<Page>
                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   FORM 20-F

(Mark One)

<Table>
<S>   <C>
/ /   Registration statement pursuant to Section 12(b) or 12(g) of
      the Securities Exchange Act of 1934.

                                or

/X/   Annual report pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934

      For the fiscal year ended December 31, 2002

                                or

/ /   Transition report pursuant to Section 13 or 15(d) of the
      Securities Exchange Act of 1934

      For the transition period from to

      Commission file number
</Table>

                      CAPITAL ENVIRONMENTAL RESOURCE INC.
                 ----------------------------------------------

             (Exact Name of Registrant as Specified in Its Charter)

                                      N/A
   --------------------------------------------------------------------------

                (Translation of Registrant's Name Into English)

                                    ONTARIO
   --------------------------------------------------------------------------

                (Jurisdiction of Incorporation or Organization)

            1005 SKYVIEW DRIVE, BURLINGTON, ONTARIO, CANADA, L7P 5B1
   --------------------------------------------------------------------------

                    (Address of Principal Executive Offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

<Table>
<Caption>
                                                              NAME OF EACH EXCHANGE
              TITLE OF EACH CLASS                              ON WHICH REGISTERED
              -------------------                             ---------------------
<S>                                              <C>
                     NONE                                             NONE
</Table>

Securities registered or to be registered pursuant to Section 12(g) of the Act:

                          Common Shares, no par value
   --------------------------------------------------------------------------

                                (Title of Class)

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                  of the Act:

                          Common Shares, no par value
   --------------------------------------------------------------------------

                                (Title of Class)

    Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the Annual
Report

              35,194,995 SHARES OF COMMON STOCK ISSUED AND OUTSTANDING

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

                             Yes /X/            No / /

    Indicate by check mark which financial statement item the registrant has
elected to follow.

                         Item 17 / /            Item 18 /X/
<Page>
                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                          PAGE
                                                                        --------
<C>       <S>                                                           <C>
Item 1.   Identity of Directors, Senior Management and Advisors.......         3

Item 2.   Offer Statistics and Expected Timetable.....................         3

Item 3.   Key Information.............................................         4

Item 4.   Information on the Company..................................        12

Item 5.   Operating and Financial Review and Prospects................        27

Item 6.   Directors, Senior Management and Employees..................        39

Item 7.   Major Stockholders and Related Party Transactions...........        48

Item 8.   Financial Information.......................................        51

Item 9.   Listing.....................................................        52

Item 10.  Additional Information......................................        53

Item 11.  Quantitative and Qualitative Disclosures About Market               65
            Risk......................................................

Item 12.  Description of Securities Other than Equity Securities......        65

Item 13.  Defaults, Dividend Arrearages and Delinquencies.............        66

Item 14.  Material Modifications to the Rights of Security Holders and        66
            Use of Proceeds...........................................

Item 15.  Controls and Procedures.....................................        67

Item 16.  Reserved....................................................        67

Item 18.  Financial Statements and Schedule to Financial Statements...        68

Item 19.  Exhibits....................................................        69
</Table>
<Page>
                                     PART I

                         CAUTIONARY STATEMENT REGARDING
                           FORWARD-LOOKING STATEMENTS

    This Annual Report on Form 20-F (the "Annual Report") contains certain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934 (the "Exchange Act"). Some of these forward-looking
statements include forward-looking phrases such as "anticipates", "believes",
"could", "estimates", "expects", "foresees", "intends", "may", "should" or "will
continue", or similar expressions or the negatives thereof or other variations
on these expressions, or similar terminology, or discussions of strategy, plans
or intentions. These statements also include descriptions in connection with,
among other things:

    - anticipated revenues, capital expenditures, future cash flows and
      financing requirements;

    - the implementation of the business strategy of Capital Environmental
      Resource Inc. (the "Company");

    - descriptions of the expected effects of the competitive strategies of the
      Company; and

    - the impact of actions taken by the Company's competitors and other third
      parties, including courts and other governmental authorities.

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

    - changes in inflation;

    - changes in regulations affecting the Company's business and costs of
      compliance;

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

    - the Company's ability to successfully implement its corporate strategy and
      integrate any acquisitions it undertakes;

    - the outcome of pending legal claims against the Company;

    - changes in general business and economic conditions and in the financial
      markets; and

    - changes in accounting standards or pronouncements.

    Some of these factors are discussed in more detail in this Annual Report,
including under Item 3. "Key Information -- Risk Factors", Item 4. "Information
on the Company" and Item 5. "Operating and Financial Review and Prospects". If
one or more of these risks or uncertainties affects future events and
circumstances, or if underlying assumptions do not materialize, actual results
may vary materially from those described in this Annual Report as anticipated,
believed, estimated or expected, and this could have a material adverse effect
on the Company's business, financial condition and results of operations. The
Company has no plans to update any industry information or forward-looking
statements set out in this Annual Report and has no obligation to update any
such statements.

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

    Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

    Not applicable.

                                       3
<Page>
ITEM 3.  KEY INFORMATION

A.  SELECTED FINANCIAL DATA

    The tables below set forth selected consolidated financial data for the
Company for the periods indicated and are qualified by reference to, and should
be read in conjunction with, the Company's Consolidated Financial Statements and
the Notes thereto, which are included elsewhere in this Annual Report, and
Item 5. "Operating and Financial Review and Prospects".

    The financial data as of December 31, 2002, 2001, 2000, 1999 and 1998 and
for the years ended December 31, 2002, 2001, 2000, 1999 and 1998 have been
derived from the Company's audited consolidated financial statements.

    The selected consolidated financial data as of December 31, 2002, 2001,
2000, 1999 and 1998 and for each of the periods presented have been prepared in
accordance with United States generally accepted accounting principles
("U.S. GAAP"). All financial information presented herein is in thousands of
dollars except share and per share data or as otherwise indicated. All
references to "$" or "dollars" means U.S. dollars and all references to "C$"
means Canadian dollars.

<Table>
<Caption>
                                              YEAR ENDED      YEAR ENDED      YEAR ENDED      YEAR ENDED      YEAR ENDED
                                             DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                 2002            2001            2000            1999            1998
                                             -------------   -------------   -------------   -------------   -------------
                                                        (In Thousands of US $, Except Share and Per Share Data)
<S>                                          <C>             <C>             <C>             <C>             <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................................   $    98,846     $    93,241     $  117,008      $   97,551      $   62,056
Cost of operations, excluding depreciation
  and amortization.........................        61,250          63,140         79,396          66,190          43,002
Depreciation and amortization..............        10,718          11,276         12,181           8,134           4,890
Selling, general and administrative........        19,470          18,174         18,622          13,118           8,490
Goodwill impairment losses.................       --                3,400         13,500         --              --
Loss (gain) on property and equipment(1)...       --                   34            (69)         (1,199)        --
Loss (recovery) on sale of
  U.S. operations..........................          (718)          4,885        --              --              --
Foreign exchange (gain) loss...............        (1,441)          1,003        --              --              --
Start-up, integration and transition costs
  (2)......................................       --              --             --              --                  602
                                              -----------     -----------     ----------      ----------      ----------
Income (loss) from operations before
  interest and taxes.......................         9,567          (8,671)        (6,622)         11,308           5,072
Interest and financing expense.............         5,727          10,029         10,649           6,232           3,139
                                              -----------     -----------     ----------      ----------      ----------
Income (loss) before income taxes..........         3,840         (18,700)       (17,271)          5,076           1,933
Income tax provision.......................        (1,713)           (968)        (1,010)         (2,053)           (740)
                                              -----------     -----------     ----------      ----------      ----------
Net income (loss)..........................   $     2,127     $   (19,668)    $  (18,281)     $    3,023      $    1,193
                                              -----------     -----------     ----------      ----------      ----------
Basic net income (loss) per share..........   $      0.06     $     (1.60)    $    (2.54)     $     0.60      $     0.52
Diluted net income (loss) per share........   $      0.06     $     (1.60)    $    (2.54)     $     0.51      $     0.29
Shares used in calculating basic net income
  (loss) per share.........................    33,964,423      12,259,641      7,196,627       5,068,607       2,304,847
                                              -----------     -----------     ----------      ----------      ----------
Shares used in calculating diluted net
  income (loss) per share..................    34,851,621      12,259,641      7,196,627       5,976,659       4,174,172
                                              ===========     ===========     ==========      ==========      ==========
</Table>

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

(1) Includes a gain of $1,100 in 1999 on replacement of assets destroyed in a
    fire in 1999.

(2) Includes integration and transition costs for numerous acquisitions during
    1998.

                                       4
<Page>

<Table>
<Caption>
                                               YEAR ENDED      YEAR ENDED      YEAR ENDED      YEAR ENDED      YEAR ENDED
                                              DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                  2002            2001            2000            1999            1998
                                              -------------   -------------   -------------   -------------   -------------
                                                         (In Thousands of US $, Except Share and Per Share Data)
<S>                                           <C>             <C>             <C>             <C>             <C>
OTHER DATA:
Net cash provided by operating activities...    $ 13,654        $  6,685        $  7,362        $  5,975        $  3,907
  Acquisition of businesses, net of cash
    acquired................................     (27,197)           (341)         (8,003)        (45,653)        (33,670)
  Capital expenditures......................     (12,157)         (3,778)        (14,362)         (3,562)         (3,710)
Net cash provided by (used in) investing
  activities................................     (39,777)         13,280         (21,656)        (50,071)        (36,375)
  Proceeds form issuance of long-term
    debt....................................      57,200          --              27,662          62,868          27,312
  Principal repayments on long-term debt....     (56,509)        (43,464)        (13,629)        (37,807)         (1,350)
  Net proceeds from issuance of Common
    Stock...................................      28,376          29,108          --              30,670           6,729
  Debt issuance costs.......................      (2,623)           (559)           (615)         (3,222)            (91)
Net cash provided by (used in) financing
  activities................................      25,409         (17,392)         12,925          44,379          31,304
EBITDA(1)...................................      20,285           2,605           5,559          19,442           9,962
EBITDA margin...............................       20.5%            2.8%            4.8%           19.9%           16.1%
</Table>

<Table>
<Caption>
                                                                   AS OF DECEMBER 31
                                                  ----------------------------------------------------
                                                    2002       2001       2000       1999       1998
                                                  --------   --------   --------   --------   --------
<S>                                               <C>        <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................  $  1,775   $  2,469   $  --      $  1,398   $ 1,060
Accounts receivable -- trade....................    13,960     10,620     14,174     14,655     8,424
Accounts payable................................     3,821      3,369      3,992      3,869     3,187
Accrued expenses and other current
  liabilities...................................    10,510      8,002      7,820      8,781     6,646
Working capital, including cash.................     1,740      5,004    (24,902)    (5,547)     (994)
Property and equipment, net.....................    58,994     36,708     50,899     40,692    25,909
Total Assets....................................   147,718    110,652    152,959    162,314    98,337
Long-term debt, including capital lease
  obligations(2)................................    54,245     52,314     71,442     78,199    54,589
Redeemable capital stock........................     --         --         --         --       21,946
Total common stock..............................   113,549     85,173     57,066     57,066     7,528
Total stockholders' equity......................    77,817     45,913     38,655     58,320     5,492
</Table>

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

(1) EBITDA represents income (loss) before income taxes, interest expenses and
    depreciation and amortization. EBITDA is presented because the Company
    believes that it may be used by certain investors to analyze and compare the
    Company's operating performance between accounting periods and against the
    operating results of other companies that have different financing and
    capital structures or tax rates. In addition, management uses EBITDA, among
    other things, as an internal performance measure. The Company's lenders also
    use EBITDA to measure the Company's ability to service and/or incur
    additional indebtedness under its credit facility. However, EBITDA should
    not be considered in isolation or as a substitute for net income, cash flows
    or other income or cash flow data prepared in accordance with U.S. GAAP or
    as a measure of a company's performance, profitability or liquidity. EBITDA
    is not calculated under U.S. GAAP and therefore is not necessarily
    comparable to similarly titled measures of other companies. The following
    table reconciles the differences between net income (loss), as determined
    under U.S. GAAP, and EBITDA.

<Table>
<Caption>
                                                                                       AS OF DECEMBER 31
                                                                      ----------------------------------------------------
                                                                        2002       2001       2000       1999       1998
                                                                      --------   --------   --------   --------   --------
        <S>                                                           <C>        <C>        <C>        <C>        <C>
        Net income (loss)...........................................  $ 2,127    $(19,668)  $(18,281)  $ 3,023     $1,193
        Interest and financing expense..............................    5,727      10,029     10,649     6,232      3,139
        Income tax provision........................................    1,713         968      1,010     2,053        740
        Depreciation and amortization...............................   10,718      11,276     12,181     8,134      4,890
                                                                      -------    --------   --------   -------     ------
        EBITDA......................................................  $20,285    $  2,605   $  5,559   $19,442     $9,962
                                                                      =======    ========   ========   =======     ======
</Table>

(2) Excludes current portion of long-term debt and capital lease obligations.
    See Notes 8 and 9 of the Notes to the Company's Consolidated Financial
    Statements.

                                       5
<Page>
B.  CAPITALIZATION AND INDEBTEDNESS

    Not applicable.

C.  REASONS FOR OFFER AND USE OF PROCEEDS

    Not applicable.

D.  RISK FACTORS

    Set forth below are certain risk factors that could materially adversely
affect the Company's future business, operating results or financial condition.
Investors should carefully consider these risk factors and the other information
in this Annual Report before making investment decisions involving the Company's
shares. Additional risks not currently known to the Company or that the Company
now considers immaterial may also impair the Company's business and adversely
affect an investment in the Company's shares.

RISKS RELATED TO THE COMPANY'S BUSINESS

    GROWTH THROUGH ACQUISITIONS

    Part of the Company's strategy to expand its business and increase its
revenue and profitability is to pursue the acquisition of disposal-based and
collection assets and businesses. The Company has identified a number of
acquisition candidates, both in Canada and in the United States, which the
Company believes are suitable. However, the Company may not be able to acquire
these candidates at prices or on terms and conditions that are favorable to the
Company. The Company's ability to execute its acquisition strategy also depends
upon other factors, including the availability of additional equity and/or
indebtedness to support its acquisition plans, the successful integration of
acquired businesses and the Company's ability to effectively compete in the new
markets it enters. The Company's inability to achieve any of these factors could
have a material adverse effect on the Company's business, financial condition
and results of operations.

    CAPITAL REQUIREMENTS

    Additional capital will be required by the Company in order to implement its
acquisition strategy, both to finance acquisitions and for capital expenditures
to develop and maintain acquired landfills and other facilities. The Company
expects to finance future acquisitions through a combination of cash from
operations, borrowings under its senior credit facility, securing additional
senior indebtedness, issuing additional equity or debt securities and/or seller
financing. Seller financing depends upon the sellers' willingness to accept the
Company's shares as part of the consideration for an acquisition and the
Company's willingness to issue its shares, which will be impacted by the market
value of the Company's stock. If seller financing is not available, the Company
will have to use cash from operations, borrowings under its senior credit
facility and equity or debt issuances to fund its capital requirements. Using
cash from operations to finance acquisitions may reduce the funds the Company
has available for other corporate purposes. Additional borrowings from the
Company's banks will increase interest expenses and may require the Company to
commit to additional covenants which further limit its financial and operational
flexibility. Substantially all of the Company's assets are already pledged to
secure its senior credit facility. This could restrict the Company's ability to
obtain additional debt on favorable terms, or at all. If cash from operations
and/or borrowings under its senior credit facility are insufficient to meet the
Company's capital needs, the Company will need to raise capital through the
issuance of additional debt or equity securities, which may not be available on
commercially reasonable terms, or at all. The issuance of additional equity will
be dilutive to the existing stockholders. If the Company is unable to secure the
capital it needs on attractive terms, the Company may not be able to achieve its
strategy of growth through acquisitions.

    INTEGRATION OF ACQUIRED BUSINESSES

    The Company's growth and future financial performance will depend upon its
ability to effectively combine the operations of acquired businesses with its
existing operations. The integration process may require changes in the
operating methods and strategies of acquired businesses. The integration of
acquired businesses may divert management's attention from its day to day
responsibilities. The Company may also become responsible

                                       6
<Page>
for liabilities of the acquired business that were not discovered prior to
completing the acquisition. Any difficulties encountered by the Company in the
integration process could adversely affect the Company's financial condition and
operating results.

    COMPETITION FOR ACQUISITIONS

    The Company competes with other companies for the acquisition of targets
identified by the Company. Some of these companies are better capitalized than
the Company. Competition for acquisition candidates may increase the costs of
acquisitions to a point where they are beyond the Company's financial
capabilities or would adversely affect the Company's operating results and
financial condition.

    TIMING OF ACQUISITIONS

    There are a number of factors, such as obtaining third-party consents and
regulatory approvals, completing the due diligence review of the acquisition
target or finalizing the transaction documents, which may cause acquisitions to
be delayed beyond their expected completion dates. These delays may cause the
Company's operating results to be less favorable than expected, which could
cause the Company's stock price to decline.

    ACQUISITION-RELATED EXPENSES

    The Company may incur significant expenses in pursuing an acquisition. These
include professional and consulting fees paid to complete the Company's due
diligence review of its acquisition targets. As permitted under U.S. GAAP, the
Company capitalizes these expenses, as well as the costs of disposal site
development and expansions. If an acquisition is not completed, or if a disposal
site development or expansion is not completed or is determined to be impaired,
in accordance with U.S. GAAP, the Company would charge against earnings any
unamortized capitalized expenditures incurred in connection with that
acquisition or disposal site or expansion. In future periods, the Company may be
required to incur charges against earnings in accordance with this policy, or
due to other events that cause impairments. Depending upon the magnitude of the
charge, this could have a material impact on the Company's operating results and
its covenants to its banks and to the preferred stockholders of Waste
Services, Inc., the Company's U.S. subsidiary, which could adversely affect the
Company's liquidity.

    UNSUCCESSFUL ACQUISITIONS

    Some of the acquisitions completed by the Company may not fulfill their
revenue and profitability expectations due to factors beyond the Company's
control, such as market position and customer base. This could result in the
Company's operating margins being less than anticipated when the acquisition was
completed. The Company could, as a result, decide to change its strategy for
that market and sell the operations it has acquired at a loss or recognize an
impairment of goodwill and/or other intangible assets.

RISK RELATED TO THE COMPANY'S OPERATIONS

    COMPETITION FROM LARGE AND SMALL SOLID WASTE SERVICES COMPANIES

    The markets in which the Company operates are highly competitive and
fragmented and require substantial labor and capital resources. The Company
competes with large, national solid waste services companies, as well as smaller
regional solid waste services companies of varying sizes and resources. Some of
the Company's competitors are better capitalized, have greater name recognition
and greater financial, operational and marketing resources than the Company, and
may be able to provide services at a lower cost. The Company also competes with
operators of alternative disposal facilities, and municipalities that maintain
their own waste collection and disposal operations. Public sector operators may
have financial advantages over the Company because of their access to user fees
and similar charges as well as to tax revenues. Competitive pressures may make
the Company's internal growth strategy of improving service and increasing sales
penetration difficult or impossible to execute.

                                       7
<Page>
    TERMINATION OR NON-RENEWAL OF EXISTING CUSTOMER CONTRACTS, OR FAILURE TO
     OBTAIN NEW CUSTOMER CONTRACTS

    The Company derives a portion of its revenue from municipal contracts that
require competitive bidding by potential service providers. The Company intends
to continue to bid on municipal contracts and to rebid on existing municipal
contracts, but there is no way to predict which contracts will be maintained or
won in the future. In the past year, the Company has found that some
municipalities in Ontario have imposed more restrictive bonding requirements as
a qualification to bid for some residential waste collection contracts. The
Company may be unable to meet such bonding requirements at a reasonable cost to
the Company or at all. These requirements may limit the Company's ability to bid
for some municipal contracts and may favor some of the Company's competitors. If
the Company is unable to compete for municipal contracts because of bonding
requirements, its revenue from operations may decline.

    The Company also derives a portion of its revenue from non-municipal
contracts, which generally have a term of one to three years. Some of these
contracts permit the Company's customers to terminate them before the end of the
contractual term. Any failure by the Company to replace revenues from contracts
lost through competitive bidding, termination or non -- renewal within a
reasonable time period could have a material adverse effect on the Company's
business, financial position and results of operations.

    DEPENDENCE ON THIRD PARTIES FOR DISPOSAL OF ITS SOLID WASTE

    The Company currently delivers a substantial portion of the solid waste it
collects to municipally owned disposal facilities and to privately owned or
operated disposal facilities. If municipalities increase their disposal rates or
if the Company cannot obtain and maintain favorable disposal arrangements with
private owners or operators, the Company could incur significant additional
costs, which could have a material adverse effect on its business, financial
condition and results of operations if the Company is not able to pass these
cost increases on to its customers.

    RECENT LOSSES/UNPROFITABILITY

    The Company experienced both operating and net losses in its 2001 and 2000
fiscal years. Since then, the Company has returned to profitability by various
means, including refocusing its sales efforts, reducing costs through updating
of equipment and centralizing its operating systems. There can however be no
assurance that these efforts will continue to be successful or that the Company
will continue to be profitable.

    INDEBTEDNESS

    As of December 31, 2002, the Company had approximately $55.6 million in
total long-term indebtedness, including $50.7 million outstanding under its
senior credit facility. This amount of indebtedness may have adverse
consequences for the Company, including making the Company more vulnerable to
unfavorable economic conditions and competitive pressures, limiting the
Company's ability to borrow additional funds, requiring the Company to dedicate
or reserve a large portion of cash flow from operations to service debt,
limiting the Company's ability to plan for or react to changes in its business
and industry and placing the Company at a disadvantage compared to competitors
with less debt in relation to cash flow.

    The Company's indebtedness was incurred pursuant to a senior secured credit
facility with a syndicate of financial institutions, including Bank of America,
the Canadian Imperial Bank of Commerce and the Bank of Nova Scotia (the "Senior
Credit Facility") which was completed in June of 2002. At that time, the
Company's prior Senior Debt facility was repaid in full. All related financing
costs were written off by that time. The Senior Credit Facility is a revolving
credit facility denominated in Canadian dollars, which provided for borrowings
of up to the lesser of $61.0 million or C$92.0 million at closing. In
July 2002, the Toronto-Dominion Bank joined the Senior Credit Facility,
increasing the total commitment to the lesser of $76.5 million or
C$116.0 million, calculated at an exchange rate of C$0.66 per $1.00.
Fluctuations in the exchange rate between the Canadian and the U.S. dollar will
cause fluctuations in the maximum borrowings available to the Company under its
Senior Credit Facility and may require the Company to repay indebtedness
borrowed at a time when the exchange rate results in a higher lending
commitment. Assuming that the Company can locate additional lenders, or if any
of the existing lenders wish to further increase their participation, the Senior
Credit Facility can be increased by a further C$30.0 million prior to
December 31, 2003.

                                       8
<Page>
    Beginning January 1, 2004, the availability under the Senior Credit Facility
will be mandatorily reduced by a specified amount each calendar quarter. The
amount of each scheduled quarterly reduction is based upon a percentage of the
aggregate commitment amount under the facility as of December 31, 2003. Based
upon the current aggregate commitment of C$116.0 million, the facility will
decline to C$58.0 million by April 1, 2005. The Senior Credit Facility
terminates on June 30, 2005. In addition to scheduled reductions, the Company is
required to prepay and reduce the available credit with the proceeds of asset
sales and issuances of debt, in each case subject to certain exceptions. The
Senior Credit Facility is collateralized by substantially all of the Company's
assets.

    The Senior Credit Facility subjects the Company to various financial
covenants and restrictions relating to, among other things, minimum net worth
levels, specified fixed charge coverage ratios, maximum leverage ratios, minimum
levels of earnings before interest, taxes, depreciation and amortization, limits
on capital expenditures, indebtedness, stock redemptions and investments, lender
approval of certain acquisitions and dispositions and limits on operating
leases. Additionally, while the Senior Credit Facility is in place, the Company
is not permitted to pay cash dividends on its capital stock. These covenants and
restrictions could limit the manner in which the Company conducts its operations
and could adversely affect its ability to raise capital. Any failure by the
Company to comply with these covenants and restrictions will, unless waived by
the lenders, result in an inability to borrow under the Senior Credit Facility
and/or an immediate obligation to repay all amounts outstanding. In such event,
the Company would be required to refinance its debt or obtain capital from other
sources, including sales of additional debt or equity or sales of assets, in
order to meet its repayment obligations, which may not be possible.

    LABOR UNIONS

    Some groups of the Company's employees have chosen to be represented by
unions, and the Company has negotiated collective bargaining agreements with
them. In addition, labor unions may make attempts to organize the Company's
non-unionized employees. The Company cannot predict which, if any, groups of
employees may seek union representation in the future or the outcome of any
collective bargaining. The negotiation of any collective bargaining agreement
could divert management's attention and/or result in increased operating
expenses and lower operating margins. If the Company is unable to negotiate
acceptable collective bargaining agreements, the Company may have to wait
through "cooling off" periods, which are often followed by union-initiated work
stoppages, including strikes. Unfavorable collective bargaining agreements, work
stoppages or other labor disputes could have a material adverse effect on the
Company's business, financial condition and results of operations.

    INCREASES IN CERTAIN OPERATING COSTS

    Although fuel and energy costs account for a relatively small portion of the
Company's total operating costs, sustained increases in such costs, which the
Company is unable to pass on to its customers because of competitive pressures,
could lower the Company's operating margins and negatively impact the Company's
profitability.

    SEASONALITY

    The Company's operating revenues tend to be somewhat lower in the fall and
winter months, reflecting the lower volume of solid waste generated during those
periods. The Company's first and fourth quarter results typically reflect this
seasonality. In addition, particularly harsh weather conditions may result in
temporary slow downs or suspension of certain of the Company's operations and/or
higher labor and operational costs, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.

    LOSS OF KEY PERSONNEL

    The Company is highly dependent upon the experience, abilities and continued
efforts of its senior management team. The loss of one or more of the Company's
senior management team could have a material adverse effect on the Company's
business, results of operations and financial condition.

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    FOREIGN EXCHANGE RATE FLUCTUATIONS GENERATED IN CANADA

    For the year ended December 31, 2002, 100% of the Company's revenue was
derived from its operations in Canada. Substantially all of the Company's
revenue and expenditures for its Canadian operations are transacted in Canadian
dollars. Since the Company reports its results in U.S. dollars, its revenue,
expenses and earnings generated by Canadian operations as well as its net assets
will be negatively affected if the value of the Canadian dollar declines
compared to the U.S. dollar.

    On June 27, 2002, the Company fully repaid its former senior debt facility,
a portion of which was in U.S. dollars. Borrowings under the Senior Credit
Facility are now in Canadian dollars. Consequently the Company has no current
exposure to gains or losses with respect to debt denominated in U.S. dollars.

    INABILITY TO OBTAIN PERFORMANCE BONDS, LETTERS OF CREDIT AND INSURANCE

    Municipal solid waste services contracts and permits to operate transfer
stations, landfills and recycling facilities typically require the Company to
obtain performance bonds, letters of credit or other means of financial
assurance to secure its contractual performance. Such contracts and permits also
typically require the Company to maintain adequate insurance coverage. The
Company's ability to obtain performance bonds or letters of credit is generally
dependent on the Company's creditworthiness. Any failure by the Company to
obtain or maintain the required financial assurance or insurance to support
existing or future service contracts or permits could have a material adverse
effect on the Company's business, financial condition and results of operations.

    WASTE REDUCTION PROGRAMS

    Waste reduction programs may reduce the volume of waste available for
collection in some areas where the Company operates. Some areas in which the
Company operates offer alternatives to landfill disposal, such as recycling and
composting. In addition, provincial, state and local authorities increasingly
mandate recycling and waste reduction at the source and prohibit the disposal of
certain types of waste, such as yard waste, at landfills. (see
Item 4B -- "Business Overview -- Canadian Regulation -- Ontario",
and -- "United States Regulation -- Local and State Regulation"). Any change in
regulation or patterns regarding disposal of waste could have a material adverse
effect on the Company's business, financial condition and results of operations.

    LIMITATIONS ON LANDFILL PERMITTING, DEVELOPMENT AND EXPANSION

    As at December 31, 2002, the Company owned two landfills located in the
provinces of Alberta and Ontario and operated one other landfill in Ontario
under an agreement with a municipality. Effective May 6, 2003, the Company
acquired a third landfill site in Osceola County, Florida which is expected to
be operational by no later than the first quarter of 2004. On July 3, 2003, the
Company acquired a property in Pinal County, Arizona which has been zoned as a
municipal solid waste landfill. The Company is seeking the required permits to
construct and operate the landfill. The Company's ability to meet its growth
objectives depends in part on its ability to acquire, lease or expand landfills,
develop new landfill sites or enter into agreements which will give it long-term
access to landfill sites in its markets. In some areas in which the Company
operates, suitable land for new sites or expansion of existing landfill sites
may be unavailable. Permits to expand landfills are often not approved until the
remaining permitted disposal capacity of a landfill is very low. The Company may
not be able to purchase additional landfill sites, re-permit or expand existing
landfill sites or negotiate or renegotiate agreements to obtain a long-term
advantage for landfill costs. If the Company were to exhaust its permitted
capacity at its landfills, its ability to expand internally could be limited,
and it could be required to cap and close its landfills and dispose of collected
waste at more distant landfills or at landfills operated by its competitors or
other third parties. In Alberta, Canada regulations require landfills to be
re-approved every 10 years, thereby providing the regulator an opportunity to
add potentially more stringent or costly design or operating conditions to the
permit or prevent the renewal of the permit. Any failure by the Company to
secure favorable arrangements (through ownership of landfills or otherwise) for
the disposal of collected waste could have a material adverse effect on its
business, financial condition and results of operations.

    Changes in legislative or regulatory requirements may cause changes in the
landfill site permitting process. These changes could make it more difficult or
costly to obtain or renew landfill permits. Technical design

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requirements, as approved, may need modification at some future point in time
which could result in higher development and construction costs than projected.
The Company's current estimates of future disposal capacity may change as a
result of changes in design requirements prescribed by legislation, construction
requirements and changes in the expected waste density over the life of landfill
site. The density of waste may vary from those estimated in determining the
available airspace at a landfill because of variations in operating conditions,
including waste compaction practices, site design, climate and the nature of the
waste.

    The Company relies on studies performed internally or by third parties to
estimate the costs of obtaining and renewing permits and construction costs.
Third party studies and surveys are relied upon to estimate landfill development
costs and site capacities. These studies or surveys could be inaccurate which
could result in increased permitting, landfill development or construction
costs, or in lower site capacities from those projected by the Company.

    LACK OF LANDFILL CAPACITY/LIMITS ON EXPORT OF WASTE

    There is limited disposal capacity available in Ontario, Canada, a market in
which the Company has significant operations. As a result, a significant portion
of the solid waste collected in Ontario is transported to sites in the
United States for disposal. Disruptions in the cross-border flow of waste, or
periodic closures of the border to solid waste could result in a lack of
disposal capacity available to the Company's Ontario market at all or at a
reasonable price. These disruptions could have a material adverse affect on the
Company's business and operating results in the Ontario market.

    LIABILITY FOR LANDFILL CLOSING AND POST-CLOSING CARE COSTS

    The Company has significant financial obligations to pay closure and
post-closure care costs for the landfills it currently owns and will likely have
similar obligations with respect to any landfills it acquires in the future. The
Company relies on internally performed studies and those of third parties in
estimating its obligations for future closure and post-closure care costs. These
studies could be inaccurate which would result in the costs incurred by the
Company for closure and post-closure care being higher than those estimated.

    Actual future costs of construction materials and third party labor could
differ from the costs the Company has used in estimating these closure and
post-closure care costs because of the impact of general economic conditions on
the availability of the required materials and labor. Technical designs could be
altered due to unexpected operating conditions, legislative or regulatory
changes resulting in higher costs than currently estimated.

    Changes in legislative or regulatory requirements including changes in
capping, closure or post-closure care activities, types or quantities of
materials used, or the term of post closure care could result in higher costs
than those estimated by the Company. The actual rate at which disposal capacity
is utilized could differ from the projected timing resulting in the landfill
reaching capacity earlier or later than projected and the Company thereby
incurring closure and post-closure care costs earlier or later than projected.

    To the extent the Company's reserves or accruals are inadequate to cover
such costs, these obligations could have a material adverse effect on the
Company's business, financial condition and results of operations.

    ENVIRONMENTAL AND LAND USE REGULATION

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

                                       11
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associated with the Company's operations. Any of these occurrences could have a
material adverse effect on the Company's business, financial condition and
results of operations.

    In some markets in which the Company operates, permitting requirements may
be prohibitive and may differ between those required of the Company and those
required of its competitors. The Company's inability to obtain and maintain
permits for transfer stations may adversely affect the Company's ability to
service its customers and compete in these markets.

    In addition, stringent controls on the design, operation, closure and
post-closure care of solid waste facilities could require the Company to
undertake investigative or remedial activities, curtail operations, close a
facility temporarily or permanently, or modify, supplement or replace equipment
or facilities at substantial costs, any of which could have a material adverse
effect on the Company's business, financial condition and results of operations.

    LIABILITY FOR ENVIRONMENTAL DAMAGE

    The Company could be held liable for environmental damage at solid waste
facilities that it owns or operates, including damage to neighboring landowners
and residents for contamination of the air, soil, groundwater, surface water,
and drinking water. The Company's liability could extend to damage resulting
from pre-existing conditions and off-site contamination caused by pollutants or
hazardous substances that the Company or its predecessors arranged to transport,
treat or dispose of at other locations. The Company is also exposed to liability
risks from businesses that it acquires as these businesses may have liabilities
that the Company fails or is unable to discover, including noncompliance with
environmental laws. The Company's insurance program may not cover all
liabilities associated with environmental cleanup or remediation. Any exposure
to environmental liabilities, to the extent not adequately covered by insurance,
could have a material adverse effect on the Company's business, financial
condition and results of operations.

RISK RELATED TO THE COMPANY'S JURISDICTION

    DIFFICULTY ENFORCING SUITS AGAINST THE COMPANY

    The Company is a corporation incorporated in the Province of Ontario under
the Business Corporations Act (Ontario). As of the date of this report, the
majority of the Company's assets are located in Canada. In addition, a majority
of the Company's directors are residents of Canada, and all or a substantial
portion of the directors' assets are located outside of the United States. As a
result, it may be difficult for the Company's stockholders to serve notice of a
lawsuit on the Company or its non-U.S. directors within the United States or to
enforce against the Company or such persons in Canada judgments of courts of the
United States, including judgments predicated upon the civil liability
provisions of the federal securities laws of the United States.

ITEM 4.  INFORMATION ON THE COMPANY

A.  HISTORY OF THE COMPANY

    - GENERAL

    Capital Environmental Resource Inc. is a regional, integrated solid waste
services company that provides collection, transfer, disposal and recycling
services to commercial, industrial and residential customers.

    The Company was formed on the amalgamation of its predecessor, Capital
Environmental Resource Inc., with a number of its wholly owned subsidiaries,
pursuant to the Business Corporations Act (Ontario) effective January 1, 2003.
The Company's predecessor was incorporated in May 1997 and began operations in
June 1997 when it acquired selected Canadian solid waste assets and operations
from Canadian Waste Services Inc. and its parent, USA Waste Services, Inc. (now
known as Waste Management, Inc.). The Company completed its initial public
offering of 2,760,000 Common Shares in June of 1999. Details of the Company's
other capital raisings are described below.

    The Company's corporate offices are located at 1005 Skyview Drive,
Suite 221, Burlington, Ontario, Canada, L7P 5B1. The Company's telephone number
is (905) 319-1237.

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

    - ACQUISITION HISTORY OF THE COMPANY

    From June 1997 through December 2002, the Company acquired 41 solid waste
services businesses in Canada, including 46 collection operations, 13 transfer
stations, two landfills, seven recycling processing facilities and a contract to
operate two landfills (one of which was subsequently closed) and one transfer
station.

    In May 2003, the Company acquired a landfill in Osceola County, Florida. In
July 2003, the Company acquired Cactus Waste Systems, LLC ("Cactus Waste") which
owns an 800 acre property in Pinal County, Arizona. The property has been
re-zoned to permit development of a municipal solid waste landfill. The
landfill's current design generates a lifetime permitted capacity in excess of
100 million tons. It is currently anticipated that the landfill will open for
commercial operation in the first quarter of 2005. Cactus Waste has also
received all required zoning and permits to operate a transfer station in Mesa,
Arizona.

    In July 2003, the Company acquired a collection operation in Mesa, Arizona.
Between May 1997 and May 2000, the Company acquired nine solid waste services
businesses in the Northeastern United States, all of which were sold in the
first and second quarters of 2001.

    - CAPITAL RAISING HISTORY OF THE COMPANY

    In September of 2001, the Company issued 16.5 million shares of its common
stock at a price of $2.00 per share in a private placement transaction,
resulting in gross proceeds to the Company of $33 million. Net proceeds to the
Company totaled approximately $29.1 million, of which $25 million was used to
reduce the amount outstanding under the Company's then Senior Debt facility. The
newly issued stock represented approximately 69.6% of the Company's then
outstanding common stock.

    In February 2002, the Company issued approximately 11.3 million shares of
Series 1 Preferred Stock at a price of $2.65 per share in a private placement
transaction, resulting in gross proceeds to the Company of approximately
$30 million. The net proceeds to the Company of approximately $28 million were
used to fund the purchase of Waste Services Ottawa.

    Between March 28, 2003 and June 10, 2003, the Company issued 10,241,666
Series 1 Preferred Shares at a price of $3.00 per share in a private placement
sale, resulting in net proceeds to the Company of $29.0 million. The proceeds of
the private placement were used to fund the balance of the purchase price for a
23.5% membership interest in Omni Waste of Osceola County, LLC ("Omni Waste"),
the purchase price of the remaining interests in Omni Waste and for general
corporate purposes.

    On May 6, 2003, Waste Services, Inc., the Company's U.S. wholly-owned
subsidiary, issued by a private placement, 55,000 shares of its Preferred Stock
to Kelso Investment Associates VI, L.P. and KEP VI, LLC (collectively "Kelso")
at a price of $1,000.00 per share. The issue of Preferred Stock resulted in net
proceeds to the Company of $50.0 million. The proceeds were applied to purchase
the remaining membership interests of Omni Waste and for general corporate
purposes.

    On May 14, 2003, the Company issued 1,200,000 common shares in consideration
of services provided to the Company in connection with the Omni Waste
acquisition.

    Between June 30, 2003 and July 8, 2003, the Company issued an additional
8,527,667 Series 1 Preferred Shares at a price of $3.00 per share in a private
placement transaction, resulting in net proceeds to the Company of approximately
$25.0 million. The proceeds of the private placement were applied to fund the
purchase of Cactus Waste, a collection business in Mesa, Arizona, and for
general corporate purposes.

