Common use of COMMITMENTS AND CONTINGENCIES Clause in Contracts

COMMITMENTS AND CONTINGENCIES. Financial instruments -- Letters of credit, performance bonds and other guarantees have been provided by the Company to support tax-exempt bonds, performance of landfill final closure and post-closure requirements, insurance contracts, and other contracts. The insurance policies are issued by a wholly-owned insurance company subsidiary of the Company, the sole business of which is to issue such policies to customers of the Company. In those instances where the use of captive insurance is not acceptable, the Company has available alternative bonding mechanisms. The Company has not experienced difficulty in obtaining performance bonds or letters of credit for its current operations. Because virtually no claims have been made against these financial instruments in the past, management does not expect these instruments will have a material adverse effect on the Company's consolidated financial statements. Environmental matters -- The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation, however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. See Note 6 for further discussion. Litigation -- In February 1998, WM Holdings announced a restatement of prior-period earnings for 1991 and earlier as well as for 1992 through 1996 and the first three quarters of 1997. Many actions were brought or claims made against WM Holdings as a result of this restatement, as set forth in earlier quarterly and year-end reports made by the Company. The Company has resolved many of these actions and claims, as discussed in earlier filings. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following actions with respect to WM Holdings, however, are still outstanding. In July 1998, a business owner who received WM Holdings common stock in the sale of his business to WM Holdings brought a purported class action against that company alleging breach of warranty. In October 1999, the court certified a class consisting of all sellers of business assets to WM Holdings between January 1, 1990, and February 24, 1998, whose purchase agreements with WM Holdings contained express warranties regarding the accuracy of WM Holdings' financial statements. In March 2000, the court of appeals upheld this certification order. Also in March 2000, the trial court granted summary judgment on the claim of breach of warranty against WM Holdings and in favor of all members of the class except for a discrete group of plaintiffs whose claims may have expired under applicable statutes of limitations. The class as currently constituted consists of twenty-six transactions. The extent of damages in this class action has not yet been determined. In March 2000, a group of companies that sold their assets to WM Holdings in exchange for common stock in March 1996 pursuant to an asset purchase agreement (and who otherwise would have been included in the above class, as currently defined), brought a separate action against the Company for breach of contract and fraud, among other things. The parties are engaged in efforts to resolve the dispute. The extent of damages in the underlying dispute has not yet been determined and will ultimately be set by arbitration if a resolution is not reached by the parties. In December 1999, a sole plaintiff brought an action against the Company, five former officers of WM Holdings, and WM Holdings' auditors in Illinois state court on behalf of a proposed class of individuals who purchased WM Holdings common stock before November 3, 1994, and who held that stock through February 24, 1998, for alleged acts of common law fraud, negligence, and breach of fiduciary duty. This action is in its early stages and the extent of possible damages, if any, has not yet been determined. A consolidated derivative action has also been filed in Delaware Chancery Court, nominally on behalf of the Company, against certain former officers and directors of WM Holdings and certain directors of the Company. The derivative plaintiffs seek, among other things, those monies paid by the Company to resolve those claims arising out of WM Holdings' restatement of earnings in February 1998 as well as a declaration that the Company does not have to pay retirement benefits to certain former officers of WM Holdings. The Company is also aware that the United States Securities and Exchange Commission ("SEC") has commenced a formal investigation with respect to WM Holdings' previously filed financial statements (which were subsequently restated) and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. In March and April 1999, two former officers of WM Holdings sued the Company for retirement and other benefits. Additionally, a third former officer brought a similar action, which was subsequently dismissed without prejudice in March 2000. The Company has reached agreements to settle the disputes between it and each of these former officers. In addition to the actions with respect to WM Holdings, the following actions with respect to the Company or its other subsidiaries are pending. On July 6, 1999, the Company announced that it had lowered its expected earnings per share for the three months ended June 30, 1999. On July 29, 1999, the Company announced a further reduction in its expected earnings for that period. On August 3, 1999, the Company announced a further reduction in its expected earnings for that period and that its reported operating income for the three months ended March 31, 1999 may have included certain unusual pretax income items. More than 30 lawsuits that purport to be based on one or more of these announcements were filed against the Company and certain of its current and former officers