Loan") or by Class and Type (e.g., a "Eurodollar Syndicated
         Loan").

         SECTION 2. THE LOAN FACILITIES.

         SECTION 2.1. COMMITMENT TO LEND.

                  (a) Subject to the terms and conditions set forth in this
         Agreement, each of the Banks severally agrees to lend to the Borrower
         and the Borrower may borrow, repay, and reborrow from time to time
         between the Effective Date and the Maturity Date, upon notice by the
         Borrower to the Administrative Agent given in accordance with this
         Section 2, its Commitment Percentage of the Syndicated Loans as are
         requested by the Borrower; provided that the sum of the outstanding
         principal amount of the Syndicated Loans (including the Swing Line
         Loans) and the Maximum Drawing Amount of outstanding Letters of Credit
         shall not exceed the Total Commitment minus the aggregate amount of
         Competitive Bid Loans outstanding at such time.

                  (b) On the date of each request for a Loan or Letter of Credit
         hereunder, the Borrower shall be deemed to have made a representation
         and warranty that the conditions set forth in Section 10 and Section
         11, as the case may be, have been satisfied on the date of such
         request. Any unpaid Reimbursement Obligation shall be a Base Rate Loan,
         as set forth in Section 3.2(a).

         SECTION 2.2. FACILITY FEE. The Borrower agrees to pay to the
Administrative Agent for the account of the Banks a fee (the "Facility Fee") on
the Total Commitment equal to the Applicable Facility Rate multiplied by the
Total Commitment. The Facility Fee shall be payable for the period from and
after the Effective Date quarterly in arrears on the first



<PAGE>
                                      -18-


day of each calendar quarter for the immediately preceding calendar quarter with
the first such payment commencing on October 1, 2002 and with a final payment on
the Maturity Date (or on the date of termination in full of the Total
Commitment, if earlier). The Facility Fee shall be distributed pro rata among
the Banks in accordance with each Bank's Commitment Percentage.

         SECTION 2.3. REDUCTION AND INCREASE OF TOTAL COMMITMENT.

                  SECTION 2.3.1. REDUCTION OF TOTAL COMMITMENT.

                  (a) The Borrower shall have the right at any time and from
         time to time upon three (3) Business Days' prior written notice to the
         Administrative Agent to reduce by $25,000,000 or a greater amount or
         terminate entirely, the Total Commitment, whereupon each Bank's
         Commitment shall be reduced pro rata in accordance with such Bank's
         Commitment Percentage of the amount specified in such notice or, as the
         case may be, terminated provided that at no time may (i) the Total
         Commitment be reduced to an amount less than the sum of (A) the Maximum
         Drawing Amount of all Letters of Credit, and (B) all Loans then
         outstanding.

                  (b) No reduction or termination of the Total Commitment once
         made may be revoked; the portion of the Total Commitment reduced or
         terminated may not be reinstated; and amounts in respect of such
         reduced or terminated portion may not be reborrowed.

                  (c) The Administrative Agent will notify the Banks promptly
         after receiving any notice delivered by the Borrower pursuant to this
         Section 2.3.1 and will distribute to each Bank a revised Schedule 1 to
         this Agreement.

                  SECTION 2.3.2. INCREASE OF TOTAL COMMITMENT. Unless a Default
         or Event of Default has occurred and is continuing, the Borrower may
         request, subject to the approval of the Administrative Agent, that the
         Total Commitment be increased, provided that the Total Commitment shall
         not, except with the consent of the Majority Banks, in any event exceed
         $650,000,000 hereunder, provided, however, that (i) any Bank which is a
         party to this Agreement prior to such increase shall have the first
         option, and may elect, to fund its pro rata share of the increase,
         thereby increasing its Commitment hereunder, but no Bank shall have any
         obligation to do so, (ii) in the event that it becomes necessary to
         include a new Bank to provide additional funding under this Section
         2.3.2, such new Bank must be reasonably acceptable to the
         Administrative Agent and the Borrower, and (iii) the Banks' Commitment
         Percentages shall be correspondingly adjusted, as necessary, to reflect
         any increase in the Total Commitment and Schedule 1 shall be amended to
         reflect such adjustments. Any such increase in the Total Commitment
         shall require, among other things, the satisfaction of such conditions
         precedent as the Administrative Agent may require, including, without
         limitation, the Administrative Agent's receipt of evidence of
         applicable corporate authorization and other corporate documentation
         from the Borrower and the legal opinion of counsel to the Borrower,
         each in form and substance satisfactory to the Administrative Agent and
         such Banks as are participating in such increase.


<PAGE>
                                      -19-


         SECTION 2.4. REPAYMENT OF LOANS; EVIDENCE OF DEBT.

                  (a) The Borrower hereby unconditionally promises to pay (i) to
         the Administrative Agent for the pro rata account of the Banks, the
         then unpaid principal amount of the Syndicated Loans on the Maturity
         Date, (ii) to the Administrative Agent for the account of the
         applicable Bank, the then unpaid principal amount of such Bank's
         Competitive Bid Loan on the last day of the Interest Period applicable
         to such Loan; and (iii) to the Administrative Agent, for its account,
         the then unpaid principal amount of each Swing Line Loan on the earlier
         of the Maturity Date and the first date after such Swing Line Loan is
         made that is the 15th or last day of a calendar month and is at least
         two Business Days after such Swing Line Loan is made; provided that on
         each date that a Syndicated Loan or Competitive Bid Loan is made, the
         Borrower shall repay all Swing Line Loans then outstanding.

                  (b) Each Bank shall maintain in accordance with its usual
         practice an account or accounts evidencing the indebtedness of the
         Borrower to such Bank resulting from each Loan made by such Bank,
         including the amounts of principal and interest payable and paid to
         such Bank from time to time hereunder.

                  (c) The Administrative Agent shall maintain accounts in which
         it shall record (i) the amount of each Loan made hereunder, the Class
         and Type thereof and the Interest Period applicable thereto, (ii) the
         amount of any principal or interest due and payable or to become due
         and payable from the Borrower to each Bank hereunder and (iii) the
         amount of any sum received by the Administrative Agent hereunder for
         the account of the Banks and each Bank's share thereof.

                  (d) The entries made in the accounts maintained pursuant to
         paragraph (b) or (c) of this Section 2.4 shall be prima facie evidence
         of the existence and amounts of the obligations recorded therein;
         provided that the failure of any Bank or the Administrative Agent to
         maintain such accounts or any error therein shall not in any manner
         affect the obligation of the Borrower to repay the Loans in accordance
         with the terms of this Agreement.

                  (e) Any Bank may request that any Loans made by it be
         evidenced by a promissory note. In such event, the Borrower shall
         prepare, execute and deliver to such Bank a promissory note payable to
         the order of such Bank (or, if requested by Bank, to such Bank and its
         registered assigns) and in a form approved by the Administrative Agent.
         Thereafter, the Loans evidenced by such promissory note and interest
         thereon shall at all times (including after assignment pursuant to
         Section 20) be represented by one or more promissory notes in such form
         payable to the order of the payee named therein (or, if such promissory
         note is a registered note, to such payee and its registered assigns).

         SECTION 2.5. INTEREST ON LOANS.

                  (a) The outstanding principal amount of the Syndicated Loans
         shall bear interest at the rate per annum equal to (i) the Applicable
         Base Rate on Base Rate Loans, (ii) the Applicable Eurodollar Rate on
         Eurodollar Loans and (iii) the Applicable Swing Line Rate on Swing Line
         Loans.


<PAGE>
                                      -20-


                  (b) Interest shall be payable (i) quarterly in arrears on the
         first Business Day of each quarter, with the first such payment
         commencing October 1, 2002, on Base Rate Loans, (ii) on the last day of
         the applicable Interest Period, and if such Interest Period is longer
         than three months, also on the last day of each three month period
         following the commencement of such Interest Period, on Eurodollar
         Loans, and (iii) on the Maturity Date for all Loans.

         SECTION 2.6. REQUESTS FOR SYNDICATED LOANS.

                  (a) The Borrower shall give to the Administrative Agent
         written notice in the form of Exhibit A hereto (or telephonic notice
         confirmed in writing or a facsimile in the form of Exhibit A hereto) of
         each Syndicated Loan requested hereunder (a "Syndicated Loan Request")
         not later than (a) 11:00 a.m. (New York time) on the proposed Drawdown
         Date of any Base Rate Loan, or (b) 11:00 a.m. (New York time) three (3)
         Eurodollar Business Days prior to the proposed Drawdown Date of any
         Eurodollar Loan. Each such Syndicated Loan Request shall specify (A)
         the principal amount of the Syndicated Loan requested, (B) the proposed
         Drawdown Date of such Syndicated Loan, (C) whether such Syndicated Loan
         requested is to be a Base Rate Loan or a Eurodollar Loan, and (D) the
         Interest Period for such Syndicated Loan, if a Eurodollar Loan. Each
         Syndicated Loan requested shall be in a minimum amount of $10,000,000.
         Each such Syndicated Loan Request shall reflect the Maximum Drawing
         Amount of all Letters of Credit outstanding and the amount of all Loans
         outstanding (including Competitive Bid Loans and Swing Line Loans).
         Syndicated Loan Requests made hereunder shall be irrevocable and
         binding on the Borrower, and shall obligate the Borrower to accept the
         Syndicated Loan requested from the Banks on the proposed Drawdown Date.

                  (b) Each of the representations and warranties made by the
         Borrower to the Banks or the Administrative Agent in this Agreement or
         any other Loan Document shall be true and correct in all material
         respects when made and shall, for all purposes of this Agreement, be
         deemed to be repeated by the Borrower on and as of the date of the
         submission of a Syndicated Loan Request, Competitive Bid Quote Request,
         or Letter of Credit Application and on and as of the Drawdown Date of
         any Loan or the date of issuance of any Letter of Credit (except to the
         extent (i) of changes resulting from transactions contemplated or
         permitted by this Agreement and the other Loan Documents, (ii) of
         changes occurring in the ordinary course of business that either
         individually or in the aggregate do not result in a Material Adverse
         Effect, or (iii) that such representations and warranties expressly
         relate only to an earlier date).

                  (c) The Administrative Agent shall promptly notify each Bank
         of each Syndicated Loan Request received by the Administrative Agent
         (i) on the proposed Drawdown Date of any Base Rate Loan, or (ii) three
         (3) Eurodollar Business Days prior to the proposed Drawdown Date of any
         Eurodollar Loan.

         SECTION 2.7. ELECTION OF EURODOLLAR RATE; NOTICE OF ELECTION; INTEREST
PERIODS; MINIMUM AMOUNTS.


<PAGE>
                                      -21-



                  (a) At the Borrower's option, so long as no Default or Event
         of Default has occurred and is then continuing, the Borrower may (i)
         elect to convert any Base Rate Loan or a portion thereof to a
         Eurodollar Loan, (ii) at the time of any Syndicated Loan Request,
         specify that such requested Loan shall be a Eurodollar Loan, or (iii)
         upon expiration of the applicable Interest Period, elect to maintain an
         existing Eurodollar Loan as such, provided that the Borrower give
         notice to the Administrative Agent pursuant to Section 2.7(b) hereof.
         Upon determining any Eurodollar Rate, the Administrative Agent shall
         forthwith provide notice thereof to the Borrower and the Banks, and
         each such notice to the Borrower shall be considered prima facie
         correct and binding, absent manifest error.

                  (b) Three (3) Eurodollar Business Days prior to the making of
         any Eurodollar Loan or the conversion of any Base Rate Loan to a
         Eurodollar Loan, or, in the case of an outstanding Eurodollar Loan, the
         expiration date of the applicable Interest Period, the Borrower shall
         give written, telex or facsimile notice (or telephonic notice promptly
         confirmed in a writing or a facsimile) received by the Administrative
         Agent not later than 11:00 a.m. (New York time) of its election
         pursuant to Section 2.7(a). Each such notice delivered to the
         Administrative Agent shall specify the aggregate principal amount of
         the Syndicated Loans to be borrowed or maintained as or converted to
         Eurodollar Loans and the requested duration of the Interest Period that
         will be applicable to such Eurodollar Loan, and shall be irrevocable
         and binding upon the Borrower. If the Borrower shall fail to give the
         Administrative Agent notice of its election hereunder together with all
         of the other information required by this Section 2.7(b) with respect
         to any Syndicated Loan, whether at the end of an Interest Period or
         otherwise, such Syndicated Loan shall be deemed a Base Rate Loan. The
         Administrative Agent shall promptly notify the Banks in writing (or by
         telephone confirmed in writing or by facsimile) of such election.

                  (c) Notwithstanding anything herein to the contrary, the
         Borrower may not specify an Interest Period that would extend beyond
         the Maturity Date.

                  (d) No conversion of Loans pursuant to this Section 2.7 may
         result in any Eurodollar Borrowing that is less than $5,000,000. In no
         event shall the Borrower have more than ten (10) different Interest
         Periods for Borrowings of Eurodollar Loans outstanding at any time.

                  (e) Subject to the terms and conditions of Section 5.8 hereof,
         if any Affected Bank demands compensation under Section 5.5(c) or (d)
         with respect to any Eurodollar Loan, the Borrower may at any time, upon
         at least three (3) Business Days' prior written notice to the
         applicable Administrative Agent, elect to convert such Eurodollar Loan
         into a Base Rate Loan (on which interest and principal shall be payable
         contemporaneously with the related Eurodollar Loans of the other
         Banks). Thereafter, and until such time as the Affected Bank notifies
         the Administrative Agent that the circumstances giving rise to the
         demand for compensation under Section 5.5(c) or (d) no longer exist,
         all requests for Eurodollar Loans from such Affected Bank shall be
         deemed to be requests for Base Rate Loans. Once the Affected Bank
         notifies the Administrative Agent that such circumstances no longer
         exist, the Borrower may elect that the principal amount of each such
         Loan converted hereunder shall again bear interest as Eurodollar



<PAGE>
                                      -22-


         Loans beginning on the first day of the next succeeding Interest Period
         applicable to the related Eurodollar Loans of the other Banks.

         SECTION 2.8. FUNDS FOR SYNDICATED LOANS. Not later than 1:00 p.m. (New
York time) on the proposed Drawdown Date of Syndicated Loans, each of the Banks
will make available to the Administrative Agent at its Loan Office, in
immediately available funds, the amount of its Commitment Percentage of the
amount of the requested Loan. Upon receipt from each Bank of such amount, and
upon receipt of the documents required by Section 10 and Section 11 and the
satisfaction of the other conditions set forth therein, the Administrative Agent
will make available to the Borrower the aggregate amount of such Syndicated
Loans made available by the Banks. The failure or refusal of any Bank to make
available to the Administrative Agent at the aforesaid time and place on any
Drawdown Date the amount of its Commitment Percentage of the requested
Syndicated Loan shall not relieve any other Bank from its several obligations
hereunder to make available to the Administrative Agent the amount of such
Bank's Commitment Percentage of the requested Loan.

         SECTION 2.9. MATURITY OF THE LOANS AND REIMBURSEMENT OBLIGATIONS. The
Borrower promises to pay on the Maturity Date, and there shall become absolutely
due and payable on the Maturity Date, all of the Loans and unpaid Reimbursement
Obligations outstanding on such date, together with any and all accrued and
unpaid interest thereon and any fees and other amounts owing hereunder.

         SECTION 2.10. OPTIONAL PREPAYMENTS OR REPAYMENTS OF LOANS. Subject to
the terms and conditions of Section 5.8, the Borrower shall have the right, at
its election, to repay or prepay the outstanding amount of the Loans, as a whole
or in part, at any time without penalty or premium. The Borrower shall give the
Administrative Agent no later than 11:00 a.m. (New York time) (a) on the
proposed date of prepayment or repayment of Base Rate Loans, and (b) three (3)
Eurodollar Business Day prior to the proposed date of prepayment or repayment of
all other Loans, written notice (or telephonic notice confirmed in writing or by
facsimile) of any proposed prepayment or repayment pursuant to this Section
2.10, specifying the proposed date of prepayment or repayment of Loans and the
principal amount to be paid. Notwithstanding the foregoing, the Borrower may not
prepay any Competitive Bid Loans without the consent of the applicable Bank. The
Administrative Agent shall promptly notify each Bank by written notice (or
telephonic notice confirmed in writing or by facsimile) of such notice of
payment.

         SECTION 2.11. SWING LINE LOANS; SETTLEMENTS.

                  (a) Notwithstanding the notice and minimum amount requirements
         set forth in Section 2.6 but otherwise in accordance with the terms and
         conditions of this Agreement, and solely for ease of administration of
         the Syndicated Loans, the Administrative Agent may, but shall not be
         required to, fund Base Rate Loans made in accordance with the
         provisions of this Agreement ("Swing Line Loans").

                  At the discretion of the Administrative Agent, Swing Line
         Loans may be in amounts less than $10,000,000 provided that the
         outstanding amount of Swing Line Loans advanced by the Administrative
         Agent hereunder shall not exceed $10,000,000 at any time. Each Bank
         shall remain severally and unconditionally liable to fund its pro rata
         share (based upon each Bank's Commitment Percentage)


<PAGE>
                                      -23-


         of such Swing Line Loans on each Swing Line Settlement Date and, in the
         event the Administrative Agent chooses not to fund any Swing Line Loans
         requested on any date, to fund its Commitment Percentage of the Base
         Rate Loans requested, subject to satisfaction of the provisions hereof
         relating to such Bank's Commitment to make the Base Rate Loans. Prior
         to each Swing Line Settlement, all payments or repayments of the
         principal of, and interest on, Swing Line Loans shall be credited to
         the account of the Administrative Agent.

                  (b) The Banks shall effect Swing Line Settlements on (i) the
         Business Day immediately following any day which the Administrative
         Agent gives written notice to effect a Swing Line Settlement, (ii) the
         Business Day immediately following the Administrative Agent's becoming
         aware of the existence of any Default or Event of Default and (iii) the
         Maturity Date (each such date, a "Swing Line Settlement Date"). One (1)
         Business Day prior to each such Swing Line Settlement Date, the
         Administrative Agent shall give telephonic notice to the Banks of (A)
         the respective outstanding amount of Syndicated Loans made by each Bank
         as at the close of business on the prior day, (B) the amount that any
         Bank, as applicable (a "Swing Line Settling Bank"), shall pay to effect
         a Swing Line Settlement (a "Swing Line Settlement Amount") and (C) the
         portion (if any) of the aggregate Swing Line Settlement Amount to be
         paid to each Bank. A statement of the Administrative Agent submitted to
         the Banks with respect to any amounts owing hereunder shall be prima
         facie evidence of the amount due and owing. Each Swing Line Settling
         Bank shall, not later than 1:00 p.m. (New York time) on each Swing Line
         Settlement Date, effect a wire transfer of immediately available funds
         to the Administrative Agent at its Loan Office in the amount of such
         Bank's Swing Line Settlement Amount. The Administrative Agent shall, as
         promptly as practicable during normal business hours on each Swing Line
         Settlement Date, effect a wire transfer of immediately available funds
         to each Bank of the Swing Line Settlement Amount to be paid to such
         Bank. All funds advanced by any Bank as a Swing Line Settling Bank
         pursuant to this Section 2.11(b) shall for all purposes be treated as a
         Base Rate Loan made by such Swing Line Settling Bank to the Borrower,
         and all funds received by any Bank pursuant to this Section 2.11(b)
         shall for all purposes be treated as repayment of amounts owed by the
         Borrower with respect to Base Rate Loans made by such Bank.

                  (c) The Administrative Agent may (unless notified to the
         contrary by any Swing Line Settling Bank by 12:00 noon (New York time)
         one (1) Business Day prior to the Settlement Date) assume that each
         Swing Line Settling Bank has made available (or will make available by
         the time specified in Section 2.11(b)) to the Administrative Agent its
         Swing Line Settlement Amount, and the Administrative Agent may (but
         shall not be required to), in reliance upon such assumption, make
         available to each applicable Bank its share (if any) of the aggregate
         Swing Line Settlement Amount. If the Swing Line Settlement Amount of
         such Swing Line Settling Bank is made available to the Administrative
         Agent by such Swing Line Settling Bank on a date after such Swing Line
         Settlement Date, such Swing Line Settling Bank shall pay the
         Administrative Agent on demand an amount equal to the product of (i)
         the average, computed for the period referred to in clause (iii) below,
         of the weighted average annual interest rate paid by the Administrative
         Agent for federal funds acquired by the Administrative Agent during
         each day


<PAGE>
                                      -24-


         included in such period times (ii) such Swing Line Settlement Amount
         times (iii) a fraction, the numerator of which is the number of days
         that elapse from and including such Swing Line Settlement Date to but
         not including the date on which such Swing Line Settlement Amount shall
         become immediately available to the Administrative Agent, and the
         denominator of which is 365. Upon payment of such amount such Swing
         Line Settling Bank shall be deemed to have delivered its Swing Line
         Settlement Amount on the Swing Line Settlement Date and shall become
         entitled to interest payable by the Borrower with respect to such Swing
         Line Settling Bank's Swing Line Settlement Amount as if such share were
         delivered on the Swing Line Settlement Date. If such Swing Line
         Settlement Amount is not in fact made available to the Administrative
         Agent by such Swing Line Settling Bank within three (3) Business Days
         of such Swing Line Settlement Date, the Administrative Agent shall be
         entitled to recover such amount from the Borrower, with interest
         thereon at the Applicable Base Rate.

                  (d) After any Swing Line Settlement Date, any payment by the
         Borrower of Swing Line Loans hereunder shall be allocated among the
         Banks, in amounts determined so as to provide that after such
         application and the related Swing Line Settlement, the outstanding
         amount of Syndicated Loans of each Bank equals, as nearly as
         practicable, such Bank's Commitment Percentage of the aggregate amount
         of Syndicated Loans.

         SECTION 3. LETTERS OF CREDIT.

         SECTION 3.1. LETTER OF CREDIT COMMITMENTS.

