WASTE MANAGEMENT INC /DE/, POS AM, 1997-08-07

WASTE MANAGEMENT INC /DE/
POS AM, 1997-08-07
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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1997

REGISTRATION NO. 333-01327
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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

WASTE MANAGEMENT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 4953
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER)

36-2660763
(I.R.S. EMPLOYER IDENTIFICATION NO.)

3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 572-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

HERBERT A. GETZ, ESQ. SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
WASTE MANAGEMENT, INC.
3003 BUTTERFIELD ROAD
OAK BROOK, ILLINOIS 60523
(630) 572-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

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

FILING AMENDED PROSPECTUS AND AMENDING ITEM 16 OF PART II

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

WASTE MANAGEMENT, INC.

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

CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF PART I OF
FORM S-1

<TABLE>
<CAPTION>
ITEM IN FORM S-1 LOCATION IN OR CAPTION IN PROSPECTUS
---------------- ------------------------------------
<S> <C>
1.Forepart of the Registration Statement and Cover Page of Prospectus
Outside Front Cover Page of Prospectus..
2.Inside Front and Outside Back Cover Pages Inside Front Cover Page
of Prospectus...........................
3.Summary Information, Risk Factors and Ra-
tio of Earnings to Fixed Charges........ Summary
4.Use of Proceeds........................... Securities Covered by this Prospectus
5.Determination of Offering Price........... Inapplicable
6.Dilution.................................. Inapplicable
7.Selling Security Holders.................. Cover Page of Prospectus; Securities
Covered by this Prospectus
8.Plan of Distribution...................... Securities Covered by this Prospectus
9.Description of Securities to be Regis- Cover Page of Prospectus; Description of
tered................................... Capital Stock
10.Interests of Named Experts and Counsel.... Inapplicable
11.Information with Respect to the Registrant
(a).......................................... The Company; Business of the Company;
Consolidated Financial Statements Notes 7
and 13
(b).......................................... Property and Equipment
(c).......................................... Legal Proceedings
(d).......................................... Market Prices of Common Stock; Dividends
(e).......................................... Consolidated Financial Statements of Waste
Management, Inc. and Subsidiaries
(f).......................................... Selected Consolidated Financial Data
(g).......................................... Consolidated Financial Statements Note 17
(h).......................................... Management's Discussion and Analysis of
Results of Operations and Financial
Condition
(i).......................................... Inapplicable
(j).......................................... Management
(k).......................................... Management
(l).......................................... Securities Ownership of Certain Beneficial
Owners; Securities Ownership of Management
(m).......................................... Management
12.Disclosure of Commission Position on In- Inapplicable
demnification for Securities Act Liabil-
ities...................................
</TABLE>
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED AUGUST 7, 1997

PROSPECTUS

2,138,961 SHARES

LOGO

WASTE MANAGEMENT, INC.

COMMON STOCK

$1 PAR VALUE

--------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

--------

The 2,138,961 shares of common stock, $1 par value per share, covered by this
prospectus may be offered and issued from time to time in connection with
acquisitions of other businesses, properties or securities in business
combination transactions in accordance with Rule 415(a)(1)(viii) of Regulation
C under the Securities Act of 1933, as amended (the "1933 Act"). See
"Securities Covered by this Prospectus" herein.

This prospectus has also been prepared for use, with the Company's prior
consent, by persons who have received or will receive shares in connection with
such acquisitions and who wish to offer and sell such shares under
circumstances requiring or making desirable its use. See "Securities Covered by
this Prospectus" herein, and see the inside back cover page hereof for the
identity of such individuals, if any.

On August 4, 1997, the reported closing sale price for the Company's common
stock on the New York Stock Exchange Composite Tape as reported in The Wall
Street Journal (Midwest Edition) was $32 13/16. See "Market Prices of Common
Stock; Dividends" herein.

--------

THE DATE OF THIS PROSPECTUS IS , 1997.

Printed on recycled paper
LOGO
<PAGE>

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY WASTE MANAGEMENT, INC. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO ANY PERSON IN ANY JURISDICTION WHERE SUCH OFFER WOULD BE UNLAWFUL.

TABLE OF CONTENTS

<TABLE>
<S> <C>
Available Information..................... 2
Summary................................... 3
The Company............................... 8
Securities Covered by this Prospectus..... 10
Market Prices of Common Stock; Dividends.. 12
Selected Consolidated Financial Data...... 13
Management's Discussion and Analysis of
Results of Operations and Financial
Condition................................ 15
Business of the Company................... 31
General.................................. 31
North American Solid and Hazardous Waste
Management Services..................... 32
Solid Waste Management, Recycling and
Related Services....................... 32
Collection............................. 32
Transfer............................... 33
Recycling and Energy Recovery.......... 33
Disposal............................... 34
Related Services....................... 35
Hazardous Waste Management and Related
Services............................... 35
Chemical Waste Management Services..... 35
Low-Level and Other Radioactive Waste
Services.............................. 37
International Waste Management and
Related Services........................ 37
Collection Services..................... 38
Treatment and Disposal Services......... 39
Trash-to-Energy and Related Services..... 40
Regulation............................... 41
Waste Management Services............... 43
Solid Waste............................ 43
Hazardous Waste........................ 44
Trash-to-Energy and Related Services.... 45
RCRA.................................... 46
</TABLE>
<TABLE>
<S> <C>
Superfund................................ 47
International Waste Management
and Related Services.................... 48
Competition................................ 48
Insurance.................................. 50
Employees.................................. 51
Acquisitions and Dispositions.............. 51
Property and Equipment..................... 52
Management................................. 54
Directors and Executive Officers.......... 54
Compensation of Executive Officers........ 57
Stock Options............................. 59
Long-Term Incentive Plan Awards........... 61
Pension and Retirement Plans.............. 62
Compensation of Directors................. 63
Outside Directors' Plans.................. 63
Stock Option Plans for Non-Employee
Directors................................ 63
Directors' Charitable Endowment Program... 64
Compensation Committee Interlocks
and Insider Participation................ 64
Certain Transactions...................... 65
Securities Ownership of Management......... 68
Ownership of Company Common Stock......... 68
Ownership of WTI Common Stock............. 70
Ownership of WM International Ordinary
Shares................................... 71
Securities Ownership of Certain Beneficial
Owners.................................... 72
Legal Proceedings.......................... 73
Description of Capital Stock............... 75
Experts.................................... 76
Additional Information..................... 76
Index to Financial Statements.............. F-1
</TABLE>

AVAILABLE INFORMATION
Waste Management, Inc. (the "Company") is subject to the informational
requirements of the Securities Exchange Act of 1934 (the "1934 Act") and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 2120, Washington, D.C. 20549; and at the public reference facilities
maintained by the regional offices of the Commission at 7 World Trade Center,
Suite 1300, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such material may also be obtained by mail,
upon payment of the Commission's customary charges, from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Commission also maintains a Web site on the World Wide Web at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. The Company's common stock is listed on the New York Stock Exchange
(the "NYSE") and the Chicago Stock Exchange (the "CSE"), and such reports,
proxy statements and other information concerning the Company can also be
inspected at the NYSE's offices at 20 Broad Street, New York, New York 10005
and at the CSE's offices at 440 South LaSalle Street, Chicago, Illinois 60605.

This prospectus constitutes a part of a Registration Statement (the
"Registration Statement") filed by the Company with the Commission under the
1933 Act. This prospectus omits certain of the information contained in the
Registration Statement, and reference is hereby made to the Registration
Statement and the exhibits relating thereto for further information with
respect to the Company and the securities offered hereby. Any statements
contained herein concerning the provisions of any document are not necessarily
complete, and, in each instance, reference is hereby made to a copy of such
document filed as an exhibit to the Registration Statement or otherwise filed
with the Commission. Each such statement is qualified in its entirety by such
reference. The Registration Statement and the exhibits thereto can be inspected
and copied at the Commission's public reference facilities referred to above.

2
<PAGE>

SUMMARY

The Company.... Waste Management, Inc. (formerly known as "WMX Technologies,
Inc.")

Location....... The Company's executive offices are located at:
3003 Butterfield Road
Oak Brook, Illinois 60523
(630) 572-8800

Business....... The Company is a leading international provider of waste
management services.

The Company provides integrated solid waste management
services in North America through Waste Management of North
America, Inc., a wholly owned subsidiary of the Company
(referred to herein, together with its subsidiaries and
certain affiliated companies providing waste management and
related services, as "WMNA"). The Company's solid waste
management services are provided to commercial, industrial,
municipal and residential customers, as well as to other waste
management companies and consist of solid waste collection,
transfer, resource recovery and disposal services. As part of
these services, the Company is engaged in providing, through
its Recycle America(R) and other programs, paper, glass,
plastic and metal recycling services to commercial and
industrial operations and curbside collection of such
materials from residences and in removing methane gas from
sanitary landfill facilities for use in electricity
generation. In addition, through WMNA the Company provides
Port-O-Let(R) portable sanitation services to municipalities
and commercial and special event customers. WMNA also manages
the on-site industrial cleaning services businesses owned by
the Company's Rust International Inc. subsidiary.

The Company also provides hazardous waste management services.
The Company's chemical waste treatment, storage, disposal and
related services in North America are provided through WMNA
and Chemical Waste Management, Inc., a wholly owned subsidiary
of the Company (referred to herein, together with its
subsidiaries, as "CWM"), and are provided to commercial and
industrial customers, as well as to other waste management
companies and to governmental entities. Through Advanced
Environmental Technical Services, L.L.C., a 60%-owned
subsidiary of the Company (referred to herein, together with
its subsidiaries as "AETS"), the Company provides on-site
integrated hazardous waste management services, including
hazardous waste identification, packaging, removal and
recycling services, to industrial, institutional and
governmental customers. Through its wholly owned Chem-Nuclear
Systems, L.L.C. subsidiary (referred to herein, together with
its subsidiaries, as "Chem-Nuclear"), the Company also
furnishes radioactive waste management services, primarily to
electric utilities and governmental entities.

3
<PAGE>

providing such services) in eight countries in Europe, seven
countries in the Asia-Pacific region and Argentina, Brazil,
and Israel. Until February 1997, when the interest was sold,
Waste Management International also had an approximately 20%
interest in Wessex Water Plc, a United Kingdom publicly traded
company providing water treatment, water distribution,
wastewater treatment and sewage services ("Wessex").

Wheelabrator Technologies Inc., an approximately 67%-owned
subsidiary of the Company (referred to herein, together with
its subsidiaries, as "WTI"), is a leading developer of
facilities and systems for, and provider of services to, the
trash-to-energy and waste fuel powered independent power
markets. WTI develops, arranges financing for, operates and
owns facilities that dispose of trash and other waste
materials in an environmentally acceptable manner by recycling
them into electrical or steam energy. WTI is also pursuing the
development, ownership and operation of power plants for
industrial customers. In addition, WTI is involved in the
treatment and management of biosolids resulting from the
treatment of wastewater by converting them into useful
fertilizers and the recycling of organic wastes into compost
material useable for horticultural and agricultural purposes.
WTI also designs, fabricates and installs technologically
advanced air pollution control systems and equipment. In 1996,
WTI sold its water process, manufacturing and custom
engineering businesses and in 1997 sold its water contract
operations, outsourcing and privatization businesses. See
"Acquisitions and Dispositions" and "Recent Developments"
herein. The Company has offered to acquire all of the
approximately 33% of WTI's outstanding shares not already
owned by the Company. See "Recent Developments" herein.

Rust International Inc., a subsidiary owned approximately 60%
by the Company and 40% by WTI (referred to herein, together
with its subsidiaries, as "Rust"), provides a variety of on-
site industrial cleaning services, a business which is managed
by WMNA, and provides hazardous, radioactive and mixed waste
program and facilities management services, primarily to the
United States Department of Energy and other federal
government agencies. Such services include waste treatment,
storage, characterization and disposal and privatization
services. Rust also has an approximately 41% interest in NSC
Corporation, a publicly traded provider of asbestos abatement
and other specialty contracting services ("NSC"), and an
approximately 37% interest in OHM Corporation, a publicly
traded provider of environmental remediation services ("OHM").
Rust also provides environmental and infrastructure
engineering and consulting services, although in 1997 Rust
began implementing plans to exit this business. In 1996, Rust
sold its process engineering, construction, specialty
contracting and related services business and its scaffolding
rental and erection business. See "Acquisitions and
Dispositions" herein.

4
<PAGE>

FINANCIAL INFORMATION
(SEE CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY BEGINNING ON PAGE F-1)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------------- -----------------------------------
1992(1) 1993(2)(3) 1994(3) 1995(3)(4) 1996(3)(5) 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue from
continuing
operations........... $ 8,661,027 $ 7,827,280 $ 8,482,718 $ 9,053,018 $ 9,186,970 $ 2,144,479 $ 2,198,308
Income from continuing
operations........... $ 850,036 $ 418,086 $ 742,306 $ 618,243 $ 477,791 $ 180,179 $ 178,412
Earnings per common
and common equivalent
share from continuing
operations........... $ 1.72 $ .86 $ 1.53 $ 1.27 $ .97 $ 0.37 $ 0.37
Total assets.......... $14,114,180 $16,080,265 $17,083,042 $18,364,274 $18,366,592 $18,945,387 $18,033,599
Long-term debt, less
portion payable
within one year...... $ 4,312,511 $ 6,143,685 $ 6,024,478 $ 6,390,041 $ 6,971,607 $ 6,385,833 $ 6,139,969
Dividends per share... $ .50 $ .58 $ .60 $ .60 $ .63 $ 0.15 $ 0.16
</TABLE>
- ---------
(1) The results for 1992 include a non-taxable gain of $240,000,000 (before
minority interest) resulting from the initial public offering of Waste
Management International, special charges of $219,900,000 (before tax and
minority interest) primarily related to writedowns of the Company's medical
waste business, CWM incinerators in Chicago, Illinois and Tijuana, Mexico
and a former subsidiary's investment in its asbestos abatement business and
certain restructuring costs incurred by the subsidiary and CWM related to
the formation of Rust, and one time after-tax charges aggregating
$71,139,000, or $.14 per share, related to the cumulative effect of
adopting two new accounting standards.
(2) The results for 1993 include a non-taxable gain of $15,109,000 (before
minority interest) relating to the issuance of shares by Rust, as well as a
special asset revaluation and restructuring charge of $550,000,000 (before
tax and minority interest) recorded by CWM related primarily to a
revaluation of CWM's thermal treatment business, and a provision of
approximately $14,000,000 to adjust deferred income taxes resulting from
the 1993 tax law change.
(3) In 1995, the Rust Board of Directors approved a plan to sell or otherwise
discontinue Rust's process engineering, construction, specialty contracting
and similar lines of business. During 1996, the sale of the industrial
process engineering and construction businesses, based in Birmingham,
Alabama, was completed. In 1996, WTI sold its water process systems and
equipment manufacturing businesses, and Rust sold its industrial
scaffolding business. In 1997, WTI sold its water and wastewater facility
operations and privatization business, and Rust began implementing plans to
exit its remaining domestic and international engineering and consulting
business. CWM is also exiting its fuels blending business. Accordingly,
these businesses have been segregated as discontinued operations in the
financial statements since 1993. It is not practical to restate periods
prior to the formation of Rust on January 1, 1993, for the discontinued
operations. See Note 15 to the Company's Consolidated Financial Statements.

5
<PAGE>

(4) The results for 1995 include a special charge of $140,600,000 (before tax)
recorded by CWM, primarily to write off its investment in facilities and
technologies that it abandoned because they did not meet customer service
or performance objectives, and a special charge of $194,600,000 (before tax
and minority interest) recorded by Waste Management International relating
to actions it had decided to take to sell or otherwise dispose of non-core
businesses and investments, as well as core businesses and investments in
low potential markets, abandon certain hazardous waste treatment and
processing technologies, and streamline its country management
organization. See Note 14 to the Company's Consolidated Financial
Statements.
(5) The results for 1996 include special charges of $107,900,000 (before
minority interest) related to Waste Management International's sale of its
investment in Wessex and a charge of $169,500,000 (before minority
interest) to revalue its investments in France, Austria and Spain in
contemplation of exiting all or part of these markets or forming joint
ventures and to write off an investment in a hazardous waste disposal
facility. Also in 1996, the Company and CWM recorded special charges of
$255,000,000 (before tax) for reengineering their finance and
administrative functions and increasing reserves for certain litigation.
See Note 14 to the Company's Consolidated Financial Statements.
(6) Certain amounts have been restated to conform to 1997 classifications.

RECENT DEVELOPMENTS

On April 9, 1997, Waste Management International announced that its German
subsidiary granted VEW AG, a German energy utility, an option to purchase its
waste-to-energy plant located in Hamm, Germany for DM 245 million
(approximately $139 million), and that Waste Management International has the
right to require VEW AG to purchase the facility for a price of DM 210 million
(approximately $119 million). Both options are exercisable on or before January
2, 1998, but can be extended for three additional months in certain
circumstances.

On June 6, 1997, the Company announced that it had completed the sale of most
of the Company's Canadian solid waste assets to a subsidiary of USA Waste
Services, Inc., for approximately $120 million in cash and approximately $60
million in USA Waste Services, Inc. common stock.

On June 20, 1997, the Company announced that its Board of Directors had
approved a cash offer to acquire all of the outstanding publicly held shares of
WTI for $15.00 per share. The Company announced that the proposed transaction
would take the form of a merger of a wholly owned subsidiary of the Company
into WTI, and that the merger would be subject to the approval of a special
committee of independent directors of WTI and the holders of a majority of the
outstanding shares of WTI, other than shares held by the Company, who vote at a
special meeting of WTI stockholders to be called for that purpose. The Company
also announced that the Board had weighed the acquisition of the publicly held
shares of Waste Management International, but decided to defer indefinitely any
consideration of such a transaction.

On June 23, 1997, Waste Management International announced the sale of
substantially all of its remaining operations in France for approximately $45
million in cash plus deferred consideration of cash and notes to be paid over a
five-year period in respect of assumed intercompany debt and certain
contingencies. On July 3, 1997 Waste Management International announced the
sale of its 60% interest in a company providing waste management services in
Spain for approximately $15 million, as a result of which Waste Management
International no longer has operations in Spain.

On July 14, 1997, the Company announced that its Board of Directors had
elected Ronald T. LeMay as Chairman, President and Chief Executive Officer of
the Company, and that Dean L. Buntrock had resigned as Chairman and Chief
Executive Officer.

6
<PAGE>

On July 22, 1997, the Company reported its results for the quarter and six
months ended June 30, 1997. The Company's second quarter 1997 net income from
continuing operations was $180 million, or $0.39 per share, compared with $218
million, or $0.44 per share, in 1996. Revenue from continuing operations was
$2.33 billion in the current and year-earlier quarter. Six months 1997 net
income from continuing operations was $358 million, or $0.75 per share, versus
$398 million, or $0.81 per share, a year earlier. Revenue from continuing
operations for the first six months of 1997 was $4.53 billion compared with
$4.48 billion a year earlier. The results for the quarter and six months ended
June 30, 1997 include the Company's share ($10,400,000 after-tax, or $0.02 per
share) of a special charge recorded by OHM.

In the first six months of this year, the Company divested 17 solid waste
operations in North America (including most of its Canadian operations) for a
total price of $265 million.

The Company also indicated that in light of the above-described results, the
Company has revised its full-year earnings estimate to $1.65 per share for
1997, excluding the effect of the OHM special charge. This estimate should be
evaluated in light of the discussion under "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Forward-Looking
Statements" at page 31 below.

7
<PAGE>

THE COMPANY

Waste Management, Inc. (formerly known as "WMX Technologies, Inc.") is a
leading international provider of waste management services. Unless the
context indicates to the contrary, as used in this report the terms "Company"
and "Waste Management" refer to Waste Management, Inc. and its subsidiaries.

The Company provides integrated solid waste management services in North
America through Waste Management of North America, Inc., a wholly owned
subsidiary (referred to herein, together with its subsidiaries and certain
affiliated companies providing waste management and related services as
"WMNA"). The Company's solid waste management services are provided to
commercial, industrial, municipal and residential customers, as well as to
other waste management companies and consist of solid waste collection,
transfer, resource recovery and disposal services. As part of these services,
the Company is engaged in providing, through its Recycle America(R) and other
programs, paper, glass, plastic and metal recycling services to commercial and
industrial operations and curbside collection of such materials from
residences and in removing methane gas from sanitary landfill facilities for
use in electricity generation. In addition, through WMNA the Company provides
Port-O-Let(R) portable sanitation services to municipalities and commercial
and special event customers. WMNA also manages the on-site industrial cleaning
services businesses owned by the Company's Rust International Inc. subsidiary.

The Company also provides hazardous waste management services. The Company's
chemical waste treatment, storage, disposal and related services in North
America are provided through WMNA and Chemical Waste Management, Inc., a
wholly owned subsidiary of the Company (referred to herein, together with its
subsidiaries, as "CWM"), and are provided to commercial and industrial
customers, as well as to other waste management companies and to governmental
entities. Through Advanced Environmental Technical Services, L.L.C., a 60%-
owned subsidiary of the Company (referred to herein, together with its
subsidiaries, as "AETS"), the Company provides on-site integrated hazardous
waste management services, including hazardous waste identification,
packaging, removal and recycling services to industrial, institutional and
governmental customers. Through its Chem-Nuclear Systems, L.L.C. wholly owned
subsidiary (referred to herein, together with its subsidiaries, as "Chem-
Nuclear"), the Company also furnishes radioactive waste management services,
primarily to electric utilities and governmental entities.

The Company provides comprehensive waste management and related services
outside North America through Waste Management International plc, a subsidiary
owned approximately 56% by the Company and 12% each by the Company's Rust
International Inc. and Wheelabrator Technologies Inc. subsidiaries (referred
to herein, together with its subsidiaries, as "Waste Management
International"). Waste Management International provides a wide range of solid
and hazardous waste management and related services (or has interests in
projects or companies providing such services) in ten countries in Europe,
seven countries in the Asia-Pacific region and Argentina, Brazil, and Israel.
Until February 1997, when the interest was sold, Waste Management
International also had an approximately 20% interest in Wessex Water Plc, an
English publicly traded company providing water treatment, water distribution,
wastewater treatment and sewage services ("Wessex").

Wheelabrator Technologies Inc., an approximately 67% owned subsidiary of the
Company (referred to herein, together with its subsidiaries, as "WTI") is a
leading developer of facilities and systems for, and provider of services to,
the trash-to-energy and waste fuel powered independent power markets. WTI
develops, arranges financing for, operates and owns facilities that dispose of
trash and other waste materials in an environmentally acceptable manner by
recycling them into electrical or steam energy. WTI is also pursuing the
development, ownership and operation of power plants for industrial customers.
In addition, WTI is involved in the treatment and management of biosolids
resulting from the treatment of wastewater by converting them into fertilizers
and the

8
<PAGE>

recycling of organic wastes into compost material useable for horticultural
and agricultural purposes. WTI also designs, fabricates and installs
technologically advanced air pollution control systems and equipment. In 1996,
WTI sold its water process, manufacturing and custom engineering businesses
and in 1997 sold its water contract operations, outsourcing and privatization
businesses. See "Acquisitions and Dispositions" herein. The Company has
offered to acquire all of the approximately 33% of WTI's outstanding shares
not already owned by the Company. See "Summary--Recent Developments" herein.

Rust International Inc., a subsidiary owned approximately 60% by the Company
and 40% by WTI (referred to herein, together with its subsidiaries, as
"Rust"), provides a variety of on-site industrial cleaning services, a
business which is managed by WMNA, and provides hazardous, radioactive and
mixed waste program and facilities management services, primarily to the
United States Department of Energy and other federal government agencies. Such
services include waste treatment, storage, characterization and disposal and
privatization services. Rust also has an approximately 41% interest in NSC, a
publicly traded provider of asbestos abatement and other specialty contracting
services, and an approximately 37% interest in OHM, a publicly traded provider
of environmental remediation services. Rust also provides environmental and
infrastructure engineering and consulting services, a business which is to be
sold or otherwise disposed. In 1996, Rust sold its process engineering,
construction, specialty contracting and related services business and its
scaffolding rental and erection business. See "Acquisitions and Dispositions"
herein.

Until April 1997, the Company also owned an approximately 20% interest in
ServiceMaster Limited Partnership, a provider of management services,
including management of health care, education and commercial facilities, and
lawn care, pest control and other consumer services ("ServiceMaster"). The
Company has sold its interest to ServiceMaster. See "Acquisitions and
Dispositions" herein.

The Company's strategic plans call for the Company to focus on the provision
of waste management services and to continue to sell or discontinue various
businesses which do not fit within that focus. The Company has therefore
reported its continuing operations as being within a single industry segment--
waste management services. The Company's continuing consolidated revenues were
approximately $8.5 billion in 1994, $9.1 billion in 1995 and $9.2 billion in
1996. For information relating to the expenses and assets of the Company's
operations, see the Company's Consolidated Financial Statements appearing
elsewhere in this prospectus, and, for information relating to the Company's
operations in different geographic groups, see Note 13 thereto. For interim
periods, the revenues and net income of certain of the Company's operations
may fluctuate for a number of reasons, including reduced activity for some
businesses during the winter months.

Regulatory or technological developments relating to the environment may
require companies engaged in waste management services and related businesses,
including the Company, to modify, supplement or replace equipment and
facilities at costs which may be substantial. Because the continuing business
in which the Company is engaged is intrinsically connected with the protection
of the environment and the potential discharge of materials into the
environment, a material portion of the Company's capital expenditures is,
directly or indirectly, related to such items. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition" set forth on
pages 15 to 31 of this prospectus for a review of property and equipment
expenditures by the Company for the last three years. The Company does not
expect such expenditures, which are incurred in the ordinary course of
business, to have a material adverse impact on its and its subsidiaries'
combined earnings or its subsidiaries' competitive position in the foreseeable
future because the Company's business is based upon compliance with
environmental laws and regulations and its services are priced accordingly.

Although the Company strives to conduct its operations in compliance with
applicable laws and regulations, the Company believes that, in the existing
climate of heightened legal, political and public

9
<PAGE>

awareness and concerns, companies in the waste management services industry,
including the Company, will be faced, in the normal course of operating their
businesses, with fines and penalties and the need to expend funds for remedial
work and related activities with respect to waste treatment, disposal and
trash-to-energy facilities. Where the Company concludes that it is probable
that a liability has been incurred, a provision is made in the Company's
financial statements for the Company's best estimate of the liability based on
management's judgment and experience, information available from regulatory
agencies and the number, financial resources and relative degree of
responsibility of other potentially responsible parties who are jointly and
severally liable for remediation of a specific site, as well as the typical
allocation of costs among such parties. If a range of possible outcomes is
estimated and no amount within the range appears to be a better estimate than
any other, then the Company provides for the minimum amount within the range,
in accordance with generally accepted accounting principles. Such estimates
are subsequently revised, as necessary, as additional information becomes
available. While the Company does not anticipate that the amount of any such
revision will have a material adverse effect on the Company's operations or
financial condition, the measurement of environmental liabilities is
inherently difficult and the possibility remains that technological,
regulatory or enforcement developments, the results of environmental studies,
or other factors could materially alter this expectation at any time. Such
matters could have a material adverse impact on earnings for one or more
fiscal quarters or years.

While in general the Company's business has benefited from increased
governmental regulation, the business itself is subject to extensive and
evolving regulation by federal, state, local and foreign authorities. Due to
the complexity of regulation of the industry and to public pressure,
implementation of existing and future laws, regulations or initiatives by
different levels of government may be inconsistent and difficult to foresee.
In addition, the demand for certain of the Company's services may be adversely
affected by the amendment or repeal, or reduction in enforcement of, federal,
state and foreign laws and regulations on which the Company's business is
dependent. Demand for certain of the Company's services may also be adversely
affected by delays or reductions in funding, or failure of legislative bodies
to fund, agencies or programs under such laws and regulations. The Company
makes a continuing effort to anticipate regulatory, political and legal
developments that might affect its operations but is not always able to do so.
The Company cannot predict the extent to which any legislation or regulation
that may be enacted, amended, repealed or enforced, or any failure or delay in
enactment or enforcement of legislation or regulations or funding of agencies
or programs, in the future may affect its operations.

The Company was incorporated in Delaware in 1968 and subsequently succeeded
to certain businesses owned by its organizers and others. The Company's common
stock is listed on the New York Stock Exchange and the Chicago Stock Exchange
under the trading symbol "WMX" and is also listed on the Frankfurt Stock
Exchange, the London Stock Exchange and the Swiss Stock Exchanges in Basle,
Zurich and Geneva.

SECURITIES COVERED BY THIS PROSPECTUS

The shares of common stock of the Company covered by this prospectus are
available for use in connection with acquisitions of other businesses,
properties or securities in business combination transactions, which may
relate to businesses similar or dissimilar to the Company's waste management
services operations. The consideration offered by the Company in such
acquisitions, in addition to any shares of common stock offered by this
prospectus, may include cash, debt or other securities (which may be
convertible into shares of common stock of the Company covered by this
prospectus), or assumption by the Company of liabilities of the business being
acquired, or a combination thereof. The terms of acquisitions typically are
determined by negotiations between the Company and the owners of the
businesses, properties or securities (including newly issued securities) to be
acquired, with the Company taking into account such factors as the quality of
management, the past and potential earning

10
<PAGE>

power and growth of the businesses, properties or securities to be acquired,
and other relevant factors. Shares of common stock issued to the owners of the
businesses, properties or securities to be acquired normally are valued at a
price reasonably related to the market value of the common stock either at the
time the terms of the acquisition are tentatively agreed upon or at or about
the time or times of delivery of the shares.

With the Company's consent, this prospectus may also be used by persons who
have received or will receive from the Company common stock covered by this
prospectus or by prospectuses under other registration statements in
connection with acquisitions and who may wish to sell such stock under
circumstances requiring or making desirable its use. The Company's consent to
such use may be conditioned upon such persons' agreeing not to offer more than
a specified number of shares following supplements or amendments to this
prospectus, which the Company may agree to use its best efforts to prepare and
file at certain intervals. The Company may require that any such offering be
effected in an organized manner through securities dealers. Sales by means of
this prospectus may be made from time to time privately at prices to be
individually negotiated with the purchasers, or publicly through transactions
on the New York or Chicago Stock Exchanges (which may involve crosses and
block transactions), or in the over-the-counter market, at prices reasonably
related to market prices at the time of sale or at negotiated prices. Broker-
dealers participating in such transactions may act as agent or as principal
and, when acting as agent, may receive commissions from the purchasers as well
as from the sellers (if also acting as agent for the purchasers). The Company
may indemnify any broker-dealer participating in such transactions against
certain liabilities, including liabilities under the 1933 Act. Profits,
commissions and discounts on sales by persons who may be deemed to be
underwriters within the meaning of the 1933 Act may be deemed underwriting
compensation under that Act.

Stockholders may also offer shares of common stock of the Company issued in
past and future acquisitions by means of prospectuses under other available
registration statements or pursuant to exemptions from the registration
requirements of the 1933 Act, including sales which meet the requirements of
Rule 144 or Rule 145(d) under that Act, and stockholders should seek the
advice of their own counsel with respect to the legal requirements for such
sales.

This prospectus may be supplemented or amended from time to time to reflect
its use for resales by persons who have received shares of common stock of the
Company in connection with acquisitions by the Company and with respect to
whom the Company has consented to the use of this prospectus in connection
with sales of such stock. See the inside back cover page of this prospectus
for the identity of any such persons.

11
<PAGE>

MARKET PRICES OF COMMON STOCK; DIVIDENDS

The following table sets forth by quarter for the periods indicated the high
and low sale prices of the Company's common stock on the New York Stock
Exchange Composite Tape as reported by the Wall Street Journal (Midwest
Edition), and also shows the cash dividends declared per share during such
periods.

<TABLE>
<CAPTION>
MARKET PRICE
---------------- CASH DIVIDENDS
HIGH LOW DECLARED PER SHARE
-------- ------- ------------------
<S> <C> <C> <C>
1995
- ----
First Quarter............................... $ 29 5/8 $25 3/4 $.15
Second Quarter.............................. 28 3/4 26 3/4 .15
Third Quarter............................... 32 1/2 28 1/4 .15
Fourth Quarter.............................. 30 7/8 26 3/8 .15
1996
- ----
First Quarter............................... $ 32 1/8 $27 3/4 $.15
Second Quarter.............................. 36 1/8 31 5/8 .16
Third Quarter............................... 33 1/4 28 5/8 .16
Fourth Quarter.............................. 36 5/8 32 1/8 .16
1997
- ----
First Quarter............................... $37 1/2 $30 1/8 $.16
Second Quarter.............................. 34 1/4 28 .17
Third Quarter (through August 4, 1997)...... 33 13/16 30 3/8
</TABLE>

See the cover page of this prospectus for a recent sale price of the
Company's common stock.

At March 19, 1997, the Company had approximately 50,000 stockholders of
record.

Due in part to the high level of public awareness of the business in which
the Company is engaged, regulatory enforcement proceedings or other
unfavorable developments involving the Company's operations or facilities,
including those in the ordinary course of business, may be expected to
engender substantial publicity which could from time to time have an adverse
impact upon the market price for the Company's common stock.

From September 1990 to December 1995, the Company maintained a program for
the purchase of up to 25,000,000 shares of its common stock from time to time
in the open market or in privately negotiated transactions. No Company shares
were repurchased under this program in 1995. In December 1995, the Company
terminated the program and announced that its Board of Directors had
authorized the Company's repurchase of up to an additional 25,000,000 shares
of the Company's common stock from time to time over the following 24-month
period in open market or privately negotiated transactions. During 1996, the
Company purchased 14,390,000 shares pursuant to this program at a cost of
approximately $473,560,000. In February 1997, the Company's Board of Directors
approved a new repurchase program to replace the program approved in December
1995. Under the new program, the Company is authorized to purchase during 1997
and 1998 up to 50 million shares of its common stock in the open market, in
privately negotiated transactions or through issuer tender offers. As part of
this new program, the Company, during the second quarter of 1997, conducted a
"Dutch auction" tender offer whereby the Company repurchased 30 million shares
of its common stock at a price of $30 per share.

During 1994, 1995 and 1996, the Company sold put options on 42.3 million
shares of its common stock in conjunction with the repurchase program. The put
options give the holders the right at

12
<PAGE>

maturity to require the Company to repurchase its shares at specified prices.
If an option is exercised, the Company may elect to pay the holder in cash the
difference between the strike price and the market price of the Company's
shares, in lieu of repurchasing the stock. For information concerning the
exercise or expiration of these put options and related information, see
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Financial Condition--Capital Structure."

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial information for each year in
the five-year period ended December 31, 1996 and for each of the three-month
periods ended March 31, 1996 and 1997 is derived from the Company's
Consolidated Financial Statements. The Company's Consolidated Financial
Statements for each year in the five-year period ended December 31, 1996 have
been audited by Arthur Andersen LLP, independent public accountants, whose
report thereon appears elsewhere in this prospectus. The unaudited financial
information for the three-month periods ended March 31, 1996 and 1997
reflects, in management's opinion, all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation. Interim results are
not necessarily indicative of results for an entire year. The information
below should be read in conjunction with "Management's Discussion and Analysis
of Results of Operations and Financial Condition" and the Company's
Consolidated Financial Statements, and the related Notes, and the other
financial information included elsewhere in this prospectus.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 MARCH 31 (UNAUDITED)
----------------------------------------------------------- -----------------------
1992(1) 1993(2)(3) 1994(3) 1995(3)(4) 1996(3)(5) 1996 1997
----------- ----------- ----------- ----------- ----------- ----------- -----------
(000'S OMITTED, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue from continuing
operations............. $ 8,661,027 $ 7,827,280 $ 8,482,718 $ 9,053,018 $ 9,186,970 $ 2,144,479 $ 2,198,308
Income from continuing
operations............. $ 850,036 $ 418,086 $ 742,306 $ 618,243 $ 477,791 $ 180,179 $ 178,412
Earnings per common and
common equivalent share
from continuing
operations............. $ 1.72 $ .86 $ 1.53 $ 1.27 $ .97 $ 0.37 $ 0.37
Total assets............ $14,114,180 $16,080,265 $17,083,042 $18,364,274 $18,366,592 $18,945,387 $18,033,599
Long-term debt, less
portion payable within
one year............... $ 4,312,511 $ 6,143,685 $ 6,024,478 $ 6,390,041 $ 6,971,607 $ 6,385,833 $ 6,139,969
Dividends per share..... $ .50 $ .58 $ .60 $ .60 $ .63 $ 0.15 $ 0.16
</TABLE>
- ---------
(1) The results for 1992 include a non-taxable gain of $240,000,000 (before
minority interest) resulting from the initial public offering of Waste
Management International, special charges of $219,900,000 (before tax and
minority interest) primarily related to writedowns of the Company's
medical waste business, CWM incinerators in Chicago, Illinois and Tijuana,
Mexico and a former subsidiary's investment in its asbestos abatement
business and certain restructuring costs incurred by the subsidiary and
CWM related to the formation of Rust, and one time after-tax charges
aggregating $71,139,000, or $.14 per share, related to the cumulative
effect of adopting two new accounting standards.
(2) The results for 1993 include a non-taxable gain of $15,109,000 (before
minority interest) relating to the issuance of shares by Rust, as well as
a special asset revaluation and restructuring charge of $550,000,000
(before tax and minority interest) recorded by CWM related primarily to a
revaluation of CWM's thermal treatment business, and a provision of
approximately $14,000,000 to adjust deferred income taxes resulting from
the 1993 tax law change.

13
<PAGE>

(3) In 1995, the Rust Board of Directors approved a plan to sell or otherwise
discontinue Rust's process engineering, construction, specialty
contracting and similar lines of business. During 1996, the sale of the
industrial process engineering and construction businesses, based in
Birmingham, Alabama, was completed. In 1996, WTI sold its water process
systems and equipment manufacturing businesses, and Rust sold its
industrial scaffolding business. In 1997, WTI sold its water and
wastewater facility operations and privatization business and Rust began
implementing plans to exit its remaining domestic and international
engineering and consulting business. CWM is also exiting its fuels
blending business. Accordingly, these businesses have been segregated as
discontinued operations in the financial statements since 1993. It is not
practical to restate periods prior to the formation of Rust on January 1,
1993, for the discontinued operations. See Note 15 to the Company's
Consolidated Financial Statements.
(4) The results for 1995 include a special charge of $140,600,000 (before tax)
recorded by CWM, primarily to write off its investment in facilities and
technologies that it abandoned because they did not meet customer service
or performance objectives, and a special charge of $194,600,000 (before
tax and minority interest) recorded by Waste Management International
relating to actions it had decided to take to sell or otherwise dispose of
non-core businesses and investments, as well as core businesses and
investments in low potential markets, abandon certain hazardous waste
treatment and processing technologies, and streamline its country
management organization. See Note 14 to the Company's Consolidated
Financial Statements.
(5) The results for 1996 include special charges of $107,900,000 (before
minority interest) related to Waste Management International's sale of its
investment in Wessex and a charge of $169,500,000 (before minority
interest) to revalue its investments in France, Austria and Spain in
contemplation of exiting all or part of these markets or forming joint
ventures and to write off an investment in a hazardous waste disposal
facility. Also in 1996, the Company and CWM recorded special charges of
$255,000,000 (before tax) for reengineering their finance and
administrative functions and increasing reserves for certain litigation.
See Note 14 to the Company's Consolidated Financial Statements.
(6) Certain amounts have been restated to conform to 1997 classifications.

14
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (TABLES IN MILLIONS EXCEPT PER SHARE AMOUNTS)

The following is Management's Discussion and Analysis of Results of
Operations and Financial Condition for the year ended December 31,
1996, and should be read in conjunction with "Management's Discussion
and Analysis of Results of Operations and Financial Condition for the
three months ended March 31, 1997," below.

RESULTS OF OPERATIONS

Consolidated

Consolidated 1996 net income from continuing operations of the Company and
its subsidiaries was $477.8 million or $0.97 per share, compared with $618.2
million or $1.27 per share in 1995 and $742.3 million or $1.53 per share in
1994. Net income was $192.1 million or $0.39 per share in 1996, $603.9 million
or $1.24 per share in 1995 and $784.4 million or $1.62 per share in 1994.

Consolidated 1996 revenue from continuing operations was $9.19 billion
compared with $9.05 billion in 1995 and $8.48 billion in 1994.

Results for all periods were impacted by special charges, and for 1995 by
costs related to the early extinguishment of Liquid Yield Option Notes put to
the Company by the holders. The following table reconciles reported earnings
per share from continuing operations to earnings excluding such items:

<TABLE>
<CAPTION>
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Reported earnings per share from continuing operations....... $1.53 $1.27 $0.97
Special charges (see Note 14 to Consolidated Financial State-
ments)--
WMNA and CWM............................................... -- 0.19 0.34
Waste Management International............................. -- 0.23 0.44
Costs related to early extinguishment of debt................ -- 0.01 --
----- ----- -----
Earnings per share from continuing operations excluding above
items....................................................... $1.53 $1.70 $1.75
===== ===== =====
</TABLE>

The Company has undergone a number of changes over the three-year period in
response to changing conditions in its markets and in the environmental
services industry. In January 1997, the Board of Directors approved a package
of strategic initiatives designed to enhance stockholder value, the centerpiece
of which is a focus solely on waste management services in domestic and
selected international markets where the Company holds or can develop a strong
competitive position. The Company plans to divest non-core and non-integrated
assets valued at approximately $1.5 billion by the end of 1998, will reduce
overhead and capital spending as well as streamline its organization, and will
return the majority of available cash to stockholders through stock repurchase
programs. To fully exploit its brand value and reflect the refocused strategy,
the Company changed its name on May 9, 1997 to Waste Management, Inc.

As a result of this strategy, operations in the water and environmental and
infrastructure engineering and consulting services lines of business have been
classified as discontinued operations in the accompanying financial statements,
along with the process engineering, construction, specialty contracting and
similar businesses of Rust, which were discontinued in 1995 and sold during
1996, and certain other Company operations. Certain of the discontinued
operations have already been sold and the Company contemplates completing the
sale of those remaining by the end of 1997. See "Discontinued Operations and
Other Asset Dispositions" below. Because the WTI trash-to-energy plants, with
capacity to process nearly 24,000 tons of waste per day, represent an important
part of the Company's waste disposal services network, the restructured Company
will now operate in a single industry segment--waste management services--and
will report accordingly. The discussion which follows relates to the Company's
continuing operations.

15
<PAGE>

1995 OPERATIONS COMPARED WITH 1994

Revenue

Consolidated revenue growth from 1994 to 1995 is shown in the table which
follows:

<TABLE>
<CAPTION>
PERCENT
1994 1995 CHANGE
-------- -------- -------
<S> <C> <C> <C>
North America (excluding trash-to-energy).... $6,147.0 $6,585.1 7.1%
North American trash-to-energy............... 926.9 956.1 3.2
International................................ 1,710.9 1,865.1 9.0
Intercompany revenue......................... (302.1) (353.3)
-------- --------
Total........................................ $8,482.7 $9,053.0 6.7%
======== ======== ===
</TABLE>

The solid waste portion of North American revenue was $5.64 billion in 1995
compared with $5.12 billion in 1994, an increase of 10.3%. North American
solid waste 1995 revenue growth by line of business is shown in the following
table:

<TABLE>
<S> <C>
Residential......................................................... 6.3%
Commercial.......................................................... 7.5
Rolloff and industrial.............................................. 7.5
Disposal, transfer and other........................................ 20.3
</TABLE>

Revenue growth came from price (2.5-3.0%) and volume (6.0-6.5%) increases,
with acquisitions accounting for 1.0%. Prices of recycled commodities
continued the 1994 upward trend during the first six months of 1995, but then
began moving downward and by the fourth quarter were below the levels of the
same period in the prior year. Commodity prices continued downward throughout
1996 as discussed below. Volume growth was helped by a relatively mild winter
in 1995, whereas severe weather over a large part of North America adversely
affected the first quarter of 1994. However, volumes in 1995 were adversely
impacted by the loss of the disposal contract for the City of Philadelphia as
of July 1, 1994. Revenue from recycling increased 71.9% in 1995 compared with
1994 as a result of the favorable pricing discussed above, as well as the
Company's marketing efforts and the acquisition and construction of additional
material recovery facilities.

