Document:

exv10w1

 

Exhibit 10.1

AMERISTAR CASINOS, INC.

AMENDED AND RESTATED 1999 STOCK INCENTIVE PLAN

(Effective as of June 17, 2005)

     SECTION 1. Purposes.

     The purposes of the Ameristar Casinos, Inc. Amended and Restated 1999 Stock Incentive Plan
(the “Plan”) are to (i) enable Ameristar Casinos, Inc. (the “Company”) and Related Companies (as
defined below) to attract, motivate and retain top-quality directors, officers, employees,
consultants, advisers and independent contractors (including without limitation dealers,
distributors and other business entities or persons providing services on behalf of the Company or
a Related Company), (ii) provide substantial incentives for such directors, officers, employees,
consultants, advisers and independent contractors of the Company or a Related Company
(“Participants”) to act in the best interests of the stockholders of the Company and (iii) reward
extraordinary effort by Participants on behalf of the Company or a Related Company. For purposes
of the Plan, a “Related Company” means any corporation, partnership, joint venture or other entity
in which the Company owns, directly or indirectly, at least a twenty percent (20%) beneficial
ownership interest.

     SECTION 2. Types of Awards. Awards under the Plan may be in the form of (i) Stock
Options or (ii) Restricted Stock.

     SECTION 3. Administration.

     3.1 Except as otherwise provided herein, the Plan shall be administered by the Compensation
Committee of the Board of Directors of the Company (the “Board”) or such other committee of
directors as the Board shall designate, which committee in either such case shall consist solely of
not less than two “non-employee directors” (as such term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934 (the “Exchange Act”) or any successor rule (“Rule 16b-3”)) who
shall serve at the pleasure of the Board, each of whom shall also be an “outside director” within
the meaning of Section 162(m) of the Internal Revenue Code and Section 1.162-27 of the Treasury
Regulations or any successor provision(s) thereto (“Section 162(m)”); provided, however, that if
there are not two persons on the Board who meet the foregoing qualifications, any such committee
may be comprised of two or more directors of the Company, none of which is an officer (other than a
non-employee Chairman of the Board of the Company) or an employee of the Company or a Related
Company. If no such committee has been appointed by the Board, the Plan shall be administered by
the Board, and the Plan shall be administered by the Board to the extent provided in the last
sentence of this Section. Such committee as shall be designated to administer the Plan, if any, or
the Board is referred to herein as the “Committee.” Notwithstanding any other provision of the
Plan to the contrary, if such a committee has been designated to administer the Plan, all actions
with respect to the administration of the Plan in respect of the members of such committee shall be
taken by the Board.

 

 

     3.2 The Committee shall have the following authority with respect to awards under the Plan to
Participants: to grant awards to eligible Participants under the Plan; to adopt, alter and repeal
such administrative rules, guidelines and practices governing the Plan as it shall deem advisable;
to interpret the terms and provisions of the Plan and any award granted under the Plan; and to
otherwise supervise the administration of the Plan. In particular, and without limiting its
authority and powers, the Committee shall have the authority:

     (a) to determine whether and to what extent any award or combination of awards
will be granted hereunder;

     (b) to select the Participants to whom awards will be granted;

     (c) to determine the number of shares of the common stock of the Company, $0.01
par value (the “Stock”), to be covered by each award granted hereunder, provided
that no Participant will be granted Stock Options on or with respect to more than
2,000,000 shares of Stock in any calendar year;

     (d) to determine the terms and conditions of any award granted hereunder,
including, but not limited to, any vesting or other restrictions based on
performance and such other factors as the Committee may determine, and to determine
whether the terms and conditions of the award are satisfied;

     (e) to determine the treatment of awards upon a Participant’s retirement,
disability, death, termination for cause or other termination of employment or other
qualifying relationship with the Company or a Related Company;

     (f) to determine that amounts equal to the amount of any dividends declared
with respect to the number of shares covered by an award (i) will be paid to the
Participant currently or (ii) will be deferred and deemed to be reinvested or (iii)
will otherwise be credited to the Participant, or that the Participant has no rights
with respect to such dividends;

     (g) to determine whether, to what extent, and under what circumstances Stock
and other amounts payable with respect to an award will be deferred either
automatically or at the election of a Participant, including providing for and
determining the amount (if any) of deemed earnings on any deferred amount during any
deferral period;

     (h) to provide that the shares of Stock received as a result of an award shall
be subject to a right of first refusal, pursuant to which the Participant shall be
required to offer to the Company any shares that the Participant wishes to sell,
subject to such terms and conditions as the Committee may specify;

     (i) to amend the terms of any award, prospectively or retroactively; provided,
however, that no amendment shall impair the rights of the award holder without his
or her consent; and

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     (j) to substitute new Stock Options for previously granted Stock Options, or
for options granted under other plans, in each case including previously granted
options having higher option prices.

     3.3 All determinations made by the Committee pursuant to the provisions of the Plan shall be
final and binding on all persons, including the Company and all Participants.

     3.4 The Committee may from time to time delegate to one or more officers of the Company any or
all of its authorities granted hereunder except with respect to awards granted to persons subject
to Section 16 of the Exchange Act. The Committee shall specify the maximum number of shares that
the officer or officers to whom such authority is delegated may award, and the Committee may in its
discretion specify any other limitations or restrictions on the authority delegated to such officer
or officers.

     SECTION 4. Stock Subject to Plan.

     4.1 The total number of shares of Stock reserved and available for distribution under the Plan
shall be 14,000,000 (subject to adjustment as provided in Section 4.3); provided, however, that no
award of a Stock Option or Restricted Stock may be made at any time if, after giving effect to such
award, (i) the total number of shares of Stock issued upon the exercise of options under the Plan
and the Company’s Management Stock Option Incentive Plan, as amended and restated through September
4, 1996 (the “Prior Plan”) plus (ii) the total number of shares of Stock issuable upon exercise of
all outstanding options of the Company under the Plan and the Prior Plan plus (iii) the total
number of shares of Stock underlying awards of Restricted Stock under the Plan (whether or not the
applicable restrictions have lapsed) would exceed 14,000,000 shares (subject to adjustment as
provided in Section 4.3). Shares of Stock issuable in connection with any award under the Plan may
consist of authorized but unissued shares or treasury shares.

     4.2 To the extent a Stock Option terminates without having been exercised, or shares awarded
are forfeited, the shares subject to such award shall again be available for distribution in
connection with future awards under the Plan, subject to the limitations set forth in Section 4.1,
unless the forfeiting Participant received any benefits of ownership such as dividends from the
forfeited award.

     4.3 In the event of any merger, reorganization, consolidation, sale of substantially all
assets, recapitalization, Stock dividend, Stock split, spin-off, split-up, split-off, distribution
of assets or other change in corporate structure affecting the Stock, a substitution or adjustment,
as may be determined to be appropriate by the Committee in its sole discretion, shall be made in
the aggregate number of shares reserved for issuance under the Plan, the number of shares subject
to outstanding awards and the amounts to be paid by award holders or the Company, as the case may
be, with respect to outstanding awards; provided, however, that no such adjustment shall increase
the aggregate value of any outstanding award. In the event any change described in this Section
4.3 occurs and an adjustment is made in the outstanding Stock Options, a similar adjustment shall
be made in the maximum number of shares covered by Stock Options that may be granted to any
employee pursuant to Section 3.2(c).

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     SECTION 5. Eligibility.

     Participants under the Plan shall be selected from time to time by the Committee, in its sole
discretion, from among those eligible.

     SECTION 6. Stock Options.

     6.1 The Stock Options awarded to officers and employees under the Plan may be of two types:
(i) Incentive Stock Options within the meaning of Section 422 of the Internal Revenue Code or any
successor provision thereto (“Section 422”); and (ii) Non-Qualified Stock Options. If any Stock
Option does not qualify as an Incentive Stock Option, or the Committee at the time of grant
determines that any Stock Option shall be a Non-Qualified Stock Option, it shall constitute a
Non-Qualified Stock Option. Stock Options awarded to any Participant who is not an officer or
employee of the Company or a Related Company shall be Non-Qualified Stock Options.

     6.2 Subject to the following provisions, Stock Options awarded to Participants under the Plan
shall be in such form and shall have such terms and conditions as the Committee may determine:

     (a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee.

     (b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but in no event longer than one hundred twenty (120) months after the
date of grant of such Stock Option.

     (c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee. If the Committee provides that any Stock Option is exercisable only in
installments, the Committee may waive such installment exercise provisions at any
time in whole or in part.

     (d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise to
the Company specifying the number of shares to be purchased, accompanied by payment
of the purchase price. Payment of the purchase price shall be made in such manner
as the Committee may provide in the award, which may include cash (including cash
equivalents), delivery of shares of Stock acceptable to the Committee already owned
by the optionee or subject to awards hereunder, any other manner permitted by law as
determined by the Committee, or any combination of the foregoing. The Committee may
provide that all or part of the shares received upon the exercise of a Stock Option
which are paid for using Restricted Stock shall be restricted in accordance with the
original terms of the award in question.

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     (e) No Stockholder Rights. An optionee shall have no rights to
dividends or other rights of a stockholder with respect to shares subject to a Stock
Option until the optionee has given written notice of exercise and has paid for such
            shares.