                  (a) Subject to the terms and conditions hereof and the receipt
         of a Letter of Credit Application by an Issuing Bank, with a copy to
         the Administrative Agent reflecting the Maximum Drawing Amount of all
         Letters of Credit (including the requested Letter of Credit), such
         Issuing Bank, on behalf of the Banks and in reliance upon the
         representations and warranties of the Borrower contained herein and the
         agreement of the Banks contained in Section 3.1(b) hereof, agrees to
         issue standby Letters of Credit (including so-called "direct pay"
         standby Letters of Credit) for the account of the Borrower (which may,
         with such Issuing Bank's consent, incorporate automatic renewals for
         periods of up to twelve (12) months), in such form as may be requested
         from time to time by the Borrower and agreed to by the Issuing Bank;
         provided, however, that, after giving effect to such request, the
         aggregate Maximum Drawing Amount of all Letters of Credit issued at any
         time shall not exceed the Total Commitment minus the aggregate
         outstanding amount of the Loans and provided further, that no Letter of
         Credit shall have an expiration date later than the earlier of (i)
         eighteen (18) months after the date of issuance (which may incorporate
         automatic renewals for periods of up to twelve (12) months), or (ii)
         five (5) Business Days prior to the Maturity Date.

                  (b) Each Letter of Credit shall be denominated in Dollars.
         Each Bank severally agrees that it shall be absolutely liable, without
         regard to the occurrence of any Default or Event of Default, the
         termination of the Total Commitment pursuant to Section 12.2, or any
         other condition precedent whatsoever, to the extent of such Bank's
         Commitment Percentage to reimburse the Issuing Bank on demand for the
         amount of each draft paid by the Issuing Bank under each Letter of
         Credit


<PAGE>
                                      -25-


         to the extent that such amount is not reimbursed by the Borrower
         pursuant to Section 3.2 (such agreement for a Bank being called herein
         the "Letter of Credit Participation" of such Bank). Each Bank agrees
         that its obligation to reimburse the Issuing Bank pursuant to this
         Section 3.1(b) shall not be affected in any way by any circumstance
         other than the gross negligence or willful misconduct of the Issuing
         Bank.

                  (c) Each such reimbursement payment made by a Bank to the
         Issuing Bank shall be treated as the purchase by such Bank of a
         participating interest in the applicable Reimbursement Obligation under
         Section 3.2 in an amount equal to such payment. Each Bank shall share
         in accordance with its participating interest in any interest which
         accrues pursuant to Section 3.2.

         SECTION 3.2. REIMBURSEMENT OBLIGATION OF THE BORROWER. In order to
induce the Issuing Banks to issue, extend and renew each Letter of Credit, the
Borrower hereby agrees to reimburse or pay to each Issuing Bank, with respect to
each Letter of Credit issued, extended or renewed by such Issuing Bank hereunder
as follows:

                  (a) if any draft presented under any Letter of Credit is
         honored by such Issuing Bank or such Issuing Bank otherwise makes
         payment with respect thereto, the sum of (i) the amount paid by such
         Issuing Bank under or with respect to such Letter of Credit, and (ii)
         the amount of any taxes, fees, charges or other costs and expenses
         whatsoever incurred by such Issuing Bank in connection with any payment
         made by such Issuing Bank under, or with respect to, such Letter of
         Credit, provided however, if the Borrower does not reimburse such
         Issuing Bank on the Drawdown Date, such amount shall, provided that no
         Event of Default under Sections 12.1(g) or 12.1(h) has occurred, become
         automatically a Syndicated Loan which is a Base Rate Loan advanced
         hereunder in an amount equal to such sum; and

                  (b) upon the Maturity Date or the acceleration of the
         Reimbursement Obligations with respect to all Letters of Credit in
         accordance with Section 12, an amount equal to the then Maximum Drawing
         Amount of all Letters of Credit shall be paid by the Borrower to the
         Administrative Agent to be held as cash collateral for the applicable
         Reimbursement Obligations.

         SECTION 3.3. OBLIGATIONS ABSOLUTE. The Borrower's respective
obligations under this Section 3 shall be absolute and unconditional under any
and all circumstances and irrespective of the occurrence of any Default or Event
of Default or any condition precedent whatsoever or any setoff, counterclaim or
defense to payment which the Borrower may have or have had against any Issuing
Bank, any Bank or any beneficiary of a Letter of Credit, and the Borrower
expressly waives any such rights that it may have with respect thereto. The
Borrower further agrees with each Issuing Bank and the Banks that such Issuing
Bank and the Banks (i) shall not be responsible for, and the Borrower's
Reimbursement Obligations under Section 3.2 shall not be affected by, among
other things, the validity or genuineness of documents or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, fraudulent or forged (unless due to the willful misconduct of
such Issuing Bank or any other Bank), or any dispute between or among the
Borrower and the beneficiary of any Letter of Credit or any financing
institution or other party to which any Letter of Credit may be transferred or

<PAGE>
                                      -26-


any claims or defenses whatsoever of the Borrower against the beneficiary of any
Letter of Credit or any such transferee, and (ii) shall not be liable for any
error, omission, interruption or delay in transmission, dispatch or delivery of
any message or advice, however transmitted, in connection with any Letter of
Credit except to the extent of their own willful misconduct. The Borrower agrees
that any action taken or omitted by any Issuing Bank or any Bank in good faith
under or in connection with any Letter of Credit and the related drafts and
documents shall be binding upon the Borrower and shall not result in any
liability on the part of such Issuing Bank or any Bank (or their respective
affiliates) to the Borrower. Nothing herein shall constitute a waiver by the
Borrower of any of its rights against any beneficiary of a Letter of Credit.

         SECTION 3.4. RELIANCE BY THE ISSUING BANKS. To the extent not
inconsistent with Section 3.3, each Issuing Bank shall be entitled to rely, and
shall be fully protected in relying, upon any Letter of Credit, draft, writing,
resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile, telex or teletype message, statement, order or other
document believed by such Issuing Bank in good faith to be genuine and correct
and to have been signed, sent or made by the proper Person or Persons and upon
advice and statements of legal counsel, independent accountants and other
experts selected by such Issuing Bank.

         SECTION 3.5. NOTICE REGARDING LETTERS OF CREDIT. One (1) Business Day
prior to the issuance of any Letter of Credit or amendments, extensions or
terminations thereof, the applicable Issuing Bank shall notify the
Administrative Agent of the terms of such Letter of Credit, amendment, extension
or termination. On the day of any drawing under any Letter of Credit, such
Issuing Bank shall notify the Administrative Agent of such drawing under any
Letter of Credit.

         SECTION 3.6. LETTER OF CREDIT FEE. The Borrower shall pay a fee (the
"Letter of Credit Fee") equal to the Applicable L/C Rate on the Maximum Drawing
Amount of the Letters of Credit to the Administrative Agent for the account of
the Banks, to be shared pro rata by the Banks in accordance with their
respective Commitment Percentages. The Letter of Credit Fee shall be payable
quarterly in arrears on the first day of each calendar quarter for the quarter
just ended, with the first such payment commencing October 1, 2002, and on the
Maturity Date. In addition, an issuing fee (the "Issuance Fee") with respect to
each Letter of Credit to be agreed upon annually between the Borrower and each
Issuing Bank shall be payable by the Borrower to such Issuing Bank for its
account.

         SECTION 4. COMPETITIVE BID LOANS.

         SECTION 4.1. THE COMPETITIVE BID OPTION. In addition to the Syndicated
Loans made pursuant to Section 2 hereof, the Borrower may request Competitive
Bid Loans pursuant to the terms of this Section 4. The Banks may, but shall have
no obligation to, make such offers and the Borrower may, but shall have no
obligation to, accept such offers in the manner set forth in this Section 4.
Notwithstanding any other provision herein to the contrary, at no time shall the
aggregate principal amount of Competitive Bid Loans outstanding at any time
exceed the Total Commitment minus the sum of (a) the aggregate outstanding
principal amount of Syndicated Loans (including the Swing Loans), plus (b) the
Maximum Drawing Amount of Letters of Credit, outstanding at such time.

         SECTION 4.2. COMPETITIVE BID LOAN ACCOUNTS; COMPETITIVE BID LOANS.


<PAGE>
                                      -27-


                  (a) The obligation of the Borrower to repay the outstanding
         principal amount of any and all Competitive Bid Loans, plus interest at
         the applicable rate accrued thereon, shall be evidenced by this
         Agreement and by individual loan accounts (the "Competitive Bid Loan
         Accounts" and individually, a "Competitive Bid Loan Account")
         maintained by the Administrative Agent on its books for each of the
         Banks, it being the intention of the parties hereto that, except as
         provided for in paragraph (b) of this Section 4.2, the Borrower's
         obligations with respect to Competitive Bid Loans are to be evidenced
         only as stated herein and not by separate promissory notes.

                  (b) Any Bank may at any time, and from time to time, request
         that any Competitive Bid Loans outstanding to such Bank be evidenced by
         a promissory note of the Borrower in the form approved by the
         Administrative Agent, dated as of the Effective Date and completed with
         appropriate insertions.

                  (c) The Borrower irrevocably authorizes the Administrative
         Agent to make or cause to be made, in connection with a Drawdown Date
         of any Competitive Bid Loan or at the time of receipt of any payment of
         principal on the applicable Bank's Competitive Bid Loan Account, an
         appropriate notation on the Administrative Agent's records, reflecting
         the making of the Competitive Bid Loan, or the receipt of such payment
         (as the case may be). The outstanding amount of the Competitive Bid
         Loans set forth on the Administrative Agent's records, shall be prima
         facie evidence of the principal amount thereof owing and unpaid to such
         Bank, but the failure to record, or any error in so recording, any such
         amount shall not limit or otherwise affect the obligations of the
         Borrower hereunder to make payments of principal of or interest on any
         Competitive Bid Loan when due.

         SECTION 4.3. COMPETITIVE BID QUOTE REQUEST; INVITATION FOR COMPETITIVE
BID QUOTES.

                  (a) When the Borrower wishes to request offers to make
         Competitive Bid Loans under this Section 4, it shall transmit to the
         Administrative Agent by telex or facsimile a Competitive Bid Quote
         Request substantially in the form of Exhibit E hereto (a "Competitive
         Bid Quote Request") so as to be received no later than 1:00 p.m. (New
         York time) (x) five (5) Eurodollar Business Days prior to the requested
         Drawdown Date in the case of a Eurodollar Competitive Bid Loan (a
         "Eurodollar Competitive Bid Loan") or (y) one (1) Business Day prior to
         the requested Drawdown Date in the case of an Absolute Competitive Bid
         Loan (an "Absolute Competitive Bid Loan"), specifying:

                           (i) the requested Drawdown Date (which must be a
                  Eurodollar Business Day in the case of a Eurodollar
                  Competitive Bid Loan or a Business Day in the case of an
                  Absolute Competitive Bid Loan);

                           (ii) the aggregate amount of such Competitive Bid
                  Loans, which shall be $10,000,000 or larger multiple of
                  $1,000,000;

                           (iii) the duration of the Interest Period(s)
                  applicable thereto, subject to the provisions of the
                  definition of Interest Period; and


<PAGE>
                                      -28-


                           (iv) whether the Competitive Bid Quotes requested are
                  for Eurodollar Competitive Bid Loans or Absolute Competitive
                  Bid Loans.

         The Borrower may request offers to make Competitive Bid Loans for more
         than one Interest Period in a single Competitive Bid Quote Request. No
         new Competitive Bid Quote Request shall be given until the Borrower has
         notified the Administrative Agent of its acceptance or non-acceptance
         of the Competitive Bid Quotes relating to any outstanding Competitive
         Bid Quote Request.

                  (b) Promptly upon receipt of a Competitive Bid Quote Request,
         the Administrative Agent shall send to the Banks by telecopy or
         facsimile transmission an Invitation for Competitive Bid Quotes
         substantially in the form of Exhibit F hereto, which shall constitute
         an invitation by the Borrower to each Bank to submit Competitive Bid
         Quotes in accordance with this Section 4.

         SECTION 4.4. ALTERNATIVE MANNER OF PROCEDURE. If, after receipt by the
Administrative Agent and each of the Banks of a Competitive Bid Quote Request
from the Borrower in accordance with Section 4.3, the Administrative Agent or
any Bank shall be unable to complete any procedure of the auction process
described in Sections 4.5 through 4.6 (inclusive) due to the inability of such
Person to transmit or receive communications through the means specified
therein, such Person may rely on telephonic notice for the transmission or
receipt of such communications. In any case where such Person shall rely on
telephone transmission or receipt, any communication made by telephone shall, as
soon as possible thereafter, be followed by written confirmation thereof.

         SECTION 4.5. SUBMISSION AND CONTENTS OF COMPETITIVE BID QUOTES.

                  (a) Each Bank may, but shall be under no obligation to, submit
         a Competitive Bid Quote containing an offer or offers to make
         Competitive Bid Loans in response to any Competitive Bid Quote Request.
         Each Competitive Bid Quote must comply with the requirements of this
         Section 4.5 and must be submitted to the Administrative Agent by telex
         or facsimile transmission at its offices as specified in or pursuant to
         Section 22 not later than (x) 2:00 p.m. (New York time) on the fourth
         Eurodollar Business Day prior to the proposed Drawdown Date, in the
         case of a Eurodollar Competitive Bid Loan or (y) 10:00 a.m. (New York
         time) on the proposed Drawdown Date, in the case of an Absolute
         Competitive Bid Loan, provided that Competitive Bid Quotes may be
         submitted by the Administrative Agent in its capacity as a Bank only if
         it submits its Competitive Bid Quote to the Borrower not later than (x)
         one hour prior to the deadline for the other Banks, in the case of a
         Eurodollar Competitive Bid Loan or (y) 15 minutes prior to the deadline
         for the other Banks, in the case of an Absolute Competitive Bid Loan.
         Subject to the provisions of Sections 10 and 11 hereof, any Competitive
         Bid Quote so made shall be irrevocable except with the written consent
         of the Administrative Agent given on the instructions of the Borrower.

                  (b) Each Competitive Bid Quote shall be in substantially the
         form of Exhibit G hereto and shall in any case specify:

                           (i) the proposed Drawdown Date;


<PAGE>
                                      -29-


                           (ii) the principal amount of the Competitive Bid Loan
                  for which each proposal is being made, which principal amount
                  (w) may be greater than or less than the Commitment of the
                  quoting Bank, (x) must be $5,000,000 or a larger multiple of
                  $1,000,000, (y) may not exceed the aggregate principal amount
                  of Competitive Bid Loans for which offers were requested and
                  (z) may be subject to an aggregate limitation as to the
                  principal amount of Competitive Bid Loans for which offers
                  being made by such quoting Bank may be accepted;

                           (iii) the Interest Period(s) for which Competitive
                  Bid Quotes are being submitted;

                           (iv) in the case of a Eurodollar Competitive Bid
                  Loan, the margin above or below the applicable Eurodollar Rate
                  (the "Competitive Bid Margin") offered for each such
                  Competitive Bid Loan, expressed as a percentage (specified to
                  the nearest 1/10,000th of 1%) to be added to or subtracted
                  from such Eurodollar Rate;

                           (v) in the case of an Absolute Competitive Bid Loan,
                  the rate of interest per annum (specified to the nearest
                  1/10,000th of 1%) (the "Competitive Bid Rate") offered for
                  each such Absolute Competitive Bid Loan; and

                           (vi) the identity of the quoting Bank.

         A Competitive Bid Quote may include up to five separate offers by the
         quoting Bank with respect to each Interest Period specified in the
         related Invitation for Competitive Bid Quotes.

                  (c)  Any Competitive Bid Quote shall be disregarded if it:

                           (i)   is not substantially in the form of Exhibit G
                                 hereto;

                           (ii)  contains qualifying, conditional or similar
                                 language;

                           (iii) proposes terms other than or in addition to
                                 those set forth in the applicable Invitation
                                 for Competitive Bid Quotes; or

                           (iv)  arrives after the time set forth in Section
                                 4.5(a) hereof.

         SECTION 4.6. NOTICE TO BORROWER. The Administrative Agent shall
promptly notify the Borrower of the terms (x) of any Competitive Bid Quote
submitted by a Bank that is in accordance with Section 4.5 and (y) of any
Competitive Bid Quote that amends, modifies or is otherwise inconsistent with a
previous Competitive Bid Quote submitted by such Bank with respect to the same
Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall
be disregarded by the Administrative Agent unless such subsequent Competitive
Bid Quote is submitted solely to correct a manifest error in such former
Competitive Bid Quote. The Administrative Agent's notice to the Borrower shall
specify (A) the aggregate principal amount of Competitive Bid Loans for which
offers have been received for each Interest Period specified in the related
Competitive Bid


<PAGE>
                                      -30-


Quote Request, (B) the respective principal amounts and Competitive Bid Margins
or Competitive Bid Rates, as the case may be, so offered, and the identity of
the respective Banks submitting such offers, and (C) if applicable, limitations
on the aggregate principal amount of Competitive Bid Loans for which offers in
any single Competitive Bid Quote may be accepted.

         SECTION 4.7. ACCEPTANCE AND NOTICE BY BORROWER AND ADMINISTRATIVE
AGENT. Not later than 11:00 a.m. (New York time) on (x) the third Eurodollar
Business Day prior to the proposed Drawdown Date, in the case of a Eurodollar
Competitive Bid Loan or (y) the proposed Drawdown Date, in the case of an
Absolute Competitive Bid Loan, the Borrower shall notify the Administrative
Agent of its acceptance or non-acceptance of each Competitive Bid Quote in
substantially the form of Exhibit H hereto. The Borrower may accept any
Competitive Bid Quote in whole or in part; provided that:

                  (i) the aggregate principal amount of each Competitive Bid
         Loan may not exceed the applicable amount set forth in the related
         Competitive Bid Quote Request;

                  (ii) acceptance of offers may only be made on the basis of
         ascending Competitive Bid Margins or Competitive Bid Rates, as the case
         may be, and

                  (iii) the Borrower may not accept any offer that is described
         in subsection 4.5(c) or that otherwise fails to comply with the
         requirements of this Agreement.

The Administrative Agent shall promptly notify each Bank which submitted a
Competitive Bid Quote of the Borrower's acceptance or non-acceptance thereof. At
the request of any Bank which submitted a Competitive Bid Quote and with the
consent of the Borrower, the Administrative Agent will promptly notify all Banks
which submitted Competitive Bid Quotes of (a) the aggregate principal amount of,
and (b) the range of Competitive Bid Rates or Competitive Bid Margins of, the
accepted Competitive Bid Loans for each requested Interest Period.

         SECTION 4.8. ALLOCATION BY ADMINISTRATIVE AGENT. If offers are made by
two or more Banks with the same Competitive Bid Margin or Competitive Bid Rate,
as the case may be, for a greater aggregate principal amount than the amount in
respect of which offers are accepted for the related Interest Period, the
principal amount of Competitive Bid Loans in respect of which such offers are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in such multiples, not less than $1,000,000, as the
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such offers. Determination by the Administrative Agent of
the amounts of Competitive Bid Loans shall be conclusive in the absence of
manifest error.

         SECTION 4.9. FUNDING OF COMPETITIVE BID LOANS. If, on or prior to the
Drawdown Date of any Competitive Bid Loan, the Total Commitment has not
terminated in full and if, on such Drawdown Date, the applicable conditions of
Sections 10 and 11 hereof are satisfied, the Bank or Banks whose offers the
Borrower has accepted will fund each Competitive Bid Loan so accepted. Such Bank
or Banks will make such Competitive Bid Loans by crediting the Administrative
Agent for further credit to the Borrower's specified account


<PAGE>
                                      -31-


with the Administrative Agent, in immediately available funds not later than
1:00 p.m. (New York time) on such Drawdown Date.

         SECTION 4.10. FUNDING LOSSES. If, after acceptance of any Competitive
Bid Quote pursuant to Section 4, the Borrower (i) fails to borrow any
Competitive Bid Loan so accepted on the date specified therefor, or (ii) repays
the outstanding amount of the Competitive Bid Loan prior to the last day of the
Interest Period relating thereto, the Borrower shall indemnify the Bank making
such Competitive Bid Quote or funding such Competitive Bid Loan against any loss
or expense incurred by reason of the liquidation or reemployment of deposits or
other funds acquired by such Bank to fund or maintain such unborrowed
Competitive Bid Loans, including, without limitation compensation as provided in
Section 5.8.

         SECTION 4.11. REPAYMENT OF COMPETITIVE BID LOANS; INTEREST. The
principal of each Competitive Bid Loan shall become absolutely due and payable
by the Borrower on the last day of the Interest Period relating thereto, and the
Borrower hereby absolutely and unconditionally promises to pay to the
Administrative Agent for the account of the relevant Banks at or before 1:00
p.m. (New York time) on the last day of the Interest Periods relating thereto
the principal amount of all such Competitive Bid Loans, plus interest thereon at
the applicable rates. The Competitive Bid Loans shall bear interest at the rate
per annum specified in the applicable Competitive Bid Quotes. Interest on the
Competitive Bid Loans shall be payable (a) on the last day of the applicable
Interest Periods, and if any such Interest Period is longer than three months,
also on the last day of the third month following the commencement of such
Interest Period, and (b) on the Maturity Date for all Loans. Subject to the
terms of this Agreement, the Borrower may make Competitive Bid Quote Requests
with respect to new Borrowings of any amounts so repaid prior to the Maturity
Date.

         SECTION 5. PROVISIONS RELATING TO ALL LOANS AND LETTERS OF CREDIT.

         SECTION 5.1. PAYMENTS.

                  (a) All payments of principal, interest, Reimbursement
         Obligations, fees (other than the Issuance Fee) and any other amounts
         due hereunder or under any of the other Loan Documents shall be made to
         the Administrative Agent at its Loan Office in immediately available
         funds by 11:00 a.m. (New York time) on any due date. Subject to the
         provisions of Section 29, if a payment is received by the
         Administrative Agent at or before 1:00 p.m. (New York time) on any
         Business Day, the Administrative Agent shall on the same Business Day
         transfer in immediately available funds, as applicable, to (1) each of
         the Banks, their pro rata portion of such payment in accordance with
         their respective Commitment Percentages, in the case of payments with
         respect to Syndicated Loans and Letters of Credit, (2) the
         Administrative Agent in the case of payments with respect to Swing Line
         Loans, and (3) the appropriate Bank(s), in the case of payments with
         respect to Competitive Bid Loans. If such payment is received by the
         Administrative Agent after 1:00 p.m. (New York time) on any Business
         Day, such transfer shall be made by the Administrative Agent to the
         applicable Bank(s) on the next Business Day. In the event that the
         Administrative Agent fails to make such transfer to any Bank as set
         forth above, the Administrative Agent shall pay



<PAGE>

                                      -32-

         to such Bank on demand an amount equal to the product of (i) the
         average, computed for the period referred to in clause (iii) below, of
         the weighted average interest rate paid by such Bank for funds acquired
         by such Bank during each day included in such period, times (ii) the
         amount (A) equal to such Bank's Commitment Percentage of such payment
         in the case of payments under clause (1) above, or (B) of such payment
         to which such Bank is entitled in the case of payments with respect to
         Competitive Bid Loans and Swing Line Loans, times (iii) a fraction, the
         numerator of which is the number of days that elapse from and including
         the date of payment to and including the date on which the amount due
         to such Bank shall become immediately available to such Bank, and the
         denominator of which is 365. A statement of such Bank submitted to the
         applicable Administrative Agent with respect to any amounts owing under
         this paragraph shall be prima facie evidence of the amount due and
         owing to such Bank by the Administrative Agent.