    COMPANY STRATEGY

    The Company is one of the largest solid waste companies in Canada. The
Company expects to continue to pursue tuck-in acquisitions within its current
market areas in an effort to improve market share, route density

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and profitability. The Company may also make larger acquisitions in Canada in
order to secure disposal capacity for its existing operations or to expand into
new markets with vertically integrated collection and disposal operations.
However, given the dominant market position enjoyed by the Company's largest
competitor and the lack of currently available opportunities to acquire
significant disposal facilities in Canada, the Company expects that its growth
prospects in the Canadian market will be limited.

    In January of 2003, the Company identified that there are significant
opportunities for disposal-based growth in certain geographic markets in the
United States. The Company has determined to pursue these opportunities. The
acquisition of Omni Waste is a first step in the execution of the Company's
strategy to expand its business in those areas of the United States where the
Company has the opportunity to acquire significant disposal capacity. In order
to finance its acquisition strategy, the Company expects to look increasingly to
U.S. sources of capital in both the debt and equity markets. In addition, in
2003 or early 2004, the Company expects to complete its reorganization pursuant
to a plan of arrangement under the Business Corporations Act (Ontario) which
will result in the Company becoming an indirect subsidiary of its current
U.S. subsidiary, Waste Services, Inc. ("WSI").

    OTHER RECENT DEVELOPMENTS

    Recent developments and corporate transactions affecting the Company are
described below.

    - WARRANTS

    On January 31, 2003, in connection with a potential acquisition, the Company
issued warrants to purchase a total of 56,250 fully paid and non-assessable
Common Shares for an exercise price of $4.70 per share. The warrants are
exercisable at any time after January 31, 2004 and expire on January 31, 2008.

    - SERIES 1 PREFERRED SHARES

    Between March 28, 2003 and June 10, 2003, the Company issued 10,241,666
Series 1 Preferred Shares at a price of $3.00 per share in a private placement
sale to certain investors. Net proceeds to the Company, after financing costs of
approximately $1.7 million, were $29.0 million. Included in the costs of the
financing were placement agency fees of $1.09 million paid to a company of which
one of the Company's directors is a principal. The proceeds of the private
placement were used to fund the balance of the purchase price for a 23.5%
membership interest in Omni Waste, and were applied toward the purchase price of
the remaining interests in Omni Waste and for general corporate purposes.

    The Series 1 Preferred Shares are non-voting, are not entitled to receive
any dividends declared by the Company and will automatically convert into fully
paid and non-assessable Common Shares on the basis of one Common Share for each
one Series 1 Preferred Share held, upon approval of the conversion by resolution
of a majority of the common stockholders.

    Each subscriber for Series 1 Preferred Shares was also issued warrants to
purchase Common Shares of the Company equal to 20% of the number of Series 1
Preferred Shares purchased by the holder of such Preferred Shares, resulting in
a total issuance of 2,048,333 warrants. The exercise of the warrants is also
subject to receiving approval of a majority of the common stockholders to the
conversion of the Series 1 Preferred Shares. The warrants are exercisable for a
purchase price of $3.00 per Common Share and are exercisable at any time after
stockholder approval of the conversion is received. The warrants will expire on
March 31, 2008.

    Effective March 30, 2003, the Company entered into Voting Agreements with
the holders of shares of common stock of the Company representing at least 51%
of the issued Common Shares, to vote in favour of the conversion of the
Series 1 Preferred Shares to Common Shares and the exercisability of the
warrants. Accordingly, the Series 1 Preferred Shares have been treated as common
stock equivalents and included in the calculation of the shares outstanding in
this Annual Report.

                                       14
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    Between June 30, 2003 and July 8, 2003, the Company issued a further
8,527,667 Series 1 Preferred Shares at a price of $3.00 per share in a private
placement sale to certain investors. Net proceeds to the Company were
approximately $25.0 million. Included in the financing costs were placement
agency fees of $635 paid to a Company of which one of the Company's directors is
a principal. The proceeds of the private placement were used to fund the
purchase of the Mesa, Arizona collection operation and will be used for
acquisitions and for general corporate purposes. Each subscriber for Series 1
Preferred Shares was also issued warrants to purchase Common Shares of the
Company equal to 20% of the number of Series 1 Preferred Shares purchased by the
holder of such Preferred Shares, resulting in a total issuance of 1,705,533
warrants. The terms and conditions of these warrants are the same as described
above save and except for the expiry dates which are 5 years from the date of
issuance of the warrants.

    - OMNI WASTE

    On March 31, 2003, the Company purchased 23.5% of the membership interests
in Omni Waste for $8.25 million in cash and the issuance of 2,050,000 fully paid
and non-assessable Common Shares. On May 6, 2003, the Company completed the
purchase of the remaining 76.5% of the membership interests in Omni Waste for an
aggregate purchase price of $64.1 million, including the assumption of
$8.3 million of indebtedness to third parties. $45.8 million of the purchase
price was paid in cash on closing. The purchase was completed by the Company's
U.S. incorporated subsidiary, WSI.

    Omni Waste owns a 2,200 acre municipal solid waste landfill site which is
currently under development in Osceola County, Florida. Omni Waste has received
all necessary permits from the Florida Department of Environmental Protection
and from Osceola County for the operation of the landfill, which has a permitted
capacity of 24 million cubic yards. The landfill site is expected to begin
commercial operations by no later than the first quarter of 2004.

    On May 6, 2003, Omni Waste entered into a Royalty Agreement with the
vendors. Pursuant to the Royalty Agreement, Omni Waste will pay the vendors a
per ton royalty based on the number of tons of waste deposited daily at the Omni
Waste landfill.

    Effective May 6, 2003, the Company amended its Senior Credit Facility to
authorize the completion of the acquisition of the membership interests in Omni
Waste, to increase the Company's authorized capital expenditures in connection
with certain new municipal services contracts awarded to the Company and to
exclude up to $12.0 million in capital expenditures incurred in connection with
the acquisition of Omni Waste or the development of the Omni Waste landfill site
from the capital expenditure cap imposed by the Senior Credit Facility. The
consent to the completion of the acquisition was conditional upon the Company
completing the private placement of the Series 1 Preferred Shares described
above and the private placement of Preferred Stock of WSI described below for
net cash proceeds of at least $50.0 million.

    On May 14, 2003, the Company issued 1,200,000 Common Shares in consideration
for services provided to the Company in connection with the Omni Waste
acquisition.

    - WSI AND KELSO

    On May 6, 2003, WSI issued by a private placement, 55,000 shares of its
Preferred Stock to Kelso Investment Associates VI, L.P. and KEP VI, LLC
(collectively "Kelso") at a price of $1,000.00 per share. The issue of Preferred
Stock resulted in net proceeds to the Company of $50.0 million. The proceeds
were applied to fund in part the acquisition of the remaining membership
interests in Omni Waste and for general corporate purposes.

    The issuance of Preferred Stock was made pursuant to a subscription
agreement dated May 6, 2003 (the "WSI Subscription Agreement") between the
Company, WSI and Kelso. Under the WSI Subscription Agreement, WSI also issued to
Kelso 7,150,000 warrants to purchase shares of common stock (on a one for one
basis) of WSI for $3.00 per share. The warrants are exercisable at any time
following the completion of a reorganization of the Company pursuant to which
the Company will become an indirect subsidiary of WSI (the "Arrangement") and
expire on May 6, 2010. Under the WSI Subscription Agreement, up to 45,000
additional shares of Preferred Stock of WSI may be sold to Kelso at the option
of the Company.

                                       15
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    The shares of Preferred Stock of WSI are non-voting. Kelso however, has the
exclusive right to elect two directors of WSI as follows (i) one director for so
long as 5,000 or more shares of Preferred Stock are owned by Kelso or its
affiliates and (ii) a second director for so long as 25,000 or more shares of
Preferred Stock are owned by Kelso or its affiliates. Certain actions of WSI and
its subsidiaries require the prior approval of the holders of a majority of the
Preferred Stock. The holders of the Preferred Stock are entitled to receive a
liquidation preference of $1,000.00 per share and a cumulative cash dividend of
17.75% per annum (compounding and accruing quarterly in arrears). The Preferred
Stock must be redeemed no later than May 6, 2015. Until May 6, 2006, WSI may
redeem all or any part of the Preferred Stock on payment of the sum of $1,000.00
per share plus all accrued and unpaid dividends calculated as if the Preferred
Stock were redeemed on May 6, 2006. After May 6, 2006 and until May 6, 2015, the
Company may redeem the Preferred Stock on payment of the sum of $1,000.00 per
share plus all accrued and unpaid dividends calculated to the date of
redemption. If the Preferred Stock has not been redeemed by May 6, 2009, Kelso
may after that date require WSI to initiate a sale of WSI or its assets on terms
approved by the board of directors of WSI consistent with the fiduciary
obligations of the directors.

    Pursuant to the terms of the WSI Subscription Agreement, if the Company does
not effect the Arrangement by March 31, 2004, then Kelso has the right to obtain
up to 6,000,000 additional warrants to purchase shares of common stock of WSI at
an exercise price of $0.01. Kelso also has the right to require that the
warrants for shares of common stock of WSI issued to Kelso be exchanged for
warrants for Common Shares of the Company (referred to as an "Exchange Event"
under the WSI Subscription Agreement) after the expiration of a 60 day
consultation period following March 31, 2004.

    If additional warrants to purchase shares of common stock of WSI are issued
under the WSI Subscription Agreement, then, upon the Arrangement occurring, the
maximum number of shares of common stock that may be issued by WSI may be in
excess of 20% of the number of shares of common stock outstanding as of the date
of the exercise of such warrants. Alternatively, if the Arrangement does not
occur and an Exchange Event under the WSI Subscription Agreement occurs, then if
all the warrants are exercised pursuant to their terms, the maximum number of
Common Shares that may be issued by the Company may be in excess of 20% of the
number of Common Shares outstanding as of the date of the exercise of such
warrants. Shareholder approval of the issuance of these Common Shares under the
events described above is required in accordance with the rules of NASDAQ.

    The Common Shares of the Company or the shares of common stock of WSI, as
applicable, to be issued upon the exercise of the warrants will not be
registered under the U.S Securities Act, as amended, or under applicable
Canadian securities laws. Such Common Shares or shares of common stock of WSI,
as applicable, will therefore be subject to restrictions on resale under such
laws. The Company has, however, entered into a Registration Rights Agreement
with the holders of the warrants which grant such holders demand and piggy-back
registration rights with respect to the Common Shares or the shares of common
stock of WSI, as applicable, issuable upon the exercise of the warrants.

    - CACTUS WASTE AND MESA, ARIZONA COLLECTION OPERATIONS

    On July 3, 2003, the Company purchased Cactus Waste for $650 in cash. Cactus
Waste owns an 800 acre property in Pinal County, Arizona which has been re-zoned
to permit the development of a municipal solid waste landfill on the property.
The landfill's current design generates a lifetime permitted capacity in excess
of 100 million tons. The Company expects to begin commercial operation at the
landfill in the first quarter of 2005. Cactus Waste has also obtained the
required zoning and permits to operate a transfer station in Mesa, Arizona that
will be able to process up to 4,000 tons per day. Construction of the transfer
station is expected to begin in August, 2003. Operations at the transfer station
are expected to begin by no later than the first quarter of 2004.

    Upon receipt of all required permits and governmental authorizations for the
operation of the landfill site, the Company will issue 1,250,000 of its Common
Shares to the vendors of Cactus Waste. The vendors have the option to elect
receipt of the sum of $3.0 million in lieu of the 1,250,000 Common Shares.
Additional one-time lump sum payments are payable to the vendors based on the
landfill receiving certain thresholds of average tons of waste per day. These
payments, when and if made, will total $18.0 million.

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    On July 3, 2003, Cactus Waste entered into a Royalty Agreement with the
vendors. Pursuant to the Royalty Agreement, Cactus Waste will pay the vendors a
royalty on all waste deposited at the Cactus Waste landfill, after the earlier
to occur of July 3, 2007, or the receipt of 1,250 tons of waste per day at
the landfill.

    On July 10, 2003, the Company completed the purchase of a collection
business in Mesa, Arizona, for a purchase price of $2,785. The purchase price
was paid in cash. The purchase was completed through a subsidiary of WSI, Waste
Services of Arizona, Inc. The acquired business services approximately 16,000
customers. All of the disposal volume of the collection operation will be
internalized upon completion of construction of the Cactus Waste transfer
station and landfill.

    - MANAGEMENT, BOARD AND AUDITOR CHANGES

    Effective June 1, 2003, the Company entered into a two year employment
agreement with William (Bill) P. Hulligan as its Executive Vice President, North
American Operations. In his role, Mr. Hulligan will be responsible for all
aspects of the day to day operations of the Company.

    On June 19, 2003, George Matelich and R. John (Jack) Lawrence were elected
to the board of directors. George Matelich and Don Sanders were elected to the
Audit Committee and George Matelich was named Chairman of the Audit Committee.

    Effective July 11, 2003, the Company and its U.S. subsidiary, WSI, entered
into an employment agreement with Larry D. Henk, who was appointed President and
Chief Operating Officer.

    During 2003, the Company's auditors, PriceWaterhouseCoopers LLP advised that
they do not intend to stand for re-election as the Company's auditors at the
next annual shareholders meeting. The Company, through its Audit Committee, is
in the process of engaging new auditors.

B.  BUSINESS OVERVIEW

    OPERATIONS

    As of December 31, 2002, the Company served approximately 526,889 customers,
comprised of 29,219 commercial clients, 4,097 industrial clients and 493,573
residential and other clients.

    The following table sets forth certain information regarding the Company's
revenues by category of activity and geographic region for the years ended
December 31, 2002, 2001 and 2000.

<Table>
<Caption>
                                      2002                  2001                             2000
                                    --------   ------------------------------   ------------------------------
                                     CANADA     CANADA       US       TOTAL      CANADA       US       TOTAL
                                    --------   --------   --------   --------   --------   --------   --------
<S>                                 <C>        <C>        <C>        <C>        <C>        <C>        <C>
Commercial and Industrial
  Collection......................  $60,151    $51,319     $3,322    $54,641    $53,957    $12,175    $ 66,132
Residential Collection............   17,524     16,654      2,588     19,242     16,698     10,220      26,918
Transfer Station and Landfill.....   15,339     10,176         28     10,204      9,758        101       9,859
Commercial and Residential
  Recycling.......................    3,904      3,748         --      3,748      4,585         --       4,585
Other.............................    1,928      3,599      1,807      5,406      5,412      4,102       9,514
                                    -------    -------     ------    -------    -------    -------    --------
                                    $98,846    $85,496     $7,745    $93,241    $90,410    $26,598    $117,008
                                    =======    =======     ======    =======    =======    =======    ========
</Table>

    COMMERCIAL, INDUSTRIAL AND RESIDENTIAL WASTE COLLECTION SERVICES

    The Company's commercial and industrial collection services are performed
principally under one to three year service agreements or short-term purchase
orders. Fees are determined by a variety of factors, including collection
frequency, level of service, route density, the type, volume and weight of the
waste collected, type of equipment and containers furnished, the distance to the
disposal or processing facility, the cost of disposal or processing and prices
charged by competitors for similar services. The Company's ability to pass on
price increases is sometimes limited by the terms of its contracts. Commercial
and industrial collection vehicles normally require one operator. The Company
provides two to eight cubic yard containers to commercial customers and ten to
fifty cubic yard containers to industrial customers. No single commercial or
industrial contract is material to the Company's results of operations.

                                       17
<Page>
    Most residential waste collection and recycling services are provided by the
Company through multi-year contracts with municipal governments. These long-term
solid waste collection contracts with municipalities typically contain a
formula, generally based on a pre-determined published price index, for
automatic adjustments to fees to cover increases in some, but not all, operating
costs. Disposal costs are generally paid directly by the municipality. Under the
terms of each of these agreements, the Company has exclusive rights to provide
certain services to the community served. The range of services provided by the
Company can be as simple as one-stream collection services (e.g. blue box), or
more comprehensive, including various waste services. For example, in Red Deer,
Alberta, the Company provides commercial and residential services, while in
Penticton, British Columbia, the Company provides commercial, industrial and
residential services. Each of these agreements was bid on a competitive basis,
and rates for all services are set forth in the agreements. The largest
municipal contract accounted for 2.5% of revenue during 2002.

    Fees for residential solid waste collection services performed on a
subscription basis are based primarily on route density, the frequency and level
of service, the distance to the disposal or processing facility, the cost of
disposal or processing and prices charged in the Company's markets for similar
services. No single residential subscription agreement is material to the
Company's results of operations.

    The Company disposes of the waste it collects in one of four ways:

    - at municipally owned landfills;

    - through Company owned transfer stations;

    - at privately owned landfills or transfer stations; or

    - at its own landfills in Coronation, Alberta or Ottawa, Ontario.

    The Company seeks to secure favorable long-term disposal arrangements with
municipalities or private owners of landfills or transfer stations in markets
where it does not own a landfill. In these markets, the Company's ability to
maintain competitive prices for its collection services is generally dependent
upon its ability to secure favorable disposal pricing. If the Company is unable
to obtain and maintain favorable disposal arrangements in the markets in which
it operates (through ownership of landfills or otherwise), this could have a
material adverse effect on its business, financial condition and results
of operations.

    TRANSFER STATION SERVICES

    The Company currently operates ten transfer stations located in Edmonton,
Alberta; Abbotsford, British Columbia; and in Barrie, Bracebridge, Brampton,
Brockville, Hamilton, Keswick, Kingston and Orillia, Ontario, Canada. Each
transfer station receives, compacts and transfers solid waste to larger vehicles
for transport to landfills. The Company generally seeks to establish a transfer
station network in service areas where it can gain access to remote disposal
capacity at rates that are lower than local municipal or third party disposal
options. The Company believes that additional benefits of building a transfer
station network include:

    - improving utilization of collections personnel and equipment; and

    - building relationships with municipalities and private operators that
      deliver waste, which can lead to additional growth opportunities.

    LANDFILLS

    On February 3, 2000, the Company completed the purchase of the Paintearth
Municipal Landfill in Coronation, Alberta, Canada. The Paintearth assets
acquired included a landfill which is permitted to accept non-hazardous solid
waste, construction and demolition waste and certain special wastes, together
with a composting facility, a bio-remediation facility, and a material recycling
facility. The landfill consists of 160 acres zoned for waste disposal and
another 320 acres of contiguous land that is suitable for future expansion. It
is estimated that the 160 acre site has a total remaining capacity for
4.4 million cubic meters or 6.0 million tonnes of oil field waste. There is a
waste material restriction on the landfill of 200,000 tonnes per year. The
Company estimates that it has at least 38 years of remaining airspace in the
current 160 acre parcel. This landfill is used for

                                       18
<Page>
the disposal of municipal solid waste and solid, non-hazardous wastes generated
by the oil field industry in Western Canada.

    With its February 2002 acquisition of Ottawa, Ontario based Waste
Services Inc. ("Waste Services Ottawa"), the Company acquired a second landfill
located on the east side of Ottawa in Ontario, Canada. The landfill consists of
79 acres zoned for waste disposal and another 21 acres of contiguous lands. The
79 acre landfill is permitted to accept up to 234,750 tonnes per year of dry
waste for disposal. It is estimated that the 79 acre site has a remaining
capacity for 1.45 million cubic meters or 1.75 million tonnes and the Company
estimates that it has at least seven years of remaining airspace in the 79 acre
parcel at the current fill rate.

    The Company also operates a landfill in the town of Gravenhurst, Ontario
under a landfill operating contract with the District Municipality of Muskoka.
The responsibility for cell development, closure and post-closure care costs,
including any financial assurance requirements and environmental monitoring,
remains with the municipality.

    On May 6, 2003, the Company completed its acquisition of the remaining
membership interests in Omni Waste. Omni Waste owns a 2,200 acre municipal solid
waste landfill site which is currently under development in Osceola County,
Florida. Omni Waste has received all necessary permits from the Florida
Department of Environmental Protection and from Osceola County for the operation
of the landfill, which has a permitted capacity of 24 million cubic yards. The
landfill site is expected to begin commercial operations by no later than the
first quarter of 2004.

    In July 2003, the Company completed its acquisition of Cactus Waste. Cactus
Waste owns an 800 acre property in Pinal County, Arizona, which has been
re-zoned to permit its development as a municipal solid waste landfill. The
landfill's current design generates a lifetime permitted capacity in excess of
100 million tons. Cactus Waste has also obtained the required permits and zoning
to operate a transfer station in Mesa, Arizona that will be able to process up
to 4,000 tons per day.

    COMMERCIAL AND RESIDENTIAL RECYCLING

    The Company offers municipal, commercial and industrial customers services
for a variety of recyclable materials, including cardboard, office paper,
plastic containers, glass bottles, fiberboard, and ferrous and aluminum metals.
The Company operates five material recycling facilities in Barrie, Bracebridge,
Keswick, Kitchener and Lindsay, Ontario, Canada. The Company delivers other
collected recyclable materials to third parties for processing and resale. In an
effort to reduce the Company's exposure to commodity price fluctuations on
recycled materials, where competitive pressures permit, the Company will charge
collection and/or processing fees for recycling volume collected from third
parties. The Company believes that recycling will continue to be an important
component of provincial and local solid waste management plans due to the
public's increasing environmental awareness and regulations that mandate or
encourage recycling.

    OTHER SPECIALIZED SERVICES

    Other specialized services offered by the Company consist primarily of sales
and leasing of compactor equipment, portable toilet services for special events
or construction sites and contract management services for chain stores with
multiple locations. Portable toilet services are provided from our operations in
Barrie and Kingston, Ontario and Abbotsford, British Columbia. Leaf and yard
waste is composted at our landfill in Ottawa, Ontario.

    SALES AND MARKETING

    The Company has a diverse customer base, with no single contract or customer
accounting for more than 3.5% of revenues during the year ended December 31,
2002. The Company markets its services on a decentralized basis principally
through its district managers and direct sales representatives. The Company's
sales representatives visit customers on a regular basis and call upon potential
new customers within a specified territory or service area.

                                       19
<Page>
    COMPETITION

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

    GOVERNMENTAL REGULATION

    The Company is subject to significant federal, provincial and local
environmental and land use laws and regulations in Canada and following its
acquisition of Omni Waste, Cactus Waste and the Mesa, Arizona collection
business, is also subject to significant federal, state and local environmental
and land use laws and regulations in the United States. The enforcement of both
Canadian and U.S. environmental laws has become increasingly stringent. The
Company believes that it is currently in substantial compliance with all
material applicable environmental laws, permits, orders and regulations, and
does not currently anticipate any significant environmental costs necessary to
bring existing operations into compliance, although there can be no assurance in
this regard. The Company anticipates that regulation, legislation and regulatory
enforcement actions related to the solid waste services industry will continue
to increase.

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

    The principal statutes and regulations that apply to the Company's
operations in Canada are described below.

    CANADIAN REGULATION

    The Company's operations in Canada are subject to environmental statutes and
regulations at each of the federal, provincial and local levels. These laws
impose restrictions designed to control air, soil and water pollution and
regulate health and safety, zoning and land use and the handling of hazardous
and non-hazardous wastes, and often empower government officials to issue
administrative orders, including orders to cease carrying on a specific
activity. This regulatory framework imposes significant compliance burdens and
risks. The contravention of these laws may result in substantial fines that
could equal or exceed the amount of monetary benefit acquired as a result of the
commission of the offense and which could materially affect the Company's
business, results of operations and financial condition. In addition, the
Company's Canadian operations are subject to federal and provincial legislation
regulating the operation of the Company's fleet of vehicles, as well as to
provincial occupational health and safety and workers compensation statues which
establish employer responsibilities for worker health and safety. The provisions
of these statutes impose compliance burdens and costs and may result in
significant penalties on the Company for failure to comply.

    CANADA.  The Canadian Environmental Protection Act, 1999 regulates, among
other things, the import and export of waste into and out of Canada. In 2003 the
federal government is expected to introduce regulations to control the import
and export of prescribed non-hazardous wastes destined for final disposal. The
Transportation of Dangerous Goods Act regulates the transport of wastes across
provincial and federal borders.

    The Fisheries Act prohibits, among other things, the discharge of a
deleterious substance into waters frequented by fish and the harmful alteration
of fish habitat.

    ONTARIO.  Ontario's Environmental Protection Act, including Ontario
Regulation 347 as amended, which regulates general waste management and
Regulation 232/98 as amended, which regulates new or expanding landfill sites,
prescribe the principal standards for the location, maintenance and operation of
waste

                                       20
<Page>
management systems, transfer and disposal sites in Ontario and creates offenses
for spills, unlawful discharges or failure to comply with permits or approvals.

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

    In June of 2002, the Waste Diversion Act was enacted. Pursuant to this
legislation the Waste Diversion Organization was created with a mandate to
develop, implement and operate waste diversion programs, designed to increase
the diversion of waste from disposal. Programs to be developed in 2003 include
recycling (municipal Blue-box), waste oil and used tires with programs for
organics, electronics and household special wastes (ie. paints and solvents) to
follow in later years.

    Regulation 127/01 of the Environmental Protection Act requires the
monitoring and reporting of airborne contamination from many industry sectors
including the waste management sector.

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

    The Ontario Ministry of the Environment has proposed draft regulations to
implement Administrative Monetary Penalties (AMPs) for noncompliance and
environmental infractions under the Environmental Protection Act, the Ontario
Water Resources Act and the Pesticides Act.

    The Ontario government recently passed amendments to the Municipal Act which
allow, in certain prescribed circumstances, the formation of municipal
businesses to compete directly in a public competitive bidding process with the
private sector waste services industry in respect of the collection, transfer,
storage, disposal or recycling of residential waste. The Truck Transportation
Act and the Highway Traffic Act regulate the operation and licensing regulate
the Company's operations in Alberta.

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

    BRITISH COLUMBIA.  The Environmental Management Act create offenses related
to spills, unlawful discharges and failure to comply. In May 2003, British
Columbia introduced Bill 57 to replace the Environmental Management Act and the
Waste Management Act with a new Environmental Management Act and regulations
under that Act. Bill 57 has not yet been proclaimed in force. Among many
changes, under the new Act, a risk-based approach will be applied to the
permitting process for all businesses and activities and regulations will be
developed to increase the use of administrative penalties as a compliance
enforcement tool. Various other provincial statutes, such as the Transportation
of Dangerous Goods Act deal generally with environmental matters and could also
impact the Company's operations in British Columbia.

    QUEBEC.  Quebec's Environmental Quality Act and the regulations pursuant
thereto prescribe the principal standards for waste management systems, transfer
stations and disposal sites in Quebec.

    The establishment and operation of a waste management system in Quebec, or a
part of a waste management system, requires an operating permit under the
Environmental Quality Act. To obtain a modification of the activities or
materials referred to in a permit, the permit holder must satisfy the conditions

                                       21
<Page>
for the issuance of a permit, which apply to the new materials or activities to
be covered by the permit. The Company currently has limited operations in the
Province of Quebec.

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

    UNITED STATES REGULATION

    The Company's U.S. operations (including those which were sold in 2001 and
which could continue to result in liability to the Company) and any waste
exported by the Company for disposal in U.S. landfills are subject to the
following laws and regulations:

    THE RESOURCE CONSERVATION AND RECOVERY ACT OF 1976.  RCRA regulates the
generation, treatment, storage, handling, transportation and disposal of solid
waste and requires states to develop programs to ensure the safe disposal of
solid waste. RCRA divides solid waste into two groups, hazardous and
non-hazardous. Wastes classified as hazardous under RCRA are subject to much
stricter regulation than wastes classified as non-hazardous.

    In October 1991, the EPA adopted the Subtitle D Regulations governing solid
waste landfills. The Subtitle D Regulations, which generally became effective in
October 1993, include location restrictions, facility design standards,
operating criteria, closure and post-closure requirements, financial assurance
requirements, groundwater monitoring requirements, methane gas emission control
requirements, groundwater remediation standards and corrective action
requirements. The Subtitle D Regulations also require new landfill sites to meet
more stringent liner design criteria to keep leachate out of groundwater. Each
state is required to revise its landfill regulations to meet these requirements
or these requirements will be automatically imposed by the EPA on landfill
owners and operators in that state. Each state is also required to adopt and
implement a permit program or other appropriate system to ensure that landfills
in each state comply with the Subtitle D Regulations. Various states in which
the Company operated or in which the Company may operate in the future have
adopted regulations or programs as stringent as, or more stringent than, the
Subtitle D Regulations.

    THE FEDERAL WATER POLLUTION CONTROL ACT OF 1972.  The Clean Water Act
regulates the discharge of pollutants from a variety of sources into waters of
the United States. If run-off from transfer stations or run-off or collected
leachate from landfills operated or owned by the Company were discharged into
streams, rivers or other surface waters, the Clean Water Act would require the
Company to apply for and obtain a discharge permit, conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of pollutants
in the discharge. Also, virtually all landfills are required to comply with the
EPA's storm water regulations issued in November 1990, which are designed to
prevent contaminated landfill storm water run-off from flowing into surface
waters. Various states have adopted regulations that are more stringent than the
federal requirements.

    THE COMPREHENSIVE ENVIRONMENTAL RESPONSE, COMPENSATION, AND LIABILITY ACT
OF 1980.  CERCLA established a regulatory and remedial program intended to
provide for the investigation and cleanup of facilities where or from which a
release of any hazardous substance into the environment has occurred or is
threatened. CERCLA imposes strict joint and several liability for cleanup of
facilities on current owners and operators of the site, former owners and
operators of the site at the time of the disposal of the hazardous substances,
any person who arranges for the transportation, disposal or treatment of the
hazardous substances, and the transporters who select the disposal and treatment
facilities. CERCLA also imposes liability for the cost of evaluation and
remediation of any damage to natural resources.

    The costs of a CERCLA investigation and cleanup can be very substantial.
Liability under CERCLA may be based on the existence of small amounts of the
more than 700 "hazardous substances" listed by the EPA, many

                                       22
<Page>
of which can be found in household waste. If the Company were found to be a
responsible party for a CERCLA cleanup, the enforcing agency could hold the
Company, or any other generator, transporter or the owner or operator of the
contaminated facility, responsible for all investigative and remedial costs,
even if others were also liable. CERCLA gives a responsible party the right to
bring a contribution action against other responsible parties for their
allocable shares of investigative and remedial costs. The Company's ability to
obtain reimbursement from others for their allocable shares of these costs would
be limited by its ability to find other responsible parties and prove the extent
of their responsibility and by the financial resources of these other parties.

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

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

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

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

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

    STATE AND LOCAL REGULATION.  Each state has laws and regulations governing
the generation, storage, treatment, handling, transportation and disposal of
solid waste, occupational safety and health, water and air pollution and, in
most cases, the siting, design, operation, maintenance, closure and post-closure
maintenance of landfills and transfer stations. In addition, many states have
adopted statutes comparable to, and in some cases more stringent than, CERCLA.
These statutes impose requirements for investigation and cleanup of contaminated
sites and liability for costs and damages associated with these sites, and some
provide for the imposition of liens on property owned by responsible parties.
Furthermore, many municipalities also have ordinances, local laws and
regulations which affect the operations of solid waste services companies. These
include zoning and health measures that limit solid waste management activities
to specified sites or activities,

                                       23
<Page>
flow control provisions that direct the delivery of solid wastes to specific
facilities, laws that grant the right to establish franchises for collection
services and then put these franchises out for bid, and bans or other
restrictions on the movement of solid wastes into a municipality.

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

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

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

    PUBLIC UTILITY REGULATION.  The rates that landfill operators may charge are
also regulated in many states by public authorities. The adoption of rate
regulation or the reduction of current rates in states in which solid waste
management companies operate could have an adverse effect on their business,
financial condition and results of operations.

    RISK MANAGEMENT, INSURANCE AND PERFORMANCE BONDS

    The Company maintains environmental and other risk management programs to
evaluate existing facilities and potential acquisitions for environmental law
compliance. The Company also maintains a worker safety program that encourages
safe practices in the workplace.

    The Company carries a broad range of insurance for the protection of its
assets and operations at levels that it believes to be customary for a company
of its size in the solid waste management industry. The Company also maintains
pollution liability coverage of not less than $2.0 million per occurrence. While
the Company believes that its insurance coverage is adequate, there can be no
assurance that the Company's insurance will cover all liabilities associated
with environmental cleanup or remediation.

    Some of the Company's municipal solid waste services contracts, supply
contracts and permits to operate transfer stations, landfills and recycling
facilities require performance bonds, letters of credit or other means of
financial assurance for security. At December 31, 2002, the Company had provided
customers and various regulatory authorities with bonds and letters of credit in
the aggregate amount of approximately $17.1 million to secure its obligations.

                                       24
<Page>
C.  ORGANIZATIONAL STRUCTURE

    The Company's operations are conducted through direct and indirect wholly
owned subsidiaries of Capital Environmental Resource Inc. Set forth below is
certain information regarding the Company's significant subsidiaries:

<Table>
<Caption>
                                                                                          PROPORTION OF
                                                                                       OWNERSHIP INTEREST
NAME                                                    JURISDICTION OF ORGANIZATION   HELD BY THE COMPANY
----                                                    ----------------------------   -------------------
<S>                                                     <C>                            <C>
1364927 Ontario Limited...............................       Ontario, Canada                  100%
1364928 Ontario Limited...............................       Ontario, Canada                  100%
1427255 Ontario Inc...................................       Ontario, Canada                  100%
943162 Ontario Inc....................................       Ontario, Canada                  100%
Active Disposal & Recycling Ltd.......................   British Columbia, Canada             100%
Huneault Sales & Equipment Ltd........................       Ontario, Canada                  100%
HWM Ltd...............................................       Ontario, Canada                  100%
Mer Bleue Developments Inc............................       Ontario, Canada                  100%
NDC Management Services Inc...........................       Ontario, Canada                  100%
No. 400 Sail View Ventures Ltd........................   British Columbia, Canada             100%
Quality Waste Management Ltd..........................       Alberta, Canada                  100%
Ram-Pak Compaction Systems Ltd........................            Canada                      100%
Waste Services Inc....................................       Ontario, Canada                  100%
West Coast Survival & Safety Inc......................   British Columbia, Canada             100%
Z Best Waste Systems Inc..............................       Alberta, Canada                  100%
</Table>

    On January 1, 2003, the Company and all of the above described subsidiaries,
other than Ram-Pak Compaction Systems Ltd., were amalgamated to form Capital
Environmental Resource Inc.

    On January 13, 2003, the Company incorporated a wholly-owned subsidiary,
Omni Waste, Inc. Omni Waste, Inc. was incorporated in the State of Delaware,
U.S.A. and on April 24, 2003, Omni Waste, Inc. changed its name to Waste
Services, Inc. ("WSI"). On March 31, 2003, Omni Waste, Inc. acquired a 23.5%
membership interest in Omni Waste of Osceola County LLC ("Omni Waste"). On
May 6, 2003, WSI completed the acquisition of the remaining 76.5% membership
interests in Omni Waste.

    On May 13, 2003, the Company incorporated a wholly-owned subsidiary, Capital
Environmental Holdings Company ("CEHC") for the purposes of effecting the
proposed reorganization of the Company and its U.S. subsidiary, WSI. CEHC is
incorporated in the Province of Nova Scotia, Canada.

    On July 1, 2003, WSI incorporated a wholly owned subsidiary, Waste Services
of Arizona, Inc. Waste Services of Arizona, Inc. was incorporated in the State
of Delaware, U.S.A. to complete the purchase of the assets of the collection
operation in Mesa, Arizona.

D.  PROPERTY AND EQUIPMENT

    The Company currently owns nine parcels of real property, including three
landfills and six facilities used for administration, dispatch and maintenance.
All of such properties are free of any mortgage, lien or

                                       25
<Page>
encumbrance, other than liens and encumbrances relating to the Company's Senior
Credit Facility. The following chart contains certain information regarding
these pieces of owned real property:

<Table>
<Caption>
LOCATION                                 SIZE          USE
--------                                 ----          ---
<S>                                      <C>           <C>
779 Powerline Road, Brantford,             5.7 acres   Office, maintenance, truck and container storage
  Ontario..............................

147 and 155 Ardelt Avenue, Kitchener,      2.8 acres   Office, maintenance, truck and container storage
  Ontario..............................

1151 Herring Gull Way, Parksville,            1 acre   Office, maintenance, truck and container
  British Columbia.....................                storage, Recycling

Coronation Landfill, Coronation,           480 acres   Landfill, recycling, composting, bio-remediation
  Alberta..............................

1152 Kenaston Street, Ottawa,                5 acres   Office, maintenance, truck and container storage
  Ontario..............................

1223 Confederation Street, Sarnia,           4 acres   Office, truck and container storage
  Ontario..............................

4800 Development Drive, Brockville,          3 acres   Office, truck and container storage, waste
  Ontario..............................                transfer

3354 Navan Road, Ottawa, Ontario.......    100 acres   Landfill, composting, office

Osceola County, Florida................  2,200 acres   Permitted landfill (not currently operating)
</Table>

    As of December 31, 2002, the Company leased a total of 21 facilities and
other parcels of real property used in its solid waste operations. The Company
also leases its corporate headquarters in Burlington, Ontario under a lease that
expires in March 2004. The following chart contains certain information
regarding these properties:

<Table>
<Caption>
LOCATION                                 SIZE              USE
--------                                 ----              ---
<S>                                      <C>               <C>
8028 Edgar Industrial Green,...........          2 acres   Office, truck and container storage,
Red Deer, Alberta                                          maintenance

500 and 580 Ecclestone Drive,..........  4.9 and 6 acres   Office, truck and container storage,
Bracebridge, Ontario                                       maintenance, waste transfer, recycling

117-5025 90th Street South East........           1 acre   Office, truck and container storage,
Calgary, Alberta                                           maintenance

180 James Street West, Orillia,........        1.4 acres   Office, truck and container storage,
Ontario                                                    maintenance, waste transfer

117 Advance Boulevard,.................        2.9 acres   Office, truck and container storage,
Brampton, Ontario                                          maintenance, waste transfer

1266 McAdoo's Lane, R.R. #1,...........         13 acres   Office, truck and container storage, waste
Glenburnie, Ontario                                        transfer

1450 McAdoo's Lane, R.R. #1,...........          4 acres   Maintenance, container storage
Glenburnie, Ontario

34321 Industrial Way,..................          4 acres   Office, truck and container storage,
Abbotsford, British Columbia                               maintenance, waste transfer

28 and 29 Hwy. 35 South,...............          2 acres   Office, truck and container storage, recycling
Lindsay, Ontario

641 Athabasca Street,..................          2 acres   Office, truck and container storage,
Kamloops, British Columbia                                 maintenance

53103 Strathmoor Way,..................        6.5 acres   Office, truck and container storage,
Sherwood Park, Alberta                                     maintenance, waste transfer
</Table>

                                       26
<Page>

<Table>
<Caption>
LOCATION                                 SIZE              USE
--------                                 ----              ---
<S>                                      <C>               <C>
4624 Cumberland Road,..................          2 acres   Office, truck and container storage,
Cumberland, British Columbia                               maintenance

1200 Carmi Avenue, Penticton,..........        1.5 acres   Office, truck and container storage,
British Columbia                                           maintenance

3109 Boles Road,.......................          3 acres   Office, truck and container storage,
Duncan, British Columbia                                   maintenance

688 Harper Road, Peterborough,.........        2.2 acres   Office, truck and container storage,
Ontario                                                    maintenance

10 Hooper Road, Barrie, Ontario                  2 acres   Office, truck and container storage,
                                                           maintenance

176A Saunders Road, Barrie, Ontario               1 acre   Recycling, waste transfer

300 and 306 Lake Avenue North,.........         0.8 acre   Office, truck and container storage,
Hamilton, Ontario                                          maintenance, waste transfer

210, 2899 Broadmoor Blvd...............      600 sq. ft.   Western Regional Office
Sherwood Park, Alberta

1801 Kosmina Drive.....................        .25 acres   Office and parking
Vernon, B.C.

23082 McCowan Road, Sutton.............         10 acres   Office, truck and container storage,
West, Ontario                                              maintenance, recycling
</Table>

    As of December 31, 2002, the Company utilized approximately 613 waste
collection vehicles and other support vehicles, of which approximately 58 were
leased. The Company believes that its vehicles, equipment and operating
properties are well maintained and adequate for its current operations. However,
the Company expects to make investments in additional equipment and property for
expansion and replacement of assets, pursuant to new municipal services
contracts and in connection with future acquisitions.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

    The following discussion is based on, and should be read in conjunction with
Item 3. "Key Information", Item 4. "Information on the Company" and the
Company's Consolidated Financial Statements and Notes thereto contained in
this Report.

