ARRANGEMENT AGREEMENT

WASTE SERVICES, INC. , a corporation existing under the laws of the State of Delaware (hereinafter referred to as “WSI” )

CAPITAL ENVIRONMENTAL HOLDINGS COMPANY, an unlimited liability company existing under the laws of the Province of Nova Scotia (hereinafter referred to as “Capital Holdings” )

CAPITAL ENVIRONMENTAL RESOURCE INC. , a corporation existing under the laws of the Province of Ontario (hereinafter referred to as “CERI” )

      “1933 Act” means the United States Securities Act of 1933 , as amended;

      “1934 Act” means the United States Securities Exchange Act of 1934 , as amended;

      “affiliate” of any person means any other person directly or indirectly controlled by, or under control of, that person. For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control of” ), as applied to any person, means the possession by another person of the power to direct or cause the direction of the management and policies of that first mentioned person through the direct or indirect ownership of over 50% of the voting securities;

      “Agreement” means this agreement, including any Schedules to this agreement, as it may be amended or supplemented from time to time in accordance with the provisions hereof;

      “Appropriate Regulatory Approvals” means those sanctions, rulings, consents, orders, exemptions, permits and other approvals (including the lapse, without objection, of a prescribed time under a statute or regulation that states that a transaction may be implemented if a prescribed time lapses following the giving of notice without an objection being made) of Governmental Entities as set out in Schedule A hereto, excluding for greater certainty the Interim Order and the Final Order;

      “Arrangement” means the arrangement under section 182 of the OBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations thereto made in accordance with Section 6.1 hereof or Article 6 of the Plan of Arrangement or made at the direction of the Court;

      “Arrangement Agreements” means collectively this Agreement, the Support Agreement and the Voting and Exchange Trust Agreement;

      “Arrangement Resolution” means the special resolution of CERI Shareholders, to be substantially in the form and content of Schedule B annexed hereto;

      “Articles of Arrangement” means the articles of arrangement of CERI in respect of the Arrangement that are required by the OBCA to be sent to the Director after the Final Order is made;

      “Business Day” means any day on which commercial banks are generally open for business in New York, New York and Toronto, Ontario, other than a Saturday, a Sunday or a day observed as a statutory holiday in New York, New York under the laws of the State of New York or the federal laws of the United States of America or in Toronto, Ontario under the laws of the Province of Ontario or the federal laws of Canada;

      “CERI Common Shares” means the issued and outstanding voting common shares in the capital of CERI;

      “CERI Meeting” means the special meeting of CERI Shareholders, including any adjournment thereof, to be called and held in accordance with the Interim Order to consider, among other things, the Arrangement;

      “CERI Options” means the options to purchase CERI Common Shares granted under the CERI Stock Option Plan and options to purchase CERI Common Shares granted to non-employees outstanding and unexercised on the Effective Date;

      “CERI Preferred Shares” means the preferred shares in the capital of CERI;

      “CERI Shareholders” means the holders of CERI Common Shares;

      “CERI Stock Option Plan” means, collectively, the 1997 Stock Option Plan and the 1999 Stock Option Plan approved by the board of directors of CERI, each as amended or replaced from time to time;

      “CERI Warrants” means the warrants exercisable for CERI Common Shares outstanding and unexercised on the Effective Date;

      “Certificate” means the certificate of arrangement giving effect to the Arrangement, issued pursuant to subsection 183(2) of the OBCA after the Articles of Arrangement have been filed;

      “Court” means the Ontario Superior Court of Justice;

      “Depositary” means American Stock Transfer & Trust Company at its offices set out in the Letter of Transmittal and Election Form;

      “Director” means the Director appointed pursuant to section 278 of the OBCA;

      “Dissent Rights” means the rights of dissent in respect of the Arrangement described in section 3.1 of the Plan of Arrangement;

      “Dissenting Shareholder” has the meaning ascribed thereto in section 1.1 of the Plan of Arrangement;