North American hazardous waste revenue continued to decline in 1995 as waste
minimization, recycling, industry over-capacity and shifting governmental
regulation and enforcement continued to adversely affect the industry. Total
1995 revenue was $564.2 million compared with $587.9 million in 1994. Pricing
and volume were both negative, only partially offset by the 1995 acquisition
of a 60% interest in AETS. In addition, unusually high revenue in the second
quarter of 1994 at the Company's Barnwell, South Carolina, low-level
radioactive waste disposal facility adversely affected 1995 comparisons.

North American trash-to-energy (WTI) revenue was essentially flat from 1994
to 1995 as higher revenue from operating plants was largely offset by lower
construction revenue on the Lisbon, Connecticut, facility (which commenced
operations January 1, 1996). Approximately 78% of the growth in revenue from
operating plants was accounted for by the Falls Township and Ridge Generating
Station facilities, which began operations in 1994. Contractual price
escalation on long-term trash disposal and energy sales contracts, partly
offset by curtailment of electrical purchases by certain utility customers,
accounted for the balance of the operating plant revenue growth. Spot pricing,
on the whole, was stable, although there were increases in certain markets
offset by declines in others.

16
<PAGE>

Waste Management International revenue, in U.S. dollars, grew $154.2 million
or 9.0% in 1995 compared with 1994. Components of the revenue change are as
follows:

<TABLE>
<CAPTION>
PERCENT CHANGE
--------------
<S> <C>
Price...................................................... 1.8%
Volume (including start-ups)............................... (3.2)
Purchased businesses....................................... 4.5
Foreign currency translation............................... 5.9
----
Total...................................................... 9.0%
====
</TABLE>

The major cause of the 1995 volume decline was the completion of the
construction phase of the SENT Landfill in Hong Kong, which opened during the
year. A new pricing mechanism introduced by the Hong Kong government in March
1995, which requires generators to absorb a portion of the disposal cost for
waste brought to Waste Management International's Hong Kong incinerator,
resulted in volume declines in certain waste streams, but the impact was
offset with other volumes. Pricing in Europe was negatively impacted in 1995
by relatively low inflation, highly competitive conditions in the solid waste
market in France, softness in segments of the hazardous waste market, and a
continuation of lower prices on rebids of municipal contracts in Italy.
Acquisition activity continued to be below Waste Management International's
historical levels and focused particularly on "tuck-in" acquisitions which can
complement or expand existing operations in a given market. Waste Management
International also increased its acquisition and construction of material
recovery facilities to take advantage of an emphasis on recycling as an
alternative to land disposal.

Operating Expenses, Excluding Special Charges

Operating expenses increased $393.2 million in 1995 compared with 1994 but
remained constant at 68.7% of consolidated revenue. North American solid waste
operating expenses declined as a percentage of revenue as a result of milder
weather, pricing effectiveness, higher recyclable commodity prices,
internalization of recycling processing, and continuing productivity
enhancements. However, North American hazardous waste operating expenses
increased as a percentage of revenue in 1995 as continued pressure on prices,
a lower revenue base, and a shift in revenue mix toward lower margin services
offset the benefit of headcount reductions. North American trash-to-energy
operating costs declined slightly but those of Waste Manaagement International
increased as a result of higher labor costs in Italy, continued pressure on
pricing, particularly in Italy and France, and the disruption of operations in
France during the fourth quarter due to widespread strikes and industrial
action against the government.

Selling and Administrative Expenses

In absolute dollars, selling and administrative expenses increased $7.7
million from 1994 to 1995, but as a percentage of revenue they declined from
11.8% to 11.1%. The decline as a percentage of revenue crossed all operating
groups as productivity enhancements were instituted throughout the Company.
The slight increase in absolute dollars resulted primarily from acquisitions
and pay-for-performance compensation plans.

Special Charges

During the first quarter of 1995, CWM recorded a pretax charge of $140.6
million, primarily to write off its investment in facilities and technologies
that it abandoned because they did not meet customer service or performance
objectives in the current hazardous waste market environment.

Following a thorough review of its operations and management structure by a
new management team, Waste Management International announced a fourth quarter
1995 pretax charge of $194.6

17
<PAGE>

million, related to actions it had decided to take to sell or otherwise
dispose of non-core businesses and investments, as well as core businesses and
investments in low potential markets, abandon certain hazardous waste
treatment and processing technologies, and streamline its country management
organization. Approximately $34.3 million of this charge represented cash
costs related to severance of personnel and rents under non-cancelable leases.
Approximately $11.2 million of the cash costs were paid prior to December 31,
1995, with the majority of the balance paid in 1996, although certain rent
payments on leased facilities will continue into the future.

1996 OPERATIONS COMPARED WITH 1995

Revenue

The following table sets forth changes in consolidated revenue from 1995 to
1996:

<TABLE>
<CAPTION>
PERCENT
1995 1996 CHANGE
-------- -------- -------
<S> <C> <C> <C>
North America (excluding trash-to-energy).... $6,585.1 $6,619.1 0.5%
North American trash-to-energy............... 956.1 952.3 (0.4)
International................................ 1,865.1 1,913.8 2.6
Intercompany revenue......................... (353.3) (298.2)
-------- --------
Total........................................ $9,053.0 $9,187.0 1.5%
======== ======== ====
</TABLE>

The solid waste portion of North American revenue grew 3.9% to $5.86 billion
in 1996. Revenue growth by line of business is shown in the following table:

<TABLE>
<S> <C>
Residential.......................................................... 5.6%
Commercial........................................................... 2.0
Rolloff and industrial............................................... 2.8
Disposal, transfer and other......................................... 2.0
</TABLE>

Although the Company pursued price increases in 1996, the impact on revenue
growth was minimal as a year-long continued decline in commodity prices
largely offset the benefit of increases in the commercial and industrial
markets. Volume growth added approximately 2% to revenue and acquisitions, net
of dispositions, accounted for revenue growth of approximately 1.5%. Recycling
revenue declined 13.6% from 1995 to 1996 due to the substantial commodity
price decline. The Company responded by reducing its processing of lower
grades of paper, adjusting the capacity of its recycling operations and
continually striving to reduce processing costs and improve the marketing of
commodities. However, despite these efforts, it was unable to replace the
profits associated with the stronger 1995 commodity markets. North American
hazardous waste revenue declined 7.7% from 1995 as the industry problems
continued.

The North American trash-to-energy revenue comparison is adversely affected
by the loss of the Lisbon construction revenue in 1996. Excluding this factor,
1996 revenue grew $33.8 million, or 3.7%, to $952.3 million. The commercial
operations of the Lisbon facility, which began in January 1996, contributed
$18.4 million of the increase. WTI acquired two industrial cogeneration plants
(so-called "inside-the-fence" facilities) during the year as part of its
strategy to leverage its energy plant operating capabilities and project
finance expertise by owning and/or operating power plants for industrial
customers. Together these acquisitions contributed $7.3 million to 1996
revenue growth. Contractual price escalation at existing facilities,
additional processing at several trash-to-energy plants, and lower energy
purchase curtailment accounted for most of the remaining revenue growth.
Overall spot pricing remained stable during the year.

18
<PAGE>

Expressed in U.S. dollars, Waste Management International revenue increased
$48.7 million or 2.6% in 1996 compared with 1995. Components of the revenue
change are as follows:

<TABLE>
<CAPTION>
PERCENT
CHANGE
-------
<S> <C>
Price............................................................. 1.4%
Volume............................................................ (0.6)
Purchased businesses.............................................. 1.2
Foreign currency translation...................................... 0.6
----
Total............................................................. 2.6%
====
</TABLE>

Although Waste Management International was able to implement price
increases for its services despite weak economies in many of its markets, the
impact of such increases was adversely affected by commodity prices falling
substantially from their highs in 1995. Difficult economic conditions in
Germany, France and Italy, as well as the closure of a landfill in France,
resulted in a volume decline, partially offset by hazardous waste volume
growth in The Netherlands and solid waste volume growth in the United Kingdom.
The Company was awarded contracts to design, build, and operate for fifteen
years, two transfer stations in Hong Kong. Construction revenue on one of
these projects contributed to revenue growth in 1996. International
acquisition activity continued to be at relatively low levels.

Operating Expenses, Excluding Special Charges

Operating expenses increased to $6.37 billion or 69.4% of consolidated
revenue in 1996 compared with $6.22 billion or 68.7% of revenue in 1995.
Higher fuel costs, depressed commodity prices, low margin construction revenue
on the Hong Kong transfer station and volume declines in Europe more than
offset continuing productivity improvements.

Selling and Administrative Expenses

Selling and administrative expenses declined in absolute dollars by $25.7
million and as a percentage of consolidated revenue from 11.1% to 10.7%
between 1995 and 1996. Improvements were again achieved throughout the Company
through a continued focus on administrative productivity, including the Waste
Management International fourth quarter 1995 restructuring.

Special Charges

In the fourth quarter of 1996, Waste Management International recorded a
charge of $169.5 million (before and after tax) to revalue its investments in
Austria, France and Spain in contemplation of exiting all or part of these
markets or forming joint ventures. This decision will allow Waste Management
International to focus more resources on markets where it believes it has
greater long-term opportunity. In addition, the charge included the write-off
of an investment in a hazardous waste disposal facility in Germany because
regulatory changes adversely affected its volumes. Waste Management
International also recognized a provision for loss related to the sale of its
investment in Wessex. See "Discontinued Operations and Other Asset
Dispositions."

WMNA and CWM recorded fourth quarter charges, aggregating $255 million
before tax, for reengineering their finance and administrative functions
(primarily related to a reduction in the carrying value of software) and
increasing reserves for certain litigation, including a dispute involving the
computation of royalties on the Emelle, Alabama, hazardous waste landfill. In
December 1996, a federal court in Memphis, Tennessee, held CWM liable for
approximately $91.5 million in damages to the former owners of the Emelle
site. CWM is appealing the decision.

19
<PAGE>

OTHER ITEMS

Interest

The following table sets forth the components of consolidated interest
expense, net:

<TABLE>
<CAPTION>
1994 1995 1996
------- ------ ------
<S> <C> <C> <C>
Interest expense................................. $ 438.0 $503.1 $449.1
Interest income.................................. (33.1) (36.9) (27.6)
Capitalized interest............................. (104.5) (81.5) (73.4)
------- ------ ------
Interest expense, net............................ $ 300.4 $384.7 $348.1
======= ====== ======
</TABLE>

Net interest expense increased from 1994 to 1995 as a result of an earlier
management decision to increase the leverage of the Company. Debt levels
increased in 1995, primarily a result of the acquisition of the then public
ownership of CWM and Rust. Although the Company repurchased a substantial
number of its shares in 1996, the emphasis on cash generation provided
sufficient funds that debt levels remained relatively flat, and lower interest
rates helped reduce expense. Capitalized interest has declined throughout the
period as significant capital projects were completed and the Company reduced
capital spending. See "Financial Condition--Capital Structure."

Minority Interest

Minority interest declined from 1994 to 1995 as a result of the repurchase
of the public shares of CWM and Rust, as well as the minority interest
(approximately $41.3 million) in the Waste Management International special
charge. Minority interest declined from 1995 to 1996 as a result of lower
earnings by certain subsidiaries and the minority interest (approximately
$63.8 million) in the Waste Management International special charges.

Sundry Income, Net

Sundry income consists primarily of earnings recorded on the equity method
from the Company's investments in less than 50%-owned affiliates. Subsequent
to December 31, 1996, the Company sold its investments in ServiceMaster and
Wessex, and sundry income is expected to decline in 1997.

Income Taxes

The consolidated income tax rate varies between years as a result of shifts
in the source of taxable income. In addition, the inability to realize tax
benefits on a portion of the 1995 and 1996 special charges, and the 1996 tax
provided on the Subpart F income related to the sale of the investment in
Wessex increased the tax provision in those years.

Discontinued Operations and Other Asset Dispositions

During the fourth quarter of 1995, the Company announced that Rust would
sell or discontinue its process engineering, construction, specialty
contracting and similar lines of business.

As the Company refined its business strategy to focus on waste management
services, other business units were discontinued or sold during 1996. Rust
sold the engineering and construction business as well as its industrial
scaffolding business, and WTI sold its water process, manufacturing and custom
engineered systems businesses. In February 1997 the Company announced plans to
divest an additional $1.5 billion of non-core assets and non-integrated
businesses by the end of 1998. Since then, the Company sold its investment in
ServiceMaster for $626 million cash, WTI sold its remaining water services
business for approximately $77 million, Waste Management International sold
substantially all of its operations in France and Spain, and the Company sold
certain of its North

20
<PAGE>

American solid waste operations and plans additional dispositions of such
operations. See "Summary--Recent Developments". The Company's plans also
include the sale by Rust of its remaining domestic and international
engineering and consulting business and the sale or joint venturing of the
Waste Management International businesses in Austria.

The WTI water businesses and the Rust engineering and scaffolding
businesses, as well as the CWM high organic waste fuels blending business,
have all been classified as discontinued operations in the accompanying
financial statements. The Company expects to complete by the end of 1997 the
sale of those businesses not previously sold.

In addition, Waste Management International has sold its approximately 20%
interest in Wessex. In connection with this disposition, Waste Management
International provided for a loss (including income taxes) of $77.0 million.
After additional U.S. income taxes (generated by Subpart F income) and
minority interest, this transaction reduced the Company's earnings by $88.0
million after tax in 1996. The sale was completed in the first quarter of
1997.

ACCOUNTING PRINCIPLES

Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("FAS") No. 121--Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of. The adoption of FAS
121 did not have a material impact on the financial statements as the
Company's previous accounting was substantially in compliance with the new
standard.

Also in 1996, FAS 123--Accounting for Stock-Based Compensation--became
effective. FAS 123 provides an optional new method of accounting for employee
stock options and expands required disclosure about stock options. If the
optional method of accounting is not adopted, disclosure is to be made, if
material, of pro forma net income and earnings per share as if it were
adopted. The impact of the optional new accounting on net income and earnings
per share was immaterial, and the Company elected not to adopt the optional
accounting.

In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 96-1--Environmental Remediation Liabilities. The SOP is
effective for fiscal years beginning after December 15, 1996, and provides
that environmental remediation liabilities should be accrued when the criteria
of FAS 5--Accounting for Contingencies--are met. Included in the SOP are
benchmarks to aid in the determination of when such criteria are met and
environmental liabilities should be recognized. It also provides that the
accrual for such liabilities should include future costs of those employees
expected to devote a significant amount of time directly to the remediation
effort. The Company does not believe that the adoption of SOP 96-1 will have a
material impact on its financial statements.

DERIVATIVES

From time to time, the Company and certain of its subsidiaries use
derivatives to manage currency, interest rate, and commodity (fuel) risk.
Derivatives used are simple agreements which provide for payments based on the
notional amount, with no multipliers or leverage. All derivatives are related
to actual or anticipated instruments or transactions of the Company. While the
Company is exposed to credit risk in the event of non-performance by
counterparties to derivatives, in all cases such counterparties are highly
rated financial institutions, and the Company does not anticipate non-
performance. In addition, maximum credit exposure is represented by the fair
value of contracts with a positive fair value; at December 31, 1996, such
amounts were not material. The impact of derivatives on the Company's
financial statements has not been and is not expected to be significant. See
Note 6 to Consolidated Financial Statements for further discussion of the use
and accounting for such instruments. Also see "Financial Condition--Capital
Structure" for a discussion of the Company's sale of put options in connection
with its stock repurchase program.

21
<PAGE>

ENVIRONMENTAL MATTERS

The continuing business in which the Company is engaged 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. While the Company is faced,
in the normal course of its business, with the need to expend funds for
environmental protection and remediation, it does not expect such expenditures
to have a material adverse effect on its financial condition or results of
operations because its business is based upon compliance with environmental
laws and regulations and its services are priced accordingly. Such costs may
increase in the future as a result of legislation or regulation; however, the
Company believes that in general it tends to benefit when governmental
regulation increases, which may increase the demand for its services, and that
it has the resources and experience to manage environmental risk.

As part of its ongoing operations, the Company provides for estimated closure
and post-closure monitoring costs over the operating life of disposal sites as
airspace is consumed. Such costs include a final cap and cover on the site,
methane gas and leachate management, and groundwater monitoring. The Company
has also established procedures to evaluate potential remedial liabilities at
closed sites which it owns or operated or to which it transported waste,
including 103 sites listed on the Superfund National Priority List ("NPL") as
of December 31, 1996. Where the Company concludes that it is probable that a
liability has been incurred, provision is made in the financial statements. See
Note 7 to Consolidated Financial Statements for additional information
regarding the Company's environmental liabilities.

Estimates of the extent of the Company's degree of responsibility for 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 from current estimates. However, the Company believes that its
extensive experience in the environmental services industry, as well as its
involvement with a large number of sites, provides a reasonable basis for
estimating its aggregate liability. As additional information becomes
available, estimates are adjusted as necessary. While the Company does not
anticipate that such adjustments would be material to its financial statements,
it is reasonably possible that technological, regulatory or enforcement
developments, the results of environmental studies, or other factors could
alter this expectation and necessitate the recording of additional liabilities
which could be material.

The Company spent $89.0 million, $78.8 million and $68.8 million on remedial
activity at closed sites in 1994, 1995 and 1996, respectively, and anticipates
expenditures of approximately $78.8 million in 1997.

The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort costs at a number
of sites. The carriers involved have denied coverage and are defending these
claims. No amounts have been recognized in the financial statements for
potential future insurance recoveries.

22
<PAGE>

FINANCIAL CONDITION

Liquidity and Capital Resources

The Company had working capital of $54.5 million at December 31, 1996,
compared with a working capital deficit of $584.4 million at December 31,
1995. The Company operates in a capital intensive service industry with
neither significant inventory nor seasonal variation in receivables, and
generates substantial cash from operating activities. As a result, working
capital typically does not significantly affect operations and emphasis is
placed on minimizing working capital requirements. The increase in working
capital between 1995 and 1996 is a result of extending debt maturities, thus
reducing the current portion; strong cash flow, including the proceeds from
the sale of a portion of the WTI water business, late in 1996; and the
reclassification to current of the investment in Wessex, sold in 1997;
partially offset by increased accruals for losses on the sale of certain
investments.

Cash flow from operating activities, less net capital expenditures (other
than acquisitions) and dividends, which the Company defines as "owners' cash
flow," is available to make acquisitions, reduce debt, or repurchase common
stock. Management has adopted a cash-driven financial strategy including
reduced capital spending and divestiture of non-core assets and non-integrated
businesses. Owners' cash flow was approximately $1.2 billion in 1996 and the
Company expects total 1997 and 1998 owners' cash flow of approximately $3.0
billion, including the monetization of $1.5 billion of assets. The Company
believes that it has adequate liquidity and resources to meet its needs for
replacement capital and finance anticipated growth, and plans to distribute
the majority of the owners' cash to shareholders in the form of stock
repurchases. See "Capital Structure."

Acquisitions and Capital Expenditures

Capital expenditures, including $56.8 million, $154.1 million and $91.8
million for property and equipment of purchased businesses in 1994, 1995 and
1996, respectively, are shown in the following table:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Land (primarily disposal sites).................. $ 582.3 $ 517.2 $ 467.7
Buildings and leasehold improvements............. 141.2 148.8 109.3
Vehicles......................................... 226.0 345.8 204.9
Containers....................................... 167.9 181.2 115.8
Other equipment.................................. 395.0 348.1 319.2
-------- -------- --------
Total.......................................... $1,512.4 $1,541.1 $1,216.9
======== ======== ========
</TABLE>

During 1994, the Company and its principal subsidiaries acquired 119
businesses for $214.5 million in cash and debt (including debt assumed),
73,809 shares of the Company's common stock and 156,124 shares of WTI common
stock. In 1995, 136 businesses were acquired for $302.0 million in cash and
debt (including debt assumed) and 2,236,354 shares of the Company's common
stock. During 1996, 83 businesses were acquired for $144.2 million in cash and
debt (including debt assumed) and 8,210,568 shares of the Company's common
stock. The Board of Directors has approved a capital expenditure budget of
$900 million (approximately equal to depreciation and amortization) for 1997.
This amount excludes any acquisitions. The Company currently expects to
finance capital expenditures, as well as any acquisition activity, through
cash flow from operations, and believes that it has adequate resources to
finance attractive acquisitions that become available.

Capital Structure

Although the Company placed increasing emphasis on generating owners' cash
during the three-year period, a substantial portion of such cash has been
returned to shareholders through stock

23
<PAGE>

repurchases, including the purchase of the public shares of Rust during 1995.
Debt to equity ratios were also adversely impacted by the subordinated notes
discussed below which were issued to repurchase the public shares of CWM in
1995. The following table shows the Company's leverage:

<TABLE>
<CAPTION>
DECEMBER 31 1994 1995 1996
----------- ---- ---- ----
<S> <C> <C> <C>
Long-term debt as a percent of total capital.............. 45.5% 46.3% 50.1%
Short-term and long-term debt as a percent of short-term
debt and total capital................................... 49.2% 50.6% 52.1%
</TABLE>

The above ratios include minority interest in subsidiaries and put options
as part of total capital, and exclude project debt of WTI. A significant
portion of WTI's debt is project debt, the interest and principal of which is
expected to be paid by cash generated from operations of specific projects.

In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of CWM that it did not already own, in return for
convertible subordinated debt. In July 1995, the Company acquired the
approximately 3.1 million Rust shares held by the public for $16.35 per share
in cash.

The Boards of Directors of the Company and WTI have authorized their
respective companies to repurchase shares of their own common stock (up to 50
million shares in the case of the Company and 30 million shares in the case of
WTI) in the open market, in privately negotiated transactions, or through
issuer tender offers. These programs extend into 1998. WTI repurchased 3.3
million, 7.2 million and 19.1 million of its shares in 1994, 1995 and 1996,
respectively. The Company repurchased 14.4 million shares in 1996.

During 1994, 1995 and 1996, in conjunction with its authorized repurchase
program, the Company sold put options on 42.3 million shares of its common
stock. The put options give the holders the right, at maturity, to require the
Company to repurchase its shares at specified prices. Proceeds from the sale
of put options are credited to additional paid-in capital. If an option is
exercised, the Company may elect to pay the holder in cash the difference
between the strike price and the market price of the underlying shares, in
lieu of repurchasing the stock.

Options on 31.6 million shares expired unexercised, as the market price of
the Company's stock exceeded the strike price at maturity. Options on 4.7
million shares were settled for cash in the amount of $12.0 million, which was
charged to paid-in capital. The Company repurchased 3.1 million shares for
$107.5 million, and 2.9 million options expire in February 1997, at strike
prices ranging from $32.04 to $34.13 per share. The Company may sell
additional put options in the future.

In 1994, the Company formed an Employee Stock Benefit Trust and sold 12.6
million shares of treasury stock to the Trust in return for a 30-year, 7.33%
note with interest payable quarterly and principal due at maturity. The
Company has agreed to contribute to the Trust each quarter funds sufficient,
when added to dividends on the shares held by the Trust, to pay interest on
the note as well as principal outstanding at maturity. At the direction of an
administrative committee composed of Company officers, the Trust will use the
shares or proceeds from the sale of the shares to pay employee benefits, and
to the extent of such payments by the Trust, the Company will forgive
principal and interest on the note.

Risks and Uncertainties

24
<PAGE>

Management International believes that all appropriate tax returns and
disclosures were filed at the time of the transaction and intends to
vigorously contest the assessment.

A Company subsidiary has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). Although a lower
court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded
the case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the subsidiary to apply to the DEP for permission to
remove all waste above the height allowed by the zoning ordinance, and the
Connecticut Supreme Court has upheld that ruling. The Company believes that
the removal of such waste is an inappropriate remedy and is seeking an
alternative resolution to the issue, but is unable to predict the outcome.
Depending upon the nature of any plan eventually approved by applicable
regulatory authorities for removing the waste, the actual volume of waste to
be moved, and other currently unforeseeable factors, the subsidiary could
incur costs which would have a material adverse impact on the Company's
financial condition and results of operations in one or more future periods.

In May 1994, the U.S. Supreme Court ruled that state and local governments
may not constitutionally restrict the free movement of trash in interstate
commerce through the use of flow control laws. Such laws typically involve a
municipality specifying the disposal site for all solid waste generated within
its borders. Since the ruling, several decisions of state or federal courts
have invalidated regulatory flow control schemes in a number of jurisdictions.
Other judicial decisions have upheld non-regulatory means by which
municipalities may effectively control the flow of municipal solid waste.

WTI's Gloucester County, New Jersey, facility relies on a disposal franchise
for substantially all of its supply of municipal solid waste. In July 1996, a
Federal District Court permanently enjoined the State of New Jersey from
enforcing its solid waste regulatory flow control system, which was held to be
unconstitutional, but stayed the injunction for as long as its ruling is on
appeal plus an additional period of two years to enable the State to devise an
alternative nondiscriminatory approach. The State has indicated that it will
continue to enforce flow control during the two-year transition period and has
filed an appeal of the Federal District Court's ruling.

The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse affect on any of the Company's trash-to-energy
operations. Federal and state legislation has been proposed, but not yet
enacted, to effectively grandfather existing flow control mandates. If such
legislation is not adopted, the Company believes that affected municipalities
will endeavor to implement alternative lawful means to continue controlling
the flow of waste. However, given the uncertainty surrounding the matter, it
is not possible to predict what impact, if any, it may have in the future on
the Company's disposal facilities, particularly WTI's trash-to-energy
facilities.

As the states and the U.S. Congress have accelerated their consideration of
ways in which economic efficiencies can be gained by deregulating the electric
generation industry, some have argued that over-market power sales agreements
entered into pursuant to the Public Utilities Regulatory Policies Act of 1978
("PURPA") should be voidable as "stranded assets." WTI's 25 power production
facilities are qualifying facilities under PURPA and depend on the
enforceability of their power sales agreements for their economic viability.
Recent state and federal agency and court decisions have unanimously upheld
the inviolate nature of these contracts. While WTI believes that federal law
offers strong protections to its PURPA contracts, there is a risk that future
court decisions and/or legislative initiatives in this area will have a
material adverse effect on its business.

25
<PAGE>

Waste Management International operates facilities in Hong Kong which are
owned by the Hong Kong government. On July 1, 1997, control of the Hong Kong
government transferred to the People's Republic of China. Waste Management
International is unable to predict what impact, if any, this change will have
on its operations in Hong Kong. At December 31, 1996, Waste Management
International had identifiable assets of $245.2 million related to its Hong
Kong operations, which generated 1996 pretax income of approximately $15.3
million.

From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including
purported class actions, on the basis of a Company subsidiary's having owned,
operated or transported waste to a disposal facility which is alleged to have
contaminated the environment, or, in certain cases, conducted environmental
remediation activities at such sites. Some of these lawsuits may seek to have
the Company or its subsidiaries pay the cost of groundwater monitoring and
health care examinations of allegedly affected persons for a substantial
period of time, even where no actual damage is proven. While the Company
believes that it has meritorious defenses to these lawsuits, their ultimate
resolution is often substantially uncertain due to the difficulty of
determining the cause, extent and impact of alleged contamination (which may
have occurred over a long period of time), the potential for successive groups
of complainants to emerge, the diversity of the individual plaintiffs'
circumstances, and the potential contribution or indemnification obligations
of co-defendants or other third parties, among other things. Accordingly, it
is possible that such matters could have a material adverse impact on the
Company's earnings for one or more fiscal quarters or years.

In the ordinary course of conducting its business, the Company becomes
involved in lawsuits, administrative proceedings and governmental
investigations, including antitrust and environmental matters and commercial
disputes. Some of these proceedings may result in fines, penalties or
judgments being assessed against the Company which, from time to time, may
have an impact on earnings for a particular quarter or year. The Company
believes it has adequately provided for such matters in its financial
statements and does not believe that their outcome, individually or in the
aggregate, will have a material adverse impact on its business or financial
condition.

Outlook

The Company believes that its current strategy and the actions it has taken
over the past two years position it for long-term growth and improved
profitability in a rapidly changing waste services market. However, a number
of challenges remain. The current low level of recyclable commodity prices
negatively impacts the solid waste business both domestically and
internationally. Continued moderate economic growth is expected to result in
relatively low levels of solid waste volume and pricing growth. WTI has no new
trash-to-energy plants expected to come on stream in the near future and two
of its facilities will be negatively impacted by the expiration of existing
contracts beginning in 1998. The North American hazardous waste industry
remains depressed. The Company is undergoing a major re-engineering of its
financial and administrative processes, which will require significant cost
and effort over the next two to three years. Divestiture of discontinued
businesses and monetization of other assets must be completed.

The Company is responding to these challenges with increased management
focus on its core waste management services business, improved productivity
through the use of technology, and greater emphasis on generating owners' cash
and controlling capital expenditures. Management also has adopted Economic
Value Added ("EVA(R)") as its primary performance measurement to guide its
operations management to improve returns on invested capital, and has made
EVA(R) a key part of incentive compensation. However, in light of the risk
factors highlighted above, the Company anticipates flat revenue and earnings
per share from continuing operations of approximately $1.75 in 1997 as it
concentrates on future returns. These projections have subsequently been
reduced. See "Summary--Recent Developments." For 1998, earnings per share from
continuing operations are expected to grow to approximately $2.05.

26
<PAGE>

The following is a summary of Management's Discussion and Analysis of
Results of Operations and Financial Condition for the three months
ended March 31, 1997:

RESULTS OF OPERATIONS

Summary

For the three months ended March 31, 1997, the Company and its subsidiaries
had net income from continuing operations of $178.4 million or $.37 per share
compared with $180.2 million or $.37 per share in the same period in 1996.
During the corresponding quarter in 1996, discontinued businesses contributed
$5.0 million of net income after tax and minority interest, resulting in
consolidated net income of $185.2 million or $.38 per share for that quarter.
Discontinued operations had no impact on net income in the first quarter of
1997. Revenue was $2.20 billion in the first quarter of 1997 compared with
$2.14 billion (restated to eliminate discontinued operations) in the first
quarter of 1996.

In February 1997, the Company laid out a comprehensive set of strategic
initiatives designed to enhance shareholder value. The centerpiece of that
strategy is a focus solely on waste management services in domestic and
selected international markets where the Company holds or can develop a strong
competitive position.

As part of these initiatives, the Company articulated a financial strategy
focused on generating cash and using that cash for the benefit of
stockholders. The increased cash flow is to come from divestiture of non-core
or non-integrated assets, reduction of capital expenditures, control of costs,
and improved return on the asset base. During the first quarter of 1997, the
Company monetized $330.0 million of non-core and non-integrated assets,
including the investment in Wessex, and capital expenditures were reduced to
$151.3 million from $280.6 million in the same quarter of 1996. In early
April, the Company completed the sale of its approximately 20% ownership
interest in ServiceMaster, and WTI sold its water and wastewater facility
operations and privatization business to United States Filter Corporation
("U.S. Filter") for 2.3 million shares of U.S. Filter stock. Other
divestitures are in process.

During the first quarter of 1997, the Company announced a "Dutch auction"
tender offer through which it offered to repurchase up to 30 million shares of
its common stock. Subsequent to March 31, 1997, the Company repurchased 30
million shares at a price of $30 per share.

The discussion which follows relates to the Company's continuing operations.

27
<PAGE>

Revenue

Consolidated revenue for the first quarter of 1997 compared with the same
period in 1996 is shown in the table which follows:

<TABLE>
<CAPTION>
PERCENTAGE
INCREASE/
1997 1996 (DECREASE)
-------- -------- ----------
<S> <C> <C> <C>
North America--
WMNA--
Residential.................................. $ 313.0 $ 312.4 0.2 %
Commercial................................... 405.6 405.1 0.1
Rolloff & industrial......................... 310.0 315.8 (1.8)
Disposal, transfer & other................... 346.5 331.5 4.5
-------- --------
Total WMNA................................. $1,375.1 $1,364.8 0.8
CWM............................................ 109.3 125.2 (12.7)
Rust........................................... 71.9 65.2 10.3
WTI............................................ 248.2 219.5 13.1
Waste Management International................... 457.2 453.7 0.8
Eliminations..................................... (63.4) (83.9)
-------- --------
Total...................................... $2,198.3 $2,144.5 2.5%
-------- --------
</TABLE>

As the Company previously announced, it is not anticipating significant
revenue growth in 1997 as divestitures offset internal growth. In total,
revenue grew 2.5% for the first quarter of 1997 compared with the same period
in 1996. WMNA's revenue growth of 0.8% reflects a net decline of 1% from
divestitures in excess of acquisitions, offset by slight increases in price
and volume. WMNA continues to see a very difficult pricing environment and has
experienced an increased lost customer rate due to price increases in the
second and third quarters of 1996.

WTI revenue in the first quarter of 1997 included $15.9 million of
construction revenue related to the retrofit of its Pinellas County, Florida
trash-to-energy facility and construction of a biosolids compost facility for
Burlington County, New Jersey. It had no similar construction revenue in the
first quarter of 1996. The remaining $12.8 million of WTI's revenue growth was
derived approximately equally from new industrial cogeneration plants (so-
called "inside-the-fence" facilities) that it acquired in 1996 and existing
businesses. WTI is attempting to leverage its energy plant operating
capabilities and project financing expertise by owning and/or operating
inside-the-fence power plants for industrial customers.

Waste Management International had aggregate revenue growth of 4.3% of which
1.4% was due to price, 2.5% was due to volume and 0.4% was due to
acquisitions; however, this growth was largely offset by translation losses
resulting from the strength of the pound against other world currencies.

Operating Expenses

Operating expenses increased slightly as a percentage of revenue to 70.6% in
the first quarter of 1997 compared with 69.7% in the first quarter of 1996.
The lower 1997 margin was due, among other things, to the relatively low
revenue growth in North American solid waste, including weak commodity prices,
the WTI construction revenue, which has virtually no margin, and higher levels
of maintenance at certain trash-to-energy facilities.

28
<PAGE>

Selling and Administrative Expenses

Selling and administrative expenses declined in the first quarter of 1997 in
both actual dollars and as a percentage of revenue compared with the same
period in 1996. The improvement reflects the ongoing focus on overhead cost
control throughout the Company.

Interest, Net

The following table sets forth the components of consolidated interest, net,
for the three months ended March 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Interest expense.......................................... $113.3 $111.0
Interest income........................................... (12.1) (6.2)
Capitalized interest...................................... (14.9) (17.2)
------ ------
Interest expense, net..................................... $ 86.3 $ 87.6
====== ======
</TABLE>

Net interest expense declined slightly. Debt balances were reduced and
investments increased with the cash flow from operations and asset
monetization. This benefit was partially offset by slightly higher interest
rates. However, the Company required substantial cash to complete the Dutch
Auction tender offer, and, thus, net interest expense may increase over the
remainder of 1997.

Sundry Income, Net

Sundry income previously consisted primarily of earnings from the
investments in Wessex and ServiceMaster. The decline in sundry income in 1997
reflects the loss of this income, partially offset by a gain recognized when
the ServiceMaster shares were reclassified as trading securities and marked-
to-market.

Discontinued Operations

In line with the Company's strategy to focus on waste management services,
other industry segments, including the engineering, construction and
consulting businesses and industrial scaffolding business of Rust and the
water businesses of WTI, have been classified as discontinued operations and
have been or are in the process of being sold. The Company contemplates
completing the sale of the remaining businesses by the end of 1997. Results of
operations for the three months ended March 31, 1997, for those businesses not
yet sold were not material and were included in the reserve for loss on
dispositions provided previously. Revenues of discontinued operations prior to
sale were $134.4 million for the three months ended March 31, 1997, and $415.5
million for the comparable period in 1996.

Restructuring

In the fourth quarter of 1996, the Company recorded a charge for
reengineering and streamlining its finance and administrative functions.
Approximately $20.0 million of the charge related to cash payments for
employee severance. As of March 31, 1997, approximately $5.0 million of this
amount had been spent. The balance is expected to be paid by the end of 1997.
In addition, the Company expects that the reengineering will result in costs
of $.08 to $.10 per share which will be charged to income over the next nine
to fifteen months. Such amounts were not significant in the first quarter.

29
<PAGE>

Accounting Principles

In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings Per Share." This statement supersedes Accounting Principles
Board Opinion No. 15. Pursuant to FAS No. 128, Primary EPS is replaced by
Basic EPS, which is computed by dividing income available to common
stockholders by the weighted average number of shares of common stock
outstanding for the period. In addition, Fully Diluted EPS is replaced with
Diluted EPS, which gives effect to all shares of common stock that would have
been outstanding if all dilutive potential common shares (relating to such
things as the exercise of stock options and convertible debt) had been issued.

FAS No. 128 is effective for interim and annual periods ending after
December 15, 1997. Earlier application is not permitted, but when the opinion
becomes effective all prior periods presented must be restated. EPS computed
in accordance with FAS No. 128 for the three months ended March 31, 1996 and
1997, would have been as follows:

<TABLE>
<CAPTION>
1997 1996
----- -----
<S> <C> <C>
Continuing Operations--
Basic....................................................... $0.37 $0.37
Diluted..................................................... 0.36 0.36
Discontinued Operations--
Basic....................................................... $ -- $0.01
Diluted..................................................... -- 0.01
</TABLE>

FINANCIAL CONDITION:

Liquidity and Capital Resources

The Company had a working capital deficit of $142.5 million at March 31,
1997, compared with working capital of $54.5 million at December 31, 1996. For
the first quarter of 1997, owners' cash flow was $422.8 million, including
$330.0 million of proceeds from the asset monetization program, compared with
a negative $90.9 million in the first quarter of 1996.

Acquisitions and Capital Expenditures

Capital expenditures, excluding property and equipment of purchased
businesses, were $151.3 million for the three months ended March 31, 1997, and
$280.6 million for the comparable quarter in 1996. In addition, the Company
and its principal subsidiaries spent $2.3 million on acquisitions in 1997
compared with $67.1 million in cash and debt (including debt assumed) and 7.1
million shares of Company common stock during the first quarter of 1996.

Capital Structure

During the first quarter of 1997, total debt declined by $497.6 million from
the first quarter of 1996 and by $321.7 million from December 31, 1996. Cash
and marketable securities increased by $480.1 million in the first quarter of
1997 to $1.14 billion, in preparation for the completion of the Dutch Auction
tender offer.

The Boards of Directors of the Company and WTI have authorized their
respective companies to repurchase shares of their own common stock (up to 50
million shares in the case of the Company and 30 million shares in the case
WTI) in the open market, in privately negotiated transactions, or through
issuer tender offers. These programs extend into 1998. The Company did not
repurchase any shares during the first quarter of 1997, but on April 1
commenced a "Dutch Auction" tender offer through which it subsequently
repurchased 30 million of its shares at $30 per share.

30
<PAGE>

WTI announced in March 1997 the indefinite deferment of its previously
planned Dutch Auction tender offer pending a further review of strategic
options in its core business. During the first quarter of 1997, WTI
repurchased 762,900 shares of its stock in the open market.

As of December 31, 1996, the Company had outstanding 2.9 million put options
on its common stock which expired in February 1997. The Company paid the
holders of 1.9 million options cash of $1.6 million, representing the
difference between the strike price and the market price of the underlying
shares at expiration, in lieu of repurchasing the stock. The remaining options
expired unexercised as the market price of the Company's stock exceeded the
strike price at maturity. No put options were outstanding at March 31, 1997,
although the Company may sell additional such options in the future.

FORWARD-LOOKING INFORMATION

Except for historical data, the information contained herein under the
captions "Summary--Recent Developments" and "Management's Discussion and
Analysis of Results of Operations and Financial Condition" constitute forward-
looking statements. Forward-looking statements are inherently uncertain and
subject to risks. Such statements should be viewed with caution. Actual
results or experience could differ materially from the forward-looking
statements as a result of many factors, including the ability of the Company
to meet anticipated price increase and new business sales goals, changes in
the price of recyclable commodities, adverse weather conditions, slowing of
the overall economy, increased interest costs arising from a change in the
Company's leverage, failure of the Company's restructuring and reengineering
plans to produce the anticipated cost savings, the inability to complete the
divestiture of discontinued businesses or the monetization of other assets at
appropriate prices and terms, and the cost and timing of stock repurchase
programs. The Company makes no commitment to disclose any revisions to
forward-looking statements, or any facts, events or circumstances after the
date hereof that may bear upon forward-looking statements.

BUSINESS OF THE COMPANY

GENERAL

The Company provides waste management services to commercial, industrial,
residential and municipal and other governmental customers.

The Company has five primary operating subsidiaries. WMNA provides
integrated solid waste management services in North America and manages the
on-site industrial cleaning services business of Rust. CWM provides chemical
waste treatment, storage, disposal and related services and also furnishes
low-level radioactive waste management and disposal services in North America.
WTI is engaged in the ownership and operation of trash-to-energy, waste-fuel
powered independent power, and biosolids pelletizer facilities as well as
providing biosolids land application services. Waste Management International
provides comprehensive waste management and related services outside North
America, with operations in eight countries in Europe, six countries in the
Asia-Pacific region, and Argentina, Australia, Brazil, Israel and New Zealand.
The Company considers its operations to be part of a single industry segment--
waste management services--and reports accordingly.

Unless the context indicates to the contrary, all statistical and financial
information under the captions "Summary," "The Company," "Business of the
Company" and "Property and Equipment" of this report is given as of December
31, 1996. Also, unless the context indicates to the contrary, statistical and
financial data appearing under the caption "North American Solid and Hazardous
Waste Management Services" relate only to the Company's WMNA, CWM, AETS and
Chem-Nuclear groups of subsidiaries and do not include any data relating to
Rust, Rust's on-site industrial cleaning services business managed by WMNA,
WTI or Waste Management International. See "International Waste Management and
Related Services" and "Trash-to-Energy and Related Services."

31
<PAGE>

NORTH AMERICAN SOLID AND HAZARDOUS WASTE MANAGEMENT SERVICES

The Company's North American solid waste management and recycling services
include residential, commercial and industrial collection, transfer and
disposal services and related services provided by WMNA. The Company's North
American hazardous waste management services include chemical waste treatment,
storage, disposal and related services provided by WMNA and CWM, on-site
integrated hazardous waste management services provided by AETS and low-level
radioactive waste disposal services provided by Chem-Nuclear. For each of the
three years in the period ended December 31, 1996, the North American solid
and hazardous waste revenue amounted to 67.3%, 68.6% and 69.5% respectively,
of the Company's total revenues. For each of the three years in the period
ended December 31, 1996, the following table shows the percentages of the
Company's total North American solid and hazardous waste services revenue
(excluding on-site industrial cleaning services revenue) arising from the
Company's principal solid and hazardous waste services:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Solid Waste and Recycling
Collection Services:
Residential............. 20.0% 19.6% 20.0%
Commercial.............. 26.7 26.4 26.2
Roll-off and Industrial. 21.8 21.5 21.5
Solid Waste Disposal,
Transfer and Related
Services................. 21.2 23.4 24.1
Hazardous Waste Services.. 10.3 9.1 8.2
------- ------- -------
100.0% 100.0% 100.0%
======= ======= =======
</TABLE>

SOLID WASTE MANAGEMENT, RECYCLING AND RELATED SERVICES

At December 31, 1996, WMNA conducted solid waste management, recycling and
related services operations in 47 states, the District of Columbia, four
Canadian provinces and Mexico. Since January 1, 1997, the Company disposed of
most of its Canadian solid waste assets. During 1994, 1995 and 1996,
operations in California, Florida and Pennsylvania together accounted for
approximately 30%, 28% and 26%, respectively, of North America solid waste
revenue. No customer accounted for as much as 1% of such revenue in 1994, 1995
or 1996.

Collection

WMNA provides solid waste collection services to approximately 1.1 million
commercial and industrial customers. Collection services are also provided to
approximately 11.8 million homes and apartment units. These services include
collection of recyclable commodities. See "Recycling and Energy Recovery--
Recycling" for a description of recycling services.

Commercial and Industrial

Many of WMNA's commercial and industrial customers utilize containers to
store solid waste, including "roll-offs," which are large containers dropped
off at construction or other sites for the deposit of waste and then hoisted
when full onto a truck for transport. These containers, ranging from 1 to 45
cubic yards in size, are usually provided to the customer as part of WMNA's
services. Stationary compactors, which compact the volume of the stored waste
prior to collection, are frequently installed on the premises of large volume
customers and are usually provided to these customers in conjunction with
WMNA's collection services. Containerization enables WMNA to service most of
its commercial and industrial customers with collection vehicles operated by a
single employee. Compaction serves to decrease the frequency of collection.

32
<PAGE>

Commercial and industrial collection services (which include containerized
service to apartment buildings) are generally performed under one- to three-
year service agreements. Fees are determined by such considerations as market
factors, collection frequency, type of equipment furnished, length of service
agreement, type and volume or weight of the waste collected, distance to the
disposal facility and cost of disposal.