and directors in the United States District Court for the Southern District of Texas. These actions have been consolidated into a single action. On September 7, 1999, a lawsuit was filed against the Company 16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and certain of its current and former officers and directors in the United States District Court for the Eastern District of Texas. Pursuant to a joint motion, this case was transferred to the United States District Court for the Southern District of Texas, to be consolidated with the consolidated action pending there. On May 8, 2000, the United States District Court for the Southern District of Texas entered an order appointing the Connecticut Retirement Plan and Trust Funds as lead plaintiff in the consolidated cases and appointing the law firm of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Suchrow LLP as lead plaintiff's counsel. The lead plaintiff filed its Amended Consolidated Class Action Complaint (the "Complaint") on July 14, 2000. The Complaint pleads claims on behalf of a putative class consisting of all purchasers of Company securities (including common stock, debentures and call options), and all sellers of put options, from June 11, 1998 through November 9, 1999. The Complaint also pleads additional claims on behalf of two putative subclasses: (i) the "Merger Subclass," consisting of all persons who exchanged WM Holdings shares for the Company's stock when WM Holdings and the Company merged, and (ii) the "Eastern Merger Subclass," consisting of all persons who exchanged Eastern Environmental Services, Inc. ("Eastern") stock for the Company's stock when Eastern and the Company merged on December 31, 1998 (the "Eastern Merger"). Among other things, the plaintiffs allege that the Company and certain of its current and former officers and directors (i) made misrepresentations in the registration statement and prospectus filed with the SEC in connection with the WM Holdings Merger,

COMMITMENTS AND CONTINGENCIES. Financial instruments -- Letters of credit, performance bonds and other guarantees insurance policies have been provided by the Company to support tax-exempt bonds, contracts, performance of landfill final closure and post-closure requirements, insurance contracts, and other contractsobligations. Total letters of credit, performance bonds and insurance policies at December 31, 2000 aggregated approximately $5,400. The insurance policies are issued by a wholly-owned insurance company subsidiary of the Companysubsidiary, the sole business of which is to issue such policies to customers of the Company and its subsidiaries. Approximately $87 (at fair market value at December 31, 2000) of the Company's assets have been contributed to this subsidiary to meet regulatory minimum capital requirements. In those instances where the use of captive insurance is not acceptable, the Company has available alternative bonding mechanisms. The Company has not experienced difficulty in obtaining performance bonds or letters of credit for its current operations. Because virtually no claims have been made against these financial instruments in the past, management does not expect these instruments will have a material adverse effect on the Company's consolidated financial statements. Environmental matters -- The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may increase in the future as a result of legislation or regulation, however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. See As part of its ongoing operations, the Company provides for the present value of estimated final closure and post-closure monitoring costs over the estimated operating life of disposal sites as airspace is consumed. The Company has also established procedures to evaluate potential remedial liabilities at closed sites which it owns or operated, or to which it transported waste, including 79 sites listed on the EPA's National Priority List ("NPL") as of December 31, 2000. Where the Company concludes that it is probable that a liability has been incurred, provision is made in the financial statements. Estimates of the extent of the Company's degree of responsibility for remediation of a particular site and the method and ultimate cost of remediation require a number of assumptions and are inherently difficult, and the ultimate outcome may differ from current estimates. However, the Company believes that its extensive experience in the environmental services industry, as well as its involvement with a large number of sites, provides a reasonable basis for estimating its aggregate liability. As additional information becomes available, estimates are adjusted as necessary. While the Company does not anticipate that any such adjustment would be material to its financial statements, it is reasonably possible that technological, regulatory or enforcement developments, the results of environmental studies, the nonexistence or inability of other potentially responsible third parties to contribute to the settlements of such liabilities, or other factors could necessitate the recording of additional liabilities which could be material. The Company or certain of its subsidiaries have been identified as potentially responsible parties in a number of governmental investigations and actions relating to waste disposal facilities which may be subject to remedial action under the Comprehensive Environmental Response, Compensation and Liabilities Act of 1980, as amended ("CERCLA" or "Superfund"), or similar state laws. The majority of these proceedings involve allegations that certain subsidiaries of the Company (or their predecessors) transported hazardous substances to the sites in question, often prior