                  (b) All payments by the Borrower hereunder and under any of
         the other Loan Documents shall be made without recoupment, setoff or
         counterclaim and free and clear of and without deduction for any taxes,
         levies, imposts, duties, charges, fees, deductions, withholdings,
         compulsory loans, restrictions or conditions of any nature now or
         hereafter imposed or levied by any jurisdiction or any political
         subdivision thereof or taxing or other authority therein unless the
         Borrower is compelled by law to make such deduction or withholding. If
         any such obligation is imposed upon the Borrower with respect to any
         amount payable by it hereunder or under any of the other Loan
         Documents, the Borrower will pay to the Administrative Agent, for the
         account of the Banks or (as the case may be) the Administrative Agent,
         on the date on which such amount is due and payable hereunder or under
         such other Loan Document, such additional amount in Dollars as shall be
         necessary to enable the Banks or the Administrative Agent to receive
         the same net amount which the Banks or the Administrative Agent would
         have received on such due date had no such obligation been imposed upon
         the Borrower. The Borrower will deliver promptly to the Administrative
         Agent certificates or other valid vouchers for all taxes or other
         charges deducted from or paid with respect to payments made by the
         Borrower hereunder or under such other Loan Document.

                  (c) Each Bank that is not incorporated or organized under the
         laws of the United States of America or a state thereof or the District
         of Columbia (a "Non-U.S. Bank") agrees that, prior to the first date on
         which any payment is due to it hereunder, it will deliver to the
         Borrower and the Administrative Agent two duly completed copies of
         United States Internal Revenue Service Form W-8BEN or W-8ECI or
         successor applicable form, as the case may be, certifying in each case
         that such Non-U.S. Bank is entitled to receive payments under this
         Agreement, without deduction or withholding of any United States
         federal income taxes. Each Non-U.S. Bank that so delivers a Form W-8BEN
         or W-8ECI pursuant to the preceding sentence further undertakes to
         deliver to each of the Borrower and the Administrative Agent two
         further copies of Form W-8BEN or W-8ECI or successor applicable form,
         or other manner of certification, as the case may be, on or before the
         date that any such letter or form expires or becomes obsolete or after
         the occurrence of any event requiring a change in the most recent


<PAGE>
                                      -33-


         form previously delivered by it to the Borrower, and such extensions or
         renewals thereof as may reasonably be requested by the Borrower,
         certifying in the case of a Form W-8BEN or W-8ECI that such Non-U.S.
         Bank is entitled to receive payments under this Agreement without
         deduction or withholding of any United States federal income taxes,
         unless in any such case an event (including, without limitation, any
         change in treaty, law or regulation) has occurred prior to the date on
         which any such delivery would otherwise be required which renders all
         such forms inapplicable or which would prevent such Non-U.S. Bank from
         duly completing and delivering any such form with respect to it and
         such Non-U.S. Bank advises the Borrower that it is not capable of
         receiving payments without any deduction or withholding of United
         States federal income tax.

                  (d) The Borrower shall not be required to pay any additional
         amounts to any Non-U.S. Bank in respect of United States Federal
         withholding tax pursuant to Section 17 to the extent that (i) the
         obligation to withhold amounts with respect to United States Federal
         withholding tax existed on the date such Non-U.S. Bank became a party
         to this Agreement or, with respect to payments to a different lending
         office designated by the Non-U.S. Bank as its applicable lending office
         (a "New Lending Office"), the date such Non-U.S. Bank designated such
         New Lending Office with respect to a Loan; provided, however, that this
         clause (i) shall not apply to any transferee or New Lending Office as a
         result of an assignment, transfer or designation made at the request of
         the Borrower; and provided further, however, that this clause (i) shall
         not apply to the extent the indemnity payment or additional amounts any
         transferee, or Bank through a New Lending Office, would be entitled to
         receive without regard to this clause (i) do not exceed the indemnity
         payment or additional amounts that the Person making the assignment or
         transfer to such transferee, or Bank making the designation of such New
         Lending Office, would have been entitled to receive in the absence of
         such assignment, transfer or designation; or (ii) the obligation to pay
         such additional amounts would not have arisen but for a failure by such
         Non-U.S. Bank to comply with the provisions of paragraph (b) above.

                  (e) Notwithstanding the foregoing, each Bank agrees to use
         reasonable efforts (consistent with legal and regulatory restrictions)
         to change its lending office to avoid or to minimize any amounts
         otherwise payable under Section 17 in each case solely if such change
         can be made in a manner so that such Bank, in its sole determination,
         suffers no legal, economic or regulatory disadvantage.

         SECTION 5.2. MANDATORY REPAYMENTS OF THE LOANS. If at any time the sum
of the outstanding principal amount of the Loans plus the Maximum Drawing Amount
of all outstanding Letters of Credit exceeds the Total Commitment, whether by
reduction of the Total Commitment or otherwise, then the Borrower shall
immediately pay the amount of such excess to the Administrative Agent, (i) for
application to the Loans, first to Syndicated Loans, then to Competitive Bid
Loans, subject to Section 5.8, or (ii) if no Loans shall be outstanding, to be
held by the Administrative Agent for the benefit of the Banks as collateral
security for such excess Maximum Drawing Amount and the Borrower hereby grants a
security interest in such amount to the Administrative Agent for the benefit of
the Banks; provided, however, that if the amount of cash collateral held by the
Administrative Agent pursuant to this Section 5.2(a) exceeds the Maximum Drawing
Amount


<PAGE>
                                      -34-


required to be collateralized from time to time, the Administrative Agent shall
return such excess to the Borrower.

         SECTION 5.3. COMPUTATIONS. Except as otherwise expressly provided
herein, all computations of interest, Facility Fees, Letter of Credit Fees or
other fees shall be based on a 360-day year and paid for the actual number of
days elapsed, except that computations based on the Base Rate shall be based on
a 365 or 366, as applicable, day year and paid for the actual number of days
elapsed. Whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such payment
shall be extended to the next succeeding Business Day, and interest shall accrue
during such extension; provided that for any Interest Period for any Eurodollar
Loan if such next succeeding Business Day falls in the next succeeding calendar
month or after the Maturity Date, it shall be deemed to end on the next
preceding Business Day.

         SECTION 5.4. ILLEGALITY; INABILITY TO DETERMINE EURODOLLAR RATE.
Notwithstanding any other provision of this Agreement (other than Section 5.10),
if (a) the introduction of, any change in, or any change in the interpretation
of, any law or regulation applicable to any Bank or the Administrative Agent
shall make it unlawful, or any central bank or other governmental authority
having jurisdiction thereof shall assert that it is unlawful, for any Bank or
the Administrative Agent to perform its obligations in respect of any Eurodollar
Loans, or (b) if any Bank or the Administrative Agent, as applicable, shall
reasonably determine with respect to Eurodollar Loans that (i) by reason of
circumstances affecting any Eurodollar interbank market, adequate and reasonable
methods do not exist for ascertaining the Eurodollar Rate which would otherwise
be applicable during any Interest Period, or (ii) deposits of Dollars in the
relevant amount for the relevant Interest Period are not available to such Bank
or the Administrative Agent in any Eurodollar interbank market, or (iii) the
Eurodollar Rate does not or will not accurately reflect the cost to the Bank or
the Administrative Agent of obtaining or maintaining the Eurodollar Loans during
any Interest Period, then such Bank or the Administrative Agent shall promptly
give telephonic, telex or cable notice of such determination to the Borrower
(which notice shall be conclusive and binding upon the Borrower). Upon such
notification by the Bank or the Administrative Agent, the obligation of the
Banks and the Administrative Agent to make Eurodollar Loans shall be suspended
until the Banks or the Administrative Agent, as the case may be, determine that
such circumstances no longer exist, and to the extent permitted by law the
outstanding Eurodollar Loans shall continue to bear interest at the applicable
rate based on the Eurodollar Rate until the end of the applicable Interest
Period, and thereafter shall be deemed converted to Base Rate Loans in equal
principal amounts to such former Eurodollar Loans.

         SECTION 5.5. ADDITIONAL COSTS, ETC. If any present or future applicable
law (which expression, as used herein, includes statutes, rules and regulations
thereunder and interpretations thereof by any competent court or by any
governmental or other regulatory body or official charged with the
administration or the interpretation thereof and requests, directives,
instructions and notices at any time or from time to time hereafter made upon or
otherwise issued to any Bank by any central bank or other fiscal, monetary or
other authority, whether or not having the force of law) shall:

                  (a) subject such Bank to any tax, levy, impost, duty, charge,
         fee, deduction or withholding of any nature with respect to this
         Agreement, the other



<PAGE>
                                      -35-


         Loan Documents, such Bank's Commitment or the Loans (other than taxes
         based upon or measured by the income or profits of such Bank imposed by
         the jurisdiction of its incorporation or organization, or the location
         of its lending office); or

                  (b) materially change the basis of taxation (except for
         changes in taxes on income or profits of such Bank imposed by the
         jurisdiction of its incorporation or organization, or the location of
         its lending office) of payments to such Bank of the principal or of the
         interest on any Loans or any other amounts payable to such Bank under
         this Agreement or the other Loan Documents; or

                  (c) except as provided in Section 5.6 or as otherwise
         reflected in the Base Rate, the Eurodollar Rate, or the applicable rate
         for Competitive Bid Loans, impose or increase or render applicable
         (other than to the extent specifically provided for elsewhere in this
         Agreement) any special deposit, reserve, assessment, liquidity, capital
         adequacy or other similar requirements (whether or not having the force
         of law) against assets held by, or deposits in or for the account of,
         or loans by, or commitments of, an office of any Bank with respect to
         this Agreement, the other Loan Documents, such Bank's Commitment or the
         Loans; or

                  (d) impose on such Bank any other conditions or requirements
         with respect to this Agreement, the other Loan Documents, the Loans,
         such Bank's Commitment or any class of loans or commitments of which
         any of the Loans or such Bank's Commitment forms a part, and the result
         of any of the foregoing is:

                           (i) to increase the cost to such Bank of making,
                  funding, issuing, renewing, extending or maintaining the Loans
                  or such Bank's Commitment or issuing or participating in
                  Letters of Credit;

                           (ii) to reduce the amount of principal, interest or
                  other amount payable to such Bank hereunder on account of such
                  Bank's Commitment, the Loans or the Reimbursement Obligations;
                  or

                           (iii) to require such Bank to make any payment or to
                  forego any interest or other sum payable hereunder, the amount
                  of which payment or foregone interest or other sum is
                  calculated by reference to the gross amount of any sum
                  receivable or deemed received by such Bank from the Borrower
                  hereunder,

                  then, and in each such case, the Borrower will, upon demand
         made by such Bank at any time and from time to time as often as the
         occasion therefore may arise (which demand shall be accompanied by a
         statement setting forth the basis of such demand which shall be
         conclusive absent manifest error), pay such reasonable additional
         amounts as will be sufficient to compensate such Bank for such
         additional costs, reduction, payment or foregone interest or other sum.

         SECTION 5.6. CAPITAL ADEQUACY. If any Bank shall have determined that,
after the date hereof, (a) the adoption of any applicable law, rule or
regulation regarding capital adequacy, or any change in any such law, rule, or
regulation, or any change in the



<PAGE>
                                      -36-


interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or any request or directive regarding capital adequacy (whether or not
having the force of law) of any such authority, central bank or comparable
agency, or (b) compliance by such Bank or the Administrative Agent or any
corporation controlling such Bank or the Administrative Agent with any law,
governmental rule, regulation, policy, guideline or directive (whether or not
having the force of law) of any such entity regarding capital adequacy, has or
would have the effect of reducing the rate of return on capital of such Bank (or
any corporation controlling such Bank) as a consequence of such Bank's
obligations hereunder to a level below that which such Bank (or any corporation
controlling such Bank) could have achieved but for such adoption, change,
request or directive (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by such Bank to be material, then from
time to time, within 15 days after demand by such Bank, the Borrower shall pay
to such Bank such additional amount or amounts as will, in such Bank's
reasonable determination, fairly compensate such Bank (or any corporation
controlling such Bank) for such reduction. Each Bank shall allocate such cost
increases among its customers in good faith and on an equitable basis.

         SECTION 5.7. CERTIFICATE. A certificate setting forth the additional
amounts payable pursuant to Section 5.5 or Section 5.6 and a reasonable
explanation of such amounts which are due, submitted by any Bank to the
Borrower, shall be conclusive, absent manifest error, that such amounts are due
and owing; provided that no Bank shall be entitled to additional amounts with
respect to events or circumstances occurring more than one hundred and twenty
(120) days prior to the delivery of such certificate.

         SECTION 5.8. EURODOLLAR AND COMPETITIVE BID INDEMNITY. The Borrower
agrees to indemnify the Banks and the Administrative Agent and to hold them
harmless from and against any reasonable loss, cost or expense that any such
Bank and the Administrative Agent may sustain or incur as a consequence of (a)
the default by the Borrower in payment of the principal amount of or any
interest on any Eurodollar Loans or Competitive Bid Loans as and when due and
payable, including any such loss or expense arising from interest or fees
payable by any Bank or the Administrative Agent to lenders of funds obtained by
it in order to maintain its Eurodollar Loans or Competitive Bid Loans, (b) the
default by the Borrower in making a Borrowing of a Eurodollar Loan or
Competitive Bid Loan or conversion of a Eurodollar Loan or a prepayment of a
Eurodollar or Competitive Bid Loan after the Borrower has given (or is deemed to
have given) a Syndicated Loan Request, a notice pursuant to Section 2.7 or a
Notice of Acceptance/Rejection of Competitive Bid Quote(s), or a notice pursuant
to Section 2.10, and (c) the making of any payment of a Eurodollar Loan or
Competitive Bid Loan, or the making of any conversion of any Eurodollar Loan to
a Base Rate Loan on a day that is not the last day of the applicable Interest
Period with respect thereto. Such loss, cost, or reasonable expense shall
include an amount equal to the excess, if any, as reasonably determined by each
Bank of (i) its cost of obtaining the funds for (A) the Eurodollar Loan being
paid, prepaid, converted, not converted, reallocated, or not borrowed, as the
case may be (based on the Eurodollar Rate), or (B) the Competitive Bid Loan
being paid, prepaid, or not borrowed, as the case may be (based on the
applicable interest rate) for the period from the date of such payment,
prepayment, conversion, or failure to borrow or convert, as the case may be, to
the last day of the Interest Period for such Loan (or, in the case of a failure
to borrow, the Interest Period for the Loan which would have


<PAGE>
                                      -37-


commenced on the date of such failure to borrow) over (ii) the amount of
interest (as reasonably determined by such Bank) that would be realized by such
Bank in reemploying the funds so paid, prepaid, converted, or not borrowed,
converted, or prepaid for such period or Interest Period, as the case may be,
which determinations shall be conclusive absent manifest error.

         SECTION 5.9. INTEREST ON OVERDUE AMOUNTS. Overdue principal and (to the
extent permitted by applicable law) interest on the Loans and all other overdue
amounts payable hereunder or under any of the other Loan Documents shall bear
interest compounded monthly and payable on demand at a rate per annum equal to
the Applicable Base Rate plus 2%, until such amount shall be paid in full (after
as well as before judgment).

         SECTION 5.10. INTEREST LIMITATION. Notwithstanding any other term of
this Agreement, any other Loan Document or any other document referred to herein
or therein, the maximum amount of interest which may be charged to or collected
from any Person liable hereunder by any Bank shall be absolutely limited to, and
shall in no event exceed, the maximum amount of interest which could lawfully be
charged or collected by such Bank under applicable laws (including, to the
extent applicable, the provisions of Section 5197 of the Revised Statutes of the
United States of America, as amended, and 12 U.S.C. Section 85, as amended).

         SECTION 5.11. REASONABLE EFFORTS TO MITIGATE. Each Bank agrees that as
promptly as practicable after it becomes aware of the occurrence of an event or
the existence of a condition that would cause it to be affected under Sections
5.4, 5.5 or 5.6, such Bank will give notice thereof to the Borrower, with a copy
to the Administrative Agent and, to the extent so requested by the Borrower and
not inconsistent with such Bank's internal policies, such Bank shall use
reasonable efforts and take such actions as are reasonably appropriate if as a
result thereof the additional moneys which would otherwise be required to be
paid to such Bank pursuant to such sections would be materially reduced, or the
illegality or other adverse circumstances which would otherwise require a
conversion of such Loans or result in the inability to make such Loans pursuant
to such sections would cease to exist, and in each case if, as determined by
such Bank in its sole discretion, the taking of such actions would not adversely
affect such Loans or such Bank or otherwise be disadvantageous to such Bank.

         SECTION 5.12. REPLACEMENT OF BANKS. If any Bank (an "Affected Bank")
(i) makes demand upon the Borrower for (or if the Borrower is otherwise required
to pay) amounts pursuant to Sections 5.5 or 5.6, (ii) is unable to make or
maintain Eurodollar Loans as a result of a condition described in Section 5.4 or
(iii) defaults in its obligation to make Loans or to participate in Letters of
Credit in accordance with the terms of this Agreement (such Bank being referred
to as a "Defaulting Bank"), the Borrower may, within 90 days of receipt of such
demand, notice (or the occurrence of such other event causing the Borrower to be
required to pay such compensation or causing Section 5.4 to be applicable), or
default, as the case may be, by notice (a "Replacement Notice") in writing to
the Administrative Agent and such Affected Bank (A) request the Affected Bank to
cooperate with the Borrower in obtaining a replacement bank satisfactory to the
Administrative Agent and the Borrower (the "Replacement Bank") as provided
herein, but none of such Banks shall be under an obligation to find a
Replacement Bank; (B) request the non-Affected Banks to acquire and assume all
of the Affected Bank's Loans and Commitment, and to participate in Letters of
Credit as provided herein, but none of


<PAGE>
                                      -38-


such Banks shall be under an obligation to do so; or (C) designate a Replacement
Bank reasonably satisfactory to the Administrative Agent. If any satisfactory
Replacement Bank shall be obtained, and/or any of the non-Affected Banks shall
agree to acquire and assume all of the Affected Bank's Loans and Commitment, and
to participate in Letters of Credit then such Affected Bank shall, so long as no
Event of Default shall have occurred and be continuing, assign, in accordance
with Section 20, all of its Commitment, Loans, and other rights and obligations
under this Agreement and all other Loan Documents to such Replacement Bank or
non-Affected Banks, as the case may be, in exchange for payment of the principal
amount so assigned and all interest and fees accrued on the amount so assigned,
plus all other Obligations then due and payable to the Affected Bank; provided,
however, that (x) such assignment shall be without recourse, representation or
warranty and shall be on terms and conditions reasonably satisfactory to such
Affected Bank and such Replacement Bank and/or non-Affected Banks, as the case
may be, and (y) prior to any such assignment, the Borrower shall have paid to
such Affected Bank all amounts properly demanded and unreimbursed under Sections
5.5, 5.6 and 5.8. Upon the effective date of such assignment, such Replacement
Bank shall become a "Bank" for all purposes under this Agreement and the other
Loan Documents.

         SECTION 5.13. ADVANCES BY ADMINISTRATIVE AGENT. The Administrative
Agent may (unless earlier notified to the contrary by any Bank by 12:00 noon
(New York time) one (1) Business Day prior to any Drawdown Date) assume that
each Bank has made available (or will before the end of such Business Day make
available) to the Administrative Agent the amount of such Bank's Commitment
Percentage with respect to the Loans (or, in the case of Competitive Bid Loans,
the amount of such Bank's accepted offers of such Loans, if any) to be made on
such Drawdown Date, and the Administrative Agent may (but shall not be required
to), in reliance upon such assumption, make available to the Borrower a
corresponding amount. If any Bank makes such amount available to the
Administrative Agent on a date after such Drawdown Date, such Bank shall pay the
Administrative Agent on demand an amount equal to the product of (i) the
average, computed for the period referred to in clause (iii) below, of the
weighted average annual interest rate paid by the Administrative Agent for
federal funds acquired by the Administrative Agent during each day included in
such period times (ii) the amount equal to such Bank's Commitment Percentage of
such Syndicated Loan (or, in the case of Competitive Bid Loans and Swing Line
Loans, the amount of such Bank's accepted offer of such Competitive Bid Loans,
if any, and portion of such Swing Line Loans) times (iii) a fraction, the
numerator of which is the number of days that elapse from and including such
Drawdown Date to but not including the date on which the amount equal to such
Bank's Commitment Percentage of such Loans, or the amount of such Bank's
accepted offers of such Competitive Bid Loans, if any, and portion of Swing Line
Loans, shall become immediately available to the Administrative Agent, and the
denominator of which is 365. A statement of the Administrative Agent submitted
to such Bank with respect to any amounts owing under this paragraph shall be
prima facie evidence of the amount due and owing to the Administrative Agent by
such Bank. If such amount is not in fact made available to the Administrative
Agent by such Bank within three (3) Business Days of such Drawdown Date, the
Administrative Agent shall be entitled to recover such amount from such
Borrower, with interest thereon at the applicable rate per annum.



<PAGE>
                                      -39-


         SECTION 6. REPRESENTATIONS AND WARRANTIES. The Borrower (and the
Guarantor, where applicable) represents and warrants to the Banks that:

         SECTION 6.1. CORPORATE AUTHORITY.

                  (a) Incorporation; Good Standing. The Borrower and each of its
         Material Subsidiaries (i) is duly organized, validly existing and in
         good standing under the laws of its respective jurisdiction of
         formation, (ii) has all requisite corporate power to own its property
         and conduct its business as now conducted and as presently
         contemplated, and (iii) is in good standing and is duly authorized to
         do business in each jurisdiction in which its property or business as
         presently conducted or contemplated makes such qualification necessary,
         except where a failure to be so qualified could not reasonably be
         expected to have a Material Adverse Effect.