Residential

Most of WMNA's residential solid waste collection services are performed
under contracts with, or franchises granted by, municipalities giving WMNA
exclusive rights to service all or a portion of the homes in their respective
jurisdictions. Such contracts or franchises usually range in duration from one
to five years. The fees received by WMNA are based primarily on market
factors, frequency and type of service, the distance to processing or disposal
facilities and cost of processing or disposal. Residential collection fees are
either paid by the municipalities out of tax revenues or service charges or
are paid directly by the residents receiving the service.

Transfer

WMNA operates 159 solid waste transfer stations. A transfer station is a
facility where solid waste is received from collection vehicles and then
transferred to, and in some cases compacted in, large, specially constructed
trailers for transportation to disposal or resource recovery facilities. This
procedure reduces costs by improving utilization of collection personnel and
equipment and improving the efficiency of transporting waste to final disposal
facilities.

The services of these facilities are provided to municipalities or counties
and in most instances are also used by WMNA and by other collection companies.
Fees are generally based upon such considerations as competition, the type and
volume or weight of the waste transferred, the extent of processing of
recyclable materials, the transport distance involved and the cost of
disposal.

Recycling and Energy Recovery

Recycling

WMNA provides recycling services in the United States through its Recycle
America(R) and other programs. Recycling involves the removal of reusable
materials from the waste stream for processing and sale or other disposition
for use in various applications. Participating commercial and industrial
operations use containers to separate recyclable paper, glass, plastic and
metal wastes for collection, processing and sale by WMNA. Fees are determined
by such considerations as competition, frequency of collection, type and
volume or weight of the recyclable material, degree of processing required,
distance the recyclable material must be transported and value of the
recyclable material.

As part of its residential solid waste collection services, WMNA engages in
curbside collection of recyclable materials from residences in the United
States, and also through its Recycle America(R) and other programs. Curbside
recycling services generally involve the collection of recyclable paper,
glass, plastic and metal waste materials, which may be separated by residents
into different waste containers or commingled with other recyclable materials.
The recyclable materials are then typically deposited at a local materials
recovery facility where they are sorted and processed for resale.

The prices received by the Company for recyclable materials fluctuate
substantially from quarter to quarter and year to year depending upon domestic
and foreign demand for such materials, the
quality of such materials, prices for new materials and other factors. In some
instances, the Company

33
<PAGE>

enters into agreements with customers or the local governments of
municipalities in which it provides recycling services whereby the customers
or the governments share in the gains and losses resulting from fluctuation in
prices of recyclable commodities. These agreements mitigate both the Company's
gains and losses from such fluctuations.

In 1996, WMNA provided curbside recycling services to approximately 7.9
million households in the United States and Canada. WMNA has approximately
197,000 commercial and industrial recycling services customers.

WMNA operates 140 materials recovery facilities for the receipt and
processing of recyclable materials. Such processing consists of separating
recyclable materials according to type and baling or otherwise preparing the
separated materials for sale.

WMNA also participates in joint ventures with Stone Container Corporation
and American National Can Corporation to engage, respectively, in the
businesses of marketing paper fibre and aluminum, steel, and glass containers
for recycling. In each case WMNA sells to the joint venture, or has the joint
venture market, the paper fibre or containers collected by WMNA to Stone
Container, American National Can or other parties who will process them for
reuse. The joint venture with American National Can also owns and operates
four glass processing facilities. During 1996, the Stone Container joint
venture marketed approximately 4.9 million tons of paper fiber and the
American National Can joint venture processed approximately 400,000 tons of
other recyclable materials. WMNA also provides tire and demolition and
construction debris recycling services.

Energy Recovery

At 37 WMNA-owned or -operated sanitary landfill facilities, WMNA is engaged
in methane gas recovery operations. These operations involve the installation
of a gas collection system into a sanitary landfill facility. Through the gas
collection system, gas generated by decomposing solid waste is collected and
transported to a gas-processing facility at the landfill site. Through
physical processes methane gas is separated from contaminants. The processed
methane gas generally is then either sold directly to industrial users or to
an affiliate of the Company which uses it as a fuel to power electricity
generators. Electricity generated by these facilities is sold, usually to
public utilities under long-term sales contracts, often under terms or
conditions which are subject to approval by regulatory authorities.

The Company also engages in other resource recovery activities through WTI's
trash-to-energy and related operations and Waste Management International's
operations. See " Trash-to-Energy and Related Services" and "International
Waste Management and Related Services."

Disposal

WMNA operates 133 solid waste sanitary landfill facilities. Of this number,
105 are owned by WMNA and the remainder are leased from, or operated under
contract with, others. Additional facilities are in various stages of
development. WMNA also provides yard-waste composting services, bioremediation
of petroleum-contaminated soils and solidification of difficult-to-treat
liquid wastes at a number of its disposal facilities. All of the sanitary
landfill facilities are subject to governmental regulation. See "Regulation--
Waste Management Services--Solid Waste."

A sanitary landfill site must have geological and hydrological properties
and design features which limit the possibility of water pollution, directly
or by leaching. Sanitary landfill operations, which include carefully planned
excavation, continuous spreading and compacting of solid waste and covering
of the waste, are designed to maintain sanitary conditions, insure optimum
utilization of the airspace and prepare the site for ultimate use for other
purposes.

34
<PAGE>

Suitable sanitary landfill facilities and permission to expand existing
facilities may be difficult to obtain in some areas because of land scarcity,
local resident opposition and governmental regulation. As its existing
facilities become filled in such areas, the solid waste disposal operations of
WMNA are and will continue to be materially dependent on its ability to
purchase, lease or obtain operating rights for additional sites or expansion
of existing sites and to obtain the necessary permits from regulatory
authorities to construct and operate them. In addition, there can be no
assurance that additional sites can be obtained or that existing facilities
can continue to be expanded or operated. However, management believes that the
facilities currently available to WMNA are sufficient to meet the needs of its
operations in most areas for the foreseeable future.

To develop a new facility, WMNA must expend significant time and capital
resources without any certainty that the necessary permits will ultimately be
issued for such facility or that the Company will be able to achieve and
maintain the desired disposal volume at such facility. If the inability to
obtain and retain necessary permits, the failure of a facility to achieve the
desired disposal volume or other factors cause WMNA to terminate development
efforts for a facility, the capitalized development expenses of the facility
may need to be written off.

In varying degrees, WMNA utilizes its own sanitary landfill facilities to
accommodate its disposal requirements for collection and transfer operations.
In 1994, 1995 and 1996 approximately 55%, 57% and 60%, respectively, of the
solid waste collected by WMNA was disposed of in sanitary landfill facilities
operated by it. Usually these facilities are also used by other companies and
government agencies on a noncontract basis for fees determined by such
considerations as competition and the type and volume or weight of the waste.

Related Services

WMNA also provides or manages several types of services which are compatible
with its solid waste collection operations. Included in these operations are
on-site industrial cleaning services and portable sanitation services.

WMNA manages the business of Rust Industrial Services Inc., a subsidiary of
Rust ("RIS"), providing on-site industrial services. RIS performs a variety of
types of industrial services --water blasting, tank cleaning, explosives
blasting, chemical cleaning, industrial vacuuming, catalyst handling and
separation technologies--primarily for clients in the petrochemical, chemical,
and pulp and paper industries, utilities and, to a lesser extent, the public
sector. RIS also assists clients in the nuclear and utility industries in
solving electrical, mechanical, engineering and related technical services
problems.

Prior to selling the businesses in 1996 and early 1997, RIS also provided
scaffolding rental and erection services primarily to the chemical,
petrochemical and utilities industries and a variety of other on-site
services.

Rust also provides hazardous, radioactive and mixed waste program and
facilities management services, primarily to the United States Department of
Energy and other federal government agencies. Such services include waste
treatment, storage, characterization and disposal and privatization services.

WMNA also provides portable sanitation services to municipalities and
commercial customers. The portable sanitation services, which are marketed
under the Port-O-Let(R) trade name, are also used at numerous special events
and public gatherings.

HAZARDOUS WASTE MANAGEMENT AND RELATED SERVICES

Chemical Waste Management Services

The Company operates chemical waste treatment, storage and disposal
facilities in 16 states and also owns a majority interest in a subsidiary
which operates a resource recovery and storage facility

35
<PAGE>

and a disposal facility in Mexico. The chemical wastes handled by the Company
include industrial by-products and residues that have been identified as
"hazardous" pursuant to the Resource Conservation and Recovery Act of 1976, as
amended ("RCRA"), as well as other materials contaminated with a wide variety
of chemical substances.

Chemical waste may be collected from customers and transported by WMNA or
CWM or contractors retained by them or delivered by customers to their
facilities. Chemical waste is transported primarily in specially constructed
tankers and semi-trailers, including stainless steel and rubber or epoxy-lined
tankers and vacuum trucks, or in containers or drums on trailers designed to
comply with applicable regulations and specifications of the U.S. Department
of Transportation ("DOT") relating to the transportation of hazardous
materials. WMNA and CWM also operate several facilities at which waste
collected from or delivered by customers may be analyzed and consolidated
prior to further shipment.

All of the Company's seven United States secure land disposal facilities
have been issued permits under RCRA. See "Regulation--RCRA." In general, the
Company's secure land disposal facilities have received the necessary permits
and approvals to accept chemical wastes, although some of such sites may
accept only certain chemical wastes. Only chemical wastes in a stable, solid
form which meet applicable regulatory requirements may be buried in the
Company's secure disposal cells. These land disposal facilities are sited,
constructed and operated in a manner designed to provide long-term containment
of such waste. Chemical wastes may be treated prior to disposal. Physical
treatment methods include distillation, evaporation and separation, all of
which basically result in the separation or removal of solid materials from
liquids. Chemical treatment methods include chemical oxidation and reduction,
chemical precipitation of heavy metals, hydrolysis and neutralization of acid
and alkaline wastes and essentially involve the transformation of wastes into
inert materials through one or more chemical reaction processes. At two of its
locations, the Company isolates treated chemical wastes in liquid form by
injection into deep wells. Deep well technology involves drilling wells in
suitable rock formations far below the base of fresh water and separated from
it by other substantial geological confining layers.

AETS provides on-site integrated hazardous waste management services,
including hazardous waste identification, packaging, removal and recycling
services in North America. These services include on-site hazardous waste data
management, education and training, inventory control and other administrative
services, lab pack services, drum identification services, household hazardous
waste programs, less-than-full load waste pickup and consolidation services,
and related services. AETS provides these services primarily to industrial,
institutional and public sector customers, including laboratories.

In the United States, most chemical wastes generated by industrial processes
are handled "on-site" at the generators' facilities. Since the mid-1970's,
public awareness of the harmful effects of unregulated disposal of chemical
wastes on the environment and health has led to extensive and evolving
federal, state and local regulation of chemical waste management activities.
The major federal statutes regulating the management of chemical wastes
include RCRA, the Toxic Substances Control Act ("TSCA") and the Comprehensive
Environmental Response, Compensation and Liabilities Act of 1980, as amended
("CERCLA" or "Superfund"), all primarily administered by the United States
Environmental Protection Agency ("EPA"). The business is heavily dependent
upon the extent to which regulations promulgated under these or similar state
statutes and their enforcement over time
effectively require wastes to be specially handled or managed and disposed of
in facilities of the type owned and operated by the Company. See "Regulation--
Waste Management Services--Hazardous Waste," "--RCRA" and "--Superfund." The
chemical waste services industry currently has substantial excess capacity
caused by a number of factors, including a decline in environmental
remediation projects generating hazardous waste for off-site treatment and
disposal, continuing efforts

36
<PAGE>

by hazardous waste generators to reduce volume and to manage the wastes on-
site, and the uncertain regulatory environment regarding hazardous waste
management and remediation requirements. These factors have led to reduced
demand and increased pressure on pricing for chemical waste management
services, conditions which the Company expects to continue for the foreseeable
future.

Low-Level and Other Radioactive Waste Services

Radioactive wastes with varying degrees of radioactivity are generated by
nuclear reactors and by medical, industrial, research and governmental users
of radioactive material. Radioactive wastes are generally classified as either
high-level or low-level. High-level radioactive waste, such as spent nuclear
fuel and waste generated during the reprocessing of spent fuel from nuclear
reactors, contains substantial quantities of long-lived radionuclides and is
the ultimate responsibility of the federal government. Low-level radioactive
waste, which decays more quickly than high-level waste, largely consists of
dry compressible wastes (such as contaminated gloves, paper, tools and
clothing), resins and filters which have removed radioactive contaminants from
nuclear reactor cooling water, solidified wastes from power plants which have
become contaminated with radioactive substances and irradiated hardware.

Chem-Nuclear provides comprehensive low-level radioactive waste management
services in the United States consisting of disposal, processing and various
other special services. To a lesser extent, it provides services with respect
to radioactive waste that has become mixed with regulated chemical waste.

Chem-Nuclear's radioactive disposal operations involve low-level radioactive
waste only. Its Barnwell, South Carolina facility is one of three licensed
commercial low-level radioactive waste disposal facilities in the United
States and has been in operation since 1971. A trust has been established and
funded to pay the estimated cost of decommissioning the Barnwell facility. A
second fund, for the extended care of the facility, is funded by a surcharge
on each cubic foot of waste received. Chem-Nuclear may be liable for
additional costs if the extra charges collected to restore and maintain the
facility are insufficient to cover the cost of restoring or maintaining the
site after its closure (which Chem-Nuclear has no reason to expect). Under
state legislation enacted in 1995, the Barnwell, South Carolina facility is
authorized to operate until its current permitted disposal capacity is fully
utilized, unless such authorization is changed by legislation.

Chem-Nuclear also processes low-level radioactive waste at its customers'
plants to enable such waste to be shipped in dry rather than liquid form to
meet the requirements for receipt at disposal facilities and to reduce the
volume of waste that must be transported. Processing operations include
solidification, demineralization, dewatering and filtration. Other services
offered by Chem-Nuclear include providing electro-chemical, abrasive and
chemical removal of radioactive contamination, providing management services
for spent nuclear fuel storage pools and storing and incinerating liquid
radioactive organic wastes.

INTERNATIONAL WASTE MANAGEMENT AND RELATED SERVICES

The Company is a leading provider of waste management and related services
internationally, primarily through Waste Management International, which
conducts essentially all of the waste management operations of the Company
located outside North America. International waste management and related
services comprised approximately 20.2%, 20.6% and 20.8% of the Company's
total revenue in each of the three years ended December 31, 1996. Waste
Management International's business may broadly be characterized into two
areas of activity, collection services and treatment and disposal services.
The following table shows the derivation of Waste Management International's

37
<PAGE>

revenue for the years indicated and includes revenue from construction of
treatment or disposal facilities for third parties under "Treatment and
Disposal Services":

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Collection Services............................... 64% 64% 65%
Treatment and Disposal Services................... 36% 36% 35%
</TABLE>

While the Company has had international operations since the mid-1970's, the
bulk of the Company's international operations and revenues are derived from
the acquisition from 1990 to 1995 of numerous companies and interests in
Europe. However, with its acquisition goals largely completed, Waste
Management International has engaged in only a few additional small
acquisitions since 1995 and has begun to dispose of certain operations which
do not fit its long-term strategy.

In accordance with its objective of maintaining a local identity, Waste
Management International, in certain cases, operates through companies or
joint ventures in which Waste Management International and its affiliates own
less than a 100% interest. For example, Waste Management International is a
party to a joint venture with Wessex to provide waste management and related
services in the United Kingdom.

Waste Management International's revenue mix by country varies from year to
year. Countries in which revenue exceeded 10% of Waste Management
International's consolidated total were: Italy (26%) and Germany (12%) in
1994, Italy (23%), Germany (14%), The Netherlands (11%) and the United Kingdom
(11%) in 1995 and Italy (25%), the United Kingdom (12%), Germany (11%) and The
Netherlands (11%) in 1996.

While Waste Management International has considerable experience in
mobilizing for and managing foreign projects, its operations continue to be
subject generally to such risks as currency fluctuations and exchange
controls, the need to recruit and retain suitable local labor forces and to
control and coordinate operations in different jurisdictions, changes in
foreign laws or governmental policies or attitudes concerning their
enforcement, political changes, local economic conditions and international
tensions. In addition, price adjustment provisions based on certain formulae
or indices may not accurately reflect the actual impact of inflation on the
cost of performance.

Following a strategic assessment of the European market, Waste Management
International has sold its operations in France and Spain and intends to
reduce its investment in Austria through joint ventures or the sale of various
operations within that country. Waste Management International intends to
focus its resources on those markets in which it believes it can attain
significant market share. Waste Management International has also written off
the investment in its hazardous waste disposal facility in Germany because
recent regulatory changes have adversely affected its volumes.

Collection Services

Collection services include collection and transportation of solid,
hazardous and medical wastes and recyclable material from residential,
commercial and industrial customers. The residential solid waste collection
process, as well as the commercial and industrial solid and hazardous waste
collection process, is similar to that utilized by the Company in the United
States. Waste Management International provided collection services as of
December 31, 1996 to governmental and private customers in eight European
countries, Argentina, Australia and New Zealand. Business is obtained through
public bids or tenders, negotiated contracts, and, in the case of commercial
and industrial

38
<PAGE>

customers, direct contracts. Waste Management International operates 318
collection and staging facilities and 76 waste transfer facilities.

Residential solid waste collection is normally performed by Waste Management
International pursuant to municipal contracts. Waste Management International
has approximately 1,420 municipal contracts, serving more than 6.3 million
residential properties. The scope, specifications, services provided and
duration of such contracts vary substantially, with some contracts
encompassing landfill disposal of collected waste, street sweeping and other
related municipal services. The largest number of municipal contracts held by
Waste Management International is in Italy where Waste Management
International services approximately 1.85 million residential properties.
Pricing for municipal contracts is generally based on volume of waste, number
and frequency of collection pick-ups, and disposal arrangements. Longer-term
contracts typically have formulae for periodic price increases or adjustments.
Waste Management International also provides curbside recycling services
similar to those provided by Waste Management in North America.

Street, industrial premises, office and parking lot cleaning services are
also performed by Waste Management International, along with portable
sanitation/toilet services for such occasions as outdoor concerts and special
events.

Waste Management International's commercial and industrial solid and
hazardous waste collection services are generally contracted for by individual
establishments. In addition to solid waste collection customers, Waste
Management International provides services to small quantity waste generators,
as well as larger petrochemical, pharmaceutical and other industrial
customers, including collection of hazardous, chemical or medical wastes or
residues. Waste Management International has approximately 300,000 commercial
and industrial customers. Contract terms and prices vary substantially among
jurisdictions and types of customer. Waste Management International also
provides commercial and industrial recycling services.

Treatment and Disposal Services

Treatment and disposal services include processing of recyclable materials,
operation of both solid and hazardous waste landfills, operation of municipal
and hazardous waste incinerators, operation of a trash-to-energy facility,
operation of water and wastewater treatment facilities, operation of hazardous
waste treatment facilities and construction of treatment or disposal
facilities for third parties. Treatment and disposal services are provided
under contracts which may be obtained through public bid or tender or direct
negotiation, and are also provided directly to other waste service companies.
At December 31, 1996, Waste Management International owned, operated or
maintained 26 waste treatment facilities, 85 recycling and recyclables
processing facilities, eight incinerators and 56 landfills.

Once collected, solid wastes may be processed in a recyclables processing
facility for sale or other disposition for use in various applications.
Unprocessed solid wastes, or the portion of the waste stream remaining after
recovery of recyclable materials, require disposal, which may be accomplished
through incineration (in connection with which the energy value may be
recovered in a trash-to-energy facility) or through disposal in a solid waste
landfill. The relative use of landfills versus incinerators differs from
country to country and will depend on many factors, including the availability
of land, geological and hydrological conditions, the availability and cost of
technology and capital, and the regulatory environment. The main determinants
of the disposal method are the disposal costs at local landfills, as
incineration is generally more expensive, community preferences and regulatory
provisions.

At present, in most countries in which Waste Management International
operates, landfilling is the predominant disposal method employed. Waste
Management International owns or operates solid waste landfills in Argentina,
Australia, Brazil, Denmark, Germany, Hong Kong, Italy, New Zealand,

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Sweden and the United Kingdom. Landfill disposal agreements may be separate
contracts or an integrated portion of collection or treatment contracts.

Demand for solid waste incineration is affected by landfill disposal costs
and government regulations. The incineration process for non-hazardous solid
waste has also been influenced by two significant factors in recent years: (i)
increasingly strict control over air emissions from incinerators; and (ii)
increasing emphasis on trash-to-energy incinerators, which utilize heat
produced by incinerators to generate electricity and other energy. Incineration
generates approximately 30% residue (by weight), which is either landfilled or,
if permitted, recycled for use as a road base or in other construction uses.

Waste Management International's trash-to-energy incinerator in Hamm is a
German-designed plant and the only privately operated trash-to-energy facility
in Germany. It is among the first trash-to-energy facilities to fully comply
with that country's stringent air pollution requirements. The facility serves
the household and commercial solid waste incineration needs of a population of
approximately 600,000 in Hamm and nearby towns. Under its current permits, the
facility is able to produce 18 megawatts per hour of steam-generated
electricity and sold approximately 49,000 megawatt hours to the local power
grid in 1996. In April 1997, Waste Management International announced that it
had signed an option agreement to sell this facility.

In 1992, Waste Management International entered into a contract with the
County of Gutersloh, Germany, to design, construct, own and operate a trash-to-
energy facility. The facility is designed to convert 268,000 metric tons per
year of municipal waste and sewage sludge into energy. During 1995, Waste
Management International's permit application to develop and operate the
Gutersloh facility was denied. Waste Management International believes it is
entitled to the permit and is appealing the denial. During 1996, Waste
Management International and the County discussed the viability of the project,
as well as the County's ability to terminate the operations and lease
agreements for the project site, which Waste Management International opposes
unless there is adequate compensation.

Waste Management International also operates seven small conventional
municipal solid and other waste incineration facilities. Waste Management
International and WTI have also formed a joint venture to develop trash-to-
energy projects outside Germany, Italy and North America. See "Competition"
below.

Waste Management International owns or operates hazardous waste treatment
facilities in Finland, Germany, Hong Kong, Indonesia, Italy, The Netherlands,
Sweden and the United Kingdom and has entered into agreements with respect to
the development of hazardous waste treatment facilities in Argentina and
Thailand.

TRASH-TO-ENERGY AND RELATED SERVICES

WTI, through its subsidiaries, is a leading developer, operator and owner of
trash-to-energy and waste fuel powered independent power facilities in the
United States. These facilities, either owned or operated, give WTI
approximately 920 megawatts per hour of electric generating capacity. WTI's
trash-to-energy projects utilize proven boiler and grate technology and are
capable of processing up to 23,750 tons of trash per day. The heat from this
combustion process is converted into high-pressure steam, which typically is
used to generate electricity for sale to public utility companies under long-
term contracts.

WTI's trash-to-energy development activities have historically involved a
number of contractual arrangements with a variety of private and public
entities, including municipalities (which supply trash for combustion),
utilities or other power users (which purchase the energy produced by the
facility), lenders, public debtholders, joint venture partners and equity
investors (which provide financing for the project) and the contractors or
subcontractors responsible for building the facility. In addition, WTI's
activities have often included identifying and acquiring sites for the facility
and for the disposal

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of residual ash produced by the facility and obtaining necessary permits and
licenses from local, state and federal regulatory authorities.

WTI also develops, operates and, in some cases, owns independent power
projects, which either cogenerate electricity and thermal energy or generate
electricity alone for sale to customers, including utilities and private
industry. Cogeneration is a technology which allows the simultaneous
production of two or more useful forms of energy from a single primary fuel
source, thus providing a more efficient use of a fuel's total energy content.
These power systems use waste wood, waste tires, waste coal or natural gas as
fuel, and employ state-of-the-art technology, such as fluidized-bed
combustion, to ensure the efficient burning of fuel with reduced emission
levels. WTI acquired two industrial cogeneration plants (so-called "inside-
the-fence" facilities) during the year as part of its strategy to leverage its
energy plant operating capabilities and project financing expertise by owning
or operating power plants for industrial customers. The first facility,
located in Martell, California, was acquired in May 1996 and the second plant,
located in Anderson, California near one of the Company's other facilities,
was purchased in November 1996.

In addition, WTI develops, operates and owns projects that compost organic
wastes and treat and manage biosolids. WTI provides a range of biosolids
management services, including land application, drying, pelletizing, alkaline
stabilization and composting, to more than 400 communities, typically pursuant
to multi-year contracts under which WTI is paid by the generator to make
beneficial use of the biosolids. Land application involves the application of
non-hazardous biosolids as a natural fertilizer on farmland pursuant to
rigorous site-specific permits issued by applicable state authorities.
Biosolids are also used in land reclamation projects such as strip mines.
Regulations issued by the EPA in December 1992 under the Clean Water Act
encourage the beneficial use of municipal sewage sludge by recognizing the
resource value of biosolids as a fertilizer and soil conditioner, and
establish requirements for land application designed to protect human health
and the environment.

WTI also develops and operates facilities at which biosolids are dried and
pelletized and has three facilities currently in operation, with one other
facility undergoing start-up activity. WTI has approximately 635 dry-tons-per-
day of biosolids drying capacity either in operation or under construction.
Biosolids which have been dried are generally used as fertilizer by farmers,
commercial landscapers and nurseries and as a bulking agent by fertilizer
manufacturers.

WTI subsidiaries also design and install advanced air pollution control
equipment and design, construct and maintain tall concrete chimneys and
storage silos. WTI's expertise in air pollution control technologies and
chimney design and construction is used in the design and construction of
WTI's trash-to-energy facilities, which WTI believes strengthens its
competitive position.

REGULATION

While, in general, the Company's waste management services business has
benefited from increased governmental regulation, the industry in which the
Company operates has become subject to extensive and evolving regulation by
federal, state, local and foreign authorities. In particular, the regulatory
process requires firms in the Company's industry to obtain and retain numerous
governmental permits to conduct various aspects of their operations, any of
which may be subject to revocation, modification or denial. As a result of
governmental policies and attitudes relating to the industry, which are
subject to reassessment and change, the Company believes that its ability to
obtain applicable permits from governmental authorities on a timely basis, and
to retain such permits, could be impaired. The Company is not in a position at
the present time to assess the extent of the impact of such potential changes
in governmental policies and attitudes on the permitting processes, but it
could be significant. In particular, adverse decisions by governmental
authorities on permit applications submitted by the Company may result in
abandonment of projects, premature closure of
facilities or restriction of operations, which could result in a loss of
earnings from a facility, a write-off of capitalized costs or both.

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Federal, state, local and foreign governments have also from time to time
proposed or adopted other types of laws, regulations or initiatives with
respect to the waste management services industry. Included among them are
laws, regulations and initiatives to ban or restrict the international,
interstate or intrastate shipment of wastes, impose higher taxes on out-of-
state waste shipments than in-state shipments, reclassify certain categories
of hazardous wastes as non-hazardous and regulate disposal facilities as
public utilities. Certain state and local governments have promulgated "flow
control" regulations, which attempt to require that all waste generated within
the state or local jurisdiction must go to certain disposal sites. The United
States Congress has from time to time considered legislation that would enable
or facilitate such bans, restrictions, taxes and regulations. Due to the
complexity of regulation of the industry and to public pressure,
implementation of existing or future laws, regulations or initiatives by
different levels of government may be inconsistent and is difficult to
foresee. Many state and local governments have enacted mandatory or voluntary
recycling laws and bans on the disposal of yard-waste in landfills. An effect
of these and similar laws is to reduce the volume of wastes that would
otherwise be disposed in landfills. In addition, municipalities and other
governmental entities with whom the Company contracts to provide solid waste
collection or disposal services, or both, may require the Company as a
condition of securing the business to provide recycling services and operate
recycling and composting facilities, which may cause the Company to incur
substantial costs. The Company makes a continuing effort to anticipate
regulatory, political and legal developments that might affect its operations
but is not always able to do so. The Company cannot predict the extent to
which any legislation or regulation that may be enacted, amended, repealed or
enforced, or any failure or delay in enactment or enforcement of legislation
or regulations or funding of government agencies or programs, in the future
may affect its operations. Such matters could have a material adverse impact
on the Company's earnings for one or more fiscal quarters or years.

The demand for certain of the services provided by the Company, particularly
its hazardous waste management services, is dependent in part on the existence
and enforcement of federal, state and foreign laws and regulations which
govern the discharge of hazardous substances into the environment and on the
funding of agencies and programs under such laws and regulations. Such
businesses will be adversely affected to the extent that such laws or
regulations are amended or repealed, with the effect of reducing the
regulation of, or liability for, such activity, that the enforcement of such
laws and regulations is lessened or that funding of agencies and programs
under such laws and regulations is delayed or reduced. In particular, the EPA
continues to consider proposals under RCRA to redefine the term "hazardous
waste" for regulatory purposes. Under some such proposals, wastes containing
minimal concentrations of hazardous substances would no longer be subject to
the stringent record-keeping, handling, treatment and disposal rules applied
to hazardous wastes under RCRA. Other EPA proposals would cause certain wastes
which presently must be managed in TSCA-approved facilities to be eligible for
disposal in facilities not approved under TSCA. These proposals would, if
adopted, reduce the volume of wastes for which the Company's hazardous waste
management services are needed.

In addition to environmental laws and regulations, federal government
contractors, including the Company, are subject to extensive regulation under
the Federal Acquisition Regulation and numerous statutes which deal with the
accuracy of cost and pricing information furnished to the government, the
allowability of costs charged to the government, the conditions under which
contracts may be modified or terminated, and other similar matters. Various
aspects of the Company's operations are subject to audit by agencies of the
federal government in connection with its performance of work under such
contracts as well as its submission of bids or proposals to the government.
Failure to comply with contract provisions or other applicable requirements
may result in termination of the
contract, the imposition of civil and criminal penalties against the Company,
or the suspension or debarment of all or a part of the Company from federal
government work, which could have a material adverse impact upon the Company's
financial condition or earnings for one or more fiscal quarters or

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years. Among the reasons for debarment are violations of various statutes,
including those related to employment practices, the protection of the
environment, the accuracy of records and the recording of costs. Some state
and local governments have similar suspension and debarment laws or
regulations.

Because of the high level of public awareness of environmental issues,
companies in the waste management services business, including the Company,
may in the normal course of their business be expected periodically to become
subject to judicial and administrative proceedings. Governmental agencies may
seek to impose fines on the Company or revoke, deny renewal of, or modify the
Company's operating permits or licenses. The Company is also subject to
actions brought by private parties or special interest groups in connection
with the permitting or licensing of its operations, alleging violations of
such permits and licenses, or other matters. In addition, increasing
governmental scrutiny of the environmental compliance records of the Company,
CWM, WTI, Rust, Waste Management International or their affiliates could cause
a private or public entity seeking waste management services to disqualify the
Company from competing for one or more projects, on the grounds that these
records display inadequate attention to environmental compliance.

WASTE MANAGEMENT SERVICES

Solid Waste

Operating permits are generally required at the state and local level for
landfills, transfer stations and collection vehicles. Operating permits need
to be renewed periodically and may be subject to revocation, modification,
denial or non-renewal for various reasons, including failure of the Company to
satisfy regulatory concerns. With respect to solid waste collection,
regulation takes such forms as licensing of collection vehicles, truck safety
requirements, vehicular weight limitations and, in certain localities,
limitations on rates, area, time and frequency of collection. With respect to
solid waste disposal, regulation covers various matters, including landfill
location and design, groundwater monitoring, gas control, liquid runoff and
rodent, pest, litter and traffic control. Zoning and land use requirements and
limitations are encountered in the solid waste collection, transfer, recycling
and energy recovery and disposal phases of the Company's business. In almost
all cases the Company is required to obtain conditional use permits or zoning
law changes in order to develop transfer station, resource recovery or
disposal facilities. In addition, the Company's disposal facilities are
subject to water and air pollution laws and regulations. Noise pollution laws
and regulations may also affect the Company's operations. Governmental
authorities have the power to enforce compliance with these various laws and
regulations and violators are subject to injunctions, fines and revocation of
permits. Private individuals may also have the right to sue to enforce
compliance. Safety standards under the Occupational Safety and Health Act
("OSHA") are also applicable to the Company's solid waste and related services
operations.

The EPA and various states acting pursuant to EPA-delegated authority have
promulgated rules pursuant to RCRA which serve as minimum requirements for
land disposal of municipal wastes. The rules establish more stringent
requirements than previously applied to the siting, construction, operation
and closure of all but the smallest municipal waste landfill facilities. In
certain cases, the failure of some states to adopt the federal requirements
may increase costs to meet inconsistent federal and state laws applicable to
the same facility. The Company does not believe that continued compliance with
the more stringent minimum requirements will have a material adverse effect on
the Company's operations. See also "RCRA" and "Superfund" below for additional
regulatory information.

In March 1996, the EPA issued regulations that require large, municipal
solid waste landfills to install and monitor systems to collect and control
landfill gas. The regulations apply to landfills that
are designed to accommodate 2.5 million cubic meters or more of municipal
solid waste and that accepted waste for disposal after November 8, 1987,
regardless of whether the site is active or closed.

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The date by which each affected landfill must have such a gas collection and
control system depends on whether the landfill began operation before or after
May 30, 1991. Landfills constructed, reconstructed, modified or first
accepting waste after May 30, 1991 generally must have systems in place by
late 1998. Older landfills generally will be regulated by the states and will
be required to have landfill gas systems in place within approximately 30
months of the EPA's approval of the state program. Many state solid waste
regulations already require collection and control systems. Compliance with
the new regulations is not expected to have a material adverse effect on the
Company.

Hazardous Waste

WMNA and CWM are required to obtain federal, state, local and foreign
governmental permits for their chemical waste treatment, storage and disposal
facilities. Such permits are difficult to obtain, and in most instances
extensive geological studies, tests and public hearings are required before
permits may be issued. WMNA's and CWM's chemical waste treatment, storage and
disposal facilities are also subject to siting, zoning and land use
restrictions, as well as to regulations (including certain requirements
pursuant to federal statutes) which may govern operating procedures and water
and air pollution, among other matters. In particular, WMNA's and CWM's
operations in the United States are subject to the Safe Drinking Water Act
(which regulates deep well injection), TSCA (pursuant to which the EPA has
promulgated regulations concerning the disposal of PCBs), the Clean Water Act
(which regulates the discharge of pollutants into surface waters and sewers by
municipal, industrial and other sources) and the Clean Air Act (which
regulates emissions into the air of certain potentially harmful substances).
In their transportation operations, WMNA and CWM are subject to the
jurisdiction of the Interstate Commerce Commission and regulated by the DOT
and by regulatory agencies in each state. Employee safety and health standards
under OSHA are also applicable.

All of WMNA's and CWM's chemical waste treatment or disposal facilities in
the United States have been issued permits under RCRA. The regulations
governing issuance of permits contain detailed standards for hazardous waste
facilities on matters such as waste analysis, security, inspections, training,
preparedness and prevention, emergency procedures, reporting and
recordkeeping. Once issued, a final permit has a maximum fixed term of 10
years, and such permits for land disposal facilities are required to be
reviewed five years from the date of issuance. The issuing agency (either the
EPA or an authorized state) may review or modify a permit at any time during
its term.

The Company believes that WMNA and CWM maintain each of their operating
treatment, storage or disposal facilities in substantial compliance with the
applicable requirements promulgated pursuant to RCRA. It is possible, however,
that the issuance or renewal of a permit could be made conditional upon the
initiation or completion of modifications or corrective actions at facilities,
which might involve substantial additional capital expenditures on the part of
WMNA or CWM. Although the Company is informed that WMNA and CWM anticipate the
reauthorization of each permit at the end of its term if the facility's
operations are in compliance with applicable requirements, there can be no
assurance that such will be the case.

The radioactive waste services of Chem-Nuclear are also subject to extensive
governmental regulation. Due to the extensive geological and hydrological
testing and environmental data required, and the complex political
environment, it is difficult to obtain permits for radioactive waste disposal
facilities. Various phases of Chem-Nuclear's low-level radioactive waste
management services are
regulated by various state agencies, the United States Nuclear Regulatory
Commission (the "NRC") and the DOT. Regulations applicable to Chem-Nuclear's
operations include those dealing with packaging, handling, labeling and
routing of radioactive materials, and prescribe detailed safety and equipment
standards and requirements for training, quality control and insurance, among
other matters. Employee safety and health standards under OSHA are also
applicable.

See also "RCRA" and "Superfund" below for additional regulatory information.

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Trash-to-Energy and Related Services

WTI's business activities are subject to environmental regulation under
federal, state and local laws and regulations, including the Clean Air Act,
the Clean Water Act and RCRA. The Company believes that WTI's business is
conducted in an environmentally responsible manner in material compliance with
applicable laws and regulations. The Company does not anticipate that WTI's
maintaining compliance with current requirements will result in any material
decrease in earnings. There can be no assurance, however, that such
requirements will not change so as to require significant additional
expenditures. In particular, within the next several years, the air pollution
control systems at certain trash-to-energy facilities owned or leased by WTI
most likely will be required to be modified to comply with more stringent air
pollution control standards adopted by the EPA in December 1995 for municipal
waste combusters. The compliance dates will vary by facility, but, subject to
the final decision in certain litigation which could result in up to an 18-
month delay in the deadlines, all affected facilities most likely will be
required to be in compliance with the standards by the end of the year 2000.
Currently available technologies will be adequate to meet the new standards.
Although the total expenditures required for such modifications are estimated
to be $190 million to $230 million, they are not expected to have a material
adverse effect on WTI's liquidity or results of operations because provisions
in the impacted facilities' long-term waste supply agreements generally allow
WTI to recover from customers the majority of incremental capital and
operating costs. There can be no assurance, however, that in such event WTI
would be able to recover, for each project, all such increased costs from its
customers. Moreover, it is possible that future developments, such as
increasingly strict requirements of environmental laws, and enforcement
policies thereunder, could affect the manner in which WTI operates its
projects and conducts its business, including the handling, processing or
disposal of the wastes, by-products and residues generated thereby.

Also, in May 1994, the U.S. Supreme Court ruled that state and local
governments may not constitutionally restrict the free movement of trash in
interstate commerce through the use of flow control laws. Such laws typically
involve a municipality specifying the disposal site for all solid waste
generated within its borders. Since the ruling, several decisions of state or
federal courts have invalidated regulatory flow control schemes in a number of
jurisdictions. Other judicial decisions have upheld non-regulatory means by
which municipalities may effectively control the flow of municipal solid
waste. There can be no assurance that such alternatives to regulatory flow
control will in every case be found lawful. WTI's Gloucester County, New
Jersey facility relies on a disposal franchise for substantially all of its
supply of municipal solid waste. In July 1996, a Federal District Court
permanently enjoined the State of New Jersey from enforcing its solid waste
regulatory flow control system, which was held to be unconstitutional, but
stayed the injunction for as long as its ruling is on appeal plus an
additional period of two years to enable the State to devise an alternative
nondiscriminatory approach. The State has indicated that it will continue to
enforce flow control during the two-year transition period and has filed an
appeal of the Federal District Court's ruling. The New Jersey legislature is
now considering a bill to authorize counties and authorities, including the
Gloucester County Improvement Authority, which administers WTI's franchise
there, to implement a constitutionally permissible system of "economic flow
control" designed to recover waste disposal costs incurred in reliance on the
state's franchise system. The Supreme Court's 1994 ruling and subsequent court
decisions have not to date had a material adverse effect on any of WTI's
trash-to-energy
operations. Federal legislation has been proposed, but not yet enacted, to
effectively grandfather existing flow control mandates. In the event that such
legislation is not adopted, WTI believes that affected municipalities will
endeavor to implement alternative lawful means to continue controlling the
flow of waste. In view of the uncertain state of the law at this time,
however, WTI is unable to predict whether such efforts would be successful or
what impact, if any, this matter might have on WTI's trash-to-energy
facilities.

WTI's energy facilities are also subject to the provisions of various
energy-related laws and regulations, including PURPA. The ability of WTI's
trash-to-energy and small power production

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facilities to sell power to electric utilities on advantageous terms and
conditions and to avoid burdensome public utility regulation has historically
depended, in part, upon the applicability of certain provisions of PURPA,
which generally exempts WTI from state and federal regulatory control over
electricity prices charged by, and the finances of, WTI and its energy-
producing subsidiaries. As the states and the United States Congress have
accelerated their consideration of the manner in which economic efficiencies
can be gained by deregulating the electric generation industry, utilities and
others have taken the position that power sales agreements entered into
pursuant to PURPA which provide for rates in excess of current market rates
should be voidable as "stranded assets." WTI's 25 power production facilities
are qualifying facilities under PURPA and depend on the enforceability of
their power sales agreements for their economic viability. Although a repeal
or modification of PURPA is possible within the next two years, WTI believes
it is unlikely that such action would retroactively abrogate the long-term
contracts and rate orders pursuant to which most of WTI's existing projects
sell electricity. Furthermore, the operations of WTI's existing trash-to-
energy and other small power production facilities business are not expected
to be materially and adversely affected if the various benefits of PURPA are
repealed or substantially reduced on a prospective basis. Finally, the passage
of the Energy Policy Act of 1992 created an alternative ownership mechanism by
which WTI's future independent power projects would be able to participate in
the electricity generation industry without the burdens of traditional public
utility regulation. However, WTI can give no assurances that future utility
restructurings, court decisions or legislative or administrative action in
this area will not have a material adverse impact on WTI's financial position
or results of operations.

RCRA

Pursuant to RCRA, the EPA has established and administers a comprehensive,
"cradle-to-grave" system for the management of a wide range of industrial by-
products and residues identified as "hazardous" wastes. States that have
adopted hazardous waste management programs with standards at least as
stringent as those promulgated by the EPA may be authorized by the EPA to
administer their programs in lieu of RCRA.

Under RCRA and federal transportation laws, a transporter must deliver
hazardous waste in accordance with a manifest prepared by the generator of the
waste and only to a treatment, storage or disposal facility having a RCRA
permit or interim status under RCRA. Every facility that treats or disposes of
hazardous wastes must obtain a RCRA permit from the EPA or an authorized state
and must comply with certain operating standards. The RCRA permitting process
involves applying for interim status and also for a final permit. Under RCRA
and the implementing regulations, facilities which have obtained interim
status are allowed to continue operating by complying with certain minimum
standards pending issuance of a permit.

RCRA also imposes restrictions on land disposal of certain hazardous wastes
and prescribes standards for hazardous waste land disposal facilities. Under
RCRA, land disposal of certain types of untreated hazardous wastes has been
banned except where the EPA has determined that land disposal of such wastes
and treatment residuals should be permitted. The disposal of liquids in
hazardous waste land disposal facilities is also prohibited.

The EPA from time to time considers fundamental changes to its regulations
under RCRA that could facilitate exemptions from hazardous waste management
requirements, including policies and regulations that could implement the
following changes: redefine the criteria for determining whether wastes are
hazardous; prescribe treatment levels which, if achieved, could render wastes
non-hazardous; encourage further recycling and waste minimization; reduce
treatment requirements for certain wastes to encourage alternatives to
incineration; establish new operating standards for combustion technologies;
and indirectly encourage on-site remediation. To the extent such changes are
adopted, they can be expected to adversely affect the demand for the Company's
chemical waste management services. In this regard, the EPA has recently
proposed regulations which would have the effect of reducing the volume of
waste classified as hazardous for RCRA regulatory purposes. See "Regulation"
above.

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In addition to the foregoing provisions, RCRA regulations require the
Company to demonstrate financial responsibility for possible bodily injury and
property damage to third parties caused by both sudden and nonsudden
accidental occurrences. See "Insurance" below. Also, RCRA regulations require
the Company to provide financial assurance that funds will be available when
needed for closure and post-closure care at its waste treatment, storage and
disposal facilities, the costs of which could be substantial. Such regulations
allow the financial assurance requirements to be satisfied by various means,
including letters of credit, surety bonds, trust funds, a financial (net
worth) test and a guarantee by a parent corporation. Under RCRA regulations, a
company must pay the closure costs for a waste treatment, storage or disposal
facility owned by it upon the closure of the facility and thereafter pay post-
closure care costs. If such a facility is closed prior to its originally
anticipated time, it is unlikely that sufficient funds or reserves will have
been accrued over the life of the facility to provide for such costs, and the
owner of the facility could suffer a material adverse impact as a result.
Consequently, it may be difficult to close such facilities to reduce operating
costs at times when, as is currently the case in the hazardous waste services
industry, excess treatment, storage or disposal capacity exists.