     (f) Surrender Rights. The Committee may provide that Stock Options may
be surrendered for cash upon any terms and conditions set by the Committee.

     (g) Non-Transferability; Limited Transferability. A Stock Option
Agreement may permit an optionee to transfer the Stock Option to his or her
children, grandchildren or spouse (“Immediate Family”), to one or more trusts for
the benefit of such Immediate Family members, or to one or more partnerships or
limited liability companies in which such Immediate Family members are the only
partners or members if (i) the agreement setting forth such Stock Option expressly
provides that such Stock Option may be transferred only with the express written
consent of the Committee, and (ii) the optionee does not receive any consideration
in any form whatsoever for such transfer other than the receipt of an interest in
the trust, partnership or limited liability company to which the non-qualified
option is transferred. Any Stock Option so transferred shall continue to be subject
to the same terms and conditions as were applicable to such Stock Option immediately
prior to the transfer thereof. Any Stock Option not (x) granted pursuant to any
agreement expressly allowing the transfer of such Stock Option or (y) amended
expressly to permit its transfer shall not be transferable by the optionee otherwise
than by will or by the laws of descent and distribution, and such Stock Option shall
be exercisable during the optionee’s lifetime only by the optionee.

     (h) Termination of Relationship. If an optionee’s employment or other
qualifying relationship with the Company or a Related Company terminates by reason
of death, disability, retirement, voluntary or involuntary termination or otherwise,
the Stock Option shall be exercisable to the extent determined by the Committee;
provided, however, that unless employment or such other qualifying relationship is
terminated for cause (as may be defined by the Committee in connection with the
grant of any Stock Option), the Stock Option shall remain exercisable (to the extent
that it was otherwise exercisable on the date of termination) for (A) at least six
(6) months from the date of termination if termination was caused by death or
disability or (B) at least ninety (90) days from the date of termination if
termination was caused by other than death or disability. The Committee may provide
that, notwithstanding the option term fixed pursuant to Section 6.2(b), a Stock
Option which is outstanding on the date of an optionee’s death shall remain
outstanding for an additional period after the date of such death.

     (i) Option Grants to Participants Subject to Section 16. If for any
reason any Stock Option granted to a Participant subject to Section 16 of the
Exchange Act is not approved in the manner provided for in clause (d)(1) or (d)(2)
of Rule 16b-3, neither the Stock Option (except upon its exercise) nor the

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Stock underlying the Stock Option may be disposed of by the Participant until six
months have elapsed following the date of grant of the Stock Option, unless the
Committee otherwise specifically permits such disposition.

     6.3 Notwithstanding the provisions of Section 6.2, no Incentive Stock Option shall (i) have an
option price which is less than one hundred percent (100%) of the Fair Market Value (as defined
below) of the Stock on the date of the award of the Stock Option (or less than one hundred ten
percent (110%) of the Fair Market Value of the Stock on the date of award of the Stock Option if
the Participant owns, or would be considered to own by reason of Section 424(d) of the Internal
Revenue Code or any successor provision thereto, more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary of the Company at
the time of the grant of the Stock Option), (ii) be exercisable more than ten (10) years after the
date such Incentive Stock Option is awarded (five (5) years after the date of award if the
Participant owns, or would be considered to own by reason of Section 424(d) of the Internal Revenue
Code or any successor provision thereto, more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any parent or subsidiary of the Company at the time
of the grant of the Stock Option), (iii) be awarded more than ten (10) years after the effective
date of the Plan (or the latest restatement of the Plan) or (iv) be transferable other than by will
or by the laws of descent and distribution. In addition, the aggregate Fair Market Value
(determined as of the time a Stock Option is granted) of Stock with respect to which Incentive
Stock Options granted after December 31, 1986 are exercisable for the first time by a Participant
in any calendar year (under the Plan and any other plans of the Company or any subsidiary or parent
corporation) shall not exceed $100,000. For purposes of the Plan, “Fair Market Value” in relation
to a share of the Stock means, if the Stock is publicly traded, the mean between the highest and
lowest quoted selling prices of the Common Stock on such date or, if not available, the mean
between the bona fide bid and asked prices of the Common Stock on such date. In any situation not
covered above, the Fair Market Value shall be determined by the Committee in accordance with one of
the valuation methods described in Section 20.2031-2 of the Federal Estate Tax Regulations (or any
successor provision thereto).

     SECTION 7. Restricted Stock.

     Subject to the following provisions, all awards of Restricted Stock to Participants shall be
in such form and shall have such terms and conditions as the Committee may determine:

     (a) The Restricted Stock award shall specify the number of shares of Restricted
Stock to be awarded, the price, if any, to be paid by the recipient of the
Restricted Stock and the date or dates on which, or the conditions upon the
satisfaction of which, the Restricted Stock will vest. The vesting of Restricted
Stock may be conditioned upon the completion of a specified period of service with
the Company or a Related Company, upon the attainment of specified performance goals
or upon such other criteria as the Committee may determine.

     (b) Stock certificates representing the Restricted Stock awarded to an employee
shall be registered in the Participant’s name, but the Committee may direct that
such certificates be held by the Company on behalf of the Participant. Except as
may be permitted by the Committee, no share of Restricted Stock may

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be sold, transferred, assigned, pledged or otherwise encumbered by the Participant
until such share has vested in accordance with the terms of the Restricted Stock
award. At the time Restricted Stock vests, a certificate for such vested shares
shall be delivered to the Participant (or his or her designated beneficiary in the
event of death), free of all restrictions.

     (c) The Committee may provide that the Participant shall have the right to vote
or receive dividends, or both, on Restricted Stock. The Committee may provide that
Stock received as a dividend on, or in connection with a stock split of, Restricted
Stock shall be subject to the same restrictions as the Restricted Stock.

     (d) Except as may be provided by the Committee, in the event of a Participant’s
termination of employment or other qualifying relationship with the Company or a
Related Company before all of his or her Restricted Stock has vested, or in the
event any conditions to the vesting of Restricted Stock have not been satisfied
prior to any deadline for the satisfaction of such conditions set forth in the
award, the shares of Restricted Stock which have not vested shall be forfeited, and
the Committee may provide that the lower of (i) any purchase price paid by the
Participant and (ii) the Restricted Stock’s aggregate Fair Market Value on the date
of forfeiture shall be paid in cash to the Participant.

     (e) The Committee may waive, in whole or in part, any or all of the conditions
to receipt of, or restrictions with respect to, any or all of the Participant’s
Restricted Stock.

     (f) If for any reason any Restricted Stock awarded to a Participant subject to
Section 16 of the Exchange Act is not approved in the manner provided for in clause
(d)(1) or (d)(2) of Rule 16b-3, the Restricted Stock may not be disposed of by the
Participant until six months have elapsed following the date of award of the
Restricted Stock, unless the Committee otherwise specifically permits such
disposition.

     SECTION 8. Election to Defer Awards.

     The Committee may permit a Participant to elect to defer receipt of an award for a specified
period or until a specified event, upon such terms as are determined by the Committee.

     SECTION 9. Tax Withholding.

     9.1 Each Participant shall, no later than the date as of which the value of an award first
becomes includible in such person’s gross income for applicable tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee (which may include delivery of shares of Stock
already owned by the optionee or subject to awards hereunder) regarding payment of, any federal,
state, local or other taxes of any kind required by law to be withheld with respect to the award.
The obligations of the Company under the Plan shall be conditional on such payment or arrangements,
and the Company (and, where applicable, any Related

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Company), shall, to the extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the Participant.

     9.2 To the extent permitted by the Committee, and subject to such terms and conditions as the
Committee may provide, a Participant may elect to have the withholding tax obligation, or any
additional tax obligation with respect to any awards hereunder, satisfied by (i) having the Company
withhold shares of Stock otherwise deliverable to such person with respect to the award or (ii)
delivering to the Company shares of unrestricted Stock.

     SECTION 10. Amendments and Termination.

     No awards may be granted under the Plan more than ten (10) years after the date of approval of
the Plan by the stockholders of the Company. The Board may discontinue the Plan at any earlier
time and may amend it from time to time. No amendment or discontinuation of the Plan shall
adversely affect any award previously granted without the award holder’s written consent.
Amendments may be made without stockholder approval except (i) if and to the extent necessary to
satisfy any applicable mandatory legal or regulatory requirements (including the requirements of
any stock exchange or over-the-counter market on which the Stock is listed or qualified for trading
and any requirements imposed under any state securities laws or regulations as a condition to the
registration of securities distributable under the Plan or otherwise), or (ii) as required for the
Plan to satisfy the requirements of Section 162(m), Section 422 or any other non-mandatory legal or
regulatory requirements if the Board of Directors deems it desirable for the Plan to satisfy any
such requirements.

     SECTION 11. Acceleration of Vesting in Certain Circumstances.