to acquisition of such subsidiaries by the Company. CERCLA generally provides for liability for those parties owning, operating, transporting to or disposing at the sites. Such proceedings arising under Superfund typically involve numerous waste generators and other waste transportation and disposal companies and seek to allocate or recover costs associated with site investigation 66 69 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and cleanup, which costs could be substantial and could have a material adverse effect on the Company's financial statements. As of December 31, 2000, the Company or its subsidiaries had been notified that they are potentially responsible parties in connection with 79 locations listed on the NPL. Of the 79 NPL sites at which claims have been made against the Company, 17 are sites which the Company has come to own over time. All of the NPL sites owned by the Company were initially developed by others as land disposal facilities. At each of the 17 owned facilities, the Company is working in conjunction with the government to characterize or remediate identified site problems. In addition, at these 17 facilities, the Company has either agreed with other legally liable parties on an arrangement for sharing the costs of remediation or is pursuing resolution of an allocation formula. The 62 NPL sites at which claims have been made against the Company and which are not owned by the Company are at different procedural stages under Superfund. At some of these sites, the Company's liability is well defined as a consequence of a governmental decision as to the appropriate remedy and an agreement among liable parties as to the share each will pay for implementing that remedy. At others where no remedy has been selected or the liable parties have been unable to agree on an appropriate allocation, the Company's future costs are uncertain. Any of these matters could have a material adverse effect on the Company's financial statements. From time to time, the Company and certain of its subsidiaries are named as defendants in personal injury and property damage lawsuits, including purported class actions, on the basis of a Company's subsidiary having owned, operated or transported waste to a disposal facility which is alleged to have contaminated the environment or, in certain cases, conducted environmental remediation activities at sites. Some of the lawsuits may seek to have the Company or its subsidiaries pay the costs of groundwater monitoring and health care examinations of allegedly affected persons for a substantial period of time even where no actual damage is proven. While the Company believes it has meritorious defenses to these lawsuits, their ultimate resolution is often substantially uncertain due to the difficulty of determining the cause, extent and impact of alleged contamination (which may have occurred over a long period of time), the potential for successive groups of complainants to emerge, the diversity of the individual plaintiffs' circumstances, and the potential contribution or indemnification obligations of co-defendants or other third parties, among other factors. Accordingly, it is possible such matters could have a material adverse impact on the Company's financial statements. For more information regarding commitments and contingencies with respect to environmental matters, see Note 6 for further discussion8. Litigation -- In February 1998, WM Holdings announced a restatement of prior-period earnings for 1991 and earlier as well as for 1992 through 1996 and the first three quarters of 1997. Many actions As a result, many claims were brought or claims made against WM Holdings as a result Holdings, several of this restatementwhich have been resolved, as set forth in earlier quarterly and year-end reports made by the Company. The Company has resolved many of these actions and claims, as discussed in earlier filings. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following actions with respect to WM Holdings, however, are still outstanding. In July 1998, a seller of a business owner who received to WM Holdings in exchange for WM Holdings common stock in the sale of his business to WM Holdings brought filed a purported class action against that company alleging breach of warranty. In October 1999, the court certified a class consisting of all sellers of business assets to WM Holdings between January 1, 1990, 1990 and February 24, 1998, 1998 whose purchase agreements with WM Holdings contained express warranties regarding the accuracy of WM Holdings' financial statements. In March 2000, the certification order was upheld by the court of appeals upheld this certification order. Also in March 2000, and the trial court granted summary judgment on the claim of breach of warranty against WM Holdings and claim in favor of all but certain members of the class except for a discrete group of plaintiffs whose claims may have expired under applicable statutes of limitations. The class as currently constituted consists of twenty-six transactions. The extent of damages in this class action has not yet been determined. In March 2000, a group of companies that sold their assets to WM Holdings in exchange for common stock in March 1996 pursuant to an asset purchase agreement (and who otherwise would have been included in the above class, as currently defined), brought a separate action against the Company for breach of contract and fraud, among other things. The parties are engaged in efforts plaintiffs dismissed their suit without prejudice pending a decision of whether their claims must be 70 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) submitted to resolve the disputearbitration. A court determined