Superfund

Superfund provides for EPA-coordinated response and removal actions to
releases of hazardous substances into the environment, and authorizes the
federal government either to clean up facilities at which hazardous substances
have created actual or potential environmental hazards or to order persons
responsible for the situation to do so. Superfund assigns liability for these
response and other related costs to parties involved in the generation,
transfer and disposal of such hazardous substances. Superfund has been
interpreted as creating strict, joint and several liability for costs of
removal and remediation, other necessary response costs and damage to natural
resources. Liability extends to owners and operators of waste disposal
facilities (and waste transportation vehicles) from which a release occurs,
persons who owned or operated such facilities at the time the hazardous
substances were disposed, persons who arranged for disposal or treatment of a
hazardous substance at or transportation of a hazardous substance to such a
facility, and waste transporters who selected such facilities for treatment or
disposal of hazardous substances, as well as to generators of such substances.
Liability may be trebled if the responsible party fails to perform a removal
or remedial action ordered under the law. For additional information
concerning potential Superfund liability, see "Legal Proceedings" below.

Superfund created a revolving fund to be used by the federal government to
pay for the cleanup efforts. For the federal government's 1996 fiscal year, a
maximum of approximately $1.4 billion of Superfund spending was authorized.
The federal government has also approved approximately the same amount of 1997
Superfund spending authorization.

The U. S. Congress is expected to consider reauthorization and revision of
the Superfund statute in 1997. In addition to possible changes in the
statute's funding mechanisms and provisions for
allocating cleanup responsibility, it is possible that Congress also will
fundamentally alter the statute's provisions governing the selection of
appropriate site cleanup remedies. For example, Congress may consider whether
to continue Superfund's current reliance on stringent technology standards
issued under other statutes (such as RCRA) to govern removal and treatment of
remediation wastes or to adopt new approaches such as national or site-
specific risk based standards. This and other potential policy changes could
significantly affect the stringency and extent of site remediation, the types
of remediation techniques that will be employed, and the degree to which
permitted hazardous waste management facilities will be used for remediation
wastes. In addition, Congress may consider revision of the liability imposed
by the Superfund law for remediation of contamination caused prior to a
party's acquisition of a contaminated site, which could reduce the remediation
obligations of the Company and others who currently are jointly and severally
liable for remediation obligations under Superfund.

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<PAGE>

International Waste Management and Related Services

Waste Management International's operations are subject to the general
business, liability, land-use planning and other environmental laws and
regulations of the countries where the services are performed and, in Europe,
to European Union ("EU") regulations and directives. The degree of local
enforcement of applicable laws and regulations varies substantially between,
and even within, the various countries in which Waste Management International
operates. In addition to the statutes and regulations imposed by national,
state or provincial, and municipal or other local authorities, many of the
countries in which Waste Management International operates are members of the
EU. The EU has issued and continues to issue environmental Directives and
Regulations covering a broad range of environmental matters and has created a
European Environmental Agency responsible for monitoring and collating member
state environmental data. The Single European Act, passed in 1987, established
three fundamental principles to guide the development of future EU
environmental law: (i) the need for preventative action; (ii) the correction
of environmental problems at the source; and (iii) the polluter's liability
for environmental damage.

The Treaty on European Union, signed in December 1991, came into force in
November 1993. The Treaty applies the principle of "sustainable development"
as a key component of EU policy-making and requires that environmental
protection be integrated into the definition and application of all EU laws.
It also introduced a new procedure for the adoption of waste management
legislation (other than for proposals of a primarily fiscal nature), which may
result in the speedier implementation of EU waste laws.

The impact of current and future EU legislation will vary from country to
country according to the degree to which existing national requirements
already meet or fall short of the new EU standards and, in some jurisdictions,
may require extensive public and private sector investment and the development
and provision of the necessary technology, expertise, administrative
procedures and regulatory structures. These extensive laws and regulations are
continually evolving in response to technological advances and heightened
public and political concern.

Outside Europe, continuing industrialization, population expansion and
urbanization have caused increased levels of pollution with all of the
resultant social and economic implications. The desire to sustain economic
growth and address historical pollution problems is being accompanied by
investments in environmental infrastructure, particularly in Southeast Asia,
and the introduction of regulatory standards to further control industrial
activities.

The Company believes that Waste Management International's business is
conducted in material compliance with applicable laws and regulations and does
not anticipate that maintaining such compliance will adversely affect the
Company's financial position. There can be no assurance, however, that such
requirements will not change so as to require significant additional
expenditures or operating costs.

Waste Management International operates facilities in Hong Kong which are
owned by the Hong Kong government. Control of the Hong Kong government passes
to the People's Republic of China in 1997. Waste Management International is
unable to predict what impact, if any, this change will have on its operations
in Hong Kong.

COMPETITION

WMNA encounters intense competition, primarily in the pricing and rendering
of services, from various sources in all phases of its waste management and
related operations. In the solid waste collection phase, competition is
encountered, for the most part, from national, regional and local collection
companies as well as from municipalities and counties (which, through use of
tax revenues,

48
<PAGE>

may be able to provide such services at lower direct charges to the customer
than can WMNA) and some large commercial and industrial companies which handle
their own waste collection. In the solid waste transfer, resource recovery and
disposal phases of its operations, competition is encountered primarily from
municipalities, counties, local governmental agencies, other national or
regional waste management companies and certain large corporations not
primarily involved in the solid waste management services business. The
Company also encounters intense competition in pricing and rendering of
services in its portable sanitation service business, and the on-site
industrial cleaning services business of Rust managed by WMNA, from numerous
large and small competitors. In addition, Rust's program and facilities
management business encounters intense competition, primarily in pricing,
quality and reliability of services, from various sources in all aspects of
its business.

In its hazardous waste management operations, the Company encounters
competition from a number of sources, including several national or regional
firms specializing primarily in chemical waste management, local waste
management concerns and, to a much greater extent, generators of chemical
wastes which seek to reduce the volume of or otherwise process and dispose of
such wastes themselves. The basis of competition is primarily technical
expertise and the price, quality and reliability of service.

Waste Management International encounters intense competition from local
companies and governmental entities in particular countries, as well as from
major international companies. Pricing, quality of service and type of
equipment utilized are the primary methods of competition for collection
services, and proximity of suitable treatment or disposal facilities,
technical expertise, price, quality and reliability of services are the
primary methods of competition for treatment and disposal services.

WTI experiences substantial competition in all aspects of its business. It
competes with a large number of firms, both nationally and internationally,
some of which may have substantially greater financial and technical resources
than WTI. The principal competitive factors with respect to its project
development activities include technological performance, service, technical
know-how, price and performance guarantees. Competing for selection as a
project developer may require commitment of substantial resources over a long
period of time, without any certainty of being ultimately selected.
Competition for attractive development opportunities is intense, as there are
a number of competitors in the industry interested in such opportunities.

Pursuant to the First Amended and Restated International Business
Opportunities Agreement, dated January 1, 1993, by and among CWM, WTI, Waste
Management International, Inc., Waste Management International, Rust and the
Company (as amended, the "IBOA"), each of CWM, WTI, Rust and the Company has
agreed that, until the later of July 1, 2000 or the date on which the Company
ceases to beneficially own a majority of the outstanding voting equity
interests of such subsidiary or ceases to beneficially own a majority of the
outstanding voting equity interests of Waste Management International, and in
each case no longer has an option to obtain such ownership, such subsidiary or
the Company will not engage (except through Waste Management International) in
waste management services; design, development, construction and operation of
trash-to-energy facilities in Italy or Germany; collection, storage,
processing, treatment or disposal of hazardous wastes (including hazardous
substance remediation services); or design, engineering and construction
(where the customer is seeking third-party operation), operation and
maintenance of water, wastewater and sewage treatment facilities (including
facilities for treating hazardous waste streams whether or not the customer is
seeking third-party operation) outside North America (i.e., the United States,
its territories and possessions, Canada and Mexico) (the "Waste Management
International Allocated Activities"), except with respect to licensing of
technology and minor interests of CWM, WTI or Rust in publicly held entities.
WTI may engage outside North America in the design, engineering, construction,
operation and maintenance of chimneys and air pollution control facilities
(the "WTI Allocated Activities"). Rust may engage outside North America in
activities relating to

49
<PAGE>

industrial facility and power plant maintenance services (the "Rust Allocated
Activities"). Sales by the Company of recyclables, licensing of technology and
minor investments by the Company in publicly held entities are also permitted
activities of the Company outside North America. Waste Management
International has agreed that for the same time periods as are applicable to
CWM, WTI, Rust and the Company above in this paragraph, it will not engage in
North America in the type of activities included within the Waste Management
International Allocated Activities outside North America and will not engage
in the WTI Allocated Activities or the Rust Allocated Activities. Businesses
or assets acquired by a party to the IBOA which are in the domain of another
party thereto (according to the allocations described above) must be offered
for sale to the other party at fair market value.

In addition, WTI and Waste Management International have entered into an
agreement whereby WTI will have primary responsibility for the early-stage
development of trash-to-energy projects outside North America (except in Italy
and Germany) and Waste Management International will have the right to acquire
up to 49% of all equity of any such project available to Waste Management
International, WTI and their affiliates, with WTI or other investors owning
the balance. This arrangement is non-cancelable by WTI or Waste Management
International without the other's consent prior to 2000. If the arrangement is
canceled, the right to develop trash-to-energy projects reverts to being part
of the Waste Management International Allocated Activities.

By agreement among the parties, the Company is responsible for determining
business allocations among CWM, WTI, Rust, the Company and Waste Management
International which are not controlled by the allocations set forth in the
preceding two paragraphs. In this connection CWM, WTI, Rust, the Company and
Waste Management International have agreed that in order to minimize the
potential for conflicts of interest among various subsidiaries under the
common control of the Company and for so long as the Company shall have
beneficial ownership of a majority of the outstanding voting equity interests
of such subsidiary (or an option to obtain such ownership), the Company has
the right to direct future business opportunities to the Company or the
Company-controlled subsidiary which, in the Company's reasonable and good
faith judgment, has the most experience and expertise in that line of
business, provided that the Company may not allocate a business opportunity to
a particular subsidiary if such business opportunity would involve the
subsidiary in a breach of its agreement not to compete as described in the
immediately preceding paragraphs. Opportunities outside North America relating
to the provision of future waste management services are generally to be
allocated to Waste Management International, except that opportunities outside
North America relating to the WTI Allocated Activities and the Rust Allocated
Activities are generally to be allocated to WTI and Rust, as the case may be.
No party is liable for consequential damages, except for lost profits, for any
breach of the IBOA.

In addition, in connection with the sale by Rust of its hazardous and
radioactive substance remediation business in 1995 and its scaffolding rental
and erection business in 1996, the Company and Rust agreed with the respective
purchasers not to engage in providing those services in North America prior to
2002 (in the case of the remediation business) and 2001 (in the case of the
scaffolding business). In connection with WTI's sale of its water process,
manufacturing and custom engineering
business, the Company and WTI agreed with the purchaser not to engage in such
business in the United States or any other country in which WTI conducted such
business at the time of sale until 2001.

INSURANCE

While the Company believes it operates professionally and prudently, its
business exposes it to risks such as the potential for harmful substances
escaping into the environment and causing damage or injuries, the cost of
which could be substantial. The Company currently maintains liability
insurance coverage for occurrences under various environmental impairment,
primary casualty and excess liability insurance policies.

50
<PAGE>

The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and
pollutants. The Company believes that the coverage terms, available limits of
liability, and costs currently offered by the insurance market do not
represent sufficient value to warrant the purchase of "non-sudden and
accidental" pollution liability insurance coverage. As such, the Company has
chosen not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage. To satisfy existing government requirements, the
Company has secured non-risk transfer pollution liability insurance coverage
in amounts believed to be in compliance with federal and state law
requirements for "non-sudden and accidental" pollution. The Company must
reimburse the insurer for losses incurred and covered by this insurance
policy. In the event the Company continues not to purchase risk transfer "non-
sudden and accidental" pollution liability insurance coverage, the Company's
net income could be adversely affected in the future if "non-sudden and
accidental" pollution losses should occur.

EMPLOYEES

The Company and its subsidiaries employ a total of approximately 59,700
persons in their worldwide continuing operations. Of this number, the Company
employs approximately 38,400 persons in its North American solid and hazardous
waste management services operations (excluding employees of the Rust on-site
industrial cleaning services business operated by WMNA). Of this total,
approximately 29,100 persons (including 2,400 contract workers) are employed
in solid and hazardous waste collection, transfer, resource recovery and
disposal activities, and approximately 9,300 in managerial, executive, sales,
clerical, data processing and other solid waste and related activities.

As of December 31, 1996, Waste Management International employed
approximately 16,500 persons. Of this number, approximately 12,700 persons
were employed in its collection services operations, 2,400 in its treatment
and disposal services operations and 1,400 in administrative functions.

WTI has approximately 2,100 full-time employees in its continuing
operations.

Rust employed approximately 2,700 persons at December 31, 1996 in the on-
site industrial cleaning services business managed by WMNA and Rust's program
and facilities management services business.

ACQUISITIONS AND DISPOSITIONS

Since August 1971, the Company has acquired a number of companies, and
certain assets of other companies, engaged in various phases of the
environmental services industry. See Note 4 to the Company's Consolidated
Financial Statements included elsewhere in this prospectus. The amounts and
types of consideration generally have been determined by direct negotiations
with the owners of the businesses acquired. In most instances, the owners of
the acquired businesses were few in number, and often certain key former
owners have continued to operate the businesses following acquisition by the
Company. During 1996, the Company continued to acquire additional operations
in the waste management services industry.

Acquisitions have historically contributed significantly to the Company's
growth. However, in recent years the Company's acquisition activity relative
to the size of its revenue base has significantly decreased, and the Company
has disposed of significant amounts of non-waste management services
businesses and assets, as well as underperforming or poorly positioned waste
management services businesses. As it focuses on its core waste management
services business, the Company intends to continue engaging in such
dispositions. See below. The Company's growth prospects may be affected by the
decision to engage in such dispositions and by the availability of additional
business acquisitions at reasonable prices and the Company's ability to
finance such acquisitions. See "Management's

51
<PAGE>

Discussion and Analysis of Results of Operations and Financial Condition" for
a discussion of capital expenditures by the Company, including acquisitions.
Other well-capitalized companies also compete intensely for businesses
available to be acquired.

The acquisition of businesses entails certain inherent risks. Although the
Company reviews businesses to be acquired, because of the nature of the
liabilities involved in these businesses, there can be liabilities which will
not become known until after the transactions are consummated. The Company
seeks to minimize the impact of these liabilities and expenditures by
attempting to obtain indemnities and warranties from the seller which may be
supported by deferring payment of a portion of the purchase price. These
indemnities and warranties, if obtained, may not, however, fully cover the
liabilities due to their limited scope, amount, or duration, the financial
limitations of the indemnitor or warrantor, or other reasons. Businesses
purchased may require expenditures to make up for deferred maintenance and to
improve the quality or quantity of assets acquired. In certain cases, the
Company establishes reserves in respect of the anticipated costs of
remediation for acquired sites.

In June 1996, Rust sold its process engineering and construction business to
Raytheon Engineering Inc.

In September 1996, Rust sold its scaffolding rental and erection services
business to Brand Scaffold Services, Inc. for approximately $190 million.

In December 1996, WTI sold its water process, manufacturing and custom
engineering business to U.S. Filter for approximately $370 million.

Also in December 1996, Waste Management International announced plans to
sell its approximately 20% interest in Wessex. The sale was completed in
February 1997.

In February 1997, the Company announced plans to divest an additional $1.5
billion of non-core assets and non-integrated businesses by the end of 1998.
Since then, the Company has sold its approximately 20% interest in
ServiceMaster to ServiceMaster for approximately $626 million; WTI sold its
remaining water services business to U.S. Filter for approximately $77
million; Waste Management International sold substantially all of its
operations in France and Spain; and the Company has also sold certain of its
North American solid waste operations. See "Summary--Recent Developments." The
Company's plans also include the sale by Rust of its remaining domestic and
international engineering and consulting business and the sale or joint
venturing of the Waste Management International business in Austria.

PROPERTY AND EQUIPMENT

The principal property and equipment of the Company consists of land
(primarily disposal sites), buildings and waste treatment or processing
facilities (other than disposal sites), and vehicles and equipment, which as
of December 31, 1996 represented approximately 20%, 6% and 27%, respectively,
of the Company's total consolidated assets. The Company believes that its
vehicles, equipment and operating properties are well maintained and suitable
for its current operations. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition" for a discussion of property
and equipment expenditures by the Company for the last three years and the
capital budget for 1997. The Company's subsidiaries lease numerous office and
operating facilities throughout the world. For the year ended December 31,
1996, aggregate annual rental payments on real estate leased by the Company
and its subsidiaries approximated $103.8 million.

52
<PAGE>

The principal fixed assets of WMNA consist of vehicles and equipment (which
include, among other items, approximately 21,400 collection and transfer
vehicles, 1.6 million containers and 25,100 stationary compactors in the
United States and Canada). WMNA owns or leases real property in most states
and Canadian provinces in which it is doing business. At December 31, 1996,
105 solid waste disposal facilities, aggregating approximately 66,400 total
acres, including approximately 15,950 permitted acres, were owned by WMNA in
the United States and Canada and 28 facilities, aggregating approximately
13,725 total acres, including approximately 5,750 permitted acres, were leased
from parties not affiliated with WMNA under leases expiring from 1997 to 2085.
At December 31, 1996, the Company owned or leased in the United States a total
of nine treatment, storage or disposal facilities. At such date, the Company's
seven United States chemical waste facilities with secure land disposal sites
aggregated approximately 7,875 acres, including approximately 1,475 permitted
acres.

The principal property and equipment of Waste Management International
consist of land (primarily disposal sites) and vehicles and equipment, which
as of December 31, 1996 represented approximately 8.8% and 19.7%,
respectively, of Waste Management International's assets. The principal fixed
assets utilized in Waste Management International's collection services
operations at December 31, 1996, consisted of vehicles and equipment (which
included, among other items, approximately 7,000 collection, transportation,
and other route vehicles and approximately 260 pieces of landfill and other
heavy equipment), and approximately 307,000 containers, including
approximately 3,850 stationary compactors. In addition, Waste Management
International owns approximately 730 pieces of hazardous waste equipment,
consisting predominately of containers and collection vehicles. The principal
fixed assets utilized in Waste Management International's treatment and
disposal services operations at December 31, 1996, consisted of 56 landfills,
26 waste treatment facilities, 85 recycling and recyclables processing
facilities, eight incinerators and various other manufacturing, office and
warehouse facilities owned, leased or operated by Waste Management
International.

WTI currently owns, operates or leases 16 trash-to-energy facilities, eight
cogeneration and small power production facilities, two coal handling
facilities, three biosolids drying, pelletizing and composting facilities, one
wastewater treatment plant and various other manufacturing, office and
warehouse facilities. Facilities leased or operated (but not owned) by WTI are
under leases or agreements having terms expiring from the years 1998 to 2020,
subject to renewal options in certain cases.

53
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth the names and ages (at July 15, 1997) of the
Company's executive officers and directors, the positions they hold with the
Company, and (because the Board of Directors is classified into three
classes--Class I, expiring at the 1998 annual stockholders meeting, Class II,
expiring at the 1999 annual stockholders meeting and Class III, expiring at
the 2000 annual stockholders meeting) the classification of the Board to which
they belong. All directors hold their positions until the annual meeting of
stockholders at which their terms expire or until their respective successors
are elected and qualify. Executive officers are selected by the Board of
Directors and serve at the discretion of the Board of Directors.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald T. LeMay (3) ................... 51 Chairman of the Board, President,
Chief Executive Officer and Director
Joseph M. Holsten...................... 44 Executive Vice President and Chief
Operating Officer
James E. Koenig........................ 49 Executive Vice President
D. P. Payne............................ 54 Senior Vice President-Marketing and
Communications
Herbert A. Getz........................ 42 Senior Vice President, General
Counsel and Secretary
John D. Sanford........................ 43 Senior Vice President, Chief
Financial Officer and Treasurer
Thomas C. Hau.......................... 61 Vice President, Controller and
Principal Accounting Officer
H. Jesse Arnelle (1)................... 63 Director
Dean L. Buntrock (3) .................. 66 Director
Dr. Pastora San Juan Cafferty (2)...... 56 Director
Jerry E. Dempsey (1)................... 64 Director
Dr. James B. Edwards (1)............... 70 Director
Donald F. Flynn (2).................... 57 Director
Robert S. Miller (3)................... 55 Director
Paul M. Montrone (3)................... 56 Director
Peer Pedersen (3)...................... 72 Director
James R. Peterson (2).................. 69 Director
Steven G. Rothmeier (2)................ 50 Director
Alexander B. Trowbridge (1)............ 67 Director
</TABLE>
- ----------
(1) Class I member
(2) Class II member
(3) Class III member

Ronald T. LeMay has been a director of the Company and has served as its
Chairman of the Board, President and Chief Executive Officer since July 13,
1997. Prior to his election to those offices, Mr. LeMay was President and
Chief Operating Officer of Sprint Corporation, a telecommunications service
provider ("Sprint"), from February 1996 until July 1997. At Sprint, Mr. LeMay
served as Chief Executive Officer of Sprint Spectrum beginning in March 1995
and as President and Chief Operating Officer--Long Distance Division from 1989
until March 1995. Mr. LeMay is also a director of Ceridian Corporation,
Imation Corporation, Mercantile Bancorporation, Inc. and Yellow Corporation.

54
<PAGE>

Dean L. Buntrock has been a director of the Company since 1968 and served as
its Chairman of the Board from 1968 until July 13, 1997 and as its Chief
Executive Officer from 1968 until June 1996 and as its acting Chief Executive
Officer from February 17, 1997 until July 13, 1997. From September 1980 to
November 1984, he also served as President of the Company. Mr. Buntrock is
also a director of WTI, Waste Management International and Boston Chicken,
Inc.

Herbert A. Getz has been a Senior Vice President of the Company since May
1995, a Vice President of the Company since May 1990 and General Counsel since
August 1992. He has also been Secretary of the Company since January 1988. He
also served as Assistant General Counsel of the Company from December 1985
until August 1992. Mr. Getz has also held the offices of Vice President,
General Counsel and Secretary at WMNA from April 1989 until December 1993, and
Vice President and Secretary of Rust from January 1993 to May 1994. He has
also served as Secretary of WTI from July 1995 to January 1997, a position he
previously held, as well as being the General Counsel of WTI, from November
1990 until May 1993. Mr. Getz commenced employment with the Company in 1983.
He is a director of NSC and OHM.

Thomas C. Hau has been a Vice President and the Controller and Principal
Accounting Officer of the Company since he commenced employment with the
Company in September 1990. From 1971 until his employment by the Company, Mr.
Hau was a partner of Arthur Andersen LLP.

Joseph M. Holsten has been Executive Vice President and Chief Operating
Officer of the Company since February 1997. He was Chief Executive Officer of
Waste Management International from July 1995 to March 1997. From October 1993
to July 1995, he was Executive Vice President and Chief Financial Officer of
WMNA. Mr. Holsten was Vice President of Acquisitions and Project Development
for Waste Management International from April 1992 to August 1993 and Vice
President, Chief Financial Officer and Treasurer of Rust from September to
October 1993. Mr. Holsten has been employed by the Company since 1981.

James E. Koenig has been Executive Vice President of the Company since
February 1997. He was a Senior Vice President of the Company from May 1992 to
February 1997, Treasurer of the Company from 1986 to July 1996 and its Chief
Financial Officer from 1989 to February 1997. Mr. Koenig first became a Vice
President of the Company in 1986. From 1984 to 1986, Mr. Koenig was Staff Vice
President and Assistant to the Chief Financial Officer of the Company. Mr.
Koenig has been employed by the Company since 1977. Mr. Koenig also served as
Vice President, Chief Financial Officer and Treasurer of WTI from November
1990 to May 1993. He also serves as a director of WTI, Waste Management
International and OHM.

D. P. Payne has been a Senior Vice President of the Company since April
1995, a position he previously held from 1990 to 1993. He also served as
President and Chief Executive Officer and a director of CWM from September
1991 to March 1995. Mr. Payne has been employed by the Company since 1990.

John D. Sanford has been Senior Vice President and Chief Financial Officer
of the Company since February 1997. He also has been Treasurer since July
1996. He was Vice President--Project Finance of the Company from March 1996 to
February 1997. He was also the Vice President, Chief Financial Officer and
Treasurer of WTI from 1993 to February 1997 and Executive Vice President of
WTI from 1995 to February 1997. From February to May 1993, Mr. Sanford was
Staff Vice President--Finance of WTI. He also served as Vice President and
Chief Financial Officer of WTI's Wheelabrator Energy Systems Inc. subsidiary
from 1987 to 1993.

H. Jesse Arnelle has been a director of the Company since 1992 and senior
partner of Arnelle, Hastie, McGee, Willis and Greene, a San Francisco-based
law firm, for more than the past ten years. He currently also serves as
Chairman of the Pennsylvania State University Board of Trustees. Mr. Arnelle
is also a director of Florida Power & Light (FPL Group), Eastman Chemical
Corporation, Textron Corporation, Wells Fargo & Company and Wells Fargo Bank
N.A., Armstrong World Industries and Union Pacific Resources, Inc.

55
<PAGE>

Dr. Pastora San Juan Cafferty has served as a Professor since 1985 at the
University of Chicago's School of Social Service Administration where she has
been a member of the faculty since 1971. She was elected a director of the
Company in July 1994. Dr. Cafferty also serves as a director of Kimberly-Clark
Corporation, People's Energy Corporation and Harris Bank and on the boards of
the Rush-Presbyterian-St. Luke's Medical Center and the Lyric Opera
Association, both in Chicago.

Jerry E. Dempsey has served as a director of the Company since 1984, and
since September 1993, as Chairman and Chief Executive Officer of PPG
Industries, Inc., a glass, coatings and chemicals company. From April 1984 to
May 1988, Mr. Dempsey served as Vice Chairman of the Board of the Company.
From May 1988 to June 1993, Mr. Dempsey was Senior Vice President of the
Company. From September 1991 to May 1993, Mr. Dempsey served as Chairman of
the Board of CWM. Mr. Dempsey is also a director of Navistar International
Corp. and PPG Industries, Inc.

Dr. James B. Edwards has served as a director of the Company since 1995 and
has been President of the Medical University of South Carolina since November
1982. From January 1981 to November 1982, he served as the United States
Secretary of Energy, and previously as Governor of the State of South
Carolina. Dr. Edwards is also a director of Phillips Petroleum Company, SCANA
Corporation, Imo Industries Inc. and National Data Corporation.

Donald F. Flynn has served as a director of the Company since 1981 and as
Chairman of the Board and President of Flynn Enterprises, Inc., a financial
advisory and venture capital firm, since February 1988. He also served as
Chairman of the Board and Chief Executive Officer of Discovery Zone, Inc., an
operator of indoor fun and fitness centers for children, from July 1992 until
February 1996 and May 1995, respectively. In March 1996, Discovery Zone, Inc.
announced that it filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code. Mr. Flynn was a Senior Vice President of the Company from May
1975 to January 1991. He also served as the Company's Chief Financial Officer
from March 1972 to December 1989 and the Company's Treasurer from May 1979 to
December 1986. Mr. Flynn is also a director of Extended Stay America, Inc.,
Psychemedics Corporation, WTI and Waste Management International.

Robert S. Miller has served as a director of the Company since May 1997.
Since September 1996, he has been Vice Chairman of Morrison Knudsen
Corporation, an engineering and construction firm. He served as Chief
Executive Officer of Federal Mogul Corporation, an automotive parts
manufacturing firm, from September until November 1996, and as Chairman of
Morrison Knudsen Corporation from April 1995 until September 1996. In
addition, since 1993 he has served as Vice President and Treasurer of Moore
Mill and Lumber, a privately-held forest products firm, and from 1992 until
1993, he served as a Senior Partner of James D. Wolfensohn, Inc., an
investment banking firm. From 1979 to 1992, Mr. Miller worked at Chrysler
Corporation, an automobile and truck manufacturing firm, rising to become Vice
Chairman of the Board after serving as the company's Chief Financial Officer.
Mr. Miller is a director of The Coleman Company, Inc., Federal Mogul
Corporation, Fluke Corporation, Morrison Knudsen Corporation, Pope & Talbot,
Inc., and Symantec Corporation.

Paul M. Montrone has served as a director of the Company since January 1997.
Since December 1991, Mr. Montrone has been President, Chief Executive Officer
and a director of Fisher Scientific International, Inc., a provider of
scientific equipment and supplies. He also served as Vice Chairman of the
Board of Abex, Inc., a designer and manufacturer of engineered components for
aerospace, defense, industrial and commercial markets, or its predecessors,
from 1992 to 1995. Since prior to 1989, Mr. Montrone has also been President
and a director of The General Chemical Group, Inc., a chemical company. From
prior to 1989 until 1992, he served as the Managing Director--President of The
Henley Group, Inc. Mr. Montrone was a director of WTI or a predecessor thereof
from prior to 1989 until January 1997.

Peer Pedersen has been a director of the Company since 1979 and Chairman of
the Board and Managing Partner of the law firm of Pedersen & Houpt, P.C. for
more than the past five years. Mr. Pedersen is also a director of Aon
Corporation, Boston Chicken, Inc., Latin American Growth Fund, Tennis
Corporation of America and Extended Stay America, Inc.

56
<PAGE>

James R. Peterson has been a director of the Company since 1980 and was a
director and President and Chief Executive Officer of The Parker Pen Company
from January 1982 to January 1985. The Parker Pen Company was principally
involved in the manufacture and distribution of writing instruments and in
providing temporary help services. Mr. Peterson is also a director of The Dun
& Bradstreet Corporation and Cognizant Corporation.

Steven G. Rothmeier has served as a director of the Company since March 1997
and has been Chairman and Chief Executive Officer of Great Northern Capital, a
private investment management, consulting and merchant banking firm, since
March 1993. From November 1989 until March 1993, he was President of IAI
Capital Group, a venture capital and merchant banking firm. For more than 10
years prior thereto, he served Northwest Airlines, Inc. or its parent
corporation, NWA, Inc., in various executive capacities, including Chairman
and Chief Executive Officer from 1986 to 1989. Mr. Rothmeier is also a
director of Honeywell, Inc., Department 56, Inc., E. W. Blanch Holdings, Inc.
and Precision Castparts Corp.

Alexander B. Trowbridge has served as a director of the Company since 1985
and President of Trowbridge Partners, Inc., a consulting services firm, since
January 1990. He was President of the National Association of Manufacturers,
Washington, D.C., from January 1980 to January 1990. Mr. Trowbridge also
served as U.S. Secretary of Commerce in 1967 and 1968 and as Vice Chairman of
Allied Chemical Corp. from 1976 to 1980. He also serves as a director of New
England Life Insurance Co., The Rouse Co., Harris Corp., Sun Co. Inc., The
Gillette Co., Warburg-Pincus Counsellors Funds and Icos Corp.

COMPENSATION OF EXECUTIVE OFFICERS

The following table sets forth certain information with respect to
compensation for services in all capacities paid by the Company and its
subsidiaries for the past three years, to or on behalf of the Chief Executive
Officer of the Company at December 31, 1996, and each of the four other most
highly compensated executive officers of the Company serving at December 31,
1996:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM COMPENSATION
---------------------------------------------- ------------------------------------------
BONUS AWARDS PAYOUTS
--------------------- ----------- ---------
OTHER SECURITIES LONG-
ANNUAL RESTRICTED UNDERLYING TERM ALL OTHER
NAME AND PRINCIPAL STOCK- COMPEN- STOCK OPTIONS INCENTIVE COMPEN-
POSITION YEAR SALARY CASH BASED SATION (2) AWARDS (5) (SHARES)(6) PAYOUTS SATION(7)
- --------------------- ---- ---------- ---------- ---------- ---------- ---------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock 1996 $1,250,000 $ 0 $ 0 $ 88,516(3) 0 176,656 0 $ 750
Chairman and 1995 1,400,000 0 1,792,000(1) 437,980(1)(3) 0 205,505 0 10,500
acting Chief 1994 1,400,000 1,120,000 0 77,420(3) 0 158,640 0 10,500
Executive Officer
Phillip B. Rooney(8) 1996 1,250,000 0 435,247(1) 124,880(1) 0 476,183 0 230,861
former President 1995 1,000,000 0 1,141,000(1) 261,280(1) 0 146,789 0 10,500
and Chief Executive 1994 1,000,000 1,029,280 0 -- 0 113,314 0 10,500
Officer
James E. Koenig, 1996 600,000 355,000 0 -- $1,485,000 186,514 0 750
Executive Vice 1995 517,000 420,000 0 -- 0 62,615 0 10,500
President 1994 500,000 250,000 0 -- 0 42,493 0 10,500
William P. Hulligan 1996 475,000 0 95,000(1) 19,000(1) 0 48,699 0 750
Executive Vice 1995 445,000 365,790 0 -- 0 36,743 0 10,500
President, WMNA 1994 425,000 382,500 0 -- 0 36,119 0 10,500
Joseph M. Holsten 1996 440,000 252,058 0 225,280(4) 0 173,253 0 0
Executive Vice 1995 400,000 246,750 0 96,957(4) 0 175,780 0 10,500
President and Chief 1994 250,000 225,000 0 71,938(4) 0 11,898 0 10,500
Operating Officer
</TABLE>

57
<PAGE>

- --------
(1) All of the amounts shown under "Bonus--Stock-Based" were deferred and are
deemed to be invested in shares of the Company's common stock, and thus
fully "at risk" until after retirement or other termination of employment.
The deferring officers received a 20% Company match of the bonus deferred,
included under "Other Annual Compensation," which vests over a four-year
period and is also deemed invested and "at risk" in the same manner as the
deferred bonus. See note 1 to the "Ownership of Company Common Stock"
table on page 68.
(2) Excludes perquisites and other benefits, unless the aggregate amount of
such compensation is at least the lesser of either $50,000 or 10 percent
of the total annual salary and bonus reported for the named executive
officer.
(3) Includes financial planning expenses of $68,000 paid by the Company on
behalf of the named executive officer in 1994, 1995 and 1996.
(4) Includes foreign service premium ($96,000 in 1996, $40,000 in 1995, and
$36,136 in 1994), housing allowance ($96,000 in 1996 and $40,000 in 1995),
and moving expense reimbursement ($35,428 in 1994).
(5) The value shown is as of the date of issuance. Dividends are paid or
accrued on restricted stock awards at the same rate as paid to all
stockholders. For a description of the restrictions on such stock, see
"Certain Transactions".
(6) The numbers shown in the table above represent options for the purchase of
shares of the Company's common stock granted to the named persons under
the Company's 1982 Stock Option Plan, as amended (the "1982 Company Plan")
and the Company's 1992 Stock Option Plan (the "1992 Company Plan")
together, the "Employee Plans"). For Mr. Holsten, such numbers include the
following numbers of shares underlying options to acquire common stock of
Waste Management International: 160,000 in 1996 and 140,000 in 1995.
(7) Amounts of All Other Compensation are amounts contributed by the Company
for fiscal years 1994, 1995 and 1996 under the Company's Profit Sharing
and Savings Plan and for fiscal year 1994 and 1995 under the Company's
Profit Sharing and Savings Plus Plan for the persons named above. For Mr.
Rooney for 1996, such amounts also include the dollar value of the benefit
of premiums paid for a split-dollar life insurance policy projected on an
actuarial basis ($214,723) and a bonus equal to the premium cost paid by
Mr. Rooney's life insurance trust ($15,388).
(8) On February 17, 1997, Mr. Rooney resigned from his positions as Chief
Executive Officer, President and director of the Company.

58
<PAGE>

STOCK OPTIONS

The following tables set forth certain information with respect to stock
options granted to the persons named in the Summary Compensation Table during
the year ended December 31, 1996. No options were granted to the persons named
in the Summary Compensation Table during the year ended December 31, 1996 by
CWM, Rust, WTI or, except as noted below, Waste Management International.

COMPANY OPTION GRANTS IN 1996

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------
POTENTIAL REALIZABLE
PERCENTAGE VALUE AT ASSUMED
OF TOTAL ANNUAL RATES OF
NUMBER OF COMPANY STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(6)
OPTIONS EMPLOYEES PRICE EXPIRATION ----------------------------------
NAME GRANTED(1) IN 1996 (PER SHARE) DATE(5) 0% 5% 10%
---- ---------- ---------- ----------- ---------- -- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock 176,656(2) 4.31 $31.70 4/1/06 $ 0 $ 3,521,807 $ 8,924,950
Phillip B. Rooney 126,183(3) 3.08 31.70 4/1/06 0 2,515,579 6,374,972
350,000(3) 8.53 35.03 6/7/06 0 7,710,563 19,540,079
James E. Koenig 61,514(2) 1.50 31.70 4/1/06 0 1,226,341 3,107,788
125,000(4) 3.05 31.63 8/13/06 0 2,486,492 6,301,259
William P. Hulligan 48,699(2) 1.19 31.70 4/1/06 0 970,861 2,460,353
Joseph M. Holsten(7) 13,253(2) 0.32 31.70 4/1/06 0 264,211 669,563
All Stockholders as a
group(8) -- -- $31.70 4/1/06 $ 0 $9,861,317,347 $24,990,514,307
</TABLE>
- ----------
(1) The option holder has the right to pay the exercise price by delivering
previously acquired shares of the Company's common stock, and to have
shares withheld to satisfy tax withholding requirements in connection with
the exercise of options. Such options become immediately exercisable upon
a Change in Control of the Company, as defined in the option plan. Options
are non-transferable other than by will or the laws of descent and
distribution.
(2) Options become exercisable in three equal cumulative annual installments
commencing April 1, 1997.
(3) Options became fully exercisable on February 17, 1997. See "Certain
Transactions."
(4) Options become exercisable in three equal cumulative annual installments
commencing August 13, 1997.
(5) Options have a term of ten years, subject to earlier termination in
certain events related to termination of employment.
(6) The amounts under the columns labeled "5%" and "10%" are included by the
Company pursuant to certain rules promulgated by the Commission and are
not intended to forecast future appreciation, if any, in the price of the
Company's stock. Such amounts are based on the assumption that the named
persons hold the options granted for their full term. The actual value of
the options will vary in accordance with the market price of the Company's
common stock. The column headed "0%" is included to demonstrate that the
options were granted at fair market value and optionees will not recognize
any gain without an increase in the stock price, which increase benefits
all stockholders commensurately.
(7) In addition to the grant of Company options shown in the table, Mr.
Holsten received a grant from Waste Management International of options to
acquire 160,000 of its shares, representing 7.01 percent of the total
options granted by Waste Management International to its employees in
1996. The exercise price is (Pounds)3.65 per share, and such options
expire on May 1, 2003. The potential realizable value of such options is
(Pounds)237,747 and (Pounds)554,051, assuming annual rates of stock price
appreciation of 5% and 10%.

59
<PAGE>

(8) Based upon the price of the Company's stock and the total shares
outstanding as of the date of grant, if the price of the Company's common
stock increased at the 5% or 10% rates shown in the table above,
stockholders as a group would realize aggregate gains (excluding
dividends) in the amounts shown above during the period from grant date to
the April 1, 2006 option expiration date.

The following table sets forth certain information as to each exercise of
stock options during the year ended December 31, 1996 by the persons named in
the Summary Compensation Table and the fiscal year-end value of unexercised
options:

AGGREGATED OPTION EXERCISES IN 1996 AND 1996 YEAR-END OPTION VALUE

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-
OPTIONS AT DECEMBER 31, THE-MONEY OPTIONS AT
SHARES 1996 DECEMBER 31, 1996(1)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dean L. Buntrock
Company Options........ 174,264 $1,160,223 586,925 386,696 $ 0 $1,179,181
WTI Options............ 33,336 234,499 0 0 0 0
Waste Management
International Options. 0 0 200,000 0 0 0
Phillip B. Rooney
Company Options........ 0 0 744,463 628,304 933,024 842,265
Waste Management
International Options. 0 0 200,000 0 0 0
James E. Koenig
Company Options........ 12,648 124,581 132,846 245,994 294,992 463,076
WTI Options............ 0 0 120,000 0 881,628 0
Waste Management
International Options. 0 0 100,000 0 0 0
William P. Hulligan
Company Options........ 0 0 157,681 89,408 209,384 240,093
Joseph M. Holsten
Company Options........ 0 0 43,195 41,072 139,872 159,726
Waste Management
International Options. 0 0 206,666 253,334 0 0
</TABLE>
- ----------
(1) Market value less exercise price, before payment of applicable income
taxes.

60
<PAGE>

LONG TERM INCENTIVE PLAN AWARDS

The following table sets forth certain information as to awards under the
Company's Long Term Incentive Plan (the "LTIP") with respect to the year ended
December 31, 1996 to the persons named in the Summary Compensation Table:

<TABLE>
<CAPTION>
PERFORMANCE
NUMBER OF OR OTHER ESTIMATED FUTURE PAYOUTS UNDER
SHARES, UNITS PERIOD UNTIL NON-STOCK PRICE BASED PLANS(3)
OR OTHER MATURATION --------------------------------
NAME RIGHTS(1) OR PAYOUT(2) THRESHOLD TARGET MAXIMUM
- ---- ------------- ------------ -------------------- -----------
<S> <C> <C> <C> <C> <C>
Dean L. Buntrock........ -- 3 years $ 625,000 $ 625,000 $ 1,875,000
Phillip B. Rooney(4).... -- 3 years 625,000 625,000 1,875,000
James E. Koenig......... -- 3 years 240,000 240,000 720,000
William P. Hulligan..... -- 3 years 190,000 190,000 570,000
</TABLE>
- ----------
(1) Awards consist of the designation of target percentages of annual salary
at the end of the performance period to be paid if the Company achieves
certain performance objectives. No payout occurs unless the Company
achieves certain threshold performance objectives. Above the threshold,
payouts may be greater than the target percentage to the extent that the
Company's performance exceeds or fails to meet the target objectives
specified in the plan. Payouts under the LTIP are based on the rank of the
Company's total stockholder return (stock price appreciation plus
reinvested dividends) among the total stockholder returns of the companies
that comprise the Dow Jones Industrial Average over the performance
period.
(2) The performance period includes calendar years 1996, 1997 and 1998.
(3) At the end of the performance period, an amount equal to 50% of the
performance award, if any, is to be paid in cash, and the remaining 50% is
to be deemed to be invested in common stock of the Company. The
participant is entitled to receive the value of such deemed investment on
the date three years after the end of the performance period; provided
that the participant is an officer of the Company or one of its
subsidiaries on that date. Estimated future payouts were calculated using
1996 salaries, assume that a performance award will be earned at the
levels shown, and do not reflect any possible subsequent increase or
decrease in the value of the portion of the award which would be required
to be deferred under the terms of the plan. No payments have been made
under the plan for prior periods.
(4) Pursuant to the terms of Mr. Rooney's employment agreement, Mr. Rooney
will not receive any awards under this plan. See "Certain Transactions."

61
<PAGE>

PENSION AND RETIREMENT PLANS

The following table sets forth estimated annual benefits payable upon
retirement under the Company's Pension Plan and its Supplemental Executive
Retirement Plan ("SERP") to employees of the Company in specified remuneration
and years of service classifications. For purposes of the following table, it
is assumed that the five executive officers named in the cash compensation
table are eligible for the SERP benefits and that each such officer's
annualized Final Average Compensation (as defined below) will be equal to his
average annual compensation for the three years ended December 31, 1996.