      “Drop Dead Date” means August 31, 2004, or such later date as may be mutually agreed to by the parties hereto;

      “Elected Shares” means the CERI Common Shares held by persons that are not U.S. Persons who elect, in a duly completed Letter of Transmittal and Election Form deposited with the Depositary no later than the election deadline, to receive Exchangeable Shares in connection with the Arrangement;

      “Effective Date” means the date shown on the Certificate, provided that such date occurs on or prior to the Drop Dead Date;

      “Effective Time” means 12:01 a.m. on the Effective Date;

      “Exchangeable Shares” means the exchangeable shares in the capital of CERI;

      “Final Order” means the final order of the Court approving the Arrangement as such order may be amended by the Court at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed;

      “Form S-3” has the meaning ascribed thereto in Section 2.6 hereof;

      “Form S-8” has the meaning ascribed thereto in Section 2.6 hereof;

      “Governmental Entity” means any (a) multinational, federal, provincial, territorial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, board, bureau or agency, domestic or foreign, (b) any subdivision, agent, commission, board or authority of any of the foregoing, (c) any regulatory agency or self-regulatory authority (including the OSC, the QSC, the NASDAQ and the SEC), or (d) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing;

      “holders” means, when used with reference to CERI Common Shares, Exchangeable Shares, CERI Warrants or CERI Options, the holders thereof shown from time to time in the register maintained by or on behalf of CERI in respect of such securities;

      “including” means including without limitation;

      “Interim Order” means the interim order of the Court, as the same may be amended, in respect of the Arrangement;

      “ITA” means the Income Tax Act (Canada), as amended;

      “Laws” means all statutes, regulations, statutory rules, orders and terms and conditions of any grant of approval, permission, authority or licence of any court, Governmental Entity, and the term “applicable” with respect to such Laws and in the context that refers to one or more Persons, means that such Laws apply to such Person or Persons or its or their business, undertaking, property or securities and emanate from a Governmental Entity having jurisdiction over the Person or Persons or its or their business, undertaking, property or securities;

      “Letter of Transmittal and Election Form” means the letter of transmittal and election form for use by holders of CERI Common Shares, in the form accompanying the Proxy Statement;

      “Material Adverse Effect” when used in connection with a person, means any effect that is, or could reasonably be expected to be, material and adverse to the condition (financial or otherwise), properties, assets, liabilities, obligations (whether absolute, accrued, conditional or otherwise), businesses, operations, results of operations or prospects of that Person;

      “material fact” shall have the meaning ascribed thereto under the Securities Act;

      “NASDAQ” means the NASDAQ National Market;

      “OBCA” means the Business Corporations Act (Ontario), as amended;

      “OSC” means the Ontario Securities Commission;

      “Person” includes any individual, firm, partnership, joint venture, venture capital fund, limited liability company, unlimited liability company, association, trust, trustee, executor, administrator, legal personal representative, estate, group, body corporate, corporation, unincorporated association or organization, Governmental Entity, syndicate or other entity, whether or not having legal status;

      “Plan of Arrangement” means the plan of arrangement substantially in the form and content of Schedule C annexed hereto and any amendments or variations thereto made in accordance with Section 6.1 hereof or Article 6 of the Plan of Arrangement or made at the direction of the Court;

      “Proxy Statement” means the notice of the CERI Meeting and accompanying proxy statement, including all schedules and exhibits thereto, to be sent to CERI Shareholders in connection with the CERI Meeting;

      “QSC” means the Québec Securities Commission;

      “SEC” means the United States Securities and Exchange Commission;

      “Securities Act” means the Securities Act (Ontario) and the rules, regulations and policies made thereunder, as now in effect and as they may be amended from time to time prior to the Effective Date;

      “Support Agreement” means an agreement to be made among CERI, WSI and Capital Holdings substantially in the form and content of Schedule D annexed hereto, with such changes thereto as the parties hereto, acting reasonably, may agree;