                  (b) Authorization. The execution, delivery and performance of
         its Loan Documents and the transactions contemplated hereby and thereby
         (i) are within the corporate authority of the Borrower and the
         Guarantor, (ii) have been duly authorized by all necessary corporate
         proceedings on the part of each of the Borrower and the Guarantor,
         (iii) do not conflict with or result in any breach or contravention of
         any provision of law, statute, rule or regulation to which any of the
         Borrower or the Guarantor or any of their Subsidiaries is subject or
         any judgment, order, writ, injunction, license or permit applicable to
         the Borrower, the Guarantor or any of their Subsidiaries so as to have
         a Material Adverse Effect, and (iv) do not conflict with any provision
         of the corporate charter or bylaws of the Borrower, the Guarantor or
         any Material Subsidiary or any agreement or other instrument binding
         upon the Borrower, the Guarantor or any of their Material Subsidiaries,
         except for those conflicts with any such agreement or instrument which
         could not reasonably be expected to have a Material Adverse Effect.

                  (c) Enforceability. The execution, delivery and performance of
         the Loan Documents by the Borrower and the Guarantor will result in
         valid and legally binding obligations of the Borrower and the Guarantor
         enforceable against them in accordance with the respective terms and
         provisions hereof and thereof, except as enforceability is limited by
         bankruptcy, insolvency, reorganization, moratorium or other laws
         relating to or affecting generally the enforcement of creditors' rights
         generally and general principles of equity.

         SECTION 6.2. GOVERNMENTAL AND OTHER APPROVALS. The execution, delivery
and performance of the Loan Documents by the Borrower and the Guarantor and the
consummation by the Borrower and the Guarantor of the transactions contemplated
hereby and thereby do not require any approval or consent of, or filing with,
any governmental agency or authority or other third party other than those
already obtained and those required after the date hereof in connection with the
Borrower's performance of the covenants contained in Sections 7, 8 and 9 hereof.

         SECTION 6.3. TITLE TO PROPERTIES; LEASES. The Borrower and its
Subsidiaries own all of the assets reflected in the consolidated balance sheet
as at the Interim Balance Sheet Date or acquired since that date (except
property and assets operated under Capital Leases or



<PAGE>
                                      -40-


sold or otherwise disposed of in the ordinary course of business since that
date), subject to no Liens except Permitted Liens.

         SECTION 6.4. FINANCIAL STATEMENTS; SOLVENCY.

                  (a)      There have been furnished to the Banks consolidated
                           balance sheets of the Borrower and its Subsidiaries
                           dated the Balance Sheet Date and consolidated
                           statements of operations for the fiscal periods then
                           ended, certified by the Accountants. In addition,
                           there have been furnished to the Banks consolidated
                           balance sheets of the Borrower and its Subsidiaries
                           dated the Interim Balance Sheet Date and the related
                           consolidated statements of operation for the fiscal
                           quarter ending on the Interim Balance Sheet Date. All
                           said balance sheets and statements of operations have
                           been prepared in accordance with GAAP (but, in the
                           case of any of such financial statements which are
                           unaudited, only to the extent GAAP is applicable to
                           interim unaudited reports), fairly present, in all
                           material respects, the financial condition of the
                           Borrower and its Subsidiaries on a consolidated basis
                           as at the close of business on the dates thereof and
                           the results of operations for the periods then ended,
                           subject, in the case of unaudited interim financial
                           statements, to changes resulting from audit and
                           normal year-end adjustments and to the absence of
                           complete footnotes. There are no contingent
                           liabilities of the Borrower and its Subsidiaries
                           involving material amounts, known to the officers of
                           the Borrower or the Guarantor which have not been
                           disclosed in said balance sheets and the related
                           notes thereto or otherwise in writing to the Banks.

                  (b)      The Borrower and its Subsidiaries on a consolidated
                           basis (both before and after giving effect to the
                           transactions contemplated by this Agreement) are
                           solvent (i.e., they have assets having a fair value
                           in excess of the amount required to pay their
                           probable liabilities on their existing debts as they
                           become absolute and matured) and have, and expect to
                           have, the ability to pay their debts from time to
                           time incurred in connection therewith as such debts
                           mature.

         SECTION 6.5. NO MATERIAL CHANGES, ETC. Since the Balance Sheet Date,
there have been no material adverse changes in the consolidated financial
condition, business, assets or liabilities (contingent or otherwise) of the
Borrower and its Subsidiaries, taken as a whole, other than changes in the
ordinary course of business which have not had a Material Adverse Effect.

         SECTION 6.6. FRANCHISES, PATENTS, COPYRIGHTS, ETC. The Borrower and
each of its Subsidiaries possess all franchises, patents, copyrights,
trademarks, trade names, licenses and permits, and rights in respect of the
foregoing, adequate for the conduct of their business substantially as now
conducted (other than those the absence of which would not have a Material
Adverse Effect) without known conflict with any rights of others other than a
conflict which would not have a Material Adverse Effect.


<PAGE>
                                      -41-


         SECTION 6.7. LITIGATION. Except as set forth on Schedule 6.7 or in the
Disclosure Documents, there are no actions, suits, proceedings or investigations
of any kind pending or, to the knowledge of the Borrower, threatened against the
Borrower or any of its Subsidiaries before any court, tribunal or administrative
agency or board which, either in any case or in the aggregate, could reasonably
be expected to have a Material Adverse Effect.

         SECTION 6.8. NO MATERIALLY ADVERSE CONTRACTS, ETC. Neither the Borrower
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Borrower's or such Subsidiary's officers has or could reasonably
be expected in the future to have a Material Adverse Effect. Neither the
Borrower nor any of its Subsidiaries is a party to any contract or agreement
which in the judgment of the Borrower's or its Subsidiary's officers has or
could reasonably be expected to have any Material Adverse Effect, except as
otherwise reflected in adequate reserves as required by GAAP.

         SECTION 6.9. COMPLIANCE WITH OTHER INSTRUMENTS, LAWS, ETC. Neither the
Borrower nor any of its Subsidiaries is (a) violating any provision of its
charter documents or by-laws or (b) violating any agreement or instrument to
which any of them may be subject or by which any of them or any of their
properties may be bound or any decree, order, judgment, or any statute, license,
rule or regulation, in a manner which could (in the case of such agreements or
such instruments) reasonably be expected to result in a Material Adverse Effect.

         SECTION 6.10. TAX STATUS. The Borrower and its Subsidiaries have filed
all federal, state, provincial and territorial income and all other tax returns,
reports and declarations (or obtained extensions with respect thereto) required
by applicable law to be filed by them (unless and only to the extent that the
Borrower or such Subsidiary has set aside on its books provisions reasonably
adequate for the payment of all unpaid and unreported taxes as required by
GAAP); and have paid all taxes and other governmental assessments and charges
(other than taxes, assessments and other governmental charges imposed by
jurisdictions other than the United States, Canada or any political subdivision
thereof which in the aggregate are not material to the financial condition,
business or assets of the Borrower or such Subsidiary on an individual basis or
of the Borrower and its Subsidiaries on a consolidated basis) that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith; and, as required by
GAAP, have set aside on their books provisions reasonably adequate for the
payment of all taxes for periods subsequent to the periods to which such
returns, reports or declarations apply. Except to the extent contested in the
manner permitted in the preceding sentence, there are no unpaid taxes in any
material amount claimed by the taxing authority of any jurisdiction to be due
and owing by the Borrower or any Subsidiary, nor do the officers of the Borrower
or any of its Subsidiaries know of any basis for any such claim.

         SECTION 6.11. NO EVENT OF DEFAULT. No Default or Event of Default has
occurred hereunder and is continuing.

         SECTION 6.12. HOLDING COMPANY AND INVESTMENT COMPANY ACTS. Neither the
Borrower nor any of its Subsidiaries is a "holding company", or a "subsidiary
company" of a "holding company", or an "affiliate" of a "holding company", as
such terms are


<PAGE>
                                      -42-


defined in the Public Utility Holding Company Act of 1935; nor is any of them a
"registered investment company", or an "affiliated company" or a "principal
underwriter" of a "registered investment company", as such terms are defined in
the Investment Company Act of 1940.

         SECTION 6.13. ABSENCE OF FINANCING STATEMENTS, ETC. Except as permitted
by Section 8.1 of this Agreement, there is no Indebtedness senior to the
Obligations, and except for Permitted Liens, there are no Liens, or any
effective financing statement, security agreement, chattel mortgage, real estate
mortgage or other document filed or recorded with any filing records, registry,
or other public office, which purports to cover, affect or give notice of any
present or possible future Lien on any assets or property of the Borrower or any
of its Subsidiaries or right thereunder.

         SECTION 6.14. EMPLOYEE BENEFIT PLANS.

                  SECTION 6.14.1. IN GENERAL. Each Employee Benefit Plan has
         been maintained and operated in compliance with the provisions of ERISA
         and, to the extent applicable, the Code, including but not limited to
         the provisions thereunder respecting prohibited transactions. Promptly
         upon the request of any Bank or the Administrative Agent, the Borrower
         will furnish to the Administrative Agent the most recently completed
         annual report, Form 5500, with all required attachments, and actuarial
         statement required to be submitted under Section 103(d) of ERISA, with
         respect to each Guaranteed Pension Plan.

                  SECTION 6.14.2. TERMINABILITY OF WELFARE PLANS. Under each
         Employee Benefit Plan which is an employee welfare benefit plan within
         the meaning of Section 3(1) or Section 3(2)(B) of ERISA, no benefits
         are due unless the event giving rise to the benefit entitlement occurs
         prior to plan termination (except as required by Title I, Part 6 of
         ERISA) . The Borrower or an ERISA Affiliate, as appropriate, may
         terminate each such Plan at any time (or at any time subsequent to the
         expiration of any applicable bargaining agreement) in the discretion of
         the Borrower or such ERISA Affiliate without material liability to any
         Person.

                  SECTION 6.14.3. GUARANTEED PENSION PLANS. Each contribution
         required to be made to a Guaranteed Pension Plan, whether required to
         be made to avoid the incurrence of an accumulated funding deficiency,
         the notice or lien provisions of Section 302(f) of ERISA, or otherwise,
         has been timely made. No waiver of an accumulated funding deficiency or
         extension of amortization periods has been received with respect to any
         Guaranteed Pension Plan. No liability to the PBGC (other than required
         insurance premiums, all of which have been paid) has been incurred by
         the Borrower or any ERISA Affiliate with respect to any Guaranteed
         Pension Plan (other than Terminated Plans) and there has not been any
         ERISA Reportable Event, or any other event or condition which presents
         a material risk of termination of any Guaranteed Pension Plan by the
         PBGC. Other than with respect to the Terminated Plans, based on the
         latest valuation of each Guaranteed Pension Plan (which in each case
         occurred within twelve months of the date of this representation), and
         on the actuarial methods and assumptions employed for that valuation,
         the aggregate benefit liabilities of all such Guaranteed Pension Plans
         within the meaning of Section 4001 of ERISA did not exceed the
         aggregate value of the assets of all such Guaranteed Pension Plans,
         disregarding for this purpose


<PAGE>
                                      -43-


         the benefit liabilities and assets of any Guaranteed Pension Plan with
         assets in excess of benefit liabilities.

                  SECTION 6.14.4. MULTIEMPLOYER PLANS. Neither the Borrower nor
         any ERISA Affiliate has incurred any material liability (including
         secondary liability) to any Multiemployer Plan as a result of a
         complete or partial withdrawal from such Multiemployer Plan under
         Section 4201 of ERISA or as a result of a sale of assets described in
         Section 4204 of ERISA. Neither the Borrower nor any ERISA Affiliate has
         been notified that any Multiemployer Plan is in reorganization or
         insolvent under and within the meaning of Section 4241 or Section 4245
         of ERISA or that any Multiemployer Plan intends to terminate or has
         been terminated under Section 4041A of ERISA.

         SECTION 6.15. ENVIRONMENTAL COMPLIANCE. The Borrower and its
Subsidiaries have taken all steps that they have deemed reasonably necessary to
investigate the past and present condition and usage of the Real Property and
the operations conducted by the Borrower and its Subsidiaries and, based upon
such diligent investigation, have determined that, except as set forth on
Schedule 6.15 or in the Disclosure Documents:

                  (a) Neither the Borrower, its Material Subsidiaries, nor any
         operator of their properties, is in violation, or alleged violation, of
         any judgment, decree, order, law, permit, license, rule or regulation
         pertaining to environmental matters, including without limitation,
         those arising under the Resource Conservation and Recovery Act
         ("RCRA"), the Comprehensive Environmental Response, Compensation and
         Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments
         and Reauthorization Act of 1986 ("SARA"), the Federal Clean Water Act,
         the Federal Clean Air Act, the Toxic Substances Control Act, or any
         applicable international, federal, state, provincial, territorial or
         local statute, regulation, ordinance, order or decree relating to
         health, safety, waste transportation or disposal, or the environment
         (the "Environmental Laws"), which violation, individually or in the
         aggregate, could reasonably be expected to have a Material Adverse
         Effect.

                  (b) Except with respect to any such matters that could not
         reasonably be expected to have a Material Adverse Effect, neither the
         Borrower nor any of its Material Subsidiaries has received notice from
         any third party including, without limitation: any federal, state,
         provincial, territorial or local governmental authority, (i) that any
         one of them has been identified by the United States Environmental
         Protection Agency ("EPA") as a potentially responsible party under
         CERCLA with respect to a site listed on the National Priorities List,
         40 C.F.R. Part 300 Appendix B; (ii) that any hazardous waste, as
         defined by 42 U.S.C. Section 6903(5), any hazardous substances as
         defined by 42 U.S.C. Section 9601(14), any pollutant or contaminant as
         defined by 42 U.S.C. Section 9601(33) or any toxic substance, oil or
         hazardous materials or other chemicals or substances regulated by any
         Environmental Laws, excluding household hazardous waste ("Hazardous
         Substances"), which any one of them has generated, transported or
         disposed of, has been found at any site at which a federal, state,
         provincial, territorial or local agency or other third party has
         conducted or has ordered that the Borrower or any of its Material
         Subsidiaries conduct a remedial investigation, removal or other
         response action pursuant to any Environmental Law; or (iii) that it is
         or shall be a named party to any claim, action, cause of action,
         complaint, legal or


<PAGE>
                                      -44-


         administrative proceeding arising out of any third party's incurrence
         of costs, expenses, losses or damages of any kind whatsoever in
         connection with the Release of Hazardous Substances.

                  (c) Except for those occurrences or situations that could not
         reasonably be expected to have a Material Adverse Effect, (i) no
         portion of the Real Property or other assets of the Borrower and its
         Material Subsidiaries has been used for the handling, processing,
         storage or disposal of Hazardous Substances except in accordance with
         applicable Environmental Laws; (ii) in the course of any activities
         conducted by the Borrower, its Material Subsidiaries, or operators of
         the Real Property or other assets of the Borrower and its Material
         Subsidiaries, no Hazardous Substances have been generated or are being
         used on such properties except in accordance with applicable
         Environmental Laws; (iii) there have been no unpermitted Releases or
         threatened Releases of Hazardous Substances on, upon, into or from the
         Real Property or other assets of the Borrower or its Material
         Subsidiaries; and (iv) any Hazardous Substances that have been
         generated on the Real Property or other assets of the Borrower or its
         Material Subsidiaries have been transported offsite only by carriers
         having an identification number issued by the EPA, treated or disposed
         of only by treatment or disposal facilities maintaining valid permits
         as required under applicable Environmental Laws, which transporters and
         facilities have been and are, to the Borrower's knowledge, operating in
         compliance with such permits and applicable Environmental Laws.

         SECTION 6.16. DISCLOSURE. No representation or warranty made by the
Borrower or the Guarantor in this Agreement or in any agreement, instrument,
document, certificate, or financial statement furnished to the Banks or the
Administrative Agent by or on behalf of or at the request of the Borrower and
the Guarantor in connection with any of the transactions contemplated by the
Loan Documents contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein, taken as a whole, not misleading in light of the circumstances in which
they are made.

         SECTION 6.17. PERMITS AND GOVERNMENTAL AUTHORITY. All permits (other
than those the absence of which could not reasonably be expected to have a
Material Adverse Effect) required for the construction and operation of all
landfills currently owned or operated by the Borrower or any of its Material
Subsidiaries have been obtained and remain in full force and effect and are not
subject to any appeals or further proceedings or to any unsatisfied conditions
that may allow material modification or revocation. Neither the Borrower nor any
of its Subsidiaries, nor, to the knowledge of the Borrower, the holder of such
permits is in violation of any such permits, except for any violation which
could not reasonably be expected to have a Material Adverse Effect.

         SECTION 7. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower agrees
that, so long as any Obligation or any Letter of Credit is outstanding or the
Banks have any obligation to make Loans, or any Issuing Bank has any obligation
to issue, extend or renew any Letters of Credit hereunder, or the Banks have any
obligations to reimburse any Issuing Bank for drawings honored under any Letter
of Credit, it shall, and shall cause its Subsidiaries to, comply with the
following covenants:


<PAGE>
                                      -45-


         SECTION 7.1. PUNCTUAL PAYMENT. The Borrower will duly and punctually
pay or cause to be paid the principal and interest on the Loans, all
Reimbursement Obligations, fees and other amounts provided for in this Agreement
and the other Loan Documents, all in accordance with the terms of this Agreement
and such other Loan Documents.

         SECTION 7.2. MAINTENANCE OF U.S. OFFICE. The Borrower will maintain its
chief executive offices at Houston, Texas, or at such other place in the United
States of America as the Borrower shall designate upon 30 days' prior written
notice to the Administrative Agent.

         SECTION 7.3. RECORDS AND ACCOUNTS. The Borrower will, and will cause
each of its Subsidiaries to, keep true and accurate records and books of account
in which full, true and correct entries will be made in accordance with GAAP and
with the requirements of all regulatory authorities and maintain adequate
accounts and reserves for all taxes (including income taxes), depreciation,
depletion, obsolescence and amortization of its properties, all other
contingencies, and all other proper reserves.

         SECTION 7.4. FINANCIAL STATEMENTS, CERTIFICATES AND INFORMATION. The
Borrower will deliver to the Banks:

                  (a) as soon as practicable, but, in any event not later than
         100 days after the end of each fiscal year of the Borrower, the
         consolidated balance sheet of the Borrower and its Subsidiaries as at
         the end of such year, consolidated statements of cash flows, and the
         related consolidated statements of operations, each setting forth in
         comparative form the figures for the previous fiscal year, all such
         consolidated financial statements to be in reasonable detail, prepared,
         in accordance with GAAP and, with respect to the consolidated financial
         statements, certified by Ernst & Young LLP or by other nationally
         recognized independent auditors selected by the Borrower and reasonably
         satisfactory to the Administrative Agent (the "Accountants"). In
         addition, simultaneously therewith, the Borrower shall provide the
         Banks with a written statement from such Accountants to the effect that
         they have read a copy of this Agreement, and that, in making the
         examination necessary to said certification, they have obtained no
         knowledge of any Default or Event of Default, or, if such Accountants
         shall have obtained knowledge of any then existing Default or Event of
         Default they shall disclose in such statement any such Default or Event
         of Default;

                  (b) as soon as practicable, but in any event not later than 60
         days after the end of each of the first three fiscal quarters of each
         fiscal year of the Borrower, copies of the consolidated balance sheet
         and statement of operations of the Borrower and its Subsidiaries as at
         the end of such quarter, subject to year-end adjustments, and the
         related consolidated statement of cash flows, all in reasonable detail
         and prepared in accordance with GAAP (to the extent GAAP is applicable
         to interim unaudited financial statements) with a certification by the
         principal financial or accounting officer of the Borrower (the "CFO or
         the CAO") that the consolidated financial statements are prepared in
         accordance with GAAP (to the extent GAAP is applicable to interim
         unaudited financial statements) and fairly present, in all material
         respects, the consolidated financial condition of the Borrower and its
         Subsidiaries on a consolidated basis as at the close of business


<PAGE>
                                      -46-


         on the date thereof and the results of operations for the period then
         ended, subject to year-end adjustments and the exclusion of detailed
         footnotes;

                  (c) simultaneously with the delivery of the financial
         statements referred to in (a) and (b) above, a certificate in the form
         of Exhibit C hereto (the "Compliance Certificate") signed by the CFO or
         the CAO or the Borrower's corporate treasurer, stating that the
         Borrower and its Subsidiaries are in compliance with the covenants
         contained in Sections 7, 8 and 9 hereof as of the end of the applicable
         period and setting forth in reasonable detail computations evidencing
         such compliance with respect to the covenants contained in Section 9
         hereof and that no Default or Event of Default exists, provided that if
         the Borrower shall at the time of issuance of such Compliance
         Certificate or at any other time obtain knowledge of any Default or
         Event of Default, the Borrower shall include in such certificate or
         otherwise deliver forthwith to the Banks a certificate specifying the
         nature and period of existence thereof and what action the Borrower
         proposes to take with respect thereto;

                  (d) promptly following, the filing or mailing thereof, copies
         of all material of a financial nature filed with the Securities and
         Exchange Commission or sent to the Borrower's and its Subsidiaries'
         stockholders generally; and

                  (e) from time to time such other financial data and other
         information as the Banks may reasonably request.

         The Borrower hereby authorizes each Bank to disclose any information
obtained pursuant to this Agreement to all appropriate governmental regulatory
authorities where required by law; provided, however, this authorization shall
not be deemed to be a waiver of any rights to object to the disclosure by the
Banks of any such information which the Borrower has or may have under the
federal Right to Financial Privacy Act of 1978, as in effect from time to time,
except as to matters specifically permitted therein.

         SECTION 7.5. EXISTENCE AND CONDUCT OF BUSINESS. The Borrower will, and
will cause each Material Subsidiary, to do or cause to be done all things
necessary to preserve and keep in full force and effect its existence, rights
and franchises; and effect and maintain its foreign qualifications (except where
the failure of the Borrower or any Material Subsidiary to remain so qualified
could not reasonably be expected to have a Material Adverse Effect), licensing,
domestication or authorization, except as any of the foregoing may be terminated
by its Board of Directors in the exercise of its reasonable judgment; provided
that such termination could not reasonably be expected to have a Material
Adverse Effect. The Borrower will not, and will cause its Subsidiaries not to,
become obligated under any contract or binding arrangement which, at the time it
was entered into, could reasonably be expected to have a Material Adverse
Effect. The Borrower will, and will cause each Subsidiary to, continue to engage
primarily in any of the businesses now conducted by the Borrower and its
Subsidiaries and in related businesses, and any additional businesses acquired
pursuant to the terms of Section 8.4(a) hereunder.