PENSION PLAN TABLE

<TABLE>
<CAPTION>
YEARS OF SERVICE(2)(3)
---------------------------------------------------------
REMUNERATION(1) 15 20 25 30 35 40
--------------- -------- -------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 400,000........ $ 90,000 $120,000 $150,000 $180,000 $ 210,000 $ 240,000
500,000........ 112,500 150,000 187,500 225,000 262,500 300,000
600,000........ 135,000 180,000 225,000 270,000 315,000 360,000
700,000........ 157,500 210,000 262,500 315,000 367,500 420,000
800,000........ 180,000 240,000 300,000 360,000 420,000 480,000
900,000........ 202,500 270,000 337,500 405,000 472,500 540,000
1,000,000........ 225,000 300,000 375,000 450,000 525,000 600,000
1,100,000........ 247,500 330,000 412,500 495,000 577,500 660,000
1,200,000........ 270,000 360,000 450,000 540,000 630,000 720,000
1,300,000........ 292,500 390,000 487,500 585,000 682,500 780,000
1,400,000........ 315,000 420,000 525,000 630,000 735,000 840,000
1,500,000........ 337,500 450,000 562,500 675,000 787,500 900,000
1,600,000........ 360,000 480,000 600,000 720,000 840,000 960,000
1,700,000........ 382,500 510,000 637,500 765,000 892,500 1,020,000
1,800,000........ 405,000 540,000 675,000 810,000 945,000 1,080,000
1,900,000........ 427,500 570,000 712,500 855,000 997,500 1,140,000
2,000,000........ 450,000 600,000 750,000 900,000 1,050,000 1,200,000
</TABLE>
- ----------
(1) Upon normal retirement at age 65 or after completing five years of
participation in the Company's Pension Plan, whichever is later, a
participant is entitled to a pension based on the average of the
participant's eligible compensation for the highest five consecutive years
out of his or her last 10 years of service. For this purpose, a
participant's eligible compensation generally includes all of his or her
cash compensation, subject, in 1996, to the statutory maximum of $150,000.
The annual lifetime benefit is equal to (i) 1% of average eligible
compensation, multiplied by (ii) the number of his or her years of
service, and, for a participant retiring at age 65 with 10 years of
service, may not be less than $100 per month. Under the SERP, eligible
participants who retire following age 60, or retire with at least 30 years
of service, are entitled to a monthly benefit equal to (i) 1.5% of the
participant's Final Average Compensation per year of service (Final
Average Compensation is the monthly average compensation of such
participant for the highest three consecutive calendar years out of his or
her last 10 calendar years of service), reduced by (ii) the amount of such
participant's monthly benefit under the Pension Plan. Compensation used
for calculating benefits under the SERP includes only the participant's
salary and annual incentive bonus. Eligible participants are those
officers who have served in such capacities for at least 10 years at the
time of retirement. Payment of benefits under the SERP is made on the same
basis as payments under the Pension Plan, and both plans provide for
reduced payouts in the event of early retirement.
(2) At December 31, 1996, the credited years of service for Messrs. Buntrock,
Rooney, Koenig, Hulligan and Holsten were 40, 27, 19, 18 and 14,
respectively.
(3) Benefits shown are computed on a straight-life annuity basis at normal
retirement age. Provision is made for payment of pensions in joint and
survivor form and in various other forms and at other times, on an
actuarially equivalent basis. Benefits are not subject to reduction for
social security benefits.

62
<PAGE>

COMPENSATION OF DIRECTORS

Each member of the Board of Directors of the Company who is not an employee
of the Company is paid an annual retainer of $45,000 ($50,000 effective with
the 1997 annual meeting of stockholders). Such directors also receive $1,000
for each meeting they attend of each Committee of the Board of which such
directors are members. The Company maintains a major medical expense insurance
policy which is available to all directors of the Company. The policy covers
the medical and dental expenses of the directors in excess of the coverage
provided by the director's primary health insurance program.

OUTSIDE DIRECTORS' PLANS

The Company has two unfunded deferred compensation plans for non-employee
members of its Board of Directors. Under the Deferred Directors' Fee Plan,
such directors may make an irrevocable election annually to defer receipt of
all or a portion of the directors' fees payable to them until termination of
their membership on the Board of Directors. Such deferred amounts are deemed
to be invested in the Company's common stock or, at the election of the
director, in the common stock of any of the Company's majority-owned public
subsidiaries, and during the period of deferral, such deferred amounts are
credited with the dividends or stock splits that would be received had such
investment actually been made. Upon termination of the director's service, the
common stock deemed reflected by his or her deferred account is deemed to be
sold, and the deemed proceeds of such sale (or an amount equal to the amount
originally deferred, if greater) will be distributed to the director in cash,
in a lump sum or installments. Under a similar plan maintained by WTI, Mr.
Buntrock has deferred fees for services rendered as a director of WTI prior to
the Company's acquisition of a majority interest of WTI in September 1990.

Under the Directors' Phantom Stock Plan, certain non-employee directors
received a one-time grant of 5,000 Phantom Shares at the time of adoption of
such plan or at the time they first became directors. Each of such Phantom
Shares was initially deemed to be equal in value to one share of the Company's
common stock at the time of award. Phantom Shares are credited to a
bookkeeping account which is adjusted to reflect stock (but not cash)
dividends or stock splits which would be received with respect to an
equivalent number of shares of the Company's common stock. Upon termination of
the director's service, the director is paid an amount in cash, in a lump sum
or installments, for each Phantom Share then credited to his or her account,
equal to the then difference between the market price of the Company's common
stock at the time of award and the average closing prices of one share of the
Company's common stock on the NYSE Composite Tape for the most recent 10
consecutive trading days immediately preceding such termination. In 1991, the
Company's Board of Directors terminated its authority to make additional
grants under the Directors' Phantom Stock Plan.

STOCK OPTION PLANS FOR NON-EMPLOYEE DIRECTORS

The 1992 Stock Option Plan for Non-Employee Directors (the "Directors Plan")
of the Company provides for the awards of options covering an aggregate of
150,000 shares of the Company's common stock. Each director of the Company
first elected in 1997 or thereafter who is neither an officer nor full-time
employee of the Company or any of its subsidiaries, upon election or
appointment to the Board of Directors, is granted an option to purchase 3,000
shares of the Company's common stock on the date of election and on the next
four anniversaries if re-elected. Each such director elected before 1997
received an option to purchase a total of 15,000 shares of the Company's
common stock on the date of his or her election. All options under the
Directors Plan are granted at the fair market value of the stock at the time
of grant and are for a term of 10 years from the date of grant. Options
granted in 1997 or thereafter become exercisable after one year following the
grant date. Options granted prior to 1997 become exercisable with respect to
20% of the total number of shares subject to the option six months after the
date of grant and with respect to an additional 20% at the end of each 12-
month period thereafter on a cumulative basis during the succeeding four
years.

63
<PAGE>

Under the Directors Plan, in the event that the Company's shares of common
stock are changed by a stock dividend, split or combination of shares, or a
merger, consolidation or reorganization with another company in which holders
of the Company's common stock receive other securities, or any other relevant
change in the capitalization of the Company, a proportionate or equitable
adjustment will be made in the number or kind of shares subject to unexercised
options or available for options and in the purchase price for shares. If an
option expires or is terminated or cancelled unexercised as to any shares,
such released shares may again be optioned (including a grant in substitution
for a cancelled option). Shares subject to options may be made available from
unissued or reacquired shares of common stock.

Options are not transferable by the optionee otherwise than by will or the
laws of descent and distribution, provided that the Board of Directors may
grant options that are transferable, without payment of consideration, to
immediate family members of the optionee or to trusts or partnerships for such
partnerships for such family members or to charitable organizations (each an
"Option Transferee"), subject to the Company's procedures for administration,
and may amend outstanding options to provide for such transferability. Options
terminate if the optionee ceases to be a director of the Company for any
reason other than death, permanent disability, resignation or retirement. If
the optionee ceases to be a director because of death or permanent disability,
the optionee or the optionee's heirs, legatees, legal representative or the
Option Transferee may exercise the option in full at any time during its term
within three months after the date of termination. In the event of resignation
or retirement, an option may be exercised by the optionee (or if the optionee
dies within three months after such termination, by the optionee's heirs,
legatees or legal representative) or the Option Transferee at any time during
its specified term prior to three months after the date of such resignation or
retirement, but only to the extent it was exercisable at the date of such
resignation or retirement.

Prior to January 1, 1992, upon election to the Board of Directors non-
employee directors received options for 10,000 shares under the Company's 1981
Stock Option Plan for Non-Employee Directors (the "1981 Plan"), the terms of
which are substantially similar to the Directors Plan. No person who is the
holder of an option granted under the 1981 Plan or the Employee Plans or who
has purchased shares upon the exercise of such an option is eligible for a
grant of options under the Directors Plan.

DIRECTORS' CHARITABLE ENDOWMENT PROGRAM

The Company maintains the Directors' Charitable Endowment Program pursuant
to which the Company has purchased life insurance policies on members of the
Board of Directors. Under the program, death benefits will be paid to the
Company, and the Company in turn will donate such death benefits (up to
$100,000 for each year of service on the Company's Board of Directors, subject
to a $1,000,000 limit) to one or more charitable organizations recommended by
the director. Directors derive no financial benefit from this program because
all charitable deductions accrue solely to the Company.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation and Stock Option Committee of the Company's Board of
Directors consisted during 1996 of Messrs. Pedersen (Chairman), Edwards, and
Peterson and Dr. Cafferty. Mr. Pedersen is Chairman of the Board of the law
firm of Pedersen & Houpt, P. C. Although the Company utilized the services of
such firm during 1996, as a result of a policy adopted by the Board of
Directors in May 1996, the Company will not retain such firm for any new
matters arising after such date. For 1996, the professional fees received by
such firm from the Company were no more than approximately 1% of such firm's
gross revenues. In 1996, Mr. Buntrock served on the Compensation Committee of
the Board of Directors of WTI. Mr. Rooney, who was an executive officer of WTI
during 1996, served as a director of the Company during 1996.

64
<PAGE>

CERTAIN TRANSACTIONS

When an option is exercised by an optionee under the Employee Plans or WTI's
stock option plans at a time when the fair market value of the underlying
stock exceeds the option exercise price, the difference is treated as ordinary
income to the optionee for income tax purposes and the company which issued
the options is entitled to a deduction equal to such amount. To facilitate an
optionee's purchase of stock upon exercise of such options, the Company and
WTI have each adopted a policy of making available interest-free loans, in an
amount up to the equivalent of all applicable tax withholding requirements, to
optionees whose exercise of options results in ordinary income to them in
excess of $10,000. All such loans normally are required to be repaid not later
than April 15 in the year following the year in which such loans were made,
unless otherwise extended. The largest aggregate amounts of such loans from
the Company and WTI in excess of $60,000 pursuant to such policy which were
outstanding to the directors and executive officers of the Company since
January 1, 1996 were as follows: Herbert A. Getz--$67,227; Mr. Koenig--
$73,875. Such loans have been repaid and are not outstanding as of June 15,
1997.

The Company and WTI also each makes available to optionees interest-free
loans for a period not to exceed 15 days to facilitate the exercise of options
and the sale of the underlying stock. The largest aggregate amounts of such
loans from the Company and WTI in excess of $60,000 which were outstanding to
the directors and executive officers of the Company since January 1, 1996 were
as follows: Mr. Getz--$232,480; Mr. Holsten $161,251; Mr. Koenig $196,865.
Such loans have been repaid and are not outstanding as of June 15, 1997.

In June 1996, in connection with his election as the Company's Chief
Executive Officer, the Company entered into an amended and restated employment
agreement with Phillip B. Rooney. The agreement replaced an agreement
originally entered into between the Company and Mr. Rooney in 1986. Under the
agreement Mr. Rooney would be paid a minimum annual salary of $1,250,000 as
President and Chief Executive Officer of the Company. Mr. Rooney also was
eligible to receive annual bonuses and all benefits generally available to
executives of the Company. The Company also agreed to provide Mr. Rooney with
a split-dollar life insurance arrangement with a death benefit of
approximately $10 million. The term of Mr. Rooney's employment under the
agreement continued through June 6, 2001 and would have been automatically
extended on each anniversary date for a period of five years from such
anniversary date unless either party gave written notice of termination prior
to the anniversary date. Upon the death or permanent disability of Mr. Rooney,
the Company would have paid annually $2,500,000 for the balance of the term of
the agreement. If the Company breached or terminated the agreement or reduced
the nature and scope of Mr. Rooney's authority and duties, it would have
continued to pay him for five years unless the termination was for cause, in
which case its obligations under the agreement would have ceased. In the event
of a change in control of the Company, Mr. Rooney was entitled to elect to
terminate the agreement and receive a lump sum payment of three times his
average annual compensation (including bonuses) over the immediately preceding
five years, which amount would be increased should an excise tax be imposed on
him because of the payment. Were a change in control of the Company to have
occurred on December 31, 1996, and if Mr. Rooney's employment with the Company
were terminated as provided in the employment agreement, it is estimated that
Mr. Rooney would have been eligible to receive approximately $4,235,800
(assuming no increase for any excise tax). During the term of the agreement
and for a period of three years thereafter, Mr. Rooney agreed not to compete
with the Company or its subsidiaries. In connection with Mr. Rooney's
resignation as President and Chief Executive Officer on February 17, 1997, the
Company gave notice of termination of such agreement. As a result of such
notice, the agreement will terminate on February 17, 2002, unless earlier
terminated pursuant to the agreement. During the remainder of the term of the
agreement, Mr. Rooney will receive cash compensation in an annual amount of
$2,500,000 in lieu of all salary, bonuses, incentive or other performance-
based compensation, and Mr. Rooney and his family will continue to participate
in all welfare benefit plans generally available to employees and executives
of the Company, and the split-

65
<PAGE>

dollar life insurance arrangement will continue. The Compensation and Stock
Option Committee accelerated the vesting of all unvested stock options held by
Mr. Rooney.

In August 1996, the Company entered into employment agreements with James E.
Koenig, Executive Vice President of the Company, and Herbert A. Getz, Senior
Vice President and General Counsel of the Company (the "Executives"). The
agreements provide that Mr. Koenig will be paid a minimum annual salary of
$600,000 while Mr. Getz will be paid a minimum annual salary of $450,000. Each
of the Executives also is eligible to receive annual bonuses and all benefits
generally available to executives of the Company. The term of the Executive's
employment under each of the agreements continues until August 14, 1999, and
is automatically extended on each anniversary date for a period of three years
from such anniversary date unless the Company gives notice of termination, in
which case the term is automatically extended and expires three years from the
date of such notice. Upon the death or permanent disability of the Executive,
the Company will pay annually the Executive's then current base salary for
thirty-six months. If the Company terminates the agreement or reduces the
nature and scope of the Executive's duties or relocates the primary employment
location of the Executive, it will continue to pay him his then current base
salary and his prorated annual bonus and long term bonus for three years
unless the termination was for cause, in which case its obligations under the
agreement cease. In the event of a change of control of the Company, the
Executive may elect to terminate the agreement and receive a lump sum payment
of three times his average annual compensation (including bonuses) over the
immediately preceding five years, which amount will be increased should an
excise tax be imposed on him because of the payment. Were a change in control
to have occurred on December 31, 1996, and if each Executive's employment with
the Company were terminated as provided in the employment agreements, it is
estimated that Messrs. Koenig and Getz would have been eligible to receive
approximately $1,889,300 and $1,201,100, respectively (assuming no increase
for any excise tax). During the term of the agreements and for a period of one
year thereafter, each Executive has agreed not to compete with the Company or
its subsidiaries. Concurrently with the execution of the employment
agreements, the Company granted to Mr. Koenig 45,000 shares of its common
stock and to Mr. Getz 35,000 shares of its common stock, subject in each case
to a restricted stock agreement. Under the terms of the restricted stock
agreements, the Executive cannot sell, assign, pledge or otherwise transfer
such shares until the expiration of the period of the covenant not to compete
contained in the employment agreement or his death or permanent disability.
Except as provided below, if the Executive voluntarily terminates his
employment prior to the tenth anniversary of the grant of such shares, all
shares shall be forfeited. If such termination occurs after such tenth
anniversary, such shares shall be vested, but remain subject to such
restrictions. Vesting accelerates upon termination by the Company of the
Executive's employment other than for cause, upon his retirement on or after
reaching age 60, if the Company reduces the nature or scope of his authority
and duties or his compensation or changes the location of his employment, or
upon his death or permanent disability. Dividends upon such shares are deemed
to be reinvested in additional shares and subject to the same restrictions.

In March 1997, the Company's Board of Directors approved an employment
security agreement with John D. Sanford, the Company's Senior Vice President
and Chief Financial Officer. The term of the agreement continues until March
11, 1999, and is automatically extended on each anniversary date for a period
of two years from such anniversary date unless the Company gives notice of
termination, in which case the term expires two years from such date. If the
Company terminates Mr. Sanford's employment, or reduces the nature and scope
of Mr. Sanford's duties or relocates the primary employment location of Mr.
Sanford, it will continue to pay him his then current base salary for two
years and his prorated annual bonus for the year of such termination,
reduction or relocation, unless the termination was for cause, in which case
its obligations under the agreement will cease. In addition, the Company will
request the Compensation Committee to accelerate all of Mr. Sanford's unvested
stock options. During the term of the agreement and for a period of one year
thereafter, Mr. Sanford has agreed not to compete with the Company or its
subsidiaries. The Compensation Committee also

66
<PAGE>

approved granting to Mr. Sanford 28,800 restricted shares of its common stock
under the Company's 1997 Equity Incentive Plan (the "1997 Company Plan").
Under the terms of the Restricted Stock Award Agreement to be entered into in
connection with this grant, and except as provided below, Mr. Sanford will not
be able to sell, assign, pledge or otherwise transfer such shares until no
earlier than ten years from the date of the grant. If Mr. Sanford voluntarily
terminates his employment before the tenth anniversary of the date of the
grant, or if he should be terminated by the Company for cause, all shares will
be forfeited. Vesting of all such shares will accelerate upon a change in
control of the Company, Mr. Sanford's retirement after age 62, or his death or
disability. If Mr. Sanford's employment is terminated without cause, the
vesting of such shares will be accelerated at 2.5% of the grant for every
three months of completed service after the date of the grant. Release of
vested shares will occur upon satisfaction of the obligation not to compete
under Mr. Sanford's employment security agreement. Dividends upon such shares
will be deemed to be reinvested in additional shares and subject to the same
restrictions.

In connection with his transfer in 1995 from CWM, where he was President, to
the Company, the Company entered into an employment agreement with D. P. Payne
under which Mr. Payne will be paid a minimum annual salary of $400,000. Mr.
Payne also is eligible to receive annual bonuses and all benefits generally
available to executives of the Company. The term of Mr. Payne's employment
under the agreement continues through December 31, 1999. Upon the death or
permanent disability of Mr. Payne, the Company will pay his then current
salary (including bonuses accrued as of the date of termination) for the
balance of the calendar year in which such death or disability occurs but in
no event for less than 180 days. If the Company terminates Mr. Payne's
employment, it will continue to pay him an amount equal to his base salary
until the end of the term of the agreement plus any unpaid but fully accrued
annual bonus for the prior calendar year payable under the Annual Plan, unless
the termination was for cause, in which case its obligations under the
agreement cease. During the term of the agreement and for two years after the
termination of the agreement, Mr. Payne has agreed not to compete with the
Company or its subsidiaries. In March 1997, the Compensation Committee
approved granting to Mr. Payne 34,500 restricted shares of its common stock
under the 1997 Company Plan. The terms of Mr. Payne's Restricted Stock Award
Agreement are substantially similar to those of Mr. Sanford. In June 1997, Mr.
Payne's employment agreement was amended to provide that in the event he
should be terminated without cause during the term of the agreement or at any
time thereafter, he would be provided with a minimum of ten years' service
credit under the SERP.

In June 1997, the Company's Board of Directors approved an employment
security agreement with Joseph M. Holsten, the Company's Executive Vice
President and Chief Operating Officer. The term of the agreement continues
until June 20, 2000, provided that unless a party gives 30 days' prior written
notice on June 20, 1998 and on each successive June 20, the term of the
agreement shall be renewed for a period ending on the earlier of the date
three years from such June 20 or the date of his sixty-second birthday unless
earlier terminated pursuant to the terms of the agreement. The agreement
provides for Mr. Holsten's salary to be increased to $650,000 as of June 20,
1997, and for him to be paid a cash bonus of $300,000. If the Company
terminates Mr. Holsten's employment, or reduces the nature and scope of Mr.
Holsten's duties or relocates the primary employment location of Mr. Holsten,
it will continue to pay him his then current base salary for three years and
his prorated annual and long-term incentive plan compensation with respect to
any participation rights in the Company's annual or long term incentive plans
which have been awarded prior to the date of the notice of termination, unless
the termination was for cause in which case all of the Company's obligations
under the agreement will cease. In addition, under such circumstances the
Company will request the Compensation Committee to accelerate all of Mr.
Holsten's unvested stock options. During the term of the agreement and for a
period of one year thereafter or during the three-year period after
termination, if longer, Mr. Holsten has agreed not to compete with the Company
or its subsidiaries. The Compensation Committee also approved granting to Mr.
Holsten 55,000 restricted shares of its common stock under the 1997 Company
Plan. The terms of Mr. Holsten's Restricted Stock Award

67
<PAGE>

Agreement are substantially similar to those of Mr. Sanford. The Compensation
Committee also approved granting to Mr. Holsten options to acquire 100,000
shares of the Company's common stock under the 1997 Company Plan. In
connection with the agreement, the Company has agreed to loan Mr. Holsten
$1,000,000 to purchase shares of the Company's common stock.

In June 1997, the Company entered into a Supplemental Retirement Benefit
Agreement with Thomas C. Hau, the Company's Vice President, Controller and
Principal Accounting Officer, which provides that, if Mr. Hau remains in his
present position until at least April 1, 1998, or such earlier date as his
employment is terminated as a result of death, disability or involuntary
termination other than for cause (the "Vesting Date"), the monthly SERP
benefit payable to Mr. Hau shall be equal to three percent of Mr. Hau's Final
Average Compensation per year of service, and that Mr. Hau's benefits under
the Company's Profit Sharing and Savings Plus Plan will be vested.

SECURITIES OWNERSHIP OF MANAGEMENT

OWNERSHIP OF COMPANY COMMON STOCK

The following table sets forth certain information as of February 1, 1997 as
to the beneficial ownership of common stock of the Company by the directors,
the nominee for director, the Chief Executive Officer and the four other most
highly compensated executive officers of the Company as of December 31, 1996,
and by all directors, the nominee for director and persons serving as
executive officers of the Company as a group. Messrs. Howard H. Baker, Jr.,
and Peter H. Huizenga retired from the Board of Directors at the Company's
1997 annual meeting of stockholders held on May 9, 1997, and Mr. Robert S.
Miller was elected as a director at the meeting.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMMON STOCK PERCENT OF
OF THE COMPANY COMMON STOCK
BENEFICIALLY OF THE
NAME OWNED(2)(3) COMPANY(3)
---- ---------------- ------------
<S> <C> <C>
Directors (Other than Executive Officers) and
Nominee
H. Jesse Arnelle............................ 15,827(4) *
Howard H. Baker, Jr......................... 22,000(4) *
Pastora San Juan Cafferty................... 11,000 *
Jerry E. Dempsey............................ 420,020 *
James B. Edwards............................ 7,766 *
Donald F. Flynn............................. 595,712 *
Peter H. Huizenga........................... 8,086,250 1.7
Robert S. Miller............................ 1,000 *
Paul M. Montrone............................ 0 *
Peer Pedersen............................... 231,985(4) *
James R. Peterson........................... 84,068(4) *
Steven G. Rothmeier......................... 0 *
Alexander B. Trowbridge..................... 2,400(4) *
Executive Officers(1)
Dean L. Buntrock............................ 3,267,250 *
Joseph M. Holsten........................... 52,007 *
William P. Hulligan......................... 234,200 *
James E. Koenig............................. 264,020 *
Phillip B. Rooney........................... 1,403,945 *
All directors, the nominee for director and
executive officers as a group including
persons named above
(22 persons)................................. 15,262,023 3.1
</TABLE>

68
<PAGE>

- --------
*Less than 1 percent.
(1) Pursuant to the Company's Non-Qualified Profit Sharing and Savings Plus
Plan, Messrs. Buntrock, Hulligan, and Rooney and all executive officers as
a group acquired beneficial ownership of the equivalent of an additional
76,541, 22,206, 64,854 and 188,189 shares, respectively, of common stock
of the Company in connection with their voluntary deferral of bonus
payments earned under the Company's Corporate Incentive Bonus Plan for
1995 and 1996.
(2) Directors, the nominee and executive officers included in the group have
sole voting power and sole investment power over shares listed, except (i)
shares covered by options granted under the Company's stock option plans
which were exercisable within 60 days of February 1, 1997; (ii) shares
held pursuant to the Company's Profit Sharing and Savings Plan; (iii)
Messrs. Edwards, Pedersen and Peterson, whose shares listed above include
312, 12,856 and 1,668 shares issuable upon conversion of the convertible
subordinated notes due 2005 of the Company ("Waste Management Notes"),
respectively; and (iv) Messrs. Buntrock, Huizenga, Koenig, Miller,
Pedersen and Rooney, and all executive officers and directors as a group
(including such individuals), who have shared voting and investment power
over 146,559, 225,719, 52,661, 1,000, 19,129, 58,392, and 545,448 shares,
respectively. Such shares shown for Messrs. Buntrock, Huizenga, Pedersen
and Rooney are held in trusts or foundations over which such individuals
share voting and investment power with other co-trustees or directors of
such trusts and foundations. Such shares shown for Messrs. Koenig and
Miller are held jointly with their respective spouses. Ownership of shares
shown for Messrs. Buntrock, Dempsey, Edwards, Huizenga and Rooney, and for
all executive officers and directors as a group, includes shares of common
stock of the Company not held directly by them but held by or for the
benefit of (i) their spouses or (ii) their minor children and other
children residing with them, as to which they have neither investment
power nor voting power. Shares were held by or for the benefit of such
spouses or children of the following persons and the executive officers
and directors as a group at February 1, 1997, in the amounts indicated:
Mr. Buntrock-43,439 (held by spouse); Mr. Dempsey-1,000 (held by spouse);
Dr. Edwards-254 (held by spouse with 104 such shares issuable upon
conversion of Waste Management Notes); Mr. Huizenga-680,836 (held by
spouse directly and as trustee); Mr. Rooney-103,146 (held by spouse
directly and as trustee for children); and all executive officers and
directors as a group (including such individuals)-828,972. Additionally,
ownership of shares shown for Mr. Koenig includes 1,200 shares held by him
as trustee of a family trust in which Mr. Koenig has no pecuniary
interest. Each of the above named persons and the members of such group
disclaim any beneficial ownership of such shares.
(3) The numbers and percentages of shares shown in the table above are based
on the assumption that currently outstanding stock options covering shares
of the Company's common stock which were exercisable within 60 days of
February 1, 1997 had been exercised as follows: Mr. Arnelle-15,000; Mr.
Baker-20,000; Mr. Buntrock-659,662; Dr. Cafferty-9,000; Mr. Edwards-6,000;
Mr. Flynn-87,617; Mr. Koenig-164,128; Mr. Rooney-774,935; and all
executive officers and directors as a group (including such individuals)-
2,454,267. Such persons and the members of such group disclaim any
beneficial ownership of the shares subject to such options.
(4) Pursuant to the Company's Deferred Directors' Fee Plan, described above
under "Outside Directors' Plans," Messrs. Arnelle, Baker, Pedersen, and
Peterson have also acquired beneficial ownership of the equivalent of 987,
4,401, 27,600 and 4,876 shares, respectively, of the Company's common
stock through their voluntary deferral of all or a portion of their
directors' fees. Pursuant to the Company's Directors' Phantom Stock Plan,
described above under "Outside Directors' Plans," Messrs. Baker, Pedersen,
Peterson and Trowbridge have also acquired beneficial ownership of the
equivalent of 10,000, 40,000, 40,000 and 40,000 shares, respectively, of
the Company's common stock.

69
<PAGE>

OWNERSHIP OF WTI COMMON STOCK

The following table sets forth certain information as of February 1, 1997 as
to the beneficial ownership of WTI common stock by the directors, the nominee
for director, the Chief Executive Officer and the four other most highly
compensated executive officers of the Company as of December 31, 1996, and by
all directors, the nominee for director and persons serving as executive
officers of the Company as a group. As previously noted, Messrs. Baker and
Huizenga retired as directors of the Company as of May 9, 1997, and Mr. Miller
was elected as a director on that date.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF WTI COMMON PERCENT OF
STOCK BENEFICIALLY WTI COMMON
NAME OWNED(1)(2)(3) STOCK(2)(3)
---- ------------------ -----------
<S> <C> <C>
Directors (Other than Executive Officers)
and Nominee
H. Jesse Arnelle.......................... 0 *
Howard H. Baker, Jr....................... 0 *
Pastora San Juan Cafferty................. 0 *
Jerry E. Dempsey.......................... 34,336 *
James B. Edwards.......................... 0 *
Donald F. Flynn........................... 45,245 *
Peter H. Huizenga......................... 0 *
Robert S. Miller.......................... 0 *
Paul M. Montrone.......................... 256,000 *
Peer Pedersen............................. 0 *
James R. Peterson......................... 0 *
Steven G. Rothmeier....................... 0 *
Alexander B. Trowbridge................... 0 *
Executive Officers
Dean L. Buntrock.......................... 116,377(4) *
Joseph M. Holsten......................... 0 *
William P. Hulligan....................... 0 *
James E. Koenig........................... 121,500 *
Phillip B. Rooney......................... 374,769 *
All directors, the nominee for director and
executive officers as a group including
persons named above
(22 persons)................................ 1,327,017 *
</TABLE>
- ----------
*Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over WTI shares listed, except (i) WTI
shares covered by options exercisable within 60 days of February 1, 1997;
(ii) 10,000 WTI shares deemed to be beneficially owned by each of Messrs.
Buntrock, Flynn and Rooney as a result of restricted units granted
pursuant to WTI's Restricted Unit Plan for Non-Employee Directors and
(iii) Mr. Koenig, who has shared voting and investment power over 1,500
WTI shares with his spouse. Such persons disclaim any beneficial ownership
of the WTI shares subject to such restricted units.
(2) Excludes an aggregate of 104,621,810 WTI shares beneficially owned by the
Company that may be deemed beneficially owned by Mr. Buntrock because he
may be deemed to be an affiliate of the Company. Mr. Buntrock disclaims
any beneficial ownership of such WTI shares.
(3) The numbers and percentages of WTI shares shown in the table above are
based on the assumption that currently outstanding stock options covering
WTI shares which were exercisable within 60 days of February 1, 1997 had
been exercised as follows: Mr. Montrone--256,000; Mr. Koenig--120,000 and
all executive officers and directors as a group (including such
individuals)--712,842. Such persons and the members of such group disclaim
any beneficial ownership of the shares subject to such options.
(4) Pursuant to WTI's Deferred Director's Fee Plan, Mr. Buntrock has acquired
beneficial ownership of the equivalent of an additional 8,297 WTI shares
through his voluntary deferral of previously accrued director's fees.

70
<PAGE>

OWNERSHIP OF WASTE MANAGEMENT INTERNATIONAL ORDINARY SHARES

The following table sets forth certain information as of February 1, 1997 as
to the beneficial ownership of Waste Management International ordinary shares
(including ordinary shares represented by American Depositary Shares) by the
directors, the nominee for director, the Chief Executive Officer and the four
other most highly compensated executive officers of the Company as of December
31, 1996, and by all directors, the nominee for director and persons serving
as executive officers of the Company as a group. As previously noted, Messrs.
Baker and Huizenga retired as directors of the Company as of May 9, 1997, and
Mr. Miller was elected as a director on that date.

<TABLE>
<CAPTION>
NUMBER OF SHARES
OF WASTE MANAGEMENT PERCENT OF
INTERNATIONAL ORDINARY WASTE MANAGEMENT
SHARES BENEFICIALLY INTERNATIONAL
NAME OWNED(1)(2)(3) ORDINARY SHARES(2)(3)
---- ----------------------- ---------------------
<S> <C> <C>
Directors (Other than
Executive Officers) and
Nominee
H. Jesse Arnelle............ 0 *
Howard H. Baker, Jr......... 1,000 *
Pastora San Juan Cafferty... 0 *
Jerry E. Dempsey............ 10,000 *
James B. Edwards............ 4,000 *
Donald F. Flynn............. 300,000 *
Peter H. Huizenga........... 550,000 *
Robert S. Miller............ 0 *
Paul M. Montrone............ 0 *
Peer Pedersen............... 10,000 *
James R. Peterson........... 0 *
Steven G. Rothmeier......... 0 *
Alexander B. Trowbridge..... 600 *
Executive Officers
Dean L. Buntrock............ 223,200 *
Joseph M. Holsten........... 208,666 *
William P. Hulligan......... 120,000 *
James E. Koenig............. 105,000 *
Phillip B. Rooney........... 220,000 *
All directors, the nominee for
director and executive
officers as a group including
persons named above (22
persons)...................... 1,832,866 *
</TABLE>
- ----------
*Less than 1 percent.
(1) Directors and executive officers included in the group have sole voting
power and sole investment power over the Waste Management International
shares listed, except (i) Waste Management International shares covered by
options exercisable within 60 days of February 1, 1997; and (ii) Messrs.
Koenig and Trowbridge and all executive officers and directors as a group
(including such individuals), who have shared voting and investment power
over 5,000, 600 and 6,000 Waste Management International shares,
respectively. Such Waste Management International shares shown for Messrs.
Koenig and Trowbridge are held jointly with their respective spouses.
Ownership of shares shown for Messrs. Buntrock, Dempsey and Huizenga
includes Waste Management International shares not held directly by them
but held by or for the benefit of their spouses as to which they have
neither investment power nor voting power. Waste Management International
shares were held by or for the benefit of such spouses of the following
persons at February 1, 1997 in the amounts indicated: Mr. Buntrock--3,000;
Mr. Dempsey--10,000; and Mr. Huizenga--30,000. Each of the above named
persons disclaim any beneficial ownership of such shares.
(2) Excludes an aggregate of 300,000,000 Waste Management International shares
beneficially owned by the Company that may be deemed beneficially owned by
Mr. Buntrock because he may be deemed to be an affiliate of the Company.
Excludes an aggregate of 45,000,000 Waste

71
<PAGE>

Management International shares beneficially owned by WTI that may be
deemed beneficially owned by Mr. Koenig because he may be deemed to be an
affiliate of WTI. Each such person disclaims any beneficial ownership of
such Waste Management International shares.
(3) The numbers and percentages of Waste Management International shares shown
in the table above are based on the assumption that currently outstanding
stock options covering Waste Management International shares which were
exercisable within 60 days of February 1, 1997 had been exercised as
follows: Messrs. Buntrock, Flynn and Rooney--200,000 each; Mr. Koenig--
100,000; Mr. Holsten--206,666; and all executive officers and directors as
a group (including such individuals)--986,666. Such persons and members of
such group disclaim any beneficial ownership of the shares subject to such
options.

SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The Company does not know of any person who, as of February 1, 1997,
directly owned more than five percent of the Company's outstanding common
stock. The Company, however, received a copy of a Schedule 13D filed by a
group consisting of George Soros, Soros Fund Management LLC, Quantum
Industrial Partners LDC, QIH Management Investor, L.P., QIH Management, Inc.,
Stanley F. Druckenmiller, and Duquesne Capital Management, L.L.C. The Schedule
13D filed by such persons indicate that such persons may be deemed to be a
group within the meaning of Section 13(d)(3) of the 1934 Act. The Company also
received a Schedule 13G for the year ended December 31, 1996 from FMR Corp.,
Edward C. Johnson 3d, and Abigail P. Johnson (collectively, "FMR"). Pursuant
to the aggregation and attribution rules relating to the beneficial ownership
of securities promulgated under the 1934 Act, FMR is deemed to be the
beneficial owner of such shares shown because FMR is the parent company of
various investment management companies which exercise discretionary
investment management over accounts holding such shares. No managed account
alone owns five percent or more of the Company's common stock. The information
presented in the following table is taken from the above-referenced Schedules
13D and 13G:

<TABLE>
<CAPTION>
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
-------- ------------------- ----------------- --------
<C> <S> <C> <C>
Common Stock FMR Corp. 26,491,118 5.5
Edward C. Johnson 3d
Abigail P. Johnson
82 Devonshire Street
Boston, Massachusetts 02109
Common Stock George Soros 25,225,600 5.2
Soros Fund Management LLC
QIH Management Investor, L.P.
QIH Management, Inc.
Stanley F. Druckenmiller
888 Seventh Avenue, 33rd Floor
New York, New York 10106
Quantum Industrial Partners LDC
Kaya Flamboyan 9
Curacao, Netherlands Antilles
Duquesne Capital
Management, L.L.C.
2579 Washington Road, Suite 322
Pittsburgh, Pennsylvania 15241-
2591
</TABLE>

72
<PAGE>

LEGAL PROCEEDINGS

The continuing business in which the Company is engaged is intrinsically
connected with the protection of the environment and the potential for the
unintended or unpermitted discharge of materials into the environment. In the
ordinary course of conducting its business activities, the Company becomes
involved in judicial and administrative proceedings involving governmental
authorities at the federal, state and local level including, in certain
instances, proceedings instituted by citizens or local governmental
authorities seeking to overturn governmental action where governmental
officials or agencies are named as defendants together with the Company or one
or more of its subsidiaries, or both. In the majority of the situations where
proceedings are commenced by governmental authorities, the matters involved
relate to alleged technical violations of licenses or permits pursuant to
which the Company operates or is seeking to operate or laws or regulations to
which its operations are subject or are the result of different
interpretations of the applicable requirements. From time to time the Company
pays fines or penalties in environmental proceedings relating primarily to
waste treatment, storage or disposal facilities. Subject to the discussion set
forth below concerning a Company subsidiary's New Milford, Connecticut
landfill, the Company believes that these matters will not have a material
adverse effect on its results of operation or financial condition. However,
the outcome of any particular proceeding cannot be predicted with certainty,
and the possibility remains that technological, regulatory or enforcement
developments, the results of environmental studies or other factors could
materially alter this expectation at any time.

The Company or certain of its subsidiaries have been identified as
potentially responsible parties in a number of governmental investigations and
actions relating to waste disposal facilities which may be subject to remedial
action under Superfund. The majority of these proceedings are based on
allegations that certain subsidiaries of the Company (or their predecessors)
transported hazardous substances to the facilities in question, often prior to
acquisition of such subsidiaries by the Company. Such proceedings arising
under Superfund typically involve numerous waste generators and other waste
transportation and disposal companies and seek to allocate or recover costs
associated with site investigation and cleanup, which costs could be
substantial.

As of March 31, 1997, the Company or its subsidiaries had been notified that
they are potentially responsible parties in connection with 94 locations
listed on the NPL. Of the 94 NPL sites at which claims have been made against
the Company, 18 are sites which the Company has come to own over time. All of
the NPL sites owned by the Company were initially sited by others as land
disposal facilities. At each of the 18 owned facilities, the Company is
working in conjunction with the government to characterize or to remediate
identified site problems. In addition, at these 18 facilities the Company has
either agreed with other legally liable parties on an arrangement for sharing
the costs of remediation or is pursuing resolution of an allocation formula.
The 76 NPL sites at which claims have been made against the Company and which
are not owned by the Company are at different procedural stages under
Superfund. At some, the Company's liability is well defined as a consequence
of a governmental decision as to the appropriate remedy and an agreement 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
substantially uncertain.

The Company periodically reviews its role, if any, with respect to each such
location, giving consideration to the nature of the Company's alleged
connection to the location (e.g., owner, operator, transporter or generator),
the extent of the Company's alleged connection to the location (e.g., amount
and nature of waste hauled to the location, number of years of site operation
by the Company or other relevant factors), the accuracy and strength of
evidence connecting the Company to the location, the number, connection and
financial ability of other named and unnamed potentially responsible parties
at the location, and the nature and estimated cost of the likely remedy. Where
the Company concludes that it is probable that a liability has been incurred,
a provision is made in the Company's financial

73
<PAGE>

statements for the Company's best estimate of the liability based on
management's judgment and experience, information available from regulatory
agencies and the number, financial resources and relative degree of
responsibility of other potentially responsible parties who are jointly and
severally liable for remediation of a specific site, as well as the typical
allocation of costs among such parties. If a range of possible outcomes is
estimated and no amount within the range appears to be a better estimate than
any other, then the Company provides for the minimum amount within the range,
in accordance with generally accepted accounting principles. Sites subject to
state action under state laws similar to the federal Superfund statute are
treated by the Company in the same way as NPL sites.

The Company's estimates are subsequently revised, as deemed necessary, as
additional information becomes available. While the Company does not
anticipate that the amount of any such revisions will have a material adverse
effect on the Company's operations or financial condition, the measurement of
environmental liabilities is inherently difficult and the possibility remains
that technological, regulatory or enforcement developments, the results of
environmental studies, or other factors could materially alter this
expectation at any time. Such matters could have a material adverse impact on
earnings for one or more fiscal quarters or years.

From time to time, the Company and certain of its subsidiaries are named as
defendants in personal injury and property damage lawsuits, including
purported class actions, on the basis of a Company subsidiary's having owned,
operated or transported waste to a disposal facility which is alleged to have
contaminated the environment or, in certain cases, conducted environmental
remediation activities at sites. Some of such lawsuits may seek to have the
Company or its subsidiaries pay the costs of groundwater monitoring and health
care examinations of allegedly affected persons for a substantial period of
time even where no actual damage is proven. While the Company believes it has
meritorious defenses to these lawsuits, their ultimate resolution is often
substantially uncertain due to the difficulty of determining the cause, extent
and impact of alleged contamination (which may have occurred over a long
period of time), the potential for successive groups of complainants to
emerge, the diversity of the individual plaintiffs' circumstances, and the
potential contribution or indemnification obligations of co-defendants or
other third parties, among other factors. Accordingly, it is possible such
matters could have a material adverse impact on the Company's earnings for one
or more fiscal quarters or years.

A subsidiary of the Company has been involved in litigation challenging a
municipal zoning ordinance which restricted the height of its New Milford,
Connecticut landfill to a level below that allowed by the permit previously
issued by the DEP. Although a lower court had declared the zoning ordinance's
height limitation unconstitutional, during 1995 the Connecticut Supreme Court
reversed that ruling and remanded the case for further proceedings in the
Superior Court in the judicial district of Litchfield. In November 1995, the
Superior Court ordered the Company's subsidiary to apply to the DEP for
permission to remove all waste above the height allowed by the zoning
ordinance. The Connecticut Supreme Court has upheld that ruling. The Company
believes that removal of such waste is an inappropriate remedy and is seeking
an alternative resolution of the issue. The Company is unable to predict the
outcome of the issue. Depending upon the nature of any plan eventually
approved by applicable regulatory authorities for removing the waste, the
actual volume of waste to be moved,
and other currently unforeseeable factors, the subsidiary could incur costs
which would have a material adverse effect on the Company's financial
condition and results of operations in one or more future periods.

The Company and certain of its subsidiaries are also currently involved in
other civil litigation and governmental proceedings relating to the conduct of
their business. While the outcome of any particular lawsuit or governmental
investigation cannot be predicted with certainty, the Company believes that
these matters will not have a material adverse effect on its results of
operations or financial condition.

74
<PAGE>

The Company has brought suit against a substantial number of insurance
carriers in an action entitled Waste Management, Inc. et al. v. The Admiral
Insurance Company, et al. pending in the Superior Court in Hudson County, New
Jersey. In this action the Company is seeking a declaratory judgment that
environmental liabilities asserted against the Company or its subsidiaries, or
that may be asserted in the future, are covered by insurance policies purchased
by the Company or its subsidiaries. The Company is also seeking to recover
defense costs and other damages incurred as a result of the assertion of
environmental liabilities against the Company or its subsidiaries for events
occurring over at least the last 25 years at approximately 140 sites and the
defendant insurance carriers' denial of coverage of such liabilities. The
defendants have denied liability to the Company and have asserted various
defenses, including that environmental liabilities of the type for which the
Company is seeking relief are not risks covered by the insurance policies in
question. The defendants are contesting these claims vigorously. Discovery is
nearly complete as to the 12 sites in the first phase of the case and discovery
is expected to continue for several years as to the remaining sites. A trial
date has been set for October 14, 1997 as to the first phase sites. No trial
date has been set as to the remaining sites. The Company is unable at this time
to predict the outcome of this proceeding. No amounts have been recognized in
the Company's financial statements for potential recoveries.

DESCRIPTION OF CAPITAL STOCK

The following summary of the common stock and preferred stock of the Company
is qualified by reference to the Company's Restated Certificate of
Incorporation, as amended, a copy of which has been incorporated by reference
as an exhibit to the registration statement of which this prospectus is a part.