that plaintiffs must arbitrate their claims and plaintiffs have appealed that decision. The extent of damages in the underlying dispute has not yet been determined and will ultimately be set by arbitration if a resolution is not reached by the partiesdetermined. In December 1999, a sole plaintiff an individual brought an action against the Company, five former officers of WM Holdings, and WM Holdings' auditors in Illinois state court on behalf of a proposed class of individuals who purchased WM Holdings common stock before November 3, 1994, and who held that stock through February 24, 1998, for alleged acts of common law fraud, negligence, and breach of fiduciary duty. The defendants have filed motions to dismiss this case. This action is in its early stages and the extent of possible damages, if any, has not yet been determined. A The Company has proposed a settlement to resolve a consolidated derivative action has also been filed pending in Delaware the Chancery Court, nominally on behalf Court of the Company, State of Delaware. The derivative action was brought against certain several former officers and directors of WM Holdings and certain directors of the Company. The derivative plaintiffs seekseeks, among other things, reimbursement of those monies paid expended by WM Holdings and the Company to resolve those in resolving all claims brought against WM Holdings arising out of its February 1998 restatement of earnings. The terms of the settlement include a payment to the Company of $15 by certain of WM Holdings' restatement insurance carriers and the complete resolution of earnings in February 1998 as well as a declaration that the Company does not have to pay all pending claims for retirement benefits to between certain former officers of WM HoldingsHoldings and the Company. The resolution of the actions for retirement benefits involves the release by the former executives who brought claims against the Company for certain amounts otherwise owing under the retirement plans. The total benefits to the Company from the settlement of the derivative case is approximately $23. The Company is also aware that the United States Securities and Exchange Commission ("SEC") SEC has commenced a formal investigation with respect to WM Holdings' previously filed financial statements (which were subsequently restated) and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. In March and April 1999, two former officers of WM Holdings sued the Company for retirement and other benefits. Additionally, a third former officer brought a similar action, which was subsequently dismissed without prejudice in March 2000. The Company has reached agreements to settle the disputes between it and each of these former officers. In addition to the actions with respect to WM Holdings, the following actions with respect to the Company or its other subsidiaries are pendinghave also been brought. On July 66 and July 29, 1999, the Company announced that it had lowered its expected earnings per share for the three months ended June 30, 1999. On July 29, 1999, the Company announced a further reduction in its expected earnings for that period. On August 3, 1999, the Company announced a further another reduction in its expected earnings for that period and that its reported operating income for the three months ended March 31, 1999 may 1999, might have included certain unusual pretax income items. More than 30 lawsuits that purport to be based on one or more of these announcements were filed against the Company and certain of its current and former officers and directors in the United States District Court for the Southern District of Texas. These actions have been consolidated into a single action. On September 7, 1999, a another lawsuit was filed against the Company 16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and certain of its current and former officers and directors in the United States District Court for the Eastern District of Texas. Pursuant to a joint motion, this case which was transferred to the United States District Court for the Southern District of Texas, to be and consolidated with the consolidated action pending therein the Southern District of Texas. On May 8, 2000, the United States District Court for the Southern District of Texas court entered an order appointing the Connecticut Retirement Plan and Trust Funds as lead plaintiff in the consolidated cases and appointing the law firm of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Suchrow LLP as lead plaintiff's counsel. The lead plaintiff filed its Amended Consolidated Class Action Complaint (the "Complaint") on July 14, 2000. The Complaint pleads claims on behalf of a putative class consisting of all purchasers of Company securities (including common stock, debentures and call options), and all sellers of put options, from June 11, 1998 through November 9, 1999. The Complaint also pleads additional claims on behalf of two putative subclasses: (i) the "Merger Subclass," consisting of all persons who exchanged WM Holdings shares for stockholders who received Company common stock pursuant to the Company's stock when WM Holdings and the Company mergedMerger, and (ii) the "Eastern Merger Subclass," consisting of all persons Eastern stockholders who exchanged Eastern Environmental Services, Inc. ("Eastern") received Company common stock for pursuant to the Company's stock when Eastern and the Company merged on December 31, 1998 (the "Eastern Merger"). Among other things, the plaintiffs allege plaintiff alleges that the Company and certain of its current and former officers and directors (i) made misrepresentations in the registration statement and prospectus filed with the SEC in connection with