    OVERVIEW

    Capital Environmental Resource Inc. is a regional, integrated solid waste
services company that provides collection, transfer, disposal and recycling
services to commercial, industrial and residential customers. The Company was
formed on January 1, 2003 on the amalgamation of its predecessor Capital
Environmental Resource Inc., with a number of its wholly owned subsidiaries,
pursuant to the Business Corporations Act (Ontario). The Company's predecessor
was incorporated in May 1997 and began operations in June 1997 when it acquired
selected Canadian solid waste assets and operations from Canadian Waste
Services Inc. and its parent, USA Waste Services, Inc. (now known as Waste
Management, Inc.).

    From June 1997 through December 2002, the Company acquired 41 solid waste
services businesses in Canada, including 46 collection operations, 13 transfer
stations, two landfills, seven recycling processing facilities and a contract to
operate two landfills (one of which was subsequently closed) and one transfer
station. Between May 1997 and May 2000, the Company acquired nine solid waste
services businesses in the United States, all of which were sold in the first
and second quarters of 2001. In May 2003, the Company acquired the Omni Waste
landfill in Osceola County, Florida. In July 2003, the Company acquired Cactus
Waste, which owns an 800 acre property in Pinal County, Arizona, which has been
re-zoned to permit its development as a municipal solid waste landfill, as well
as a zoned and permitted property on which a transfer station in Mesa, Arizona
is to be constructed. In July 2003, the Company also acquired a collection
operation in Mesa, Arizona.

                                       27
<Page>
    The Company's corporate offices are located at 1005 Skyview Drive,
Suite 221, Burlington, Ontario, Canada, L7P 5B1. The Company's telephone number
is (905) 319-1237.

    See also Item 4.A. "Strategy and Recent Developments" for more information
regarding developments in the Company's operation, organization and capital
structure in fiscal 2002 and through July 11, 2003.

A.  OPERATING RESULTS

    The following table sets forth items in the Company's Consolidated Statement
of Operations as a percentage of revenues and the percentage changes in the
dollar amounts of these items compared to the previous years.

<Table>
<Caption>
                                                                                                            % DOLLAR
                                                                                                             CHANGE
                                                                                                       -------------------
                                                                                                         2002       2001
                                                                                                         OVER       OVER
                                                               2002          2001          2000          2001       2000
                                                             --------      --------      --------      --------   --------
<S>                                                          <C>           <C>           <C>           <C>        <C>
Revenues...............................................       100.0%        100.0%        100.0%           6.0%     (20.3)%
Cost of operations, excluding depreciation and
  amortization.........................................        62.0          67.7          67.9           (3.0)     (20.5)
Depreciation and amortization..........................        10.8          12.1          10.4           (4.9)      (7.4)
Selling, general and administrative....................        19.7          19.5          15.9            6.9       (2.2)
Goodwill impairment losses.............................        --             3.6          11.5          --         (74.8)
Loss (recovery) related to sale of U.S. assets.........        (0.7)          5.2          --           (114.7)     --
Foreign exchange (gain) loss...........................        (1.5)          1.1          --           (243.7)     --
                                                              -----         -----         -----        -------     ------
Income (loss) before interest and taxes................         9.7          (9.3)         (5.7)         210.3
Interest and financing expense.........................         5.8          10.8           9.1          (42.9)      (5.8)
                                                              -----         -----         -----        -------     ------
Income (loss) before income taxes......................         3.9         (20.1)        (14.8)         --
Income tax provision...................................         1.7           1.0           0.8           77.0       (4.2)
                                                              -----         -----         -----        -------     ------
Net income (loss)......................................         2.2         (21.1)        (15.6)
                                                              =====         =====         =====        =======     ======
</Table>

    REVENUE

    The Company's revenues are attributable primarily to fees charged to
customers for solid waste collection, disposal, transfer and recycling services.
The Company derives a substantial portion of its collection revenues from
commercial, industrial and municipal services that are generally performed under
service agreements or pursuant to contracts with municipalities. Landfill and
transfer customers are charged a tipping fee on a per ton basis for disposing of
their solid waste at the Company's transfer stations and landfills. Commercial
and residential recycling revenues include revenues from the sale of recyclable
commodities. The Company's revenues are shown net of inter-company transactions.

    Revenue increased to $98.8 million in 2002 compared to $93.2 million in
2001. The 6.0% increase in revenue was the result of acquisition growth, net of
the divestiture of the Company's collection operations in Syracuse and
Rochester, New York and Williamsport, Pennsylvania (the "U.S. Collection
Operations") of 6.1%, and price increases of 2.5%. The six acquisitions made
during the year contributed $13.3 million or 14.3% to revenue. The largest
contributor was the Waste Services Ottawa acquisition which contributed
$11.3 million to revenue. A major soil disposal contract contributed
$3.5 million of the revenue. The divestiture of the Company's U.S. Collection
Operations in 2001 resulted in a decrease in revenue of $7.7 million.

    Volume decreased by 1.6% as new commercial, industrial and residential
business was offset by the loss of a national brokerage customer, a reduction in
compactor sales, the loss of three municipal contracts for residential
collection and a loss of revenue from closing a transfer station.

    The decline of the Canadian dollar compared to the U.S. dollar reduced
revenue by 1.0% when revenue is translated for reporting purposes into
U.S. dollars.

    Revenue in 2001 decreased 20.3% compared to 2000. Sixteen percent of this
decrease was attributed to the sale of the Company's U.S. Collection Operations
during 2001. Excluding the U.S. Collection Operations,

                                       28
<Page>
revenue declined by $4.9 million or 5.4%. The majority of the decrease was the
result of translating the results of Canadian operations into U.S. dollars
during a period of decline in the value of the Canadian dollar compared to the
U.S. dollar.

    Canadian revenue decreased by 1.4% after eliminating the exchange rate
impact. The decline was the result of lower commodity prices for recyclables,
lower sales and lease revenue from compactor transactions and a decrease in
temporary roll off business. These decreases were offset to an extent by higher
residential and commercial revenue.

    The sources of revenue and growth rates are as follows:

<Table>
<Caption>
                                                                                                         GROWTH RATES
                                                                                                    ----------------------
                                                                                                      2002          2001
                                                                                                      OVER          OVER
                                     2002                  2001                   2000                2001          2000
                               ----------------      ----------------      -------------------      --------      --------
                                                                 (In thousands of US $)
<S>                            <C>        <C>        <C>        <C>        <C>           <C>        <C>           <C>
Commercial and industrial
  collection.................  $60,151     60.9%     $54,641     58.7%     $ 66,132       56.5%       10.1%        (17.4)%
Residential collection.......   17,524     17.7       19,242     20.6        26,918       23.0        (8.9)        (28.5)
Transfer station and
  landfill...................   15,339     15.5       10,204     10.9         9,859        8.4        50.3           3.5
Commercial and residential
  recycling..................    3,904      3.9        3,748      4.0         4,585        3.9         4.2         (18.3)
Contract management and other
  specialized services.......    1,928      2.0        5,406      5.8         9,514        8.2       (64.3)        (43.2)
                               -------    -----      -------    -----      --------      -----       -----         -----
                               $98,846    100.0%     $93,241    100.0%     $117,008      100.0%        6.0%        (20.3)%
                               =======    =====      =======    =====      ========      =====       =====         =====
</Table>

    Management's estimates of the components of changes in the Company's
consolidated revenue are as follows:

<Table>
<Caption>
                                                                2002        2001
                                                              --------      -----
<S>                                                           <C>           <C>
Price.......................................................     2.5%         0.6%
Volume......................................................    (1.6)       (18.9)
Acquisitions, net of divestitures...........................     6.1          0.8
Foreign currency translation................................    (1.0)        (2.8)
                                                                ----        -----
Total.......................................................     6.0%       (20.3)%
                                                                ====        =====
</Table>

    Revenue and growth in revenue from geographic components are as follows:

<Table>
<Caption>
                                                                                                    GROWTH RATES
                                                                                                 -------------------
                                                                                                   2002        2001
                                                                                                   OVER        OVER
                                     2002                  2001                  2000              2001        2000
                               ----------------      ----------------      ----------------      --------      -----
                                                              (In thousands of US $)
<S>                            <C>        <C>        <C>        <C>        <C>        <C>        <C>           <C>
Canada.......................  $98,846    100.0%     $85,496     91.7%     $ 90,410    77.3%        15.6%       (5.4)%
United States................    --        --          7,745      8.3        26,598    22.7       (100.0)      (70.9)
                               -------    -----      -------    -----      --------   -----       ------       -----
                               $98,846    100.0%     $93,241    100.0%     $117,008   100.0%         6.0%      (20.3)%
                               =======    =====      =======    =====      ========   =====       ======       =====
</Table>

    As described earlier, in the first and second quarters of 2001, the Company
sold its U.S. Collection Operations.

    COST OF OPERATIONS

    Cost of operations includes labor, fuel, equipment maintenance, tipping fees
paid to third-party disposal facilities, worker's compensation and vehicle
insurance, the cost of materials purchased to be recycled,

                                       29
<Page>
subcontractor expense and local, state or provincial taxes and excludes
depreciation and amortization. Cost of operations for the year ended
December 31, 2002 was $61.3 million compared to $63.1 million for the year ended
December 31, 2001.

    The cost of operations as a percentage of revenue decreased to 62.0% for the
year ended December 31, 2002 from 67.7% for the year ended December 31, 2001.
Operating costs in total and as a percentage of revenue decreased as lower
margin U.S. Collection Operations were eliminated and higher margin landfill
operations were added with the purchase of Waste Services Ottawa.

    Cost of operations for the year ended December 31, 2001 was $63.1 million
compared to $79.3 million for the year ended December 31, 2000. The 20.5%
decrease in cost of operations was attributable primarily to the sale of the
U.S. Collection Operations as described above. Cost of operations as a
percentage of revenue was 67.7% for the year ended December 31, 2001 compared to
67.9% for the year ended December 31, 2000.

    SELLING, GENERAL AND ADMINISTRATIVE EXPENSES

    Selling, general and administrative ("SG&A") expenses include management,
clerical, financial, accounting and administrative compensation and overhead
costs associated with the marketing and sales force, professional services and
community relations expense. SG&A expenses for the year ended December 31, 2002
were $19.5 million compared to $18.2 million for the year ended December 31,
2001. In 2001, the Company incurred $4.6 million of unusual expenses associated
with settlements of law suits, failed acquisitions, change in control,
restructuring costs and various other associated costs. After adjusting for the
impact of these costs, SG&A increased by $5.9 million or 43.4% for the year
ended December 31, 2002 as compared to the year ended December 31, 2001.

    SG&A increased as a percentage of revenue to 19.7% in 2002 from 19.5% in
2001. After adjusting for the impact of the unusual costs in 2001 discussed
above, SG&A as a percentage of revenue decreases to 14.6% in 2001. The increase
in SG&A costs and as a percentage of revenue resulted from increases in
management, sales, and administrative personnel and related costs associated
with the Company's growth strategy.

    SG&A expenses are expected to increase over the 2003 fiscal year as the
Company continues to implement its growth strategy. Once acquisitions have been
fully integrated with the Company's existing operations, SG&A as a percentage of
revenue is expected to return to levels more consistent with industry norms.

    SG&A expenses for the year ended December 31, 2001 were $18.2 million
compared to $18.6 million for the year ended December 31, 2000. The
$0.4 million, or 2.2% decrease is the result of the sale of the U.S. Collection
Operations which were completed during the first and second quarters of 2001.
The decrease was larger than indicated above as unusual expenses of
$4.6 million were incurred in 2001 for legal settlements, failed acquisitions,
change in control, restructuring costs and various other associated costs. As a
percentage of revenues, SG&A expenses increased to 19.5% in 2001 from 15.9% in
2000 due to the unusual charges.

    DEPRECIATION AND AMORTIZATION EXPENSE

    Depreciation and amortization expense includes depreciation of fixed assets
over the estimated useful life of the assets using the straight-line method,
depletion of landfill site costs on a unit of consumption basis, the
amortization of other intangible assets over appropriate time periods and, prior
to January 1, 2002, the amortization of goodwill over 40 years. The Company has
accounted for all business acquisitions since inception using the purchase
method of accounting, which has resulted in significant amounts of goodwill
being included on the balance sheet. Depreciation and amortization expense for
the year ended December 31, 2002 was $10.7 million compared to $11.3 million for
the same period in 2001. As a percentage of revenues, depreciation and
amortization expense was 10.8% for the year ended December 31, 2002 compared to
12.1% for the year ended December 31, 2001. The composition of depreciation and
amortization expense changed as there was a $1.8 million reduction in goodwill
amortization between 2002 and 2001 as a result of the Company's adoption of
SFAS No. 142. This was offset by depletion of the newly acquired Waste Services
Ottawa landfill, depreciation of new capital expenditures and amortization of
customer contracts and lists.

    Depreciation and amortization expense for the year ended December 31, 2001
was $11.3 million compared to $12.2 million for the same period in 2000. The
decrease was primarily due to the divestiture of the

                                       30
<Page>
U.S. Collection Operations in 2001, which more than compensated for fixed asset
write downs of $2.0 million. The write downs were made to adjust estimated lives
and to write down certain equipment to salvage value. As a percentage of
revenues, depreciation and amortization expense increased to 12.1% in 2001 from
10.4% in 2000.

    UNUSUAL CHARGES

    Unusual items during 2002 included a recovery of $0.7 million on the sale of
the U.S. Collection Operations related to the settlement of a lease obligation,
the payment of a receivable and receipt of a hold back payment, all of which had
been provided for in 2001.

    A realized foreign exchange gain of $1.4 million was recognized in 2002 when
the Company's U.S. dollar denominated debt resident in Canada was repaid in
connection with refinancing of the Company's Senior Credit Facility.

    Unusual charges incurred during fiscal 2001 included a loss of $4.9 million
relating to the sale of the U.S. Collection Operations, goodwill impairment
charges of $3.4 million and an unrealized foreign exchange loss of $1.0 million
related to the translation of U.S. dollar denominated debt held in the Canadian
operations.

    INTEREST AND FINANCING EXPENSE

    In the year ended December 31, 2002, interest and financing expense
decreased 42.9% to $5.7 million from $10.0 million for the year ended
December 31, 2001. The decrease is attributable to lower average debt balances
outstanding and lower interest rates. During the period, the average debt
outstanding was $34.3 million lower than the prior year. In addition, the
weighted average interest rate (excluding amortization of deferred financing
expense) for the year ended December 31, 2002 was 7.4% as compared to 9.5% for
the year ended December 31, 2001. The decrease was primarily the result of the
lower fixed margin rate for Canadian Eurodollar rate loans charged under the
Senior Credit Facility compared to the rate that was charged under the previous
Senior Debt facility. Amortization of deferred financing costs in the year ended
December 31, 2002 amounted to $1.9 million as compared to $1.8 million for the
year ended December 31, 2001.

    In the year ended December 31, 2001, interest and financing expense
decreased 5.8% to $10.0 million from $10.6 million for the year ended
December 31, 2000. The overall decrease in interest and financing expense over
the prior year was primarily a result of a decrease in the average level of
outstanding debt due to proceeds from the sale of the U.S. Collection Operations
and the September 2001 private placement transaction being used to pay down
senior debt. The weighted average interest rate increased from 8.6% in 2000 to
9.5% in 2001. Deferred financing cost amortization also increased by 16.4% in
2001 as compared to 2000 as the term of the Company's Senior Credit Facility was
reduced.

    INCOME TAXES

    The Company's effective income tax rate during 2002 was 44.6% compared to
negative 5.2% in 2001. The increase in the effective income tax rate and the
increase in taxes is primarily due to earnings of the Waste Services Ottawa
group of companies and the five other acquired companies (which were
subsidiaries of the Company until December 31, 2002 and as such were not able to
utilize the Company's tax loss carry forwards in 2002) and the large business
corporations tax.

    The Company's effective income tax rate on loss during 2001 was negative
5.2% compared to negative 5.8% in 2000. The negative effective rate in 2001 was
primarily due to the impact of a write-down of non-tax deductible goodwill of
$3.4 million and a valuation allowance of approximately $4.7 million taken
against the potential benefit of the Company's Canadian tax loss carry forwards
available.

                                       31
<Page>
B.  LIQUIDITY AND CAPITAL RESOURCES

    As of December 31, 2002, 2001 and 2000, the Company's capital structure
consisted of:

<Table>
<Caption>
                                                                                                   CHANGE
                                                                                           ----------------------
                                                                                             2002          2001
                                                                                             OVER          OVER
                               2002                  2001                  2000              2001          2000
                         ----------------      ----------------      ----------------      --------      --------
                                                          (In thousands of US $)
<S>                      <C>        <C>        <C>        <C>        <C>        <C>        <C>           <C>
Long-term debt.........  $ 52,698    39.5%     $51,229     51.6%     $ 97,928    69.7%     $ 1,469       $(46,699)
Capital lease
  obligations..........     2,872     2.2        2,139      2.2         3,969     2.8          733         (1,830)
Stockholders' equity...    77,817    58.3       45,913     46.2        38,655    27.5       31,904          7,258
                         --------   -----      -------    -----      --------   -----      -------       --------
                         $133,387   100.0%     $99,281    100.0%     $140,552   100.0%     $34,106       $(41,271)
                         ========   =====      =======    =====      ========   =====      =======       ========
</Table>

    Long-term debt and stockholders' equity increased by $34.1 million or 34.4%
at December 31, 2002 compared to December 31, 2001. The increase was the result
of an increase in stockholders' equity of $31.9 million and an increase in
long-term debt and capital lease obligations of $2.2 million. Stockholders'
equity increased as a result of net proceeds from the issuance of preferred
shares (which were later converted to common shares) of $28.1 million, the
amortization of deferred compensation of $1.0 million, proceeds of $0.3 million
from the exercising of stock options and net income of $2.1 million. Foreign
currency translation adjustments also contributed $0.4 million.

    Long-term debt increased $1.5 million at December 31, 2002 compared to
December 31, 2001 as the closure and post closure accrual increased with the
acquisition of the Waste Services Ottawa landfill site. Capital lease
commitments increased by $0.7 million as some of the vehicle purchases made
during the year were financed by entering into lease obligations.

    Long-term debt and stockholders' equity decreased by $41.3 million or 29.4%
at December 31, 2001 compared to December 31, 2000. The $46.7 million decrease
in long-term debt at December 31, 2001 compared to December 31, 2000 was
primarily a result of paying down the senior debt with the net cash proceeds
from the sale of the U.S. Collection Operations and the September 2001 private
placement transaction.

    Stockholders' equity increased by $7.3 million in 2001 as compared to 2000
primarily due to receipt of net equity proceeds of $29.1 million from the
September 2001 private placement transaction, offset by a loss of $19.7 million
and a foreign currency translation adjustment loss of $2.0 million related to
the weakening of the Canadian dollar.

    The Company's capital requirements include working capital and fixed asset
replacement. In addition, the Company will need capital to finance future
acquisitions and integration of acquired businesses. The Company plans to meet
its capital needs through various sources, including internally generated funds,
borrowings under its Senior Credit Facility, and additional debt or equity
financings. As of December 31, 2002, adjusted working capital was $3.1 million,
excluding the current portion of long-term debt and capital lease obligations.
The Company generally applies the cash generated from its operations that
remains available after satisfying working capital and capital expenditure
requirements to reduce indebtedness under its Senior Credit Facility.

    Total capital expenditures in 2002 were $13.9 million, of which
$10.8 million related to the purchase of vehicles. Budgeted capital expenditures
for 2003 are expected to be $11.6 million, of which $6.4 million is related to
vehicle purchases.

    For the year ended December 31, 2002, net cash provided by operations was
$13.7 million, compared to $6.7 million in the prior year. This $7.0 million
increase was primarily due to improved profitability as lower margin
U.S. Collection Operations were eliminated and higher cash generating landfill
operations were added. This improvement in profitability was partially offset by
an increase in cash used for working capital, particularly accounts receivable
and income taxes.

    For the year ended December 31, 2002, net cash used in investing activities
was $39.8 million, compared to net cash provided of $13.3 million for the year
ended December 31, 2001. The use of cash in 2002 was the result of the Waste
Service Ottawa and the five other acquisitions made during the year as well as
the increase in

                                       32
<Page>
capital expenditures during 2002. The cash generated in 2001 resulted from the
sale of the U.S. Collection Operations.

    For the year ended December 31, 2002, net cash provided by financing
activities was $25.4 million, compared to net cash used of $17.4 million for the
year ended December 31, 2001. This net change of $42.8 million resulted
primarily from the $43.5 million net repayment of debt in 2001. The debt
repayments in 2001 resulted from the sale of the U.S. Collection Operations and
the $29.1 million equity raise. The $28.4 million of equity raised in 2002 was
used to acquire companies and for capital expenditures rather than to reduce
debt.

    As of December 31, 2002, the Company had utilized approximately
C$94.7 million of the C$116.0 million available under the Senior Credit
Facility, consisting of C$80.0 million of Canadian dollar loans bearing interest
at 6.058%, and outstanding letters of credit of C$14.7 million. At December 31,
2002, the Company had C$21.3 million of availability under its Senior Credit
Facility, subject to the covenants and restrictions described more fully below.

    In June 2002, the Company entered into a new three year Senior Credit
Facility with a group of banks led by Bank of America and Canadian Imperial Bank
of Commerce and repaid all amounts outstanding under its pre-existing senior
credit facility. The Senior Credit Facility is a revolving credit facility
denominated in Canadian dollars, which provided for borrowings of up to the
lesser of $61.0 million or C$92.0 million at closing. On July 31, 2002, the
facility was increased to the lesser of $76.5 million or C$116.0 million.
Assuming that the Company can locate additional lenders, or if any of the
existing lenders wish to further increase their participation, the facility can
be increased by a further C$30.0 million prior to December 31, 2003. The new
facility is subject to quarterly commitment reductions beginning January 1,
2004, as described more fully below, and is collateralized by substantially all
of the Company's assets. In addition to scheduled commitment reductions, the
Company is required to prepay and reduce the available credit with the proceeds
of any asset sales or issuances of debt, in each case subject to certain
exceptions. Interest rates under the new facility are based on current market
rates plus a fixed margin based on the form of borrowing (Canadian Eurodollar or
prime rate). The fixed margins range from 2.75% to 3.75% for Canadian Eurodollar
rate loans and 1.25% to 2.25% for prime rate loans. Within the ranges, the fixed
margin is determined based on the Company's leverage ratio.

    The Senior Credit Facility subjects the Company to various financial
covenants and restrictions relating to, among other things, minimum net worth
levels, specified fixed charge coverage ratios, maximum leverage ratios, minimum
levels of earnings before interest, taxes, depreciation and amortization, limits
on capital expenditures and indebtedness, lender approval of certain
acquisitions and dispositions and limits on operating leases. Additionally,
while the Senior Credit Facility is in place, the Company is not permitted to
pay cash dividends on its capital stock. These covenants and restrictions could
limit the manner in which the Company conducts its operations and could
adversely affect its ability to raise capital. Any failure by the Company to
comply with these covenants and restrictions will, unless waived by the lenders,
result in an inability to borrow under the credit facility and/or an immediate
obligation to repay all amounts outstanding. In such event, the Company would be
required to refinance its debt or obtain capital from other sources such as
subordinated debt, equity issuances, or sales of assets so that the Company
could meet its repayment obligations, which may not be possible.

    Beginning January 1, 2004, the Company is required to reduce the amount of
senior debt under the Senior Credit Facility by a specified amount each calendar
quarter. The amount of each scheduled quarterly reduction

                                       33
<Page>
is based upon a percentage of the aggregate commitment amount under the facility
as of December 31, 2003, as set forth below:

<Table>
<Caption>
                                                              PERCENTAGE REDUCTION OF COMMITMENT
REPAYMENT DATE                                                  AMOUNT AS OF DECEMBER 31, 2003
--------------                                                ----------------------------------
<S>                                                           <C>
January 1, 2004.............................................                 5.0%
April 1, 2004...............................................                 8.0%
July 1, 2004................................................                 8.0%
October 1, 2004.............................................                 8.0%
January 1, 2005.............................................                10.0%
April 1, 2005...............................................                11.0%
June 30, 2005...............................................                50.0%
</Table>

    Proceeds of the loans under the Senior Credit Facility are to be used for
general corporate purposes including capital expenditures, ongoing working
capital requirements, and permitted acquisitions.

C.  RESEARCH AND DEVELOPMENT PATENTS AND LICENSES

    Not applicable.

D.  TREND INFORMATION

    SEASONALITY

    The Company expects its results of operations to vary seasonally. For a more
detailed explanation see Item 3D. -- "Key Information -- Risk
Factors -- Seasonality".

    INFLATION AND PREVAILING ECONOMIC CONDITIONS

    To date, inflation has not had a significant effect on the Company's
operations. Consistent with industry practice, many of the Company's contracts
provide for a pass-through of certain costs, including increases in landfill
tipping fees and, in some cases, fuel costs. The Company believes, therefore,
that it should be able to implement price increases to offset many cost
increases resulting from inflation. However, competitive pressures may require
the Company to absorb at least part of these cost increases, particularly during
periods of high inflation.

E.  OFF BALANCE SHEET ARRANGEMENTS

    Not applicable.

                                       34
<Page>
F.  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

    The tables below set forth a summary of the Company's contractual
obligations and other commercial commitments as of December 31, 2002:

<Table>
<Caption>
                                                                        PAYMENTS DUE BY PERIOD
                                                         -----------------------------------------------------
                                                                    LESS THAN     1-3        4-5      AFTER 5
CONTRACTUAL OBLIGATIONS                                   TOTAL      1 YEAR      YEARS      YEARS      YEARS
-----------------------                                  --------   ---------   --------   --------   --------
<S>                                                      <C>        <C>         <C>        <C>        <C>
Long-Term Debt(1)......................................  $50,773     $   63     $50,710      $--       $--
Capital Lease Obligations..............................    2,872      1,262       1,610      --         --
Operating Leases.......................................    6,139      1,570       2,552       600       1,417
                                                         -------     ------     -------      ----      ------
Total Contractual Cash Obligations.....................  $59,784     $2,895     $54,872      $600      $1,417
                                                         =======     ======     =======      ====      ======
</Table>

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

(1) Consists of indebtedness incurred pursuant to the Company's Senior Credit
    Facility which may be increased or accelerated as described in
    Item 5B -- "Liquidity and Capital Resource".

<Table>
<Caption>
                                                            AMOUNT OF COMMITMENT EXPIRATION PER PERIOD
                                                      ------------------------------------------------------
                                                        TOTAL
                                                       AMOUNTS    LESS THAN     1-3        4-5       AFTER
OTHER COMMERCIAL COMMITMENTS                          COMMITTED    1 YEAR      YEARS      YEARS     5 YEARS
----------------------------                          ---------   ---------   --------   --------   --------
<S>                                                   <C>         <C>         <C>        <C>        <C>
Standby Letters of Credit(2)........................   $14,662     $--        $14,662      $--      $ --
Other Commercial Commitments(3).....................   $20,687     $--        $ --         $--      $20,687
                                                       -------     ------     -------      ----     -------
Total Commercial Commitments........................   $35,349     $--        $14,662      $--      $20,687
                                                       =======     ======     =======      ====     =======
</Table>

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

(2) Expire on maturation of the Company's Senior Credit Facility.

(3) Consists of closure and post-closure obligations.

G. CRITICAL ACCOUNTING POLICIES

    The preparation of financial statements in conformity with U.S. GAAP
requires the Company to utilize accounting policies and make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. Management believes that the following accounting policies and
estimates are the most critical to the Company's business operations and to
understanding its results of operations. They should be read in conjunction with
the consolidated financial statements of the Company.

    REVENUE RECOGNITION

    The Company recognizes revenue when services such as providing collection
services and accepting waste at the Company's disposal facilities, are rendered
or when products are delivered. Amounts billed to customers, prior to providing
the related services, are deferred and reported as revenues in the period in
which the services are rendered. Long-term service contracts are reviewed on a
regular basis for losses. Full provision for anticipated losses is made in the
period when the likelihood of a loss has been established. Sales of compactor
equipment are recorded on shipment.

    ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

    Management specifically analyzes accounts receivable and also analyzes
historical bad debts, customer concentrations, customer creditworthiness,
current economic trends and changes in customer payment terms, and various other
factors when evaluating the adequacy of the allowance for doubtful accounts in
any accounting period. Differences may result in the amount and timing of
expenses for any period if management makes different judgments or uses
different estimates.

                                       35
<Page>
    BUSINESS ACQUISITIONS, VALUATION OF IDENTIFIABLE INTANGIBLE ASSETS AND
     GOODWILL

    The Company accounts for business acquisitions using the purchase method of
accounting. The total cost of an acquisition is allocated to the underlying net
assets based on their respective estimated fair values. As part of this
allocation process, management must identify and attribute values and estimated
lives to the intangible assets acquired. While experts may be used to assist the
Company with these matters, such determinations involve considerable judgment,
and often involve the use of significant estimates and assumptions, including
those with respect to future cash inflows and outflows, discount rates and asset
lives. These determinations will affect the amount of amortization expense
recognized in future periods.

    In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statement. Other
intangible assets, including those meeting new recognition criteria under the
Statement, will continue to be amortized over their estimated useful lives.

    The Company fully adopted the new rules on accounting for goodwill and other
intangible assets effective January 1, 2002. The Company tests goodwill for
impairment using the two-step process prescribed in SFAS No. 142. The first step
is a screen for potential impairment, while the second step measures the amount
of the impairment, if any. In the first quarter of 2002, the Company performed
the first of the required impairment tests of goodwill based on the carrying
values as of January 1, 2002. As a result of performing the test for potential
impairment, the Company determined that no impairment existed as of January 1,
2002, or as a result of the annual impairment test, which was performed as at
December 31, 2002, and therefore it was not necessary to write down any of its
goodwill. However, there can be no assurance that goodwill will not be impaired
at any time in the future.

    Amortization of goodwill in the years ending December 31, 2001 and 2000 was
$1,797 and $2,455, respectively. Had this accounting policy change been made
retroactively, the Company's net loss for the years ending December 31, 2001 and
2000, adjusted for the non-amortization provisions of SFAS No. 142, would have
been $17,871 and $15,826, respectively. Basic and diluted loss per share for the
years ending December 31, 2001 and 2000, after adjusting for the
non-amortization of goodwill, would have been $1.46 and $2.20, respectively.

    Judgments regarding the existence of impairment indicators are based on
legal factors, market conditions and operational performance of the acquired
businesses. Future events could cause the Company to conclude that impairment
indicators exist and that goodwill associated with the acquired businesses,
which amounted to $64.4 million (or 43.6% of total assets) at December 31, 2002,
or other identifiable intangible assets are impaired. Any resulting impairment
loss or changes to the estimated lives of these assets could have a material
adverse impact on the Company's financial condition and results of operations.
Prior to January 1, 2002, the Company determined impairment by comparing the
undiscounted amount of expected future operating cash flows, excluding interest
and financing costs, with the carrying amounts of such assets. Expected future
cash flows were based upon the best estimate given the facts and circumstances
at that time. Impairments in the carrying amount of identifiable intangible
assets and goodwill are expensed. During fiscal 2001 and fiscal 2000, the
Company wrote down goodwill by $3.4 million and $13.5 million, respectively.

    As the valuation of identifiable intangible assets and goodwill requires
significant estimates and judgment about future performance, cash flows and fair
value, future results of the Company could be affected if these current
estimates of future performance and fair value change.

    LONG-LIVED ASSETS

    The Company's long-lived assets include property and equipment. At
December 31, 2002, the Company had net property and equipment of $59.0 million,
which represented approximately 39.9% of the Company's total assets.
Amortization of these costs is done on a straight-line method over the estimated
useful life of the assets or for landfills on a units of consumption basis as
permitted air space of the landfill is consumed.

    The landfill sites are recorded at cost. Landfill improvements are
capitalized including direct costs incurred to construct and develop the sites.
All indirect landfill development costs are expensed as incurred. Capitalized
landfill site costs, together with the estimated projected capitalizable costs
to be incurred over the remaining life

                                       36
<Page>
of the landfill, are used to determine the amount to be amortized. Estimated
projected capitalizable costs and the estimated useful life of the sites are
determined by management based on estimates provided by the Company's internal
or third party engineers and are reviewed on a regular basis.

    The estimated fair value of these long-lived assets is dependent on the
Company's future performance. In assessing for potential impairment of these
long-lived assets, the Company considers future performance. If these forecasts
of future performance are not met, the Company may have to record an impairment
charge not previously recognized, which may be material.

    The Company reviews the carrying values of its property, equipment and
landfill sites to determine whether such values are recoverable from future
estimated earnings. The amount of any impairment is charged against income.
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". This Statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The adoption of
SFAS No. 144 did not have a material impact on the Company's consolidated
financial statements and related disclosures.

    ACCRUED CLOSURE AND POST-CLOSURE COSTS

    Accrued closure and post-closure costs represent an estimate of the future
obligation associated with closure and post-closure monitoring of the
non-hazardous solid waste landfills owned by the Company. Site specific closure
and post-closure engineering cost estimates are prepared for the landfills owned
by the Company. The impact of changes in estimates, based on an annual update,
are accounted for on a prospective basis. The present value of estimated future
costs are accrued based on a units of consumption method as permitted airspace
of the landfill is consumed. The Company estimates the amounts and timing of
payments related to closure and post-closure costs and inflates those costs by
an inflation factor of 1.4% and uses a discount rate of 5.5% to determine the
present value.

    ACCOUNTING FOR INCOME TAXES

    The Company uses the liability method to account for income taxes.
Significant management judgment is required in determining the provision for
income taxes, deferred tax assets and liabilities and any valuation allowance
recorded against net deferred tax assets. In preparing the consolidated
financial statements, the Company is required to estimate the income taxes in
each of the jurisdictions in which it operates. This process involves estimating
the actual current tax liability together with assessing temporary differences
resulting from differing treatment of items, such as deferred revenue, property,
plant and equipment and losses for tax and accounting purposes. These
differences result in deferred tax assets, which include tax loss
carry-forwards, and liabilities, which are included within the consolidated
balance sheet. The Company then assesses the likelihood that deferred tax assets
will be recovered from future taxable income, and to the extent that recovery is
not likely, a valuation allowance is established. To the extent a valuation
allowance is established or increased in a period, the Company includes an
expense within the tax provision of the Consolidated Statement of Operations.

    The Company recorded a full valuation allowance against the net deferred tax
assets at December 31, 2001, due to the significant losses in each of 2001 and
2000 and the resulting uncertainties related to the Company's ability to utilize
the deferred tax assets before they expire.

    NEW ACCOUNTING PRONOUNCEMENTS

    The Company will be impacted by the future adoption of new accounting
pronouncements, details of which are more fully described in Note 2 to the
consolidated financial statements. The more significant changes applicable to
the Company are as follows:

    In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 will require, upon adoption, that the Company
recognize as a component of asset cost, the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value of the obligation can be made. Under this
statement, the liability is discounted and accretion expense is recognized using
the credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. SFAS No. 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company will be required to
adopt SFAS No. 143 on January 1, 2003.

                                       37
<Page>
    The new pronouncement will significantly impact the accounting for landfill
retirement obligations, which the Company has historically referred to as
closure and post-closure obligations. The adoption of SFAS No. 143 will have no
impact on the Company's cash requirements. Accrued closure and post-closure
costs represent an estimate of the current value of the future obligations
associated with closure and post-closure monitoring of non-hazardous solid waste
landfills. Closure and post-closure monitoring and maintenance costs represent
the costs related to cash expenditures yet to be incurred when a landfill
facility ceases to accept waste and closes. Accruals for closure and
post-closure monitoring and maintenance consider site inspection, groundwater
monitoring, leachate management, methane gas management and recovery, and
operating and maintenance costs to be incurred during the period after the
facility closes. Certain of these environmental costs, principally capping and
methane gas management costs, are also incurred during the operating life of the
site in accordance with the landfill operation requirements. Site specific
closure and post-closure engineering cost estimates are prepared annually.

    Landfill closure and post-closure liabilities will continue to be calculated
by estimating the total obligation in current dollars, inflating the obligation
based upon the expected date of the expenditure using an inflation rate of 2.0%
and discounting the inflated total to its present value using an 8.5% discount
rate. The 8.5% discount rate is higher than the 5.5% historically used as
SFAS No. 143 requires the use of a credit-adjusted risk-free rate. The resulting
closure and post-closure obligation will be recorded on the balance sheet as the
landfill's total airspace is put into service.

    Upon adoption, SFAS No. 143 requires that a charge for the cumulative change
in accounting principle for landfill obligations be recorded for the period
retroactive to the date of the inception of the landfill. Inception of the asset
retirement obligation is the date operations commenced or the date the landfill
was acquired. Upon adoption of SFAS No. 143 on January 1, 2003, the Company
expects a cumulative effect of the change in accounting principle of
approximately $0.5 million, net of tax, an increase in the closure and
post-closure liability of approximately $2.9 million and an increase in the net
landfill assets of approximately $3.7 million.

    In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
This new standard is effective for fiscal years beginning on or after May 15,
2002 or for transactions occurring after May 15, 2002 related to SFAS No. 13,
paragraphs 8 and 9(c).

    This statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers". This Statement amends SFAS No. 13, "Accounting for Leases" to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Company will adopt
this new standard prospectively on January 1, 2003. The adoption of this
standard is not expected to have a material effect on the Company's consolidated
financial statements.