	 	11.1	 	Notwithstanding any other provision of the Plan, unless otherwise determined by
the Committee and expressly set forth in the agreement evidencing the Stock Option or
Restricted Stock award, in the event of a Change in Control, (i) each Stock Option
outstanding under the Plan which is not otherwise fully vested or exercisable with
respect to all of the shares of Stock at that time subject to such Stock Option shall
automatically accelerate so that each such Stock Option shall, immediately upon the
effective time of the Change in Control, become exercisable for all the shares of Stock
at the time subject to such Stock Option and may be exercised for any or all of those
            shares as fully vested shares of Stock, and (ii) all shares of Restricted Stock
outstanding under the Plan which are not otherwise fully vested shall automatically
accelerate so that all such shares of Restricted Stock shall, immediately upon the
effective time of the Change in Control, become fully vested, free of all restrictions.
	 
	 	11.2	 	Notwithstanding any other provision of the Plan, unless otherwise determined by
the Committee and expressly set forth in the agreement evidencing the Stock Option or
Restricted Stock award, in the event of a Corporate Transaction, (i) each Stock Option
outstanding under the Plan which is not otherwise fully vested or exercisable with
respect to all of the shares of Stock at that time subject to such Stock Option shall
automatically accelerate so that each such Stock Option shall, immediately prior to the
effective time of the Corporate Transaction, become

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	 	 	 	exercisable for all the shares of Stock at the time subject to such Stock Option and
may be exercised for any or all of those shares as fully vested shares of Stock, and
(ii) all shares of Restricted Stock outstanding under the Plan which are not
otherwise fully vested shall automatically accelerate so that all such shares of
Restricted Stock shall, immediately prior to the effective time of the Corporate
Transaction, become fully vested, free of all restrictions.
	 
	 	11.3	 	As used in the Plan, a “Change in Control” shall be deemed to have occurred if:

	 	(a)	 	Individuals who, as of January 24, 2003, constitute the entire
Board (“Incumbent Directors”) cease for any reason to constitute a majority of
the Board; provided, however, that any individual becoming a director subsequent
to such date whose election, or nomination for election by the Company’s
stockholders, was approved by the vote of a majority of the then Incumbent
Directors (other than an election or nomination of an individual whose
assumption of office is the result of an actual or threatened election contest
relating to the election of directors of the Company), also shall be an
Incumbent Director; or
	 
	 	(b)	 	Any Person (as defined below) other than a Permitted Holder (as
defined below) shall become the beneficial owner (as defined in Rules 13d-3 and
13d-5 under the Exchange Act), directly or indirectly, of securities of the
Company representing in the aggregate fifty percent (50%) or more of either (i)
the then outstanding shares of Stock or (ii) the Combined Voting Power (as
defined below) of all then outstanding Voting Securities (as defined below) of
the Company; provided, however, that notwithstanding the foregoing, a Change in
Control shall not be deemed to have occurred for purposes of this clause (b)
solely as the result of:

	 	(A)	 	An acquisition of securities by the Company which,
by reducing the number of shares of Stock or other Voting Securities
outstanding, increases (i) the proportionate number of shares of Stock
beneficially owned by any Person to fifty percent (50%) or more of the
            shares of Stock then outstanding or (ii) the proportionate voting power
represented by the Voting Securities beneficially owned by any Person to
fifty percent (50%) or more of the Combined Voting Power of all then
outstanding voting securities; or
	 
	 	(B)	 	An acquisition of securities directly from the
Company, except that this Paragraph (B) shall not apply to:

	 	(1)	 	any conversion of a security
that was not acquired directly from the Company; or
	 
	 	(2)	 	any acquisition of securities
if the Incumbent Directors at the time of the initial approval
of such acquisition would not

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	 	 	 	immediately after (or otherwise as a result of) such acquisition
constitute a majority of the Board.

	 	11.4	 	As used in the Plan, “Corporate Transaction” means (a) any merger,
consolidation or recapitalization of the Company (or, if the capital stock of the
Company is affected, any subsidiary of the Company), or any sale, lease or other
transfer (in one transaction or a series of transactions contemplated or arranged by
any party as a single plan) of all or substantially all of the assets of the Company
(each of the foregoing being an “Acquisition Transaction”) where (i) the stockholders
of the Company immediately prior to such Acquisition Transaction would not immediately
after such Acquisition Transaction beneficially own, directly or indirectly, shares
representing in the aggregate more than fifty percent (50%) of (A) the then outstanding
common stock of the corporation surviving or resulting from such merger, consolidation
or recapitalization or acquiring such assets of the Company, as the case may be (the
“Surviving Corporation”) (or of its ultimate parent corporation, if any) and (B) the
Combined Voting Power of the then outstanding Voting Securities of the Surviving
Corporation (or of its ultimate parent corporation, if any) or (ii) the Incumbent
Directors at the time of the initial approval of such Acquisition Transaction would not
immediately after such Acquisition Transaction constitute a majority of the board of
directors of the Surviving Corporation (or of its ultimate parent corporation, if any)
or (b) the liquidation or dissolution of the Company.
	 
	 	11.5	 	For purposes of this Section 11:

	 	(a)	 	“Combined Voting Power” shall mean the aggregate votes
entitled to be cast generally in the election of directors of a corporation
by holders of the then outstanding Voting Securities of such corporation;
	 
	 	(b)	 	“Permitted Holder” shall mean (i) the Company or any
trustee or other fiduciary holding securities under an employee benefit plan
of the Company, (ii) to the extent they hold securities in any capacity
whatsoever, Craig H. Neilsen and Ray Neilsen and their respective estates,
spouses, heirs, ancestors, lineal descendants, stepchildren, legatees and
legal representatives, and the trustees of any bona fide trusts of which one
or more of the foregoing are the sole beneficiaries or grantors thereof and
(iii) any Person controlled, directly or indirectly, by one or more of the
foregoing Persons referred to in the immediately preceding clause (ii),
whether through the ownership of voting securities, by contract, in a
fiduciary capacity, through possession of a majority of the voting rights
(as directors and/or members) of a not-for-profit entity, or otherwise;
	 
	 	(c)	 	“Person” shall mean any individual, entity (including,
without limitation, any corporation (including, without limitation, any
charitable corporation or private foundation), partnership, limited
liability company, trust (including, without limitation, any private,
charitable or split-interest trust),

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	 	 	 	joint venture, association or governmental body) or group (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act and the rules and
regulations thereunder); provided, however, that “Person” shall not include
the Company, any of its subsidiaries, any employee benefit plan of the
Company or any of its majority-owned subsidiaries or any entity organized,
appointed or established by the Company or such subsidiary for or pursuant to
the terms of any such plan; and
	 	(d)	 	“Voting Securities” shall mean all securities of a
corporation having the right under ordinary circumstances to vote in an
election of the board of directors of such corporation.

     SECTION 12. General Provisions.

     12.1 If the granting of any award under the Plan or the issuance, purchase or delivery of
Stock thereunder shall require, in the determination of the Committee from time to time and at any
time, (i) the listing, registration or qualification of the Stock subject or related thereto upon
any securities exchange or over-the-counter market or under any federal or state law or (ii) the
consent or approval of any government regulatory body, then any such award shall not be granted or
exercised, in whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions, if any, as shall be acceptable to the
Committee. In addition, in connection with the granting or exercising of any award under the Plan,
the Committee may require the recipient to agree not to dispose of any Stock issuable in connection
with such award, except upon the satisfaction of specified conditions, if the Committee determines
such agreement is necessary or desirable in connection with any requirement or interpretation of
any federal or state securities law, rule or regulation.

     12.2 Nothing set forth in this Plan shall prevent the Board from adopting other or additional
compensation arrangements. Neither the adoption of the Plan nor any award hereunder shall confer
upon any employee of the Company, or of a Related Company, any right to continued employment, and
no award under the Plan shall confer upon any director any right to continued service as a
director.

     12.3 Determinations by the Committee under the Plan relating to the form, amount, and terms
and conditions of awards need not be uniform, and may be made selectively among persons who receive
or are eligible to receive awards under the Plan, whether or not such persons are similarly
situated.

     12.4 No member of the Board or the Committee, nor any officer or employee of the Company
acting on behalf of the Board or the Committee, shall be personally liable for any action,
determination or interpretation taken or made with respect to the Plan, and all members of the
Board or the Committee and all officers or employees of the Company acting on their behalf shall,
to the extent permitted by law, be fully indemnified and protected by the Company in respect of any
such action, determination or interpretation.

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     SECTION 13. Effective Date of Plan.

     The Plan shall be effective upon the approval of the Plan by (i) the Board of Directors of the
Company and (ii) the stockholders of the Company acting by a majority of the votes cast at a duly
held meeting of stockholders at which a quorum representing at least a majority of the outstanding
shares is, either in person or by proxy, present and voting on the Plan.

     The Plan was duly approved by the Board of Directors of the Company on December 8, 2000.

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EMPLOYMENT AGREEMENT

     This EMPLOYMENT AGREEMENT (the “Agreement”) is made and entered into on this 16th day of June,
2005, but as effective as of the date set forth herein, by and between Waste Management, Inc. (the
“Company”), and David Aardsma (the “Executive”).

     1. Employment.

     The Company shall employ Executive, and Executive shall be employed by the Company upon the
terms and subject to the conditions set forth in this Agreement.