         SECTION 7.6. MAINTENANCE OF PROPERTIES. The Borrower will, and will
cause its Material Subsidiaries to, cause all material properties used or useful
in the conduct of their businesses to be maintained and kept in good condition,
repair and working order (ordinary wear and tear excepted) and supplied with all
necessary equipment and cause to


<PAGE>
                                      -47-


be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the judgment of the Borrower and its Material
Subsidiaries may be necessary so that the businesses carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this section shall prevent the Borrower or any of its
Subsidiaries from discontinuing the operation and maintenance of any of its
properties if such discontinuance is, in the judgment of the Borrower or such
Subsidiary, desirable in the conduct of its or their business and which could
not reasonably be expected to have a Material Adverse Effect.

         SECTION 7.7. INSURANCE. The Borrower will, and will cause its
Subsidiaries to, maintain with financially sound and reputable insurance
companies (including captive insurance companies), funds or underwriters,
insurance of the kinds, covering the risks (other than risks arising out of or
in any way connected with personal liability of any officers and directors
thereof) and in the relative proportionate amounts usually carried by reasonable
and prudent companies conducting businesses similar to that of the Borrower and
its Subsidiaries, in amounts substantially similar to the existing coverage
policies maintained by the Borrower and its Subsidiaries, copies of which have
been provided to the Administrative Agent. In addition, the Borrower will
furnish from time to time, upon the Administrative Agent's request, a summary of
the insurance coverage of the Borrower and its Subsidiaries, which summary shall
be in form and substance satisfactory to the Administrative Agent and, if
requested by the Administrative Agent, will furnish to the Administrative Agent
copies of the applicable policies.

         SECTION 7.8. TAXES. The Borrower will, and will cause its Subsidiaries
to, duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials, or supplies, which if unpaid might by law become a Lien upon
any of its property; provided, however, that any such tax, assessment, charge,
levy or claim need not be paid if the failure to do so (either individually, or
in the aggregate for all such failures) could not reasonably be expected to have
a Material Adverse Effect and the validity or amount thereof shall currently be
contested in good faith by appropriate proceedings and if the Borrower or such
Subsidiary shall have set aside on its books adequate reserves with respect
thereto as required by GAAP; and provided, further, that the Borrower or such
Subsidiary will pay all such taxes, assessments, charges, levies or claims prior
to the foreclosure on any Lien which may have attached as security therefor.

         SECTION 7.9. INSPECTION OF PROPERTIES, BOOKS AND CONTRACTS. The
Borrower will, and will cause its Material Subsidiaries to, permit the
Administrative Agent or any Bank or any of their designated representatives,
upon reasonable notice, to visit and inspect any of the properties of the
Borrower and its Material Subsidiaries, to examine the books of account of the
Borrower and its Material Subsidiaries, or contracts (and to make copies thereof
and extracts therefrom), and to discuss the affairs, finances and accounts of
the Borrower and its Material Subsidiaries with, and to be advised as to the
same by, their officers, all at such times and intervals as may be reasonably
requested.

         SECTION 7.10. COMPLIANCE WITH LAWS, CONTRACTS, LICENSES AND PERMITS;
MAINTENANCE OF MATERIAL LICENSES AND PERMITS. The Borrower will, and will cause
each Subsidiary to, (i) comply with the provisions of its charter documents and
by-laws;


<PAGE>
                                      -48-


(ii) comply with all agreements and instruments by which it or any of its
properties may be bound except where noncompliance could not reasonably be
expected to have a Material Adverse Effect; (iii) comply with all applicable
laws and regulations (including Environmental Laws), decrees, orders, judgments,
licenses and permits, including, without limitation, all environmental permits
("Applicable Requirements"), except where noncompliance with such Applicable
Requirements could not reasonably be expected to have a Material Adverse Effect;
(iv) maintain all operating permits for all landfills now owned or hereafter
acquired, except where the failure to do so could not reasonably be expected to
have a Material Adverse Effect; and (v) dispose of hazardous waste only at
licensed disposal facilities operating, to the Borrower's knowledge, in
compliance with Environmental Laws, except where the failure to do so could not
reasonably be expected to have a Material Adverse Effect. If at any time any
authorization, consent, approval, permit or license from any officer, agency or
instrumentality of any government shall become necessary or required in order
that the Borrower or any Material Subsidiary may fulfill any of its obligations
hereunder or under any other Loan Document, the Borrower will immediately take
or cause to be taken all reasonable steps within the power of the Borrower or
such Material Subsidiary to obtain such authorization, consent, approval, permit
or license and furnish the Banks with evidence thereof.

         SECTION 7.11. ENVIRONMENTAL INDEMNIFICATION. The Borrower covenants and
agrees that it will indemnify and hold the Banks, the Issuing Banks and the
Administrative Agent and their respective affiliates, and each of the
representatives, agents and officers of each of the foregoing, harmless from and
against any and all claims, expense, damage, loss or liability incurred by the
Banks, the Issuing Banks or the Administrative Agent (including all reasonable
costs of legal representation incurred by the Banks, the Issuing Banks or the
Administrative Agent) relating to (a) any Release or threatened Release of
Hazardous Substances on the Real Property; (b) any violation of any
Environmental Laws or Applicable Requirements with respect to conditions at the
Real Property or other assets of the Borrower or its Subsidiaries, or the
operations conducted thereon; or (c) the investigation or remediation of offsite
locations at which the Borrower, any of its Subsidiaries, or their predecessors
are alleged to have directly or indirectly Disposed of Hazardous Substances. It
is expressly acknowledged by the Borrower that this covenant of indemnification
shall survive the payment of the Loans and Reimbursement Obligations and
satisfaction of all other Obligations hereunder and shall inure to the benefit
of the Banks, the Issuing Banks, the Administrative Agent and their affiliates,
successors and assigns.

         SECTION 7.12. FURTHER ASSURANCES. The Borrower and the Guarantor will
cooperate with the Administrative Agent and execute such further instruments and
documents as the Administrative Agent shall reasonably request to carry out to
the Majority Banks' satisfaction the transactions contemplated by this
Agreement.

         SECTION 7.13. NOTICE OF POTENTIAL CLAIMS OR LITIGATION. The Borrower
shall deliver to the Banks, within 30 days of receipt thereof, written notice of
the initiation of any action, claim, complaint, or any other notice of dispute
or litigation against the Borrower or any of its Subsidiaries wherein the
asserted, demanded or alleged liability is in excess of $25,000,000 or which
questions the validity or enforceability of any Loan Document, together with a
copy of each such complaint or other notice received by the Borrower or any of
its Subsidiaries if requested by the Administrative Agent.


<PAGE>
                                      -49-


         SECTION 7.14. NOTICE OF CERTAIN EVENTS CONCERNING INSURANCE AND
ENVIRONMENTAL CLAIMS.

                  (a) The Borrower will provide the Banks with written notice as
         to any material cancellation or material adverse change in any
         insurance of the Borrower or any of its Material Subsidiaries within
         ten (10) Business Days after the Borrower's or any of its Material
         Subsidiary's receipt of any notice (whether formal or informal) of such
         material cancellation or material change by any of its insurers.

                  (b) The Borrower will promptly, and in any event within ten
         (10) Business Days of the Borrower's obtaining knowledge thereof,
         notify the Banks in writing of any of the following events:

                           (i) upon the Borrower's or any Material Subsidiary's
                  obtaining knowledge of any violation of any Environmental Law
                  regarding the Real Property or the Borrower's or any
                  Subsidiary's operations which violation could reasonably be
                  expected to have a Material Adverse Effect;

                           (ii) upon the Borrower's or any Material Subsidiary's
                  obtaining knowledge of any potential or known Release, or
                  threat of Release, of any Hazardous Substance at, from, or
                  into the Real Property which could reasonably be expected to
                  have a Material Adverse Effect;

                           (iii) upon the Borrower's or any Material
                  Subsidiary's receipt of any notice of any material violation
                  of any Environmental Law or of any Release or threatened
                  Release of Hazardous Substances, including a notice or claim
                  of liability or potential responsibility from any third party
                  (including any federal, state, provincial, territorial or
                  local governmental officials) and including notice of any
                  formal inquiry, proceeding, demand, investigation or other
                  action with regard to (A) the Borrower's, any Material
                  Subsidiary's or any Person's operation of the Real Property,
                  (B) contamination on, from, or into the Real Property, or (C)
                  investigation or remediation of offsite locations at which the
                  Borrower, any Material Subsidiary, or its predecessors are
                  alleged to have directly or indirectly Disposed of Hazardous
                  Substances, and with respect to which the asserted, demanded
                  or alleged liability associated therewith exceeds $35,000,000;
                  or

                           (iv) upon the Borrower's or any Material Subsidiary's
                  obtaining knowledge that any expense or loss which
                  individually or in the aggregate exceeds $35,000,000 has been
                  incurred by such governmental authority in connection with the
                  assessment, containment, removal or remediation of any
                  Hazardous Substances with respect to which the Borrower or any
                  Material Subsidiary has been alleged to be liable by such
                  governmental authority or for which a Lien may be imposed on
                  the Real Property by such governmental authority.

         SECTION 7.15. NOTICE OF DEFAULT. The Borrower will promptly notify the
Banks in writing of the occurrence of any Default or Event of Default. If any
Person shall give any


<PAGE>
                                      -50-


notice or take any other action in respect of a claimed default (whether or not
constituting an Event of Default) under this Agreement or any other note,
evidence of indebtedness, indenture or other obligation evidencing indebtedness
in excess of $25,000,000 as to which the Borrower or any of its Material
Subsidiaries is a party or obligor, whether as principal or surety, the Borrower
shall promptly upon obtaining actual knowledge thereof give written notice
thereof to the Banks, describing the notice of action and the nature of the
claimed default.

         SECTION 7.16. USE OF PROCEEDS. The proceeds of the Loans shall be used
for general corporate purposes, to provide working capital, to provide letters
of credit and to refinance existing Indebtedness of the Borrower and its
Subsidiaries. No proceeds of the Loans shall be used in any way that will
violate Regulations U or X of the Board of Governors of the Federal Reserve
System.

         SECTION 7.17. CERTAIN TRANSACTIONS. Except as disclosed in the
Disclosure Documents prior to the Effective Date, and except for arm's length
transactions pursuant to which the Borrower or any Subsidiary makes payments in
the ordinary course of business upon terms no less favorable than the Borrower
or such Subsidiary could obtain from third parties, none of the officers,
directors, or employees or any other affiliate of the Borrower or any Subsidiary
are presently or shall be a party to any transaction with the Borrower or any
Subsidiary (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Borrower or any
Subsidiary, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.

         SECTION 8. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower
agrees that, so long as any Obligation or Letter of Credit is outstanding or the
Banks have any obligation to make Loans or any Issuing Bank has any obligation
to issue, extend or renew any Letters of Credit hereunder, or the Banks have any
obligation to reimburse any Issuing Bank for drawings honored under any Letter
of Credit, it shall, and shall cause its Subsidiaries to, comply with the
following covenants:

         SECTION 8.1. RESTRICTIONS ON INDEBTEDNESS. Neither the Borrower nor any
of its Subsidiaries shall become or be a guarantor or surety of, or otherwise
create, incur, assume, or be or remain liable, contingently or otherwise, with
respect to any Indebtedness, or become or be responsible in any manner (whether
by agreement to purchase any obligations, stock, assets, goods or services, or
to supply or advance any funds, assets, goods or services or otherwise) with
respect to any Indebtedness of any other Person (other than the Borrower or any
of its Subsidiaries), or incur any Indebtedness other than:

                  (a) Indebtedness arising under this Agreement or the other
         Loan Documents;

                  (b) (i) Indebtedness incurred by the Borrower or any
         Subsidiary with respect to any suretyship or performance bond incurred
         in the ordinary course of its business and undrawn landfill closure
         bonds;


<PAGE>
                                      -51-


                           (ii) Guarantees of any of its Subsidiaries'
         obligations to governmental authorities in lieu of the posting of any
         landfill closure bonds;

                  (c) Unsecured Indebtedness of the Borrower (and any guarantee
         thereof by the Guarantor), including commercial paper and the Five Year
         Revolving Credit Facility, which is pari passu or subordinated to the
         Obligations; provided that there does not exist a Default or Event of
         Default at the time of the incurrence of such Indebtedness and no
         Default or Event of Default would be created by the incurrence of such
         Indebtedness;

                  (d) Indebtedness of the Guarantor and the Borrower's
         Subsidiaries listed in Schedule 8.1(d) and any extension, renewal or
         refinancing by the Guarantor or such Subsidiary of such Indebtedness,
         provided that the terms and conditions of any such extension, renewal
         or refinancing are substantially the same as the terms and conditions
         in effect on the Effective Date, or are more favorable to the Guarantor
         or such Subsidiary; and

                  (e) (i) Other Indebtedness of the Borrower's Subsidiaries
         (other than of the Guarantor), (ii) secured Indebtedness of the
         Borrower, (iii) Indebtedness with respect to drawn landfill closure
         bonds, and (iv) Indebtedness with respect to Permitted Receivables
         Transactions; provided that the aggregate amount of all such
         Indebtedness in this Section 8.1(e) shall not exceed 15% of
         Consolidated Tangible Assets at any time.

         SECTION 8.2. RESTRICTIONS ON LIENS. The Borrower will not, and will
cause its Subsidiaries not to, create or incur or suffer to be created or
incurred or to exist any Lien of any kind upon any property or assets of any
character, whether now owned or hereafter acquired, or upon the income or
profits therefrom; or transfer any of such property or assets or the income or
profits therefrom for the purpose of subjecting the same to the payment of
Indebtedness or performance of any other obligation in priority to payment of
its general creditors; or acquire, or agree or have an option to acquire, any
property or assets upon conditional sale or other title retention or purchase
money security agreement, device or arrangement; or suffer to exist for a period
of more than 30 days after the same shall have been incurred any Indebtedness or
claim or demand against it which if unpaid might by law or upon bankruptcy or
insolvency, or otherwise, be given any priority whatsoever over its general
creditors; or sell, assign, pledge or otherwise transfer any accounts, contract
rights, general intangibles or chattel paper, with or without recourse, except
for Permitted Liens.

         The Borrower and the Guarantor covenant and agree that if either of
them or any of their Subsidiaries shall create or assume any Lien upon any of
their respective properties or assets, whether now owned or hereafter acquired,
other than Permitted Liens (unless prior written consent shall have been
obtained from the Banks), the Borrower and the Guarantor will make or cause to
be made effective provision whereby the Obligations and the Guaranteed
Obligations will be secured by such Lien equally and ratably with any and all
other Indebtedness thereby secured so long as such other Indebtedness shall be
so secured; provided, that the covenants of the Borrower and the Guarantor
contained in this sentence shall only be in effect for so long as the Borrower
or the Guarantor shall be similarly obligated under any other Indebtedness;
provided, further, that an Event of Default shall occur for so long as such
other Indebtedness becomes secured


<PAGE>
                                      -52-


notwithstanding any actions taken by the Borrower or the Guarantor to ratably
secure the Obligations and the Guaranteed Obligations hereunder.

         SECTION 8.3. RESTRICTIONS ON INVESTMENTS. Except to the extent provided
in Section 8.4, neither the Borrower nor any Subsidiary may make or permit to
exist or to remain outstanding any Investment, unless both before and after
giving effect thereto (i) the Borrower and its Subsidiaries are in compliance
with the covenants set forth in Sections 7, 8 and 9 hereof; (ii) there does not
exist a Default or Event of Default and no Default or Event of Default would be
created by the making of such Investment; and (iii) the aggregate amount of all
Investments (excluding Investments in (A) direct obligations of the United
States of America or any agency thereof having maturities of less than one (1)
year, (B) certificates of deposit having maturities of less than one (1) year,
issued by commercial banks in the United States or Canada having capital and
surplus of not less than $100,000,000, and (C) Subsidiaries), does not exceed
15% of Consolidated Tangible Assets; provided, that the ability of the Borrower
and its Subsidiaries to incur any Indebtedness in connection with any Investment
permitted by this Section 8.3 shall be governed by Section 8.1.

         SECTION 8.4. MERGERS, CONSOLIDATIONS, SALES.

                  (a) Neither the Borrower nor any Subsidiary shall be a party
         to any merger, consolidation or exchange of stock unless the Borrower
         shall be the surviving entity with respect to any such transaction to
         which the Borrower is a party and the Guarantor shall be the survivor
         of any merger with any other Subsidiary or a Subsidiary shall be the
         surviving entity (and continue to be a Subsidiary) with respect to any
         such transactions to which one or more Subsidiaries is a party (and the
         conditions set forth below are satisfied), or purchase or otherwise
         acquire all or substantially all of the assets or stock of any class
         of, or any partnership, membership or joint venture or other interest
         in, any other Person except as otherwise provided in Section 8.3 or
         this Section 8.4. Notwithstanding the foregoing, the Borrower and its
         Subsidiaries may purchase or otherwise acquire all or substantially all
         of the assets or stock of any class of, or joint venture or other
         interest in, any Person if the following conditions have been met: (i)
         the proposed transaction will not otherwise create a Default or an
         Event of Default hereunder; and (ii) the business to be acquired
         predominantly involves (A) the collection, transfer, hauling, disposal
         or recycling of solid waste or thermal soil remediation, or (B) other
         lines of businesses currently engaged in, or related, associated,
         complementary or supplementary thereto, whether from an operational,
         business, financial, technical or administrative standpoint; provided
         that the Borrower or its Subsidiaries may purchase or otherwise acquire
         all or substantially all of the assets or stock of any class of, or any
         partnership, membership or joint venture or other interest in, any
         Persons in unrelated businesses, not to exceed an aggregate amount of
         $100,000,000 during the first year following the Effective Date, and
         not to exceed a total aggregate amount of $200,000,000 during the term
         of this Agreement. Notwithstanding anything herein to the contrary, the
         ability of the Borrower and its Subsidiaries to incur any Indebtedness
         in connection with any transaction permitted pursuant to this Section
         8.4 shall be governed by Section 8.1.


<PAGE>
                                      -53-


                  (b) Neither the Borrower nor any Subsidiary shall sell,
         transfer, convey or lease any assets or group of assets, including the
         sale or transfer of any property owned by the Borrower or any
         Subsidiary in order then or thereafter to lease such property or lease
         other property which the Borrower or such Subsidiary intends to use for
         substantially the same purpose as the property being sold or
         transferred, or sell or assign, with or without recourse, any
         receivables, except (i) transfers of real or personal property among
         Subsidiaries of the Borrower, (ii) so long as no Default or Event of
         Default has occurred and is continuing, or would result therefrom,
         sales of assets or pursuant to a sale-leaseback transaction, provided
         that any net cash proceeds from any such sale or sale-leaseback shall,
         within 180 days, either be used to pay down outstanding Loans under
         this Agreement and outstanding loans under the Five Year Revolving
         Credit Facility pro rata, or be reinvested by such Person in assets of
         the business of the Borrower and its Subsidiaries, used for working
         capital, invested in Investments in accordance with the provisions of
         Section 8.3 or used for other general corporate purposes, (iii) sales
         of accounts receivable (and contract rights, general intangibles or
         chattel paper related thereto) more than sixty (60) days past due sold
         or assigned in the ordinary course of collecting past due accounts, or
         (iv) pursuant to a Permitted Receivables Transaction.

         SECTION 8.5. RESTRICTED DISTRIBUTIONS AND REDEMPTIONS. Neither the
Borrower nor any of its Subsidiaries will (a) declare or pay any Distributions,
or (b) redeem, convert, retire or otherwise acquire shares of any class of its
capital stock (other than in connection with a merger permitted by Section 8.4
hereof or conversion into another form of equity of any preferred shares of the
Borrower existing as of the Effective Date pursuant to the terms thereof);
unless at the time of such Distribution or redemption no Default or Event of
Default exists or would be created hereunder. Notwithstanding the above, any
Subsidiary may make Distributions to the Borrower and the Borrower agrees that
neither the Borrower nor any Material Subsidiary will enter into any agreement
restricting Distributions from such Material Subsidiary to the Borrower.

         SECTION 8.6. EMPLOYEE BENEFIT PLANS. None of the Borrower, any of its
Subsidiaries, or any ERISA Affiliate will:

                  (a) engage in any "prohibited transaction" within the meaning
         of Section 406 of ERISA or Section 4975 of the Code which could result
         in a material liability for the Borrower on a consolidated basis; or

                  (b) permit any Guaranteed Pension Plan to incur an
         "accumulated funding deficiency", as such term is defined in Section
         302 of ERISA, whether or not such deficiency is or may be waived; or

                  (c) fail to contribute to any Guaranteed Pension Plan to an
         extent which, or terminate any Guaranteed Pension Plan in a manner
         which, could result in the imposition of a lien or encumbrance on the
         assets of the Borrower or the Guarantor pursuant to Section 302(f) or
         Section 4068 of ERISA; or

                  (d) permit or take any action which would result in the
         aggregate benefit liabilities (within the meaning of Section 4001 of
         ERISA), other than with respect to the Terminated Plans, of all
         Guaranteed Pension Plans exceeding the


<PAGE>
                                      -54-


         value of the aggregate assets of such Plans, disregarding for this
         purpose the benefit liabilities and assets of any such Plan with assets
         in excess of benefit liabilities.

         The Borrower and its Subsidiaries will (i) promptly upon the request of
any Bank or the Administrative Agent, furnish to the Banks a copy of the most
recent actuarial statement required to be submitted under Section 103(d) of
ERISA and Annual Report, Form 5500, with all required attachments, in respect of
each Guaranteed Pension Plan and (ii) promptly upon receipt or dispatch, furnish
to the Banks any notice, report or demand sent or received in respect of a
Guaranteed Pension Plan under Sections 302, 4041, 4042, 4043, 4063, 4065, 4066
and 4068 of ERISA, or in respect of a Multiemployer Plan, under Sections 4041A,
4202, 4219, 4242 or 4245 of ERISA.