    In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities". This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and
nullifies Emerging Issues Task Force (EITF) issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)". SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred. Under EITF 94-3, a
liability for an exit cost was recognized at the date of the entity's commitment
to the exit plan. SFAS No. 146 is effective for exit or disposal activities that
are initiated after December 31, 2002, with early application encouraged. The
adoption of this standard is not expected to have a material effect on the
Company's consolidated financial statements.

    In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure". SFAS No. 148 gives entities that
elect to adopt the fair market value method of accounting for stock options
granted to employees provided for in SFAS No. 123 three alternative transitional
accounting methods. In addition, the opportunity to apply the fair market value
method only to options granted after the adoption of the standard will not be
available for fiscal years beginning after December 31, 2003. SFAS No. 148 also
provides that certain pro-forma and other information regarding stock options
which is currently required

                                       38
<Page>
only in an entity's annual financial statements will now be required in interim
reports as well. SFAS No. 148 is effective for fiscal years ended after
December 15, 2002. Management is in the process of evaluating the implications
of this new standard on the Company's consolidated financial statements.

ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.  DIRECTORS AND SENIOR MANAGEMENT

    The following table sets forth information concerning the Company's
directors and senior management as at July 11, 2003:

<Table>
<Caption>
                                                                                           YEAR
                                                                                         APPOINTED   YEAR TERM
NAME                                      AGE      POSITION                              TO BOARD     EXPIRES
----                                    --------   --------                              ---------   ---------
<S>                                     <C>        <C>                                   <C>         <C>
David Sutherland-Yoest................        46   Chairman and Chief Executive            2001        2003
                                                   Officer, Director(1)

George Boothe.........................        44   Chief Accounting Officer                 N/A         N/A

Thomas E. Durkin, III.................        49   Executive Vice President, General        N/A         N/A
                                                   Counsel and Secretary

Gary W. DeGroote......................        47   Director(1)(2)(3)                       2002        2004

Larry D. Henk.........................        43   President, Chief Operating Officer       N/A         N/A

David J. Feals........................        45   Chief Financial Officer                  N/A         N/A

Brian J. Forrestal....................        45   Vice President, Environmental            N/A         N/A
                                                   Management

E. Joy Grahek.........................        44   Associate General Counsel and            N/A         N/A
                                                   Assistant Secretary

William P. Hulligan...................        61   Executive Vice President, North          N/A         N/A
                                                   American Operations

R. John (Jack) Lawrence...............        69   Director                                2003        2003

George Matelich.......................        47   Director(2)                             2003        2004

John D. McGarvey......................        42   Executive Vice President, Chief          N/A         N/A
                                                   Operating Officer Eastern Canada

Lucien Remillard......................        56   Director(3)                             2002        2004

Don A. Sanders........................        66   Director(1)(2)(3)                       2001        2003

Stanley A. Sutherland.................        71   Executive Vice President, Chief         2002        2004
                                                   Operating Officer Western Canada,
                                                   Director

Hillel J. Abrams......................        40   Vice President, Health & Safety          N/A         N/A

Shawn Parnham.........................        37   Corporate Controller                     N/A         N/A
</Table>

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

(1) Member of the Executive Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee.

    DAVID SUTHERLAND-YOEST, was appointed a director, Chairman and Chief
Executive Officer of the Company on September 6, 2001. His 2 year term expires
at the 2003 annual shareholders meeting. He has held the position of Chairman
and Chief Executive Officer of H(2)O Technologies, Ltd., a water purification
company, since

                                       39
<Page>
March 2000. Mr. Sutherland-Yoest served as the Senior Vice President -- Atlantic
Area of Waste Management, Inc. from July 1998 to November 1999. From
August 1996 to July 1998, he was the Vice Chairman and Vice
President -- Atlantic Region of USA Waste Services, Inc. ("USA Waste") and the
President of Canadian Waste Services Inc., which, during such time, was a
subsidiary of USA Waste. From May 1994 to August 1996, he was President, Chief
Operating Officer and a director of USA Waste. Prior to joining USA Waste,
Mr. Sutherland-Yoest was President, Chief Executive Officer and a director of
Envirofil, Inc. Between 1981 and 1992, he served in various capacities at
Laidlaw Waste Systems Ltd. and Browning-Ferris Industries Ltd.
Mr. Sutherland-Yoest is the son-in-law of Stanley A. Sutherland, a director and
the Company's Executive Vice President, Chief Operating Officer, Western Canada.

    LARRY D. HENK was appointed as President and Chief Operating Officer on
July 11, 2003. From 1997 through October of 2001, Mr. Henk served in various
senior executive positions with Allied Waste Industries, Inc., including as its
President and Chief Operating Officer from 2000 until his resignation in October
of 2001. Prior to joining Allied Waste, Mr. Henk served in a variety of
management and operating capacities for several solid waste services companies,
contributing to 20 years of industry experience.

    DON A. SANDERS was appointed to the Board on September 6, 2001. His two year
term expires at the 2003 annual shareholders meeting. He has been the Vice
Chairman and a director of Sanders Morris Harris Group Inc. ("SMHG"), a
financial services holding company formerly known as Pinnacle Global
Group, Inc., since February 2000. He is the Chairman of the Executive Committee
of Sanders Morris Harris Inc. ("SMH") (formerly known as Sanders Morris
Mundy Inc.), an investment banking firm and a wholly owned subsidiary of SMHG.
Mr. Sanders co-founded SMH in 1987 and served as its President from 1987 to
1996. Before joining SMH, he was employed by E.F. Hutton & Co. Inc., where he
served from 1959 to 1987 in various capacities, including as an Executive Vice
President from 1982 to 1987 and as a member of its Board of Directors from 1983
to 1987. Mr. Sanders has over 40 years of experience in the securities industry.

    DAVID J. FEALS was appointed as Executive Vice President and Chief Financial
Officer on January 10, 2002. Mr. Feals also serves as Chief Financial Officer of
H(2)O Technologies, Ltd. He has extensive experience in the solid waste industry
with Canadian Waste Services Inc. and Waste Management, Inc. Mr. Feals was
formerly with KPMG and has been a Certified Public Accountant for over
20 years.

    GARY W. DEGROOTE was originally appointed to the Board on September 6, 2001.
He was re-elected on November 20, 2002 for a 2 year term. He has been the
President and sole director of GWD Management Inc. a private investment holding
company since 1981. From 1991 to 1995, Mr. DeGroote was President and a director
of Republic Environmental Systems Ltd. Mr. DeGroote served in various positions
at Laidlaw Waste Systems, Ltd. and its affiliates from 1976 to 1989, including
as Vice President and a member of the board of directors of Laidlaw Inc. from
1983 to 1989.

    R. JOHN (JACK) LAWRENCE has been Chairman of Lawrence and Company Inc., an
investment advisory, money management and merchant banking firm, since October
of 1995. Before founding Lawrence & Company, Inc., Mr. Lawrence held
progressively senior executive positions with Nesbitt Burns, Inc. and its
predecessor serving as its Chairman and Chief Executive Officer from
November 1980 to September of 1994 and then as its Deputy Chairman until October
of 1998. Mr. Lawrence serves as a director of Methanex Corporation, Indigo Books
and Music and several other public and private companies.

    GEORGE E. MATELICH, has been Managing Director of Kelso & Company since
October 1990. Mr. Matelich has been affiliated with Kelso & Company since 1985.
Mr. Matelich serves as a director of FairPoint Communications, Inc. and as a
Trustee of the University of Puget Sound.

    LUCIEN REMILLARD was originally appointed to the Board on September 6, 2001.
He was re-elected on November 20, 2002 for a 2 year term. He has been the
President and Chief Executive Officer, since 1997, of RCI Environment Inc., a
waste management company. From 1981 to 1995, Mr. Remillard was the President and
Chief Executive Officer of Intersan Inc., a waste management company.
Mr. Remillard, since 1983, has served as a director of the Greater Montreal Area
Committee Paritaire des Boueurs, the organization regulating labor relations for
the Montreal solid waste removal industry. Mr. Remillard is also Chairman of the
Board of Directors of Remstar Corporation, an independent distribution and film
production company.

                                       40
<Page>
    STANLEY A. SUTHERLAND became an employee of the Company on November 19, 2001
and was appointed Executive Vice President and Chief Operating Officer, Western
Canada, on December 1, 2001. He was elected as a director on December 7, 2001,
and re-elected as a director on November 20, 2002 for a 2 year term.
Mr. Sutherland has had extensive management experience in the waste services
industry having previously held executive positions with Canadian Waste
Services Inc. and Browning-Ferris Industries Ltd. and has over 35 years of
experience in the solid waste industry. Mr. Sutherland is the father-in-law of
David Sutherland-Yoest.

    WILLIAM P. HULLIGAN was appointed Executive Vice President, North American
Operations of the Company on June 1, 2003. He has extensive operational and
executive experience having held several positions throughout his twenty year
career with Waste Management, Inc. His last position with Waste
Management, Inc. was as its Executive Vice President. Prior to leaving Waste
Management, Inc., Mr. Hulligan headed a family business.

    JOHN D. MCGARVEY became an employee of the Company on October 10, 2001 and
was appointed Executive Vice President and Chief Operating Officer for Eastern
Canada effective January 1, 2002. Mr. McGarvey has had 17 years of experience in
the solid waste industry with USA Waste Services, Inc. and Laidlaw Waste
Systems Ltd.

    THOMAS E. DURKIN, III was appointed Senior Vice President, Corporate
Development, General Counsel and Secretary of the Company on November 15, 2001.
His current position is Executive Vice President, General Counsel and Corporate
Secretary. Mr. Durkin is an inactive partner in the law firm of Durkin & Durkin.
Mr. Durkin has six years of experience in the solid waste industry with Waste
Management, Inc. and USA Waste Services, Inc. and has been admitted to the
practice of law in the States of New York and New Jersey for over 20 years.

    ELIZABETH JOY GRAHEK was appointed Associate General Counsel on June 1,
2003. Ms. Grahek served as Executive Vice President, General Counsel to the
Company from August of 1998 through October of 1999. She has practiced law in
Ontario for the past 19 years.

    GEORGE BOOTHE was appointed Chief Accounting Officer of the Company in
September 2001. Mr. Boothe joined the Company in February 1999 as Chief
Financial Officer and served as President of the Company from December 1999
until September 2001. He has more than 13 years experience in the solid waste
industry in both financial and operational roles with various waste management
companies. Mr. Boothe became a Chartered Accountant in 1986.

    SHAWN PARNHAM was appointed Corporate Controller of the Company in
August 2000. Mr. Parnham originally joined the Company in May 1999 as the
Service Area Controller for the Northern Ontario Service Area. He has twelve
years of accounting and financial experience in various accounting positions
with the Steel Co. of Canada and with the Laidlaw Group of Companies.
Mr. Parnham obtained his Certified Management Accountant designation in 1993.

    HILLEL J. ABRAMS was appointed Vice President, Health and Safety in
March 2002. Mr. Abrams served as Director Health and Safety and Director Risk
Management for Canadian Waste Services Inc. from April 1997 to March 2002. He
has 17 years of health and safety and risk management experience in the waste
industry with Sanifill Canada Inc. and Canadian Waste Services Inc.

    BRIAN J. FORRESTAL has served as Vice-President, Environmental Management
since January of 1998. Prior to joining the Company, Mr. Forrestal spent over
7 years with Laidlaw Waste Systems Ltd. Mr. Forrestal has 11 years of
environmental management experience in the waste industry.

B.  COMPENSATION

    DIRECTOR COMPENSATION POLICY

    On September 24, 2001, the Board of Directors authorized option grants to
each of the four (4) non-employee directors to purchase 30,000 common shares for
service on the Board of Directors through 2001 and 2002, as well as grants to
each non-employee director of 5,000 options for each committee of the Board of
Directors upon which such non-employee director served during that period and an
additional 5,000 options for the Chairman of the Audit Committee. All of these
options have an exercise price equal to the fair market value of the Common
Shares on the grant date, vested in full on September 24, 2002 and expire upon
the earlier

                                       41
<Page>
of five years after the grant date or one year after the director ceases to be a
member of the Board of Directors (18 months in the case of retirement, death, or
mental or physical disability). In addition, during 2002, C$30 was paid to
Mr. Grover in connection with his service on an independent committee of the
Board of Directors related to the Company's issuance of Series 1 Preferred
Shares in February 2002.

    EXECUTIVE COMPENSATION

    During 2002, the Company's directors and officers received aggregate
compensation of $1,494.9, (consisting of salary, bonus and severance) plus
options to acquire an aggregate of 302,500 Common Shares.

    The following table sets forth the compensation paid and the benefits in
kind (including options) granted to directors and executive officers of the
Company during 2002:

<Table>
<Caption>
                                                                       (IN THOUSANDS OF US DOLLARS)
                                                               ---------------------------------------------
NAME                                       TITLE                 SALARY        BONUS            OTHER           BENEFITS IN KIND
----                           -----------------------------   -----------   ----------   ------------------   ------------------
<S>                            <C>                             <C>           <C>          <C>                  <C>
George Boothe................  Chief Accounting Officer              135.6         58.9                  5.3

Thomas E. Durkin, III........  Executive Vice President,             160.0         64.2           --
                               General Counsel and Corporate
                               Secretary

Gary DeGroote................  Director                            --            --               --

David J. Feals...............  Chief Financial Officer               211.7       --               --           250,000 options to
                               effective as of January 10,                                                     purchase Common
                               2002                                                                            Shares at an
                                                                                                               exercise price of
                                                                                                               C$5.19 per share.
                                                                                                               Expiry Date:
                                                                                                               01/02/2007

Warren Grover................  Director                            --            --                     19.1
                               Resigned April 9/03

Hillel J. Abrams.............  Vice President Health &                75.6         38.2                  5.3   40,000 options to
                               Safety effective October 1,                                                     purchase Common
                               2002                                                                            Shares at an
                                                                                                               exercise price of
                                                                                                               C$6.34 per share.
                                                                                                               Expiry Date:
                                                                                                               03/04/2007

John D. McGarvey.............  Executive Vice President and          161.2       --               --
                               Chief Operating Officer,
                               Eastern Canada effective
                               January 1, 2002

Shawn Parnham................  Corporate Controller                   71.5          8.2                  2.2   12,500 options to
                               Officer effective                                                               purchase Common
                               October 1, 2002                                                                 Shares at an
                                                                                                               exercise price of
                                                                                                               C$5.89. Expiry
                                                                                                               Date: 02/01/2007

Lucien Remillard.............  Director                            --            --               --

Don A. Sanders...............  Director                            --            --               --

Stanley A. Sutherland........  Director, Executive Vice              151.6         15.6                 32.5
                               President and Chief Operating
                               Officer, Western Canada

David Sutherland-Yoest.......  Director, Chairman and Chief          210.2         63.7                  4.3
                               Executive Officer
</Table>

                                       42
<Page>
C.  BOARD PRACTICES

    The Board of Directors held a total of 9 meetings during fiscal year 2002,
either personally or by teleconference. Each of the current directors attended
at least 89% of the meetings of the Board of Directors and all committees of the
Board of Directors on which they served.

    The Company has an Executive Committee, a Compensation Committee and an
Audit Committee. The directors appointed to the Executive Committee,
Compensation Committee and Audit Committee following the 2001 annual
shareholders meeting are as follows:

    (a) Don A. Sanders, David Sutherland-Yoest and Gary W. DeGroote were
       appointed to the Executive Committee of the Board of Directors, with
       Mr. Sanders appointed Chairman of the Executive Committee. The Executive
       Committee has all the power of the Board of Directors in respect of the
       management and direction of the business and affairs of the Company (save
       and except those set out in Section 127(3) of the Business Corporations
       Act, (Ontario)) in all cases in which specific directions shall not have
       been given by the Board of Directors;

    (b) Gary W. DeGroote, Don A. Sanders and Lucien Remillard were appointed to
       the Compensation Committee, with Mr. DeGroote appointed as Chairman of
       the Compensation Committee. All of the members of the Compensation
       Committee are non-employee directors. The Compensation Committee
       determines the compensation of executive officers subject, if the Board
       of Directors so directs, to the Board of Directors' further ratification
       of such compensation; determines the compensation for other officers or
       delegates such determinations to an executive officer or officers; and
       grants options, stock or other equity interests under the Company's stock
       option or other equity-based incentive plans. The Compensation Committee
       held 1 meeting during fiscal year 2002.

    (c) Warren Grover, Lucien Remillard and Gary W. DeGroote were appointed to
       the Audit Committee, with Mr. Grover appointed as Chairman of the Audit
       Committee. Mr. Grover resigned as a director effective April 9, 2003. On
       June 19, 2003, George Matelich and Don Sanders were appointed to the
       Audit Committee to replace Mr. Grover and Mr. Remillard who had resigned
       from the Audit Committee. Mr. Matelich was appointed Chairman of the
       Audit Committee. All of the members of the Audit Committee are
       non-employee directors. The Audit Committee makes recommendations to the
       Board of Directors concerning the engagement of independent auditors;
       reviews with the independent auditors the plans and results of the audit
       engagement; considers the range of audit and non-audit fees; verifies
       that auditors are independent of management and are objective in their
       findings; reviews recommendations on internal controls and related
       management response; reviews the audit reports with management and the
       auditor; and monitors management's efforts to correct deficiencies
       described in any audit examination. The Audit Committee held a total of 3
       meetings during fiscal year 2002.

EMPLOYMENT AGREEMENTS

    GEORGE BOOTHE.  George Boothe entered into an Employment Agreement with the
Company on September 24, 2001, which Employment Agreement replaced and
superceded all previous employment agreements. The Agreement is for a term of
two years ending September 23, 2003. Under Mr. Boothe's Employment Agreement he
is entitled to a base salary of C$185 subject to subsequent merit increases, and
a discretionary annual bonus of up to 50% of his base salary. Upon termination
without cause, Mr. Boothe will receive the greater of the salary payable for the
remaining term of his Employment Agreement or six months base salary (plus
pro-rated bonus). In addition, upon termination, the options to purchase 75,000
Common Shares granted to Mr. Boothe upon execution of his employment agreement
shall continue to vest and be exercisable until the end of the option term as
set out in the option grant. If the employment agreement is not renewed at the
end of its term, Mr. Boothe will be entitled to six months base salary.
Mr. Boothe's employment agreement also provides for other customary benefits and
perquisites and prohibits Mr. Boothe from competing with the Company during the
term of his employment and for a specified period following termination.

    THOMAS E. DURKIN, III.  Thomas E. Durkin, III entered into an Employment
Agreement with the Company on May 1, 2002 for a period of two years ending
April 30, 2004. Mr. Durkin is entitled to a base salary of C$225

                                       43
<Page>
subject to subsequent merit increases, and a discretionary annual bonus of up to
100% of his base salary. Upon termination without cause, Mr. Durkin will receive
the greater of the salary payable for the remaining term of his Employment
Agreement or six months base salary, plus his annual bonus from the previous
year (pro-rated). In addition, the option to purchase 250,000 Common Shares
granted to Mr. Durkin on November 19, 2001 shall continue to vest and be
exercisable until the end of the option term as set out in the option grant. If
the employment agreement is not renewed at the end of its term, Mr. Durkin will
be entitled to six months base salary. Mr. Durkin's employment agreement also
provides for other customary benefits and perquisites. Mr. Durkin has agreed not
to compete with the Company during the term of his employment and for a
specified period following termination.

    DAVID J. FEALS.  David J. Feals entered into an Employment Agreement with
the Company on January 10, 2002 for a period of two years ending December 31,
2003. Mr. Feals is entitled to a base salary of C$215 subject to subsequent
merit increases and a discretionary annual bonus. In addition, the Company has
agreed to pay Mr. Feals equalization payments of $70 in 2002 and $85 in 2003.
Upon termination without cause, Mr. Feals will receive the greater of the salary
payable for the remaining term of his Employment Agreement or six months base
salary, plus his annual bonus from the previous year (pro-rated). In addition,
the option to purchase 250,000 Common Shares granted to Mr. Feals upon execution
of his employment agreement shall continue to vest and be exercisable until the
end of the option term as set out in the option grant. If the employment
agreement is not renewed at the end of its term, Mr. Feals is entitled to six
months base salary. Mr. Feals' employment agreement also provides for other
customary benefits and perquisites and prohibits Mr. Feals from competing with
the Company during the term of his employment and for a specified period
following termination.

    LARRY D. HENK.  Larry D. Henk entered into an Employment Agreement with the
Company and its U.S. subsidiary, Waste Services Inc. effective as of July 11,
2003 for an indeterminate term. Under the Employment Agreement, Mr. Henk is
entitled to a base salary of $400 or such higher rate as may be determined from
time to time by the Board of Directors plus an annual cash bonus of up to 100%
of his base salary. The Employment Agreement provides for the following
termination benefits: (a) if the agreement is terminated upon death or total
disability, Mr. Henk or his beneficiaries will be paid his base salary for a
period of three years from the effective date of termination plus three times
his average annual bonus in equal instalments over 36 months, he or his
dependents will continue to receive Company benefits for a period of three
years, and any outstanding stock options shall vest in accordance with the terms
of the Company's stock option plan then in effect; (b) if the agreement is
terminated without cause or by Mr. Henk for good reason, as defined in the
agreement, Mr. Henk will be paid his base salary for a period of two years from
the effective date of termination, plus two times his average annual bonus in
equal instalments over 24 months, he will continue to receive Company benefits
for a period of three years and any outstanding stock options shall vest in
accordance with the terms of the Company's stock option plan then in effect;
(c) if the agreement is terminated by Mr. Henk for good reason or by the Company
without cause and a change of control has occurred within the two-year period
preceding or within the one-year period following the effective date of
termination, Mr. Henk will be paid a lump sum equal to three times the sum of
his base salary at the rate in effect immediately prior to the effective date of
termination, and his average annual bonus paid in the three most recently
completed fiscal years, he will continue to receive Company benefits for a
period of three years, and any outstanding stock options shall vest and be
exerciseable in accordance with the terms of the Company's stock option plan
then in effect; (d) if the agreement is terminated for cause or by Mr. Henk
voluntarily and without good reason, Mr. Henk is entitled to receive any accrued
but unpaid base salary, expenses and any earned benefits. The Employment
Agreement also provides for other customary benefits and perquisites and
prohibits Mr. Henk from competing with the Company during the term of his
employment and for a specified period following termination.

    JOHN D. MCGARVEY.  John D. McGarvey entered into an Employment Agreement
with the Company on January 1, 2002 for a period of two years ending
December 31, 2003. Mr. McGarvey is currently entitled to a base salary of C$225
subject to subsequent merit increases and a discretionary annual bonus. In
addition, the Company made an equalization payment to Mr. McGarvey of $70 in
2002. Upon termination without cause, Mr. McGarvey will receive the greater of
the salary payable for the remaining term of his Employment Agreement or six
months base salary, plus his annual bonus from the previous year (pro-rated). In
addition, the option to purchase 250,000 Common Shares granted to Mr. McGarvey
on November 18, 2001 shall continue to

                                       44
<Page>
vest and be exercisable until the end of the option term as set out in the
option grant. If the employment agreement is not renewed at the end of its term,
Mr. McGarvey is entitled to six months base salary. Mr. McGarvey's employment
agreement also provides for other customary benefits and perquisites and
prohibits Mr. McGarvey from competing with the Company during the term of his
employment and for a specified period following termination.

    STANLEY A. SUTHERLAND.  Stanley A. Sutherland has an Employment Agreement
with the Company which expires on November 30, 2004. Mr. Sutherland is entitled
to a base salary of C$225 subject to subsequent merit increases, and a
discretionary annual bonus of up to 100% of his base salary. Mr. Sutherland
received a bonus of C$110 upon commencement of his employment. Following
termination or expiration of the Agreement (other than for cause),
Mr. Sutherland will continue to provide advisory services to the Company and
receive a consulting fee in the amount of C$50 per annum for the remainder of
his natural life. Upon termination without cause, Mr. Sutherland will receive
the greater of the salary payable for the remaining term of his Employment
Agreement or six months base salary, plus his annual bonus from the previous
year (pro-rated). In addition, the option to purchase 250,000 Common Shares
granted to Mr. Sutherland upon commencement of his employment shall continue to
vest and be exercisable until the end of the option term as set out in the
option grant. Mr. Sutherland's employment agreement also provides for other
customary benefits and perquisites. Mr. Sutherland has agreed not to compete
with the Company during the term of his employment and his consulting agreement
for a specified period following termination.

    DAVID SUTHERLAND-YOEST.  David Sutherland-Yoest and the Company entered into
an Employment Agreement on September 7, 2001 (the "Effective Date"). The
agreement has a term of three years, which term is automatically extended each
day by one day from the Effective Date until notice is given that the employment
term will not be extended. Under this Employment Agreement,
Mr. Sutherland-Yoest is entitled to a base salary of C$300 or such higher rate
as may be determined from time to time by the Board of Directors, plus an annual
bonus of up to 100% of his base salary subject to satisfaction of annual
performance objectives mutually agreed upon by the Board of Directors and
Mr. Sutherland-Yoest at the beginning of each year. The Employment Agreement
provides for the following benefits upon termination: (a) if the agreement is
terminated upon death or total disability or by Mr. Sutherland-Yoest within six
months following a change of control of the Company, Mr. Sutherland-Yoest or his
beneficiaries will be paid his base salary for a period of three years from the
effective date of termination plus a lump sum payment equal to three times the
average of the cash bonuses paid to him in each of the two most recently
completed fiscal years, he will receive Company benefits for a period of three
years, and any stock options granted will continue to vest as if
Mr. Sutherland-Yoest were still employed; (b) if the agreement is terminated for
cause, Mr. Sutherland-Yoest will be entitled to receive all accrued but unpaid
expenses and any earned benefits; (c) if the agreement is terminated by
Mr. Sutherland-Yoest voluntarily, Mr. Sutherland-Yoest will be entitled to
receive any accrued but unpaid expenses and any earned benefits; and (d) if the
agreement is terminated without cause, Mr. Sutherland-Yoest will continue to
receive his base salary and will receive Company benefits until the later of
September 7, 2004 or the first anniversary of the effective date of termination,
and any stock options will vest and be exercisable until the end of the option
term as set out in the option grant. Mr. Sutherland-Yoest's Employment Agreement
also provides for other customary benefits and perquisites and prohibits him
from competing with the Company during the term of his employment and for a
specified period following termination.

    DIRECTORS' AND OFFICERS' LIABILITY INSURANCE

    The Company maintains a directors' and officers' liability insurance policy
with a policy limit of C$10.0 million that is subject to a C$500 deductible in
respect of any claim. In addition, the Company is a co-insurer for up to 20% of
the amount paid in respect of securities related claims. For 2003, the policy
has an annual premium of approximately C$620. The policy provides protection to
the Company's directors and officers against liability incurred by them in their
capacities as directors and officers of the Company and its subsidiaries.

D.  EMPLOYEES

    As of December 31, 2002, the Company employed approximately 790 full-time
employees, including approximately 89 persons classified as professionals or
managers, approximately 563 employees involved in

                                       45
<Page>
collection, transfer, disposal and recycling operations, and approximately 138
sales, clerical, data processing or other administrative employees. As of
December 31, 2001, the Company employed 672 full-time employees, including
approximately 63 persons classified as professionals or managers, approximately
500 employees involved in collection, transfer, disposal and recycling
operations and approximately 109 sales, clerical, data processing or other
administrative employees. As of December 31, 2000, the Company employed 887
full-time employees, including approximately 86 persons classified as
professionals or managers, approximately 677 employees involved in collection,
transfer, disposal and recycling operations and approximately 124 sales,
clerical, data processing or other administrative employees.

    Approximately 356 employees at 13 of the Company's operating facilities are
represented by unions with which the Company has collective bargaining
agreements. Currently there are two agreements being negotiated which expire on
December 31, 2003, one of which has a one-year automatic renewal clause. One
collective bargaining agreement expired in March 2003, and was not renegotiated
due to the loss of a residential contract. In June 2003, the Company received
notice of an application for certification of 25 employees at its Toronto,
Ontario location. The Company is not aware of any other organizational efforts
among its employees and believes that relations with its employees are good.

E.  SHARE OWNERSHIP

    Information regarding share ownership as of July 11, 2003 of the individuals
who served as directors or executive officers of the Company during 2002 is set
forth below:

<Table>
<Caption>
        NAME                                OUTSTANDING COMMON STOCK(1)   % OF CLASS(2)
        ----                                ---------------------------   -------------
        <S>                                 <C>                           <C>
        David Sutherland-Yoest(3).........      3,464,697                   6.06%
        Lucien Remillard(4)...............      2,978,497                   5.21%
        Gary DeGroote(5)..................      2,275,000                   3.98%
        Don A. Sanders(6).................      2,275,534                   3.98%
        Thomas E. Durkin, III(7)..........          *                         *
        Stanley A. Sutherland.............          *                         *
        George Boothe.....................          *                         *
        David J. Feals....................          *                         *
        Warren Grover.....................          *                         *
        John D. McGarvey..................          *                         *
        Hillel J. Abrams..................          *                         *
        Shawn Parnham.....................          *                         *
</Table>

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

*   Less than one (1%) percent.

(1) In general, a person who has voting power and/or investment power with
    respect to securities is treated as a beneficial owner of those securities.
    Excludes shares of common stock subject to options and/or warrants. Includes
    ownership of Series 1 Preferred Shares convertible into Common Shares on the
    approval of the Company's stockholders.

(2) Percentages based upon 57,214,328 Common Shares outstanding as of July 11,
    2003. Such amount includes 18,769,333 Series 1 Preferred Shares outstanding
    as of July 11, 2003 and convertible into Common Shares on the approval of
    the Company's stockholders. If the Series 1 Preferred Shares were not
    included, the respective percentages would be 9.26%, 8.00%, 6.11% and 6.25%
    for each of Mssrs. Sutherland-Yoest, Remillard, DeGroote and Sanders,
    respectively.

(3) Includes 1,949,497 Common Shares owned by D.S.Y. Investments Ltd., of which
    Mr. Sutherland-Yoest is the sole director and stockholder, as well as
    750,000 common shares owned by Mr. Sutherland-Yoest personally, 500,000
    common shares owned by Mr. Sutherland-Yoest's wife and 265,200 common shares
    owned by Mr. Sutherland-Yoest's daughter, Christina Sutherland-Yoest, which
    Mr. Sutherland-Yoest may be deemed to beneficially own.
    Mr. Sutherland-Yoest disclaims beneficial ownership with respect to the
    shares owned by his wife and his daughter.

(4) Consists of 1,500,000 Common Shares owned by Historia Investments Inc. and
    1,478,497 shares owned by The Victoria Bank (Barbados) Incorporated.
    Mr. Remillard is the controlling shareholder of Historia Investments Inc.
    and is indirectly the controlling shareholder of The Victoria Bank
    (Barbados) Incorporated, and is deemed to beneficially own the shares owned
    by each such entity.

(5) Consists entirely of Common Shares owned by GWD Management Inc. of which
    Mr. DeGroote is the controlling shareholder and sole director.

                                       46
<Page>
(6) Includes 1,419,142 Common Shares over which Mr. Sanders has sole voting and
    sole dispositive power and 856,392 shares with respect to which Mr. Sanders
    has shared dispositive power.

(7) Mr. Durkin does not have or share voting or dispositive power over any
    Common Shares. However, he has a 20% membership interest in Durkin & Durkin
    Realty, LLC, which owns 466,634 shares or 1.25% of the outstanding common
    shares.

    Information regarding options and warrants held as of July 11, 2003 by
current directors and Named Executive Officers and individuals who served as
directors and executive officers of the Company during 2002, is set forth below.
The Company has issued options and warrants with exercise prices denominated
both in Canadian dollars and in United States dollars.

<Table>
<Caption>
NAME                                           OPTIONS    WARRANTS    EXERCISE PRICE    EXPIRATION DATE
----                                           --------   ---------   --------------   ------------------
<S>                                            <C>        <C>         <C>              <C>
David Sutherland-Yoest.......................    --       1,000,000       $  2.70      September 10, 2011

Hillel J. Abrams.............................   40,000                    C$ 6.34      March 4, 2007

George Boothe................................   20,000       --           $  4.00      April 18, 2005

                                                75,000       --           C$ 4.05      September 24, 2006

                                                27,694       --           C$18.05      March 11, 2004

                                                30,000       --           $ 12.00      June 30, 2004

Gary DeGroote................................   40,000       --           C$ 4.05      September 24, 2006

Thomas E. Durkin, III........................  250,000       --           C$ 5.19      November 19, 2006

David J. Feals...............................  250,000       --           C$ 5.19      January 10, 2007

Warren Grover................................   40,000       --           C$ 4.05      April 8, 2004

John McGarvey................................  250,000       --           C$ 5.19      November 19, 2006

Shawn Parnham................................    2,500       --           $  4.00      April 18, 2005

                                                 2,500       --           $ 12.00      June 28, 2004

                                                12,500       --           C$ 5.89      February 1, 2007

Lucien Remillard.............................   40,000       --           C$ 4.05      September 24, 2006

Don A. Sanders...............................   40,000       --           C$ 4.05      September 24, 2006

Stanley A. Sutherland........................  250,000       --           C$ 5.19      November 19, 2006
</Table>

1997 STOCK OPTION PLAN

    The Board of Directors adopted the 1997 stock option plan effective as of
July 30, 1997, and the stockholders approved it on July 30, 1997. The 1997 stock
option plan was intended to provide officers, employees and directors with
additional incentives by increasing their proprietary interests in the Company.
Under the 1997 stock option plan, the Company may grant options to acquire
shares of common stock up to a maximum of 10% of the issued and outstanding
shares of common stock. As of April 15, 2003, the Company had outstanding
options to purchase 110,775 shares of common stock at a weighted average
exercise price of C$16.02 per share under the terms of the 1997 stock option
plan. All 1997 stock options outstanding on the date of the Company's initial
public offering ("IPO") in June of 1999 vested on that date. No further options
are expected to be granted under the 1997 stock option plan.

                                       47
<Page>
    Under the 1997 stock option plan, if an officer, employee or director with
outstanding options retires or becomes disabled or dies, he or she (or his or
her estate) may exercise his or her options, but only within the period ending
on the earlier of the expiration of the option or 18 months after retirement,
death or disability. If the option holder does not exercise his or her options
within that time period, the options will terminate, and the shares of common
stock subject to the options will become available for issuance under the 1999
stock option plan. Unless otherwise determined by the Compensation Committee, if
the option holder ceases to be an officer, employee or director of the Company
for any reason other than retirement, death or disability, his or her vested
options terminate 90 days after this relationship terminates, and the shares of
common stock subject to the options will become available for issuance under the
1999 stock option plan. All other vested options are exercisable for a period of
5 years from their vesting date.

1999 STOCK OPTION PLAN

    The 1999 stock option plan was adopted by the Board of Directors and
approved by the stockholders in April 1999. Under the 1999 stock option plan,
the Company may grant options for a maximum of 19%, including stock options
issued under the 1997 stock option plan, of the issued and outstanding shares of
common stock and common stock equivalents. As of July 11, 2003, the Company had
granted 4,739,541 options under the 1999 Plan. 45.87% of the options or
2,174,000 options were denominated in Canadian dollars and had a weighted
average exercise price of C$5.34. The remaining 2,565,541 options were
denominated in U.S. dollars and had a weighted average exercise price of $3.11.
The 1999 stock option plan is intended to provide employees, officers,
consultants and directors with additional incentives by increasing their
proprietary interests in the Company.

    The Compensation Committee, as the administrators of the 1999 stock option
plan have the authority to determine the employees, officers, consultants and
directors to whom options are granted, the type, size and term of the options,
the grant date, the expiration date, the vesting schedule and other terms and
conditions of the options. Unless otherwise determined by the Compensation
Committee, options granted to directors under the 1999 stock option plan
generally vest one year from the date of grant and expire upon the earlier of
five years after the date of grant or one year after the director ceases to be a
member of the Board of Directors. Options for non-directors generally vest two
years from the date of grant and generally expire five years after the grant
date, unless the Compensation Committee determines otherwise. Upon a change of
control event, options vest immediately.

    Under the 1999 stock option plan, if an employee, officer, consultant or
director with outstanding options retires or becomes disabled or dies, he or she
(or his or her estate), may exercise his or her options, but only within the
period ending on the earlier of the expiration of the option or 18 months after
retirement, death or disability. If the option holder does not exercise his or
her options within that time period, the options will terminate, and the shares
of common stock subject to the options will become available for re-issuance
under the 1999 stock option plan. Unless the Compensation Committee determines
otherwise, if the option holder ceases to be an employee, officer, consultant or
director of the Company other than because of retirement, death or disability,
his or her options terminate 90 days after the date this relationship
terminates, and the shares of common stock subject to the options will become
available for re-issuance under the 1999 stock option plan.

ITEM 7.  MAJOR STOCKHOLDERS AND RELATED PARTY TRANSACTIONS

A.  MAJOR STOCKHOLDERS

    The following table sets forth information regarding the beneficial
ownership of the Company's Common Shares as of July 11, 2003, by each person or
entity that the Company knows owns more than 5% of its common stock and includes
for these purposes ownership of the Series 1 Preferred Shares which are
convertible into Common Shares. As of such date, the number of issued and
outstanding Common Shares in the capital stock of the Company was 38,444,995.
With the inclusion of the 18,769,333 Series 1 Preferred Shares which are
convertible into Common Shares on the approval of the Company's stockholders,
the number of issued Common Shares of the Company is 57,214,328. Unless
otherwise indicated, the address of each beneficial holder

                                       48
<Page>
listed below is c/o Capital Environmental Resource Inc., 1005 Skyview Drive,
Burlington, Ontario, Canada, L7P 5B1.

<Table>
<Caption>
                                                               SHARES BENEFICIALLY
                                                                      OWNED
                                                              ---------------------
NAME OF BENEFICIAL OWNER(1)                                     NUMBER     PERCENT
---------------------------                                   ----------   --------
<S>                                                           <C>          <C>
Michael DeGroote............................................  10,341,164    18.07%
Bruce R. McMaken(2)(5)......................................   4,917,599     8.60%
David Sutherland-Yoest(6)...................................   3,794,697     6.63%
Sanders Morris Harris Inc.(3)...............................   3,063,377     5.35%
Lucien Remillard(4).........................................   3,018,497     5.28%
</Table>

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

(1) Beneficial ownership is determined in accordance with the rules of the
    Securities and Exchange Commission. In general, a person who has voting
    power and/or investment power with respect to securities is treated as a
    beneficial owner of those securities. Shares of common stock subject to
    options and/or warrants currently exercisable or exercisable within 60 days
    of June 30, 2003 count as outstanding for computing the percentage
    beneficially owned by the person holding these options. Ownership of
    18,769,333 Series 1 Preferred Shares, which are convertible into Common
    Shares upon shareholder approval has been taken into account for the purpose
    of calculating the beneficial ownership of Common Shares of any person.
    Except as otherwise indicated by footnote, the Company believes that the
    persons named in this table have sole voting and investment power with
    respect to the shares of common stock shown.