     Executive acknowledges and represents that, any and all prior employment agreements, are
terminated, and that any and all obligation of the Company created thereunder, whether express or
implied, are null and void and of no further force or effect, and that the only rights, obligations
and duties between the Company and Executive are those expressly set forth in this Agreement.

     2. Term of Employment.

     The period of Executive’s employment under this Agreement shall commence on January 17, 2005
(“Employment Date”), and shall continue for a period of two (2) years, and shall automatically be
renewed for successive one (1) year periods on each anniversary of the Employment Date thereafter,
unless Executive’s employment is terminated in accordance with Section 5 below. The period during
which Executive is employed hereunder shall be referred to as the “Employment Period.”

     3. Duties and Responsibilities.

     (a) Executive shall serve as the Senior Vice President Sales & Marketing. In such capacity,
Executive shall perform such duties and have the power, authority, and functions commensurate with
such position in similarly-sized public companies, and have and possess such other authority and
functions consistent with such position as may be assigned to Executive from time to time by the
Chief Executive Officer, President, Chief Operating Officer or the Board of Directors (the “Board”)
of the Company.

     (b) Executive shall devote substantially all of his working time, attention and energies to
the business of the Company, and its affiliated entities. Executive may make and manage his
personal investments (provided such investments in other activities do not violate, in any material
respect, the provisions of Section 10 of this Agreement), be involved in charitable and
professional activities, and, with the prior written consent of the Board, serve on boards of other
for profit entities, provided such activities do not materially interfere with the performance of
his duties hereunder (however, the Board does not typically allow officers to serve on more than
one public company board at a time).

 

 

     4. Compensation and Benefits.

     (a) Base Salary. During the Employment Period, the Company shall pay Executive a base salary at
the annual rate of Three Hundred Thousand Dollars ($300,000.00) per year, or such higher rate as
may be determined from time to time by the Company (“Base Salary”). Such Base Salary shall be paid
in accordance with the Company’s standard payroll practice for its executive officers. Once
increased, Base Salary shall not be reduced.

     (b) Annual Bonus. During the Employment Period, Executive will be entitled to participate in
an annual incentive compensation plan of the Company, as established by the Compensation Committee
of the Board from time to time. The Executive’s target annual bonus will be seventy-five percent
(75%) of his Base Salary in effect for such year (the “Target Bonus”), and his actual annual bonus
may range from 0% to 150% of Base Salary (i.e., a maximum possible bonus of two times the Target
Bonus), and will be determined based upon (i) the achievement of certain corporate performance
goals, as may be established and approved by from time to time by the Compensation Committee of the
Board, and (ii) the achievement of personal performance goals as may be established by Executive’s
immediate supervisor. The annual bonus for calendar year 2005 will be paid in 2006, if earned, at
the same time as similarly situated executive employees receive or would otherwise receive their
bonuses, provided that Executive remains employed through the end of the 2005 calendar year.

     (c) Benefit Plans and Vacation. Subject to the terms of such plans, Executive shall be
eligible to participate in or receive benefits under any pension plan, profit sharing plan, salary
deferral plan, medical and dental benefits plan, life insurance plan, short-term and long-term
disability plans, or any other health, welfare or fringe benefit plan, generally made available by
the Company to similarly-situated executive employees. The Company shall not be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan, or
perquisite, so long as such changes are similarly applicable to similarly situated employees
generally.

     During the Employment Period, Executive shall be entitled to vacation each year in accordance
with the Company’s policies in effect from time to time, but in no event less than four (4) weeks
paid vacation per calendar year.

     (d) Expense Reimbursement. The Company shall promptly reimburse Executive for the ordinary
and necessary business expenses incurred by Executive in the performance of the duties hereunder in
accordance with the Company’s customary practices applicable to its executive officers.

     (e) Other Perquisites. Executive shall be entitled to all perquisites provided to Senior Vice
Presidents of the Company as approved by the Compensation Committee of the Board, and as they may
exist from time to time, including the following:

	 	(i)	 	Automobile allowance at the annual rate of Twelve Thousand Dollars
($12,000.00), payable in accordance with the Company’s standard payroll practice for
its executive officers and prorated in any year that Executive does not work a full
calendar year;

2

 

	 	(ii)	 	Financial planning services at actual cost, and not to exceed Fifteen Thousand
Dollars ($15,000.00) annually;
	 
	 	(iii)	 	Additional one-time financial planning services at actual cost, not to exceed
$20,000, for services in preparation for voluntary retirement (for such purposes
voluntary retirement means retirement from the Company after attainment of both (x) the
age of 55 and (y) a sum of years of services with the Company plus age equal to 65 or
greater);
	 
	 	(iv)	 	Social organization initiation fees and dues with a benefit of a one-time
initiation fee at actual cost (not to exceed ten percent (10%) of Executive’s Base
Salary), and monthly dues at actual cost (not to exceed $500 per month); and
	 
	 	(v)	 	An annual physical examination on a program designated by the Company.

     5. Termination of Employment.

     Executive’s employment hereunder may be terminated during the Employment Period under the
following circumstances:

     (a) Death. Executive’s employment hereunder shall terminate upon Executive’s death.

     (b) Total Disability. The Company may terminate Executive’s employment hereunder upon
Executive becoming “Totally Disabled.” For purposes of this Agreement, Executive shall be
considered “Totally Disabled” if Executive has been physically or mentally incapacitated so as to
render Executive incapable of performing the essential functions of Executive’s position with or
without reasonable accommodation. Executive’s receipt of disability benefits under the Company’s
long-term disability plan or receipt of Social Security disability benefits shall be deemed
conclusive evidence of Total Disability for purpose of this Agreement; provided, however, that in
the absence of Executive’s receipt of such long-term disability benefits or Social Security
benefits, the Company’s Board may, in their reasonable discretion (but based upon appropriate
medical evidence), determine that Executive is Totally Disabled.

     (c) Termination by the Company for Cause. The Company may terminate Executive’s employment
hereunder for “Cause” at any time after providing a Notice of Termination for Cause to Executive.

	 	(i)	 	For purposes of this Agreement, the term “Cause” means any of the following:
(A) willful or deliberate and continual refusal to perform Executive’s employment
duties reasonably requested by the Company after receipt of written notice to Executive
of such failure to perform, specifying such failure (other than as a result of
Executive’s sickness, illness or injury) and Executive fails to cure such
nonperformance within ten (10) days of receipt of said written notice; (B) breach of
any statutory or common law duty of loyalty to the Company; (C) has been

3

 

	 	 	 	convicted of, or pleaded nolo contendre to, any felony; (D) willfully or
intentionally caused material injury to the Company, its property, or its assets;
(E) disclosed to unauthorized person(s) proprietary or confidential information of
the Company; (F) any material violation or a repeated and willful violation of
Company policies or procedures, including but not limited to, the Company’s Code of
Business Conduct and Ethics (or any successor policy) then in effect; or (G) breach
of any of the covenants set forth in Section 10 hereof.

	 	(ii)	 	For purposes of this Agreement, the phrase “Notice of Termination for Cause”
shall mean a written notice that shall indicate the specific termination provision in
Section 5(c)(i) relied upon, and shall set forth in reasonable detail the facts and
circumstances which provide the basis for termination for Cause. Further, a
Notification of Termination for Cause shall be required to include a copy of a
resolution duly adopted by at least two-thirds (2/3) of the entire membership of the
Board of Directors at a meeting of the Board which was called for the purpose of
considering such employment termination, and at which Executive and his representative
had the right to attend and address the Board, finding that, in the good faith belief
of the Board, Executive engaged in conduct set forth in Section 5(c)(i) herein and
specifying the particulars thereof in reasonable detail. The date of termination for
Cause shall be the date indicated in the Notice of Termination for Cause. Any
purported termination for Cause which is held by an arbitrator not to have been based
on the grounds set forth in this Agreement or not to have followed the procedures set
forth in this Agreement shall be deemed a termination by the Company without Cause.

     (d) Voluntary Termination by Executive. Executive may terminate his employment hereunder with
or without Good Reason at any time upon written notice to the Company.

	 	(i)	 	A termination for “Good Reason” means a resignation of employment by Executive
by written notice (“Notice of Termination for Good Reason”) given to the Company’s
Chief Executive Officer or President within ninety (90) days after the occurrence of
the Good Reason event, unless such circumstances are substantially corrected prior to
the date of termination specified in the Notice of Termination for Good Reason. For
purposes of this Agreement, “Good Reason” shall mean the occurrence or failure to cause
the occurrence, as the case may be, without Executive’s express written consent, of any
of the following circumstances: (A) the Company substantially changes Executive’s core
duties or removes Executive’s responsibility for those core duties, so as to
effectively cause Executive to no longer be performing the duties of his position
(except in each case in connection with the termination of Executive’s employment for
Death, Total Disability, or Cause, or temporarily as a result of Executive’s illness or
other absence); provided that if the Company becomes a fifty percent or more subsidiary
of any other entity, Executive shall be deemed to have a substantial change in the core
duties of his position unless he is also the equivalent of a Senior Vice-President of
the Company or such other successor entity of the ultimate parent entity; (B) removal
or the non-reelection of the Executive from the

4

 

	 	 	 	officer position with the Company specified herein, or removal of the Executive from
any of his then officer positions; (C) any material breach by the Company of any
provision of this Agreement, including without limitation Section 10 hereof; or (D)
failure of any successor to the Company (whether direct or indirect and whether by
merger, acquisition, consolidation or otherwise) to assume in a writing delivered to
Executive upon the assignee becoming such, the obligations of the Company hereunder;
or (E) the reassignment of Executive to a geographic location more than fifty (50)
miles from his then business office location.