the WM Holdings Merger,, (ii) made knowingly false earnings projections for the three 68 71 WASTE MANAGEMENT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) months ended June 30, 1999, (iii) failed to adequately disclose facts relating to its earnings projections that the plaintiff claims would have been material to purchasers of the Company's common stock and (iv) made separate and distinct misrepresentations about the Company's operations and finances on and after July 29, 1999, culminating in the Company's pre-tax charge of $1,763 in the third quarter of 1999. The plaintiff also alleges that certain of the Company's current and former officers and directors sold common stock between May 10, 1999 and June 9, 1999 at prices known to have been inflated by material misstatements and omissions. The plaintiff in this action seeks damages with interest, costs and such other relief as the court deems proper. Defendants filed a motion to dismiss on October 3, 2000, which is pending. The case is at an early stage and the extent of possible damages, if any, cannot yet be determined. On June 29, 2000, a putative class action was filed against the Company in Delaware state court by a class of former Eastern stockholders falling within the scope of the Eastern Merger Subclass described above. The plaintiffs allege that the Company stock they received in exchange for their Eastern shares was overvalued for the same reasons alleged in the consolidated class actions in Texas. On August 4, 2000, the Company removed the case from the state court to federal court and asked to have the case transferred to the Texas federal court where the consolidated Texas class action is pending. On September 1, 2000, the plaintiffs asked to remand the case to the Delaware state court, which the Company opposed. The plaintiffs also asked the Delaware federal court not to consider the Company's motion to transfer the case to Texas until it rules on the motion to remand. All motions currently are pending. The case is at an early stage, and the extent of possible damages, if any, cannot yet be determined. The Company has been sued in several lawsuits by individuals who received common stock in the sales of their businesses to the Company or to a company later acquired by the Company. For reasons similar to those alleged in the class actions described above, the sellers of the businesses allege that the stock they received was overvalued. All of these matters are at early stages and the extent of possible damages, if any, cannot yet be determined. In addition, three derivative lawsuits have been filed against certain current and former officers and directors of the Company alleging derivative claims on behalf of the Company against these individuals for breaches of fiduciary duty resulting from their common

COMMITMENTS AND CONTINGENCIES. Financial instruments -- Letters of credit, performance bonds and other guarantees have been provided by the Company to support tax-exempt bonds, performance of landfill final closure and post-closure requirements, insurance contracts, and other contracts. The insurance policies are issued by a wholly-owned insurance company subsidiary of the Companysubsidiary, the sole business of which is to issue such policies to customers of the Company. In those instances where the use of captive insurance is not acceptable, the Company has available alternative bonding mechanisms. The Company has not experienced difficulty in obtaining performance bonds or letters of credit for its current operations. Because virtually no claims have been made against these financial instruments in the past, management does not expect these instruments will have a material adverse effect on the Company's consolidated financial statements. Environmental matters -- The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment. As such, a significant portion of the Company's operating costs and capital expenditures could be characterized as costs of environmental protection. Such costs may 13 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) increase in the future as a result of legislation or regulation, however, the Company believes that in general it tends to benefit when environmental regulation increases, which may increase the demand for its services, and that it has the resources and experience to manage environmental risk. See Note 6 5 for further discussion. Litigation -- Litigation-- In February 1998, WM Holdings announced a restatement of prior-period earnings for 1991 and earlier as well as for 1992 through 1996 and the first three quarters of 1997. Many actions were brought or claims made against WM Holdings as a result of this restatement, as set forth in earlier annual and quarterly and year-end reports made by the Company. The Company has resolved many of these actions and claims, as discussed in earlier filings, including the settlement, in January 2000, of two actions, one pending in Illinois state court and the other in Florida federal court. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following actions with respect to WM Holdingsactions, however, are still remain outstanding. In July 1998, a business owner who received WM Holdings common stock in the sale of his business to WM Holdings brought a purported class action against that company alleging breach of warranty. In April 1999, the court in that action granted summary judgment against WM Holdings and in favor of the individual plaintiff. In October 1999, the court certified a class consisting of all sellers of business assets to WM Holdings between January 1, 1990, and February 24, 1998, whose purchase agreements with WM Holdings contained express warranties regarding the accuracy of WM Holdings' financial statements. In March 20001999, the court of appeals upheld this certification order. Also in March 20001999, the trial court granted summary judgment on the claim of breach of warranty against WM Holdings and in favor of all members of the class except for a discrete group of plaintiffs whose claims may have expired under applicable statutes of limitations. The class as currently constituted consists of twenty-six transactions. The extent of damages damages, if any, in this class action has not yet been determined. In February and March 2000, a group of companies that sold their assets to WM Holdings in exchange for common stock in March 1996 pursuant to an two asset purchase agreement (and sellers who otherwise would have been included in the above class, as currently defined), brought a separate action actions against the Company for breach of contract and fraud, among other things. The parties One of the suits arises out of a transaction valued at over $200 million at the time of closing in 1996, while the other involves a transaction in excess of $11 million at its closing in 1995. Both suits are engaged in efforts to resolve their early stages and the dispute. The extent of damages in the underlying dispute possible damages, if any, has not yet been determined and will ultimately be set by arbitration if a resolution is not reached by the partiesdetermined. In December 1999, a sole plaintiff brought an action against the Company, five former officers of WM Holdings, and WM Holdings' auditors in Illinois state court on behalf of a proposed class of individuals who purchased WM Holdings common stock before November 3, 1994, and who held that stock through February 24, 1998, for alleged acts of common law fraud, negligence, and breach of fiduciary duty. The defendants have removed this action to federal court but the case has been remanded back to the state forum. This action is in its early stages and the extent of possible damages, if any, has not yet been determined. A consolidated Purported derivative action has actions have also been filed in Delaware Chancery Court, nominally on behalf Court by alleged former shareholders of the Company, WM Holdings against certain former officers and directors of WM Holdings and certain directors nominally against WM Holdings to recover damages caused to WM Holdings as a result of the Companysettled consolidated federal securities class action described above. These actions have been consolidated and plaintiffs have filed a consolidated amended complaint. The derivative plaintiffs seekseek to recover from the former officers and directors, among other things, those monies paid by the Company to resolve those claims arising out on behalf of WM Holdings' restatement of earnings , the amounts paid in February 1998 the federal class action as well as a declaration that additional amounts based on alleged ▇▇▇▇▇ not at issue in the Company does not have to pay retirement benefits to certain former officers of WM Holdingsfederal class action. The Company is also aware that the United States Securities and Exchange Commission ("SEC") has commenced a formal investigation with respect to WM Holdings' previously filed financial statements (which were subsequently restated) and related accounting policies, procedures and system of internal controls. The Company intends to cooperate with such investigation. The Company is unable to predict the outcome or impact of this investigation at this time. In March and April 1999, two former officers of WM Holdings sued the Company for retirement and other benefits. These actions are in their early stages and the extent of possible damages, if any, has not yet been determined. Additionally, a third former officer brought a similar actionclaim, which that was subsequently dismissed without prejudice dismissed, 14 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in March 2000. The Company has reached agreements to settle the disputes between it and each of these former officers. In addition newest action included claims related to the actions decision by the board of WM Holdings to recommend the merger of WM Holdings with respect to WM Holdings, the following actions with respect to the Company or its other subsidiaries are pendingCompany. On July 6, 1999, the Company announced that it had lowered its expected earnings per share for the three months ended June 30, 1999. On July 29, 1999, the Company announced a further reduction in its expected earnings for that period. On August 3, 1999, the Company announced a further reduction in its expected earnings for that period and that its reported operating income for the three months ended March 31, 1999 may have included certain unusual pretax income items. More than 30 lawsuits that purport to be based on one or more of these announcements were filed against the Company and certain of its current and former officers and directors in the United States District Court for the Southern District of Texas. These actions have been consolidated into a single action. On September 7, 1999, a lawsuit was filed against the Company 16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) and certain of its current and former officers and directors in the United States District Court for the Eastern District of Texas. Pursuant to a joint motion, motion this case was transferred to the United States District Court for the Southern District of Texas, to be consolidated with the consolidated action pending there. On May 8, 2000Taken together, the United States District Court for the Southern District of Texas entered an order appointing the Connecticut Retirement Plan and Trust Funds as lead plaintiff plaintiffs