(2) Includes 2,818,868 Common Shares beneficially owned by SMH CERI II, LLC,
    2,050,000 Common Shares beneficially owned by SMH CERI, LLC, 14,037 owned
    personally, and 27,694 Common Shares issuable upon the exercise of currently
    exercisable stock options. Mr. McMaken is the President and manager of each
    of SMH CERI, LLC and SMH CERI II, LLC. Mr. McMaken has voting and
    dispositive power over the shares owned by each of SMH CERI, LLC and SMH
    CERI II, LLC and therefore may be deemed to be the beneficial owner of such
    shares.

(3) Consists of 632,806 Common Shares owned by Environmental Opportunities
    Fund, L.P. ("EOF I"), 524,840 Common Shares owned by Environmental
    Opportunities Fund II, L.P. ("EOF II"), 5,788 owned by Sanders Morris
    Harris Inc., and 1,899,943 Common Shares owned by Environmental
    Opportunities Fund II (Institutional), L.P. ("EOF II (Institutional)"). The
    sole general partner of EOF I is Environmental Opportunities Management
    Company, LLC ("EOF I GP"). The sole general partner of each of EOF I and EOF
    II (Institutional) is Fund II Mgt. Co., LLC ("EOF II GP"). Sanders Morris
    Harris Inc. is the controlling member of each of EOF I GP and EOF II GP, and
    is therefore deemed to have beneficial ownership of the Common Shares held
    by EOF I, EOF II and EOF II (Institutional). The address of Sanders Morris
    Harris Inc. is 600 Travis, Suite 3100, Houston, Texas 77002.

(4) Consists of 1,500,000 Common Shares owned by Historia Investments Inc.,
    1,478,497 Common Shares owned by The Victoria Bank (Barbados) Incorporated,
    and 40,000 Common Shares issuable upon the exercise of currently exercisable
    stock options. Mr. Remillard is the controlling shareholder of Historia
    Investments Inc. and is indirectly the controlling shareholder of The
    Victoria Bank (Barbados) Incorporated, and is deemed to beneficially own the
    shares owned by each such entity.

(5) SMH CERI, LLC consists of SMH CERI, LLC and SMH CERI (Institutional), LLC.
    SMH CERI, LLC owns 589,000 Common Shares and SMH CERI (Institutional), LLC
    owns 1,461,000 Common Shares. The address of SMH CERI, LLC is 600 Travis
    Street, Suite 3100, Houston, Texas, 77002.

(6) Includes 1,949,497 Common Shares owned by D.S.Y. Investments Ltd., of which
    Mr. Sutherland-Yoest is the sole director and shareholder, 330,000 Common
    Shares issuable upon the exercise of currently exercisable warrants, as well
    as 750,000 Common shares owned by Mr. Sutherland-Yoest personally, 500,000
    Common shares owned by Mr. Sutherland-Yoest's wife and 265,200 Common Shares
    owned by Mr. Sutherland-Yoest's daughter, which Mr. Sutherland-Yoest may be
    deemed to beneficially own. Mr. Sutherland-Yoest disclaims beneficial
    ownership with respect to the shares owned by his wife and his daughter.

    Except for changes in the percentage of ownership of the Company's Common
Shares due to (i) issuances of Common Shares by the Company, (ii) issuances of
convertible Series 1 Preferred Shares in 2003, (iii) the initial purchases of
Common Shares by SMH CERI, LLC, Mr. Sutherland-Yoest, his wife and his daughter,
and entities controlled by Mr. Remillard and Mr. DeGroote in the September 2001
private placement, and (iv) the vesting of currently exercisable warrants, there
has not been any significant change in the percentage ownership of the Company's
common shares held by any of the major stockholders listed above during the past
three years.

    Based upon a list of record holders provided by an outside source, the
Company believes that, as of June 10, 2003, at least 42.7% of its outstanding
common stock was held of record by U.S. residents and that it had approximately
751 record holders resident in the U.S.

    On May 6, 2003, WSI, the Company's wholly-owned U.S. subsidiary, issued by a
private placement, 55,000 shares of its Preferred Stock to Kelso Investment
Associates VI, L.P. and KEP VI, LLC (collectively "Kelso") at a price of
$1,000.00 per share. The issue of Preferred Stock was made pursuant to a
subscription agreement

                                       49
<Page>
dated May 6, 2003 (the "WSI Subscription Agreement") between the Company, WSI
and Kelso. Under the WSI Subscription Agreement, WSI also issued to Kelso
7,150,000 warrants to purchase shares of common stock options.

    The shares of Preferred Stock of WSI are non-voting. Kelso however, has the
exclusive right to elect two directors of WSI as follows (i) one director for so
long as 5,000 or more shares of Preferred Stock are owned by Kelso or its
affiliates and (ii) a second director for so long as 25,000 or more shares of
Preferred Stock are owned by Kelso or its affiliates. Certain actions of WSI and
its subsidiaries require the prior approval of the holders of a majority of the
Preferred Stock. The holders of the Preferred Stock are entitled to receive a
liquidation preference of $1,000.00 per share and a cumulative cash dividend of
17.75% per annum (compounding and accruing quarterly in arrears). The Preferred
Stock must be redeemed no later than May 6, 2015. Until May 6, 2006, WSI may
redeem all or any part of the Preferred Stock on payment of the sum of $1,000.00
per share plus all accrued and unpaid dividends calculated as if the Preferred
Stock were redeemed on May 6, 2006. After May 6, 2006 and until May 6, 2015, the
Company may redeem the Preferred Stock on payment of the sum of $1,000.00 per
share plus all accrued and unpaid dividends calculated to the date of
redemption. If the Preferred Stock has not been redeemed by May 6, 2009, Kelso
may after that date require WSI to initiate a sale of WSI or its assets on terms
approved by the board of directors of WSI consistent with the fiduciary
obligations of the directors.

    Pursuant to the terms of the WSI Subscription Agreement, if the Company does
not effect the Arrangement by March 31, 2004, then Kelso has the right to obtain
up to 6,000,000 additional warrants to purchase shares of common stock of WSI at
an exercise price of $0.01. Kelso also has the right to require that the
warrants for shares of common stock of WSI issued to Kelso be exchanged for
warrants for Common Shares of the Company (referred to as an "Exchange Event"
under the WSI Subscription Agreement).

    If additional warrants to purchase shares of common stock of WSI are issued
under the WSI Subscription Agreement, then, upon the Arrangement occurring, the
maximum number of shares of common stock that may be issued by WSI may be in
excess of 20% of the number of shares of common stock outstanding as of the date
of the exercise of such warrants. Alternatively, if the Arrangement does not
occur and an Exchange Event under the WSI Subscription Agreement occurs, then if
all the warrants are exercised pursuant to their terms, the maximum number of
common shares that may be issued by the Company may be in excess of 20% of the
number of Common Shares outstanding as of the date of the exercise of such
warrants. Shareholder approval of the issuance of these Common Shares under the
events described above is required in accordance with the rules of NASDAQ.

B.  RELATED PARTY TRANSACTIONS

    Other than those listed below, the Company and its subsidiaries have not
entered into any material transactions during the period beginning on
January 1, 2002 through July 11, 2003 in which any director, officer or any
associate of any director or officer of the Company has or had any interest.

    In February 2002 the Company issued 11,320,754 Preferred Shares in a private
placement transaction for an aggregate purchase price of approximately
$30.0 million, or $2.65 per share. The details of this transaction are set out
in the Notice of Special Meeting and Proxy, which was circulated to the
Company's stockholders of record on February 11, 2002, and filed with the SEC on
Form 6-K on March 13, 2002. Each of David Sutherland-Yoest, the Chairman and
Chief Executive Officer of the Company, Don A. Sanders, a director of the
Company, Gary W. DeGroote, a director of the Company, Lucien Remillard, a
director of the Company, David J. Feals, the Chief Financial Officer of the
Company and Thomas E. Durkin III, the Executive Vice President and General
Counsel of the Company, and/or entities controlled by them or in which they had
equity interests, purchased Preferred Shares in this transaction. Each of such
persons, except for Mr. Durkin, was also a beneficial owner of common shares of
the Company prior to the February private placement. On March 27, 2002, the
stockholders approved the conversion and all outstanding Series 1 Preferred
Shares were converted to Common Shares.

    During 2002, the Company paid fees for financial advisory services to a
shareholder, Sanders Morris Harris Inc., of approximately $1.3 million. The
Company also purchased legal services for approximately $125 from Durkin and
Durkin. An executive officer of the Company, Thomas E. Durkin III, is an
inactive partner in Durkin and Durkin. Included in prepaid expenses and other
current assets is $100 related to the above-

                                       50
<Page>
mentioned legal services. At December 31, 2002, $25 is included in accrued
expenses and other current liabilities related to the same legal services.

    Effective March 31, 2003, the Company entered into a Placement Agent
Agreement with Sanders Morris Harris Inc. ("SMH"), pursuant to which the Company
agreed to pay SMH a fee for Series 1 Preferred Shares sold through SMH. To date,
the Company has paid SMH fees of $1.1 million pursuant to the Agreement. SMH
beneficially owns shares of the Company.

    In connection with issuance of 55,000 shares of preferred stock of WSI to
Kelso, the Company paid Kelso & Company, L.P., a related company to Kelso, an
advisory services fee of $1.65 million.

    On November 22, 2002, the Company entered into a Put or Pay Disposal
Agreement with RCI Environnement Inc., Centres de Transbordement et de
Valorisation Nord Sud Inc., RCM Environnement Inc. (collectively the "RCI
Companies") and Intersan Inc. ("Intersan") pursuant to which the Company
together with the RCI Companies agreed to deliver to certain of Intersan's
landfill sites and transfer stations in Quebec, Canada, over the next 5 years,
850,000 metric tonnes of waste per year, and for the next 2 years after the
expiration of the first 5 year term, 710,000 metric tonnes of waste per year at
a fixed disposal rate set out in the Agreement. If the Company and the RCI
Companies fail to deliver the required tonnage, they are jointly and severally
required to pay to Intersan, C$23.67 per metric tonne for every tonne below the
required tonnage. If a portion of the annual tonnage commitment is not delivered
to a specific site the Company is also required to pay $8.00 per metric tonne
for every tonne below the site specific allocation. The Company's obligations to
Intersan are secured by a letter of credit for C$4.0 million. Lucien Remillard
is a director of the Company and is a director of and controls the RCI
Companies.

    In 2003, the Company purchased furnishings and leasehold improvements from
H(2)O Technologies, Ltd. for $285 and assumed a lease of premises from David
Sutherland-Yoest. David Sutherland-Yoest, the Company Chairman and Chief
Executive Officer is Chairman and Chief Executive Officer of H(2)O
Technologies, Ltd.

    The Company is not directly or indirectly owned or controlled by another
corporation, any foreign government or any natural or legal person severally or
jointly.

    These transactions are in the normal course of operations.

    The Business Corporations Act (Ontario) provides that a director who is
materially interested in a proposal, arrangement or contract may not vote on any
resolution to approve the proposal, arrangement or contract unless the proposal,
arrangement or contract is (i) an arrangement by way of security for money lent
to or obligations undertaken by the director for the benefit of the Company or
an affiliate, (ii) relates primarily to the director's remuneration as a
director, officer, employee or agent of the company or an affiliate, (iii) is
for indemnity or insurance for the director against liability incurred by the
director acting in his or her capacity as director, or (iv) is with an
affiliate.

    Conflicts of interest may arise in the course of business transactions
between the Company, its officers, directors and principal stockholders, and
their affiliates. The Company believes that the transactions in which it was a
party as described above were at terms no less favorable than the Company would
have obtained from unaffiliated third parties. All transactions between the
Company and its officers, directors or other affiliates (other than compensation
and employment matters) are reviewed by the Audit Committee or other comparable
disinterested body. An Independent Committee reviewed and approved the terms of
issuance of the Preferred Shares issued by the Company in February 2002.

ITEM 8. FINANCIAL INFORMATION

    See Item 18 -- "Financial Statements", Pages F1-F26. For a discussion of
significant changes that have occurred since the date of the annual consolidated
financial statements, see Note #16 of the Notes to Consolidated Financial
statements attached herein.

    LEGAL PROCEEDINGS

    In the normal course of the Company's business and as a result of the
extensive governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative

                                       51
<Page>
proceedings involving federal, provincial, state or local agencies. In these
proceedings, an agency may seek to impose fines on the Company or to revoke or
deny renewal of an operating permit or license held by the Company. From time to
time, the Company may also be subject to actions brought by citizens' groups or
adjacent landowners or residents in connection with the permitting and licensing
of transfer stations and landfills or alleging environmental damage or
violations of the permits and licenses pursuant to which the Company operates.

    In addition, the Company may become party to various lawsuits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters occurring during the normal operation
of a solid waste management business. As of the date of this Report, the Company
does not believe that there is any current proceeding or litigation involving
the Company in respect of such matters that will have a material adverse impact
on its business, financial condition, results of operations or cash flows.

    On December 18, 2002, Canadian Waste Services Inc. ("Canadian Waste"), a
competitor of the Company, commenced an action against the Company and one of
the Company's employees in Western Canada who was previously employed by
Canadian Waste. The action alleges breach of the employment contract between the
employee and Canadian Waste, and breach of fiduciary duties. The action also
alleges that the Company participated in those alleged breaches. The action
seeks damages in the amount of approximately $4.9 million and an injunction
enjoining the employee from acting contrary to his alleged employment contract
and fiduciary duties.

    On February 7, 2003, Canadian Waste commenced an action against the Company
alleging breach of a "Landfill Tipping Agreement" (the "Agreement") entered into
by the Company and Canadian Waste. The action alleges that the Company has
breached the Agreement as it has not paid certain amounts invoiced by Canadian
Waste, relating to increased costs of Canadian Waste in operating the Ryley
Landfill. Canadian Waste seeks damages in the amount of approximately
$0.8 million. The Agreement contains an arbitration clause that forecloses court
action and requires arbitration with respect to certain disputes.

    The Company intends to vigorously defend these actions both with respect to
liability and damages and no provisions have been made in these financial
statements for the above matters. No Statements of Defense have yet been filed,
and documents have not yet been exchanged. The Company does not believe the
ultimate outcome of these matters will have a material adverse impact on the
Company's business, financial condition, results of operations or cash flows.

    During 2002, the Company initiated an action against certain former
employees claiming damages for breach of contract. The former employees have
counter claimed against the Company, claiming damages of C$13.5 million. The
former employees have offered to settle this matter for less than C$500, but no
agreement has been reached between the parties. The Company intends to
vigorously defend this action.

POLICY ON DIVIDEND DISTRIBUTIONS

    Pursuant to the terms of its Senior Credit Facility, the Company is not
permitted to pay dividends on its capital stock.

ITEM 9.  LISTING

    The Company completed an initial public offering of its common stock on
June 8, 1999. From June 8, 1999 until September 22, 2000 the common stock traded
on the NASDAQ National Market under the symbol "CERI". Effective as of
September 22, 2000 the common stock began trading on the NASDAQ Small Cap

                                       52
<Page>
Market, where it continues to trade, under the symbol "CERI". The following
table provides the high and low common stock price information for the periods
indicated since the Company's initial public offering:

<Table>
<Caption>
PERIOD                                                          HIGH       LOW
------                                                        --------   --------
<S>                                                           <C>        <C>
Year ended December 31, 1999................................  $15.0625   $ 4.8750
Year ended December 31, 2000................................  $ 7.2500   $ 1.4375
First Quarter -- 2001.......................................  $ 4.3750   $ 2.0625
Second Quarter -- 2001......................................  $ 3.1900   $ 1.5500
Third Quarter -- 2001.......................................  $ 4.4500   $ 2.1000
Fourth Quarter -- 2001......................................  $ 4.6000   $ 3.2000
First Quarter -- 2002.......................................  $ 6.0700   $ 3.7000
Second Quarter -- 2002......................................  $ 5.7500   $ 4.4900
Third Quarter -- 2002.......................................  $ 5.1100   $ 3.0300
Fourth Quarter -- 2002......................................  $ 4.9100   $ 2.8900
</Table>

    The following table provides the high and low common stock price information
for each month for the period January 1, 2003 through June 30, 2003:

<Table>
<Caption>
PERIOD                                                          HIGH       LOW
------                                                        --------   --------
<S>                                                           <C>        <C>
December 2002...............................................  $ 4.8000   $ 3.9800
January 2003................................................  $ 4.9500   $ 4.3100
February 2003...............................................  $ 5.0000   $ 4.1800
March 2003..................................................  $ 4.5100   $ 3.8500
April 2003..................................................  $ 4.1900   $ 3.6000
May 2003....................................................  $ 4.2500   $ 3.8000
June 2003...................................................  $ 4.2500   $ 3.7400
</Table>

ITEM 10.  ADDITIONAL INFORMATION

A.  DESCRIPTION OF CAPITAL STOCK

    COMMON STOCK

    Holders of common stock are entitled to one vote for each share of common
stock held at all meetings of the stockholders of the Company, except for
meetings at which only holders of another specified class or series of shares of
the Company are entitled to vote separately as a class or series. There are no
cumulative voting rights. Holders of common stock are entitled to dividends, if
any, as and when declared by the Board of Directors at its discretion out of
funds legally available therefor, subject to any prior rights of the holders of
another class of shares of the Company. In the event of the Company's
liquidation, dissolution or winding up, the holders of common stock would be
entitled to receive, subject to the prior rights of any holders of another class
of shares, the Company's remaining property after payment of all debts and
liabilities. Holders of the common stock have no pre-emptive, subscription,
redemption or conversion rights. The rights, preferences and privileges of
holders of common stock are subject to and may be adversely affected by the
rights of holders of any preferred stock issued in the future.

    PREFERRED STOCK

    The Board of Directors has the authority to issue an unlimited number of
shares of preferred stock in one or more series and to fix the designation,
rights, privileges, restrictions and conditions attaching to the series,
including dividend rights, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the number of shares
constituting any series, without further vote or action by the stockholders. The
issuance of preferred stock may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders. In addition, the issuance of preferred stock with voting and
conversion rights may adversely affect the voting power of the holders of common
stock.

                                       53
<Page>
    On January 23, 2002, the Company, by Articles of Amendment, created the
first series of Preferred Shares, consisting of an unlimited number of shares
designated as Series 1 Preferred Shares. The Series 1 Preferred Shares are
non-voting, non-dividend bearing and convertible. The Series 1 Preferred Shares
are automatically convertible into Common Shares on the basis of one Common
Share for each Series 1 Preferred Share held, such conversion to be effected by,
and only by, approval of the conversion by ordinary resolution of the holders of
the Common Shares.

    There are no limitations on the right of non-residents of Canada or foreign
owners to hold or vote the Company's shares of common stock or any of its other
securities imposed by Canadian or provincial laws or any of the Company's
constating documents, subject to the provisions of the Investment Canada Act
(Canada), which generally provides for notice and/or approval requirements in
respect of the acquisition of control of a Canadian business by non-Canadians in
certain circumstances.

    STOCKHOLDER RIGHTS PLAN

    On September 2, 1999, the Company adopted a Stockholder Rights Plan (the
"Plan"). Under the terms of the Plan, Common Share purchase rights (the
"Rights") were distributed at the rate of one Right for each Common Share held.
Each Right will entitle the holder to buy 1/100th of a Common Share of the
Company at an exercise price of $60.00. The Rights will be exercisable and will
trade separately from the Common Shares only if a person or group acquires
beneficial ownership of 20% or more of the Company's Common Shares or commences
a tender or exchange offer that would result in owning 20% or more of the Common
Shares (unless the Board of Directors determines that the acquisition is fair to
all stockholders and amends the Plan to permit the acquisition). If either of
these events occurs, the Rights will entitle each holder to receive, upon
exercise, a number of Common Shares (or, in certain circumstances, a number of
Common Shares in the acquiring company) having a Current Market Price (as
defined in the Plan) equal to approximately two times the exercise price of the
Right. The Rights are not exercisable with respect to the share ownership of
certain specified current stockholders, and affiliates or associates thereof, as
long as they do not acquire beneficial ownership of 30% or more. The plan was
amended in July 2001, January 2002, March 2003 and May 2003, to prevent the
share acquisitions in the September 2001, February 2002, March 2003 and
May 2003, private placements, respectively, from triggering exercisability of
the Rights. The number of Rights outstanding is subject to adjustment under
certain circumstances and all Rights expire on September 30, 2009.

    NUMBER OF DIRECTORS; REMOVAL; FILLING VACANCIES

    The Company's Articles of Amalgamation provide that, subject to any rights
of holders of preferred stock to elect additional directors under specified
circumstances, the number of directors comprising the entire Board is fixed at a
minimum of three and a maximum of nine. Pursuant to the Business Corporations
Act (Ontario) and a special resolution passed by the Company's voting
stockholders, any change in the minimum and maximum number of directors fixed in
the Articles requires the approval of two-thirds of the votes cast by its voting
stockholders at a properly called meeting and the directors may from time to
time change the fixed number of directors within that range. The Company
currently has a fixed number of six directors. The Company has a staggered
board. Three of the Company's directors have been elected to serve a two-year
term expiring at the 2003 annual meeting of stockholders and three of the
Company's directors have been elected to serve a two-year term expiring at the
2004 annual meeting of stockholders. Under the Business Corporations Act
(Ontario) and provided that a quorum of directors remains in office, vacancies
may be filled by the directors. However, where the vacancy results from an
increase by the directors in the number of directors within the minimum and
maximum fixed by the Articles and if, after filling the vacancy, the number of
directors would be more than one and one-third times the number of directors
required to be elected at the last annual meeting of the stockholders, or where
the vacancy results from a failure to elect the number of directors required to
be elected at any meeting of stockholders, then the vacancy must be filled by
the stockholders. If less than a quorum of directors remains in office, or if
there has been a failure to elect the required fixed number of directors, any
vacancy must be filled by the stockholders and the directors are required to
call a special meeting of the stockholders to fill the vacancy.

                                       54
<Page>
    CANADIAN DIRECTORS

    Because the Company is an Ontario corporation subject to the Business
Corporations Act (Ontario), a majority of its directors must be resident
Canadians and directors cannot transact business at a meeting of directors
unless a majority of directors present are Canadian directors unless (a) a
resident Canadian director who is unable to be present approves in writing or by
telephone or other communications facilities the business transacted at the
meeting; and (b) a majority of resident Canadian directors would have been
present had that director been present at the meeting.

B.  ARTICLES OF AMALGAMATION

    The following brief description of provisions of the Business Corporations
Act (Ontario), the Company's Articles of Amalgamation, and its by-laws does not
purport to be complete and is subject in all respects to the provisions of the
Business Corporations Act (Ontario), the Company's Articles of Amalgamation and
its bylaws.

    CONFLICT OF INTEREST

    The Business Corporations Act (Ontario) provides that a director who is
materially interested in a proposal, arrangement or contract may not vote on any
resolution to approve the proposal, arrangement or contract unless the proposal,
arrangement or contract is (i) an arrangement by way of security for money lent
to or obligations undertaken by the director for the benefit of the Company or
an affiliate, (ii) relates primarily to the director's remuneration as a
director, officer, employee or agent of the Company or an affiliate, (iii) for
indemnity or insurance for the director against liability incurred by the
director acting in his or her capacity as director, or (iv) with an affiliate.

    Provided that these conflict of interest provisions are complied with, there
are no other limitations contained in the Company's Articles or by-laws on the
directors' power to vote compensation to themselves or any member of the board
of directors.

    BORROWING POWERS

    The by-laws of the Company provide that the Board of Directors may
(i) borrow money on the Company's credit, (ii) issue, re-issue, sell or pledge
debt obligations of the Company, (iii) give a guarantee on behalf of the Company
to secure performance of any present or future indebtedness, liability or
obligation of any person and, (iv) charge, mortgage, hypothecate, pledge or
otherwise create a security interest in all or any currently owned or
subsequently acquired real or personal, movable or immovable, property of the
Company to secure any present or future indebtedness, liabilities or other
obligations of the Company.

    The Business Corporations Act (Ontario) provides that the Board of Directors
may vary these borrowing powers by passing a resolution to that effect and
subsequently submitting the amendment to the stockholders of the Company at the
next meeting of stockholders (at which point the stockholders may confirm,
reject or amend the amendment).

    AMENDMENTS WITH APPROVAL OF HOLDERS OF STOCK

    The Company's Articles of Amalgamation provide that any changes to the
rights of the holders of Preferred Shares of the Company must be approved by the
holders of Preferred Shares in the manner then required by law which, at a
minimum, must be by resolution signed by all the holders of Preferred Shares or
passed by an affirmative vote of at least 2/3 of the votes cast at a meeting of
the holders of Preferred Shares. The Business Corporations Act (Ontario)
generally provides that such changes must also be approved by the holders of the
Common Shares in the same manner.

    STOCKHOLDERS' MEETINGS

    The Business Corporations Act (Ontario) requires the directors of the
Company to call an annual meeting of stockholders at least once every fifteen
months and to call a special meeting upon the requisition of at least
5 per cent of the issued shares of the Company that carry the right to vote at
the meeting being requisitioned unless (i) a record date for a meeting of
stockholders has been fixed by the directors and notice of the record

                                       55
<Page>
date has been provided (unless such notice is waived in writing by every holder
of shares of the class or series affected) or (ii) the business of the meeting
as stated in the requisition includes (a) a proposal submitted by a stockholder
primarily for the purpose of enforcing a personal claim or redressing a personal
grievance against the Company or any of its directors, officers or security
holders, or for a purpose that is not related in any significant way to the
business or affairs of the Company, (b) a proposal in a management information
circular relating to a meeting of stockholders held within two years preceding
the receipt of the request, and the stockholder failed to present the proposal,
or (c) a proposal that is substantially the same as a proposal that was
previously defeated and related to a meeting of stockholders held within two
years preceding the receipt of the stockholder's request. Upon receiving such a
requisition, the directors must call a meeting within 21 days. If the directors
fail to do so, any stockholder who signed the requisition may call the meeting.
In addition, the Company's by-laws provide that the directors of the Company
must call a special meeting of stockholders upon the requisition of at least
20 per cent of the then outstanding shares of the Company.

    The by-laws also provide that the directors must provide notice to (i) each
holder of shares carrying voting rights at the close of business on the record
date for such notice, (ii) each director, and (iii) the auditor of the Company,
of the time, date and place of the meeting not less than 10 nor more than
50 days before the meeting. If special business is to be transacted, the notice
must state or be accompanied by a statement of the nature of that business in
sufficient detail to permit the stockholder to form a reasoned judgment on the
proposal. All business transacted at a special meeting of stockholders except
consideration of the minutes of an earlier meeting, the financial statements and
auditor's report, election of directors and reappointment of the auditor
constitutes special business.

    The by-laws provide that the holders of not less than one third of the
outstanding shares entitled to vote at any meeting of stockholders constitutes a
quorum.

    The Business Corporations Act (Ontario) and the by-laws of the Company
further provide that the directors may fix a record date in advance so long as
the date is not more than 50 or less than 21 days before the date of the
meeting. Where the record date is fixed in advance, notice must be given at
least 7 days beforehand by (i) publishing an advertisement in a newspaper
published or distributed in the place the Company has its registered office and
in each place in Canada where the Company has a transfer agent or where a
transfer of the Company's shares may be recorded and (ii) by providing written
notice to each stock exchange in Canada on which the Company's shares are listed
for trading. Where no record date is fixed, the record date is the close of
business on the day immediately preceding the day notice is given or the day of
the meeting itself if no notice is given.

    The by-laws also state that only the following persons are entitled to be
present at a meeting of stockholders: (i) persons who are entitled to vote at
the particular meeting, (ii) the directors of the Company, (iii) the auditors,
and (iv) persons entitled or required to attend the particular meeting under any
provision of the Business Corporations Act (Ontario) or the Articles or by-laws
of the Company.

C.  MATERIAL CONTRACTS

U.S. ASSET SALE

    On April 2, 2001, the Company entered into an agreement with Waste
Management, Inc. for the sale of a substantial majority of its assets used in
its operations in Rochester, NY, Syracuse, NY, and Williamsport, PA for a total
sale price of approximately $20.6 million. The net cash proceeds (after taking
into account a holdback plus transaction and other related costs) from the
transaction of approximately $18.1 million were used to pay down the outstanding
balance under the Company's then outstanding senior credit facility.

SENIOR CREDIT FACILITY AMENDMENTS

    On March 30, 2001, the Company entered into a fourth amendment to its then
Senior Debt facility to exclude the effect of any contemplated U.S. asset sales
for purposes of determining the Company's compliance with its financial
covenants. The lenders also agreed not to take action with respect to the
Company's failure to deliver a binding commitment letter relating to the sale of
$25 million of subordinated debt or equity by March 15, 2001 provided the
Company continued to satisfy certain conditions, including that it continued to

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make reasonable progress towards a transaction to reduce or refinance the
facility and that, by June 15, 2001, it received $16 million from the issuance
of subordinated debt or equity or closed a merger that resulted in repayment in
full of its then Senior Debt facility.

    On July 26, 2001, in connection with the execution of definitive agreements
relating to the September 2001 private placement transaction, the Company
entered into a fifth amendment to its then Senior Debt facility, which amendment
became effective upon closing of the September 2001 private placement
transaction. Pursuant to the fifth amendment, the lenders waived certain
existing defaults relating to the failure of the Company to receive the required
binding commitment letter prior to March 15, 2001, or the required
$16.0 million of subordinated debt or equity proceeds prior to June 15, 2001, as
well as its failure to deliver certain required reports. The fifth amendment
also modified certain financial covenants and related definitions including
those relating to interest coverage and leverage ratios, total debt to
capitalization, acquisitions and capital expenditures. In addition, the fifth
amendment adjusted certain interest rates and fees, adjusted the amortization
schedule of the facility, shortened the term of the facility to July 31, 2002,
and required that the Company obtain a binding commitment letter relating to a
refinancing of its then Senior Debt facility by May 31, 2002.

    In April 2002, the lenders notified the Company that the Company's failure
to provide the lenders with the December 31, 2001 annual audited consolidated
financial statements by March 31, 2002 and its breach of the interest coverage
ratio as at December 31, 2001 had resulted in a default under the Company's then
Senior Debt facility.

    On June 3, 2002, the lenders further notified the Company that the Company
was in default under its then Senior Debt facility for failure to deliver the
required binding commitment letter to refinance the facility prior to May 31,
2002.

    In June 2002, the Company entered into a new Senior Credit Facility with a
group of banks led by Bank of America and Canadian Imperial Bank of Commerce and
repaid all amounts outstanding under its prior Senior Debt facility, thereby
eliminating the defaults described above. The new Senior Credit Facility is a
revolving credit facility denominated in Canadian dollars, has a term of three
years and provided for borrowings of up to the lesser of $61.0 million or
C$92.0 million. In July 2002, the Toronto Dominion Bank joined the Senior Credit
Facility increasing the total commitment to the lesser of $76.5 million or
C$116.0 million. Assuming that the Company can locate additional lenders, or if
any of the existing lenders wish to further increase their participation, the
Senior Credit Facility can be increased by a further C$30.0 million prior to
December 31, 2003. The new facility, which is subject to quarterly commitment
reductions beginning on January 1, 2004, is collateralized by substantially all
of the Company's assets and subjects the Company to a number of financial and
operational covenants and restrictions. See Item 5B -- "Liquidity and Capital
Resources".

    In May of 2003, the Company entered into an amendment to its Senior Credit
Facility to permit the completion of the acquisition of the membership interest
of Omni Waste, provided that the Company secured equity financing of not less
than $50.0 million. The equity financing obligation was met by the issuance of
Preferred Shares in WSI to Kelso and the issuance of the Series 1 Preferred
Shares in the March to June, 2003 private placement transaction (See
Item 4A -- "Recent Developments").

FINANCING AND ACQUISITION AGREEMENTS

    In September 2001, the Company issued 16.5 million shares of its common
stock at a price of $2.00 per share in a private placement transaction,
resulting in gross proceeds to the Company of $33 million. Net proceeds to the
Company totaled approximately $29.1 million, of which $25 million was used to
reduce the amount outstanding under the Company's then Senior Debt facility. The
newly issued stock represented approximately 69.6% of the Company's then
outstanding common stock.

    In connection with the September 2001 private placement transaction, the
stockholders elected a new Board of Directors comprised of David
Sutherland-Yoest, Gary W. DeGroote, Warren Grover, Lucien Remillard and Don A.
Sanders, each of whom, except for Mr. Grover, purchased shares in the private
placement transaction. Upon closing of the transaction, David Sutherland-Yoest
entered into an evergreen three-year

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employment agreement with the Company and was appointed Chairman and Chief
Executive Officer of the Company. See Item 6 -- "Directors, Senior Management
and Employees".

    On February 6, 2002, the Company purchased all of the outstanding capital
stock of Waste Services Inc., an Ottawa, Ontario based Company ("Waste Services
Ottawa"), for a total purchase price of $25.5 million, $21.8 million of which
was paid in cash at closing, and $3.7 million of which was payable in
September 2002 in cash or stock at the election of the Company. The Company
elected to pay the balance of the purchase price in cash and all but
$0.7 million of the purchase price has been satisfied. The Company is in
discussions with the vendor regarding payment of the balance. Waste Services
Ottawa operates a non-hazardous commercial and industrial landfill near Ottawa,
Ontario, and a collection business with a satellite hauling and transfer station
operation in Brockville, Ontario.

    In February 2002, the Company issued approximately 11.3 million shares of
Series 1 Preferred Stock at a price of $2.65 per share in a private placement
transaction, resulting in gross proceeds to the Company of approximately
$30 million. The net proceeds to the Company of approximately $28 million were
used to fund the purchase of Waste Services Ottawa, which closed immediately
following the private placement transaction. David Sutherland-Yoest, as well as
directors Don A. Sanders, Gary W. DeGroote and Lucien Remillard, purchased
shares in the transaction. Each share of Series 1 Preferred Stock issued in the
February 2002 private placement transaction automatically converted into one
share of common stock following the approval of the conversion by the common
stockholders.

    On January 31, 2003, in connection with a potential acquisition, the Company
issued warrants to purchase a total of 56,250 fully paid and non-assessable
Common Shares for an exercise price of $4.70 per share. The warrants are
exercisable at any time after January 31, 2004 and expire on January 31, 2008.

    Between March 28, 2003 and June 10, 2003, the Company issued 10,241,666
Series 1 Preferred Shares at a price of $3.00 per share in a private placement
sale to certain investors. Net proceeds to the Company, after financing costs of
approximately $1.7 million were $29.0 million. Included in the costs of the
financing were fees of $1.09 million for financial advisory services paid to a
company of which one of the Company's directors is a principal. The proceeds of
the private placement were used to fund the balance of the purchase price for a
23.5% membership interest in Omni Waste and were applied toward the purchase
price of the remaining interests in Omni Waste and for general corporate
purposes.

    The Series 1 Preferred Shares are non-voting, are not entitled to receive
any dividends declared by the Company and will automatically convert into fully
paid and non-assessable Common Shares on the basis of one Common Share for each
one Series 1 Preferred Share held, upon approval of the conversion by resolution
of a majority of the common stockholders.

    Each subscriber for Series 1 Preferred Shares was also issued warrants to
purchase Common Shares of the Company equal to 20% of the number of Series 1
Preferred Shares purchased by the holder of such Preferred Shares, resulting in
a total issuance of 2,048,333 warrants. The exercise of the warrants is also
subject to receiving approval of a majority of the common stockholders to the
conversion of the Series 1 Preferred Shares. The warrants are exercisable for a
purchase price of $3.00 per Common Share and are exercisable at any time after
stockholder approval of the conversion is received. The warrants will expire on
March 31, 2008.

    Effective March 30, 2003, the Company entered into Voting Agreements with
the holders of shares of common stock of the Company, representing at least 51%
of the issued Common Shares, to vote in favour of the conversion of the
Series 1 Preferred Shares to Common Shares and the exercisability of the
warrants. Accordingly, the Series 1 Preferred Shares have been treated as common
stock equivalents and included in the calculation of the shares outstanding in
this Annual Report.

    Between June 30, 2003 and July 8, 2003, the Company issued a further
8,527,667 Series 1 Preferred Shares at a price of $3.00 per share in a private
placement sale to certain investors. Net proceeds were approximately
$25.0 million. Included in the financing costs were placement agency fees of
$635 paid to a Company of which one of the Company's directors is a principal.
The proceeds of the private placement will be used for acquisitions and general
corporate purposes. Each subscriber for Series 1 Preferred Shares were also
issued warrants to purchase Common Shares of the Company equal to 20% of the
number of Series 1 Preferred Shares purchased by the holder of such Preferred
Shares, resulting in a total issuance of 1,705,533 warrants. The terms and

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conditions of these warrants are the same as described above save and except for
the expiry dates which are 5 years from the date of issuance of the warrants.

    On March 31, 2003, the Company purchased 23.5% of the membership interests
in Omni Waste $8.25 million in cash and the issuance of 2,050,000 fully paid and
non-assessable Common Shares. On May 6, 2003, the Company completed the purchase
of the remaining 76.5% of the membership interests in Omni Waste for an
aggregate purchase price of $64.1 million, including the assumption of
$8.3 million of indebtedness to third parties. $45.8 million of the purchase
price was paid in cash on closing. The purchase was completed by the Company's
U.S. incorporated subsidiary, WSI.

    Omni Waste owns a 2,200 acre municipal solid waste landfill site which is
currently under development in Osceola County, Florida. Omni Waste has received
all necessary permits from the Florida Department of Environmental Protection
and from Osceola County for the operation of the landfill, which has a permitted
capacity of 24 million cubic yards. The landfill site is expected to begin
commercial operations no later than the first quarter of 2004.

    Effective May 6, 2003, the Company amended its Senior Credit Facility to
authorize the completion of the acquisition of the membership interests in Omni
Waste, to increase the Company's authorized capital expenditures in connection
with certain new municipal services contracts awarded to the Company and to
exclude up to $12.0 million in capital expenditures incurred in connection with
the acquisition of Omni Waste or the development of the Omni Waste landfill site
from the capital expenditures cap imposed by the Senior Credit Facility. The
consent to the completion of the acquisition was conditional upon the Company
completing the private placement of the Series 1 Preferred Shares described
above and the private placement of Preferred Stock described below for net cash
proceeds of at least $50.0 million.

    On May 14, 2003, the Company issued 1,200,000 common shares in consideration
of services provided to the Company in connection with the Omni Waste
acquisition.

    On May 6, 2003, WSI, the Company's U.S. wholly-owned subsidiary, issued by a
private placement, 55,000 shares of its Preferred Stock to Kelso Investment
Associates VI, L.P. and KEP VI, LLC (collectively "Kelso") at a price of
$1,000.00 per share. The issuance of Preferred Stock resulted in net proceeds to
the Company of $50.0 million. The proceeds were applied to purchase the
remaining membership interests of Omni Waste and for general corporate purposes.