	 	(ii)	 	A “Notice of Termination for Good Reason” shall mean a notice that shall
indicate the specific termination provision relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
Termination for Good Reason. The failure by Executive to set forth in the Notice of
Termination for Good Reason any facts or circumstances which contribute to the showing
of Good Reason shall not waive any right of Executive hereunder or preclude Executive
from asserting such fact or circumstance in enforcing his rights hereunder. The Notice
of Termination for Good Reason shall provide for a date of termination not less than
ten (10) nor more than sixty (60) days after the date such Notice of Termination for
Good Reason is given, provided that in the case of the events set forth in Sections
5(d)(i)(A) or (B), the date may be five (5) business days after the giving of such
notice. The Company, at its sole discretion, may waive this requirement.

     (e) Termination by the Company without Cause. The Company may terminate Executive’s
employment hereunder without Cause at any time upon written notice to Executive.

     (f) Effect of Termination. Upon any termination of employment for any reason, Executive shall
immediately resign from all Board memberships and other positions with the Company or any of its
subsidiaries held by him at such time.

     6. Compensation Following Termination of Employment.

     In the event that Executive’s employment hereunder is terminated in a manner as set forth in
Section 5 above, Executive shall be entitled to the compensation and benefits provided under this
Section 6, as applicable to the form of termination:

     (a) Termination by Reason of Death. In the event that Executive’s employment is terminated by
reason of Executive’s death, the Company shall pay the following amounts to Executive’s beneficiary
or estate:

	 	(i)	 	Any accrued but unpaid Base Salary for services rendered to the date of death,
any accrued but unpaid expenses required to be reimbursed under this Agreement, any
vacation accrued to the date of termination, any earned but unpaid bonuses for any
prior calendar year, and, to the extent not otherwise paid, a pro-rata bonus or
incentive compensation payment for the current calendar year to the extent payments are
awarded to senior executives of the Company and paid at the same time as senior
executives are paid.

5

 

	 	(ii)	 	Any benefits to which Executive may be entitled pursuant to the plans, policies
and arrangements (including those referred to in Section 4(d) hereof), as determined
and paid in accordance with the terms of such plans, policies and arrangements.

     (b) Termination by Reason of Total Disability. In the event that Executive’s employment is
terminated by the Company by reason of Executive’s Total Disability (as determined in accordance
with Section 5(b)), the Company shall pay the following amounts to Executive:

	 	(i)	 	Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, and any earned but unpaid
bonuses for any prior calendar year. Executive shall also be eligible for a pro-rata
bonus or incentive compensation payment for the current calendar year to the extent
such awards are made to senior executives of the Company for the year in which
Executive is terminated, and to the extent not otherwise paid to the Executive.

	 	(ii)	 	Any benefits to which Executive may be entitled pursuant to the plans, policies
and arrangements (including those referred to in Section 4(d) hereof) shall be
determined and paid in accordance with the terms of such plans, policies and
arrangements.

     (c) Termination for Cause. In the event that Executive’s employment is terminated by the
Company for Cause, the Company shall pay the following amounts to Executive:

	 	(i)	 	Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, and any earned but unpaid
bonuses for any prior calendar year.

	 	(ii)	 	Any benefits to which Executive may be entitled pursuant to the plans, policies
and arrangements (including those referred to in Section 4(d) hereof up to the date of
termination) shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.

     (d) Voluntary Termination by Executive. In the event that Executive voluntarily terminates
employment other than for Good Reason, the Company shall pay the following amounts to Executive:

	 	(i)	 	Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, and any earned but unpaid
bonuses for any prior calendar year.

6

 

	 	(ii)	 	Any benefits to which Executive may be entitled pursuant to the plans, policies
and arrangements (including those referred to in Section 4(d) hereof up to the date of
termination) shall be determined and paid in accordance with the terms of such plans,
policies and arrangements.

     (e) Termination by the Company Without Cause Outside a Change in Control Period; Termination
by Executive for Good Reason Outside a Change in Control Period. In the event that Executive’s
employment is terminated by the Company outside a Change in Control Period (as defined in Section
7) for reasons other than death, Total Disability or Cause, or Executive terminates his employment
for Good Reason outside of a Change in Control Period, the Company shall pay the following amounts
to Executive:

	 	(i)	 	Any accrued but unpaid Base Salary for services rendered to the date of
termination, any accrued but unpaid expenses required to be reimbursed under this
Agreement, any vacation accrued to the date of termination, and any earned but unpaid
bonuses for any prior calendar year.
	 
	 	(ii)	 	Any benefits to which Executive may be entitled pursuant to the plans, policies
and arrangements referred to in Section 4(d) hereof shall be determined and paid in
accordance with the terms of such plans, policies and arrangements.
	 
	 	(iii)	 	Subject to Executive’s execution of the Release (as defined in Section 7), an
amount equal to two times the sum of Executive’s Base Salary plus his Target Annual
Bonus (in each case, as then in effect), of which one-half shall be paid in a lump sum
within ten (10) days after such termination and one-half shall be paid during the two
(2) year period beginning on the date of Executive’s termination and shall be paid at
the same time and in the same manner as Base Salary would have been paid if Executive
had remained in active employment until the end of such period.
	 
	 	(iv)	 	Subject to Executive’s execution of the Release (as defined in Section 7), the
Company at its expense will continue for Executive and Executive’s spouse and
dependents, all health benefit plans, programs or arrangements, whether group or
individual, disability, and other benefit plans, in which Executive was entitled to
participate at any time during the twelve-month period prior to the date of
termination, until the earliest to occur of (A) two years after the date of
termination; (B) Executive’s death (provided that benefits provided to Executive’s
spouse and dependents shall not terminate upon Executive’s death); or (C) with respect
to any particular plan, program or arrangement, the date Executive becomes eligible to
participate in a comparable benefit provided by a subsequent employer. In the event
that Executive’s continued participation in any such Company plan, program, or
arrangement is prohibited, the Company will arrange to provide Executive with benefits
substantially similar to those which Executive would have been entitled to receive
under such plan, program, or arrangement, for such period on a basis which provides
Executive with no additional after tax cost.

7

 

	 	(v)	 	Subject to Executive’s execution of the Release (as defined in Section 7),
Executive shall be eligible for a bonus or incentive compensation payment, at the same
time, on the same basis, and to the same extent payments are made to senior executives
of the Company, pro-rated for the fiscal year in which the Executive is terminated.

     (f) Suspension and Refund of Termination Benefits for Subsequently Discovered Cause.
Notwithstanding any provision of this Agreement to the contrary, if within one (1) year of
termination of employment of Executive by the Company for any reason other than for Cause, it is
determined by Company that Executive could have been terminated for Cause then, to the extent
permitted by law:

	 	(i)	 	the Company may elect to cancel any and all payments of any benefits otherwise
due Executive, but not yet paid, under this Agreement or otherwise; and
	 
	 	(ii)	 	Executive will refund to the Company any amounts, plus interest, previously
paid by Company to Executive pursuant to Subsections 6(e)(iii), 6(e)(iv) or 6(e)(v).

     7. Resignation by Executive for Good Reason or Termination by Company Without Cause During a
Change in Control Period.

     (a) Certain Terminations During a Change in Control Period. In the event a Change in Control
occurs and (x) Executive terminates his employment for Good Reason during a Change in Control
Period , or (y) the Company terminates Executive’s employment without Cause (and for reason other
than Death of Total Disability) during a Change in Control Period, the Company shall, subject to
Executive’s execution of the Release (as defined in this Section 7), pay the following amounts to
Executive:

	 	(i)	 	The payments and benefits provided for in Section 6(e), except that (A) the
amount and period with respect to which severance is calculated pursuant to Section
6(e)(iii) will be three (3) years and the amount shall be paid in a lump-sum and (B)
the benefit continuation period in Section 6(e)(iv) shall be for three (3) years.
	 
	 	(ii)	 	Executive shall also receive a bonus or incentive compensation payment for the
calendar year of the termination, payable at 100% of the maximum bonus available to
Executive, pro-rated as of the effective date of the termination. Such bonus payment
shall be payable within five (5) days after the effective date of Executive’s
termination. Except as may be provided under this Section 7 or under the terms of any
incentive compensation, employee benefit, or fringe benefit plan applicable to
Executive at the time of Executive’s termination of employment, Executive shall have no
right to receive any other compensation, or to participate in any other plan,
arrangement or benefit, with respect to future periods after such resignation or
termination.

8

 

     (b) Certain Additional Payments by the Company.