         SECTION 9. FINANCIAL COVENANTS OF THE BORROWER. The Borrower agrees
that, so long as any Obligation or Letter of Credit is outstanding or the Banks
have any obligation to make Loans, or any Issuing Bank has any obligation to
issue, extend or renew any Letter of Credit hereunder, or the Banks have any
obligation to reimburse any Issuing Bank for drawings honored under any Letter
of Credit, it shall comply with the following covenants:

         SECTION 9.1. INTEREST COVERAGE RATIO. As of the end of any fiscal
quarter of the Borrower, the Borrower will not permit the ratio of (a) EBIT for
the four fiscal quarters then ending to (b) Consolidated Total Interest Expense
for such period to be less than the applicable ratio set forth in the table
below:


<Table>
<Caption>

         FISCAL QUARTER(s) ENDING:                          RATIO:
         -------------------------                          ------
<S>                                                         <C>
         6/30/02 - 12/31/02                                 2.50:1.00

         3/31/03 and thereafter                             3.00:1.00
</Table>

         SECTION 9.2. TOTAL DEBT TO EBITDA. As of the end of any fiscal quarter
of the Borrower, the Borrower will not permit the ratio of (a) Total Debt to (b)
EBITDA for the four fiscal quarters then ending to exceed 3.00:1.00.

         SECTION 9.3. MINIMUM NET WORTH. The Borrower will not permit
Consolidated Net Worth at any time to be less than $3,500,000,000, plus 75% of
cumulative positive Consolidated Net Income for each fiscal quarter, beginning
with the fiscal quarter ended March 31, 2001.

         SECTION 10. CONDITIONS PRECEDENT.

         SECTION 10.1. CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Agreement and the obligations of the Banks to make any Loans and of any Issuing
Bank to issue Letters of Credit and of the Banks to participate in Letters of
Credit and otherwise be bound by the terms of this Agreement shall be subject to
the satisfaction of each of the following conditions precedent:


<PAGE>
                                      -55-


                  SECTION 10.1.1. CORPORATE ACTION. All corporate action
         necessary for the valid execution, delivery and performance by the
         Borrower and the Guarantor of the Loan Documents shall have been duly
         and effectively taken, and evidence thereof certified by authorized
         officers of the Borrower and the Guarantor and satisfactory to the
         Administrative Agent shall have been provided to the Banks.

                  SECTION 10.1.2. LOAN DOCUMENTS, ETC. Each of the Loan
         Documents and other documents listed on the closing agenda shall have
         been duly and properly authorized, executed and delivered by the
         respective parties thereto and shall be in full force and effect in a
         form satisfactory to the Majority Banks.

                  SECTION 10.1.3. CERTIFIED COPIES OF CHARTER DOCUMENTS. The
         Banks shall have received from each of the Borrower and the Guarantor,
         certified by a duly authorized officer of such Person to be true and
         complete on the Effective Date, (a) its charter or other incorporation
         documents, (b) its by-laws and (c) good standing certificates and
         foreign qualifications.

                  SECTION 10.1.4. INCUMBENCY CERTIFICATE. The Banks shall have
         received an incumbency certificate, dated as of the Effective Date,
         signed by duly authorized officers of the Borrower and the Guarantor
         giving the name and bearing a specimen signature of each individual who
         shall be authorized: (a) to sign the Loan Documents on behalf of the
         Borrower and the Guarantor; (b) to make Syndicated Loan Requests and
         Letter of Credit Requests; (c) to make Competitive Bid Quote Requests;
         and (d) to give notices and to take other action on the Borrower's or
         the Guarantor's behalf under the Loan Documents.

                  SECTION 10.1.5. CERTIFICATES OF INSURANCE. The Administrative
         Agent shall have received a certificate of insurance from an
         independent insurance broker dated as of the Effective Date, or within
         15 days prior thereto, identifying insurers, types of insurance,
         insurance limits, and policy terms, and otherwise describing the
         insurance coverage of the Borrower and its Subsidiaries.

                  SECTION 10.1.6. OPINION OF COUNSEL. The Banks shall have
         received a favorable legal opinion from the deputy general counsel to
         the Borrower and the Guarantor addressed to the Banks, dated the
         Effective Date, in form and substance satisfactory to the
         Administrative Agent.

                  SECTION 10.1.7. SATISFACTORY FINANCIAL CONDITION. Other than
         as disclosed in the Disclosure Documents, no material adverse change
         shall have occurred in the financial condition, results of operations,
         business, properties or prospects of the Borrower and its Subsidiaries,
         taken as a whole, since the Balance Sheet Date.

                  SECTION 10.1.8. PAYMENT OF CLOSING FEES. The Borrower shall
         have paid the agreed upon closing fees to the Administrative Agent for
         the account of the Banks

                  SECTION 10.1.9. TERMINATION OF THE 364 DAY LOAN AGREEMENT.

                  The 364 Day Loan Agreement, dated as of June 29, 2001, among
         the Borrower, the Guarantor and certain of the Banks shall be paid in
         full and terminated.


<PAGE>
                                      -56-


                  SECTION 10.1.10. CLOSING CERTIFICATE. The Borrower shall have
         delivered to the Administrative Agent a certificate, dated as of the
         Effective Date, stating that, as of such date (a) the representations
         and warranties set forth herein or in any other Loan Document are true
         and correct, and (b) no Default or Event of Default has occurred and is
         continuing.

         SECTION 11. CONDITIONS TO ALL LOANS. The obligations of the Banks to
make or continue for an additional Interest Period in accordance with Section
2.7 any Loan and the obligation of any Issuing Bank to issue, extend, or renew
any Letter of Credit at the time of and subsequent to the Effective Date is
subject to the following conditions precedent:

         SECTION 11.1. REPRESENTATIONS TRUE. Each of the representations and
warranties of the Borrower and the Guarantor (as applicable) contained in this
Agreement or in any document or instrument delivered pursuant to or in
connection with this Agreement shall be true as of the date as of which they
were made and shall also be true at and as of the time of the making of such
Loan or the issuance, extension, or renewal of any Letter of Credit, as
applicable, with the same effect as if made at and as of that time (except to
the extent of changes resulting from transactions contemplated or permitted by
this Agreement and changes occurring in the ordinary course of business which
either individually or in the aggregate do not result in a Material Adverse
Effect, and to the extent that such representations and warranties relate
expressly and solely to an earlier date).

         SECTION 11.2. PERFORMANCE; NO EVENT OF DEFAULT. The Borrower shall have
performed and complied with all terms and conditions herein required to be
performed or complied with by it prior to or at the time of the making of any
Loan the issuance, extension or renewal of any Letter of Credit, and at the time
of the making of any Loan or the issuance, renewal or extension of any Letter of
Credit, there shall exist no Default or Event of Default or condition which
would result in a Default or an Event of Default upon consummation of such Loan
or issuance, extension, or renewal of any Letter of Credit, as applicable. Each
request for a Loan, or for issuance, extension or renewal of a Letter of Credit
shall constitute certification by the Borrower that the conditions specified in
Sections 11.1 and 11.2 will be duly satisfied on the date of such Loan or Letter
of Credit issuance, extension or renewal.

         SECTION 11.3. NO LEGAL IMPEDIMENT. No change shall have occurred in any
law or regulations thereunder or interpretations thereof which in the reasonable
opinion of the Banks would make it illegal for the Banks to make Loans, for any
Issuing Bank to issue, extend or renew, or the Banks to participate in, Letters
of Credit hereunder.

         SECTION 11.4. GOVERNMENTAL REGULATION. The Banks shall have received
from the Borrower and its Subsidiaries such statements in substance and form
reasonably satisfactory to the Banks as they shall require for the purpose of
compliance with any applicable regulations of the Comptroller of the Currency or
the Board of Governors of the Federal Reserve System or the Office of the
Superintendent of Financial Institutions.

         SECTION 11.5. PROCEEDINGS AND DOCUMENTS. All proceedings in connection
with the transactions contemplated by this Agreement and all documents incident
thereto shall have been delivered to the Banks as of the date of the making of
any extension of credit in substance and in form satisfactory to the Banks,
including without limitation a


<PAGE>
                                      -57-


Syndicated Loan Request in the form attached hereto as Exhibit A or a Letter of
Credit Request in the form attached hereto as Exhibit B and the Banks shall have
received all information and such counterpart originals or certified or other
copies of such documents as the Banks may reasonably request.

         SECTION 12. EVENTS OF DEFAULT; ACCELERATION; TERMINATION OF COMMITMENT.

         SECTION 12.1. EVENTS OF DEFAULT AND ACCELERATION. If any of the
following events ("Events of Default" or, if the giving of notice or the lapse
of time or both is required, then, prior to such notice and/or lapse of time,
"Defaults") shall occur:

                  (a) if the Borrower shall fail to pay any principal of the
         Loans when the same shall become due and payable, whether at the stated
         date of maturity or any accelerated date of maturity or at any other
         date fixed for payment;

                  (b) if the Borrower shall fail to pay any interest or fees or
         other amounts owing hereunder (other than those specified in subsection
         (a) above) within five (5) Business Days after the same shall become
         due and payable whether at the Maturity Date or any accelerated date of
         maturity or at any other date fixed for payment;

                  (c) if the Borrower shall fail to comply with any of the
         covenants contained in Sections 7.4, 7.5, 7.15, 7.16, 8 and 9 hereof;

                  (d) if the Borrower shall fail to perform any term, covenant
         or agreement contained herein or in any of the other Loan Documents
         (other than those specified in subsections (a), (b), and (c) above) and
         such failure shall not be remedied within 30 days after written notice
         of such failure shall have been given to the Borrower by the
         Administrative Agent or any of the Banks;

                  (e) if any representation or warranty contained in this
         Agreement or in any document or instrument delivered pursuant to or in
         connection with this Agreement shall prove to have been false in any
         material respect upon the date when made or repeated;

                  (f) if the Borrower or any of its Subsidiaries shall fail to
         pay when due, or within any applicable period of grace, any
         Indebtedness or Swap Obligation in an aggregate amount greater than
         $50,000,000, or fail to observe or perform any material term, covenant
         or agreement contained in any one or more agreements by which it is
         bound, evidencing or securing any Indebtedness or Swap Obligation in an
         aggregate amount greater than $50,000,000 for such period of time as
         would permit, or would have permitted (assuming the giving of
         appropriate notice if required) the holder or holders thereof or of any
         obligations issued thereunder to accelerate the maturity thereof or
         terminate its commitment with respect thereto;

                  (g) if the Borrower, the Guarantor or any Material Subsidiary
         makes an assignment for the benefit of creditors, or admits in writing
         its inability to pay or generally fails to pay its debts as they mature
         or become due, or petitions or


<PAGE>
                                      -58-


         applies for the appointment of a trustee or other custodian, liquidator
         or receiver of the Borrower, the Guarantor or any Material Subsidiary,
         or of any substantial part of the assets of the Borrower, the Guarantor
         or any Material Subsidiary or commences any case or other proceeding
         relating to the Borrower, the Guarantor or any Material Subsidiary
         under any bankruptcy, reorganization, arrangement, insolvency,
         readjustment of debt, dissolution or liquidation or similar law of any
         jurisdiction, now or hereafter in effect, or takes any action to
         authorize or in furtherance of any of the foregoing, or if any such
         petition or application is filed or any such case or other proceeding
         is commenced against the Borrower, the Guarantor or any Material
         Subsidiary or the Borrower, the Guarantor or any Material Subsidiary
         indicates its approval thereof, consent thereto or acquiescence
         therein;

                  (h) if a decree or order is entered appointing any such
         trustee, custodian, liquidator or receiver or adjudicating the Borrower
         or the Guarantor or any Material Subsidiary bankrupt or insolvent, or
         approving a petition in any such case or other proceeding, or a decree
         or order for relief is entered in respect of the Borrower or the
         Guarantor or any Material Subsidiary in an involuntary case under
         federal bankruptcy laws of any jurisdiction as now or hereafter
         constituted;

                  (i) if there shall remain in force, undischarged, unsatisfied
         and unstayed, for more than thirty days, whether or not consecutive,
         any final judgment against the Borrower or any Subsidiary which, with
         other outstanding final judgments against the Borrower and its
         Subsidiaries exceeds in the aggregate $25,000,000 after taking into
         account any undisputed insurance coverage;

                  (j) if, with respect to any Guaranteed Pension Plan, an ERISA
         Reportable Event shall have occurred and the Banks shall have
         determined in their reasonable discretion that such event reasonably
         could be expected to result in liability of the Borrower or any
         Subsidiary to the PBGC or the Plan in an aggregate amount exceeding
         $25,000,000 and such event in the circumstances occurring reasonably
         could constitute grounds for the partial or complete termination of
         such Plan by the PBGC or for the appointment by the appropriate United
         States District Court of a trustee to administer such Plan; or a
         trustee shall have been appointed by the appropriate United States
         District Court to administer such Plan; or the PBGC shall have
         instituted proceedings to terminate such Plan;

                  (k) if any of the Loan Documents shall be cancelled,
         terminated, revoked or rescinded otherwise than in accordance with the
         terms thereof or with the express prior written agreement, consent or
         approval of the Banks, or any action at law, suit or in equity or other
         legal proceeding to cancel, revoke or rescind any of the Loan Documents
         shall be commenced by or on behalf of the Borrower, the Guarantor, or
         any of their respective stockholders, or any court or any other
         governmental or regulatory authority or agency of competent
         jurisdiction shall make a determination that, or issue a judgment,
         order, decree or ruling to the effect that, any one or more of the Loan
         Documents is illegal, invalid or unenforceable in accordance with the
         terms thereof; or

                  (l) if any person or group of persons (within the meaning of
         Section 13 or 14 of the Securities Exchange Act of 1934, as amended)
         shall have acquired


<PAGE>
                                      -59-


         beneficial ownership (within the meaning of Rule 13d-3 promulgated by
         the Securities and Exchange Commission under said Act) of 25% or more
         of the outstanding shares of common voting stock of the Borrower; or
         during any period of twelve consecutive calendar months, individuals
         who were directors of the Borrower on the first day of such period
         (together with any new directors whose election by such board or whose
         nomination for election by the shareholders of the Borrower was
         approved by a vote of a majority of the directors still in office who
         were either directors at the beginning of such period or whose election
         or nomination for election was previously so approved) shall cease to
         constitute a majority of the board of directors of the Borrower;

then, and in any such event, so long as the same may be continuing, the
Administrative Agent may, and upon the request of the Majority Banks shall, by
notice in writing to the Borrower, declare all amounts owing with respect to
this Agreement, and the other Loan Documents and all Reimbursement Obligations
to be, and they shall thereupon forthwith become, immediately due and payable
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration to the extent permitted by law or other notice of any kind, all of
which are hereby expressly waived by the Borrower; provided that in the event of
any Event of Default specified in Section 12.1(g) or 12.1(h) with respect to the
Borrower or the Guarantor, all such amounts shall become immediately due and
payable automatically and without any requirement of notice from the
Administrative Agent or any Bank. Upon demand by the Majority Banks after the
occurrence of any Event of Default, the Borrower shall immediately provide to
the Administrative Agent cash in an amount equal to the aggregate Maximum
Drawing Amount to be held by the Administrative Agent as collateral security for
the Reimbursement Obligations.

         SECTION 12.2. TERMINATION OF COMMITMENTS. If any Event of Default
pursuant to Sections 12.1(g) or 12.1(h) hereof shall occur with respect to the
Borrower or the Guarantor, any unused portion of the Total Commitment hereunder
shall forthwith terminate and the Banks and the Issuing Banks shall be relieved
of all obligations to make Loans or to issue, extend or renew Letters of Credit
hereunder; or if any other Event of Default shall occur, the Majority Banks may
by notice to the Borrower terminate the unused portion of the Total Commitment
hereunder, and, upon such notice being given, such unused portion of the Total
Commitment hereunder shall terminate immediately and the Banks and the Issuing
Banks shall be relieved of all further obligations to make Loans or to issue,
extend or renew Letters of Credit hereunder. No termination of any portion of
the Total Commitment hereunder shall relieve the Borrower of any of its existing
Obligations to the Banks, the Issuing Banks or the Administrative Agent
hereunder or elsewhere.

         SECTION 12.3. REMEDIES. In case any one or more of the Events of
Default shall have occurred and be continuing, and whether or not the Banks
shall have accelerated the maturity of the Loans and other Obligations pursuant
to Section 12.1, each Bank, upon notice to the other Banks, if owed any amount
with respect to the Loans or the Reimbursement Obligations, may proceed to
protect and enforce its rights by suit in equity, action at law or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to such Bank are evidenced,
including, without limitation, as permitted by applicable law the obtaining of
the ex parte appointment of a receiver, and, if such amount shall have become
due, by declaration or otherwise,


<PAGE>
                                      -60-


proceed to enforce the payment thereof or any legal or equitable right of such
Bank, any recovery being subject to the terms of Section 29 hereof. No remedy
herein conferred upon any Bank or the Administrative Agent or the holder of any
Note is intended to be exclusive of any other remedy and each and every remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or any
other provision of law.

         SECTION 13. SETOFF. Regardless of the adequacy of any collateral,
during the continuance of an Event of Default, any deposits or other sums
credited by or due from any Bank to the Borrower and any securities or other
property of the Borrower in the possession of such Bank may be applied to or set
off against the payment of the Obligations and any and all other liabilities,
direct, or indirect, absolute or contingent, due or to become due, now existing
or hereafter arising, of the Borrower to the Banks or the Administrative Agent.
Any amounts set off with respect to the Obligations shall be distributed ratably
in accordance with Section 29 among all of the Banks by the Bank setting off
such amounts. If any Bank fails to share such setoff ratably, the Administrative
Agent shall have the right to withhold such Bank's share of the Borrower's
payments until each of the Banks shall have, in the aggregate, received a pro
rata repayment.

         SECTION 14. EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, the Borrower hereby promises to reimburse the
Administrative Agent and the Joint Lead Arrangers and Joint Book Managers for
all reasonable out-of-pocket fees and disbursements (including all reasonable
attorneys' fees) incurred or expended in connection with the syndication,
preparation, filing or recording, or interpretation of this Agreement, the other
Loan Documents, or any amendment, modification, approval, consent or waiver
hereof or thereof. The Borrower further promises to reimburse the Administrative
Agent and the Banks for all reasonable out-of-pocket fees and disbursements
(including all reasonable legal fees and the allocable cost of in-house
attorneys' fees) incurred or expended in connection with the enforcement of any
Obligations or the satisfaction of any indebtedness of the Borrower hereunder or
under any other Loan Document, or in connection with any litigation, proceeding
or dispute hereunder in any way related to the credit hereunder. The Borrower
also promises to pay the Administrative Agent all reasonable out-of-pocket fees
and disbursements, incurred or expended in connection with the Competitive Bid
Loan procedure under Section 4 hereof.

         SECTION 15. THE AGENTS.

         SECTION 15.1. APPOINTMENT, POWERS AND IMMUNITIES. Each Bank hereby
irrevocably appoints and authorizes Fleet to act as Administrative Agent,
provided, however, the Administrative Agent is hereby authorized to serve only
as administrative agent for the Banks and to exercise such powers as are
reasonably incidental thereto and as are set forth in this Agreement and the
other Loan Documents. The Administrative Agent hereby acknowledges that it does
not have the authority to negotiate any agreement which would bind the Banks or
agree to any amendment, waiver or modification of any of the Loan Documents or
bind the Banks except as set forth in this Agreement or the Loan Documents.
Except as provided in this Agreement, and in the other Loan Documents, the
Administrative Agent shall take action or refrain from acting only upon
instructions of the Banks. It is agreed that the duties, rights, privileges and
immunities of the Issuing Banks, in their capacity as issuers of Letters of
Credit hereunder, shall be identical to the duties, rights, privileges and
immunities of the Administrative Agent as


<PAGE>
                                      -61-


provided in this Section 15. The Administrative Agent shall not have any duties
or responsibilities or any fiduciary relationship with any Bank except those
expressly set forth in this Agreement and the other Loan Documents. Neither the
Administrative Agent nor any of its affiliates shall be responsible to the Banks
for any recitals, statements, representations or warranties made by the Borrower
or any other Person whether contained herein or otherwise or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement, the other Loan Documents or any other document referred to or
provided for herein or therein or for any failure by the Borrower or any other
Person to perform its obligations hereunder or thereunder. The Administrative
Agent may employ agents and attorneys-in-fact and shall not be responsible for
the negligence or misconduct of any such agents or attorneys-in-fact selected by
it with reasonable care. The Administrative Agent, the Agents and any of their
directors, officers, employees or agents shall not be responsible for any action
taken or omitted to be taken by it or them hereunder or in connection herewith,
except for its or their own gross negligence or willful misconduct. The
Administrative Agent in its separate capacity as a Bank shall have the same
rights and powers hereunder as any other Bank. The Co-Documentation Agents and
the Co-Syndication Agents shall not have any right, power, obligation,
liability, responsibility or duty under this Credit Agreement in such capacity,
other than, with respect to the Co-Documentation Agents and BOA, those
applicable to all Banks as Banks.

         SECTION 15.2. ACTIONS BY ADMINISTRATIVE AGENT. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement as reasonably deemed appropriate unless it shall first have received
the consent of the Majority Banks (or, when expressly required hereby, all of
the Banks), and shall be indemnified to its reasonable satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Administrative Agent shall
in all cases be fully protected in acting, or in refraining from acting, under
this Agreement or any of the Loan Documents in accordance with the instruction
of the Majority Banks (or, when expressly required hereby or thereby, all of the
Banks), and such instruction and any action taken or failure to act pursuant
thereto shall be binding upon the Banks and all future holders of any Loan
Obligation or any Letter of Credit Participation.

         SECTION 15.3. INDEMNIFICATION. Without limiting the obligations of the
Borrower hereunder or under any other Loan Document, the Banks agree to
indemnify the Administrative Agent, its affiliates and its respective directors,
officers, agents and employees (to the extent not reimbursed by the Borrower)
ratably in accordance with their respective Commitment Percentages for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may at any time be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of this Agreement or
any other Loan Document or any documents contemplated by or referred to herein
or therein or the transactions contemplated hereby or thereby or the enforcement
of any of the terms hereof or thereof or of any such other documents; provided,
that no Bank shall be liable for any of the foregoing to the extent they arise
from the gross negligence or willful misconduct of the Administrative Agent (or
any agent thereof), IT BEING THE INTENT OF THE PARTIES HERETO THAT ALL SUCH
INDEMNIFIED


<PAGE>
                                      -62-


PARTIES SHALL BE INDEMNIFIED FOR THEIR ORDINARY SOLE OR CONTRIBUTORY NEGLIGENCE.