    The issuance of Preferred Stock of WSI was made pursuant to a subscription
agreement dated May 6, 2003 (the "WSI Subscription Agreement") between the
Company, WSI and Kelso. Under the WSI Subscription Agreement, WSI also issued to
Kelso 7,150,000 warrants to purchase shares of common stock (on a one for one
basis) of WSI for $3.00 per share. The warrants are exercisable at any time
following the completion of a reorganization of the Company pursuant to which
the Company will become an indirect wholly owned subsidiary of WSI (the
"Arrangement") and expire on May 6, 2010. Under the WSI Subscription Agreement,
up to 45,000 additional shares of Preferred Stock of WSI may be sold to Kelso.

    The shares of Preferred Stock of WSI are non-voting. Kelso however, has the
exclusive right to elect two directors of WSI as follows (i) one director for so
long as 5,000 or more shares of Preferred Stock are owned by Kelso or its
affiliates and (ii) a second director for so long as 25,000 or more shares of
Preferred Stock are owned by Kelso or its affiliates. Certain actions of WSI and
its subsidiaries require the prior approval of the holders of a majority of the
Preferred Stock. The holders of the Preferred Stock are entitled to receive a
liquidation preference of $1,000.00 per share and a cumulative cash dividend of
17.75% per annum (compounding and accruing quarterly in arrears). The Preferred
Stock must be redeemed no later than May 6, 2015. Until May 6, 2006, WSI may
redeem all or any part of the Preferred Stock on payment of the sum of $1,000.00
per share plus all accrued and unpaid dividends calculated as if the Preferred
Stock were redeemed on May 6, 2006. After May 6, 2006 and until May 6, 2015, the
Company may redeem the Preferred Stock on payment of the sum of $1,000.00 per
share plus all accrued and unpaid dividends calculated to the date of
redemption. If the Preferred Stock has not been redeemed by May 6, 2009, Kelso
may after that date require WSI to initiate a sale of WSI or its assets on terms
approved by the board of directors of WSI consistent with the fiduciary
obligations of the directors.

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    Pursuant to the terms of the WSI Subscription Agreement, if the Company does
not effect the Arrangement by March 31, 2004, then Kelso has the right to obtain
up to 6,000,000 additional warrants to purchase shares of common stock of WSI at
an exercise price of $0.01. Kelso also has the right to require that the
warrants for shares of common stock of WSI issued to Kelso be exchanged for
warrants for Common Shares of the Company (referred to as an "Exchange Event"
under the WSI Subscription Agreement).

    If additional warrants to purchase shares of common stock of WSI are issued
under the WSI Subscription Agreement, then, upon the Arrangement occurring, the
maximum number of shares of common stock that may be issued by WSI may be in
excess of 20% of the number of shares of common stock outstanding as of the date
of the exercise of such warrants. Alternatively, if the Arrangement does not
occur and an Exchange Event under the WSI Subscription Agreement occurs, then if
all the warrants are exercised pursuant to their terms, the maximum number of
Common Shares that may be issued by the Company may be in excess of 20% of the
number of Common Shares outstanding as of the date of the exercise of such
warrants. Shareholder approval of the issuance of these Common Shares under the
events described above is required in accordance with the rules of NASDAQ.

    The Common Shares of the Company or the shares of common stock of WSI, as
applicable, to be issued upon the exercise of the warrants will not be
registered under the U.S Securities Act, as amended, or under applicable
Canadian securities laws. Such Common Shares or shares of common stock of WSI,
as applicable, will therefore be subject to restrictions on resale under such
laws. The Company has, however, entered into a Registration Rights Agreement
with the holders of the warrants which grant such holders demand and piggy-back
registration rights with respect to the Common Shares or the shares of common
stock of WSI, as applicable, issuable upon the exercise of the warrants.

    On July 3, 2003, the Company purchased Cactus Waste for $650 in cash. Cactus
Waste owns an 800 acre property in Pinal County, Arizona which has been re-zoned
to permit the development of a municipal solid waste landfill on the property.
The landfill's current design generates a lifetime permitted capacity in excess
of 100 million tons. Cactus Waste has also obtained the required zoning and
permits to operate a transfer station in Mesa, Arizona that will be able to
process up to 4,000 tons per day.

    Upon receipt of all required permits and governmental authorizations for the
operation of the landfill site, the Company will issue 1,250,000 of its Common
Shares to the vendors of Cactus Waste. The vendors have the option to elect
receipt of the sum of $3.0 million in lieu of the 1,250,000 Common Shares.
Additional one-time lump sum payments are payable to the vendor based on the
landfill receiving certain thresholds of average tons of waste per day. These
payments, when and if made, will total $18.0 million.

    On July 3, 2003, Cactus Waste entered into a Royalty Agreement with the
vendors. Pursuant to the Royalty Agreement, Cactus Waste will pay the vendors a
royalty of $0.50 per ton on all waste deposited at the Cactus Waste landfill,
after the earlier to occur of July 3, 2008, or the receipt of 1,250 tons per day
received at the landfill.

    On July 10, 2003, the Company completed the purchase of a collection
business in Mesa, Arizona, for a purchase price of $2,785. The purchase price
was paid in cash. The Purchase was completed through a subsidiary of WSI, Waste
Services of Arizona, Inc. The acquired business services approximately
16,000 customers. All of the disposal volume of the collection operation will be
internalized upon completion of construction of the Cactus waste transfer
station and landfill.

D.  EXCHANGE CONTROLS

    There are no limitations on the right of non-residents of Canada or foreign
owners to hold or vote the Company's shares of common stock or any of its other
securities imposed by Canadian or provincial laws or any of the Company's
constating documents.

    Except for the Investment Canada Act (Canada) and Canadian withholding taxes
described in "Taxation -- Canadian Federal Income Tax Considerations for
United States Investors", there are no Canadian federal or provincial laws,
decrees or regulations that restrict the export or import of capital or affect
the remittance of dividends, interest or other payments to holders of any of the
Company's securities who are not residents of Canada.

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E.  TAXATION

    BECAUSE CANADIAN AND UNITED STATES TAX CONSEQUENCES MAY DIFFER FROM ONE
HOLDER TO THE NEXT, THE DISCUSSION SET OUT BELOW DOES NOT PURPORT TO DESCRIBE
ALL OF THE TAX CONSIDERATIONS THAT MAY BE RELEVANT TO YOU AND YOUR PARTICULAR
SITUATION. ACCORDINGLY, YOU ARE ADVISED TO CONSULT YOUR OWN TAX ADVISOR AS TO
THE UNITED STATES AND CANADIAN FEDERAL, PROVINCIAL, STATE AND OTHER TAX
CONSEQUENCES OF INVESTING IN OUR COMMON STOCK. THE STATEMENTS OF UNITED STATES
AND CANADIAN TAX LAW SET OUT BELOW ARE BASED ON THE LAWS AND INTERPRETATIONS IN
FORCE AS OF THE DATE OF THIS ANNUAL REPORT, AND ARE SUBJECT TO ANY CHANGES
OCCURRING AFTER THAT DATE.

    CANADIAN FEDERAL INCOME TAX CONSIDERATIONS FOR CERTAIN UNITED STATES
INVESTORS

    The statements of law and legal conclusions regarding the significant
Canadian federal income tax considerations applicable to a person who is a
U.S. holder contained in this section are the opinion of Blake, Cassels &
Graydon LLP, Canadian counsel for the Company. In this summary, a "U.S. holder"
means a person who, for the purposes of the Canada-United States Income Tax
Convention (the "Convention") is a resident of the United States and who, for
the purposes of the INCOME TAX ACT (Canada) (the "Canadian Act"):

    - is not and has never been resident in Canada;

    - deals at arm's length with the Company;

    - is the beneficial owner of common stock of the Company;

    - holds common stock of the Company as capital property;

    - does not use or hold and is not deemed to use or hold common stock of the
      Company in the course of carrying on a business in Canada; and

    - is not an insurer for whom common stock of the Company constitutes
      designated insurance property.

    Common stock of the Company will generally be capital property to a
U.S. holder unless it is held in the course of carrying on a business, in an
adventure in the nature of trade or as "mark to market" property for purposes of
the Canadian Act. This summary does not apply to a U.S. holder that is a
"financial institution" for purposes of the Canadian Act.

    This summary is based on the current provisions of the Canadian Act and the
regulations in force on the date of this Annual Report, the Convention,
counsel's understanding of the current published administrative and assessing
practices of the Canada Customs and Revenue Agency (the "CCRA") and all specific
proposals to amend the Canadian Act and the regulations announced by the
Canadian Minister of Finance prior to the date of this Annual Report.

    This summary is not exhaustive and, except for the proposed amendments to
the Canadian Act, does not take into account or anticipate changes in the law or
the administrative or assessing practices of the CCRA, whether by judicial,
governmental or legislative action or interpretation, nor does it take into
account tax legislation or considerations of any province or territory of Canada
or of any foreign jurisdiction. Because Canadian tax consequences may differ
from one holder to the next, this summary does not purport to describe all of
the tax considerations that may be relevant to you and your particular
situation. You are advised to consult your own tax advisor.

DIVIDENDS

    Dividends paid or deemed to be paid on the common stock of the Company are
subject to non-resident withholding tax under the Canadian Act at the rate of
25%, although the provisions of an applicable income tax treaty may reduce this
rate. Under the Convention, U.S. holders will generally be subject to a 15%
withholding tax on the gross amount of dividends the Company paid or are deemed
to be paid on the common stock of the Company. Also pursuant to the Convention,
in the case of a U.S. holder that is a U.S. corporation, which

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beneficially owns at least 10% of the voting stock of the Company, the
applicable rate of withholding tax on dividends will generally be reduced to 5%.

DISPOSITIONS

    A U.S. holder will not be subject to tax under the Canadian Act in respect
of a capital gain arising on a disposition or deemed disposition of the common
stock of the Company, including the common stock that the Company purchases,
unless (1) the common stock constitutes "taxable Canadian property" within the
meaning of the Canadian Act to the U.S. holder, and (2) the capital gain is not
exempt from taxation in Canada under the Convention. Generally, the common stock
of the Company will not constitute taxable Canadian property of a U.S. holder
provided such common stock is listed on a prescribed stock exchange for purposes
of the Canadian Act, which includes the NASDAQ, and the U.S. holder, alone or
together with persons with whom the U.S. holder does not deal at arm's length
within the meaning of the Canadian Act, has not owned, or had under option, 25%
or more of the issued shares of any class or series of the Company's common
stock at any time within the 60 month period ending at the time of disposition.
The CCRA takes the position that, for this purpose, a person will be considered
to own any share in respect of which the person has an interest or option.

    Under the Convention, capital gains derived by a U.S. holder from the
disposition of the common stock of the Company in circumstances where it
constitutes taxable Canadian property to the U.S. holder generally will not be
taxable in Canada unless the value of the common stock is derived principally
from real property situated in Canada.

    A disposition or deemed disposition of the common stock of the Company by a
U.S. holder in respect of which the common stock of the Company is taxable
Canadian property and which is not exempt from capital gains taxation in Canada
under the Convention will give rise to a capital gain (or a capital loss) equal
to the Canadian dollar amount, if any, by which the proceeds of disposition,
less the reasonable costs of disposition, exceed (or are less than) the adjusted
cost base of the common stock to the U.S. holder at the time of the actual or
deemed disposition. Generally, one-half of any capital gain realized will be
required to be included in income as a taxable capital gain and one-half of any
capital loss will be deductible, subject to certain limitations, against taxable
capital gains in the year of disposition or the three preceding years or any
subsequent year in accordance with the detailed provisions in the Canadian Act
including certain transitional rules.

    Purchase of the common stock of the Company by the Company, other than by a
purchase in the open market in the manner in which shares are normally purchased
by a member of the public, will give rise to a deemed dividend equal to the
Canadian dollar amount the Company pays on the purchase in excess of the paid-up
capital of the common stock, determined in accordance with the Canadian Act.
This deemed dividend will be subject to non-resident withholding tax, as
described above, and will reduce the proceeds of disposition to a U.S. holder of
its common stock for purposes of computing the amount of any capital gain or
loss arising on the disposition.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

    The following is a summary of the material United States federal income tax
considerations arising from the acquisition, ownership and disposition of the
Company's common stock by a United States holder. A United States holder is a
beneficial owner of Company common stock that is:

    - an individual citizen or resident alien of the United States;

    - a corporation or other entity that is taxable as a corporation, created or
      organized in or under the laws of the United States or of any state or the
      District of Columbia;

    - an estate the income of which is subject to United States federal income
      taxation regardless of its source; or

    - in general, a trust subject to the primary supervision of a court in the
      United States.

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    This summary deals only with common stock that is held as a capital asset by
a United States holder, and does not address tax considerations applicable to
United States holders that may be subject to special tax rules, such as:

    - dealers or traders in securities or currencies;

    - financial institutions or other United States holders that treat income in
      respect of common stock of the Company as financial services income;

    - life insurance companies;

    - tax-exempt entities;

    - United States holders that hold the Company's common stock as a part of a
      straddle or conversion transaction or other arrangement involving more
      than one position or that hedge against currency risks in respect of the
      Company's common stock;

    - United States holders that own, or are deemed for United States tax
      purposes to own, 10% or more of the total combined voting power of all
      classes of the Company's voting stock;

    - United States holders that have a principal place of business or "tax
      home" outside the United States; or

    - United States holders whose "functional currency" is not the
      United States dollar.

    The discussion below is based upon the provisions of the United States
Internal Revenue Code of 1986, as amended (the "Code") and regulations, rulings
and judicial decisions as of the date of this Annual Report; any authority may
be repealed, revoked or modified, perhaps with retroactive effect, so as to
result in federal income tax consequences different from those discussed below.

DISTRIBUTIONS

    Distributions that the Company makes with respect to its common stock, other
than distributions in liquidation and distributions in redemption of stock that
are treated as exchanges, will be taxed to United States holders as ordinary
dividend income to the extent that the distributions do not exceed the current
and accumulated earnings and profits of the Company. The amount treated as a
dividend will include any Canadian withholding tax deducted from the
distribution. Distributions, if any, in excess of the current and accumulated
earnings and profits of the Company will constitute a nontaxable return of
capital to a United States holder and will be applied against and reduce the
United States holder's tax basis in the holder's common stock. To the extent
that these distributions exceed the tax basis of the United States holder in its
shares of the Company's common stock, the excess generally will be treated as
capital gain.

    In the case of distributions in Canadian dollars, the amount of the
distributions generally will equal the United States dollar value of the
Canadian dollars distributed, determined by reference to the spot currency
exchange rate on the date of receipt of the distribution by the United States
holder, and the United States holder will realize separate foreign currency gain
or loss only to the extent that gain or loss arises on the actual disposition of
the foreign currency received. Any foreign currency gain or loss generally will
be treated as ordinary income or loss.

    Dividends that the Company pays will not be eligible for the
dividends-received deduction generally allowed to United States corporations
under Section 243 of the Code in respect of dividends received from other
United States corporations. Under recently enacted legislation however, certain
United States holders including individuals, may qualify for preferential rates
of United States federal income tax in respect of dividends paid by the Company.

SALE, EXCHANGE OR OTHER TAXABLE DISPOSITION OF SHARES

    Upon a sale, exchange or other taxable disposition of the Company's common
stock to a person other than the Company, a United States holder will recognize
gain or loss in an amount equal to the difference between the amount realized on
the sale or exchange and the United States holder's adjusted tax basis in the
common stock. Any gain or loss recognized will be capital gain or loss and will
be long-term capital gain or loss if the

                                       63
<Page>
United States holder has held the Company's common stock for more than one year.
For non-corporate United States holders, certain preferential tax rates may
apply to gain recognized as long-term capital gain. The deductibility of capital
losses by United States holders is subject to certain limitations.

FOREIGN TAX CREDIT

    In general, in computing its United States federal income tax liability, a
United States holder may elect for each taxable year to claim a deduction or,
subject to the limitations on foreign tax credits generally, a credit for
foreign income taxes paid or accrued by it, including any Canadian income taxes
withheld from distributions, if any, that the Company pays on its common stock.
For foreign tax credit purposes, under Section 904(g) of the Internal Revenue
Code, in the event that at least 50 percent of the Company's stock (determined
by vote or value) is owned, directly, indirectly or by attribution, by
United States persons, and subject to the limitations described below, a portion
of the dividends that the Company pays in each taxable year will be treated as
United States-source income, depending in general upon the ratio for that
taxable year of the Company's United States-source earnings and profits to its
total earnings and profits. The remaining portion of the Company's dividends
will be treated as foreign-source income and generally will be treated as
passive income, subject to the separate foreign tax credit limitation for
passive income. The application of Section 904(g) is subject to two limitations.
First, if, in any taxable year, the Company has earnings and profits and less
than 10 percent of those earnings and profits are from United States sources,
then, in general, dividends that the Company pays from its earnings and profits
for that year will be treated entirely as foreign-source income. Second, because
dividends that the Company pays are treated entirely as foreign-source income
under the Canada-United States Income Tax Convention, a United States holder
that qualifies for the benefits of the Convention may elect to have the portion
of those dividends that would be treated as United States-source income under
Section 904(g) instead treated as foreign-source income that is subject to a
separate foreign tax credit limitation. Special limitations will generally apply
to the calculation of foreign tax credits relating to dividends that qualify for
preferential United States federal income tax rates under recently enacted
legislation.

    Gain or loss realized by a United States holder on the sale or exchange of
the Company's common stock generally will be treated as United States-source
gain or loss for United States foreign tax credit purposes.

    The availability of foreign tax credits depends on the particular
circumstances of each United States holder. You are advised to consult your own
tax advisor.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

    Information reporting and backup withholding tax at a rate of 28% may apply
to payments of dividends and to payments of proceeds of the sale or other
disposition of the Company's common stock within the United States by a
non-corporate United States holder, if the holder fails to furnish a correct
taxpayer identification number or otherwise fails to comply with applicable
requirements of the backup withholding tax rules. Backup withholding tax is not
an additional tax and may be credited against a United States
holder's United States federal income tax liability, provided that correct
information is provided to the Internal Revenue Service.

F.  DIVIDENDS AND PAYING AGENTS

    Not Applicable.

G. STATEMENT BY EXPERTS

    Not Applicable.

H. DOCUMENTS ON DISPLAY

    The documents referred to herein can be obtained from the Company at its
registered office address, 1005 Skyview Drive, Burlington, Ontario L7P 5B1.

                                       64
<Page>
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

    The Company is exposed to cash flow and translation risk due to changes in
the Canadian/United States dollar exchange rate and interest rate fluctuations.
The information below about the Company's foreign exchange and interest rate
sensitivity constitutes a "forward-looking statement".

    Exposure to exchange rate fluctuations is due to translation of the
Company's Canadian Balance Sheet and Statement of Earnings into United States
dollars, the Company's reporting currency.

    As of December 31, 2002, the Company estimates that a C$0.01(one cent)
increase in the value of the Canadian dollar relative to the United States
dollar would have an annualized impact of increasing earnings from operations
before taxes by $151. Earnings from operations used in the calculation are from
the year ending December 31, 2002.

    As at December 31, 2001, the Company estimates that a C$0.01 (one cent)
increase in the value of the Canadian dollar relative to the U.S. dollar would
have an annualized impact of reducing earnings from operations before taxes by
$138. In addition, the Company would incur an unrealized exchange gain of $445
on translation of the U.S. dollar denominated debt resident in Canada into
Canadian dollars.

    The Company is exposed to interest rate fluctuations on the total amount of
debt owed under its Senior Credit Facility. Using total senior debt of
$50.7 million as of December 31, 2002, a 1.0% increase in the rate of interest
would result in additional annual interest expense of $507. Under the Senior
Credit Facility entered into in June of 2002 there is no US dollar denominated
debt.

    As of December 31, 2002, the Company had C$24.7 million of interest rate
caps in place at a blended rate of 7.0% expiring April 2003. The Company adopted
SFAS No. 133 ("Accounting for Derivative Instrument and Hedging Activities")
effective January 1, 2001.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

    None

                                       65
<Page>
                                    PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

    In April 2002, the lenders notified the Company that the Company's failure
to provide the lenders with the December 31, 2001 annual audited consolidated
financial statements by March 31, 2002 and its breach of the interest coverage
ratio as at December 31, 2001 had resulted in a default under the facility. On
June 3, 2002, the lenders further notified the Company that the Company was in
default under the credit facility for failure to deliver a binding commitment
letter to refinance the facility prior to May 31, 2002.

    The Company entered into its new Senior Credit Facility in June of 2002 and
the prior credit facility, under which these defaults occurred, was repaid in
full and all obligations under such prior credit facility
were fully satisfied.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
          PROCEEDS

    On January 31, 2003, in connection with a potential acquisition, the Company
issued warrants to purchase a total of 56,250 fully paid and non-assessable
Common Shares for an exercise price of $4.70 per share. The warrants are
exercisable at any time after January 31, 2004 and expire on January 31, 2008.

    Between March 28, 2003 and June 10, 2003, the Company issued 10,241,666
Series 1 Preferred Shares at a price of $3.00 per share in a private placement
sale to certain investors. Net proceeds to the Company, after financing costs of
approximately $1.7 million were $29.0 million. Included in the costs of the
financing were fees of $1.09 million for financial advisory services paid to a
company of which one of the Company's directors is a principal. The proceeds of
the private placement were used to fund the balance of the purchase price for a
23.5% membership interest in Omni Waste, purchase of the remaining interests in
Omni Waste and for general corporate purposes.

    The Series 1 Preferred Shares are non-voting, are not entitled to receive
any dividends declared by the Company and will automatically convert into fully
paid and non-assessable Common Shares on the basis of one Common Share for each
one Series 1 Preferred Share held, upon approval of the conversion by resolution
of a majority of the common stockholders.

    Each subscriber for Series 1 Preferred Shares was also issued warrants to
purchase Common Shares of the Company equal to 20% of the number of Series 1
Preferred Shares purchased by the holder of such Preferred Shares, resulting in
a total issuance of 2,048,333 warrants. The exercise of the warrants is also
subject to receiving approval of a majority of the common stockholders to the
conversion of the Series 1 Preferred Shares. The warrants are exercisable for a
purchase price of $3.00 per Common Share and are exercisable at any time after
stockholder approval of the conversion is received. The warrants will expire on
March 31, 2008.

    Effective March 30, 2003, the Company entered into Voting Agreements with
the holders of shares of common stock of the Company representing at least 51%
of the issued Common Shares, to vote in favor of the conversion of the Series 1
Preferred Shares to Common Shares and the exercisability of the warrants.
Accordingly, the Series 1 Preferred Shares have been treated as common stock
equivalents and included in the calculation of the shares outstanding in this
Annual Report.

    Between June 30, 2003 and July 8, 2003, the Company issued a further
8,527,667 Series 1 Preferred Shares at a price of $3.00 per share in a private
placement sale to certain investors. Net proceeds to the Company were
approximately $25.0 million. Included in the financing costs were placement
agency fees of $635 paid to a Company of which one of the Company's directors is
a principal. The proceeds of the private placement were used to fund the
purchase of the Mesa, Arizona collection operation and will be used for
acquisitions and general corporate purposes. Each subscriber for Series 1
Preferred Shares were also issued warrants to purchase Common Shares of the
Company equal to 20% of the number of Series 1 Preferred Shares purchased by the
holder of such Preferred Shares, resulting in a total issuance of 1,705,533
warrants. The terms and conditions of these warrants are the same as described
above save and except for the expiry dates which are 5 years from the date of
issue of the warrants.

                                       66
<Page>
    The Company has entered into Registration Rights Agreements with the holders
of the Series 1 Preferred Shares which grant such holders demand and piggy-back
registration rights with respect to the Common Shares of the Company issuable
upon the conversion of the Series 1 Preferred Shares and upon the exercise of
warrants issued to such holders.

    On May 6, 2003, the Company's U.S. wholly-owned subsidiary, WSI issued, by a
private placement, 55,000 shares of its Preferred Stock to Kelso Investment
Associates VI, L.P. and KEP VI, LLC (collectively "Kelso") at a price of
$1,000.00 per share. The issuance of the Preferred Stock resulted in net
proceeds to the Company of $50 million. The net proceeds of the financing were
applied to fund the purchase of the remaining membership interests in Omni Waste
and for general corporate purposes.

    The issuance of Preferred Stock was made pursuant to a subscription
agreement dated May 6, 2003 (the "WSI Subscription Agreement") between the
Company, WSI and Kelso. Under the WSI Subscription Agreement, WSI also issued to
Kelso 7,150,000 warrants to purchase shares of common stock (on a one for one
basis) of WSI for $3.00 per share. The warrants are exercisable at any time
following the completion of a reorganization of the Company pursuant to which
the Company will become an indirect subsidiary of WSI (the "Arrangement") and
expire on May 6, 2010. Under the WSI Subscription Agreement, up to 45,000
additional shares of Preferred Stock of WSI may be sold to Kelso.

    The shares of Preferred Stock of WSI are non-voting. Kelso however, has the
exclusive right to elect two directors of WSI as follows (i) one director for so
long as 5,000 or more shares of Preferred Stock are owned by Kelso or its
affiliates and (ii) a second director for so long as 25,000 or more shares of
Preferred Stock are owned by Kelso or its affiliates. Certain actions of WSI and
its subsidiaries require the prior approval of the holders of a majority of the
Preferred Stock. The holders of the Preferred Stock are entitled to receive a
liquidation preference of $1,000.00 per share and a cumulative cash dividend of
17.75% per annum (compounding and accruing quarterly in arrears). The Preferred
Stock must be redeemed no later than May 6, 2015. Until May 6, 2006, WSI may
redeem all or any part of the Preferred Stock on payment of the sum of $1,000.00
per share plus all accrued and unpaid dividends calculated as if the Preferred
Stock were redeemed on May 6, 2006. After May 6, 2006 and until May 6, 2015, the
Company may redeem the Preferred Stock on payment of the sum of $1,000.00 per
share plus all accrued and unpaid dividends calculated to the date of
redemption. If the Preferred Stock has not been redeemed by May 6, 2009, Kelso
may after that date require WSI to initiate a sale of WSI or its assets on terms
approved by the board of directors of WSI consistent with the fiduciary
obligations of the directors.

    The Common Shares of the Company or the shares of common stock of WSI, as
applicable, to be issued upon the exercise of the warrants will not be
registered under the U.S. Securities Act, as amended, or under applicable
Canadian securities laws. Such Common Shares or shares of common stock of WSI,
as applicable, will therefore be subject to restrictions on resale under such
laws. The Company has, however, entered into a Registration Rights Agreement
with respect to the Common Shares or the shares of common stock of WSI, as
applicable, issuable upon the exercise of the warrants.

ITEM 15.  CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND
  PROCEDURES

    Within the 90-day period prior to the filing date of this report, the
Company's Chief Executive Officer and Chief Financial Officer carried out an
evaluation of the effectiveness of the design and operation of the Company's
disclosure controls and procedures pursuant to Rule 13a-14 of the Securities
Exchange Act of 1934 (the "Exchange Act"). Based upon their evaluation, the
Chief Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were adequate and effective and designed to
ensure that material information relating to the Company (including its
consolidated subsidiaries) required to be disclosed by the Company in the
reports it files under the Exchange Act is recorded, processed, summarized and
reported within the required time periods.

                                       67
<Page>
CHANGES IN INTERNAL CONTROLS

    There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to the
date of the evaluation referred to above, including any corrective action with
respect to significant deficiencies and material weaknesses.

ITEM 16.  [RESERVED]

                                       68
<Page>
                                    PART III

ITEM 18.  FINANCIAL STATEMENTS AND SCHEDULE TO FINANCIAL STATEMENTS

    THE FOLLOWING CONSOLIDATED FINANCIAL STATEMENTS, TOGETHER WITH THE AUDITOR'S
REPORT OF PRICEWATERHOUSECOOPERS LLP, ARE FILED AS PART OF THIS ANNUAL REPORT.

<Table>
<Caption>
DOCUMENT TITLE                                                 PAGE #
--------------                                                --------
<S>                                                           <C>
Report of Independent Auditors..............................    F-1

Consolidated Balance Sheets.................................    F-2

Consolidated Statements of Operations and Comprehensive
  Income (Loss).............................................    F-3

Consolidated Statements of Cash Flows.......................    F-4

Consolidated Statements of Stockholders' Equity.............    F-5

Notes to Consolidated Financial Statements..................    F-6
</Table>

                                       69
<Page>
ITEM 19.  EXHIBITS

    Documents filed as exhibits to this Annual Report or incorporated by
reference:

<Table>
<S>                     <C>
1.1                     Articles of Amalgamation of the Company.

1.2                     By-Law No. 1 of the Company.

1.3                     Certificate of Designations of Waste Services, Inc.

2.1                     Third Amendment dated as of March 27, 2003, to Rights
                        Agreement dated as of September 2, 1999, between the Company
                        and American Stock Transfer Company as Rights Agent.

2.2                     Amending Agreement No. 4 dated as of May 6, 2003, to Rights
                        Agreement dated as of September 2, 1999, between the
                        Company and American Stock Transfer Company, as Rights
                        Agent.

2.3                     Fifth Amendment to Rights Agreement dated as of July 8,
                        2003, to Rights Agreement dated as of September 2, 1999,
                        between the Company and American Stock Transfer Company, as
                        Rights Agent.

3.1                     Form of Voting Rights Agreement dated as of March 30, 2003,
                        between the Company and certain shareholders.

4.1                     Form of Series 1 Subscription Agreement dated as of
                        March 31, 2003, between the Company and certain investors.

4.2                     Term of Warrants to Purchase Common Stock by and between the
                        Company and certain investors.

4.3                     Form of Registration Rights Agreement dated as of March 31,
                        2003, between the Company, and certain investors.

4.4                     Preferred Subscription Agreement dated as of May 6, 2003,
                        among Waste Services, Inc., Capital Environmental
                        Resource Inc., Kelso Investment Associates VI, L.P. and KEP
                        VI LLC.

4.5                     Registration Rights Agreement dated as of May 6, 2003, among
                        Waste Services, Inc. and certain investors.

4.6                     Warrant Agreement dated as of May 6, 2003, between Waste
                        Service Inc., and certain holders of the preferred shares.

4.7                     Amending Agreement No. 2 and Consent dated as of May 1,
                        2003, among Capital Environmental Resource Inc. various
                        financial institutions as lenders, Bank of America, N.A.
                        (Canada Branch) as Administrative Agent.

4.8                     Purchase Agreement dated as of January 15, 2003, between
                        Donald F. Moorehead, Jr., Omni Waste, Inc. and Capital
                        Environmental Resource Inc. and Amendment to Purchase
                        Agreement dated as of February 14, 2003, between Donald F.
                        Moorehead, Jr., Omni Waste, Inc., and Capital Environmental
                        Resource Inc.

4.9                     Purchase Agreement dated January 14, 2003, between certain
                        sellers, Omni Waste, Inc. and Capital Environmental
                        Resource Inc.; Amendment to Purchase Agreement, dated as of
                        April 1, 2003, between certain sellers, Omni Waste, Inc. and
                        Capital Environmental Resource Inc. and Second Amendment to
                        Purchase Agreement, dated as of May 1, 2003, between certain
                        sellers, Waste Services, Inc., and Capital Environmental
                        Resource Inc.

4.10                    Employment Agreement dated as of July 11, 2003, between
                        Waste Services, Inc., the Company and Larry D. Henk.

4.11                    Capital Environmental Resource Inc. 1999 Stock Option Plan
                        (incorporated by reference to Exhibit 4 to the
                        Schedule 13D dated February 5, 2002 and filed by certain
                        holders of the Company's common shares with the Commission
                        on February 15, 2002).

4.12                    Form of Registration Rights Agreement dated as of
                        September 7, 2001, by and between the Company and certain
                        investors (incorporated by reference to Exhibit 4.7 to the
                        Company's Annual Report on Form 20-F, dated July 12, 2002
                        and filed with the Commission on July 12, 2002).

4.13                    Warrant, dated July 27, 2001 issued by the Company to David
                        Sutherland-Yoest (incorporated by reference to Exhibit 4.8
                        to the Company's Annual Report on Form 20-F, dated July 12,
                        2002 and filed with the Commission on July 12, 2002).
</Table>

                                       70
<Page>
<Table>
<S>                     <C>
4.14                    Employment Agreement dated as of September 7, 2001, between
                        the Company and David Sutherland-Yoest (incorporated by
                        reference to Exhibit 4.9 to the Company's Annual Report on
                        Form 20-F, dated July 12, 2002 and filed with the Commission
                        on July 12, 2002).

4.15                    Employment Agreement dated as of September 24, 2001, between
                        the Company and George Boothe (incorporated by reference to
                        Exhibit 4.10 to the Company's Annual Report on Form 20-F,
                        dated July 12, 2002 and filed with the Commission on
                        July 12, 2002).

4.16                    Share Purchase Agreement dated December 11, 2001, among
                        Leo J. Dion, the trustees of the Dion Family Trust, 1503549
                        Ontario Limited, Robert Dick, the trustees of the Dick
                        Family Trust, 1503550 Ontario Limited, Robert Ross and the
                        Company (incorporated by reference to Exhibit 4.11 to the
                        Company's Annual Report on Form 20-F, dated July 12, 2002
                        and filed with the Commission on July 12, 2002).

4.17                    Employment Agreement dated January 10, 2002 between the
                        Company and David J. Feals (incorporated by reference to
                        Exhibit 4.13 to the Company's Annual Report on Form 20-F,
                        dated July 12, 2002 and filed with the Commission on
                        July 12, 2002).

4.18                    Employment Agreement dated January 1, 2002 between the
                        Company and John D. McGarvey (incorporated by reference to
                        Exhibit 4.14 to the Company's Annual Report on Form 20-F,
                        dated July 12, 2002 and filed with the Commission on
                        July 12, 2002).

4.19                    Form of Registration Rights Agreement dated February 6,
                        2002, by and between the Company and certain investors
                        (incorporated by reference to Exhibit 4.16 to the Company's
                        Annual Report on Form 20-F, dated July 12, 2002 and filed
                        with the Commission on July 12, 2002).

4.20                    Employment Agreement dated May 1, 2002 between the Company
                        and Thomas E. Durkin III (incorporated by reference to
                        Exhibit 4.18 to the Company's Annual Report on Form 20-F,
                        dated July 12, 2002 and filed with the Commission on
                        July 12, 2002).

4.21                    Credit Agreement dated as of June 27, 2002, by and among the
                        Company, various financial institutions, as Lenders, Bank of
                        America, N.A. (Canada Branch) as Administrative Agent and
                        Canadian Imperial Bank of Commerce, as Managing Agent
                        (incorporated by reference to Exhibit 4.19 to the Company's
                        Annual Report on Form 20-F, dated July 12, 2002 and filed
                        with the Commission on July 12, 2002).

12.1                    Certification of Chief Executive Officer pursuant to 18
                        U.S.C. Section 1350, as adopted pursuant to Section 906 of
                        the U.S. Sarbanes-Oxley Act of 2002.

12.2                    Certification of Chief Financial Officer pursuant to 18
                        U.S.C. Section 1350, as adopted pursuant to Section 906 of
                        the U.S. Sarbanes-Oxley Act of 2002.
</Table>

                                       71
<Page>
                                   SIGNATURES

    The registrant hereby certifies that it meets all of the requirements for
filling on Form 20-F and that it has duly caused and authorized the undersigned
to sign this Annual Report on its behalf.

<Table>
<Caption>
                      SIGNATURE                        TITLE
                      ---------                        -----
<C>                                                    <S>
             /s/ DAVID SUTHERLAND-YOEST
     -------------------------------------------       Chairman of the Board, Chief Executive Officer
               David Sutherland-Yoest                  Director

                 /s/ DAVID J. FEALS
     -------------------------------------------       Chief Financial Officer
                   David J. Feals
</Table>

                                       72
<Page>
                                 CERTIFICATION

I, David Sutherland-Yoest, certify that:

1.  I have reviewed this Annual Report on Form 20-F of Capital Environmental
    Resource Inc.;

2.  Based on my knowledge, this Annual Report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements are made, not misleading with respect to the period covered by
    this Annual Report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this Annual Report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the periods presented in this Annual Report;

4.  The registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a)  Designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this Annual Report is being
       prepared;

    b)  Evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       Annual Report (the "Evaluation Date"); and

    c)  Presented in this Annual Report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation, to the registrant's auditors and the audit
    committee of registrant's board of directors (or persons performing the
    equivalent function):

    a)  All significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to record,
       process, summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

    b)  Any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6.  The registrant's other certifying officers and I have indicated in this
    Annual Report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.

<Table>
<S>                                                          <C>  <C>
Date: July 15, 2003

                                                             By:          /s/ DAVID SUTHERLAND-YOEST
                                                                  -----------------------------------------
                                                                  Name: David Sutherland-Yoest
                                                                  Title: Chief Executive Officer
</Table>

                                       72
<Page>
                                 CERTIFICATION

I, David J. Feals, certify that:

1.  I have reviewed this Annual Report on Form 20-F of Capital Environmental
    Resource Inc.;

2.  Based on my knowledge, this Annual Report does not contain any untrue
    statement of a material fact or omit to state a material fact necessary to
    make the statements made, in light of the circumstances under which such
    statements are made, not misleading with respect to the period covered by
    this Annual Report;

3.  Based on my knowledge, the financial statements, and other financial
    information included in this Annual Report, fairly present in all material
    respects the financial condition, results of operations and cash flows of
    the registrant as of, and for, the periods presented in this Annual Report;

4.  The registrant's other certifying officers and I are responsible for
    establishing and maintaining disclosure controls and procedures (as defined
    in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

    a)  Designed such disclosure controls and procedures to ensure that material
       information relating to the registrant, including its consolidated
       subsidiaries, is made known to us by others within those entities,
       particularly during the period in which this Annual Report is being
       prepared;

    b)  Evaluated the effectiveness of the registrant's disclosure controls and
       procedures as of a date within 90 days prior to the filing date of this
       Annual Report (the "Evaluation Date"); and

    c)  Presented in this Annual Report our conclusions about the effectiveness
       of the disclosure controls and procedures based on our evaluation as of
       the Evaluation Date;

5.  The registrant's other certifying officers and I have disclosed, based on
    our most recent evaluation, to the registrant's auditors and the audit
    committee of registrant's board of directors (or persons performing the
    equivalent function):

    a)  All significant deficiencies in the design or operation of internal
       controls which could adversely affect the registrant's ability to record,
       process, summarize and report financial data and have identified for the
       registrant's auditors any material weaknesses in internal controls; and

    b)  Any fraud, whether or not material, that involves management or other
       employees who have a significant role in the registrant's internal
       controls; and

6.  The registrant's other certifying officers and I have indicated in this
    Annual Report whether or not there were significant changes in internal
    controls or in other factors that could significantly affect internal
    controls subsequent to the date of our most recent evaluation, including any
    corrective actions with regard to significant deficiencies and material
    weaknesses.