	 	(i)	 	In the event that the Executive shall become entitled to payments and/or
benefits provided by this Agreement or any other amounts in the “nature of
compensation” (whether pursuant to the terms of this Agreement or any other plan,
arrangement or agreement with the Company, any person whose actions result in a change
of ownership or effective control covered by Section 280G(b)(2) of the Code or any
person affiliated with the Company or such person) as a result of such change in
ownership or effective control (collectively the “Company Payments”), and such Company
Payments will be subject to the tax (the “Excise Tax”) imposed by Section 4999 of the
Code (and any similar tax that may hereafter be imposed by any taxing authority) the
Company shall pay to the Executive at the time specified in subsection (iv) below an
additional amount (the “Gross-up Payment”) such that the net amount retained by the
Executive, after deduction of any Excise Tax on the Company Payments and any U.S.
federal, state, and for local income or payroll tax upon the Gross-up Payment provided
for by this Section 7(b), but before deduction for any U.S. federal, state, and local
income or payroll tax on the Company Payments, shall be equal to the Company Payments.
	 
	 	(ii)	 	For purposes of determining whether any of the Company Payments and Gross-up
Payments (collectively the “Total Payments”) will be subject to the Excise Tax and the
amount of such Excise Tax, (x) the Total Payments shall be treated as “parachute
payments” within the meaning of Section 280G(b)(2) of the Code, and all “parachute
payments” in excess of the “base amount” (as defined under Code Section 280G(b)(3) of
the Code) shall be treated as subject to the Excise Tax, unless and except to the
extent that, in the opinion of the Company’s independent certified public accountants
appointed prior to any change in ownership (as defined under Code Section 280G(b)(2) or
tax counsel selected by such accountants (the “Accountants”) such Total Payments (in
whole or in part) either do not constitute “parachute payments,” represent reasonable
compensation for services actually rendered within the meaning of Section 280G(b)(4) of
the Code in excess of the “base amount” or are otherwise not subject to the Excise Tax,
and (y) the value of any non-cash benefits or any deferred payment or benefit shall be
determined by the Accountants in accordance with the principles of Section 280G of the
Code.
	 
	 	(iii)	 	For purposes of determining the amount of the Gross-up Payment, the Executive
shall be deemed to pay U.S. federal income taxes at the highest marginal rate of U.S.
federal income taxation in the calendar year in which the Gross-up Payment is to be
made and state and local income taxes at the highest marginal rate of taxation in the
state and locality of the Executive’s residence for the calendar year in which the
Company Payment is to be made, net of the maximum reduction in U.S. federal income
taxes which could be obtained from deduction of such state and local taxes if paid in
such year. In the event that the Excise Tax is subsequently determined by the
Accountants to be less than the amount taken into account hereunder at the time the
Gross-up Payment is made, the Executive shall repay to the Company, at the time that
the amount of such reduction in Excise Tax

9

 

	 	 	 	is finally determined, the portion of the prior Gross-up Payment attributable to
such reduction (plus the portion of the Gross-up Payment attributable to the Excise
Tax and U.S. federal, state and local income tax imposed on the portion of the
Gross-up Payment being repaid by the Executive if such repayment results in a
reduction in Excise Tax or a U.S. federal, state and local income tax deduction),
plus interest on the amount of such repayment at the rate provided in Section
1274(b)(2)(B) of the Code. Notwithstanding the foregoing, in the event any portion
of the Gross-up Payment to be refunded to the Company has been paid to any U.S.
federal, state and local tax authority, repayment thereof (and related amounts)
shall not be required until actual refund or credit of such portion has been made to
the Executive, and interest payable to the Company shall not exceed the interest
received or credited to the Executive by such tax authority for the period it held
such portion. The Executive and the Company shall mutually agree upon the course of
action to be pursued (and the method of allocating the expense thereof) if the
Executive’s claim for refund or credit is denied.

	 	 	 	In the event that the Excise Tax is later determined by the Accountant or the
Internal Revenue Service to exceed the amount taken into account hereunder at the
time the Gross-up Payment is made (including by reason of any payment the existence
or amount of which cannot be determined at the time of the Gross-up Payment), the
Company shall make an additional Gross-up Payment in respect of such excess (plus
any interest or penalties payable with respect to such excess) at the time that the
amount of such excess is finally determined.

	 	(iv)	 	The Gross-up Payment or portion thereof provided for in subsection (iii) above
shall be paid not later than the thirtieth (30th) day following an event occurring
which subjects the Executive to the Excise Tax; provided, however, that if the amount
of such Gross-up Payment or portion thereof cannot be finally determined on or before
such day, the Company shall pay to the Executive on such day an estimate, as determined
in good faith by the Accountant, of the minimum amount of such payments and shall pay
the remainder of such payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), subject to further payments pursuant to subsection (iii)
hereof, as soon as the amount thereof can reasonably be determined, but in no event
later than the ninetieth day after the occurrence of the event subjecting the Executive
to the Excise Tax. In the event that the amount of the estimated payments exceeds the
amount subsequently determined to have been due, such excess shall constitute a loan by
the Company to the Executive, payable on the fifth day after demand by the Company
(together with interest at the rate provided in Section 1274(b)(2)(B) of the Code).
	 
	 	(v)	 	In the event of any controversy with the Internal Revenue Service (or other
taxing authority) with regard to the Excise Tax, the Executive shall permit the Company
to control issues related to the Excise Tax (at its expense), provided that such issues
do not potentially materially adversely affect the Executive, but the Executive shall
control any other issues. In the event the issues are interrelated, the Executive and
the Company shall in good faith cooperate so as not to jeopardize resolution of either
issue, but if the parties cannot agree the Executive

10

 

	 	 	 	shall make the final determination with regard to the issues. In the event of any
conference with any taxing authority as to the Excise Tax or associated income
taxes, the Executive shall permit the representative of the Company to accompany the
Executive, and the Executive and the Executive’s representative shall cooperate with
the Company and its representative.

	 	(vi)	 	The Company shall be responsible for all charges of the Accountant.
	 
	 	(vii)	 	The Company and the Executive shall promptly deliver to each other copies of
any written communications, and summaries of any verbal communications, with any taxing
authority regarding the Excise Tax covered by this Section 7(b).

(c) Certain Definitions.

	 	(i)	 	For purposes of this Agreement, “Change in Control” means the first to occur on
or after the date on which this Agreement is first signed, the occurrence of any of the
following events:

	 	(a)	 	any Person is or becomes the Beneficial Owner, directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or more of the
combined voting power of the Company’s then outstanding voting securities;
	 
	 	(b)	 	the following individuals cease for any reason to constitute a majority of the
number of directors then serving: individuals who, on the Commencement Date,
constitute the Board and any new director (other than a director whose initial
assumption of office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating or the election of
directors of the Company) whose appointment or election by the Board or nomination
for election by the Company’s stockholders was approved or recommended by a vote of
at least two-thirds (2/3rds) of the directors then still in office who either were
directors on the Commencement Date or whose appointment, election or nomination for
election was previously so approved or recommended (the “Incumbent Board”);
	 
	 	(c)	 	there is a consummated merger or consolidation of the Company with any other
corporation, other than (1) a merger or consolidation which would result in the
voting securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving or parent entity) more than fifty percent (50%) of the
combined voting power of the voting securities of the Company or such surviving or
parent entity outstanding immediately after such merger or consolidation or (2) a
merger or consolidation effected to implement a recapitalization of the Company (or
similar transaction) in which no Person, directly or indirectly, acquired
twenty-five percent (25%) or more of the combined voting power of the Company’s then
outstanding securities; or
	 
	 	(d)	 	the stockholders of the Company approve a plan of complete liquidation of the
Company or there is consummated an agreement for the sale or disposition

11

 

	 	 	 	by the Company of all or substantially all of the Company’s assets (or any
transaction having a similar effect), other than a sale or disposition by the
Company of all or substantially all of the Company’s assets to an entity, at least
fifty percent (50%) of the combined voting power of the voting securities of which
are owned by stockholders of the Company in substantially the same proportions as
their ownership of the Company immediately prior to such sale.

	 	(ii)	 	For purposes of this Section 7, “Beneficial Owner” shall have the meaning set
forth in Rule 13d-3 under the Exchange Act;
	 
	 	(iii)	 	For purposes of this Agreement, “Change in Control Period” means the period
commencing on the date occurring six months immediately prior to the date on which a
Change in Control occurs and ending on the second anniversary of the date on which a
Change in Control occurs.
	 
	 	(iv)	 	For purposes of this Agreement, “Exchange Act’ means the Securities and
Exchange Act of 1934, as amended from time to time;
	 
	 	(v)	 	For purposes of this Section 7, “Person” shall have the meaning set forth in
Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof, except that such term shall not include (1) the Company, (2) a trustee or
other fiduciary holding securities under an employee benefit plan of the Company, (3)
an employee benefit plan of the Company, (4) an underwriter temporarily holding
securities pursuant to an offering of such securities or (5) a corporation owned,
directly or indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of shares of Common Stock of the Company.
	 
	 	(vi)	 	For purposes of this Agreement, “Release” means that specific document which
the Company shall present to Executive for consideration and execution after any
termination of employment pursuant to Section 5(e) and Section 6(e), wherein if he
agrees to such, he will irrevocably and unconditionally release and forever discharge
the Company, it subsidiaries, affiliates and related parties from any and all causes of
action which Executive at that time had or may have had against the Company (excluding
any claim for indemnity under this Agreement, any claim under state workers’
compensation or unemployment laws, or any claim under COBRA).