The Company's authorized capital stock consists of 1,500,000,000 shares of
common stock, $1 par value per share, and 50,000,000 shares of preferred stock,
$1 par value per share. Subject to any prior right of the preferred stock, if
and when issued, the holders of shares of common stock of the Company will be
entitled to receive such dividends as the Board of Directors of the Company in
its discretion may from time to time declare out of funds legally available
therefor and, upon liquidation, would be entitled to share ratably in any
assets of the Company legally available for distribution to holders of shares
of common stock. Each outstanding share of common stock is entitled to one vote
on any matter submitted to a vote of stockholders, with no cumulative voting
rights. There are no conversion, redemption or sinking fund provisions
applicable to the common stock. All of the issued and outstanding shares of the
Company are, and the shares of common stock offered by the Company hereby, when
issued, will be, fully paid and nonassessable. Neither the preferred stock nor
the common stock has any preemptive rights.

The shares of preferred stock may be issued in connection with future
acquisitions or other proper corporate purposes, although there are no present
plans or arrangements for their issuance. The Board of Directors is authorized
without further stockholder authorization, to create and issue the preferred
stock in series and to establish the voting powers, designations, preferences
and relative participating, optional or other special rights and any
qualifications, limitations, or restrictions thereof relating to any such
series.

The Company's Restated Certificate of Incorporation contains provisions which
prevent "greenmail" payments by the Company, establish safeguards in connection
with certain business transactions, provide that only designated officers and
the Board of Directors may call special meetings of stockholders, require
stockholders to take action only at a formal meeting and provide for a
classified Board of Directors. In addition, the Restated Certificate of
Incorporation requires the concurrence of the holders of shares representing at
least 80% of the outstanding shares of common stock for the alteration,
amendment or repeal of, or the adoption of any provision inconsistent with, any
of the preceding provisions.

75
<PAGE>

The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank, Chicago, Illinois.

The Company furnishes its stockholders quarterly reports (including unaudited
summary financial information) and annual reports (including audited financial
statements).

EXPERTS

The audited financial statements included in this prospectus and the
schedules incorporated by reference elsewhere in the registration statements
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included or
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.

ADDITIONAL INFORMATION

The Company has filed a registration statement with the Commission under the
1933 Act with respect to the securities offered hereby. This prospectus does
not contain all the information included in the registration statement, certain
portions of which have been omitted pursuant to the rules and regulations of
the Commission. The registration statement, including the exhibits filed
therewith, may be examined at the office of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, or copies thereof may be obtained upon request to
the Commission on payment of the charge stipulated by the Commission.

Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and reference is made
to the copy of such contract or other document as is filed as an exhibit to the
registration statement of which this prospectus forms a part or as incorporated
by reference as an exhibit thereto, each such statement being qualified in all
respects by such reference.

76
<PAGE>

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Waste Management, Inc. and Subsidiaries--
Report of independent public accountants................................. F-2
Consolidated statements of income for the three years ended December 31,
1996 and (unaudited) for the three months ended March 31, 1996 and 1997. F-3
Consolidated balance sheets as of December 31, 1995 and 1996 and (unau-
dited) March 31, 1997................................................... F-4
Consolidated statements of stockholders' equity for the three years and
(unaudited) three months ended March 31, 1997........................... F-6
Consolidated statements of cash flows for the three years ended December
31, 1996 and (unaudited) for the three months ended March 31, 1996 and
1997.................................................................... F-8
Notes to consolidated financial statements............................... F-9
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and the Board of Directors of Waste Management, Inc.:

We have audited the accompanying consolidated balance sheets of Waste
Management, Inc., formerly known as WMX Technologies, Inc. (a Delaware
corporation) and Subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of income, cash flows, and stockholders'
equity for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Waste Management, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.

/s/ Arthur Andersen LLP
_____________________________________
ARTHUR ANDERSEN LLP

Chicago, Illinois,
February 3, 1997

F-2
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(000'S OMITTED EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31 MARCH 31
---------------------------------- ----------------------
1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue................. $8,482,718 $9,053,018 $9,186,970 $2,144,479 $2,198,308
---------- ---------- ---------- ---------- ----------
Operating Expenses..... $5,827,626 $6,220,859 $6,372,828 $1,494,849 $1,551,718
Special Charges........ -- 335,193 471,635 -- --
Selling and
Administrative
Expenses.............. 997,180 1,004,888 979,209 245,863 241,529
Interest Expense....... 333,550 421,572 375,758 93,806 98,349
Interest Income........ (33,123) (36,883) (27,637) (6,240) (12,092)
Minority Interest...... 126,961 81,938 57,587 27,204 27,762
Sundry Income, Net..... (64,388) (76,462) (85,248) (17,335) (12,584)
---------- ---------- ---------- ---------- ----------
Income From Continuing
Operations Before In-
come Taxes............ $1,294,912 $1,101,913 $1,042,838 $ 306,332 $ 303,626
Provision For Income
Taxes................. 552,606 483,670 565,047 126,153 125,214
---------- ---------- ---------- ---------- ----------
Income From Continuing
Operations............. $ 742,306 $ 618,243 $ 477,791 $ 180,179 $ 178,412
---------- ---------- ---------- ---------- ----------
Discontinued Operations:
Income from operations,
less applicable income
taxes and minority
interest of $64,923 in
1994, $60,835 in 1995,
$13,466 in 1996 and
$5,169 in the three
months ended March 31,
1996.................. $ 42,075 $ 48,305 $ 15,502 $ 4,999 $ --
Provision for loss on
disposal, less
applicable income tax
benefit and minority
interest of $34,151 in
1995 and $58,792 in
1996.................. -- (62,649) (301,208) -- --
---------- ---------- ---------- ---------- ----------
Net Income.............. $ 784,381 $ 603,899 $ 192,085 $ 185,178 $ 178,412
========== ========== ========== ========== ==========
Average Common and
Common Equivalent
Shares Outstanding..... 484,144 485,972 490,263 489,913 484,719
========== ========== ========== ========== ==========
Earnings (Loss) per Com-
mon and Common Equiva-
lent Share:
Continuing Operations.. $ 1.53 $ 1.27 $ .97 $ .37 $ .37
Discontinued Opera-
tions--
Income from opera-
tions................ .09 .10 .03 .01 --
Provision for loss.... -- (.13) (.61) -- --
---------- ---------- ---------- ---------- ----------
Net Income.............. $ 1.62 $ 1.24 $ .39 $ .38 $ .37
========== ========== ========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($000'S OMITTED EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 169,541 $ 323,288 $ 491,749
Short-term investments................. 34,156 341,338 653,006
Accounts receivable, less reserve of
$61,927 in 1995, $47,523 in 1996 and
$42,781 in 1997....................... 1,655,533 1,681,817 1,618,608
Employee receivables................... 8,496 10,084 10,314
Parts and supplies..................... 150,528 142,417 148,767
Costs and estimated earnings in excess
of billings on uncompleted contracts.. 242,675 240,531 255,184
Prepaid expenses....................... 347,156 353,749 370,385
----------- ----------- -----------
Total Current Assets................ $ 2,608,085 $ 3,093,224 $ 3,548,013
----------- ----------- -----------
Property and Equipment, at cost
Land, primarily disposal sites......... $ 4,553,717 $ 5,019,065 $ 5,012,586
Buildings.............................. 1,532,305 1,495,252 1,485,386
Vehicles and equipment................. 7,164,767 7,520,902 7,437,287
Leasehold improvements................. 84,587 85,998 86,816
----------- ----------- -----------
$13,335,376 $14,121,217 $14,022,075
Less--Accumulated depreciation and am-
ortization............................ (3,829,658) (4,399,508) (4,483,466)
----------- ----------- -----------
Total Property and Equipment, Net... $ 9,505,718 $ 9,721,709 $ 9,538,609
----------- ----------- -----------
Other Assets
Intangible assets relating to acquired
businesses, net....................... $ 3,823,323 $ 3,885,293 $ 3,749,401
Sundry, including other investments.... 1,550,672 1,452,057 920,779
Net assets of discontinued operations.. 876,476 214,309 276,797
----------- ----------- -----------
Total Other Assets.................. $ 6,250,471 $ 5,551,659 $ 4,946,977
----------- ----------- -----------
Total Assets...................... $18,364,274 $18,366,592 $18,033,599
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-4
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

($000'S OMITTED EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31
------------------------ MARCH 31
1995 1996 1997
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Liabilities
Portion of long-term debt payable
within one year....................... $ 1,088,033 $ 553,493 $ 1,063,426
Accounts payable....................... 994,164 948,350 854,398
Accrued expenses....................... 906,121 1,324,324 1,563,871
Unearned revenue....................... 204,166 212,541 208,800
----------- ----------- -----------
Total Current Liabilities........... $ 3,192,484 $ 3,038,708 $ 3,690,495
----------- ----------- -----------
Deferred Items
Income taxes........................... $ 922,500 $ 1,011,593 $ 921,031
Environmental liabilities.............. 621,186 543,723 503,989
Other.................................. 648,464 641,918 641,956
----------- ----------- -----------
Total Deferred Items................ $ 2,192,150 $ 2,197,234 $ 2,066,976
----------- ----------- -----------
Long-Term Debt, less portion payable
within one year........................ $ 6,390,041 $ 6,971,607 $ 6,139,969
----------- ----------- -----------
Minority Interest in Subsidiaries....... $ 1,385,301 $ 1,186,955 $ 1,157,147
----------- ----------- -----------
Commitments and Contingencies........... $ $ $
----------- ----------- -----------
Put Options............................. $ 261,959 $ 95,789 $ --
----------- ----------- -----------
Stockholders' Equity
Preferred stock, $1 par value (issuable
in series); 50,000,000 shares
authorized; none outstanding during
the periods........................... $ -- $ -- $ --
Common stock, $1 par value;
1,500,000,000 shares authorized;
498,817,093 shares issued in 1995 and
507,101,774 in 1996 and 1997.......... 498,817 507,102 507,102
Additional paid-in capital............. 422,801 864,730 932,836
Cumulative translation adjustment...... (102,943) (79,213) (186,139)
Retained earnings...................... 4,486,877 4,363,754 4,463,002
----------- ----------- -----------
$ 5,305,552 $ 5,656,373 $ 5,716,801
Less--Treasury stock; 12,782,864 shares
in 1996 and 12,291,956 in 1997,
at cost.......................... -- 419,871 403,747
1988 Employee Stock Ownership Plan... 13,062 6,396 4,729
Employee Stock Benefit Trust
(11,769,788 shares in 1995 and
10,886,361 shares in 1996 and 1997,
at market).......................... 350,151 353,807 329,313
----------- ----------- -----------
Total Stockholders' Equity.......... $ 4,942,339 $ 4,876,299 $ 4,979,012
----------- ----------- -----------
Total Liabilities and Stockhold-
ers' Equity...................... $18,364,274 $18,366,592 $18,033,599
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these balance sheets.

F-5
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1994.................... $496,217 $668,470 $(245,587) $3,693,108 $425,097 $27,659 $ --
-------- -------- --------- ---------- -------- ------- --------
Net income for the
year.................. $ -- $ -- $ -- $ 784,381 $ -- $ -- $ --
Cash dividends ($.60
per share)............ -- -- -- (290,266) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 5,617 -- (5,617) -- -- --
Stock issued upon
exercise of stock
options............... -- (5,948) -- -- (8,250) -- (5,928)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 260 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 1,527 -- -- -- -- --
Contribution to 1988
ESOP (375,312 shares). -- -- -- -- -- (7,930) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 2,741 -- --
Stock issued upon
conversion of LYONs... 96 1,442 -- -- (56) -- --
Common stock issued for
acquisitions.......... 74 1,471 -- -- -- -- --
Temporary equity
related to put
options............... -- (252,328) -- -- -- -- --
Proceeds from sale of
put options........... -- 29,965 -- -- -- -- --
Sale of shares to
Employee Stock Benefit
Trust (12,601,609
shares)............... -- (106,327) -- -- (419,792) -- 313,465
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 16,064 -- -- -- -- 16,064
Transfer of equity
interests among
controlled
subsidiaries.......... -- (2,803) -- -- -- -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- 94,755 -- -- -- --
-------- -------- --------- ---------- -------- ------- --------
Balance, December 31,
1994.................... $496,387 $357,150 $(150,832) $4,181,606 $ -- $19,729 $323,601
-------- -------- --------- ---------- -------- ------- --------
Net income for the
year.................. $ -- $ -- $ -- $ 603,899 $ -- $ -- $ --
Cash dividends ($.60
per share)............ -- -- -- (291,421) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 7,207 -- (7,207) -- -- --
Stock issued upon
exercise of stock
options............... 44 (4,405) -- -- (1,763) -- (17,393)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 663 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 2,049 -- -- -- -- --
Contribution to 1988
ESOP (322,508 shares). -- -- -- -- -- (6,667) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 1,100 -- --
Common stock issued
upon conversion of
LYONs................. 150 2,448 -- -- -- -- --
Common stock issued for
acquisitions.......... 2,236 13,908 -- -- -- -- --
Temporary equity
related to put
options............... -- (9,631) -- -- -- -- --
Proceeds from sale of
put options........... -- 21,622 -- -- -- -- --
Settlement of put
options............... -- (12,019) -- -- -- -- --
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 43,943 -- -- -- -- 43,943
Transfer of equity
interests among
controlled
subsidiaries.......... -- 529 -- -- -- -- --
Cumulative translation
adjustment of foreign
currency statements... -- -- 47,889 -- -- -- --
-------- -------- --------- ---------- -------- ------- --------
Balance, December 31,
1995.................... $498,817 $422,801 $(102,943) $4,486,877 $ -- $13,062 $350,151
-------- -------- --------- ---------- -------- ------- --------
Net income for the
year.................. $ -- $ -- $ -- $ 192,085 $ -- $ -- $ --
Cash dividends ($.63
per share)............ -- -- -- (308,265) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 6,943 -- (6,943) -- -- --
Stock repurchase
(14,390,000 shares)... -- -- -- -- 473,560 -- --
Stock issued upon
exercise of stock
options and grant of
restricted stock...... 217 (10,938) -- -- (53,323) -- (28,622)
Treasury stock received
in connection with
exercise of stock
options............... -- -- -- -- 5,458 -- --
Tax benefit of non-
qualified stock
options exercised..... -- 6,859 -- -- -- -- --
Contribution to 1988
ESOP (307,041 shares). -- -- -- -- -- (6,666) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 2,513 -- --
Common stock issued
upon conversion of
LYONs................. 111 1,905 -- -- (160) -- --
Stock issued for
acquisitions.......... 7,957 219,867 -- -- (8,177) -- --
Temporary equity
related to put
options............... -- 166,170 -- -- -- -- --
Proceeds from sale of
put options........... -- 18,845 -- -- -- -- --
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- 32,278 -- -- -- -- 32,278
Cumulative translation
adjustment of foreign
currency statements... -- -- 23,730 -- -- -- --
-------- -------- --------- ---------- -------- ------- --------
Balance, December 31,
1996.................... $507,102 $864,730 $ (79,213) $4,363,754 $419,871 $ 6,396 $353,807
======== ======== ========= ========== ======== ======= ========
</TABLE>

F-6
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS AND (UNAUDITED) THREE MONTHS ENDED MARCH 31, 1997
(CONTINUED)
($000'S OMITTED EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1988
EMPLOYEE EMPLOYEE
ADDITIONAL CUMULATIVE STOCK STOCK
COMMON PAID-IN TRANSLATION RETAINED TREASURY OWNERSHIP BENEFIT
STOCK CAPITAL ADJUSTMENT EARNINGS STOCK PLAN TRUST
-------- ---------- ----------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................... $507,102 $864,730 $(79,213) $4,363,754 $419,871 $6,396 $353,807
Net income for the
period................ -- -- -- 178,412 -- -- --
Cash dividends ($.16
per share)............ -- -- -- (77,422) -- -- --
Dividends paid to
Employee Stock Benefit
Trust................. -- 1,742 -- (1,742) -- -- --
Stock issued upon
exercise of stock
options............... -- (4,733) -- -- (16,029) -- --
Tax benefit of non-
qualified stock
options exercised..... -- 1,498 -- -- -- -- --
Contribution to 1988
ESOP.................. -- -- -- -- -- (1,667) --
Treasury stock received
as settlement for
claims................ -- -- -- -- 141 -- --
Common stock issued
upon conversion of
LYONs................. -- (91) -- -- (236) -- --
Temporary equity
related to put
options............... -- 95,789 -- -- -- -- --
Settlement of put op-
tions................. -- (1,605) -- -- -- -- --
Adjustment of Employee
Stock Benefit Trust to
market value.......... -- (24,494) -- -- -- -- (24,494)
Cumulative translation
adjustment of foreign
currency statements... -- -- (106,926) -- -- -- --
-------- -------- --------- ---------- -------- ------ --------
Balance, March 31, 1997
(Unaudited)............ $507,102 $932,836 $(186,139) $4,463,002 $403,747 $4,729 $329,313
======== ======== ========= ========== ======== ====== ========
</TABLE>

The accompanying notes are an integral part of these statements.

F-7
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

INCREASE (DECREASE) IN CASH ($000'S OMITTED)

<TABLE>
<CAPTION>
FOR THE THREE
FOR THE YEARS ENDED MONTHS ENDED MARCH
DECEMBER 31 31
------------------------------------- ---------------------
1994 1995 1996 1996 1997
----------- ----------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income for the
period................ $ 784,381 $ 603,899 $ 192,085 $ 185,178 $ 178,412
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization.......... 880,466 885,384 920,685 222,926 213,048
Provision for deferred
income taxes.......... 298,564 250,828 289,027 65,252 34,957
Minority interest in
subsidiaries.......... 149,703 138,162 121,169 28,075 27,762
Interest on Liquid
Yield Option Notes
(LYONs) and Waste
Management
Subordinated Notes.... 33,551 23,021 11,157 2,864 5,486
Contribution to 1988
Employee Stock
Ownership Plan (ESOP). 7,930 6,667 6,666 1,667 1,667
Special charges, net of
tax and minority
interest.............. -- 202,492 379,415 -- --
Provision for loss on
disposal of
discontinued
operations, net of tax
and minority interest. -- 62,649 301,208 -- --
Changes in assets and
liabilities, excluding
effects of acquired
companies:
Receivables, net....... (133,506) 45,232 (845) 31,434 20,632
Other current assets... (109,174) 28,724 (1,709) (31,351) (41,527)
Sundry other assets.... (42,195) (72,282) (122,777) 17,976 (20,243)
Accounts payable....... 155,254 39,669 (59,410) (234,807) (76,134)
Accrued expenses and
unearned revenue...... 43,121 (227,700) 20,830 8,745 17,945
Deferred items......... (259,020) 61,557 (167,702) (59,301) (32,035)
Other, net............. (838) (13,044) 17,074 (374) (8,509)
----------- ----------- ----------- --------- ---------
Net Cash Provided by
Operating Activities $ 1,808,237 $ 2,035,258 $ 1,906,873 $ 238,284 $ 321,461
----------- ----------- ----------- --------- ---------
Cash flows from
investing activities:
Short-term investments. $ 2,755 $ (4,196) $ 1,170 $ 11,607 $ 811
Capital expenditures... (1,455,628) (1,386,932) (1,125,161) (280,551) (151,257)
Proceeds from sale of
assets and of asset
monetization program.. 276,822 141,774 712,359 25,546 330,016
Cost of acquisitions,
net of cash acquired.. (197,201) (224,304) (104,778) (35,695) (2,344)
Other investments...... (74,446) (44,193) (192,808) (26,496) 11,393
Acquisition of minority
interests............. (57,865) (170,854) (342,034) (81,811) (10,013)
----------- ----------- ----------- --------- ---------
Net Cash Provided by
(Used for) Investing
Activities $(1,505,563) $(1,688,705) $(1,051,252) $(387,400) $ 178,606
----------- ----------- ----------- --------- ---------
Cash flows from
financing activities:
Cash dividends......... $ (290,266) $ (291,421) $ (308,265) $ (74,173) $ (77,422)
Proceeds from issuance
of indebtedness....... 1,710,586 1,803,383 2,918,730 342,979 222,691
Repayments of
indebtedness.......... (1,752,552) (1,860,451) (2,933,632) (213,895) (486,566)
Proceeds from exercise
of stock options, net. 7,970 14,132 65,766 9,763 11,296
Contributions from
minority interests.... 22,169 24,394 10,242 2,143 --
Stock repurchases...... -- -- (473,560) -- --
Proceeds from sale of
put options........... 29,965 21,622 18,845 -- --
Settlement of put
options............... -- (12,019) -- -- (1,605)
----------- ----------- ----------- --------- ---------
Net Cash Provided by
(Used for) Financing
Activities............. $ (272,128) $ (300,360) $ (701,874) $ 66,817 $(331,606)
----------- ----------- ----------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ $ 30,546 $ 46,193 $ 153,747 $ (82,299) $ 168,461
Cash and cash
equivalents at
beginning of period.... 92,802 123,348 169,541 169,541 323,288
----------- ----------- ----------- --------- ---------
Cash and cash
equivalents at end of
period................. $ 123,348 $ 169,541 $ 323,288 $ 87,242 $ 491,749
=========== =========== =========== ========= =========
The Company considers
cash and cash
equivalents to include
currency on hand,
demand deposits with
banks and short-term
investments with
maturities of less than
three months when
purchased.
Supplemental disclosures
of cash flow
information:
Cash paid during the
period for:
Interest, net of
amounts capitalized... $ 307,257 $ 401,715 $ 364,601 $ 96,451 $ 92,863
Income taxes, net of
refunds received...... $ 241,657 $ 283,165 $ 326,679 $ 31,538 $ 87,660
Supplemental schedule of
noncash investing and
financing activities:
LYONs converted into
common stock of the
Company............... $ 1,594 $ 2,598 $ 2,176 $ 1,868 $ 145
Liabilities assumed in
acquisitions of
businesses............ $ 244,560 $ 245,918 $ 128,297 $ 89,820 $ --
Fair market value of
Company and subsidiary
stock issued for
acquired businesses... $ 4,773 $ 66,172 $ 236,001 $ 205,711 $ --
Company Subordinated
Notes issued for
acquisition of CWM
minority interest..... $ -- $ 436,830 $ -- $ -- $ --
</TABLE>

The accompanying notes are an integral part of these statements.

F-8
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)

NOTE 1. BUSINESS AND FINANCIAL STATEMENTS

Waste Management, Inc. (formerly WMX Technologies, Inc.) and its
subsidiaries (the "Company") provide waste management services to
governmental, residential, commercial, and industrial customers in the United
States and in select international markets. The Company previously provided
process engineering and construction, specialty contracting, infrastructure
and environmental engineering and consulting, and industrial scaffolding
services through its Rust International Inc. ("Rust") subsidiary, water
process systems, equipment manufacturing and water and wastewater facility
operations and privatization services through its Wheelabrator Technologies
Inc. ("WTI") subsidiary, and high organic waste fuels blending services
through its Chemical Waste Management, Inc. ("CWM") subsidiary. As of December
31, 1996, the Company has sold or plans to exit all of these businesses, and
accordingly they have been classified as discontinued operations in the
accompanying financial statements. In the future, the Company will operate
only in the waste management services industry segment.

The accompanying financial statements are prepared on a consolidated basis
and include the Company and its majority-owned subsidiaries. All significant
intercompany transactions and balances have been eliminated. See Note 13 for
details of certain financial information by geographic area.

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Future events could alter such
estimates in the near term.

NOTE 2. SUMMARY OF ACCOUNTING POLICIES

Unaudited Periods

All information in the financial statements and the accompanying notes
related to the three months ended March 31, 1996 and 1997 is unaudited. In the
opinion of management, the unaudited financial statements reflect all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly 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.

Revenue Recognition

The Company recognizes revenue from long-term contracts on the percentage-
of-completion basis with losses recognized in full when identified. Changes in
project performance and conditions, estimated profitability and final contract
settlements may result in future revisions to costs and income. Other revenues
are recognized when the services are performed.

Foreign Currency

Certain foreign subsidiaries' assets and liabilities are translated at the
rates of exchange at the balance sheet date while income statement accounts
are translated at the average exchange rates in effect during the period. The
resulting translation adjustments are charged or credited directly to
stockholders' equity. Foreign exchange losses (net of related income taxes and
minority interest) of $3,321,000, $2,231,000 and $345,000 are included in the
Consolidated Statements of Income for 1994, 1995 and 1996, respectively.

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

F-9
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company's short-term investments primarily consist of securities having
an investment grade of not less than A and a term to maturity generally of
less than one year, and because the investments have always been held to
maturity, have historically been carried at cost. Such investments include
tax-exempt securities, certificates of deposit and eurodollar time deposits.
At December 31, 1996, such investments include the shares of Wessex Water Plc
("Wessex") (see Note 14) which are carried at market value.

Environmental Liabilities

The Company provides for estimated closure and post-closure monitoring costs
over the operating life of disposal sites as airspace is consumed. The Company
has also established procedures to evaluate potential remedial liabilities at
closed sites which it owns or operated, or to which it transported waste,
including 94 sites listed on the Superfund National Priority List ("NPL").
Where the Company concludes that it is probable that a liability has been
incurred, provision is made in the financial statements, based upon
management's judgment and prior experience, for the Company's best estimate of
the liability. Such estimates are subsequently revised as deemed necessary as
additional information becomes available. See Note 7 for additional
information.

Contracts in Process

Information with respect to contracts in process at December 31, 1995 and
1996, is as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Costs and estimated earnings on uncompleted
contracts.......................................... $1,176,601 $1,192,215
Less: Billing on uncompleted contracts.............. (952,818) (979,918)
---------- ----------
Total contracts in process........................ $ 223,783 $ 212,297
========== ==========
Contracts in process are included in the Consolidated Balance Sheets under
the following captions:

Costs and estimated earnings in excess of billings
on uncompleted contracts........................... $ 242,675 $ 240,531
Billings in excess of costs and estimated earnings
on uncompleted contracts (included in unearned
revenue)........................................... (18,892) (28,234)
---------- ----------
Total contracts in process........................ $ 223,783 $ 212,297
========== ==========
</TABLE>

All contracts in process are expected to be billed and collected within five
years.

Accounts receivable includes retainage which has been billed, but which is
not due pursuant to contract provisions until completion. Such retainage at
December 31, 1996, is $8,008,000, including $1,300,000 that is expected to be
collected after one year. At December 31, 1995, retainage was $12,846,000.

Property and Equipment

Property and equipment (including major repairs and improvements) are
capitalized and stated at cost. Items of an ordinary maintenance or repair
nature are charged directly to operations. Disposal sites are carried at cost
and to the extent this exceeds end use realizable value, such excess is

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

F-10
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Preparation costs for individual secure land disposal cells are recorded as
prepaid expenses and amortized as the airspace is filled. Significant costs
capitalized for such cells include excavation and grading costs, costs
relating to the design and construction of liner systems, and gas collection
and leachate collection systems. Unamortized cell construction cost at
December 31, 1995 and 1996, was $187,689,000 and $190,276,000, respectively.

Depreciation and Amortization

The cost, less estimated salvage value, of property and equipment is
depreciated over the estimated useful lives on the straight-line method as
follows: buildings--10 to 40 years; vehicles and equipment--3 to 20 years;
leasehold improvements--over the life of the applicable lease.

Intangible Assets

Intangible assets relating to acquired businesses consist primarily of the
cost of purchased businesses in excess of market value of net assets acquired
("goodwill"). Such goodwill is being amortized on a straight-line basis over a
period of not more than forty years. The accumulated amortization of
intangible assets amounted to $539,849,000 and $659,226,000 as of December 31,
1995 and 1996, respectively.

On an ongoing basis, the Company measures realizability of goodwill by the
ability of the acquired business to generate current and expected future
operating income in excess of annual amortization. If such realizability is in
doubt, an adjustment is made to reduce the carrying value of the goodwill.

Capitalized Interest

Interest has been capitalized on significant landfills, trash-to-energy
plants and other projects under construction in accordance with Statement of
Financial Accounting Standards ("FAS") No. 34. Amounts capitalized and netted
against Interest Expense in the Consolidated Statements of Income were
$104,512,000 in 1994, $81,471,000 in 1995 and $73,347,000 in 1996.

Accounting Principles

Effective January 1, 1996, the Company adopted FAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." The change did not have a material impact on the Company's financial
statements.

Also in 1996, FAS No. 123, "Accounting for Stock-Based Compensation" became
effective. FAS 123 provides an optional new method of accounting for employee
stock options and expands required disclosure about stock options. If the
optional method of accounting is not adopted, disclosure is to be made, if
material, of pro forma net income and earnings per share as if it were. The
impact of the optional new accounting on net income and earnings per share was
immaterial and the Company elected not to adopt the optional accounting.

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

F-11
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In October 1996, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of
Position ("SOP") 96-1, "Environmental Remediation Liabilities" which became
effective in 1997. The SOP provides that environmental remediation liabilities
should be accrued when the criteria of FAS 5, "Accounting for Contingencies,"
are met. Included in the SOP are benchmarks to aid in the determination of
when such criteria are met and environmental liabilities should be recognized.
The SOP also provides that an accrual for environmental liabilities should
include future costs of compensation and benefits for those employees expected
to devote a significant amount of time directly to the remediation effort. The
adoption of SOP 96-1 did not have a material impact on the Company's financial
statements.

In February 1997, the Financial Accounting Standards Board issued FAS No.
128, "Earnings Per Share." This statement supercedes Accounting Principles
Board Opinion No. 15. Pursuant to FAS No. 128, Primary EPS is replaced by
Basic EPS, which is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for
the period. In addition, fully diluted EPS is replaced with Diluted EPS, which
gives effect to all common shares that would have been outstanding if all
dilutive potential common shares (relating to such things as the exercise of
stock options and convertible debt) had been issued.

FAS No. 128 is effective for interim and annual periods ending after
December 15, 1997. Earlier application is not permitted, but when the opinion
becomes effective, all prior periods presented must be restated. EPS computed
in accordance with FAS No. 128 for the three months ended March 31, 1996 and
1997, would have been as follows:

<TABLE>
<CAPTION>
1996 1997
----- -----
<S> <C> <C>
Continuing Operations--
Basic.......................................................... $0.37 $0.37
Diluted........................................................ 0.36 0.36
Discontinued Operations--
Basic.......................................................... $0.01 $ --
Diluted........................................................ 0.01 --
</TABLE>

Restatement

Certain amounts in previously issued financial statements have been restated
to conform to 1997 classifications.

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

F-12
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 3. INCOME TAXES

The following tables set forth income from continuing operations before
income taxes, showing domestic and international sources, and the income tax
provision showing the components by governmental taxing authority, for the
years 1994 through 1996:

Income From Continuing Operations Before Income Taxes

<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Domestic................................ $1,133,281 $1,112,409 $1,037,191
International........................... 161,631 (10,496) 5,647
---------- ---------- ----------
$1,294,912 $1,101,913 $1,042,838
========== ========== ==========

Income Tax Provision (Benefit)

Current tax expense
U.S. federal.......................... $ 206,247 $ 210,367 $ 265,067
State and local....................... 47,573 46,511 63,161
Foreign............................... 25,650 35,905 17,086
---------- ---------- ----------
Total current........................... $ 279,470 $ 292,783 $ 345,314
---------- ---------- ----------
Deferred tax expense
U.S. federal.......................... $ 202,785 $ 175,688 $ 129,630
State and local....................... 30,841 34,784 14,857
Foreign............................... 42,105 (18,501) 76,025
---------- ---------- ----------
Total deferred.......................... $ 275,731 $ 191,971 $ 220,512
---------- ---------- ----------
U.S. federal benefit from amortization
of deferred investment credit.......... $ (2,595) $ (1,084) $ (779)
---------- ---------- ----------
Total provision......................... $ 552,606 $ 483,670 $ 565,047
========== ========== ==========
</TABLE>

The federal statutory tax rate in 1994, 1995 and 1996 is reconciled to the
effective tax rate as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory rate............................... 35.0% 35.0% 35.0%
State and local taxes, net of federal benefit............. 3.9 4.8 4.9
Amortization of deferred investment credit................ (0.2) (0.1) (0.1)
Amortization of intangible assets relating to acquired
businesses............................................... 2.1 2.6 3.8
U.S. taxes on foreign income.............................. 1.2 -- 3.0
Write-down of investment in subsidiary.................... -- -- 5.7
Federal tax credits....................................... (1.0) (1.3) (1.4)
Minority interest......................................... 3.8 3.0 2.8
Other, net................................................ (2.1) (0.1) 0.5
---- ---- ----
Effective tax rate........................................ 42.7% 43.9% 54.2%
==== ==== ====
</TABLE>

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

F-13
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company uses the deferral method of accounting for investment credit,
whereby the credit is recorded in income over the composite life of the
related equipment.

Deferred income taxes result from the recognition, in different periods, of
revenue and expense for tax and financial statement purposes. The primary
components that comprise the 1995 and 1996 deferred tax (assets) liabilities
are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Deferred tax assets
Reserves not deductible until paid................ $ (503,074) $ (495,940)
Deferred revenue.................................. (37,284) (16,158)
Net operating losses and tax credit carryforwards. (266,916) (233,008)
Other............................................. (78,474) (73,229)
---------- ----------
Subtotal........................................ $ (885,748) $ (818,335)
---------- ----------
Deferred tax liabilities
Depreciation and amortization..................... $1,335,559 $1,384,164
Other............................................. 374,084 359,035
---------- ----------
Subtotal........................................ $1,709,643 $1,743,199
---------- ----------
Valuation allowance................................. 98,605 86,729
---------- ----------
Net deferred tax liabilities...................... $ 922,500 $1,011,593
========== ==========
</TABLE>

The Company's subsidiaries have approximately $11.8 million of alternative
minimum tax credit carryforwards that may be used indefinitely and capital
loss carryforwards of approximately $13.7 million with an expiration date of
1998. Various subsidiaries have U.S. federal and foreign operating loss
carryforwards of approximately $545 million and state operating loss
carryforwards of approximately $482 million. Foreign operating losses of $286
million may be carried forward indefinitely; the remaining loss carryforwards
have expiration dates through the year 2011. Valuation allowances have been
established for uncertainties in realizing the tax benefits of loss
carryforwards and for the basis difference in certain assets. While the
Company expects to realize the deferred tax assets in excess of the valuation
allowances, changes in estimates of future taxable income or in tax laws could
alter this expectation. During 1994 and 1995, the valuation allowance
increased primarily for the uncertainty of foreign operating loss
carryforwards. The valuation allowance decreased in 1996 by approximately
$11.9 million due primarily to the realization of capital loss carryforwards
and adjustments for certain operating loss carryforwards determined to be
unrealizable.

The Company has concluded that its foreign business requires that the
undistributed earnings of its foreign subsidiaries be reinvested indefinitely
outside the United States. If the reinvested earnings were to be remitted, the
U.S. income taxes due under current tax law would not be material.

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

F-14
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table sets forth the provision for income taxes for continuing
operations for the three months ended March 31, 1996 and 1997:

<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Currently payable........................................ $ 58,453 $ 90,450
Deferred................................................. 67,894 34,957
Amortization of deferred investment credit............... (194) (193)
-------- --------
$126,153 $125,214
======== ========
</TABLE>

NOTE 4. BUSINESS COMBINATIONS

During 1994, the Company and its principal subsidiaries acquired 119
businesses for $197,201,000 in cash and notes, $17,305,000 of debt assumed,
73,809 shares of the Company's common stock and 156,124 shares of common stock
of WTI. These acquisitions were accounted for as purchases.

During 1995, 136 businesses were acquired for $224,304,000 in cash and
notes, $77,689,000 of debt assumed, and 2,236,354 shares of the Company's
common stock. Three of the 1995 acquisitions, which otherwise met pooling of
interests criteria, were not significant in the aggregate and, consequently,
prior period financial statements were not restated. The remaining
acquisitions were accounted for as purchases.

Eighty-three businesses were acquired in 1996 for $104,778,000 in cash and
notes, $39,446,000 of debt assumed, and 8,210,568 shares of the Company's
common stock. These acquisitions were accounted for as purchases.

During the three months ended March 31, 1997, the Company and its principal
subsidiaries acquired seven businesses for $2,344,000 in cash and notes. These
acquisitions were accounted for as purchases.

The pro forma effect of the acquisitions made during 1994, 1995, 1996 and
the first quarter of 1997 is not material.

In January 1995, the Company acquired all of the approximately 21.4% of the
outstanding shares of CWM that it did not already own for $436.8 million of
convertible subordinated notes. See Note 5 for additional information. In July
1995, the Company acquired all of the approximately 3.1 million shares of Rust
held by the public, for $16.35 per share in cash.

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

F-15
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 5. DEBT

The details relating to debt (including capitalized leases, which are not
material) as of December 31, 1995 and 1996, are as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Commercial Paper, weighted average interest 5.7% in
1995 and 5.8% in 1996............................... $1,119,356 $ 645,869
Tailored Rate ESOP Notes, weighted average interest
4.74% in 1995 and 4.58% in 1996..................... 20,000 20,000
Debentures, interest 8 3/4%, due 2018................ 249,085 249,085
Notes, interest 6% to 8 1/4%, due 1997-2026.......... 3,334,170 3,834,170
Solid waste disposal revenue bonds, interest 4.63% to
7.15%, due 1998-2013................................ 251,085 239,980
Installment loans and notes payable, interest 5.34%
to 10.6%, due 1997-2020............................. 1,197,848 1,137,130
Project Debt, interest 3.95% to 10.64%, due 1997-
2016................................................ 735,646 833,740
Other long-term borrowings........................... 31,532 30,187
Liquid Yield Option Notes, zero coupon--subordinated,
interest 9%, due 2001............................... 8,945 7,439
Liquid Yield Option Notes, zero coupon--subordinated,
interest 6%, due 2012 ("Exchangeable LYONs")........ 53,996 53,457
Liquid Yield Option Notes, zero coupon--subordinated,
interest 6%, due 2010 ("CWM LYONs")................. 36,840 29,307
Waste Management Subordinated Notes, interest 5.75%,
due 2005............................................ 439,571 444,736
---------- ----------
Total debt........................................... $7,478,074 $7,525,100
Less--current portion................................ 1,088,033 553,493
---------- ----------
Long-term portion.................................... $6,390,041 $6,971,607
========== ==========
</TABLE>

The long-term debt as of December 31, 1996, is due as follows:

<TABLE>
<S> <C>
Second year................................................... $1,088,836
Third year.................................................... 1,371,779
Fourth year................................................... 1,116,061
Fifth year.................................................... 556,750
Sixth year and thereafter..................................... 2,838,181
----------
$6,971,607
==========
</TABLE>

Certain of the Company's borrowings are redeemable at the option of the
holders prior to maturity. Such amounts and certain other borrowings which
would otherwise be classified as current liabilities have been classified as
long-term debt because the Company intends to refinance such borrowings on a
long-term basis with $989,238,000 of committed long-term borrowing facilities
which

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

F-16
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In the Company's acquisition of the outstanding CWM shares it did not
already own, the CWM public stockholders received a convertible subordinated
Waste Management note due 2005, with a principal amount at maturity of $1,000,
for every 81.1 CWM shares held, with cash paid in lieu of issuance of
fractional notes. The notes are subordinated to all existing and future senior
indebtedness of Waste Management. Each note bears cash interest at the rate of
two percent per annum of the $1,000 principal amount at maturity, payable
semi-annually. The difference between the principal amount at maturity of
$1,000 and the $717.80 stated issue price of each note represents the stated
discount. At the option of the holder, each note will be purchased for cash by
Waste Management on March 15, 1998, and March 15, 2000, at prices of $789.95
and $843.03, respectively. Accrued unpaid interest to those dates will also be
paid. The notes will be redeemable by Waste Management on and after March 15,
2000, for cash, at the stated issue price plus accrued stated discount and
accrued but unpaid interest through the date of redemption. In addition, each
note is convertible at any time prior to maturity into 26.078 shares of Waste
Management common stock, subject to adjustment upon the occurrence of certain
events. Upon any such conversion, Waste Management will have the option of
paying cash equal to the market value of the Waste Management shares which
would otherwise be issuable. As of December 31, 1996, there were 549,538 such
notes outstanding with a maturity value amounting to $549,538,000.

In connection with the transaction, CWM LYONs and Exchangeable LYONs which
had been convertible into or exchangeable for CWM shares became convertible
into the number of notes discussed in the preceding paragraph to which the
holders would have been entitled had they converted or exchanged the LYONs
immediately prior to the merger approval.

NOTE 6. DERIVATIVE FINANCIAL INSTRUMENTS

From time to time, the Company and certain of its subsidiaries use
derivatives to manage interest rate, currency and commodity risk. The amount
of such instruments outstanding at any one point in time and gains or losses
from their use have not been and are not expected to be material to the
Company's financial statements.

Interest Rate Agreements

Certain of the Company's subsidiaries have entered into interest rate swap
agreements to
balance fixed and floating rate debt in accordance with management's criteria.
The agreements are contracts to exchange fixed and floating interest rate
payments periodically over the term without the exchange of the underlying
notional amounts. The agreements provide only for the exchange of interest on
the notional amounts at the stated rates, with no multipliers or leverage.
Differences paid or received are recognized as a part of interest expense on
the underlying debt over the life of the agreements. At December 31, 1996,
Waste Management International plc ("Waste Management International") had
outstanding interest rate swaps, all of which entitle it to receive floating
rate and

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

F-17
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Currency Agreements

From time to time, the Company and certain of its subsidiaries use foreign
currency derivatives to seek to mitigate the impact of translation on foreign
earnings and income from foreign investees. Typically these have taken the
form of purchased put options or offsetting put and call options with
different strike prices. The Company receives or pays, based on the notional
amount of the option, the difference between the average exchange rate of the
hedged currency against the base currency and the average (strike price)
contained in the option. Complex instruments involving multipliers or leverage
are not used. Although the purpose for using such derivatives is to mitigate
currency risk, they do not qualify for hedge accounting under generally
accepted accounting principles and accordingly, must be adjusted to market
value at the end of each accounting period. There were no currency derivatives
outstanding at December 31, 1996.

Commodity Agreements

The Company utilizes collars, calls and swaps to seek to mitigate the risk
of price fluctuations on the fuel used by its vehicles. Quantities hedged
equate to committed fuel purchases or anticipated usage and accordingly, gains
and losses are deferred and recognized as fuel is purchased.

The following table summarizes the Company's position in crude oil
derivatives as of December 31, 1996.

<TABLE>
<CAPTION>
TYPE QUANTITY EXPIRATION
---- ---------- ----------
<S> <C> <C>
Swaps.................................................. 750 bbls 1997
Collars................................................ 700 bbls 1998
Swaps.................................................. 2,000 bbls 1998
Collars................................................ 2,100 bbls 1999
</TABLE>

The Company is exposed to credit loss in the event of non-performance by
counterparties on interest rate, currency and commodity derivatives, but in
all cases such counterparties are highly rated financial institutions and the
Company does not anticipate non-performance. Maximum credit exposure is
represented by the fair value of contracts with a positive fair value at
December 31, 1996, which is not material.

NOTE 7. ENVIRONMENTAL COSTS AND LIABILITIES

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

F-18
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

As part of its ongoing operations, the Company provides for estimated
closure and post-closure monitoring costs over the operating life of disposal
sites as airspace is consumed. Such costs for U.S. landfills are estimated
based on the technical requirements of the Subtitle C and D Regulations of the
U.S. Environmental Protection Agency or the applicable state requirements,
whichever are stricter, and include such items as final cap and cover on the
site, methane gas and leachate management, and groundwater monitoring.
Substantially the same standards are applied to estimate costs for foreign
sites, even though current regulations in some foreign jurisdictions are less
strict.

The Company has also established procedures to evaluate its potential
remedial liabilities at closed sites which it owns or operated, or to which it
transported waste, including 94 sites listed on the NPL as of March 31, 1997.
The majority of situations involving NPL sites relate to allegations that
subsidiaries of the Company (or their predecessors) transported waste to the
facilities in question, often prior to the acquisition of such subsidiaries by
the Company. The Company routinely reviews and evaluates sites requiring
remediation, including NPL sites, giving consideration to the nature (e.g.,
owner, operator, transporter, or generator), and the extent (e.g., amount and
nature of waste hauled to the location, number of years of site operation by
the Company, or other relevant factors) of the Company's alleged connection
with the site, the accuracy and strength of evidence connecting the Company to
the location, the number, connection and financial ability of other named and
unnamed potentially responsible parties ("PRPs"), and the nature and estimated
cost of the likely remedy. Cost estimates are 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 are jointly and severably 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
such cases, the Company provides for the amount within the range which
constitutes its best estimate. If no amount within the range appears to be a
better estimate than any other amount, then the Company provides for the
minimum amount within the range in accordance with FAS 5. The Company believes
that it is "reasonably possible," as that term is defined in FAS 5 ("more than
remote but less than likely"), that its potential liability could be at the
high end of such ranges, which would be approximately $180 million higher in
the aggregate than the estimate that has been recorded in the financial
statements as of December 31, 1996.