<Table>
<S>                                                          <C>  <C>
Date: July 15, 2003

                                                             By:              /s/ DAVID J. FEALS
                                                                  -----------------------------------------
                                                                  Name: David J. Feals
                                                                  Title: Chief Financial Officer
</Table>

                                       73
<Page>
                         REPORT OF INDEPENDENT AUDITORS

To the Stockholders of
Capital Environmental Resource Inc.

    We have audited the consolidated balance sheets of Capital Environmental
Resource Inc. (the "Company") as at December 31, 2002 and 2001 and the
consolidated statements of operations and comprehensive income (loss), cash
flows, and stockholders' equity for each of the years in the three-year period
ended December 31, 2002. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

    In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
2002 and 2001 and the results of its operations and its cash flows for each of
the years in the three-year period ended December 31, 2002 in accordance with
generally accepted accounting principles in the United States.

Toronto, Canada                                       PRICEWATERHOUSECOOPERS LLP
March 20, 2003                                             Chartered Accountants

COMMENTS BY AUDITORS FOR U.S. READERS ON CANADA-UNITED STATES REPORTING
  DIFFERENCE

    In the United States, reporting standards for auditors require the addition
of an explanatory paragraph (following the opinion paragraph) when there is a
change in accounting principles that has a material effect on the comparability
of the Company's financial statements, such as the change described in
Note 2(h) to the financial statements. Our report to the stockholders dated
March 20, 2003 is expressed in accordance with Canadian reporting standards
which do not require a reference to such a change in accounting principles in
the auditors' report when the change is properly accounted for and adequately
disclosed in the financial statements.

Toronto, Canada                                       PRICEWATERHOUSECOOPERS LLP
March 20, 2003                                             Chartered Accountants

                                      F-1
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

                          CONSOLIDATED BALANCE SHEETS

                         (IN THOUSANDS OF U.S. DOLLARS)

<Table>
<Caption>
                                                                  AS AT           AS AT
                                                              DECEMBER 31,    DECEMBER 31,
                                                                  2002            2001
                                                              -------------   -------------
<S>                                                           <C>             <C>
ASSETS
CURRENT ASSETS
  Cash and cash equivalents.................................    $  1,775        $  2,469
  Accounts receivable -- trade (net of allowance for
    doubtful accounts of $350; 2001 -- $507)................      13,960          10,620
  Prepaid expenses and other current assets.................       1,661           4,340
                                                                --------        --------
TOTAL CURRENT ASSETS........................................      17,396          17,429
PROPERTY AND EQUIPMENT, NET (Note 4)........................      58,994          36,708
GOODWILL (Notes 3 and 5)....................................      64,365          54,489
DEFERRED INCOME TAX ASSETS (Note 12)........................       1,049          --
OTHER INTANGIBLE ASSETS (Note 6)............................       5,914           2,026
                                                                --------        --------
TOTAL ASSETS................................................    $147,718        $110,652
                                                                ========        ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable..........................................    $  3,821        $  3,369
  Accrued expenses and other current liabilities (Notes 7
    and 15).................................................      10,510           8,002
  Current portion of long-term debt (Note 8)................          63             256
  Current portion of capital lease obligations (Note 9).....       1,262             798
                                                                --------        --------
TOTAL CURRENT LIABILITIES...................................      15,656          12,425
LONG-TERM DEBT (Note 8).....................................      52,635          50,973
CAPITAL LEASE OBLIGATIONS (Note 9)..........................       1,610           1,341
                                                                --------        --------
                                                                  69,901          64,739
                                                                --------        --------
COMMITMENTS AND CONTINGENCIES (Note 9)
STOCKHOLDERS' EQUITY (Note 11)
  COMMON STOCK: unlimited Common Stock without par value
    authorized; 35,194,995 (2001 -- 23,696,627) issued and
    outstanding.............................................     113,549          85,173
  Options and warrants, net of deferred compensation........       1,897             851
  Accumulated other comprehensive loss......................      (3,951)         (4,306)
  Deficit...................................................     (33,678)        (35,805)
                                                                --------        --------
TOTAL STOCKHOLDERS' EQUITY..................................      77,817          45,913
                                                                --------        --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................    $147,718        $110,652
                                                                ========        ========
</Table>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-2
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

     CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

       (IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)

                            STATEMENTS OF OPERATIONS

                        FOR THE YEARS ENDED DECEMBER 31

<Table>
<Caption>
                                                                 2002         2001        2000
                                                              ----------   ----------   ---------
<S>                                                           <C>          <C>          <C>
REVENUES....................................................  $   98,846   $   93,241   $ 117,008
OPERATING AND OTHER EXPENSES
  Cost of operations, excluding depreciation and
    amortization............................................      61,250       63,140      79,327
  Depreciation and amortization.............................      10,718       11,276      12,181
  Selling, general and administrative.......................      19,470       18,208      18,622
  Goodwill impairment losses (Note 5).......................      --            3,400      13,500
  Loss (recovery) related to sale of U.S. assets
    (Note 3(b)).............................................        (718)       4,885      --
  Foreign exchange (gain) loss..............................      (1,441)       1,003      --
                                                              ----------   ----------   ---------
INCOME (LOSS) BEFORE INTEREST AND TAXES.....................       9,567       (8,671)     (6,622)
  Interest and financing expense............................       5,727       10,029      10,649
                                                              ----------   ----------   ---------
INCOME (LOSS) BEFORE INCOME TAXES...........................       3,840      (18,700)    (17,271)
  Income tax provision (Note 12)............................       1,713          968       1,010
                                                              ----------   ----------   ---------
NET INCOME (LOSS)...........................................  $    2,127   $  (19,668)  $ (18,281)
                                                              ==========   ==========   =========
BASIC NET INCOME (LOSS) PER COMMON SHARE (Note 13)..........  $     0.06   $    (1.60)  $   (2.54)
                                                              ==========   ==========   =========
DILUTED NET INCOME (LOSS) PER COMMON SHARE (Note 13)........  $     0.06   $    (1.60)  $   (2.54)
                                                              ==========   ==========   =========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
  (Note 13)
  Basic.....................................................  33,964,423   12,259,641   7,196,627
                                                              ==========   ==========   =========
  Diluted...................................................  34,851,621   12,259,641   7,196,627
                                                              ==========   ==========   =========

                            STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

NET INCOME (LOSS)...........................................  $    2,127   $  (19,668)  $ (18,281)
  Other comprehensive income (loss) -- foreign currency
    translation Adjustments.................................         355       (2,032)     (1,384)
                                                              ----------   ----------   ---------
COMPREHENSIVE INCOME (LOSS).................................  $    2,482   $  (21,700)  $ (19,665)
                                                              ==========   ==========   =========
</Table>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-3
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

                         (IN THOUSANDS OF U.S. DOLLARS)

                        FOR THE YEARS ENDED DECEMBER 31

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss).........................................  $  2,127   $(19,668)  $(18,281)
  Adjustments to reconcile net income (loss) to net cash
      flows from operating activities --
    Depreciation and amortization...........................    10,718     11,276     12,181
    Goodwill impairment losses..............................     --         3,400     13,500
    Deferred income taxes...................................      (464)       687       (476)
    Provision for (recovery) of losses related to sale of
      U.S. assets...........................................      (469)     4,885      --
    Restructuring and assets written down...................     --         --         1,177
    Foreign exchange (gain) loss............................    (1,441)     1,003      --
    Non-cash compensation and settlement costs..............     1,046        851      --
    Amortization of deferred financing costs and other......     2,699      2,135        746
  Changes in operating assets and liabilities --
    Accounts receivable -- trade, net.......................    (1,880)     2,641     (1,392)
    Prepaid expenses and other current assets...............     1,267        281        (22)
    Accounts payable........................................      (446)      (512)       (87)
    Accrued expenses and other current liabilities..........     2,582        280      2,642
    Income and other taxes..................................    (2,085)      (574)    (2,626)
                                                              --------   --------   --------
                                                                13,654      6,685      7,362
                                                              --------   --------   --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Net proceeds from sale of U.S. operations.................       249     19,092      --
  Acquisition of businesses, net of cash acquired...........   (27,197)      (341)    (8,003)
  Capital expenditures......................................   (12,157)    (3,778)   (14,362)
  Proceeds from disposal of property and equipment..........       167        478        685
  Proceeds from insurance for replacement of property and
    equipment...............................................     --         --         1,054
  Loans and advances to employees...........................        56         89         41
  Shortfall payment on Class "B" Special Stock..............     --        (1,001)     --
  Other.....................................................      (895)    (1,259)    (1,071)
                                                              --------   --------   --------
                                                               (39,777)    13,280    (21,656)
                                                              --------   --------   --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of long-term debt..................    57,200      --        27,662
  Principal repayments on long-term debt....................   (56,509)   (43,464)   (13,629)
  Repayment of capital lease liability......................    (1,035)    (1,882)    (1,088)
  Net proceeds from issuance of Common Stock................    28,376     29,108      --
  Debt issuance costs.......................................    (2,623)      (559)      (615)
  Short-term bank indebtedness..............................     --          (595)       595
                                                              --------   --------   --------
                                                                25,409    (17,392)    12,925
                                                              --------   --------   --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
  EQUIVALENTS...............................................        20       (104)       (29)
                                                              --------   --------   --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............      (694)     2,469     (1,398)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..............     2,469      --         1,398
                                                              --------   --------   --------
CASH AND CASH EQUIVALENTS AT END OF YEAR....................  $  1,775   $  2,469   $  --
                                                              ========   ========   ========
SUPPLEMENTARY INFORMATION
  Other long-term liabilities assumed in acquisition........  $    896   $  --      $  --
                                                              --------   --------   --------
  Assets acquired under capital leases......................  $  1,786   $    217   $    110
                                                              --------   --------   --------
  Cash paid for interest....................................  $  3,766   $  8,517   $  9,367
                                                              --------   --------   --------
  Cash paid for income taxes................................  $  2,085   $    574   $  2,626
                                                              --------   --------   --------
</Table>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-4
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

                         (IN THOUSANDS OF U.S. DOLLARS)

<Table>
<Caption>
                                                      OPTIONS                     ACCUMULATED
                                          COMMON        AND         DEFERRED         OTHER       RETAINED        TOTAL
                                          STOCK       WARRANTS    COMPENSATION   COMPREHENSIVE   EARNINGS    STOCKHOLDERS'
                                        (NOTE 11)    (NOTE 11)     (NOTE 11)         LOSS        (DEFICIT)      EQUITY
                                        ----------   ----------   ------------   -------------   ---------   -------------
<S>                                     <C>          <C>          <C>            <C>             <C>         <C>
BALANCE AT DECEMBER 31, 1999..........   $ 57,066      $--          $--             $  (890)     $  2,144       $ 58,320
Foreign currency translation
  adjustments.........................     --           --           --              (1,384)        --            (1,384)
Net Loss..............................     --           --           --              --           (18,281)       (18,281)
                                         --------      ------       -------         -------      --------       --------
BALANCE AT DECEMBER 31, 2000..........     57,066       --           --              (2,274)      (16,137)        38,655
Issuance of Common Stock, net of
  costs...............................     29,108       --           --              --             --            29,108
Shortfall payment on Class "B" Special
  Stock (Note 11(c))..................     (1,001)      --           --              --             --            (1,001)
Options granted.......................     --             165        --              --             --               165
Warrants granted......................     --           1,597        (1,120)         --             --               477
Amortization of deferred
  compensation........................     --           --              209          --             --               209
Foreign currency translation
  adjustments.........................     --           --           --              (2,032)        --            (2,032)
Net Loss..............................     --           --           --              --           (19,668)       (19,668)
                                         --------      ------       -------         -------      --------       --------
BALANCE AT DECEMBER 31, 2001..........     85,173       1,762          (911)         (4,306)      (35,805)        45,913
Issuance of Common Stock, net of
  costs...............................     28,068       --           --              --             --            28,068
Exercise of options...................        307       --           --              --             --               307
Exercise of warrants..................          1       --           --              --             --                 1
Additional value of warrants..........     --             690          (690)         --             --           --
Amortization of deferred
  compensation........................     --           --            1,046          --             --             1,046
Foreign currency translation
  adjustments.........................     --           --           --                 355         --               355
Net Income............................     --           --           --              --             2,127          2,127
                                         --------      ------       -------         -------      --------       --------
BALANCE AT DECEMBER 31, 2002..........   $113,549      $2,452       $  (555)        $(3,951)     $(33,678)      $ 77,817
                                         ========      ======       =======         =======      ========       ========
</Table>

          SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                      F-5
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

1.  BASIS OF PRESENTATION

    The consolidated financial statements of Capital Environmental
Resource Inc. (the "Company") have been prepared in accordance with accounting
principles generally accepted in the United States ("U.S. GAAP") and all figures
are presented in thousands of U.S. dollars, except share and per share data or
except where expressly stated as being in Canadian dollars ("C$") or in
millions. Except as indicated in Note 17, the consolidated financial statements
conform, in all material respects, with accounting principles generally accepted
in Canada ("Canadian GAAP").

    The preparation of financial statements in accordance with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect reported amounts of assets, liabilities, revenue and
expenses, and disclosure of contingencies. Actual results could be materially
different from those estimates.

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES

(a) ORGANIZATION AND BUSINESS

    The Company is a regional, integrated solid waste services company that
provides collection, transfer, disposal and recycling services to commercial,
industrial and residential customers. The Company was incorporated in the
Province of Ontario, Canada on May 23, 1997 in order to take advantage of
consolidation opportunities in the solid waste services industry in Canada and
the United States. During fiscal 2000, the Company decided to discontinue its
business in the Northeastern U.S. and in fiscal 2001 disposed of all of its
U.S. operations (Note 3(b)). The Company now currently operates in Canada
(Note 16).

(b) CONSOLIDATION

    The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All intercompany transactions and balances
have been eliminated on consolidation. All business acquisitions since the
Company's inception have been accounted for using the purchase method of
accounting and the results of operations of these businesses are included in the
consolidated financial statements from the effective date of acquisition.

(c) FOREIGN CURRENCY TRANSLATION

    The functional currency of the Company and its Canadian operations is the
Canadian dollar. Assets and liabilities of the Canadian operations which are
denominated in other than Canadian dollars are translated into Canadian dollars
at the exchange rate in effect at the relevant balance sheet date. Revenues and
expenses are translated at the exchange rate on the date of the transaction.
Gains and losses arising on foreign exchange in the Canadian operations are
included in income in the period.

    The Company reports in U.S. dollars. Accordingly, assets and liabilities of
Canadian operations have been translated from Canadian dollars into
U.S. dollars at the exchange rates in effect at the relevant balance sheet date,
and revenue and expenses of Canadian operations have been translated from
Canadian dollars into United States dollars at the average exchange rates
prevailing during the period. Unrealized gains and losses on translation of the
Canadian operations into U.S. dollars are reported as a separate component of
stockholders' equity and are included in comprehensive income (loss).

                                      F-6
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
(d) BUSINESS COMBINATIONS AND ACQUISITIONS

    The Company allocates the cost of the acquired business to the assets
acquired and the liabilities assumed based on estimates of fair values thereof.
These estimates are revised during the allocation period as necessary when, and
if, information regarding contingencies or other information lacking at the date
of acquisition becomes available to define and quantify assets acquired and
liabilities assumed. The allocation period varies but does not exceed one year.

    In certain business combinations and acquisitions, the Company agrees to pay
additional amounts to vendors contingent upon achievement by the acquired
businesses of certain negotiated goals, such as targeted cash flow levels.
Contingent payments, when determinable, are recorded as additional purchase
price consideration.

(e) CASH AND CASH EQUIVALENTS

    Cash and cash equivalents are defined as cash and short-term highly liquid
deposits with maturity dates of less than 90 days.

(f) CONCENTRATION OF CREDIT RISK

    Financial instruments that potentially subject the Company to credit risk
consist primarily of cash and cash equivalents and trade accounts receivable.
The Company places its cash and cash equivalents only with high credit quality
financial institutions. The Company's trade accounts receivable are not subject
to a concentration of credit risk. The Company's customers are diversified as to
both geographic and industry concentrations. The Company maintains an allowance
for doubtful accounts based on the expected collectibility of the accounts.
Credit losses have been within management's expectations.

(g) PROPERTY AND EQUIPMENT

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

<Table>
<S>                                                          <C>
Buildings...................................................      10 to 25 years
Vehicles....................................................            10 years
Containers, compactors and recycling equipment..............       5 to 12 years
Furniture, fixtures and other office equipment..............        3 to 5 years
Leaseholds..................................................        term of lease
</Table>

    The landfill sites are recorded at cost. Landfill improvements are
capitalized including direct costs incurred to construct and develop the sites.
All indirect landfill development costs are expensed as incurred.

    Capitalized landfill site costs, together with the estimated projected
capitalizable costs to be incurred over the remaining life of the landfill, are
used to determine the amount to be amortized. Amortization is recorded over the
estimated remaining useful life of the site based on a units of consumption
basis as permitted airspace of the landfill is consumed.

                                      F-7
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
    Estimated projected capitalizable costs and the estimated useful life of the
sites are determined by management based on estimates provided by the Company's
internal or third party engineers and are reviewed on a regular basis.

    The Company reviews the carrying values of its property, equipment and
landfill sites to determine whether such values are recoverable from future
estimated earnings. The amount of any impairment is charged against income.
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". This Statement addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. The adoption of
SFAS No. 144 did not have a material impact on the Company's consolidated
financial statements and related disclosures.

(h) GOODWILL

    In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142, "Goodwill and Other Intangible Assets", effective for fiscal years
beginning after December 15, 2001. Under the new rules, goodwill and intangible
assets deemed to have indefinite lives will no longer be amortized but will be
subject to annual impairment tests in accordance with the Statement. Other
intangible assets, including those meeting new recognition criteria under the
Statement, will continue to be amortized over their estimated useful lives.

    The Company fully adopted the new rules on accounting for goodwill and other
intangible assets effective January 1, 2002. The Company tests goodwill for
impairment using the two-step process prescribed in SFAS No. 142. The first step
is a screen for potential impairment, while the second step measures the amount
of the impairment, if any. In the first quarter of 2002, the Company performed
the first of the required impairment tests of goodwill based on the carrying
values as of January 1, 2002. As a result of performing the test for potential
impairment, the Company determined that no impairment existed as of January 1,
2002, or as a result of the annual impairment test, which was performed as at
December 31, 2002, and therefore it was not necessary to write down any of its
goodwill. However, there can be no assurance that goodwill will not be impaired
at any time in the future.

    Amortization of goodwill in the year ended December 31, 2001 and 2000 was
$1,797 and $2,455, respectively. Had this accounting policy change been made
retroactively, the Company's net loss for the year ended December 31, 2001 and
2000, adjusted for the non-amortization provisions of SFAS No. 142, would have
been $17,871 and $15,826, respectively. Basic and diluted loss per share for the
year ended December 31, 2001 and 2000, after adjusting for the non-amortization
of goodwill, would have been $1.46 and $2.20, respectively.

(i) OTHER INTANGIBLE ASSETS

    Other intangible assets primarily include customer contracts and lists,
deferred financing costs, non-competition agreements and deferred acquisition
costs. Other intangible assets, except deferred acquisition costs, are recorded
at their cost, less accumulated amortization. Amortization is charged on a
straight-line basis over the estimated useful life of the contracts or
agreements, which range from 2 to 8 years. In the case of deferred acquisition
costs, the Company capitalizes incremental direct costs associated with proposed
business combinations that are currently being negotiated. These costs remain
deferred until the Company ceases to be engaged on a regular and ongoing basis
with completion of the proposed acquisitions, at which point they are expensed.
In the event that the target is acquired, these costs are incorporated in the
cost of the acquired business.

                                      F-8
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
(j) FAIR VALUE OF FINANCIAL INSTRUMENTS

    The book values of the cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses and other current liabilities approximate
their respective fair values due to the short-term nature of these instruments.
The Company's long-term debt instruments that are outstanding as at
December 31, 2002 have carrying values that approximate their respective fair
values based on the current rate offered to the Company for debt with similar
market risk and maturities. See Notes 8, 9 and 10 for the terms and carrying
values of the Company's various debt instruments.

(k) DERIVATIVE FINANCIAL INSTRUMENTS

    From time to time, the Company uses derivatives to manage interest rate and
currency risk. The Company's policy is to use derivatives for risk management
purposes only, and it does not enter into such contracts for trading purposes.
The Company enters into derivatives only with high credit quality financial
institutions.

    Instruments accounted for as hedges must be effective at managing risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the hedge. Accordingly, changes in market values or cash flows
of hedge instruments must have a high degree of inverse correlation with changes
in market values or cash flows of the underlying hedged items. Prior to fiscal
2001, under hedge accounting treatment, current period income was not affected
by the increase or decrease in the fair market value of derivative instruments,
as these instruments were not reflected in the financial statements at fair
market value. Early termination of a hedging instrument did not result in
recognition of immediate gain or loss except in those cases when the debt
instruments to which a contract is specifically linked was terminated.

    SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities", was adopted by the Company effective January 1, 2001.
SFAS No. 133 established accounting and reporting standards requiring that all
derivative instruments be recorded in the balance sheet either as an asset or a
liability at their fair values. The statement requires that changes in the
derivatives' fair value be recognized in earnings unless specified hedge
accounting criteria are met. The Company did not account for the derivatives
held at January 1, 2001 as hedges when it adopted SFAS No. 133. The impact of
the change in method of accounting for derivatives held at January 1, 2001 was
not significant.

(l) ENVIRONMENTAL COSTS

    The Company accrues for costs associated with environmental remediation
obligations when such costs are probable and can be reasonably estimated.
Accruals for estimated losses from environmental remediation obligations
generally are recognized no later than completion of the remedial feasibility
study. Such accruals are adjusted as further information develops or
circumstances change. Cost of future expenditures for environmental remediation
obligations are not discounted to their present value. Environmental liabilities
and apportionment of responsibility among potentially responsible parties are
accounted for in accordance with the guidance provided by the Statement of
Position 96-1, "Environmental Remediation Liabilities".

(m)  ACCRUED CLOSURE AND POST-CLOSURE COSTS

    As of December 31, 2002, the Company owned two landfills and, accordingly,
accrued for an estimated $1,925 (December 31, 2001 -- $170) of landfill closure
and post-closure costs. Accrued closure and post-closure costs represent an
estimate of the future obligation associated with closure and post-closure
monitoring of the non-hazardous solid waste landfills owned by the Company. Site
specific closure and post-closure engineering

                                      F-9
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
cost estimates are prepared for the landfills owned by the Company. The impact
of changes in estimates, based on an annual update, are accounted for on a
prospective basis. The present value of estimated future costs are accrued based
on a units of consumption method as permitted airspace of the landfill is
consumed. The Company estimates the amounts and timing of payments related to
closure and post-closure costs and inflates those costs by an inflation factor
of 1.4% and uses a discount rate of 5.5% to determine the present value.

    As of January 1, 2003, the Company's policy will change upon the adoption of
SFAS No. 143, "Accounting for Asset Retirement Obligations". The Company's
adoption of SFAS No. 143 will result in a significant change to its accounting
policies for landfill closure and post-closure obligations. See discussion below
under "New Accounting Pronouncements" for additional information and an analysis
of the estimated impact that the adoption of SFAS No. 143 will have on the
Company's balance sheet at January 1, 2003 and its results of operations for the
year ending December 31, 2003.

(n) REVENUE RECOGNITION

    The Company recognizes revenue when services such as providing hauling
services and accepting waste at the Company's disposal facilities, are rendered
or when products are delivered. Amounts billed to customers, prior to providing
the related services, are deferred and reported as revenues in the period in
which the services are rendered. Long-term service contracts are reviewed on a
regular basis for losses. Full provision for anticipated losses is made in the
period when the likelihood of a loss has been established.

(o) INCOME TAXES

    The Company uses the liability method to account for income taxes. Under
this method, deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws expected to be
in effect when the differences are expected to reverse. Deferred tax assets
include tax loss carry-forwards and are reduced by a valuation allowance if,
based on available evidence, it is more likely than not that some portion or all
of the deferred tax assets will not be realized.

(p) NET INCOME (LOSS) PER SHARE INFORMATION

    Net income (loss) per share has been computed in accordance with
SFAS No. 128, "Earnings per Share".

    Basic earnings per share are calculated by dividing income available to
common stockholders by the weighted average number of Common Shares outstanding
for the period. Diluted earnings per share reflect the dilution that would occur
under the treasury stock method if the dilutive securities and other contracts
to issue Common Stock were exercised or converted into Common Stock at the
beginning of the period or when issued, if later.

(q) FINANCING COSTS

    Costs associated with arranging the Company's Credit Facility agreement have
been deferred and are being written off over the term of the credit facility.
Costs of raising equity have been netted against the proceeds raised.

                                      F-10
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
(r) STOCK-BASED COMPENSATION PLANS

    The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and the related interpretations, which does not require a charge to
the statement of operations for the estimated fair value of stock options issued
with an exercise price equal to the fair value of the common stock on the date
of grant. SFAS No. 123, "Accounting for Stock-based Compensation", requires that
companies, which do not elect to account for stock based compensation as
prescribed by this statement, disclose the pro forma effects on earnings and
earnings per share as if SFAS No. 123 had been adopted. Additionally, certain
other disclosures with respect to stock compensation and the related assumptions
are used to determine the pro forma effects of SFAS No. 123 (Note 11).

(s) NEW ACCOUNTING PRONOUNCEMENTS

    In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations". SFAS No. 143 will require, upon adoption, that the Company
recognize as a component of asset cost, the fair value of a liability for an
asset retirement obligation in the period in which it is incurred if a
reasonable estimate of fair value of the obligation can be made. Under this
statement, the liability is discounted and accretion expense is recognized using
the credit-adjusted risk-free interest rate in effect when the liability was
initially recognized. SFAS No. 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. The Company will be required to
adopt SFAS No. 143 on January 1, 2003.

    The new pronouncement will significantly impact the accounting for landfill
retirement obligations, which the Company has historically referred to as
closure and post-closure obligations. The adoption of SFAS No. 143 will have no
impact on the Company's cash requirements. Accrued closure and post-closure
costs represent an estimate of the current value of the future obligations
associated with closure and post-closure monitoring of non-hazardous solid waste
landfills. Closure and post-closure monitoring and maintenance costs represent
the costs related to cash expenditures yet to be incurred when a landfill
facility ceases to accept waste and closes. Accruals for closure and
post-closure monitoring and maintenance consider site inspection, groundwater
monitoring, leachate management, methane gas management and recovery, and
operating and maintenance costs to be incurred during the period after the
facility closes. Certain of these environmental costs, principally capping and
methane gas management costs, are also incurred during the operating life of the
site in accordance with the landfill operation requirements. Site specific
closure and post-closure engineering cost estimates are prepared annually.

    Landfill closure and post-closure liabilities will continue to be calculated
by estimating the total obligation in current dollars, inflating the obligation
based upon the expected date of the expenditure using an inflation rate of 2.0%
and discounting the inflated total to its present value using an 8.5% discount
rate. The 8.5% discount rate is higher than the 5.5% historically used as
SFAS No. 143 requires the use of a credit-adjusted risk-free rate. The resulting
closure and post-closure obligation will be recorded on the balance sheet as the
landfill's total airspace is put into service.

    Upon adoption, SFAS No. 143 requires that a charge for the cumulative change
in accounting principle for landfill obligations be recorded for the period
retroactive to the date of the inception of the landfill. Inception of the asset
retirement obligation is the date operations commenced or the date the landfill
was acquired. Upon adoption of SFAS No. 143 on January 1, 2003, the Company
expects a cumulative effect of the change in accounting principle of
approximately $0.5 million, net of tax, an increase in the closure and
post-closure liability of approximately $2.9 million and an increase in the net
landfill assets of approximately $3.7 million.

                                      F-11
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
    The following is a summary of management's estimate of the changes that will
result from the adoption of SFAS No. 143 on January 1, 2003:

<Table>
<Caption>
                                                               BALANCE AT        SFAS       BALANCE AT
                                                              DECEMBER 31,      NO. 143     JANUARY 1,
                                                                  2002        ADJUSTMENTS      2003
                                                              -------------   -----------   -----------
                                                                             (Unaudited)
<S>                                                           <C>             <C>           <C>
Landfill site costs.........................................     $16,788        $4,361         $21,149
Accumulated depletion.......................................      (3,705)         (704)         (4,409)
                                                                 -------        ------         -------
Net landfill site costs.....................................     $13,083        $3,657         $16,740
                                                                 =======        ======         =======

Closure and post-closure liability..........................     $ 1,925        $2,883         $ 4,808
                                                                 =======        ======         =======
</Table>

    The estimated impact in 2003 of adopting SFAS No. 143 is a decrease in net
income before tax of $0.3 million as a result of increased amortization expense
(unaudited).

    In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13 and Technical Corrections".
This new standard is effective for fiscal years beginning on or after May 15,
2002 or for transactions occurring after May 15, 2002 related to SFAS No. 13,
paragraphs 8 and 9(c).

    This statement rescinds SFAS No. 4, "Reporting Gains and Losses from
Extinguishment of Debt" and an amendment of that Statement, SFAS No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements". This
Statement also rescinds SFAS No. 44, "Accounting for Intangible Assets of Motor
Carriers". This Statement amends SFAS No. 13, "Accounting for Leases" to
eliminate an inconsistency between the required accounting for sale-leaseback
transactions. This Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The Company will adopt
this new standard prospectively on January 1, 2003. The adoption of this
standard is not expected to have a material effect on the Company's consolidated
financial statements.

    In July 2002, the FASB issued Financial Accounting Standards No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". This
Statement addresses financial accounting and reporting for costs associated with
exit or disposal activities and nullifies Emerging Issues Task Force (EITF)
issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (Including Certain Costs Incurred in a
Restructuring)". SFAS No. 146 requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under EITF 94-3, a liability for an exit cost was recognized at the date of the
entity's commitment to the exit plan. SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002, with early
application encouraged. The adoption of this standard is not expected to have a
material effect on the Company's consolidated financial statements.

    In January 2003, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure". SFAS No. 148 gives entities that
elect to adopt the fair market value method of accounting for stock options
granted to employees provided for in SFAS No. 123 three alternative transitional
accounting methods. In addition, the opportunity to apply the fair market value
method only to options granted after the adoption of the standard will not be
available for fiscal years beginning after December 31, 2003. SFAS No. 148 also
provides that certain pro-forma and other information regarding stock options
which is currently required

                                      F-12
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

2.  ORGANIZATION, BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
    POLICIES (CONTINUED)
only in an entity's annual financial statements will now be required in interim
reports as well. SFAS No. 148 is effective for fiscal years ended after
December 15, 2002. Management is in the process of evaluating the implications
of this new standard on the Company's consolidated financial statements.

(t) RECLASSIFICATIONS

    Certain 2001 and 2000 financial statement amounts have been reclassified to
conform with the 2002 presentation.

3.  ACQUISITIONS AND DISPOSALS OF BUSINESSES

(a) BUSINESS ACQUISITIONS

    On February 6, 2002, the Company purchased all the outstanding shares of
Waste Services Inc., ("Waste Services Ottawa") and its subsidiaries for
$25.5 million, $21.8 million of which was paid in cash at closing. The remainder
of the purchase price ($3.7 million) was payable in September 2002 in the form
of cash or, at the option of the Company, through the issuance of Common Shares.
The additional consideration was non-interest bearing and was discounted at a
rate of 6.0%. In September 2002, the Company elected to pay the remainder of the
purchase price in cash. Approximately $3.0 million has been paid as of
December 31, 2002 and the Company is in discussions with the former owners of
Waste Services Ottawa regarding payment of the remaining $0.7 million. The
Company also incurred acquisition costs of approximately $0.4 million in
connection with the WSI acquisition.

    The Waste Services Ottawa business consists of two solid waste collection
companies and one landfill, operating in the Ottawa and Brockville area of south
eastern Ontario. The acquisition provides a secure disposal site for the Company
and the haulage operations have been integrated with the Company's existing
operations in the Ottawa area. The Company also purchased five other solid waste
collection companies during 2002 for cash consideration aggregating
$4.3 million. Acquisition costs of approximately $0.3 million were incurred in
connection with these acquisitions.

    During the year ended December 31, 2001, the Company acquired one solid
waste collection business for cash consideration of $363.

    The operating results of the acquired businesses are included in the
consolidated statements of operations from the dates of acquisition. The assets
acquired and liabilities assumed were accounted for by the purchase method of
accounting.

                                      F-13
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

3.  ACQUISITIONS AND DISPOSALS OF BUSINESSES (CONTINUED)
    Details of the net assets acquired are as follows:

<Table>
<Caption>
                                                              WASTE SERVICES
                                                                  OTTAWA        OTHER      TOTAL       2001
                                                              --------------   --------   --------   --------
<S>                                                           <C>              <C>        <C>        <C>
Cash and cash equivalents...................................     $ 1,184        $--       $ 1,184      $ 22
Other current assets........................................       1,292           153      1,445        23
Current liabilities.........................................      (1,197)          (88)    (1,285)      (69)
                                                                 -------        ------    -------      ----
Net working capital.........................................       1,279            65      1,344       (24)
Property and equipment......................................      15,912         2,129     18,041        28
Customer contracts and lists................................       1,179           748      1,927      --
Non-competition agreements..................................          38           227        265      --
Goodwill....................................................       7,593         1,755      9,348       359
Long-term liabilities.......................................        (896)        --          (896)     --
Deferred tax asset (liability)..............................         792          (214)       578      --
                                                                 -------        ------    -------      ----
Total.......................................................     $25,897        $4,710    $30,607      $363
                                                                 =======        ======    =======      ====
</Table>

    The purchase prices have been allocated to the identified intangible assets
acquired based on their estimated fair values at the dates of acquisition, with
any residual amounts allocated to goodwill. The purchase price allocations are
considered preliminary until the Company is no longer waiting for information
that it has arranged to obtain and that is known to be available or obtainable.
Although the time required to obtain the necessary information will vary with
circumstances specific to an individual acquisition, the "allocation period" for
finalizing purchase price allocations does not exceed one year from the date of
consummation of an acquisition.

    The following unaudited condensed pro forma consolidated statement of
operations data shows the results of the Company's operations for the twelve
months ended December 31, 2002 and 2001 as if the 2002 acquisitions had occurred
at the beginning of the periods presented:

<Table>
<Caption>
                                                                 2002         2001
                                                              ----------   ----------
                                                                    (Unaudited)
<S>                                                           <C>          <C>
STATEMENT OF OPERATIONS DATA
  Revenue...................................................  $  100,913   $  105,894
  Net income (loss).........................................       2,188      (17,747)

  Basic net income (loss) per common share..................  $     0.06   $    (0.75)
  Diluted net income (loss) per common share................  $     0.06   $    (0.75)

PRO FORMA WEIGHTED AVERAGE NUMBER OF SHARES
  Basic.....................................................  35,112,007   23,580,395
  Diluted...................................................  35,999,204   23,580,395
</Table>

    These unaudited condensed pro forma consolidated results have been prepared
for comparative purposes only and are not necessarily indicative of the actual
results of operations had the acquisitions taken place as of the beginning of
the respective periods or the results of future operations of the Company.
Furthermore, the pro forma results do not give effect to all cost savings or
incremental costs that may occur as a result of the integration and
consolidation of the acquisitions.

                                      F-14
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

3.  ACQUISITIONS AND DISPOSALS OF BUSINESSES (CONTINUED)
(b) DISPOSAL OF U.S. OPERATIONS

    On April 2, 2001, the Company entered into an agreement with Waste
Management Inc. for the sale of a substantial majority of its assets used in
connection with its operations in Rochester, New York; Syracuse, New York; and
Williamsport, Pennsylvania, for a total sale price of approximately
$20.6 million. The net cash proceeds (after taking into account a holdback of
approximately $1.0 million at December 31, 2001 plus transaction and other
related costs) from the transaction amounted to approximately $18.1 million.

    In June 2001, the Company entered into agreements to sell the remaining
assets used in connection with its operations in the U.S. for a combined sale
price of approximately $1.5 million. The net cash proceeds (after taking into
account transaction and other related costs) from these transactions were
approximately $1.0 million.

    In connection with the sale of its U.S. operations, the Company has accrued
expenses as at December 31, 2002 of approximately $0.2 million
(2001 -- $1.0 million) related primarily to lease termination penalties,
severance costs, professional fees and other transaction costs yet to be paid.
The overall loss on disposition of the operations in the U.S. recorded in fiscal
2001 was approximately $4.9 million. During 2002, the Company received
recoveries of approximately $0.7 million in connection with the sale of its
U.S. operations.

4.  PROPERTY AND EQUIPMENT

    Property and equipment consist of the following as at December 31, 2002 and
2001:

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Land and buildings..........................................  $ 2,768    $ 1,629
Landfill sites..............................................   16,788      4,372
Vehicles....................................................   39,735     27,807
Containers, compactors and recycling equipment..............   25,520     20,913
Furniture, fixtures and other office equipment and
  leaseholds................................................    3,725      2,673
                                                              -------    -------
Total property and equipment................................   88,536     57,394
Less: Accumulated depreciation..............................   29,542     20,686
                                                              -------    -------
Property and equipment, net.................................  $58,994    $36,708
                                                              =======    =======
</Table>

    Included in property and equipment at December 31, 2002 are vehicles held
under capital leases with a cost of $5,877 (2001 -- $3,820) and accumulated
depreciation of $1,784 (2001 -- $1,098).

    Depreciation expense for the year ended December 31, 2002 was $10,168
(2001 -- $8,786; 2000 -- $8,745). Included in 2001 depreciation expense is
additional depreciation and write-downs of $2.0 million (2000 -- $1.1 million)
to reflect adjustments to estimated lives and the write-down to salvage value of
certain equipment as a result of management's periodic review of the carrying
value of property and equipment.

    Based on current rates of utilization and on permitted airspace capacity,
the life of the Company's Ottawa landfill purchased in the Waste Services Ottawa
acquisition is estimated to be in excess of seven years. The Company's other
landfill located in Alberta has a life in excess of 30 years. On an annual
basis, the Company updates the development cost estimates, closure and
post-closure and future capacity estimates for the landfills. Future capacity
estimates are updated using surveys by third party engineers to estimate
utilized disposal capacity and remaining disposal capacity. These cost and
capacity estimates are reviewed and approved by senior management on an annual
basis. The Company expensed approximately $3,124 related to landfill depletion
during the year ended December 31, 2002 (2001 -- $238).

                                      F-15
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

5.  GOODWILL

    During fiscal 2001, as part of management's periodic review of goodwill,
based on the estimated future undiscounted cash flows, the Company determined
that the related goodwill at two locations was impaired and, accordingly, as at
December 31, 2001 an impairment loss of $3,400 was recorded to reduce the
carrying amount of goodwill to its estimated fair market value.