     8. No Other Benefits or Compensation. Except as may be provided under this Agreement, or
under the terms of any incentive compensation, employee benefit, or fringe benefit plan applicable
to Executive at the time of Executive’s termination or resignation, Executive shall have no right
to receive any other compensation, or to participate in any other plan, arrangement or benefit,
with respect to future periods after such termination or resignation.

12

 

     9. No Mitigation; No Set-Off. In the event of any termination of employment hereunder,
Executive shall be under no obligation to seek other employment, and there shall be no offset
against any amounts due Executive under this Agreement on account of any remuneration attributable
to any subsequent employment that Executive may obtain. The amounts payable hereunder shall not be
subject to setoff, counterclaim, recoupment, defense or other right which the Company may have
against the Executive or others, except upon obtaining by the Company of a final non-appealable
judgment against Executive.

     10. Covenants

     (a) Company Property. All written materials, records, data, and other documents prepared or
possessed by Executive during Executive’s employment with the Company are the Company’s property.
All information, ideas, concepts, improvements, discoveries, and inventions that are conceived,
made, developed, or acquired by Executive individually or in conjunction with others during
Executive’s employment (whether during business hours and whether on the Company’s premises or
otherwise) which relate to the Company’s business, products, or services are the Company’s sole and
exclusive property. All memoranda, notes, records, files, correspondence, drawings, manuals,
models, specifications, computer programs, maps, and all other documents, data, or materials of any
type embodying such information, ideas, concepts, improvements, discoveries, and inventions are the
Company’s property. At the termination of Executive’s employment with the Company for any reason,
Executive shall return all of the Company’s documents, data, or other Company property to the
Company.

     (b) Confidential Information; Non-Disclosure. Executive acknowledges that the business of the
Company is highly competitive and that the Company has provided and will continue to provide
Executive with access to “Confidential Information” relating to the business of the Company and its
affiliates.

     For purposes of this Agreement, “Confidential Information” means and includes the Company’s
confidential and/or proprietary information and/or trade secrets that have been developed or used
and/or will be developed and that cannot be obtained readily by third parties from outside sources.
Confidential Information includes, by way of example and without limitation, the following
information regarding customers, employees, contractors, and the industry not generally known to
the public; strategies, methods, books, records, and documents; technical information concerning
products, equipment, services, and processes; procurement procedures and pricing techniques; the
names of and other information concerning customers, investors, and business affiliates (such as
contact name, service provided, pricing for that customer, type and amount of services used,
credit and financial data, and/or other information relating to the Company’s relationship with
that customer); pricing strategies and price curves; positions, plans, and strategies for expansion
or acquisitions; budgets; customer lists; research; weather data; financial and sales data; trading
methodologies and terms; evaluations, opinions, and interpretations of information and data;
marketing and merchandising techniques; prospective customers’ names and marks; grids and maps;
electronic databases; models; specifications; computer programs; internal business records;
contracts benefiting or obligating the Company; bids or proposals submitted to any third party;
technologies and methods; training methods and training processes; organizational structure;
personnel information, including salaries of personnel; payment amounts or rates paid to
consultants or other service providers;

13

 

and other such confidential or proprietary information. Information need not qualify as a
trade secret to be protected as Confidential Information under this Agreement, and the authorized
and controlled disclosure of Confidential Information to authorized parties by Company in the
pursuit of its business will not cause the information to lose its protected status under this
Agreement. Executive acknowledges that this Confidential Information constitutes a valuable,
special, and unique asset used by the Company or its affiliates in their businesses to obtain a
competitive advantage over their competitors. Executive further acknowledges that protection of
such Confidential Information against unauthorized disclosure and use is of critical importance to
the Company and its affiliates in maintaining their competitive position.

     Executive has and will continue to have access to, or knowledge of, Confidential Information
of third parties, such as actual and potential customers, suppliers, partners, joint venturers,
investors, financing sources, and the like, of the Company and its affiliates.

     The Company also agrees to provide Executive with one or more of the following: access to
Confidential Information; specialized training regarding the Company’s methodologies and business
strategies, and/or support in the development of goodwill such as introductions, information and
reimbursement of customer development expenses consistent with Company policy. The foregoing is
not contingent on continued employment, but is contingent upon Executive’s use of the Confidential
Information access, specialized training, and goodwill support provided by Company for the
exclusive benefit of the Company and upon Executive’s full compliance with the restrictions on
Executive’s conduct provided for in this Agreement.

     In addition to the requirements set forth in Section 5(c)(i), Executive agrees that Executive
will not after Executive’s employment with the Company, make any unauthorized disclosure of any
then Confidential Information or specialized training of the Company or its affiliates, or make any
use thereof, except in the carrying out of his employment responsibilities hereunder. Executive
also agrees to preserve and protect the confidentiality of third party Confidential Information to
the same extent, and on the same basis, as the Company’s Confidential Information.

     (c) Unfair Competition Restrictions. The Company agrees to and shall provide Executive with
immediate access to Confidential Information. Ancillary to the rights provided to Executive
following employment termination, the Company’s provision of Confidential Information, specialized
training, and/or goodwill support to Executive, and Executive’s agreements, regarding the use of
same, and in order to protect the value of the above-referenced stock options, any restricted
stock, training, goodwill support and/or the Confidential Information described above, the Company
and Executive agree to the following provisions against unfair competition. Executive agrees that
for a period of two (2) years following the termination of employment for any reason (“Restricted
Term”), Executive will not, directly or indirectly, for Executive or for others, anywhere in the
United States (including all parishes in Louisiana, and Puerto Rico) (the “Restricted Area”) do the
following, unless expressly authorized to do so in writing by the Chief Executive Officer of the
Company:

	 	 	 	Engage in, or assist any person, entity, or business engaged in, the
selling or providing of products or services that would displace the
products or services that (i) the Company is currently in the

14

 

	 	 	 	business of providing and was in the business of providing, or was
planning to be in the business of providing, at the time Executive
was employed with the Company, and (ii) that Executive had
involvement in or received Confidential Information about in the
course of employment; the foregoing is expressly understood to
include, without limitation, the business of the collection,
transfer, recycling and resource recovery, or disposal of solid
waste, hazardous or other waste, including the operation of
waste-to-energy facilities.

     It is further agreed that during the Restricted Term, Executive cannot engage in any of the
enumerated prohibited activities in the Restricted Area by means of telephone, telecommunications,
satellite communications, correspondence, or other contact from outside the Restricted Area.
Executive further understands that the foregoing restrictions may limit his ability to engage in
certain businesses during the Restricted Term, but acknowledges that these restrictions are
necessary to protect the Confidential Information the Company has provided to Executive.

     A failure to comply with the foregoing restrictions will create a presumption that Executive
is engaging in unfair competition. Executive agrees that this Section defining unfair competition
with the Company does not prevent Executive from using and offering the skills that Executive
possessed prior to receiving access to Confidential Information, confidential training, and
knowledge from the Company. This Agreement creates an advance approval process, and nothing
herein is intended, or will be construed as, a general restriction against the pursuit of lawful
employment in violation of any controlling state or federal laws. Executive shall be permitted to
engage in activities that would otherwise be prohibited by this covenant if such activities are
determined in the sole discretion of the Chief Executive Officer of the Company to be no material
threat to the legitimate business interests of the Company.

     (d) Non-Solicitation of Customers. For a period of two (2) years following the termination of
employment for any reason, Executive will not call on, service, or solicit competing business from
customers of the Company or its affiliates whom Executive, within the previous twelve (12) months,
(i) had or made contact with, or (ii) had access to information and files about, or induce or
encourage any such customer or other source of ongoing business to stop doing business with
Company.

     (e) Non-Solicitation of Employees. During Executive’s employment, and for a period of two (2)
years following the termination of employment for any reason, Executive will not, either directly
or indirectly, call on, solicit, encourage, or induce any other employee or officer of the Company
or its affiliates whom Executive had contact with, knowledge of, or association within the course
of employment with the Company to terminate his employment, and will not assist any other person or
entity in such a solicitation.

     (f) Non-Disparagement. Executive covenants and agrees that Executive shall not engage in any
pattern of conduct that involves the making or publishing of written or oral statements or remarks
(including, without limitation, the repetition or distribution of derogatory rumors, allegations,
negative reports or comments) which are disparaging, deleterious or

15

 

damaging to the integrity, reputation or good will of the Company, its management, or of
management of corporations affiliated with the Company.

     11. Enforcement of Covenants.

     (a) Termination of Employment and Forfeiture of Compensation. Executive agrees that any
breach by Executive of any of the covenants set forth in Section 10 hereof during Executive’s
employment by the Company, shall be grounds for immediate dismissal of Executive for Cause pursuant
to Section 5(c)(i), which shall be in addition to and not exclusive of any and all other rights and
remedies the Company may have against Executive.