      “Trustee” means the trustee to be chosen by WSI and CERI, acting reasonably, to act as trustee under the Voting and Exchange Trust Agreement, being a corporation existing under the laws of Canada or any province therein and authorized to carry on the business of a trust company in Canada, and any successor trustee appointed under the Voting and Exchange Trust Agreement;

      “U.S. Code” means the Internal Revenue Code of 1986, as amended through the date hereof;

      “U.S. Dollar Equivalent” means in respect of an amount expressed in currency other than U.S. dollars (the “Foreign Currency Amount” ) at any date, the product obtained by multiplying:

      (a) the Foreign Currency Amount by,

      (b) the noon spot exchange rate on such date for such foreign currency expressed in U.S. dollars as reported by the Bank of Canada or, in the event such spot exchange rate is not available, such spot exchange rate on such date for such foreign currency expressed in U.S. dollars as may be deemed by the board of directors of WSI to be appropriate for such purpose;

      “U.S. Person” means any person or entity that is (i) an individual citizen or resident of the United States, (ii) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source or (iv) a trust that (x) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (y) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person;

      “U.S. Treasury Regulation” means the Treasury Regulations promulgated by the U.S. Department of Treasury with respect to the U.S. Code;

      “Voting and Exchange Trust Agreement” means an agreement to be made among WSI, CERI and the Trustee in connection with the Plan of Arrangement substantially in the form and content of Schedule E annexed hereto, with such changes thereto as the parties hereto, acting reasonably, may agree;

      “WSI Common Shares” means voting shares in the common stock of WSI; and

      “WSI Special Voting Share” means the share in the special voting stock of WSI to be issued in its own series, which entitles the holder of record to a number of votes at meetings of holders of WSI Common Shares equal to the number of Exchangeable Shares outstanding from time to time (other

than Exchangeable Shares held by WSI and its affiliates), which share is to be issued to, deposited with, and voted by, the Trustee as described in the Voting and Exchange Trust Agreement.

Schedule A — Appropriate Regulatory Approvals

Schedule B — Arrangement Resolution

Schedule C — Plan of Arrangement

Schedule D — Support Agreement

Schedule E — Voting and Exchange Trust Agreement

Schedule F — CERI Disclosure

Schedule G — WSI and Capital Holdings Disclosure

      (a) as soon as reasonably practicable, apply in a manner acceptable to WSI, acting reasonably, under section 182 of the OBCA for the Interim Order, and thereafter proceed with and diligently seek the Interim Order;

      (b) subject to Section 2.5, convene and hold the CERI Meeting for the purpose of considering the Arrangement Resolution (and for any other proper purpose as may be set out in the notice for such meeting);

      (c) subject to obtaining the approvals as are required by the Interim Order, proceed with and diligently pursue the application to the Court for the Final Order;

      (d) subject to obtaining the Final Order and the satisfaction or waiver of the other conditions herein contained in favour of each party, send to the Director, for endorsement and filing by the Director, the Articles of Arrangement and such other documents as may be required in connection therewith under the OBCA to give effect to the Arrangement; and

      (e) subject to obtaining the Final Order and the satisfaction or waiver of the other conditions herein contained in favour of each party, execute and deliver the Support Agreement and the Voting and Exchange Trust Agreement.

      (a) WSI and Capital Holdings shall execute and deliver the Support Agreement;

      (b) WSI shall execute and deliver the Voting and Exchange Trust Agreement; and

      (c) WSI shall issue to the Trustee the WSI Special Voting Share.

      (a) that the class of Persons to whom notice is to be provided in respect of the Arrangement and the CERI Meeting shall be the CERI Shareholders and the manner in which such notice is to be provided;

      (b) that the requisite approval for the Arrangement Resolution shall be two-thirds of all of the votes cast on the Arrangement Resolution by CERI Shareholders present in person or by proxy at the CERI Meeting and, in that regard, each holder of CERI Common Shares is entitled to one vote for each CERI Common Share held;

      (c) that, in all other respects, the terms, restrictions and conditions of the by-laws and articles of CERI, including quorum requirements and all other matters, shall apply in respect of the CERI Meeting; and

      (d) for the grant of the Dissent Rights.