         SECTION 15.4. REIMBURSEMENT. Without limiting the provisions of
Sections 5.1(a), 5.13, and 13, the Administrative Agent shall not be obliged to
make available to any Person any sum which the Administrative Agent is expecting
to receive for the account of that Person until the Administrative Agent has
determined that it has received that sum. The Administrative Agent may, however,
disburse funds prior to determining that the sums which the Administrative Agent
expects to receive have been finally and unconditionally paid to the
Administrative Agent, if the Administrative Agent wishes to do so. If and to the
extent that the Administrative Agent does disburse funds and it later becomes
apparent that the Administrative Agent did not then receive a payment in an
amount equal to the sum paid out, then any Person to whom the Administrative
Agent made the funds available shall, on demand from the Administrative Agent,
refund to the Administrative Agent the sum paid to that Person. If, in the
opinion of the Administrative Agent, the distribution of any amount received by
it in such capacity hereunder or under the other Loan Documents might involve it
in liability, it may refrain from making distribution until its right to make
distribution shall have been adjudicated by a court of competent jurisdiction.
If a court of competent jurisdiction shall adjudge that any amount received and
distributed by the Administrative Agent is to be repaid, each Person to whom any
such distribution shall have been made shall either repay to the Administrative
Agent its proportionate share of the amount so adjudged to be repaid or shall
pay over the same in such manner and to such Persons as shall be determined by
such court.

         SECTION 15.5. DELINQUENT BANKS. Intentionally Omitted.

         SECTION 15.6. DOCUMENTS. The Administrative Agent will forward to each
Bank, promptly after receipt thereof, a copy of each notice or other document
furnished to the Administrative Agent for such Bank hereunder; provided,
however, that, notwithstanding the foregoing, the Administrative Agent may
furnish to the Banks a monthly summary with respect to Letters of Credit issued
hereunder in lieu of copies of the related Letter of Credit Applications.

         SECTION 15.7. NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER BANKS.
Each Bank represents that it has, independently and without reliance on the
Administrative Agent, the Agents or any other Bank, and based on such documents
and information as it has deemed appropriate, made its own appraisal of the
financial condition and affairs of the Borrower and the Guarantor and the
decision to enter into this Agreement and the other Loan Documents and agrees
that it will, independently and without reliance upon the Administrative Agent,
the Agents or any other Bank, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own appraisals and
decisions in taking or not taking action under this Agreement or any other Loan
Document. Except as herein expressly provided to the contrary, the
Administrative Agent shall not be required to keep informed as to the
performance or observance by the Borrower and the Guarantor of this Agreement,
the other Loan Documents or any other document referred to or provided for
herein or therein or by any other Person of any other agreement or to make
inquiry of, or to inspect the properties or books of, any Person. Except for
notices, reports and other documents and information expressly required to be
furnished to the Banks by the Administrative Agent hereunder, the Administrative
Agent


<PAGE>
                                      -63-


shall not have any duty or responsibility to provide any Bank with any credit or
other information concerning any person which may come into the possession of
the Administrative Agent or any of their affiliates. Each Bank shall have access
to all documents relating to the Administrative Agent's performance of their
duties hereunder at such Bank's request. Unless any Bank shall promptly object
to any action taken by the Administrative Agent hereunder of which such Bank has
actual knowledge (other than actions which require the prior consent of such
Bank in accordance with the terms hereof or to which the provisions of Section
15.9 are applicable and other than actions which constitute gross negligence or
willful misconduct by the Administrative Agent), such Bank shall be presumed to
have approved the same.

         SECTION 15.8. RESIGNATION OF ADMINISTRATIVE AGENT. The Administrative
Agent may resign at any time by giving 60 days' prior written notice thereof to
the Banks and the Borrower. Upon any such resignation, the Majority Banks (other
than the resigning Administrative Agent) shall have the right to appoint a
successor Administrative Agent from among the Banks, subject to the consent of
the Borrower. If no successor to the Administrative Agent shall have been so
appointed by the Majority Banks and approved by the Borrower and shall have
accepted such appointment within 30 days after the retiring Administrative
Agent's giving of notice of resignation, then the retiring Administrative Agent
may, on behalf of the Banks, appoint a successor Administrative Agent from among
the remaining Banks, which shall be a financial institution having a combined
capital and surplus in excess of $1,000,000,000. Upon the acceptance of any
appointment as the Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon succeed to and become
vested with all the rights, powers, privileges and duties of the retiring
Administrative Agent, and the retiring Administrative Agent shall be discharged
from its duties and obligations hereunder. After the retiring Administrative
Agent's resignation, the provisions of this Agreement shall continue in effect
for its benefit in respect of any actions taken or omitted to be taken by it
while it was acting as the Administrative Agent. Any new Issuing Bank appointed
pursuant to this Section 15.8 shall immediately issue new Letters of Credit in
place of Letters of Credit previously issued or, if acceptable to the resigning
Issuing Bank, issue letters of credit in favor of the resigning Issuing Bank as
security for the outstanding Letters of Credit and shall in due course replace
all Letters of Credit previously issued by the resigning Issuing Bank.

         SECTION 15.9. ACTION BY THE BANKS, CONSENTS, AMENDMENTS, WAIVERS, ETC.
(a) No failure or delay by the Administrative Agent, any Issuing Bank or any
Bank in exercising any right or power hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right or power, or
any abandonment or discontinuance of steps to enforce such a right or power,
preclude any other or further exercise thereof or the exercise of any other
right or power. The rights and remedies of the Administrative Agent, the Issuing
Banks and the Banks hereunder are cumulative and are not exclusive of any rights
or remedies that they would otherwise have. No waiver of any provision of this
Agreement or consent to any departure by the Borrower therefrom shall in any
event be effective unless the same shall be permitted by paragraph (b) of this
section, and then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. Without limiting the generality of
the foregoing, the making of a Loan or issuance of a Letter of Credit shall not
be construed as a waiver of any Default or Event of Default, regardless of
whether the Administrative Agent, any Lender or the


<PAGE>
                                      -64-


Issuing Bank may have had notice or knowledge of such Default or Event of
Default at the time.

         (b) Neither this Agreement nor any provision hereof may be waived,
amended or modified except pursuant to an agreement or agreements in writing
entered into by the Borrower and the Majority Banks or by the Borrower and the
Administrative Agent with the consent of the Majority Banks; provided that no
such agreement shall (i) increase the Commitment of any Bank without the written
consent of such Bank, (ii) reduce the principal amount of any Loan or
Reimbursement Obligations, or reduce the rate of interest on the Loans or reduce
any fees payable hereunder, without the written consent of each Bank affected
thereby, (iii) postpone the scheduled date of payment of the principal amount of
any Loan, or any interest thereon, or any fees payable hereunder, or reduce the
amount of, waive or excuse any such payment, or postpone the scheduled date of
expiration of any Commitment, without the written consent of each Bank affected
thereby; (iv) release the Borrower from its Obligations or the Guarantor from
its Guaranteed Obligations hereunder without the written consent of each Bank,
or (v) change any of the provisions of this Section 15.9 or any provision of
this Agreement requiring action by all the Banks, or the percentage of Banks
constituting "Majority Banks", without the written consent of each Bank;
provided further that no such agreement shall amend, modify or otherwise affect
the rights or duties of the Administrative Agent or any Issuing Bank hereunder
without the prior written consent of the Administrative Agent or the Issuing
Banks, as the case may be.

         SECTION 16. INDEMNIFICATION. The Borrower agrees to indemnify and hold
harmless the Banks, the Agents, the Issuing Banks, the Joint Lead Arrangers and
Joint Book Managers and the Administrative Agent and their affiliates, as well
as the Banks' and the Administrative Agent's and their affiliates' shareholders,
directors, agents, officers, subsidiaries and affiliates, from and against all
damages, losses, settlement payments, obligations, liabilities, claims, suits,
penalties, assessments, citations, directives, demands, judgments, actions or
causes of action, whether statutorily created or under the common law, and
reasonable costs and expenses incurred, suffered, sustained or required to be
paid by an indemnified party by reason of or resulting from the transactions
contemplated hereby, except any of the foregoing which result from the gross
negligence or willful misconduct of such indemnified party. In any
investigation, enforcement matter, proceeding or litigation, or the preparation
therefor, the Banks and the Administrative Agent shall be entitled to select
their own counsel and, in addition to the foregoing indemnity, the Borrower
agrees to pay promptly the reasonable fees and expenses of such counsel
(including the non-duplicative allocated cost of internal counsel), and
settlement costs. In the event of the commencement of any such proceeding or
litigation against the Banks or Administrative Agent by third parties, the
Borrower shall be entitled to participate in such proceeding or litigation with
counsel of their choice at their expense. The covenants of this Section 16 shall
survive payment or satisfaction of payment of amounts owing with respect to any
Note or the Loans and satisfaction of all the Obligations hereunder and under
the Loan Documents, IT BEING THE INTENT OF THE PARTIES HERETO THAT ALL SUCH
INDEMNIFIED PARTIES SHALL BE INDEMNIFIED FOR THEIR ORDINARY SOLE OR CONTRIBUTORY
NEGLIGENCE.

         SECTION 17. WITHHOLDING TAXES. The Borrower hereby agrees that:


<PAGE>
                                      -65-


                  (a) Any and all payments made by the Borrower hereunder shall
         be made free and clear of, and without deduction for, any and all
         present or future taxes, levies, fees, duties, imposts, deductions,
         charges or withholdings of any nature whatsoever, excluding, in the
         case of the Administrative Agent or the Banks, (i) taxes imposed on, or
         measured by, its net income or profits, (ii) franchise taxes imposed on
         it, (iii) taxes imposed by any jurisdiction as a direct consequence of
         it, or any of its affiliates, having a present or former connection
         with such jurisdiction, including, without limitation, being organized,
         existing or qualified to do business, doing business or maintaining a
         permanent establishment or office in such jurisdiction, and (iv) taxes
         imposed by reason of its failure to comply with any applicable
         certification, identification, information, documentation or other
         reporting requirement (all such non-excluded taxes being hereinafter
         referred to as "Indemnifiable Taxes"). In the event that any
         withholding or deduction from any payment to be made by the Borrower
         hereunder is required in respect of any Indemnifiable Taxes pursuant to
         any applicable law, or governmental rule or regulation, then the
         Borrower will (i) direct to the relevant taxing authority the full
         amount required to be so withheld or deducted, (ii) forward to the
         Administrative Agent for delivery to the applicable Bank an official
         receipt or other documentation satisfactory to the Administrative Agent
         and the applicable Bank evidencing such payment to such taxing
         authority, and (iii) direct to the Administrative Agent for the account
         of the relevant Banks such additional amount or amounts as is necessary
         to ensure that the net amount actually received by each relevant Bank
         will equal the full amount such Bank would have received had no such
         withholding or deduction (including any Indemnifiable Taxes on such
         additional amounts) been required. Moreover, if any Indemnifiable Taxes
         are directly asserted against the Administrative Agent or any Bank with
         respect to any payment received by the Administrative Agent or such
         Bank by reason of the Borrower's failure to properly deduct and
         withhold such Indemnifiable Taxes from such payment, the Administrative
         Agent or such Bank may pay such Indemnifiable Taxes and the Borrower
         will promptly pay all such additional amounts (including any penalties,
         interest or reasonable expenses) as is necessary in order that the net
         amount received by such Person after the payment of such Indemnifiable
         Taxes (including any Indemnifiable Taxes on such additional amount)
         shall equal the amount such Person would have received had not such
         Indemnifiable Taxes been asserted. Any such payment shall be made
         promptly after the receipt by the Borrower from the Administrative
         Agent or such Bank, as the case may be, of a written statement setting
         forth in reasonable detail the amount of the Indemnifiable Taxes and
         the basis of the claim.

                  (b) The Borrower shall pay any present or future stamp or
         documentary taxes or any other excise or any other similar levies which
         arise from any payment made hereunder or from the execution, delivery
         or registration of, or otherwise with respect to, this Agreement or any
         other Loan Document ("Other Taxes").

                  (c) The Borrower hereby indemnifies and holds harmless the
         Administrative Agent and each Bank for the full amount of Indemnifiable
         Taxes or Other Taxes (including, without limitation, any Indemnifiable
         Taxes or Other Taxes imposed on amounts payable under this Section 17)
         paid by the Administrative


<PAGE>
                                      -66-


         Agent or such Bank, as the case may be, and any liability (including
         penalties, interest and reasonable expenses) arising therefrom or with
         respect thereto, by reason of the Borrower's failure to properly deduct
         and withhold Indemnifiable Taxes pursuant to paragraph (a) above or to
         properly pay Other Taxes pursuant to paragraph (b) above. Any
         indemnification payment from the Borrower under the preceding sentence
         shall be made promptly after receipt by the Borrower from the
         Administrative Agent or Bank of a written statement setting forth in
         reasonable detail the amount of such Indemnifiable Taxes or such Other
         Taxes, as the case may be, and the basis of the claim.

                  (d) If the Borrower pays any amount under this Section 17 to
         the Administrative Agent or any Bank and such payee knowingly receives
         a refund of any taxes with respect to which such amount was paid, the
         Administrative Agent or such Bank, as the case may be, shall pay to the
         Borrower the amount of such refund promptly following the receipt
         thereof by such payee.

                  (e) In the event any taxing authority notifies the Borrower or
         the Guarantor that any of them has improperly failed to deduct or
         withhold any taxes (other than Indemnifiable Taxes) from a payment made
         hereunder to the Administrative Agent or any Bank, the Borrower shall
         timely and fully pay such taxes to such taxing authority.

                  (f) The Administrative Agent or the Banks shall, upon the
         request of the Borrower, take reasonable measures to avoid or mitigate
         the amount of Indemnifiable Taxes required to be deducted or withheld
         from any payment made hereunder if such measures can be taken without
         such Person in its sole judgment suffering any legal, regulatory or
         economic disadvantage.

                  (g) Without prejudice to the survival of any other agreement
         of the parties hereunder, the agreements and obligations of the
         Borrower contained in this Section 17 shall survive the payment in full
         of the Obligations.

         SECTION 18. TREATMENT OF CERTAIN CONFIDENTIAL INFORMATION.

         SECTION 18.1. CONFIDENTIALITY. Each of the Banks and the Administrative
Agent agrees, on behalf of itself and each of its affiliates, directors,
officers, employees and representatives, to use reasonable precautions to keep
confidential, in accordance with their customary procedures for handling
confidential information of the same nature and in accordance with safe and
sound banking practices, any non-public information supplied to it by the
Borrower or any of its Subsidiaries pursuant to this Agreement that is
identified by such Person as being confidential at the time the same is
delivered to the Banks or the Administrative Agent, provided that nothing herein
shall limit the disclosure of any such information (a) after such information
shall have become public other than through a violation of this Section 18, or
becomes available to any of the Banks or the Administrative Agent on a
nonconfidential basis from a source other than the Borrower, (b) to the extent
required by statute, rule, regulation or judicial process, (c) to counsel for
any of the Banks or the Administrative Agent, (d) to bank examiners or any other
regulatory authority having jurisdiction over any Bank or the Administrative
Agent, or to auditors or accountants, (e) to the Administrative Agent, any Bank
or any Financial Affiliate, (f) in connection with any litigation to which any
one or more of the Banks, the


<PAGE>
                                      -67-


Administrative Agent or any Financial Affiliate is a party, or in connection
with the enforcement of rights or remedies hereunder or under any other Loan
Document, (g) to an affiliate of any Bank or the Administrative Agent, (h) to
any actual or prospective assignee or participant or any actual or prospective
counterparty (or its advisors) to any swap or derivative transactions referenced
to credit or other risks or events arising under this Agreement or any other
Loan Document so long as such assignee, participant or counterparty, as the case
may be, agrees to be bound by the provisions of Section 18.1, or (i) with the
consent of the Borrower.

         SECTION 18.2. PRIOR NOTIFICATION. Unless specifically prohibited by
applicable law or court order, each of the Banks and the Administrative Agent
shall, prior to disclosure thereof, notify the Borrower of any request for
disclosure of any such non-public information by any governmental agency or
representative thereof (other than any such request in connection with an
examination of the financial condition of such Bank by such governmental agency)
or pursuant to legal process.

         SECTION 18.3. OTHER. In no event shall any Bank or the Administrative
Agent be obligated or required to return any materials furnished to it or any
Financial Affiliate by the Borrower or any of its Subsidiaries. The obligations
of each Bank under this Section 18 shall supersede and replace the obligations
of such Bank under any confidentiality letter in respect of this financing
signed and delivered by such Bank to the Borrower prior to the date hereof and
shall be binding upon any assignee of, or purchaser of any participation in, any
interest in any of the Loans or Reimbursement Obligations from any Bank.

         SECTION 19. SURVIVAL OF COVENANTS, ETC. Unless otherwise stated herein,
all covenants, agreements, representations and warranties made herein, in the
other Loan Documents or in any documents or other papers delivered by or on
behalf of the Borrower or the Guarantor pursuant hereto shall be deemed to have
been relied upon by the Banks, the Issuing Banks and the Administrative Agent,
notwithstanding any investigation heretofore or hereafter made by them, and
shall survive the making by the Banks of the Loans and the issuance, extension
or renewal of any Letters of Credit by any Issuing Bank, as herein contemplated,
and shall continue in full force and effect so long as any amount due under this
Agreement, any Obligation, or any Letter of Credit remains outstanding and
unpaid or any Bank has any obligation to make any Loans or any Issuing Bank has
any obligation to issue, extend, or renew any Letters of Credit hereunder. All
statements contained in any certificate or other paper delivered by or on behalf
of the Borrower pursuant hereto or in connection with the transactions
contemplated hereby shall constitute representations and warranties by the
Borrower hereunder.

         SECTION 20. ASSIGNMENT AND PARTICIPATION. It is understood and agreed
that each Bank shall have the right to assign at any time all or a portion of
its Commitment Percentage and interests in the risk relating to the Loans,
outstanding Letters of Credit and its Commitment hereunder in an amount equal to
or greater than $5,000,000 (or, if a Bank's Commitment is less than $5,000,000,
in a minimum amount equal to such Bank's Commitment, provided that prior to any
Commitment reductions pursuant to Section 2.3.1, such Bank's Commitment was at
least $5,000,000) to additional banks, other financial institutions or Bank
Affiliates with the prior written approval of the Administrative Agent and, so
long as no Event of Default has occurred and is continuing, the Borrower, which
approvals shall not be unreasonably withheld. Any Bank may at


<PAGE>
                                      -68-


any time, and from time to time, assign to any branch, lending office, or Bank
Affiliate all or any part of its rights and obligations under the Loan Documents
by notice to the Administrative Agent and the Borrower. It is further agreed
that each bank or other financial institution which executes and delivers to the
Administrative Agent and the Borrower hereunder an Assignment and Acceptance
substantially in the form of Exhibit D hereto (an "Assignment and Acceptance")
together with an assignment fee in the amount of $3,500 payable by the assigning
Bank to the Administrative Agent, shall, on the date specified in such
Assignment and Acceptance, become a party to this Agreement and the other Loan
Documents for all purposes of this Agreement and the other Loan Documents, and
its portion of the Commitment, the Loans and Letters of Credit shall be as set
forth in such Assignment and Acceptance. The Bank assignor thereunder shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment and Acceptance, relinquish its rights (except for
indemnity rights arising out of the period prior to such assignment) and be
released from its obligations under this Agreement and the other Loan Documents.
Upon the execution and delivery of such Assignment and Acceptance (a) to the
extent applicable, the Borrower shall issue Notes (and replacement Notes) or the
Administrative Agent shall make appropriate entries on the applicable loan
account(s) to reflect such assignment of Loan(s); and (b) this Agreement and
Schedule 1 shall be deemed to be appropriately amended to reflect (i) the status
of the bank, financial institution or Bank Affiliate as a party hereto and (ii)
the status and rights of the Banks hereunder.

         Each Bank shall also have the right to grant participations to one or
more banks, other financial institutions or Bank Affiliates in its Commitment,
the Loans and outstanding Letters of Credit. The documents evidencing any such
participation shall limit such participating bank's, financial institution's or
Bank Affiliate's, voting rights with respect to this Agreement to the matters
set forth in Section 15.9(b)(i) - (v).

         Notwithstanding the foregoing, no assignment or participation shall
operate to increase the Total Commitment hereunder or otherwise alter the
substantive terms of this Agreement, and no Bank which retains a Commitment
hereunder shall have a Commitment of less than $5,000,000, except as a result of
reductions in the Total Commitment pursuant to Section 2.3 hereof.

         Anything contained in this Section 20 to the contrary notwithstanding,
any Bank may at any time pledge all or any portion of its interest and rights
under this Agreement (including all or any portion of its Notes) to any of the
twelve Federal Reserve Banks organized under Section 4 of the Federal Reserve
Act, 12 U.S.C. Section 341. No such pledge or the enforcement thereof shall
release the pledgor Bank from its obligations hereunder or under any of the
other Loan Documents.

         The Borrower agrees that in addition to disclosures made in accordance
with standard and customary banking practices any Bank may disclose information
obtained by such Bank pursuant to this Agreement to assignees or participants
and potential assignees or participants hereunder; provided that such assignees
or participants or potential assignees or participants shall agree to be bound
by Section 18 hereof.

         SECTION 21. PARTIES IN INTEREST. All the terms of this Agreement and
the other Loan Documents shall be binding upon and inure to the benefit of and
be enforceable by the respective successors and assigns of the parties hereto
and thereto; provided, that the


<PAGE>
                                      -69-


Borrower shall not assign or transfer its rights or obligations hereunder or
thereunder without the prior written consent of each of the Banks.

         SECTION 22. NOTICES, ETC. Except as otherwise expressly provided in
this Agreement, all notices and other communications made or required to be
given pursuant to this Agreement or the other Loan Documents shall be in writing
and shall be delivered in hand, mailed by United States first class mail,
postage prepaid, or sent by telegraph, telex or facsimile and confirmed by
letter, addressed as follows:

                  (a) if to the Borrower or the Guarantor, at 1001 Fannin
         Street, Suite 4000, Houston, Texas 77002, Attention: Ronald H. Jones,
         Treasurer, facsimile number (713) 209-9710, with a copy to Lawrence
         O'Donnell, Executive Vice President, General Counsel and Secretary,
         facsimile number (713) 512-6325; or

                  (b) if to the Administrative Agent at Fleet National Bank, 100
         Federal Street, Boston, Massachusetts 02110, Attention: Timothy
         Laurion, Managing Director, facsimile number (617) 434-2160; or

                  (c) if to any Bank, at the last address provided to the
         Administrative Agent;

or such other address for notice as shall have last been furnished in writing to
the Person giving the notice.