Estimates of the extent 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 from current estimates. However, the Company
believes that its extensive experience in the environmental services business,
as well as its involvement with a large number of sites, provides a reasonable
basis for estimating its aggregate liability. As additional information
becomes available, estimates are adjusted as necessary. While the Company does
not anticipate that any such adjustment would be material to its financial
statements, it is reasonably possible that technological, regulatory or
enforcement developments, the results of environmental studies or other
factors could necessitate the recording of additional liabilities which could
be material.

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

F-19
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 at 3% until expected
time of payment and then discounted to present value at 7%. Had the Company
not discounted any portion of its liability, the amount recorded would have
been increased by approximately $160 million at December 31, 1996.

The Company's active landfill sites have estimated remaining lives ranging
from one to over 100 years based upon current site plans and annual volumes of
waste. During this remaining site life, the Company will provide for an
additional $1.03 billion of closure and post-closure costs, including
accretion for the discount recognized to date.

As of December 31, the Company's liabilities for closure, post-closure
monitoring and environmental remediation costs were as follows:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Current portion, included in Accrued Expenses......... $ 138,533 $ 122,209
Non-current portion................................... 621,186 543,723
---------- ----------
Total recorded...................................... $ 759,719 $ 665,932
Amount to be provided over remaining life of active
sites, including discount of $171 million in 1995 and
$160 million in 1996................................. 1,118,739 1,028,437
---------- ----------
Expected aggregate undiscounted environmental liabili-
ties................................................. $1,878,458 $1,694,369
========== ==========
</TABLE>

Anticipated payments of environmental liabilities at December 31, 1996, are
as follows:

<TABLE>
<S> <C>
1997.............................................................. $ 122,209
1998.............................................................. 56,000
1999.............................................................. 47,450
2000.............................................................. 33,571
2001.............................................................. 38,429
Thereafter........................................................ 1,396,710
----------
$1,694,369
==========
</TABLE>

The Company has filed suit against numerous insurance carriers seeking
reimbursement for past and future remedial, defense and tort claim costs at a
number of sites. The carriers involved have denied coverage and are defending
these claims. No amounts have been recognized in the financial statements for
potential future insurance recoveries.

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

F-20
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

NOTE 8. STOCK OPTIONS

The Company has two stock option plans currently in effect under which
future grants may be issued: the 1992 Stock Option Plan (the "1992 Plan") and
the 1992 Stock Option Plan for Non-Employee Directors (the "Directors' Plan").

Options granted under the 1992 Plan are generally exercisable in equal
cumulative installments over a three- to five-year period beginning one year
after the date of grant. Options granted under the Directors' Plan become
exercisable in five equal annual installments beginning six months after the
date of grant.

Under the 1992 Plan, non-qualified stock options may be granted at a price
equal to 100% of the market value on the date of grant, for a term of not less
than five years nor more than ten years. Twelve million five hundred thousand
shares of the Company's common stock were initially reserved for issuance
under this plan.

Pursuant to the Directors' Plan, 150,000 shares of the Company's common
stock were initially reserved. Options for a total of 15,000 shares are to be
granted, in five equal annual installments commencing with election to the
Board, to each person who is not an officer or full-time employee of the
Company or any of its subsidiaries.

As part of the acquisitions of the CWM and Rust shares not previously owned
by the Company, as discussed in Note 4, outstanding CWM stock options were
converted into options to acquire approximately 2,873,000 Company shares at a
weighted-average price of $34.90 per share and outstanding Rust stock options
were converted into options to acquire approximately 1,976,000 Company shares
at a weighted-average price of $30.26 per share.

The status of the plans, including predecessor plans, replacement plans and
similar plans for employees generally (together "Prior Plans") under which
options remain outstanding, during the three years ended December 31, 1996,
was as follows:

<TABLE>
<CAPTION>
1994 1995 1996
---------------- ---------------- ----------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year....................... 11,682 $33.63 13,811 $32.24 19,629 $32.04
Granted..................... 3,729 26.49 3,117 27.29 4,106 31.90
Exercised................... 462 17.77 721 20.47 2,614 25.96
Cancelled:
Prior plans............... 312 36.74 1,111 33.22 1,042 34.76
Current plans............. 826 32.33 316 31.14 424 30.84
Additional shares available
for future grant........... 6,000 -- -- -- 515 --
Converted CWM, Rust and
other stock options........ -- -- 4,849 33.01 515 18.07
Shares no longer available
for future grant........... -- -- 2,914 -- -- --
Outstanding at end of year.. 13,811 32.24 19,629 32.04 20,170 32.33
Options exercisable at end
of year.................... 7,210 33.77 9,860 33.57 12,577 33.87
Options available for future
grant...................... 15,290 -- 4,726 -- 1,044 --
</TABLE>

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

F-21
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ---------------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES SHARES LIFE PRICE SHARES PRICE
- -------------- ------ ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C>
$ 8.57-$17.16 133 5.9 years $15.16 119 $ 15.09
21.39- 29.87 6,930 6.9 years 26.68 3,539 26.52
30.64- 39.27 10,850 6.4 years 33.37 6,682 34.14
40.10- 61.03 2,257 4.0 years 45.68 2,237 45.66
------ ---------
20,170 6.3 years $32.33 12,577 $ 33.87
====== =========
</TABLE>

The Company accounts for these plans under Accounting Principles Board
Opinion 25, under which no compensation cost has been recognized. Had
compensation cost for these plans been determined based on the fair value at
the grant date under the optional method in FAS 123, the impact on the
Company's net income and earnings per share would have been immaterial. Based
on current and anticipated use of stock options, it is not expected that the
impact of the accounting provisions of FAS 123 will be material in future
years.

NOTE 9. CAPITAL STOCK

The Board of Directors has the authority to create and issue up to
50,000,000 shares of preferred stock, par value $1 per share, at such time or
times, in such series, with such designations, preferences and relative
participation, optional or other special rights and qualifications,
limitations or restrictions thereof as it may determine. No shares of the
preferred stock have been issued.

The Boards of Directors of the Company and WTI have authorized their
respective companies to repurchase shares of their own common stock (up to 50
million shares in the case of the Company and 30 million shares in the case of
WTI) in the open market, in privately negotiated transactions, or through
issuer tender offers. These programs extend into 1998. The Company did not
repurchase any shares during the first quarter of 1997, but on April 1 it
commenced a Dutch Auction tender offer through which it subsequently
repurchased 30 million shares of its common stock at $30 per share.

WTI announced in March of 1997 the indefinite deferment of its previously
planned Dutch Auction pending a further review of strategic options in its
core business. However, during the first quarter of 1997, WTI repurchased
762,900 shares of its stock in the open market.

During 1994, 1995 and 1996, the Company sold put options on 42.3 million
shares of its common stock. The put options give the holders the right at
maturity to require the Company to repurchase shares of its common stock at
specified prices. Proceeds from the sale of put options were credited to
additional paid-in capital. The amount the Company would be obligated to pay
to repurchase shares of its common stock if all outstanding put options were
exercised has been reclassified to a temporary equity account. In the event
the options are exercised, the Company may elect to pay the holder in cash the
difference between the strike price and the market price of the Company's
shares, in lieu of repurchasing the stock.

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

F-22
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In February 1997, options on 1.9 million shares were exercised, and the
Company elected to settle them for $1.6 million in cash; 1.0 million options
expired unexercised as the market price of the Company's stock was in excess
of the strike price at maturity. At March 31, 1997, no put options were
outstanding, although the Company may sell such options in the future.

NOTE 10. EARNINGS PER SHARE

Earnings per share are computed on the basis of the weighted-average number
of common and common equivalent shares outstanding during each year. Common
stock equivalents relate primarily to the impact of options outstanding under
the Company's stock option plans.

The following table reconciles the number of common shares shown as
outstanding in the Consolidated Balance Sheets with the number of common
shares used in computing earnings per share:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Common shares issued, net of Treasury Stock and Employee
Stock Benefit Trust shares per Consolidated Balance
Sheets.................................................... 487,047 483,433
Effect of shares issuable under stock options after
applying the "treasury stock" method...................... 627 1,260
Effect of using weighted-average common shares outstanding
during the year........................................... (1,702) 5,570
------- -------
Common shares used in computing earnings per share......... 485,972 490,263
======= =======
</TABLE>

NOTE 11. COMMITMENTS AND CONTINGENCIES

The Company leases several of its operating and office facilities for
various terms. Rents charged to costs and expenses in the Consolidated
Statements of Income amounted to $177,182,000 in 1994, $170,274,000 in 1995
and $164,539,000 in 1996. These amounts include rents under long-term leases,
short-term cancellable leases and rents charged as a percentage of revenue,
but are exclusive of financing leases capitalized for accounting purposes.

The long-term rental obligations as of December 31, 1996, are due as
follows:

<TABLE>
<S> <C>
First year.................................................... $ 154,102
Second year................................................... 139,030
Third year.................................................... 128,832
Fourth year................................................... 120,918
Fifth year.................................................... 110,792
Sixth through tenth years..................................... 487,927
Eleventh year and thereafter.................................. 225,757
----------
$1,367,358
==========
</TABLE>

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

F-23
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The Company's insurance program includes coverage for pollution liability
resulting from "sudden and accidental" releases of contaminants and
pollutants. Management believes that the coverage terms, available limits of
liability, and costs currently offered by the insurance market do not
represent sufficient value to warrant the purchase of "non-sudden and
accidental" pollution liability insurance coverage. As such, the Company has
chosen not to purchase risk transfer "non-sudden and accidental" pollution
liability insurance coverage. To satisfy existing government requirements, the
Company has secured non-risk transfer pollution liability insurance coverage
in amounts believed to be in compliance with federal and state law
requirements for "non-sudden and accidental" pollution. The Company must
reimburse the insurer for losses incurred and covered by this insurance
policy. In the event the Company continues not to purchase risk transfer "non-
sudden and accidental" pollution liability insurance coverage, the Company's
net income could be adversely affected in the future if "non-sudden and
accidental" pollution losses should occur.

The Company has issued or is a party to approximately 3,690 bank letters of
credit, performance bonds and other guarantees. Such financial instruments
(averaging approximately $565,000 each), including those provided for
affiliates and not otherwise recorded, are given in the ordinary course of
business. Because virtually no claims have been made against these financial
instruments in the past, management does not expect these instruments will
have a material adverse effect on the consolidated financial position or
results of operations of the Company.

During the first quarter of 1995, Waste Management International received an
assessment from the Swedish Tax Authority of approximately 417 million Krona
(approximately $60 million) plus interest from the date of the assessment,
relating to a transaction completed in 1990. Waste Management International
believes that all appropriate tax returns and disclosures were properly filed
at the time of the transaction and intends to vigorously contest the
assessment.

A Company subsidiary has been involved in litigation challenging a municipal
zoning ordinance which restricted the height of its New Milford, Connecticut,
landfill to a level below that allowed by the permit previously issued by the
Connecticut Department of Environmental Protection ("DEP"). Although a lower
Court had declared the zoning ordinance's height limitation unconstitutional,
during 1995 the Connecticut Supreme Court reversed this ruling and remanded
the case for further proceedings in the Superior Court. In November 1995, the
Superior Court ordered the subsidiary to apply to the DEP for permission to
remove all waste above the height allowed by the zoning ordinance, and the
Connecticut Supreme Court has upheld that ruling. The Company believes that
the removal of such waste is an inappropriate remedy and is seeking an
alternative resolution to the issue, but is unable to predict the outcome.
Depending upon the nature of any plan eventually approved by applicable
regulatory authorities for removing the waste, the actual volume of waste to
be moved, and other currently unforseeable factors, the subsidiary could incur
costs which would have a material adverse impact on the Company's financial
condition and results of operations in one or more future periods.

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

F-24
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WTI's Gloucester County, New Jersey, facility relies on a disposal franchise
for substantially all of its supply of municipal solid waste. In July 1996, a
Federal District Court permanently enjoined the State of New Jersey from
enforcing its solid waste regulatory flow control system, which was held to be
unconstitutional, but stayed the injunction for as long as its ruling is on
appeal plus an additional period of two years to enable the State to devise an
alternative nondiscriminatory approach. On May 1, 1997, the Third Circuit
Court of Appeals affirmed the District Court's ruling that the New Jersey flow
control system was unconstitutional, but vacated the two year "post appeal"
stay. However, the Appeals Court granted a continued stay for so long as any
appeals are pending. The State has indicated that it will continue to enforce
flow control during the appeal process. The New Jersey
legislature is now considering a bill to authorize counties and authorities,
including the Gloucester County Improvement Authority, which administers WTI's
franchise there, to implement a constitutionally permissible system of
"economic flow control" designed to recover waste disposal costs incurred in
reliance on the State's franchise system.

The Supreme Court's 1994 ruling and subsequent court decisions have not to
date had a material adverse effect on any of the Company's operations. Federal
legislation has been proposed, but not yet enacted, to effectively grandfather
existing flow control mandates. In the event that such legislation is not
adopted, the Company believes that affected municipalities will endeavor to
implement alternative lawful means to continue controlling the flow of waste.
In view of the uncertain state of the law at this time, however, the Company
is unable to predict whether such efforts would be successful or what impact,
if any, this matter might have on the Company's disposal facilities,
particularly WTI's trash-to-energy facilities.

NOTE 12. BENEFIT PLANS

The Company has a defined benefit pension plan for all eligible non-union
domestic employees of the Company, CWM and Waste Management of North America,
Inc. ("WMNA"). The benefits are based on the employee's years of service and
compensation during the highest five consecutive years out of the last ten
years of employment. The Company's funding policy is to contribute annually
the minimum required amount determined by its actuaries.

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

F-25
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Net periodic pension expense for 1994, 1995 and 1996, based on discount
rates of 8.5%, 8.5% and 7.75%, respectively, included the following
components:

<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Service cost--benefits earned during the
year..................................... $ 11,075 $ 11,752 $ 14,047
Interest cost on projected benefit obliga-
tion..................................... 11,532 13,228 14,390
Expected return on plan assets............ (12,335) (13,237) (13,818)
Net amortization and deferral............. (1,310) 33 1,751
-------- -------- --------
Net periodic pension expense.............. $ 8,962 $ 11,776 $ 16,370
======== ======== ========
</TABLE>

Assumptions used to determine the plan's funded status as of December 31 are
as follows:

<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Discount rate................................................. 7.75% 7.75%
Rate of increase in compensation levels....................... 4.0% 3.5%
Expected long-term rate of return on assets................... 9.0% 9.0%
</TABLE>

The following table sets forth the plan's funded status and the amount
recognized in the Company's Consolidated Balance Sheets at December 31, 1995
and 1996, for its pension plan:

<TABLE>
<CAPTION>
1995 1996
--------- ---------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $152,031 and $182,482 at December 31,
1995 and 1996, respectively........................ $(167,287) $(199,561)
========= =========
Projected benefit obligation........................ $(191,059) $(223,729)
Plan assets at fair value, primarily common stocks,
bonds and real estate................................ 167,068 199,722
--------- ---------
Plan assets less than projected benefit obligation.... $ (23,991) $ (24,007)
Unrecognized net loss................................. 29,801 46,618
Unrecognized overfunding at date of adoption (January
1, 1985) of FAS No. 87, net of amortization, being
recognized over 15 years............................. (6,422) (4,855)
--------- ---------
Pension cost included in prepaid (accrued) expenses... $ (612) $ 17,756
========= =========
</TABLE>

The Company also has a non-qualified defined benefit plan for officers of
the Company, CWM and WMNA who have served in such capacities for at least 10
years at the time of retirement. The benefits are based on the officer's years
of service and compensation during the highest three consecutive years out of
the last ten years of employment. The benefits are reduced by such officer's
benefits under the pension plan. This plan is not funded. Expense for 1994,
1995 and 1996 for this plan was $3,418,000, $4,202,000 and $4,247,000,
respectively.

Waste Management International participates in both defined benefit and
defined contribution retirement plans for its employees in various countries.
The projected benefit obligation and the plan

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

F-26
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table analyzes the obligation for postretirement benefits
other than pensions (primarily health care costs), which is included in other
deferred items on the Consolidated Balance Sheets as of December 31, 1995 and
1996:

<TABLE>
<CAPTION>
1995 1996
------- -------
<S> <C> <C>
Accumulated Postretirement Benefit Obligations:
Retirees.................................................. $52,255 $46,453
Other fully eligible participants......................... 9,682 10,459
Other active participants................................. 10,695 17,114
------- -------
$72,632 $74,026
Unrecognized:
Prior service cost........................................ 566 239
Gain...................................................... 7,911 8,496
------- -------
$81,109 $82,761
======= =======
</TABLE>

For measurement purposes, a 7.5% annual rate of increase in the per capita
cost of covered health care claims was assumed for 1997; the rate was assumed
to decrease by 0.5% per year to 6.0% in 2000 and remain at that level
thereafter. Increasing the assumed health care cost trend by one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1996 by approximately $6,812,000, and the
aggregate of the service and interest cost components of net postretirement
health care cost for 1996 by approximately $401,000. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% in 1995 and 1996.

The expense for postretirement health care benefits was $4,668,000 in 1994,
$5,359,000 in 1995 and $4,174,000 in 1996. The service and interest components
of the expense were $1,049,000 and $3,619,000, respectively, in 1994,
$1,094,000 and $4,265,000, respectively, in 1995, and $723,000 and $3,451,000,
respectively, in 1996.

The Company has an Employee Stock Ownership Plan ("1988 ESOP") for all
eligible non-union United States and Canadian employees of the Company, CWM
and WMNA. The benefits are based on the employee's years of service and
compensation. The Company contributes each year an amount, if any, determined
by the Board of Directors of the Company.

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

F-27
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Expense recorded (contribution)........................ $7,930 $6,667 $6,666
====== ====== ======
Interest expense on 1988 ESOP debt..................... $1,965 $1,147 $ 981
====== ====== ======
Dividends on unallocated 1988 ESOP shares used by the
1988 ESOP............................................. $ 780 $ 555 $ 379
====== ====== ======
</TABLE>

The Company has a Profit Sharing and Savings Plan ("PSSP") available to
certain employees of the Company, CWM and WMNA. The terms of the PSSP allow
for annual contributions by the Company as determined by the Board of
Directors as well as a match of employee contributions up to $750 per employee
($500 prior to January 1, 1996). Charges to operations for the PSSP were
$27,334,000 in 1994, $24,882,000 in 1995 and $16,030,000 in 1996. Rust, WTI
and Waste Management International also sponsor non-contributory and
contributory defined contribution plans covering both salaried and hourly
employees. Employer contributions are generally based upon fixed amounts of
eligible compensation and amounted to $12,050,000, $13,603,000 and $12,362,000
during 1994, 1995 and 1996, respectively.

During 1994, the Company established an Employee Stock Benefit Trust and
sold 12.6 million shares of treasury stock to the Trust in return for a 30-
year, 7.33% note with interest payable quarterly and principal due at
maturity. The Company has agreed to contribute to the Trust each quarter funds
sufficient, when added to dividends on the shares held by the Trust, to pay
interest on the note as well as principal outstanding at maturity. At the
direction of an administrative committee comprised of Company officers, the
trustee will use the shares or proceeds from the sale of shares to pay
employee benefits, and to the extent of such payments by the Trust, the
Company will forgive principal and interest on the note. The shares of common
stock issued to the Trust are not considered to be outstanding in the
computation of earnings per share until the shares are utilized to fund
obligations for which the trust was established.

NOTE 13. COMPANY'S OPERATIONS IN DIFFERENT GEOGRAPHICAL AREAS

Through the third quarter of 1996, management and operations of the Company
were based on four principal global lines of business--waste services, clean
energy, clean water, and environmental and infrastructure consulting. In the
fourth quarter of 1996, Rust began implementing plans to exit its remaining
engineering and consulting businesses. In addition, WTI sold its water
process, manufacturing and custom engineered systems businesses and has
entered into an agreement to sell its water and wastewater facility operations
and privatization services. These businesses have been classified as
discontinued operations and, as a result, the Company now operates in only the
waste management services line of business.

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

F-28
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Foreign operations in 1996 were conducted in 10 countries in Europe, seven
countries in the Asia Pacific region, and Canada, Mexico, Brazil, Israel, and
Argentina. The information relating to the Company's continuing foreign
operations is set forth in the following tables:

<TABLE>
<CAPTION>
UNITED OTHER
STATES EUROPE FOREIGN CONSOLIDATED
----------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1994
Revenue......................... $ 6,599,478 $1,322,670 $560,570 $ 8,482,718
=========== ========== ======== ===========
Income from operations.......... $ 1,410,477 $ 184,230 $ 63,205 $ 1,657,912
=========== ========== ======== ===========
Identifiable assets............. $12,030,261 $3,471,012 $748,270 $16,249,543
=========== ========== ======== ===========
1995
Revenue......................... $ 7,012,982 $1,527,291 $512,745 $ 9,053,018
=========== ========== ======== ===========
Income from operations.......... $ 1,456,895 $ 2,415 $ 32,768 $ 1,492,078
=========== ========== ======== ===========
Identifiable assets............. $13,032,695 $3,682,432 $772,671 $17,487,798
=========== ========== ======== ===========
1996
Revenue......................... $ 7,064,516 $1,539,183 $583,271 $ 9,186,970
=========== ========== ======== ===========
Income from operations.......... $ 1,301,579 $ (12,800) $ 74,519 $ 1,363,298
=========== ========== ======== ===========
Identifiable assets............. $13,821,086 $3,503,014 $828,183 $18,152,283
=========== ========== ======== ===========
</TABLE>

No single customer accounted for as much as 3% of consolidated revenue in
1994, 1995 and 1996.

Waste Management International operates facilities in Hong Kong which are
owned by the Hong Kong government. On July 1, 1997, control of the Hong Kong
government transfers to the People's Republic of China. Waste Management
International is unable to predict what impact, if any, this change will have
on its operations in Hong Kong. Waste Management International had
identifiable assets of $245.2 million at December 31, 1996 and $256.3 million
at March 31, 1997 related to its Hong Kong operations, which generated pretax
income of approximately $15.3 million in calendar 1996 and $7.4 million in the
first quarter of 1997.

NOTE 14. SPECIAL CHARGES

In the first quarter of 1995, in response to the continuing deterioration of
the chemical waste services market, CWM realigned its organization, and in
connection therewith, recorded a special charge of $140.6 million before tax
($91.4 million after tax). The charge related primarily to a write-off of the
investment in facilities and technologies that CWM abandoned because they did
not meet customer service or performance objectives, but also includes $22.0
million of future cash payments for rents under non-cancellable leases,
guaranteed bank obligations of a joint venture, and employee severance. The
majority of the cash expenditures were paid in 1995, although certain of the
non-cancellable leases extend through the year 2002.

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

F-29
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED MARCH 31, 1996 AND 1997 IS
UNAUDITED)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
In the fourth quarter of 1995, Waste Management International recorded a
special charge of $194.6 million ($152.4 million after tax) primarily related
to the actions it had decided to take to sell or otherwise dispose of non-core
businesses and investments, as well as core businesses and investments in low
potential markets, abandon certain hazardous waste treatment and processing
technologies, and streamline its country management organization. The charge
reduced the Company's income by approximately $153.3 million before tax
($111.0 million after tax). The charge included $34.3 million of cash payments
for employee severance and rents under non-cancellable leases. Approximately
$11.2 million of the cash costs were paid in 1995. The majority of the balance
was paid in 1996, although certain rent payments on leased facilities will
continue into the future.

In the fourth quarter of 1996, Waste Management International recognized a
provision of $77.0 million after tax related to the sale of its investment in
Wessex and a charge of $169.5 million after tax to revalue its investments in
France, Austria and Spain in contemplation of exiting all or part of these
markets or forming joint ventures. The charge also included the write-off of
an investment in a hazardous waste disposal facility in Germany because
regulatory changes adversely affected its volumes. These charges reduced the
Company's income by $213.6 million after tax.

Also, in the fourth quarter of 1996, WMNA and CWM recorded pretax charges of
$255.0 million ($166.4 million after tax) for reengineering their finance and
administrative functions (primarily related to a reduction in the carrying
value of software) and increasing reserves for certain litigation, including a
dispute involving the computation of royalties on the Emelle, Alabama
hazardous waste landfill. In December 1996, a federal court in Memphis,
Tennessee, held CWM liable for approximately $91.5 million in damages to the
former owners of the Emelle site. CWM is appealing the decision.

Approximately $20.0 million of the reengineering charge related to cash
payments for employee severance. As of March 31, 1997, approximately $5.0
million of this amount had been spent. The balance is expected to be paid by
the end of 1997. In addition, the Company expects that the reengineering will
result in costs of $.08 to $.10 per share which will be charged to income over
the next nine to fifteen months. Such amounts were not significant in the
first quarter.

NOTE 15. DISCONTINUED OPERATIONS

In the fourth quarter of 1995, the Rust Board of Directors approved a plan
to sell or otherwise discontinue Rust's process engineering, construction,
specialty contracting and similar lines of business. During the second quarter
of 1996, the sale of the industrial process engineering and construction
businesses, based in Birmingham, Alabama, was completed.

During the fourth quarter of 1996, WTI sold its water process systems and
equipment manufacturing businesses. WTI has also entered into an agreement to
sell its water and wastewater facility operations and privatization business.
As of September 30, 1996, Rust sold its industrial scaffolding business.

In the fourth quarter of 1996, Rust began implementing plans to exit its
remaining domestic and international engineering and consulting business. CWM
is discontinuing its high organic waste fuel blending services. The Company
recorded a fourth quarter provision for loss of $360.0 million before tax and
minority interest in connection with the planned divestiture of these
businesses.

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

F-30
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Current assets......................................... $576,627 $228,109
Property and equipment and other noncurrent assets..... 758,244 358,116
Current liabilities.................................... (351,150) (287,852)
Noncurrent liabilities................................. (107,245) (84,064)
-------- --------
Net assets of discontinued operations.................. $876,476 $214,309
======== ========
</TABLE>

Revenue from these businesses prior to sale was $134,400,000 for the three
months ended March 31, 1997, and $415,500,000 for the comparable period in
1996. Results of operations for the three months ended March 31, 1997, were
not material and were included in the reserve for loss on disposition provided
previously. The Company expects to complete by the end of 1997 the sale of
those businesses not previously sold.

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

F-31
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of FAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and commonly accepted valuation methodologies. However,
considerable judgment is necessarily required in interpreting market data to
develop the estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the Company or
holders of the instruments could realize in a current market exchange. The use
of different assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts. The fair value estimates presented
herein are based on information available to management as of December 31,
1995, and December 31, 1996. Such amounts have not been revalued since those
dates, and current estimates of fair value may differ significantly from the
amounts presented herein.

<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1996
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Nonderivatives--
Assets--
Cash and cash equivalents..... $ 169,541 $ 169,541 $ 323,288 $ 323,288
Receivables................... 1,664,029 1,664,029 1,691,901 1,691,901
Short-term investments........ 34,156 34,156 341,338 341,338
Liabilities--
Commercial paper.............. 1,119,356 1,120,209 645,869 646,179
Project debt.................. 735,646 880,619 833,740 896,711
Liquid Yield Option Notes and
Company Subordinated Notes... 539,352 576,024 534,939 602,746
Other borrowings.............. 5,083,720 5,284,472 5,510,552 5,609,979
Derivatives relating to debt.... -- (74) -- (4,761)
Other derivatives carried as--
Assets (in Sundry Assets)..... -- -- -- 2,768
Liabilities (in Accrued Ex-
penses)...................... (65) (16,647) -- (82)
Letters of credit, performance
bonds and guarantees........... -- -- -- --
</TABLE>

Cash, Receivables and Investments

The carrying amounts of these items are a reasonable estimate of their fair
value.

Liabilities

For debt issues that are publicly traded, fair values are based on quoted
market prices or dealer quotes. Due to the short-term nature of the ESOP
notes, their carrying value approximates fair value. Interest rates that are
currently available to the Company for issuance of debt with similar terms and
remaining maturities are used to estimate fair value for debt issues that are
not quoted on an exchange.

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

F-32
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Derivatives

The fair value of derivatives generally reflects the estimated amounts that
the Company would receive or pay to terminate the contracts at December 31,
thereby taking into account unrealized gains and losses. Dealer quotes are
available for most of the Company's derivatives. Deferred gains and losses are
shown as assets and liabilities, as offsetting such amounts against the
related nonderivative instrument is permitted only pursuant to a right of
setoff or master netting agreement.

Off-Balance-Sheet Financial Instruments

In the normal course of business, the Company is a party to financial
instruments with off-balance-sheet risk, such as bank letters of credit,
performance bonds and other guarantees, which are not reflected in the
accompanying balance sheets. Such financial instruments are to be valued based
on the amount of exposure under the instrument and the likelihood of
performance being required. In the Company's experience, virtually no claims
have been made against these financial instruments. Management does not expect
any material losses to result from these off-balance-sheet instruments and,
therefore, is of the opinion that the fair value of these instruments is zero.

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

F-33
<PAGE>

WASTE MANAGEMENT, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

NOTE 17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

The following is an analysis of certain items in the Consolidated Statements
of Income by quarter for 1995 and 1996.

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1995
Revenue................. $2,151,774 $2,326,334 $2,322,330 $2,252,580 $9,053,018
Gross profit............ 525,936 722,871 732,424 515,735 2,496,966
Income from continuing
operations............. 91,191 203,090 220,816 103,146 618,243
Net income.............. 101,245 219,127 233,848 49,679 603,899
Income from continuing
operations per common
and common equivalent
share.................. .19 .42 .45 .21 1.27
Net income per common
and common equivalent
share.................. .21 .45 .48 .10 1.24
1996
Revenue................. $2,144,479 $2,330,994 $2,372,746 $2,338,751 $9,186,970
Gross profit............ 649,630 711,739 742,228 238,910 2,342,507
Income (loss) from
continuing operations.. 180,179 217,734 240,164 (160,286) 477,791
Net income (loss)....... 185,178 223,042 245,206 (461,341) 192,085
Income (loss) from
continuing operations
per common and common
equivalent share....... .37 .44 .49 (.33) .97
Net income (loss) per
common and common
equivalent share(1).... .38 .45 .50 (.95) .39
</TABLE>
- ----------
(1)Sum of quarters does not equal total for year.

See Note 14 to Consolidated Financial Statements for a discussion of the
special charges affecting the 1995 and 1996 quarters and full year results.

See Note 15 to Consolidated Financial Statements for a discussion of the
decisions to discontinue certain operations announced during 1995 and 1996.

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

F-34
<PAGE>

WASTE MANAGEMENT, INC.

EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
1. None
2. None
3.1(a) Restated Certificate of Incorporation of registrant, as amended as
of May 24, 1985 (incorporated by reference to Exhibit 4.1 to
registrant's report on Form 10-Q for the quarter ended June 30,
1985)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 23, 1986 (incorporated by reference to
Exhibit 4(c) to registrant's registration statement on Form S-8,
Registration No. 33-6265)
3.1(c) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, recorded May 15, 1987 (incorporated by reference to
Exhibit 4.5(d) to registrant's registration statement on Form S-4,
Registration No. 33-15518)
3.1(d) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 19, 1989 (incorporated by reference to Exhibit
3(e) to registrant's registration statement on Form S-3,
Registration No. 33-30190)
3.1(e) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 18, 1990 (incorporated by reference to Exhibit
4(h) to registrant's registration statement on Form S-8,
Registration No. 33-35936)
3.1(f) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 14, 1993 (incorporated by reference to Exhibit
4(a) to registrant's report on Form 8-K dated May 14, 1993)
3.1(g) Certificate of Amendment of Restated Certificate of Incorporation of
registrant, filed May 9, 1997 (incorporated by reference to Exhibit
3(a) to registrant's report on Form 8-K dated May 9, 1997)
3.1(h) Conformed copy of Restated Certificate of Incorporation of
registrant, as amended (incorporated by reference to Exhibit 3(b) to
registrant's report on Form 8-K dated May 9, 1997)
3.2 By-laws of registrant, as amended and restated as of July 13, 1997
(incorporated by reference to Exhibit 3 to registrant's report on
Form 8-K dated July 13, 1997)
4.1(a) Trust Indenture dated as of August 1, 1989 (incorporated by
reference to Exhibit 4.3(a) to registrant's 1990 annual report on
Form 10-K)
4.1(b) First Supplemental Indenture dated as of December 1, 1990
(incorporated by reference to Exhibit 4.3(b) to registrant's 1990
annual report on Form 10-K)
4.2 Trust Indenture dated as of June 1, 1993 (incorporated by reference
to Exhibit 4 to the registrant's current report on Form 8-K dated
July 15, 1993)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.

EX-1
<PAGE>

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
5.1 Opinion of Thomas A. Witt (incorporated by reference to Exhibit 5 to
registrant's registration statement on Form S-1, Registration No.
333-01327)
6. Inapplicable
7. Inapplicable
8. None
9. None
10.1 1981 Stock Option Plan for Non-Employee Directors of registrant
(incorporated by reference to Exhibit 19 to registrant's report on
Form 10-Q for the quarter ended June 30, 1982)
10.2 Waste Management, Inc. 1982 Stock Option Plan, as amended to March
11, 1988 (incorporated by reference to Exhibit 10.3 to registrant's
1988 annual report on Form 10-K)
10.3 Deferred Director's Fee Plan, as amended (incorporated by reference
to Exhibit 10.3 to registrant's 1990 annual report on Form 10-K)
10.4 Director's Phantom Stock Plan (incorporated by reference to Exhibit
10.9 to registrant's 1984 annual report on Form 10-K)
10.5 Amended and Restated Employment Agreement, dated as of June 17,
1996, by and between the registrant and Phillip B. Rooney
(incorporated by reference to Exhibit 10.1 to registrant's report on
Form 10-Q for the quarter ended September 30, 1996)
10.6 Waste Management, Inc. Corporate Incentive Bonus Plan (incorporated
by reference to Exhibit B to the registrant's Proxy Statement for
its 1995 Annual Meeting of Stockholders)
10.7 Waste Management, Inc. Supplemental Executive Retirement Plan, as
amended and restated as of January 24, 1995 (incorporated by
reference to Exhibit 10.7 to registrant's 1995 annual report on Form
10-K)
10.8 Waste Management, Inc. Long Term Incentive Plan, as amended and
restated as of January 27, 1994 (incorporated by reference to
Exhibit A to the registrant's Proxy Statement for its 1995 Annual
Meeting of Stockholders)
10.9 Supplemental Retirement Benefit Agreement, dated as of January 1,
1989, by and between the registrant and Peter H. Huizenga
(incorporated by reference to Exhibit 10.16 to Post-Effective
Amendment No. 2 to registrant's registration statement on Form S-1,
Registration No. 33-13839)
10.10 Chemical Waste Management, Inc. 1986 Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 to Chemical Waste
Management, Inc.'s 1989 annual report on Form 10-K)
10.11 Waste Management, Inc. Non-Qualified Profit Sharing and Savings Plus
Plan (incorporated by reference to Exhibit 10.11 to registrant's
1995 annual report on Form 10-K)
10.12 Amendment No. 1 to the Waste Management, Inc. Non-Qualified Profit
Sharing and Savings Plus Plan (incorporated by reference to Exhibit
10.12 to registrant's 1996 annual report on Form 10-K)
10.13 Waste Management, Inc. Director's Charitable Endowment Plan
(incorporated by reference to Exhibit 10.20 to registrant's 1989
annual report on Form 10-K)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.

EX-2
<PAGE>

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
10.14 Supplemental Retirement Benefit Agreement dated as of January 1,
1991 by and between registrant and Donald F. Flynn (incorporated by
reference to Exhibit 10.17 to registrant's 1990 annual report on
Form 10-K)
10.15 Restricted Unit Plan for Non-Employee Directors of Wheelabrator
Technologies Inc. as amended through June 10, 1991 (incorporated by
reference to Exhibit 19.03 to the report on Form 10-Q of
Wheelabrator Technologies Inc. for the quarter ended June 30, 1991)
10.16 1988 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1988 Stock Plan") (incorporated
by reference to Exhibit 28.1 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8,
Registration No. 33-31523)
10.17 Amendments dated as of September 7, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.18 Amendment dated as of November 1, 1990 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.04 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.19 1986 Stock Plan for Executive Employees of Wheelabrator Technologies
Inc. and its subsidiaries (the "WTI 1986 Stock Plan") (incorporated
by reference to Exhibit 28.2 to Amendment No. 1 to the registration
statement of Wheelabrator Technologies Inc. on Form S-8,
Registration No. 33-31523)
10.20 Amendment dated as of November 1, 1990 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.03 to the 1990 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.21 Amended and Restated Employment Agreement dated as of June 20, 1997
between the registrant and D. P. Payne
10.22 Waste Management, Inc. 1992 Stock Option Plan (incorporated by
reference to Exhibit 10.31 to registrant's registration statement on
Form S-1, Registration No. 33-44849)
10.23 Waste Management, Inc. Amended and Restated 1992 Stock Option Plan
for Non-Employee Directors (incorporated by reference to Exhibit
10.23 to registrant's 1996 annual report on Form 10-K)
10.24 Wheelabrator Technologies Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.45 to the 1991 annual report on Form 10-K
of Wheelabrator Technologies Inc.)
10.25 Deferred Director's Fee Plan of Wheelabrator Technologies Inc.
adopted June 10, 1991 (incorporated by reference to Exhibit 19.02 to
the quarterly report on Form 10-Q of Wheelabrator Technologies Inc.
for the quarter ended June 30, 1991)
10.26 Waste Management International plc Share Option Plan (incorporated
by reference to Exhibit 10.1 to the registration statement on Form
F-1 of Waste Management International plc, Registration No. 33-
46511)
10.27 Amendment dated as of December 6, 1991 to the WTI 1986 Stock Plan
(incorporated by reference to Exhibit 19.01 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that
Act is 1-7327, Chemical Waste Management, Inc.'s file number under that Act
was 1-9253 and Wheelabrator Technologies Inc.'s file number under that Act
is 0-14246.

EX-3
<PAGE>

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
10.28 Amendment dated as of December 6, 1991 to the WTI 1988 Stock Plan
(incorporated by reference to Exhibit 19.02 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.29 Amendment dated as of December 6, 1991 to the Restricted Unit Plan
for Non-Employee Directors of Wheelabrator Technologies Inc.
(incorporated by reference to Exhibit 19.05 to the 1991 annual
report on Form 10-K of Wheelabrator Technologies Inc.)
10.30 First Amended and Restated International Business Opportunities
Agreement by and among registrant, Chemical Waste Management, Inc.,
Wheelabrator Technologies Inc., Waste Management International,
Inc., Waste Management International plc and Rust International
Inc., dated as of January 1, 1993 (incorporated by reference to
Exhibit 28 to the registration statement on Form S-3 of Wheelabrator
Technologies Inc., Registration No. 33-59606)
10.31 Amendment dated as of January 28, 1994 relating to the International
Business Opportunities Agreement (incorporated by reference to
Exhibit 10.19 to the 1993 annual report on Form 10-K of Chemical
Waste Management, Inc.)
10.32 Chemical Waste Management, Inc. 1992 Stock Option Plan (incorporated
by reference to Exhibit 10.19 to the 1991 annual report on Form 10-K
of Chemical Waste Management, Inc.)
10.33 Amendment dated as of July 10, 1995 to the International Business
Opportunities Agreement (incorporated by reference to Exhibit 10 to
the quarterly report on Form 10-Q of Wheelabrator Technologies Inc.
for the quarter ended September 30, 1995)
10.34 Employment Agreement dated as of August 15, 1996 between the
registrant and James E. Koenig (incorporated by reference to Exhibit
10.2 to registrant's report on Form 10-Q for the quarter ended
September 30, 1996)
10.35 Employment Agreement dated as of August 15, 1996 between the
registrant and Herbert A. Getz (incorporated by reference to Exhibit
10.3 to registrant's report on Form 10-Q for the quarter ended
September 30, 1996)
10.36 Restricted Stock Agreement dated as of August 15, 1996 between the
registrant and James E. Koenig (incorporated by reference to Exhibit
10.4 to registrant's report on Form 10-Q for the quarter ended
September 30, 1996)
10.37 Restricted Stock Agreement dated as of August 15, 1996 between the
registrant and Herbert A. Getz (incorporated by reference to Exhibit
10.5 to registrant's report on Form 10-Q for the quarter ended
September 30, 1996)
10.38 Letter Agreement dated as of February 17, 1997 between the
registrant and Phillip B. Rooney (incorporated by reference to
Exhibit 10.38 to registrant's 1996 annual report on Form 10-K)
10.39 Waste Management, Inc. 1997 Equity Incentive Plan (incorporated by
reference to Exhibit A to the registrant's Proxy Statement for its
1997 Annual Meeting of Stockholders)
10.40 Form of Restricted Stock Award Agreement under the Waste Management,
Inc. 1997 Equity Incentive Plan
10.41 Employment Security Agreement dated as of March 11, 1997 between the
registrant and John D. Sanford
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that Act
is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was
1-9253 and Wheelabrator Technologies Inc.'s file number under that Act is 0-
14246.

EX-4
<PAGE>

<TABLE>
<CAPTION>
NUMBER AND DESCRIPTION OF EXHIBIT*
----------------------------------
<C> <S>
10.42 Supplemental Retirement Benefit Agreement dated as of June 20, 1997
between the registrant and Thomas C. Hau
10.43 Employment Security Agreement dated as of June 20, 1997 between the
registrant and Joseph M. Holsten
10.44 Restricted Stock Award Certificate dated as of June 20, 1997 between
the registrant and Joseph M. Holsten
11. None
12. None
13 Inapplicable
14. Inapplicable
15. Inapplicable
16. None
17. Inapplicable
18. Inapplicable
19. Inapplicable
20. Inapplicable
21. List of subsidiaries of registrant (incorporated by reference to
Exhibit 21 to registrant's 1996 annual report on Form 10-K)
22. Inapplicable
23. Consent of Independent Public Accountants
24. None
25. Inapplicable
26. Inapplicable
27. None
28. Inapplicable
99. None
</TABLE>
- ----------
*In the case of incorporation by reference to documents filed under the
Securities Exchange Act of 1934, the registrant's file number under that Act
is 1-7327, Chemical Waste Management, Inc.'s file number under that Act was
1-9253 and Wheelabrator Technologies Inc.'s file number under that Act is 0-
14246.

EX-5

<PAGE>

Exhibit 10.21

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (the "Agreement"), effective
as of this 20th day of June, 1997, by and between WASTE MANAGEMENT, INC., a
Delaware corporation (hereinafter referred to as the "Company") and D. P. PAYNE
(hereinafter referred to as "Payne"):

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, Payne was previously appointed as President of the Company's
Chemical Waste Management, Inc. subsidiary (hereinafter referred to as "CWM")
and the Company desires to retain the skill, management expertise and experience
of Payne; and

WHEREAS, the Company re-acquired all of the outstanding publicly held
shares of stock of CWM; and

WHEREAS, the Company entered into a prior employment agreement dated as of
April 1, 1995 (the "Prior Agreement") in order to induce Payne to become an
officer of the Company; and

WHEREAS, Payne resigned his position as President of CWM, and became an
officer of the Company upon the terms and conditions of the Prior Agreement.

WHEREAS, the parties hereto desire to amend and restate the Prior
Agreement in its entirety and to set forth in this Agreement the terms,
conditions and obligations of the parties with respect to such employment and
this Agreement is intended by the parties to supersede all previous agreements
and understandings, whether written or oral, including the Prior Agreement,
concerning such employment;

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:

1. EMPLOYMENT. Upon the execution of this Agreement, Payne shall be
employed as an officer of the Company and shall have such duties and
responsibilities as to the Company and its subsidiaries as may be designated by
the Chairman or the President of the Company. Incident to the performance of
such duties, Payne shall be provided by the Company with office space,
facilities and secretarial assistance reflecting his position.

2. TERM. The term of Payne's employment hereunder shall be for a period
beginning on the date hereof and ending on December 31, 1999 (the "Term"),
provided that the provisions of Section 6(e) shall survive after the Term.
<PAGE>

3. COMPENSATION.

(a) Base Salary. The Company agrees to pay Payne during the Term a
minimum annual base salary of $400,000.00. The salary shall be payable at
intervals not less often than monthly and otherwise in accordance with the
Company's policies. Such salary shall be reviewed annually by the Company's
Board of Directors (or a duly constituted and empowered committee thereof) and
may be increased in accordance with the Company's policies governing management
compensation.