      (a) the articles of CERI will be amended to (i) create, as a class of shares in the capital of CERI, an unlimited number of Exchangeable Shares and (ii) change the name of CERI to “Waste Services (CA) Inc.”;

      (b) Capital Holdings will purchase at fair market value from WSI the WSI Common Shares required to effect the exchange in paragraph (c), and in consideration therefor will assume any debt owing by WSI to CERI and will issue and deliver to WSI one common share in the capital of Capital Holdings for each such WSI Common Share so purchased and WSI will be recorded as the holder of such common shares of Capital Holdings and be deemed the legal and beneficial owner thereof;

      (c) each CERI Common Share (other than Elected Shares and CERI Common Shares held by (i) Dissenting Shareholders who are ultimately entitled to be paid the fair value of the CERI

Common Shares held by them, and (ii) WSI) will be transferred, without any further act or formality, by the holder thereof to Capital Holdings in exchange for one fully paid and non-assessable WSI Common Share, free and clear of all liens, claims and encumbrances, and the name of each such holder will be removed from the register of holders of CERI Common Shares and subject to complying with the procedure for obtaining WSI Common Shares, added to the register of holders of WSI Common Shares, and Capital Holdings will be recorded as the registered holder of such CERI Common Shares so transferred and will be deemed to be the legal and beneficial owner thereof;

      (d) each CERI Common Share that is an Elected Share will be converted into one fully paid and non-assessable Exchangeable Share, and the name of each such holder will be removed from the register of holders of CERI Common Shares and added to the register of holders of Exchangeable Shares;

      (e) WSI, CERI and the Trustee will enter into the Voting and Exchange Trust Agreement and WSI will issue to and deposit with the Trustee the WSI Special Voting Share, in consideration of the payment to WSI by CERI on behalf of the holders of the Elected Shares of US$1.00, to be thereafter held of record by the Trustee as trustee for and on behalf of, and for the use and benefit of, the holders of the Exchangeable Shares in accordance with the Voting and Exchange Trust Agreement;

      (f) each WSI Common Share held by CERI will be redeemed at a price of US$1.00 per share;

      (g) each CERI Option outstanding at the Effective Time will continue to be an obligation of CERI; however, pursuant to the terms of the CERI Option, it shall permit the holder to purchase a number of WSI Common Shares equal to the number of CERI Common Shares that may be purchased if such CERI Option were exercisable and exercised immediately prior to the Effective Time. Each CERI Option shall continue to provide for an exercise price per WSI Common Share equal to the exercise price per CERI Common Share of such CERI Option immediately prior to the Effective Time. The term to expiry, conditions to and manner of exercising, vesting schedule and all other terms and conditions of such CERI Option will otherwise be unchanged, and any document or agreement previously evidencing a CERI Option shall thereafter continue to evidence and be deemed to evidence such CERI Option; and

      (h) each CERI Warrant outstanding at the Effective Time will continue to be an obligation of CERI; however, pursuant to the terms of the CERI Warrant, it shall permit the holder to purchase a number of WSI Common Shares equal to the number of CERI Common Shares that may be purchased if such CERI Warrant were exercisable and exercised immediately prior to the Effective Time. Each CERI Warrant shall continue to provide for an exercise price per WSI Common Share equal to the exercise price per CERI Common Share of such CERI Warrant immediately prior to the Effective Time. The term to expiry, conditions to and manner of exercising, vesting schedule and all other terms and conditions of such CERI Warrant will otherwise be unchanged, and any document or agreement previously evidencing a CERI Warrant shall thereafter continue to evidence and be deemed to evidence such CERI Warrant.