         Any such notice or demand shall be deemed to have been duly given or
made and to have become effective (a) if delivered by hand to a responsible
officer of the party to which it is directed, at the time of the receipt thereof
by such officer, (b) if sent by registered or certified first-class mail,
postage prepaid, five Business Days after the posting thereof, and (c) if sent
by telex, facsimile, or cable, at the time of the dispatch thereof, if in normal
business hours in the country of receipt, or otherwise at the opening of
business on the following Business Day.

         SECTION 23. MISCELLANEOUS. The rights and remedies herein expressed are
cumulative and not exclusive of any other rights which the Banks, the Issuing
Banks or the Administrative Agent would otherwise have. The captions in this
Agreement are for convenience of reference only and shall not define or limit
the provisions hereof. This Agreement and any amendment hereof may be executed
in several counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In proving this Agreement it shall not
be necessary to produce or account for more than one such counterpart signed by
the party against whom enforcement is sought. This Agreement, to the extent
signed and delivered by means of a facsimile machine, shall be treated in all
manner and respects as an original agreement or instrument and shall be
considered to have the same binding legal effect as if it were the original
signed version thereof delivered in person. At the request of any party hereto,
each other party hereto shall re-execute original forms thereof and deliver them
to all other parties. No party hereto shall raise the use of a facsimile machine
to deliver a signature or the fact that any signature or agreement or instrument
was transmitted or communicated through the use of a facsimile


<PAGE>
                                      -70-


machine as a defense to the formation of a contract and each party forever
waives such defense.

         SECTION 24. CONSENTS, ETC. Neither this Agreement nor any term hereof
may be changed, waived, discharged or terminated, except as provided in this
Section 24, subject to the provisions of Section 15.9. No waiver shall extend to
or affect any obligation not expressly waived or impair any right consequent
thereon. Except as otherwise expressly provided in this Agreement, any consent
or approval required or permitted by this Agreement to be given by the Banks may
be given, and any term of this Agreement or of any other instrument related
hereto or mentioned herein may be amended, and the performance or observance by
the Borrower of any terms of this Agreement or such other instrument or the
continuance of any Default or Event of Default may be waived (either generally
or in a particular instance and either retroactively or prospectively) with, but
only with, the written consent of the Borrower and the Majority Banks. To the
extent permitted by law, no course of dealing or delay or omission on the part
of any of the Banks, the Issuing Banks or the Administrative Agent in exercising
any right shall operate as a waiver thereof or otherwise be prejudicial thereto.
No notice to or demand upon the Borrower shall entitle the Borrower to other or
further notice or demand in similar or other circumstances.

         SECTION 25. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO A
JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM ARISING OUT OF ANY DISPUTE IN
CONNECTION WITH THIS AGREEMENT, THE NOTES OR ANY OF THE OTHER LOAN DOCUMENTS,
ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR THE PERFORMANCE OF SUCH
RIGHTS AND OBLIGATIONS. EXCEPT AS PROHIBITED BY LAW, THE BORROWER AND THE
GUARANTOR HEREBY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO CLAIM OR RECOVER IN
ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO,
ACTUAL DAMAGES. THE BORROWER AND THE GUARANTOR EACH (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY BANK, ANY ISSUING BANK, THE
ADMINISTRATIVE AGENT OR ANY AGENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT
SUCH BANK, SUCH ISSUING BANK, THE ADMINISTRATIVE AGENT OR SUCH AGENT WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (B)
ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT, THE BANKS, AND THE ISSUING BANKS
HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
BECAUSE OF, AMONG OTHER THINGS, THE BORROWER'S AND THE GUARANTOR'S WAIVERS AND
CERTIFICATIONS CONTAINED HEREIN.

         SECTION 26. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT
AND EACH OF THE OTHER LOAN DOCUMENTS ARE CONTRACTS UNDER THE LAWS OF THE STATE
OF NEW YORK AND


<PAGE>
                                      -71-


SHALL, PURSUANT TO NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, BE CONSTRUED
IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. THE
BORROWER AND THE GUARANTOR CONSENT AND AGREE THAT ANY SUIT FOR THE ENFORCEMENT
OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE
COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND SERVICE OF PROCESS
IN ANY SUCH SUIT BEING MADE UPON THE BORROWER IN ACCORDANCE WITH LAW AT THE
ADDRESS SPECIFIED IN SECTION 22. THE BORROWER AND THE GUARANTOR HEREBY WAIVE ANY
OBJECTION THAT THEY MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR
ANY SUCH COURT OR THAT SUCH SUIT IS BROUGHT IN AN INCONVENIENT COURT.

         SECTION 27. SEVERABILITY. The provisions of this Agreement are
severable and if any one clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.

         SECTION 28. GUARANTY.

         SECTION 28.1. GUARANTY. For value received and hereby acknowledged and
as an inducement to the Banks and the Issuing Banks to make the Loans available
to the Borrower, and issue, extend or renew Letters of Credit for the account of
the Borrower, the Guarantor hereby unconditionally and irrevocably guarantees
(a) the full punctual payment when due, whether at stated maturity, by
acceleration or otherwise, of all Obligations of the Borrower now or hereafter
existing whether for principal, interest, fees, expenses or otherwise, and (b)
the strict performance and observance by the Borrower of all agreements,
warranties and covenants applicable to the Borrower in the Loan Documents and
(c) the obligations of the Borrower under the Loan Documents (such Obligations
collectively being hereafter referred to as the "Guaranteed Obligations").

         SECTION 28.2. GUARANTY ABSOLUTE. The Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms
hereof, regardless of any law, regulation or order now or hereafter in effect in
any jurisdiction affecting any of such terms or the rights of any Bank, any
Issuing Bank or the Administrative Agent with respect thereto. The liability of
the Guarantor under the guaranty granted under this Agreement with regard to the
Guaranteed Obligations shall be absolute and unconditional irrespective of:

                  (a) any change in the time, manner or place of payment of, or
         in any other term of, all or any of its Guaranteed Obligations or any
         other amendment or waiver of or any consent to departure from this
         Agreement or any other Loan Document (with regard to such Guaranteed
         Obligations);


<PAGE>
                                      -72-


                  (b) any release or amendment or waiver of or consent to
         departure from any other guaranty for all or any of its Guaranteed
         Obligations;

                  (c) any change in ownership of the Borrower;

                  (d) any acceptance of any partial payment(s) from the Borrower
         or the Guarantor; or

                  (e) any other circumstance which might otherwise constitute a
         defense available to, or a discharge of, the Borrower in respect of its
         Obligations under any Loan Document.

         The guaranty under this Agreement shall continue to be effective or be
reinstated, as the case may be, if at any time any payment of any Guaranteed
Obligation is rescinded or must otherwise be returned by the Banks, the Issuing
Banks or the Administrative Agent upon the insolvency, bankruptcy or
reorganization of the Borrower or otherwise, all as though such payment had not
been made.

         SECTION 28.3. EFFECTIVENESS; ENFORCEMENT. The guaranty under this
Agreement shall be effective and shall be deemed to be made with respect to each
Loan and each Letter of Credit as of the time it is made, issued or extended, or
becomes a Letter of Credit under this Agreement, as applicable. No invalidity,
irregularity or unenforceability by reason of any bankruptcy or similar law, or
any law or order of any government or agency thereof purporting to reduce, amend
or otherwise affect any liability of the Borrower, and no defect in or
insufficiency or want of powers of the Borrower or irregular or improperly
recorded exercise thereof, shall impair, affect, be a defense to or claim
against such guaranty. The guaranty under this Agreement is a continuing
guaranty and shall (a) survive any termination of this Agreement, and (b) remain
in full force and effect until payment in full of, and performance of, all
Guaranteed Obligations and all other amounts payable under this Agreement. The
guaranty under this Agreement is made for the benefit of the Administrative
Agent, the Issuing Banks and the Banks and their successors and assigns, and may
be enforced from time to time as often as occasion therefor may arise and
without requirement on the part of the Administrative Agent, the Issuing Banks
or the Banks first to exercise any rights against the Borrower, or to resort to
any other source or means of obtaining payment of any of the said obligations or
to elect any other remedy.

         SECTION 28.4. WAIVER. Except as otherwise specifically provided in any
of the Loan Documents, the Guarantor hereby waives promptness, diligence,
protest, notice of protest, all suretyship defenses, notice of acceptance and
any other notice with respect to any of its Guaranteed Obligations and the
guaranty under this Agreement and any requirement that the Banks, the Issuing
Banks or the Administrative Agent protect, secure, perfect any security interest
or Lien or any property subject thereto or exhaust any right or take any action
against the Borrower or any other Person. The Guarantor also irrevocably waives,
to the fullest extent permitted by law, all defenses which at any time may be
available to it in respect of its Guaranteed Obligations by virtue of any
statute of limitations, valuation, stay, moratorium law or other similar law now
or hereafter in effect.


<PAGE>
                                      -73-


         SECTION 28.5. EXPENSES. The Guarantor hereby promises to reimburse (a)
the Administrative Agent for all reasonable out-of-pocket fees and disbursements
(including all reasonable attorneys' fees), incurred or expended in connection
with the preparation, filing or recording, or interpretation of the guaranty
under this Agreement, the other Loan Documents to which the Guarantor is a
party, or any amendment, modification, approval, consent or waiver hereof or
thereof, and (b) the Administrative Agent, the Issuing Banks and the Banks and
their respective affiliates for all reasonable out-of-pocket fees and
disbursements (including reasonable attorneys' fees), incurred or expended in
connection with the enforcement of its Guaranteed Obligations (whether or not
legal proceedings are instituted). The Guarantor will pay any taxes (including
any interest and penalties in respect thereof) other than the Banks' taxes based
on overall income or profits, payable on or with respect to the transactions
contemplated by the guaranty under this Agreement, the Guarantor hereby agreeing
jointly and severally to indemnify each Bank with respect thereto.

         SECTION 28.6. CONCERNING JOINT AND SEVERAL LIABILITY OF THE GUARANTOR.

                  (a) The Guarantor hereby irrevocably and unconditionally
         accepts, not merely as a surety but also as a co-debtor, joint and
         several liability with the Borrower, with respect to the payment and
         performance of all of its Guaranteed Obligations (including, without
         limitation, any Guaranteed Obligations arising under this Section 28),
         it being the intention of the parties hereto that all such Guaranteed
         Obligations shall be the joint and several Guaranteed Obligations of
         the Guarantor and the Borrower without preferences or distinction among
         them.

                  (b) If and to the extent that the Borrower shall fail to make
         any payment with respect to any of its Obligations as and when due or
         to perform any of its Guaranteed Obligations in accordance with the
         terms thereof, then in each such event the Guarantor will make such
         payment with respect to, or perform, such Guaranteed Obligation.

                  (c) The Guaranteed Obligations of the Guarantor under the
         provisions of this Section 28 constitute full recourse obligations of
         the Guarantor enforceable against the Guarantor to the full extent of
         its properties and assets, irrespective of the validity, regularity or
         enforceability of this Agreement or any other circumstance whatsoever.

                  (d) Except as otherwise expressly provided in this Agreement,
         the Guarantor hereby waives notice of acceptance of its joint and
         several liability, notice of any Loans made, or Letters of Credit
         issued under this Agreement, notice of any action at any time taken or
         omitted by the Administrative Agent, the Issuing Banks or the Banks
         under or in respect of any of the Guaranteed Obligations, and,
         generally, to the extent permitted by applicable law, all demands,
         notices and other formalities of every kind in connection with this
         Agreement. The Guarantor hereby assents to, and waives notice of, any
         extension or postponement of the time for the payment of any of the
         Guaranteed Obligations, the acceptance of any payment of any of the
         Guaranteed Obligations, the acceptance of any partial payment thereon,
         any waiver, consent or other action or acquiescence by the
         Administrative Agent, the Issuing Banks or the Banks at any time or
         times in respect of any Default or Event of Default by the Borrower or


<PAGE>
                                      -74-


         the Guarantor in the performance or satisfaction of any term, covenant,
         condition or provision of this Agreement or any other Loan Document,
         any and all other indulgences whatsoever by the Administrative Agent,
         the Issuing Banks or the Banks in respect of any of the Guaranteed
         Obligations, and the taking, addition, substitution or release, in
         whole or in part, at any time or times, of any security for any of the
         Guaranteed Obligations or the addition, substitution or release, in
         whole or in part, of the Borrower or the Guarantor. Without limiting
         the generality of the foregoing, the Guarantor assents to any other
         action or delay in acting or failure to act on the part of the Banks,
         the Issuing Banks or the Administrative Agent with respect to the
         failure by the Borrower or the Guarantor to comply with its respective
         Obligations or Guaranteed Obligations, including, without limitation,
         any failure strictly or diligently to assert any right or to pursue any
         remedy or to comply fully with applicable laws or regulations
         thereunder, which might, but for the provisions of this Section 28,
         afford grounds for terminating, discharging or relieving the Guarantor,
         in whole or in part, from any of the Guaranteed Obligations under this
         Section 28, it being the intention of the Guarantor that, so long as
         any of the Guaranteed Obligations hereunder remain unsatisfied, the
         Guaranteed Obligations of the Guarantor under this Section 28 shall not
         be discharged except by performance and then only to the extent of such
         performance. The Guaranteed Obligations of the Guarantor under this
         Section 28 shall not be diminished or rendered unenforceable by any
         winding up, reorganization, arrangement, liquidation, reconstruction or
         similar proceeding with respect to the Borrower or the Guarantor or the
         Banks, the Issuing Banks or the Administrative Agent. The joint and
         several liability of the Guarantor hereunder shall continue in full
         force and effect notwithstanding any absorption, merger, consolidation,
         amalgamation or any other change whatsoever in the name, membership,
         constitution or place of formation of the Borrower or the Guarantor,
         the Banks, the Issuing Banks or the Administrative Agent.

                  (e) The Guarantor shall be liable under this Section 28 only
         for the maximum amount of such liabilities that can be incurred under
         applicable law without rendering this Section 28 voidable under
         applicable law relating to fraudulent conveyance and fraudulent
         transfer, and not for any greater amount. Accordingly, if any
         obligation under any provision under this Section 28 shall be declared
         to be invalid or unenforceable in any respect or to any extent, it is
         the stated intention and agreement of the Guarantor, the Administrative
         Agent, the Issuing Banks and the Banks that any balance of the
         obligation created by such provision and all other obligations of the
         Guarantor under this Section 28 to the Banks, the Issuing Banks or the
         Administrative Agent shall remain valid and enforceable, and that all
         sums not in excess of those permitted under applicable law shall remain
         fully collectible by the Banks, the Issuing Banks and the
         Administrative Agent from the Borrower or the Guarantor, as the case
         may be.

                  (f) The provisions of this Section 28 are made for the benefit
         of the Administrative Agent, the Issuing Banks and the Banks and their
         successors and assigns, and may be enforced in good faith by them from
         time to time against the Guarantor as often as occasion therefor may
         arise and without requirement on the part of the Administrative Agent,
         the Issuing Banks or the Banks first to marshal any of their claims or
         to exercise any of their rights against the Borrower or the Guarantor
         or to exhaust any remedies available to them against the Borrower or
         the


<PAGE>
                                      -75-


         Guarantor or to resort to any other source or means of obtaining
         payment of any of the obligations hereunder or to elect any other
         remedy. The provisions of this Section 28 shall remain in effect until
         all of the Guaranteed Obligations shall have been paid in full or
         otherwise fully satisfied and the Commitments have expired and all
         outstanding Letters of Credit have expired, matured or otherwise been
         terminated. If at any time, any payment, or any part thereof, made in
         respect of any of the Guaranteed Obligations, is rescinded or must
         otherwise be restored or returned by the Banks, the Issuing Banks or
         the Administrative Agent upon the insolvency, bankruptcy or
         reorganization of the Borrower or the Guarantor, or otherwise, the
         provisions of this Section 28 will forthwith be reinstated in effect,
         as though such payment had not been made.

         SECTION 28.7. WAIVER. Until the final payment and performance in full
of all of the Obligations, the Guarantor shall not exercise and the Guarantor
hereby waives any rights the Guarantor may have against the Borrower arising as
a result of payment by the Guarantor hereunder, by way of subrogation,
reimbursement, restitution, contribution or otherwise, and will not prove any
claim in competition with the Administrative Agent, the Issuing Banks or any
Bank in respect of any payment hereunder in any bankruptcy, insolvency or
reorganization case or proceedings of any nature; the Guarantor will not claim
any setoff, recoupment or counterclaim against the Borrower in respect of any
liability of the Borrower to the Guarantor; and the Guarantor waives any benefit
of and any right to participate in any collateral security which may be held by
the Administrative Agent, the Issuing Banks or any Bank.

         SECTION 28.8. SUBROGATION; SUBORDINATION. The payment of any amounts
due with respect to any indebtedness of the Borrower for money borrowed or
credit received now or hereafter owed to the Guarantor is hereby subordinated to
the prior payment in full of all of the Obligations. The Guarantor agrees that,
after the occurrence of any default in the payment or performance of any of the
Obligations, the Guarantor will not demand, sue for or otherwise attempt to
collect any such indebtedness of the Borrower to the Guarantor until all of the
Obligations shall have been paid in full. If, notwithstanding the foregoing
sentence, the Guarantor shall collect, enforce or receive any amounts in respect
of such indebtedness while any Obligations are still outstanding, such amounts
shall be collected, enforced and received by the Guarantor as trustee for the
Banks, the Issuing Banks and the Administrative Agent and be paid over to the
Administrative Agent at Default, for the benefit of the Banks, the Issuing
Banks, and the Administrative Agent on account of the Obligations without
affecting in any manner the liability of the Guarantor under the other
provisions hereof.

         SECTION 29. PARI PASSU TREATMENT.

                  (a) Notwithstanding anything to the contrary set forth herein,
         each payment or prepayment of principal and interest received after the
         occurrence of an Event of Default hereunder shall be distributed pari
         passu among the Banks, in accordance with the aggregate outstanding
         principal amount of the Obligations owing to each Bank divided by the
         aggregate outstanding principal amount of all Obligations.


<PAGE>
                                      -76-


                  (b) Each Bank agrees that if it shall, through the exercise of
         a right of banker's lien, setoff or counterclaim against any Borrower
         (pursuant to Section 13 or otherwise), including a secured claim under
         Section 506 of the Bankruptcy Code or other security or interest
         arising from or in lieu of, such secured claim, received by such Bank
         under any applicable bankruptcy, insolvency or other similar law or
         otherwise, obtain payment (voluntary or involuntary) in respect of the
         Notes, Loans, Reimbursement Obligations and other Obligations held by
         it (other than pursuant to Section 5.5, Section 5.6 or Section 5.8) as
         a result of which the unpaid principal portion of the Notes and the
         Obligations held by it shall be proportionately less than the unpaid
         principal portion of the Notes and the Obligations held by any other
         Bank, it shall be deemed to have simultaneously purchased from such
         other Bank a participation in the Notes and the Obligations held by
         such other Bank, so that the aggregate unpaid principal amount of the
         Notes and the Obligations and participations in Notes and Obligations
         held by each Bank shall be in the same proportion to the aggregate
         unpaid principal amount of the Notes and the Obligations then
         outstanding as the principal amount of the Notes and the Obligations
         held by it prior to such exercise of banker's lien, setoff or
         counterclaim was to the principal amount of all Notes and Obligations
         outstanding prior to such exercise of banker's lien, setoff or
         counterclaim; provided, however, that if any such purchase or purchases
         or adjustments shall be made pursuant to this Section 29 and the
         payment giving rise thereto shall thereafter be recovered, such
         purchase or purchases or adjustments shall be rescinded to the extent
         of such recovery and the purchase price or prices or adjustments
         restored without interest. The Borrower expressly consents to the
         foregoing arrangements and agrees that any Person holding such a
         participation in the Obligations deemed to have been so purchased may
         exercise any and all rights of banker's lien, setoff or counterclaim
         with respect to any and all moneys owing by the Borrower to such Person
         as fully as if such Person had made a Loan directly to the Borrower in
         the amount of such participation.

         SECTION 30. FINAL AGREEMENT. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.



<PAGE>


         IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first set forth above.



                                   THE BORROWER AND GUARANTOR:

                                   WASTE MANAGEMENT, INC.


                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title: Vice President and Treasurer


                                   WASTE MANAGEMENT HOLDINGS, INC.


                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title: Executive Vice President and Chief
                                              Administrative Officer


                                   By:
                                       -----------------------------------------
                                       Name:
                                       Title: Vice President and Treasurer



                                   THE BANKS AND AGENTS:

                                   FLEET NATIONAL BANK, individually and as
                                   Administrative Agent


                                   By
                                       -----------------------------------------
                                       Name:
                                       Title:


                                   BANK OF AMERICA, N.A.


                                   By
                                       -----------------------------------------
                                       Name:
                                       Title:



<PAGE>



                                   JPMORGAN CHASE BANK


                                   By
                                       -----------------------------------------
                                       Name:
                                       Title:


                                   DEUTSCHE BANK AG NEW YORK BRANCH


                                   By
                                       -----------------------------------------
                                       Name:
                                       Title:


                                   CITIBANK, N.A.


                                   By
                                       -----------------------------------------
                                       Name:
                                       Title:


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>7
<FILENAME>h98566exv12.txt
<DESCRIPTION>COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TEXT>
<PAGE>
                                                                      EXHIBIT 12
                             WASTE MANAGEMENT, INC.

                COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
                          (IN MILLIONS, EXCEPT RATIOS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                   Six Months Ended
                                                                        June 30,
                                                                   ----------------
                                                                   2002        2001
                                                                   ----        ----
<S>                                                                <C>         <C>
Income before income taxes, extraordinary
   items, cumulative effect of changes in
   accounting principle, undistributed earnings from
   affiliated companies and minority interests                     $576        $519
                                                                   ----        ----
Fixed charges deducted from income:
  Interest expense                                                  232         301
  Implicit interest in rents                                         29          31
                                                                   ----        ----
                                                                    261         332
                                                                   ----        ----
   Earnings available for fixed charges                            $837        $851
                                                                   ====        ====

Interest expense                                                   $232        $301
Capitalized interest                                                  9           9
Implicit interest in rents                                           29          31
                                                                   ----        ----
   Total fixed charges                                             $270        $341
                                                                   ====        ====

   Ratio of earnings to fixed charges                               3.1         2.5
                                                                   ====        ====
</TABLE>


</TEXT>
</DOCUMENT>
</SUBMISSION>