    As a result of losses experienced by the Company's U.S. operations during
fiscal 2000, the Company carried out a review for impairment of the long-lived
assets related to the U.S. operations and the related goodwill. Based on the
estimated future undiscounted cash flows and after considering the proceeds of
the subsequent sale of a substantial majority of the U.S. assets which occurred
on April 2, 2001 (Note 3(b)), the Company determined that the related goodwill
was impaired and accordingly, as at December 31, 2000, an impairment loss of
$13,500 was recorded to reduce the carrying amount of the goodwill associated
with the U.S. operations to its estimated fair market value.

    The change in goodwill in the fiscal year ended December 31, 2002 is as
follows:

<Table>
<Caption>
                                                                2002
                                                              --------
<S>                                                           <C>
Balance beginning of the year...............................  $ 54,489
  Acquisitions..............................................     9,348
  Effect of foreign exchange translation....................       528
                                                              --------
Balance end of year.........................................  $ 64,365
                                                              ========
</Table>

6.  OTHER INTANGIBLE ASSETS

    Other intangible assets consist of the following as of December 31, 2002 and
2001:

<Table>
<Caption>
                                                                                         2002        2001
                                                                        ACCUMULATED    NET BOOK    NET BOOK
                                                               COST     AMORTIZATION     VALUE       VALUE
                                                             --------   ------------   ---------   ---------
<S>                                                          <C>        <C>            <C>         <C>
Amortizable intangible assets
  Customer contracts and lists.............................   $1,928       $  266       $1,662      $--
  Deferred financing costs.................................    2,508          400        2,108       1,426
  Non-competition agreements and other.....................    1,031          462          569         600
Deferred acquisition costs.................................    1,575       --            1,575       --
                                                              ------       ------       ------      ------
Total......................................................   $7,042       $1,128       $5,914      $2,026
                                                              ======       ======       ======      ======
</Table>

    Amortization expense of customer contracts and lists and non-competition
agreements and other for the period ended December 31, 2002 and December 31,
2001 was $550 and $693, respectively. Amortization of deferred financing costs
is included in interest expense and amounted to $1,855 and $1,814 for the period
ended

                                      F-16
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

6.  OTHER INTANGIBLE ASSETS (CONTINUED)
December 31, 2002 and 2001 respectively. Estimated future amortization of other
intangible assets per year for the next five fiscal years based on existing
intangibles is as follows:

<Table>
<S>                                                           <C>
2003........................................................   $1,396
2004........................................................    1,341
2005........................................................      857
2006........................................................      398
2007........................................................      249
Thereafter..................................................       95
</Table>

7.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

    Accrued expenses and other current liabilities consist of the following at
December 31:

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Accrued employee and subcontractor costs....................  $ 1,992     $1,881
Accrued waste disposal costs................................    2,243      1,654
Accrued closure costs for U.S. operations...................      186      1,029
Other accrued expenses and current liabilities..............    5,703      3,438
Income taxes................................................      386      --
                                                              -------     ------
Total.......................................................  $10,510     $8,002
                                                              =======     ======
</Table>

8.  LONG-TERM DEBT

    Long-term debt consists of the following at December 31:

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
Senior Debt.................................................  $ --       $50,803
Senior Credit Facility......................................   50,710      --
Other subordinated promissory notes payable.................       63         63
Accrued closure, post closure and other obligations.........    1,925        363
                                                              -------    -------
                                                               52,698     51,229
Less: Current portion.......................................       63        256
                                                              -------    -------
                                                              $52,635    $50,973
                                                              =======    =======
</Table>

    At December 31, 2000, the Company had available lines of credit of
$103.0 million under their then existing Credit Facility and Term Loan Facility
(collectively the "Senior Debt"). As a result of prior defaults, the Company had
provided the Senior Debt lenders with a binding letter of commitment to raise
equity or subordinated debt of $25.0 million by March 15, 2001 and to receive
such proceeds by June 1, 2001. An additional requirement under the Credit
Facility was to provide the lenders, by August 1, 2002, with a binding letter of
commitment from one or more lenders in an amount sufficient to repay in full the
Credit Facility.

    On March 15, 2001, the Company provided a notice of default to its bank
syndicate indicating that the binding letter of commitment condition had not
been met and as a result the Company was in default of its Senior Debt. On
April 2, 2001, the Company entered into an agreement to sell a substantial
majority of its assets

                                      F-17
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

8.  LONG-TERM DEBT (CONTINUED)
used in connection with its operations in the U.S. (Note 3(b)). The initial net
cash proceeds from the transaction of approximately $16.4 million were used to
repay a portion of the Senior Debt. In conjunction with the above transaction,
the bank syndicate agreed to forebear on their rights under the Senior Debt
agreement and entered into a fourth amendment to the Senior Debt facility on
March 30, 2001.

    The effect of the fourth amendment was that the bank syndicate agreed to
exclude the effect of the U.S. asset sale for purposes of determining the
Company's compliance with its financial covenants and not to take action with
respect to certain defaults under the Senior Debt facility provided that the
Company satisfied certain conditions, including that it continued to make
reasonable progress towards a transaction to reduce or refinance the Senior Debt
by $16.0 million on or before June 15, 2001.

    On June 15, 2001, the Company had not raised $16.0 million from the issuance
of equity or subordinated debt and therefore continued to be in breach of its
obligation under the Senior Debt facility.

    On September 10, 2001, the Company issued 16.5 million Common Shares for net
proceeds for $29.1 million. Concurrent with the equity issuance, the Company
entered into a fifth amendment to the Senior Debt facilities and made a
permanent debt repayment of approximately $16.0 million.

    The fifth amendment modified certain financial covenants and waived the
Company's existing defaults under the Senior Debt facilities relating to the
Company's failure to meet the specified deadline for an equity infusion. In
addition, the amendment changed the termination date under the Senior Debt
facility to July 31, 2002 and required the Company to obtain a binding
commitment to repay the Senior Debt facility by May 31, 2002. As of
December 31, 2001, approximately $27.9 million (2000 -- $42.8 million) of the
Company's Senior Debt was denominated in U.S. dollars.

    In June 2002, the Company completed a refinancing of its senior debt
facility by entering into a new Senior Secured Credit Facility (the "Senior
Credit Facility") with a syndicate of financial institutions, including Bank of
America, the Canadian Imperial Bank of Commerce and the Bank of Nova Scotia. The
prior Senior Debt facility was repaid in full and all related financing costs
were written off by that time. The Senior Credit Facility is a revolving credit
facility denominated in Canadian dollars, which provided for borrowings of up to
the lesser of $61.0 million or C$92.0 million at closing. In July 2002, the
Toronto-Dominion Bank joined the Senior Credit Facility, increasing the total
commitment to the lesser of $76.5 million or C$116.0 million. Assuming that the
Company can locate additional lenders, the Senior Credit Facility can be
increased by a further C$30.0 million prior to December 31, 2003. Costs of
$2.5 million related to the new Senior Credit Facility are being amortized over
the term of the debt.

    Beginning January 1, 2004, the availability under the Senior Credit Facility
will be mandatorily reduced by a specified amount each calendar quarter. The
amount of each scheduled quarterly reduction is based upon a percentage of the
aggregate commitment amount under the facility as of December 31, 2003. Based
upon the current commitment of C$116.0 million, the facility will decline to
C$58.0 million by April 1, 2005. The Senior Credit Facility terminates on
June 30, 2005. In addition to scheduled reductions, the Company is required to
prepay and reduce the available credit with the proceeds of asset sales and
issuances of debt, in each case subject to certain exceptions.

    The Senior Credit Facility may be used for general corporate purposes,
including, working capital, capital expenditures and permitted acquisitions. The
Senior Credit Facility is collaterized by a first priority perfected security
interest in substantially all of the current and future acquired assets of the
Company and its subsidiaries. The Senior Credit Facility contains certain
financial and other covenants and restrictions regarding, among other things,
limitations on capital expenditures, dividends, stock redemptions and
investments. Interest rates are based on current market rates plus a fixed
margin based on the form of borrowing (Canadian Eurodollar or

                                      F-18
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

8.  LONG-TERM DEBT (CONTINUED)
prime). The fixed margins range from 2.75% to 3.75% for Canadian Eurodollar rate
loans and 1.25% to 2.25% for prime rate loans. Within the ranges, the fixed
margin is determined based on the Company's leverage ratio. The interest rate at
December 31, 2002, on the Senior Credit Facility was 6.058%.

    At December 31, 2002, the Company had, including letters of credit, up to
$13.5 million (December 31, 2001 -- $10.6 million) of unused availability under
the Senior Credit Facility. The weighted average rate of interest on all the
Senior Debt for the year ended December 31, 2002 was 6.8% (2001 -- 9.5%;
2000 -- 8.6%).

    At December 31, 2002 and 2001, the total non-discounted anticipated costs
for closure and post-closure are $20,687 and $10,162, respectively. The Company
does not anticipate having significant cash outflows in respect of closure and
post-closure obligations until fiscal 2008.

    The aggregate annual principal repayments required in respect of long-term
debt as at December 31, 2002, are as follows:

<Table>
<S>                                                           <C>
2003........................................................  $    63
2004........................................................    7,822
2005........................................................   42,888
2006........................................................    --
2007........................................................    --
Thereafter..................................................    1,925
                                                              -------
                                                              $52,698
                                                              =======
</Table>

9.  COMMITMENTS AND CONTINGENCIES

(a) LEASES

    The following is a schedule of future minimum lease payments at
December 31, 2002:

<Table>
<Caption>
                                                              OPERATING   CAPITAL
                                                              ---------   --------
<S>                                                           <C>         <C>
2003........................................................   $1,570      $1,453
2004........................................................    1,146         954
2005........................................................      758         480
2006........................................................      648         351
2007........................................................      600       --
Thereafter..................................................    1,417       --
                                                               ------      ------
                                                               $6,139      $3,238
                                                               ======
Less: Amount representing interest..........................                  366
                                                                           ------
                                                                           $2,872
Less: Current portion of capital lease obligations..........                1,262
                                                                           ------
Long-term capital lease obligations.........................               $1,610
                                                                           ======
</Table>

    Total rent expense, under operating leases charged to operations, was
approximately $1,815 for the year ended December 31, 2002 (2001 -- $1,893;
2000 -- $2,062).

                                      F-19
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

9.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
    The Company leases certain heavy equipment and hauling vehicles under leases
that qualify for treatment as capital leases. The assets related to these leases
have been capitalized and are included in property and equipment.

(b) PERFORMANCE BONDS AND LETTERS OF CREDIT

    Municipal solid waste services contracts, permits and licences to operate
transfer stations and recycling facilities may require performance or surety
bonds, letters of credit or other means of financial assurance to secure
contractual performance. As of December 31, 2002, the Company had provided
customers and various regulatory authorities with such bonds and letters of
credit amounting to approximately $17.1 million (2001 -- $9.2 million) to
collateralize its obligations. If the Company was unable to obtain performance
or surety bonds or letters of credit in sufficient amounts or at acceptable
rates, it could be precluded from entering into additional municipal solid waste
services contracts or obtaining or retaining landfill, transfer station,
recycling facility or operating permits and licences.

(c) ENVIRONMENTAL RISKS

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

    Any substantial liability for environmental damage incurred by the Company
could have a material adverse effect on the Company's financial condition,
results of operations or cash flows. As at the date of these consolidated
financial statements, the Company is not aware of any such environmental
liabilities that would be material to the Company's operations or financial
condition.

(d) DISPOSAL AGREEMENTS

    On November 22, 2002, the Company entered into a Put or Pay Disposal
Agreement with RCI Environnement Inc., Centres de Transbordement et de
Valorisation Nord Sud Inc., RCM Environnement Inc. (collectively the "RCI
Companies") and Intersan Inc. ("Intersan") pursuant to which the Company
together with the RCI Companies agreed to deliver to certain of Intersan's
landfill sites and transfer stations in Quebec, Canada, over the next 5 years,
850,000 metric tonnes of waste per year, and for the next 2 years after the
expiration of the first 5 year term, 710,000 metric tonnes of waste per year at
a fixed disposal rate set out in the Agreement. If the Company and the RCI
Companies fail to deliver the required tonnage, they are jointly and severally
required to pay to Intersan, C$23.67 per metric tonne for every tonne below the
required tonnage. If a portion of the annual tonnage commitment is not delivered
to a specific site the Company is also required to pay C$8.00 per metric tonne
for every tonne below the site specific allocation. The Company's obligations to
Intersan are secured by a letter of credit for C$4.0 million.

    The RCI Group is the largest hauling and transfer company operating in the
Greater Montreal area. The companies within the RCI Group are controlled by a
director of the Company and/or individuals related to that director.

                                      F-20
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

9.  COMMITMENTS AND CONTINGENCIES (CONTINUED)
(e) LEGAL PROCEEDINGS

    In the normal course of the Company's business and as a result of the
extensive governmental regulation of the solid waste industry, the Company may
periodically become subject to various judicial and administrative proceedings
involving federal, provincial, state or local agencies. In these proceedings, an
agency may seek to impose fines on the Company or to revoke or deny renewal of
an operating permit or license held by the Company. From time to time, the
Company may also be subject to actions brought by citizens' groups or adjacent
landowners or residents in connection with the permitting and licensing of
transfer stations and landfills or alleging environmental damage or violations
of the permits and licenses pursuant to which the Company operates.

    In addition, the Company may become party to various lawsuits pending for
alleged damages to persons and property, alleged violations of certain laws and
alleged liabilities arising out of matters occurring during the normal operation
of a solid waste management business. As of the date of this Report, the Company
does not believe that there is any current proceeding or litigation involving
the Company in respect of such matters that will have a material adverse impact
on its business, financial condition, results of operations or cash flows.

    On December 18, 2002, Canadian Waste Services Inc. ("Canadian Waste"), a
competitor of the Company, commenced an action against the Company and one of
the Company's employees in Western Canada who was previously employed by
Canadian Waste. The action alleges breach of the employment contract between the
employee and Canadian Waste, and breach of fiduciary duties. The action also
alleges that the Company participated in those alleged breaches. The action
seeks damages in the amount of approximately $4.9 million and an injunction
enjoining the employee from acting contrary to his alleged employment contract
and fiduciary duties.

    On February 7, 2003, Canadian Waste commenced an action against the Company
alleging breach of a "Landfill Tipping Agreement" (the "Agreement") entered into
by the Company and Canadian Waste. The action alleges that the Company has
breached the Agreement as it has not paid certain amounts invoiced by Canadian
Waste, relating to increased costs of Canadian Waste in operating the Ryley
Landfill. Canadian Waste seeks damages in the amount of approximately
$0.8 million. The Agreement contains an arbitration clause that forecloses court
action and requires arbitration with respect to certain disputes.

    The Company intends to vigorously defend these actions both with respect to
liability and damages and no provisions have been made in these financial
statements for the above matters. No Statements of Defense have yet been filed,
and documents have not yet been exchanged. The Company does not believe the
ultimate outcome of these matters will have a material adverse impact on the
Company's business, financial condition, results of operations or cash flows.

    During 2002, the Company initiated an action against certain former
employees claiming damages for breach of contract. The former employees have
counter claimed against the Company, claiming damages of C$13.5 million. The
former employees have offered to settle this matter for less than
C$1.0 million, but no agreement has been reached between the parties. The
Company intends to vigorously defend this action.

10. DERIVATIVE FINANCIAL INSTRUMENTS

    Under the terms of a previous loan agreement, the Company was required to
effectively fix or cap interest rates on not less that $25.0 million of debt.
Since December 31, 2000, this interest rate hedge agreement has not been
required and the Company has C$24.7 million of interest rate caps in place at a
blended rate of 7.0% expiring in April 2003. At December 31, 2001 and 2002, the
fair value of the interest rate caps was nominal.

                                      F-21
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

11. CAPITAL STOCK

CHANGES IN CAPITAL STOCK:

(a) COMMON AND PREFERRED STOCK

    The Company has an unlimited number of Preferred Shares, issuable in series
and an unlimited number of Common Shares authorized. As of December 31, 2001 and
2002, there were no Preferred Shares issued or outstanding.

    Details of changes in Common Stock for the periods presented are as follows:

<Table>
<Caption>
                                                                SHARES      AMOUNT
                                                              ----------   --------
<S>                                                           <C>          <C>
OUTSTANDING DECEMBER 31, 1999 and 2000......................   7,196,627   $ 57,066
Shares issued for cash in September, 2001 on private
  placement.................................................  16,500,000     29,108
Shortfall payment on Class "B" Special Stock
  (Note 11(c))..............................................      --         (1,001)
                                                              ----------   --------
OUTSTANDING DECEMBER 31, 2001...............................  23,696,627     85,173
Shares issued on private placement..........................  11,320,754     28,068
Shares issued on exercise of options........................      85,388        307
Shares issued on exercise of warrants.......................      92,226          1
                                                              ----------   --------
OUTSTANDING DECEMBER 31, 2002...............................  35,194,995   $113,549
                                                              ==========   ========
</Table>

(b) PRIVATE PLACEMENT

    On February 6, 2002, the Company completed a private placement sale to
certain investors, including some of the Company's shareholders, directors and
officers, of 11,320,754 Series 1 Preferred Shares at a price of $2.65 per share,
resulting in net proceeds to the Company of approximately $28.1 million.
Included in costs of the financing were fees of $1.3 million for financial
advisory services paid to a company of which one of the Company's directors is a
principal.

    The Series 1 Preferred Shares were non-voting and were not entitled to
receive any dividends declared by the Company. The Series 1 Preferred Shares
were automatically convertible into fully paid and non-assessable Common Shares
on a basis of one Common Share for each Series 1 Preferred Share held, upon
approval of the conversion by resolution of a majority of the common
stockholders. Also, under the terms of the Preferred Shares, the holders had
agreed to hold a stockholders meeting to approve the conversion and were
required under contract to vote their Common Shares in favour of the conversion.
As the holders of the Preferred Shares represented the majority of the
outstanding Common Shares of the Company, the conversion of Preferred Shares was
assured at the time of their issuance. Accordingly, the Preferred Shares have
been treated as common stock equivalents and included in the calculation of the
weighted average shares outstanding as of the date of issuance. On March 27,
2002, the stockholders approved the conversion and all outstanding Series 1
Preferred Shares were converted into Common Shares.

(c) CLASS "B" SPECIAL STOCK

    On November 1, 1997, the Company issued 400,000 redeemable convertible
Class "B" Special shares valued at $7,455 in exchange for the remaining
outstanding common stock of Western Waste. The Class "B" Special Stock was
automatically convertible into Common Stock on completion of a "qualifying
public offering". The holders could otherwise require the Company to redeem such
shares at a specified price of C$21.67 per share. On June 8, 1999, the
Class "B" Special Stock was converted into 484,645 Common Shares on completion
of the initial public offering ("IPO"). In satisfaction of the shortfall of the
price of the initial public offering, the

                                      F-22
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

11. CAPITAL STOCK (CONTINUED)
Company paid the holder an additional $459. In addition, it agreed to pay the
holder an additional payment if the holder elected to sell up to 112,323 shares
in the future, based on the shortfall if the selling price is less than C$21.67
per share. No Class "B" Special Stock remained authorized or outstanding as at
December 31, 1999. During 2001, the Company paid the holder an additional
$1.0 million in satisfaction of its shortfall obligation. This amount has been
accounted for as a reduction of the value initially ascribed to the Common
Shares.

(d) STOCK PURCHASE OPTIONS AND WARRANTS

    In September 2001, the Company issued 1,000,000 warrants to purchase Common
Stock to a director and officer at an exercise price of $2.70 per share expiring
September 7, 2011. The market price at the date of grant was $3.82 per share
resulting in a compensation cost of $1.12 million, which will be recorded in the
consolidated statement of operations over the three-year vesting period in
accordance with APB No. 25. Based on the terms and conditions of the warrants,
variable accounting for the compensation expense is required to be recognized.
During 2002, an additional $690 was attributed to the value of the warrants
based on the increased market value of the stock. During the year ended
December 31, 2002, total compensation expense recognized was $1,046
(2001 -- $209).

    On November 1, 2001, the Company issued 100,000 options to purchase Common
Stock to a non-employee in conjunction with the settlement of a legal matter.
The options were issued at the market price of $3.75 on the date of grant
resulting in an expense recorded by the Company in the amount of $165. The
options were valued in accordance with SFAS No. 123, "Accounting for Stock Based
Compensation", using the Black-Scholes option pricing model applying the
following assumptions: risk free interest rate of 3.21%, annual dividend yield
of 0% and expected volatility of 79%. The options shall be fully vested and
exercisable on November 1, 2003 and expire on November 1, 2005.

    On December 7, 2001, the Company issued 200,000 warrants to purchase Common
Stock to a non-employee in connection with the settlement of a legal matter. The
warrants were issued at the market price of $3.94 on the date of grant resulting
in an expense recorded by the Company in the amount of $477. The warrants were
valued in accordance with SFAS No.123, using the Black-Scholes option pricing
model applying the following assumptions: risk free interest rate of 4.69%,
annual dividend yield of 0% and expected volatility of 79%. The warrants vest
over a period of four years and expire on December 8, 2005.

    In 1997, the Company issued 123,084 warrants to certain founding
stockholders at an exercise price of C$0.007 per share expiring July 15, 2002.
During the year ended December 31, 1999, 30,772 Common Shares had been issued on
exercise of these warrants. During the year ended December 31, 2002, 86 warrants
were cancelled and the remaining 92,226 warrants were exercised.

(e)EMPLOYEE AND DIRECTOR STOCK OPTION PLANS AND OPTION GRANTS

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

    Under the 1999 Stock Option Plan, the Company may grant options to acquire
Common Shares up to a maximum of 19% of the then issued and outstanding shares
of Common Stock and Common Stock equivalents, including stock options issued
under the 1997 Stock Option Plan. Options granted to non-employee directors will
generally vest one year from the date of grant. Options granted to employees
become exercisable only after

                                      F-23
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

11. CAPITAL STOCK (CONTINUED)
the second anniversary of the grant date unless otherwise determined by the
Compensation Committee. No option will remain exercisable later than five years
after the grant date, unless the Compensation Committee determines otherwise.
Upon a change of control event, options become immediately exercisable.

    All options granted have been granted at or above market price. The weighted
average exercise price of the aggregate outstanding options at December 31, 2002
was C$6.59 (or $4.18) compared to C$8.11 and C$11.32 (or $5.09 and $7.80) at
December 31, 2001 and 2000, respectively. The weighted average contractual life
of the options outstanding as at December 31, 2002 was 3.75 years. Certain of
the Company's options are priced in Canadian dollars and certain options are
priced in U.S. dollars. Stock option activity for the three years ended
December 31, 2002 is as follows:

<Table>
<Caption>
                                                              2002            2001            2000
                                                          -------------   -------------   -------------
<S>                                                       <C>             <C>             <C>
Options outstanding, beginning of year..................      1,871,713       1,018,334       1,004,301
Options granted during the year.........................      1,065,500       1,152,694         412,041
Options exercised during the year.......................        (85,388)       --              --
Options forfeited during the year.......................       (416,009)       (299,315)       (398,008)
                                                          -------------   -------------   -------------
Options outstanding, end of year........................      2,435,816       1,871,713       1,018,334
                                                          -------------   -------------   -------------
Options exercisable, end of year........................        284,500         616,713         522,640
                                                          -------------   -------------   -------------

WEIGHTED AVERAGE PRICE: (C$OPTIONS IN C$)
  Options granted.......................................  $        5.87   $    --         $    --
  Options exercised.....................................  $        7.22   $    --         $    --
  Options forfeited.....................................  $       10.94   $        9.64   $       16.85
  Options outstanding, end of year......................  $        5.70   $       13.25   $       12.00

OPTION PRICE RANGES: (C$OPTIONS IN C$)
  Options granted.......................................  $4.95 -  9.20   $    --         $    --
  Options exercised.....................................  $        7.22   $    --         $    --
  Options forfeited.....................................  $7.22 - 14.44   $7.22 - 18.05   $7.22 - 18.05
  Options outstanding, end of year......................  $4.05 - 18.05   $7.22 - 18.05   $7.22 - 18.05

WEIGHTED AVERAGE PRICE: (US$OPTIONS)
  Options granted.......................................  $        3.37   $        3.16   $        4.36
  Options exercised.....................................  $        3.39   $    --         $    --
  Options forfeited.....................................  $        7.50   $        5.83   $        9.66
  Options outstanding, end of year......................  $        5.97   $        4.61   $        7.84

OPTION PRICE RANGES: (US$OPTIONS)
  Options granted.......................................  $3.12 -  4.15   $2.23 -  4.05   $3.46 -  5.79
  Options exercised.....................................  $2.43 -  4.00   $    --         $    --
  Options forfeited.....................................  $4.00 - 14.50   $2.23 - 12.00   $4.00 - 12.00
  Options outstanding, end of year......................  $3.12 - 14.44   $2.44 - 14.50   $3.46 - 14.50
</Table>

(f) FAIR VALUE OF OPTIONS

    As permitted by the SFAS No. 123, "Accounting for Stock Based Compensation",
the Company applies APB No. 25 in accounting for options and warrants issued to
employees, directors and officers of the Company to acquire Common Shares.

                                      F-24
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

11. CAPITAL STOCK (CONTINUED)
    No compensation cost has been recognized on the options as they have been
granted at market value. Compensation cost has been recognized on the warrants
issued to a director and officer as these warrants were granted below quoted
market value (Note 11(d)). Had compensation cost been determined based on the
fair value of the options at the grant date consistent with the methodology in
SFAS No. 123, the Company's historical net income (loss) and net income (loss)
per share for the year would have been as follows:

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Net income (loss) -- Historical basis:
  As reported...............................................  $ 2,127    $(19,668)  $(18,281)
  SFAS No. 123 adjustment...................................   (1,632)       (983)    (1,196)
                                                              -------    --------   --------
Pro forma...................................................  $   495    $(20,651)  $(19,477)
                                                              =======    ========   ========
Basic and diluted net income (loss) per share:
  As reported...............................................  $  0.06    $  (1.60)  $  (2.54)
                                                              -------    --------   --------
  Pro forma.................................................  $  0.01    $  (1.68)  $  (2.71)
                                                              =======    ========   ========
</Table>

    As permitted under SFAS No. 123, the fair value of options granted up to
December 31, 2002 was estimated using the Black-Scholes option pricing model
using the following assumptions:

<Table>
<S>                                                           <C>
Annual dividend yield.......................................  0%
Weighted-average expected lives (years).....................  3 years
Risk-free interest rate.....................................  3.46% to 4.62%
Volatility..................................................  71% to 77%
</Table>

    This resulted in a weighted-average grant-date fair value of options granted
of $2.68 (2001 -- $2.46; 2000 -- $3.55).

(g) SHAREHOLDER RIGHTS PLAN

    On September 2, 1999, the Company adopted a Shareholder Rights Plan (the
"Plan"). Under the terms of the Plan, Common Share purchase rights (the
"Rights") were distributed at the rate of one Right for each Common Share held.
Each Right will entitle the holder to buy 1/100th of a Common Share of the
Company at an exercise price of $60.00. The Rights will be exercisable and will
trade separately from the Common Shares only if a person or group acquires
beneficial ownership of 20% or more of the Company's Common Shares or commences
a tender or exchange offer that would result in owning 20% or more of the Common
Shares (unless the Board of Directors determines that the acquisition is fair to
all shareholders and amends the Plan to permit the acquisition). If either of
these events occurs, the Rights will entitle each holder to receive, upon
exercise, a number of Common Shares (or, in certain circumstances, a number of
Common Shares in the acquiring company) having a Current Market Price (as
defined in the Plan) equal to approximately two times the exercise price of the
Right. The Rights are not exercisable with respect to the share ownership of
certain existing shareholders as long as these persons, along with their
affiliates and associates, do not acquire beneficial ownership of 30% or more.
The plan was amended in July 2001 and January 2002 to prevent the
September 2001 and February 2002 private placement transactions, respectively,
from triggering the Shareholder Rights Plan. The number of Rights outstanding is
subject to adjustment under certain circumstances, and all Rights expire on
September 30, 2009.

                                      F-25
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

12. INCOME TAXES

    At December 31, 2002, the Company had approximately $18.3 million of
accumulated net operating loss carry-forwards for income tax purposes. Most of
these net operating loss carry-forwards expire between 2004 and 2009, and their
use is not subject to any annual limitations. The benefit from these losses is
reflected in these financial statements as deferred income tax assets. Where
management believes that it is not more likely than not that the benefit of
these tax assets will be realized, a valuation allowance is recorded, as
described below.

    The income tax provision (benefit) for the periods ended December 31, 2002,
2001 and 2000 consists of the following:

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
CURRENT
Canada......................................................   $2,177    $   299     $1,508
United States...............................................    --           (18)       (22)
                                                               ------    -------     ------
                                                                2,177        281      1,486
                                                               ------    -------     ------
DEFERRED
Canada......................................................     (464)     --           418
United States...............................................    --           687       (894)
                                                               ------    -------     ------
                                                                 (464)       687       (476)
                                                               ------    -------     ------
                                                               $1,713    $   968     $1,010
                                                               ======    =======     ======
</Table>

    The reconciliation of the difference between income taxes at the Canadian
statutory rate and the income tax provision for the years ended December 31,
2002, 2001 and 2000 is as follows:

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
Taxes at combined Canadian federal and provincial statutory
  rate......................................................   $1,482    $(7,916)   $(7,572)
Effect of lower tax rates applicable to U.S. income.........    --           133        572
Effect of reduction in enacted rates on deferred taxes......       96      1,655      --
Non-deductible expenses and other...........................      (82)     2,182      5,651
Valuation allowance.........................................    --         4,663      2,318
Large corporations tax......................................      217        251         41
                                                               ------    -------    -------
INCOME TAX PROVISION........................................   $1,713    $   968    $ 1,010
                                                               ======    =======    =======
</Table>

                                      F-26
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

12. INCOME TAXES (CONTINUED)
    Significant components of the Company's deferred income tax assets and
liabilities were as follows as of December 31, 2002 and 2001:

<Table>
<Caption>
                                                                2002       2001
                                                              --------   --------
<S>                                                           <C>        <C>
DEFERRED INCOME TAX ASSETS
Tax benefit related to net operating loss carry-forwards....  $ 5,810    $ 3,007
Property, equipment, deductible goodwill and other
  intangibles...............................................    --         3,974

DEFERRED INCOME TAX LIABILITIES
Property, equipment, deductible goodwill and other
  intangibles...............................................   (4,761)     --
                                                              -------    -------
Net deferred income tax assets before valuation allowance...    1,049      6,981
Less valuation allowance....................................    --        (6,981)
                                                              -------    -------
NET DEFERRED INCOME TAX ASSETS..............................  $ 1,049    $ --
                                                              =======    =======
</Table>

13. NET INCOME (LOSS) PER SHARE INFORMATION

    The following table sets forth the calculation of the numerator and
denominator used in the computation of basic and diluted net income (loss) per
share for the years ended December 31, 2002, 2001 and 2000:

<Table>
<Caption>
                                                                 2002         2001        2000
                                                              ----------   ----------   ---------
<S>                                                           <C>          <C>          <C>
Numerator
  Net income (loss).........................................  $    2,127   $  (19,668)  $ (18,281)
                                                              ----------   ----------   ---------
Denominator
  Weighted average shares outstanding -- basic..............  33,964,423   12,259,641   7,196,627
  Dilutive effect of stock options and warrants
    outstanding.............................................     887,198       --          --
                                                              ----------   ----------   ---------
Weighted average shares outstanding -- diluted..............  34,851,621   12,259,641   7,196,627
                                                              ----------   ----------   ---------
Basic net income (loss) per common share....................  $     0.06   $    (1.60)  $   (2.54)
Diluted net income (loss) per common share..................  $     0.06   $    (1.60)  $   (2.54)
                                                              ==========   ==========   =========
</Table>

    The diluted earnings per share calculation for 2001 and 2000 excludes the
conversion of stock options and warrants issued because the impact would have
been anti-dilutive.

14. SEGMENT INFORMATION

    Management principally views and manages the business geographically, with
each geographic segment's revenues being comprised of revenue from collection,
transfer, disposal and recycling services. Prior to fiscal 2002, the Company
operated in two reporting segments, the United States and Canada. As a result of
the sale of its U.S. business during 2001, the Company now operates only in
Canada. The tables below present certain

                                      F-27
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

14. SEGMENT INFORMATION (CONTINUED)
segment information on the Company's geographic segments as at and for the years
ended December 31, 2001 and 2000:

<Table>
<Caption>
                                                                 CANADA             UNITED STATES
                                                           -------------------   -------------------    TOTAL
                                                              $          %          $          %          $
                                                           --------   --------   --------   --------   --------
<S>                                                        <C>        <C>        <C>        <C>        <C>
2001
Revenues.................................................   85,496       91.7      7,745       8.3      93,241
Operating expenses.......................................   89,331       87.7     12,581      12.3     101,912
Loss from operations.....................................   (3,835)      44.2     (4,836)     55.8      (8,671)
Total assets.............................................  109,948       99.4        704       0.6     110,652
Long-lived assets........................................   93,223      100.0      --         --        93,223
Interest and financing expense...........................    9,311       92.8        718       7.2      10,029
Depreciation and amortization............................   10,648       94.4        628       5.6      11,276
Income tax provision.....................................      281       29.0        687      71.0         968
Expenditures for additions to property and equipment.....    3,939       98.6         56       1.4       3,995
</Table>

<Table>
<Caption>
                                                                 CANADA             UNITED STATES
                                                           -------------------   -------------------    TOTAL
                                                              $          %          $          %          $
                                                           --------   --------   --------   --------   --------
<S>                                                        <C>        <C>        <C>        <C>        <C>
2000
Revenues.................................................   90,410       77.3     26,598      22.7     117,008
Operating expenses.......................................   83,097       67.2     40,533      32.8     123,630
Income (loss) from operations............................    7,313     (110.4)   (13,935)    210.4      (6,622)
Total assets.............................................  134,379       87.9     18,580      12.1     152,959
Long lived assets........................................  108,563       82.6     22,945      17.4     131,508
Interest and financing expense...........................    8,333       78.3      2,316      21.7      10,649
Depreciation and amortization............................    9,860       80.9      2,321      19.1      12,181
Income tax (provision) recovery..........................   (1,926)     190.7        916     (90.7)     (1,010)
Expenditures for additions to property and equipment.....   12,208       84.4      2,264      15.6      14,472
</Table>

15. RELATED PARTY TRANSACTIONS

    During 2002 and 2001, the Company paid fees for financial advisory services
to a shareholder, Sanders, Morris Harris Inc., for approximately $1,300 and
$750, respectively. During 2002 and 2001, the Company also purchased legal
services for approximately $125 and $185, respectively from a law firm of which
an executive officer of the Company is an inactive partner. As at December 31,
2002, $25 is included in accrued expenses and other current liabilities related
to these legal services. During 2002, the Company paid a director $30 for
certain services rendered.

    During 2001, the Company acquired a solid waste collection business from a
relative of an officer, director and shareholder of the Company for cash of
$363. See also Note 9(d) for transactions with companies affiliated with a
director of the Company.

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

                                      F-28
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

16. SUBSEQUENT EVENTS

    On February 7, 2003, the Company announced it had reached agreements to
purchase all of the membership interests in Omni Waste of Osceola County, LLC
("Omni"), a municipal solid waste landfill site currently under development in
Osceola County (Central Florida), for a purchase price of approximately
$75.0 million plus certain assumed liabilities. The purchase price comprises
2,050,000 shares of Common Stock of the Company with the balance payable in
cash, although certain of the vendors have the right to receive up to 25% of
their consideration in Common Stock of the Company based on a price of $4.00 per
share. The Company has paid $5.75 million cash and issued 350,000 shares of
Common Stock to date as a deposit toward the purchase price. Closing of the
purchase is subject to the fulfillment of certain conditions. The Company is
currently negotiating additional financing to enable it to complete the
acquisition.

    On January 3, 2003, the Company purchased the assets of a hauling company in
Western Canada for cash consideration of approximately $1.4 million.

    On January 31, 2003, in connection with a potential acquisition, the Company
issued warrants to purchase a total of 56,250 fully paid and non-assessable
Common Shares for an exercise price of $4.70 per share. The warrants are
exercisable at anytime after January 31, 2004 and expire on January 31, 2008.

17. RECONCILIATION FROM UNITED STATES GAAP TO CANADIAN GAAP

    These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States, which are similar, in all
material respects for the Company, with accounting principles generally accepted
in Canada, except that the concept of comprehensive income (loss) is not
recognized under Canadian GAAP. Accordingly, under Canadian GAAP, the
Consolidated Statements of Comprehensive Income (Loss) would not be presented,
and the accumulated other comprehensive loss, as presented in the Consolidated
Statement of Stockholders' Equity, would be referred to as cumulative foreign
currency translation adjustments.

18. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of Capital Environmental Resource Inc.

    Our audits of the consolidated financial statements referred to in our
report dated March 20, 2003, appearing in the 2002 Annual Report to Shareholders
of Capital Environmental Resource Inc. (which report and consolidated financial
statements are included in this Annual Report on Form 20-F) also included an
audit of the financial statement schedule listed in Item 18 of this Form 20-F.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.

Toronto, Canada                                       PRICEWATERHOUSECOOPERS LLP
March 20, 2003                                             Chartered Accountants

                                      F-29
<Page>
                      CAPITAL ENVIRONMENTAL RESOURCE INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

             (IN THOUSANDS OF U.S. DOLLARS UNLESS OTHERWISE STATED)

18. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
(CONTINUED)
FINACIAL STATEMENT SCHEDULE

                 VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

<Table>
<Caption>
                                                                2002       2001       2000
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
  Balance, beginning of period..............................   $  507     $  319    $   331
  Additions -- charge to expense............................      425        679        552
  Additions -- acquisition related..........................      148      --         --
  Deductions -- bad debts written off, net of recoveries....     (730)      (491)      (564)
                                                               ------     ------    -------
  Balance, end of period....................................   $  350     $  507    $   319
                                                               ======     ======    =======
DEFERRED PURCHASE PRICE ALLOWANCE
  Balance, beginning of period..............................   $  514     $--       $ --
  Additions -- charge to expense............................    --           530      --
  Additions -- acquisition related..........................    --         --         --
  Deductions -- amounts paid................................      (93)       (16)     --
                                                               ------     ------    -------
  Balance, end of period....................................   $  421     $  514    $ --
                                                               ======     ======    =======
DEFERRED TAX VALUATION ALLOWANCE
  Balance, beginning of period..............................   $6,981     $2,318    $ --
  Additions to valuation allowance..........................      593      4,663      2,318
  Reversal related to acquisitions..........................   (5,074)     --         --
  Adjustments to valuation allowance........................   (2,500)     --         --
  Utilization of deferred tax assets........................    --         --         --
                                                               ------     ------    -------
  Balance, end of period....................................   $--        $6,981    $ 2,318
                                                               ======     ======    =======
</Table>

                                      F-30