     (b) Right to Injunction. Executive acknowledges that a breach of the covenants set forth in
Section 10 hereof will cause irreparable damage to the Company with respect to which the Company’s
remedy at law for damages will be inadequate. Therefore, in the event of breach or anticipatory
breach of the covenants set forth in this section by Executive, Executive and the Company agree
that the Company shall be entitled to seek the following particular forms of relief, in addition to
remedies otherwise available to it at law or equity: (A) injunctions, both preliminary and
permanent, enjoining or restraining such breach or anticipatory breach and Executive hereby
consents to the issuance thereof forthwith and without bond by any court of competent jurisdiction;
and (B) recovery of all reasonable sums as determined by a court of competent jurisdiction expended
and costs, including reasonable attorney’s fees, incurred by the Company to enforce the covenants
set forth in this section.

     (c) Separability of Covenants. The covenants contained in Section 10 hereof constitute a
series of separate but ancillary covenants, one for each applicable State in the United States and
the District of Columbia, and one for each applicable foreign country. If in any judicial
proceeding, a court shall hold that any of the covenants set forth in Section 10 exceed the time,
geographic, or occupational limitations permitted by applicable laws, Executive and the Company
agree that such provisions shall and are hereby reformed to the maximum time, geographic, or
occupational limitations permitted by such laws. Further, in the event a court shall hold
unenforceable any of the separate covenants deemed included herein, then such unenforceable
covenant or covenants shall be deemed eliminated from the provisions of this Agreement for the
purpose of such proceeding to the extent necessary to permit the remaining separate covenants to be
enforced in such proceeding. Executive and the Company further agree that the covenants in Section
10 shall each be construed as a separate agreement independent of any other provisions of this
Agreement, and the existence of any claim or cause of action by Executive against the Company
whether predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any of the covenants of Section 10.

     12. Indemnification.

     The Company shall indemnify and hold harmless Executive to the fullest extent permitted by
Delaware law for any action or inaction of Executive while serving as an officer and director of
the Company or, at the Company’s request, as an officer or director of any other entity or as a
fiduciary of any benefit plan. This provision includes the obligation and undertaking of the
Executive to reimburse the Company for any fees advanced by the Company on behalf of the Executive
should it later be determined that Executive was not entitled to have such fees

16

 

advanced by the Company under Delaware law. The Company shall cover the Executive under
directors and officers liability insurance both during and, while potential liability exists, after
the Employment Period in the same amount and to the same extent as the Company covers its other
officers and directors.

     13. Arbitration.

     Except with respect to enforcement of the covenants contained in Section 11 herein, the
parties agree that any dispute relating to this Agreement, or to the breach of this Agreement,
arising between Executive and the Company shall be settled by arbitration in accordance with the
Federal Arbitration Act and the commercial arbitration rules of the American Arbitration
Association (“AAA”), or any other mutually agreed upon arbitration service. The arbitration
proceeding, including the rendering of an award, shall take place in Houston, Texas, and shall be
administered by the AAA (or any other mutually agreed upon arbitration service). The arbitrator
shall be jointly selected by the Company and Executive within thirty (30) days of the notice of
dispute, or if the parties cannot agree, in accordance with the commercial arbitration rules of the
AAA (or any other mutually agreed upon arbitration service). All fees and expenses associated with
the arbitration shall be borne equally by Executive and the Company during the arbitration, pending
final decision by the arbitrator as to who should bear fees, unless otherwise ordered by the
arbitrator. The arbitrator shall not be authorized to create a cause of action or remedy not
recognized by applicable state or federal law. The award of the arbitrator shall be final and
binding upon the parties without appeal or review, except as permitted by the arbitration laws of
the State of Texas. The award shall be enforceable through a court of law upon motion of either
party.

     14. Disputes and Payment of Attorney’s Fees.

     If at any time during the term of this Agreement or afterwards there should arise any dispute
as to the validity, interpretation or application of any term or condition of this Agreement, the
Company agrees, upon written demand by Executive (and Executive shall be entitled upon application
to any court of competent jurisdiction, to the entry of a mandatory injunction, without the
necessity of posting any bond with respect thereto, compelling the Company) to promptly provide
sums sufficient to pay on a current basis (either directly or by reimbursing Executive) Executive’s
costs and reasonable attorney’s fees (including expenses of investigation and disbursements for the
fees and expenses of experts, etc.) incurred by Executive in connection with any such dispute or
any litigation, provided that Executive shall repay any such amounts paid or advanced if Executive
is not the prevailing party with respect to at least one material claim or issue in such dispute or
litigation. The provisions of this Section 11, without implication as to any other section hereof,
shall survive the expiration or termination of this Agreement and of Executive’s employment
hereunder.

     15. Requirement of Timely Payments.

     If any amounts which are required, or determined to be paid or payable, or reimbursed or
reimbursable, to Executive under this Agreement (or any other plan, agreement, policy or
arrangement with the Company) are not so paid promptly at the times provided herein or therein,
such amounts shall accrue interest, compounded daily, at an 8% annual percentage rate, from the

17

 

date such amounts were required or determined to have been paid or payable, reimbursed or
reimbursable to Executive, until such amounts and any interest accrued thereon are finally and
fully paid, provided, however, that in no event shall the amount of interest contracted for,
charged or received hereunder, exceed the maximum non-usurious amount of interest allowed by
applicable law.

     16. Withholding of Taxes.

     The Company may withhold from any compensation and benefits payable under this Agreement all
applicable federal, state, local, or other taxes.

     17. Source of Payments.

     All payments provided under this Agreement, other than payments made pursuant to a plan which
provides otherwise, shall be paid from the general funds of the Company, and no special or separate
fund shall be established, and no other segregation of assets made, to assure payment. Executive
shall have no right, title or interest whatever in or to any investments which the Company may make
to aid the Company in meeting its obligations hereunder. To the extent that any person acquires a
right to receive payments from the Company hereunder, such right shall be no greater than the right
of an unsecured creditor of the Company.

     18. Assignment.

     Except as otherwise provided in this Agreement, this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, representatives, successors and
assigns. This Agreement shall not be assignable by Executive (but any payments due hereunder which
would be payable at a time after Executive’s death shall be paid to Executive’s designated
beneficiary or, if none, his estate) and shall be assignable by the Company only to any financially
solvent corporation or other entity resulting from the reorganization, merger or consolidation of
the Company with any other corporation or entity or any corporation or entity to or with which the
Company’s business or substantially all of its business or assets may be sold, exchanged or
transferred, and it must be so assigned by the Company to, and accepted as binding upon it by, such
other corporation or entity in connection with any such reorganization, merger, consolidation,
sale, exchange or transfer in a writing delivered to Executive in a form reasonably acceptable to
Executive (the provisions of this sentence also being applicable to any successive such
transaction).

     19. Entire Agreement; Amendment.

     This Agreement shall supersede any and all existing oral or written agreements,
representations, or warranties between Executive and the Company or any of its subsidiaries or
affiliated entities relating to the terms of Executive’s employment by the Company. It may not be
amended except by a written agreement signed by both parties.

18

 

     20. Governing Law.

     This Agreement shall be governed by and construed in accordance with the laws of the
State of Texas applicable to agreements made and to be performed in that State, without regard
to its conflict of laws provisions.

     21. Notices.

     Any notice, consent, request or other communication made or given in connection with this
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed
by registered or certified mail, return receipt requested, or by facsimile or by hand delivery, to
those listed below at their following respective addresses or at such other address as each may
specify by notice to the others:

	 	 	 
	To the Company:

	 	Waste Management , Inc.
	

	 	1001 Fannin, Suite 4000
	

	 	Houston, Texas 77002
	

	 	Attention: Corporate Secretary
	 
	 	 
	To Executive:

	 	At the address for Executive set forth below.

     22. Miscellaneous.

     (a) Waiver. The failure of a party to insist upon strict adherence to any term of this
Agreement on any occasion shall not be considered a waiver thereof or deprive that party of the
right thereafter to insist upon strict adherence to that term or any other term of this Agreement.

     (b) Separability. Subject to Section 11 hereof, if any term or provision of this Agreement is
declared illegal or unenforceable by any court of competent jurisdiction and cannot be modified to
be enforceable, such term or provision shall immediately become null and void, leaving the
remainder of this Agreement in full force and effect.

     (c) Headings. Section headings are used herein for convenience of reference only and shall
not affect the meaning of any provision of this Agreement.

     (d) Rules of Construction. Whenever the context so requires, the use of the singular shall be
deemed to include the plural and vice versa.

     (e) Counterparts. This Agreement may be executed in any number of counterparts, each of which
so executed shall be deemed to be an original, and such counterparts will together constitute but
one Agreement.

19

 

     IN WITNESS WHEREOF, this Agreement is EXECUTED as of the date first set forth above and
effective as set forth therein.

	 	 	 	 	 	 	 
	 	 	 	 	WASTE MANAGEMENT, INC.
	/s/ David Aardsma	 	 	 	(The “Company”)
	 

	 	 	 	 	 	 
	David Aardsma

	 	 	 	 	 	 
	(“Executive”)
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 	 	By:
	 	/s/ Jimmy LaValley
	 

	 	 	 	 	 	 
	Home Address

	 	 	 	 	 	Jimmy LaValley
	

	 	 	 	 	 	SVP — Human Resources
	 

	 	 	 	 	 	 
	City, State, ZIP Code
	 	 	 	 	 	 

20

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