(b) Incentive Compensation. Payne shall be entitled to a participate
in all incentive compensation programs available to senior management of the
Company as may now exist or hereinafter come into existence during the Term.

(c) Supplemental Employee Retirement. Payne shall be entitled to
participate in the Company's Supplemental Executive Retirement Plan (the
"SERP"), upon the terms and conditions of such Plan.

(d) Other Benefits. During the Term, Payne shall be entitled to
participate in all other employee benefits, perquisites, vacation days, benefit
plans or programs of the Company which are available generally to officers and
employees of the Company in accordance with the terms of such plans, benefits or
programs.

(e) Expenses. Payne shall be reimbursed for his reasonable expenses
related to and for promoting the business of the Company including expenses for
entertainment, travel and similar items that arise out of Payne's performance of
services under this Agreement, and any such expenses paid by Payne from his own
funds shall be promptly reimbursed to him by the Company, in accordance with the
policies and procedures of the Company in effect from time to time.

4. EXTENT OF SERVICE. Payne shall devote his entire time, attention and
energies to the business of the Company, and shall not during the term of this
Agreement be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage; but this shall not be construed as
preventing Payne from (a) investing his personal assets in businesses which do
not compete with the Company or any of its "Affiliates" (as hereinafter defined)
in such form or manner as will not require any services on the part of Payne in
the operation or the affairs of the companies in which such investments are made
and in which his participation is solely that of an investor; (b) purchasing
securities in any corporation whose securities are publicly traded provided that
such investments do not result in a violation of Payne's covenants under Section
5 hereof; or (c) accepting appointments to the boards of directors of other
companies provided that the Chairman of the Company approves of such
appointments and Payne's performance of his duties on such boards does not
result in a violation of his covenants under Section 5 hereof.

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5. CONFIDENTIAL INFORMATION AND COVENANT NOT TO COMPETE. All payments
and benefits to Payne under the Agreement shall be subject to Payne's compliance
with the provisions of this Section 5.

(a) Confidential Information. Payne acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Company's
confidential information which includes, but is not limited to, drawings,
memoranda and other materials or records of a proprietary nature; engineering
and technical information regarding the operations of the Company; and records,
policy and strategy matters relating to acquisitions, finance, personnel,
management, legal matters, accounting, marketing, and operations (including,
insofar as operations are concerned, customer and prospective customer lists,
price lists, customer service requirements, costs of providing services,
supplies and equipment maintenance costs). Therefore, in order to protect the
Company's confidential information and to protect other employees who depend on
the Company for regular employment, Payne agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Company and except in connection with the business of the
Company he will not copy, reproduce, or take with him the original or any copies
of said confidential information and will not directly or indirectly divulge any
of said confidential information to anyone without the prior written consent of
the Company.

(b) Litigation Support. Payne shall, upon reasonable notice, furnish
such information and proper assistance to the Company as may reasonably be
required by the Company in connection with any litigation in which the Company
or any of its Affiliates is, or may become a party. Payne's reasonable expenses
(including travel and reasonable attorneys fees) incurred in complying with this
covenant shall be promptly reimbursed.

(c) No Solicitation of Employees. Payne agrees that during the Term
of this Agreement and continuing for a period of two years after the termination
of this Agreement, neither Payne nor any person or enterprise controlled by
Payne will solicit for employment any person employed by the Company or any of
its Affiliates.

(d) Covenant Not to Compete. Payne agrees that during the Term of
this Agreement and for a period of two years after the termination of this
Agreement he will not (without prior written consent of the Chairman of the
Board of Directors) engage directly or indirectly in any business financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control which
is in any respect competitive with the business of the Company, or with any
business controlling, controlled by or under common control with the Company (an
"Affiliate"), in any area of the United States in which the Company or any
Affiliate does business during such period. Notwithstanding the foregoing,
Payne shall be entitled to own securities of any corporation conducting a
business competitive with the business of the Company or any of its Affiliates
so long as the securities of such corporation are listed on a national
securities exchange and the securities owned directly or indirectly by Payne do
not represent more than 2% of any class of the outstanding securities of such
company.

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<PAGE>

(e) Non-Solicitation of Customers. Payne agrees that during the Term
of this Agreement and continuing for a period of two years after the end of the
Term, neither he nor any business in which he engages directly or indirectly
will (i) directly or indirectly induce any customers of the Company or its
Affiliates to patronize any business similar to that of the Company, (ii)
canvass, solicit or accept any similar business from any customer of the Company
or any Affiliates, (iii) directly or indirectly request or advise any customer
of the Company or Affiliates to withdraw, curtail or cancel such customer's
business with the Company or Affiliates, (iv) directly or indirectly disclose to
any other person, firm or corporation the names or addresses of any of the
customers of the Company or Affiliates, or (v) compete with the Company or
Affiliates in acquiring or merging with any other business or acquiring the
assets of such other business.

(f) Remedies for Breach of Covenants. In the event that a covenant
included in this Agreement shall be deemed by any court to be unreasonably broad
in any respect, it shall be modified in order to make it reasonable and shall be
enforced accordingly; provided, however, that in the event that any court shall
refuse to enforce any of the covenants contained in subsections 5(a) through
(e), then the unenforceable covenant shall be deemed eliminated from the
provisions of this Agreement for the purpose of those proceedings to the extent
necessary to permit the remaining covenants to be enforced so that the validity,
legality or enforceability of the remaining provisions of this Agreement shall
not be affected thereby.

If Payne violates any of the covenants contained in this Section 5, then
the Company's obligation to make any payments to Payne otherwise due him under
this Agreement shall immediately cease. In addition, Payne acknowledges that any
material breach of his covenants contained in this Section 5 will cause
irreparable harm to the Company which will be difficult if not impossible to
ascertain, and the Company shall be entitled to equitable relief, including
injunctive relief, against any actual or threatened breach hereof, without bond
and without liability should such relief be denied, modified or vacated. Neither
the right to obtain such relief or the obtaining of such relief shall be
exclusive of or preclude the Company from any other remedy.

6. TERMINATION.

(a) Death or Disability. If Payne should die or become physically or
mentally disabled and unable to perform duties hereunder for a continuous period
in excess of ninety (90) days (in the reasonable opinion of the Company), which
event shall result in the termination of Payne's employment hereunder, the
Company shall continue to pay Payne's current base salary (less the amount of
any disability benefit payments paid or payable to Payne during such period from
disability benefits maintained and paid for by the Company) for the balance of
the calendar year in which such death or disability occurs, but in no event for
not less than one hundred eighty (180) days, plus any bonus payments which have
fully accrued at the date of termination pursuant to this Section 6(a). In
addition, in the event of disability, Payne's participation in any medical,
health, accident, disability, death, life insurance or similar plan in which
Payne was participating immediately prior to termination shall continue for the
period in which payments are being made under this Section at the Company's
expense (subject to any normal employee contributions, if

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any), although any continuation of health coverage shall count toward the
"COBRA" continuation of coverage period. The payments to be made under this
Section shall be made to Payne, or in the event of Payne's death, to such
beneficiary as Payne may designate in writing for that purpose, or if Payne has
not so designated, then the spouse of the Payne, or if none is surviving, then
to the personal representative of the estate of Payne. This Section shall not be
effective after any Termination pursuant to Section 6(b) or (c).

(b) Termination for Cause. The Company shall have the right to
terminate this Agreement for Cause upon thirty (30) days prior written notice
if, in the reasonable determination of the Company, Payne has engaged in
misconduct so as to constitute Cause. For purposes of this Agreement, "Cause"
shall mean:

(a) the breach by Payne of his covenants under Sections 5(a)
through 5(e) hereof;

(b) a substantial failure by Payne to perform his duties under
this Agreement, and which failure is determined by the Board of
Directors of the Company to be injurious to the business or
interests of the Company;

(c) Conviction (or a plea) of a felony or conviction of a crime
(or a plea) involving moral turpitude which adversely affects the
ability of Payne to perform his material duties under this
Agreement or is materially injurious to the Company's business or
reputation; or

(d) any act of fraud or defalcation involving the assets or
business of the Company.

If this Agreement is terminated for Cause pursuant to this Section 6(b),
the Company shall have no further obligations to Payne under this Agreement.
However, Payne's covenants under Section 5 hereof shall remain in full force and
effect.

(c) Termination by Company. If the Company terminates the employment
of Payne during the Term hereof, for any reason other than as specified in
Sections 6(a) or 6(b), Payne shall be entitled to the following liquidated
damages: (i) an amount equal to base salary until the end of the Term and (ii)
any unpaid but fully accrued annual bonus for the prior calendar year payable
under the Company's Corporate Incentive Bonus Plan.

(d) Termination by Payne. If Payne voluntarily terminates his
employment prior to the expiration of the Term of this Agreement, this Agreement
shall terminate forthwith and all obligations of each party to the others shall
terminate immediately, except for Payne's obligations under Section 5 hereof.

(e) Effect of Termination on the SERP. If the employment of Payne is
terminated, for any reason other than as specified in Sections 6(b) or 6(d), at
any time during or after the Term and prior to Payne's earning at least 10 years
of Eligibility Service and Benefit

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<PAGE>

Service, as those terms are defined in the SERP, then Payne shall be deemed to
have 10 years of Eligibility Service and Benefit Service for purposes of the
SERP.

7. WITHHOLDING OF TAXES. The Company may withhold from any benefits
payable under the Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.

8. FACILITY OF PAYMENT. If the Company shall find that any person to whom
any amount is or was payable hereunder is unable to care for his affairs because
of illness or accident, or is a minor, or has died, then the Company, if it so
elects, may direct that any payment due him or his estate (unless a prior claim
therefore has been made by a duly appointed legal representative) or any part
thereof, be paid or applied for the benefit of such person or to or for the
benefit of his spouse, children or other dependents, an institution maintaining
or having custody of such person, any other person deemed by Board of Directors
of the Company to be a proper recipient on behalf of such person otherwise
entitled to payment, or any of them, in such manner and proportion as the Board
may deem proper. Any such payment shall be in complete discharge of the
liability of the Company therefor.

9. UNSECURED CREDITOR STATUS. Nothing contained in the Agreement, and no
action taken pursuant to its provisions, shall create or be construed to create
a trust of any kind, or a fiduciary relationship between the Company and Payne,
his beneficiaries, legal representative or any other person. To the extent that
any person acquires a right to receive payments under the Agreement, such right
shall be no greater than the right of an unsecured general creditor of the
Company. All payments to be made hereunder shall be paid from the general funds
of the Company and no special or separate fund shall be established and no
segregation of assets shall be made to assure payment of such amounts.

10. NON-ALIENATION OF BENEFITS. Except insofar as applicable law may
otherwise require, no amount payable to or in respect of Payne at any time under
the Agreement shall be subject in any manner to alienation by anticipation,
sale, transfer, assignment, bankruptcy, pledge, attachment, charge or
encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign,
pledge, attach, charge or otherwise encumber any such amount, whether presently
or thereafter payable, shall be void; provided, however, that nothing in this
Section 10 shall preclude Payne from designating a beneficiary or beneficiaries
to receive any benefit on his death.

11. SEVERABILITY. If any provision of this Agreement, as applied to any
party or to any circumstance, shall be found by a court to be void, invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement the application of any such provision in any other circumstance, or
the validity or enforceability of this Agreement.

12. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding
of the parties hereto relating to the subject matter contained herein and
supersedes all prior and collateral agreements, understandings, statements and
negotiations of the parties. Each party acknowledges that no representations,
inducements, promises, or agreements, oral or written,

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with reference to the subject matter hereof have been made other than as
expressly set forth herein. This Agreement cannot be changed, rescinded or
terminated orally.

13. NOTICES. Any notice required or permitted to be given under this
Agreement shall he in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If Payne, at his address set forth below, if to the Company, Attention: General
Counsel, 3003 Butterfield Road, Oak Brook, Illinois 60521.

14. ASSIGNMENT. Payne may not assign his obligations hereunder. The rights
of Payne and the rights and obligations of the Company hereunder shall inure to
the benefit of and shall be binding upon their respective heirs, personal
representatives, successors and assigns.

15. MISCELLANEOUS.

(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.

(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

WASTE MANAGEMENT, INC.

By /s/ Dean L. Buntrock
----------------------------------
Dean L. Buntrock, Chairman

/s/ D. P. Payne
------------------------------------
Name: D. P. Payne
Address: 358 Hampton Place
Hinsdale, IL 60521

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<PAGE>

Exhibit 10.40
WASTE MANAGEMENT, INC.
1997 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD CERTIFICATE
----------------------------------

================================================================================
Participant: SSN:

Number of Shares of Restricted Stock: Award Date:

Vesting Schedule: 100% vested on the 10th Anniversary of the Award Date

Restricted Period: From the Award Date through the first anniversary of a
termination of employment
================================================================================

The Restricted Stock subject to this Certificate is subject to the
restrictions set forth in Article 8 of the Plan, which include, but are not
limited to, prohibitions on the sale, transfer, assignment, pledge or
encumbrance of the Restricted Stock during the Restricted Period set forth on
this Certificate. The Restricted Stock shall be forfeited if the Participant
terminates employment before the vesting date set forth above, if the
Participant's employment with the Company and/or its Subsidiaries is terminated
by the Company or any Subsidiary for Cause or if the Participant violates his
non-compete agreement with the Company during the Restricted Period.
Notwithstanding the foregoing, (a) if the Participant's employment is terminated
due to death or Disability, or a Change in Control occurs, the Restricted Stock
shall be fully vested on the date of termination and all restrictions shall
lapse; (b) if the Participant's employment is terminated by the Company or any
Subsidiary without Cause or there occurs, without the Participant's written
consent, (i) a reduction in the scope of his duties, his base salary, or his
benefits, or (ii) a relocation of his place of employment more than 50 miles
away (all within the meaning of his Employment Security Agreement), a portion of
the Restricted Stock shall vest on the date of the termination equal to 2.5% of
the number of shares shown above (rounded up to the nearest whole share) for
each three months that have elapsed since the date of grant, but the
restrictions shall not lapse; and (c) if the Participant's employment is
terminated due to Retirement on or after age 62, the Restricted Stock shall be
fully vested on the date of such Retirement but the restrictions shall not
lapse. All dividends payable with respect to such Restricted Stock shall be
credited to the Participant, but shall be subject to the same restrictions and
vesting period as the Restricted Stock. The Participant's acceptance of the
Restricted Stock will be deemed his or her acceptance of the terms under which
such Restricted Stock is granted.

The certificate representing the Restricted Stock subject to this
Certificate has been registered in the name of the Participant and deposited
with the Company. Each certificate bears an appropriate legend referring to the
provisions of the Plan and this Certificate. The Participant shall execute the
attached Irrevocable Stock Power and deliver it to the Company.

The Restricted Stock Award represented by this Certificate shall inure to
the benefit of and be binding upon the Participant and the Company and their
respective heirs, executors, administrators, successors, and assigns.

This Certificate and Restricted Stock Award represented hereby shall be
immediately and automatically canceled and deemed null and void, and the Company
is hereby authorized to transfer to the Company's treasury, or cancel the
issuance of, all shares of Company common stock issued pursuant hereto (and all
dividends paid or credited in respect thereof and all shares of common stock
purchased with such dividends), if the Company's stockholders fail to approve
the Plan at the Company's 1997 Annual Meeting of Stockholders.

IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award
Certificate to be executed as of the day and year set forth above.

WASTE MANAGEMENT, INC.

By:__________________________________________
Its:_________________________________________

<PAGE>

Exhibit 10.41

WMX TECHNOLOGIES, INC.
EMPLOYMENT SECURITY AGREEMENT

THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 11th
day of March, 1997, between WMX TECHNOLOGIES, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and John D. Sanford (hereinafter
referred to as the "Executive"):

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, the Executive has previously served and is serving as Senior Vice
President and Chief Financial Officer of the Company; and

WHEREAS, the Executive has developed extensive experience with respect to
the management and operations of the Company and its subsidiaries which it
considers extremely valuable to the continued prosperity of the Company; and

WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Senior Vice President and Chief Financial Officer of the Company; and

WHEREAS, the Company and the Executive desire to set forth in this
Agreement the terms, conditions and obligations of the parties with respect to
such employment and this Agreement is intended by the parties to supersede all
previous agreements and understandings, whether written or oral, concerning such
employment.

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:

1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform
such duties and responsibilities for the Employer which are commensurate with
his position as may be assigned him by the Company's Chairman of the Board and
shall serve as a member of the Management Committee of the Company. The
Executive shall report to the Chairman of the Board of the Company. Incident to
the performance of such duties, the Executive shall be provided by the Employer
with office space, facilities and secretarial assistance commensurate with that
currently being provided to the Executive.

2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on March 10, 1999. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days' prior written notice to the
other, on March 10, 1998 and on each successive March 10, the Term of this
Agreement shall be renewed for a period ending on the earlier of (i) the date
two (2)
<PAGE>

years from such March 10, or (ii) the date of the Executive's 62nd birthday on
which birthday this Agreement shall terminate unless earlier terminated in
accordance with the terms hereof.

3. COMPENSATION. During the Term, the Executive's salary shall be
payable at intervals not less often than semi-monthly. The Executive's salary
shall be established by either the Compensation and Stock Option Committee of
the Board of Directors of the Company (subject to approval by the full Board)
or, in the event Executive is not among the Company officers whose compensation
is subject to review by the Compensation and Stock Option Committee of the
Board, by the Executive Committee of the Company (the applicable committee being
referred to herein as the "Committee") and all adjustments thereto and all
aspects of the Executive's incentive or performance compensation shall be
established by the Committee in its sole discretion. In the event there is no
Committee in existence at any time, the term Committee shall be deemed to refer
to the Chief Executive Officer of the Company. During the Term, the Executive
shall also receive such benefits and perquisites (the "Benefits") which are made
available to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.

4. EXTENT OF SERVICE. During the Term, the Executive shall devote his
full time, attention and energy to the business of the Employer and the
Executive shall not be engaged in any other business activity pursued for gain,
profit or other pecuniary advantage which activity interferes with the
Executive's duties and responsibilities provided for herein.

5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:

(a) During the Term and for a period of one year thereafter or during
any Severance Period, if longer (the "Restricted Period"), Executive agrees that
he will not (without the written consent of the Chairman of the Board) engage
directly or indirectly in any business within the United States (financially as
an investor or lender or as an employee, director, officer, partner, independent
contractor, consultant or owner or in any other capacity calling for the
rendition of personal services or acts of management, operation or control)
which is directly competitive with the business at any time during the
Restricted Period conducted by the Company or any of its subsidiaries or
Affiliates as defined below. Notwithstanding the foregoing, Executive shall be
entitled to own securities of any corporation conducting a business competitive
with the business of the Company or any of its subsidiaries or Affiliates so
long as the securities of such corporation are listed on a national securities
exchange and the securities owned directly or indirectly by Executive do not
represent more than two percent (2%) of any class of the outstanding securities
of such company.

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<PAGE>

businesses which directly or indirectly control or are controlled by or under
common control with the Company ("Affiliates") to patronize any business similar
to that of the Company, (ii) canvass, solicit or accept any similar business
from any customer of the Company or any Affiliates, (iii) directly or indirectly
request or advise any customer of the Company or Affiliates to withdraw, curtail
or cancel such customer's business with the Company or Affiliates, (iv) directly
or indirectly disclose to any other person, firm or corporation the names or
addresses of any of the customers of the Company or Affiliates, or (v) compete
with the Company or Affiliates in acquiring or merging with any other business
or acquiring the assets of such other business.

(c) During the Restricted Period, in addition to the obligations
pursuant to Subsections 5(a) and 5(b), Executive agrees that neither he nor any
business in which he engages directly or indirectly will (i) hire or attempt to
hire any employee of the Company or its Affiliates nor (ii) directly or
indirectly encourage any employee of the Company or its Affiliates to terminate
employment with the Company or its Affiliates. Notwithstanding the foregoing,
it shall not be deemed a violation of this subsection if a business which
employs Executive hires or attempts to hire an employee of the Affiliates and
Executive has no knowledge of, control over or involvement with such
solicitation.

(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such provisions shall be and are hereby
reformed to the maximum time, geographic or occupational limitations permitted
by law.

6. CONFIDENTIAL INFORMATION. The Executive acknowledges that in his
employment he is or will be making use of, acquiring or adding to the Employer's
and Company's confidential information which includes, but is not limited to,
memoranda and other materials or records of a proprietary nature and records and
policy matters relating to finance, personnel, management and operations.
Therefore, in order to protect the Employer's and Company's confidential
information and to protect other employees who depend on the Employer and
Company for regular employment, the Executive agrees that he will not in any way
utilize any of said confidential information except in connection with his
employment by the Employer, and except in connection with the business of the
Employer and Company he will not copy, reproduce or take with him the original
or any copies of said confidential information and will not disclose any of said
confidential information to anyone.

7. TERMINATION.

(a) Death or Disability. If the Executive should become physically
or mentally disabled and unable to perform his duties hereunder for a continuous
period in excess of ninety (90) days (in the reasonable opinion of the
Committee), or if the Executive should die while an employee of the Employer,
this Agreement and Executive's employment with the Employer shall immediately
terminate.

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<PAGE>

(b) Termination by the Employer for Cause. The following events shall
create in the Employer a right to terminate the Executive's employment under
this Agreement prior to the expiration of the Term: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company, the
Employer and/or their Affiliates by the Executive; (iii) the intentional
wrongful disclosure by the Executive of any secret process or confidential
information of the Company, the Employer and/or their Affiliates; or (iv) the
violation of the Executive's non-disclosure, non-solicitation and non-
competition covenants set forth in Sections 5 and 6. In the event of such a
Termination for cause pursuant to this Subsection, all of the obligations of the
Employer and the Company under this Agreement shall immediately terminate.

(c) Other Termination by Employer. In the event the Employer shall
elect to terminate Executive's employment for any reason other than those
specified in Subsection 7(a) or 7(b), it shall provide written notice of such
termination to Executive. In the event that there occurs without the written
consent of the Executive:

(i) a change in the Executive's duties or responsibilities, or a
change in the Executive's reporting relationships, either of
which results in or reflects a diminution of the scope or
importance of the Executive's duties and responsibilities;

(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);

(iii) a reduction in the level of benefits available or awarded under
employee and officer benefit plans and programs, including, but
not limited to annual and long-term incentive and stock-based
plans and programs (other than as part of reductions in such
benefit plans or programs affecting the Employer's officers
generally);

(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or

(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof

then Executive may deliver written notice of termination of his employment to
the Company within three months of such event (which notice shall be effective
even if such three months expire after the end of the Term). In either case and
subject to the execution and delivery by Executive to the Company of the release
described in Section 9 hereof, the Company shall provide Executive with
severance compensation and benefits as follows:

4
<PAGE>

(t) Executive shall receive an amount equal to his then current base salary
for two years, payable at intervals not less frequently than monthly over a
period of two years following the end of the Term (such period of payment
to be referred to herein as the "Severance Period");

(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
end of the Term, Executive shall be entitled to receive a prorated award
under any such plan, payable if and when awards are paid to other similarly
positioned officers of the Employer, such proration to be determined by
dividing the number of whole or partial months the Executive is employed
during the incentive compensation performance period by the total number of
months in the incentive compensation performance period;

(v) with respect to Executive's stock options, the Company will recommend
to the Compensation and Stock Option Committee of the Board of Directors of
the Company that the exercisability of Executive's outstanding stock
options be accelerated, such options shall remain exercisable during the
Severance Period (unless they shall expire earlier by their terms) and such
options shall otherwise be treated in accordance with the terms of their
respective grants;

(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;

(x) the Executive's medical, dental and vision Benefits shall be continued
on the same basis as offered to active salaried employees for the Severance
Period or until such earlier time as the Executive becomes employed and
eligible for such benefits under a plan of the new employer, and
continuation coverage under COBRA shall commence at the end of the
Severance Period; and

(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and

(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.

The foregoing shall be in lieu of all salary, bonuses or incentive or
performance based compensation for the remainder of the Term. If Executive
should die during the Severance Period, any remaining severance payments shall
be made to Executive's surviving spouse or, if none, to his estate.

5
<PAGE>

Executive's base salary to the date of voluntary termination, (ii) pay all
incentive compensation earned by the Executive for performance periods which are
completed prior to the date of voluntary termination, at such times and on the
same basis amounts as such incentive compensation becomes payable to other
executives of the Employer and (iii) pay or make available to the Executive all
Benefits which by their terms or under applicable law survive the voluntary
termination of the Executive's employment; and the Executive shall remain bound
by his non-disclosure, non-solicitation and non-competition covenants set forth
in Sections 5 and 6 hereof. The exercisability of the Executive's outstanding
stock options and the vesting of the Executive's restricted stock shall be
treated in accordance with the terms of their respective grants or awards,
except that in the case of retirement on or after age 62, the Company will
recommend to the Compensation and Stock Option Committee of the Board of
Directors of the Company that the exercisability of Executive's outstanding
stock options be accelerated.

8. ELECTION TO EXTEND SEVERANCE PERIOD. Notwithstanding anything in
Subsection 7(c) to the contrary, the Executive may make an irrevocable written
election, within 30 days of receipt or delivery of the written termination
notice provided for in Subsection 7(c), that would extend the time period during
which the base salary is to be paid under Subsection 7(c) for one additional
year. The total amount of base salary that is to be paid under Subsection 7(c)
will not be affected by this election. If such election is made, the term
"Severance Period" will be deemed to refer to such extended payment period.

9. GENERAL RELEASE AND COOPERATION AGREEMENT. Notwithstanding anything
in Subsection 7(c) to the contrary and in consideration therefor, severance
benefits thereunder shall only become payable by the Company if the Executive
executes and delivers to the Company a General Release and Cooperation Agreement
on or after the date of written notice of termination of Executive's employment
and in substantially the form attached as Exhibit A hereto.

10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, WMX Technologies, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, WMX Technologies, Inc., at
the same address.

11. ASSIGNMENT. The Executive may not assign his obligations hereunder.
The rights of the Executive and the rights and obligations of the Company
hereunder shall inure to the benefit of and shall be binding upon their
respective heirs, personal representatives, successors and assigns.

6
<PAGE>

12. MISCELLANEOUS.

(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.

(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.

(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.

(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

WMX TECHNOLOGIES, INC.

By /s/ Dean L. Buntrock
-----------------------------
Dean L. Buntrock,
Chairman of the Board

/s/ John D. Sanford
-------------------------------
John D. Sanford

Address: 1921 Hampton Drive
Wheaton, IL 60187

<PAGE>

Exhibit 10.42

SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
-----------------------------------------

THIS AGREEMENT dated as of the ___ day of July 1997, between WASTE
MANAGEMENT, INC., a Delaware corporation (hereinafter referred to as the
"Company"), and Thomas C. Hau (hereinafter referred to as "Executive").

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, the Company has established a non-qualified Supplemental Executive
Retirement Plan ("SERP") and a non-qualified Profit Sharing and Savings Plus
Plan (the "Plus Plan") for the benefit of certain of its, and its majority-owned
subsidiaries', employees; and

WHEREAS, the SERP requires participation in the SERP for ten years before a
vested benefit is payable therefrom; and

WHEREAS, the Plus Plan provides that certain benefits vest upon retirement
on or after age 55 with ten years of service;

WHEREAS, at the time Executive joined the Company, the Company agreed to
provide Executive with a supplemental retirement benefit from the Company in
addition to the amount provided for under the SERP;

WHEREAS, the Company wishes to memorialize its undertaking to the Executive
with respect to his retirement benefits;

NOW, THEREFORE, for and in consideration of the premises and mutual
covenants contained herein, the Company hereby agrees to provide supplemental
retirement benefits for Executive and Executive hereby agrees to accept
supplemental retirement benefits upon the following terms and conditions:

1. EMPLOYMENT STATUS. In consideration of the benefits offered herein,
Executive agrees to remain employed as a regular full-time employee and officer
of the Company in his present position until at least April 1, 1998, or such
earlier date as his employment is terminated as a result of death, disability or
involuntary termination other than for cause (the "Vesting Date"). If
Executive's employment is involuntarily terminated for cause prior to the
Vesting Date, this agreement shall be null and void. For purposes of the
preceding sentences, the following events shall create in the Company a right to
terminate the Executive's employment for cause: (i) the commission of fraud,
embezzlement or theft by the Executive in connection with the Executive's
duties; (ii) the intentional wrongful damage to property of the Company and/or
its affiliates by the Executive; or (iii) the intentional wrongful disclosure by
the Executive of any secret process or confidential information of the Company
and/or its affiliates.
<PAGE>

2. SUPPLEMENTAL RETIREMENT BENEFIT. The supplemental retirement benefit
to which Executive is entitled under this Agreement shall be the benefit
determined under the provisions of the SERP and the Plus Plan (which documents
are incorporated herein by reference), modified as follows:

(a) Section 4 of the SERP, entitled "Eligibility for Benefits" (or any
successor to such provision ), is hereby modified to provide that benefits under
the SERP shall be payable in respect of Executive only if the Executive's
retirement, death, disability or other termination of employment occurs on or
after the Vesting Date, irrespective of the number of years of Eligibility
Service Executive has completed as of such date. No SERP benefits shall be
payable to Executive if his retirement, employment termination, death or
disability occurs prior to the Vesting Date.

(b) Section 5(a) of the SERP (or any successor to such provision), entitled
"Amount of Benefits - Normal Retirement", is hereby modified to provide that
the monthly SERP benefit that may be payable to Executive on or after his Normal
Retirement Date shall be equal to (i) 3% of Final Average Compensation per year
of Benefit Service, reduced by (ii) the amount of Executive's monthly benefit
under the Pension Plan (determined without regard to any qualified domestic
relations order to which such Executive's benefit under the Pension Plan is or
was subject).

(c) Section 3.2(c) of the Plus Plan (or any successor to such provision),
entitled "Vesting," is hereby modified to provide that Executive will become
vested in the annual credits to his Matching Plus Account if he retires on or
after the Vesting Date, irrespective of his years of service (within the meaning
of the WMX Technologies, Inc. Pension Plan) as of such date.

Except as otherwise modified by this Section 2, Executive's eligibility
for, right to and amount of SERP and Plus Plan benefits shall be determined in
accordance with the provisions of the SERP and the Plus Plan as in effect from
time to time. Any references to defined terms in paragraphs (a), (b) and (c)
above shall have the same meaning as when used in the SERP or the Plus Plan,
whichever is applicable. In no event shall this Agreement have the effect of
entitling Executive to a SERP or Plus Plan benefit separate from or in addition
to the modified SERP and Plus Plan benefits described above.

3. HEALTH BENEFITS. In addition to the supplemental retirement benefit
described in Section 2 above, and as additional consideration for Executive's
employment until the Vesting Date, the Company agrees to provide to Executive
continued coverage under its group medical, dental and vision plans following
his termination of employment on or after the Vesting Date. Such coverage shall
be continued from such termination of employment until Executive attains age 65;
provided that Executive pays the full COBRA premium for such coverage during
such period. Notwithstanding the foregoing, coverage under the Company's group
medical, dental and vision plans shall cease on the date Executive becomes
eligible for coverage under the group health plan of any other employer, except
to the extent such coverage may be maintained to comply with COBRA.
<PAGE>

4. GENERAL PROVISIONS.

(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois without regard to its choice of law principles.

(b) If all or any part of this Agreement is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of this Agreement not
declared to be unlawful or invalid. Any section or a part of a section so
declared to be unlawful or invalid shall, if possible, be construed in a manner
which will give effect to the terms of such section or part of a section to the
fullest extent possible while remaining lawful and valid.

(c) This Agreement shall not be altered, amended or modified except by
written instrument executed by the Company and Executive. A waiver of any term,
covenant, agreement or condition contained in this Agreement shall not be deemed
a waiver of any default in any such term, covenant, agreement or condition shall
not be deemed a waiver of any later default thereof or of any other term,
covenant, agreement or condition.

(d) This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, but all of which together will constitute one
and the same instrument.

(e) This Agreement shall supersede any and all prior employment or
consulting agreements with Executive.

IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.

WASTE MANAGEMENT, INC.

By /s/ John D. Sanford
-------------------------------
Senior Vice President

EXECUTIVE

/s/ Thomas C. Hau
---------------------------------
Thomas C. Hau

<PAGE>

Exhibit 10.43

WASTE MANAGEMENT, INC.
EMPLOYMENT SECURITY AGREEMENT

THIS EMPLOYMENT SECURITY AGREEMENT (the "Agreement") dated as of this 20th
day of June, 1997, between WASTE MANAGEMENT, INC., a Delaware corporation
(hereinafter referred to as the "Company"), and Joseph M. Holsten (hereinafter
referred to as the "Executive"):

W I T N E S S E T H:
- - - - - - - - - -

WHEREAS, the Executive has previously served and is serving as Executive
Vice President and Chief Operating Officer; and

WHEREAS, the Company wishes to ensure that it will continue to have the
Executive available to perform for the Company and its subsidiaries duties as
Executive Vice President and Chief Operating Officer; and

NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties agree as follows:

1. EMPLOYMENT. The Company or its applicable subsidiary (hereinafter the
"Employer") shall continue to employ the Executive as an employee at will upon
the terms and conditions hereinafter set forth. The Executive shall perform
such duties and responsibilities for the Employer which are commensurate with
his position as may be assigned him by the Company's Chief Executive Officer and
shall serve as a member of the Executive Committee of the Company. The Executive
shall report to the Chief Executive Officer of the Company. Incident to the
performance of such duties, the Executive shall be provided by the Employer with
office space, facilities and secretarial assistance commensurate with that
currently being provided to the Executive.

2. TERM. Subject only to the provisions hereof set forth in Section 7,
the term of this Agreement (herein the "Term") shall be for a period beginning
on the date hereof and ending on June 20, 2000. Subject to the provisions of
Section 7 hereof, and unless a party gives 30 days'
<PAGE>

prior written notice to the other, on June 20, 1998 and on each successive June
20, the Term of this Agreement shall be renewed for a period ending on the
earlier of (i) the date three (3) years from such June 20, or (ii) the date of
the Executive's 62nd birthday on which birthday this Agreement shall terminate
unless earlier terminated in accordance with the terms hereof.

3. COMPENSATION. (a) During the Term, the Executive's salary shall be
payable at intervals not less often than semi-monthly. The Executive's salary
shall be established by either the Compensation and Stock Option Committee of
the Board of Directors of the Company (subject to approval by the full Board)
or, in the event Executive is not among the Company officers whose compensation
is subject to review by the Compensation and Stock Option Committee of the
Board, by the Executive Committee of the Company (the applicable committee being
referred to herein as the "Committee") and all adjustments thereto and all
aspects of the Executive's incentive or performance compensation shall be
established by the Committee in its sole discretion. In the event there is no
Committee in existence at any time, the term Committee shall be deemed to refer
to the Chief Executive Officer of the Company. During the Term, the Executive
shall also receive such benefits and perquisites (the "Benefits") which are made
available to similarly positioned executives of the Employer including, without
limitation, incentive compensation, loans, awards, insurance, stock options,
stock purchase plans, benefits from qualified plans or non-qualified plans or
other benefit plans now or hereafter existing which are adopted by the Employer
for the benefit of its employees generally and for the benefit of the Employer's
officers, all such Benefits to be provided in such amounts as may be determined
from time to time by the Committee in its discretion.

(b) In consideration of the execution of this Agreement, the Company agrees
to take the following actions, all of which will be effective as of June 20,
1997:

(1) Increase Executive's annual salary to $650,000;

(2) Award Executive stock options under the Company's 1997 Equity
Incentive Plan with respect to 100,000 shares of Company common stock, such
options having a 10-year term and vesting in equal installments on the
first three anniversaries of the grant date;

(3) Award Executive 55,000 shares of restricted stock under the
Company's 1997 Equity Incentive Plan, which shares will be subject to the
provisions of the restricted stock award certificate attached hereto as
Exhibit 1;

(4) Enter into a Promissory Note and Security Agreement with the
Executive in the form attached as Exhibit 2, the proceeds of which loan
will be used to purchase shares of Company common stock; and

(5) Award Executive a cash bonus of $300,000.

2
<PAGE>

5. NON-COMPETITION AND NON-SOLICITATION. Executive agrees that:

(b) During the Restricted Period, in addition to the obligations
pursuant to Subsection 5(a), Executive agrees that neither he nor any business
in which he engages directly or indirectly will (i) directly or indirectly
induce any customers of the Company or of corporations or businesses which
directly or indirectly control or are controlled by or under common control with
the Company ("Affiliates") to patronize any business similar to that of the
Company, (ii) canvass, solicit or accept any similar business from any customer
of the Company or any Affiliates, (iii) directly or indirectly request or advise
any customer of the Company or Affiliates to withdraw, curtail or cancel such
customer's business with the Company or Affiliates, (iv) directly or indirectly
disclose to any other person, firm or corporation the names or addresses of any
of the customers of the Company or Affiliates, or (v) compete with the Company
or Affiliates in acquiring or merging with any other business or acquiring the
assets of such other business.

(d) In the event that any of the provisions of this Section 5 should
ever be deemed to exceed the time, geographic or occupational limitations
permitted by applicable laws, then such

3
<PAGE>

provisions shall be and are hereby reformed to the maximum time, geographic or
occupational limitations permitted by law.

7. TERMINATION.

4
<PAGE>

(ii) a reduction in the Executive's then current annual base salary
(other than as part of reductions in annual base salary
affecting the Employer's officers generally);

(iv) a relocation of Executive's primary employment location to a
location which is more than 50 miles from his current location;
or

(v) the Company terminates the automatic renewal provision of this
Agreement by providing Executive with 30 days' prior written
notice as provided in Section 2 hereof

(t) Executive shall receive an amount equal to his then current base salary
for three years, payable at intervals not less frequently than monthly over
a period of three years following the end of the Term (such period of
payment to be referred to herein as the "Severance Period");

(u) with respect to any participation rights in the Company's annual or
long-term incentive plans which have been awarded to Executive prior to the
date of the written notice of termination of employment referred to above,
Executive shall be entitled to receive a prorated award under any such
plan, payable if and when awards are paid to other similarly positioned
officers of the Employer, such proration to be determined by dividing the
number of whole or partial months the Executive is employed during the
incentive compensation performance period by the total number of months in
the incentive compensation performance period;

5
<PAGE>

(w) the Executive's restricted stock shall be treated in accordance with
the terms of the Restricted Stock Award Certificate applicable thereto;

(y) credit for vesting and benefit service under the Company's Supplemental
Executive Retirement Plan shall be provided to Executive for the Severance
Period; and

(z) all other Benefits shall be paid or continued only to the extent the
terms thereof provide for payment or continuation following the termination
of employment.

(d) Voluntary Termination. If during the Term the Executive should
voluntarily terminate his employment with the Employer for any reason, including
retirement, other than as described in Subsection 7(c) hereof, the obligations
of the Employer and the Company under this Agreement shall terminate forthwith,
other than obligations to (i) pay the Executive's base salary to the date of
voluntary termination, (ii) pay all incentive compensation earned by the
Executive for performance periods which are completed prior to the date of
voluntary termination, at such times and on the same basis amounts as such
incentive compensation becomes payable to other executives of the Employer and
(iii) pay or make available to the Executive all Benefits which by their terms
or under applicable law survive the voluntary termination of the Executive's
employment; and the Executive shall remain bound by his non-disclosure, non-
solicitation and non-competition covenants set forth in Sections 5 and 6 hereof.
The exercisability of the Executive's outstanding stock options and the vesting
of the Executive's restricted stock shall be treated in accordance with the
terms of their respective grants or awards, except that in the case of
retirement on or after age 62, the Company will recommend to the Compensation
and Stock Option Committee of the Board of Directors of the Company that the
exercisability of Executive's outstanding stock options be accelerated.

6
<PAGE>

10. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been given when
deposited in the U.S. mail in a registered, postage prepaid envelope addressed:
If to the Executive, at his address set forth below, and if to the Company, c/o
Chairman of the Board, Waste Management, Inc., 3003 Butterfield Road, Oak Brook,
Illinois 60521, with a copy to the General Counsel, Waste Management, Inc., at
the same address.

12. MISCELLANEOUS.

(a) This Agreement shall be subject to and governed by the laws of the
State of Illinois.

(b) Failure to insist upon strict compliance with any provisions
hereof shall not be deemed a waiver of such provisions or any other provision
hereof.

(d) The invalidity or unenforceability of any provision hereof shall
not affect the validity or enforceability of any other provision.

(e) This Agreement shall supersede any and all prior employment
agreements or understandings, written or oral, with Executive.

7
<PAGE>

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.

WASTE MANAGEMENT, INC.

By /s/ Dean L. Buntrock
------------------------------
Dean L. Buntrock,
Chairman of the Board

/s/ Joseph M. Holsten
--------------------------------
Joseph M. Holsten

Address: 374 North Water Street
Batavia, IL 60510

<PAGE>

Exhibit 10.44

WASTE MANAGEMENT, INC.
1997 EQUITY INCENTIVE PLAN
RESTRICTED STOCK AWARD CERTIFICATE
----------------------------------

================================================================================
Participant: Joseph M. Holsten SSN: ###-##-####
Number of Shares of Restricted Stock: 55,000 Award Date: June 20, 1997
Vesting Schedule: 100% vested on the 10th Anniversary of the Award Date
Restricted Period: From the Award Date through the first anniversary of a
termination of employment
================================================================================

The Restricted Stock Award represented by this Certificate is made pursuant
to the Waste Management, Inc. 1997 Equity Incentive Plan, the terms of which are
incorporated herein by reference. Except to the extent expressly provided
herein, capitalized terms used in this Certificate shall have the same meaning
ascribed thereto in the Plan, a copy which has been delivered to the
Participant. This Certificate serves as the Award Agreement under the Plan. The
Restricted Stock Award represented by this Certificate is subject to the
execution of an Employment Security Agreement dated as of June 20, 1997 between
the Company and the Participant. In the event such agreement is not executed by
the Participant in a form acceptable to the Company by June 30, 1997 this
Restricted Stock Award shall be null and void.

The Restricted Stock subject to this Certificate is subject to the
restrictions set forth in Article 8 of the Plan, which include, but are not
limited to, prohibitions on the sale, transfer, assignment, pledge or
encumbrance of the Restricted Stock during the Restricted Period set forth on
this Certificate. The Restricted Stock shall be forfeited if the Participant
terminates employment before the vesting date set forth above, if the
Participant's employment with the Company and/or its Subsidiaries is terminated
by the Company or any Subsidiary for Cause or if the Participant violates his
non-compete agreement with the Company during the Restricted Period.
Notwithstanding the foregoing, (a) if the Participant's employment is terminated
due to death or Disability, or a Change in Control occurs, the Restricted Stock
shall be fully vested on the date of termination and all restrictions shall
lapse; (b) if the Participant's employment is terminated by the Company or any
Subsidiary without Cause or there occurs, without the Participant's written
consent, (i) a reduction in the scope of his duties, his base salary, or his
benefits, or (ii) a relocation of his place of employment more than 50 miles
away (all within the meaning of his Employment Security Agreement), the
Restricted Stock shall be fully vested on the date of the termination, but the
restrictions shall not lapse; and (c) if the Participant's employment is
terminated due to Retirement on or after age 62, the Restricted Stock shall be
fully vested on the date of such Retirement but the restrictions shall not
lapse. All dividends payable with respect to such Restricted Stock shall be
credited to the Participant, but shall be subject to the same restrictions and
vesting period as the Restricted Stock. The Participant's acceptance of the
Restricted Stock will be deemed his or her acceptance of the terms under which
such Restricted Stock is granted.

IN WITNESS WHEREOF, the Company has caused this Restricted Stock Award
Certificate to be executed as of the day and year set forth above.

WASTE MANAGEMENT, INC.

By: /s/ Dean L. Buntrock
------------------------------------------
Dean L. Buntrock, Chairman of the Board

<PAGE>

EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports dated February 3, 1997, to all references to our Firm in Post-
Effective Amendment No. 2 to Registration Statement on Form S-1, Registration
No. 333-01327 and to the incorporation by reference of such reports in Waste
Management, Inc.'s previously filed Registration Statements on Form S-8
(Registration Nos. 33-7201, 33-17447, 33-26733, 33-35936, 33-63702, 33-64266,
33-62285, 33-64427, 33-64431 and 333-01325).

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Chicago, Illinois August 6, 1997