in the consolidated cases and appointing the law firm of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Suchrow LLP as lead plaintiff's counsel. The lead plaintiff filed its Amended Consolidated Class Action Complaint (the "Complaint") on July 14, 2000. The Complaint pleads these lawsuits purport to assert claims on behalf of a putative class consisting of all purchasers of Company securities (including common stock, debentures and call options), and all sellers of put options, from June 11, 1998 through November 9, 1999. The Complaint also pleads additional claims on behalf of two putative subclasses: (i) the "Merger Subclass," consisting of all persons who exchanged WM Holdings shares for the Company's common stock when WM Holdings and the Company merged, and (ii) the "Eastern Merger Subclass," consisting of all persons who exchanged Eastern Environmental Services, Inc. ("Eastern") stock for the Company's stock when Eastern and the Company merged on December 31between June 10, 1998 (the "Eastern Merger")and August 16, 1999. Among other things, the plaintiffs allege that the Company and certain of its current and former officers and directors (i) made misrepresentations knowingly false earnings projections for the three months ended June 30, 1999 and (ii) failed to adequately disclose facts relating to its earnings projections that the plaintiffs allege would have been material to purchasers of the Company's common stock. The plaintiffs also claim that certain of the Company's officers and directors sold common stock between March 31, 1999 and July 6, 1999 at prices allegedly known to be inflated by the alleged material misstatements and omissions. The plaintiffs in these actions seek damages with interest, costs and such other relief as the court deems proper. The case is at an early stage and the extent of possible damages, if any, can not yet be determined. The Company is defending a lawsuit and two arbitration actions initiated by individuals who received common stock in sale of their business to the Company or to a company later acquired by the Company. The first of these actions was filed in state court in Oregon in November 1999. Subsequently, two arbitrations have been initiated, both related to the sale of businesses to Eastern Environmental Services, Inc. ("Eastern"). For reasons similar to those alleged in the registration statement class actions described above, or for reasons related to their acquisition by Eastern, these individuals allege that the stock they received was overvalued. These cases are in an early stage and prospectus the extent of possible damages, if any, have not yet been determined. In addition, three of the Company's shareholders have filed with purported derivative lawsuits against certain officers and directors of the SEC Company in connection with the events surrounding the Company's second quarter 1999 earnings projections and July 6, 1999 earnings announcement. Two of these lawsuits were filed in the Delaware Court of Chancery on July 16, 1999 and August 18, 1999, respectively, and one was filed in the United States District Court for the Southern District of Texas on July 27, 1999. The Delaware cases have been consolidated and the plaintiffs have filed an amended consolidated complaint. The amended complaint alleges claims relating to the Company's 1999 annual and quarterly earnings, sales of Company stock by certain of the Company's officers and directors, and alleged self-dealing by certain Company's officers. The plaintiffs in these actions purport to allege derivative claims on behalf of the Company against these individuals for alleged breaches of fiduciary duty resulting from their alleged common stock sales during the three months ended June 30, 1999 and/or their oversight of the Company's affairs. The lawsuits name Waste Management, Inc. as a nominal defendant and seek compensatory and punitive damages with interest, equitable and/or injunctive relief, costs and such other relief as the respective courts deem proper. The defendants have not yet been required to respond to the complaints. Beginning at year end 1999 the Company became involved in a series of disputes with ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, former President and Chief Executive Officer of Eastern and others in connection with the merger between the Company and Eastern ("the Eastern Merger"). The Company alleges, among other things, that the defendants usurped Eastern corporate opportunities for personal gain and otherwise mismanaged certain 15 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) affairs of Eastern. ▇▇. ▇▇▇▇▇▇▇ and others allege that the Company and unnamed others committed security fraud alleging that the stock they were issued in connection with the Eastern Merger was over-valued because the Company failed to disclose that it was having problems integrating the operations of WM Holdings and the Company after the WM Holdings Merger,. These disputes are in an early state and the extent that the Company may recover damages, if any, or be required to pay damages, if any, has not yet been determined. The Company is aware of a lawsuit filed in state court in Houston, Texas by several related shareholders against the Company and three of its former officers. The Company has not been served. The petition alleges that the plaintiffs are substantial shareholders of the Company's common stock who intended to sell their stock in 1999, but that the individual defendants made false and misleading statements regarding the Company's prospects that induced the plaintiffs to retain their stock. Plaintiffs assert that the value of their retained stock declined dramatically. Plaintiffs asserted claims for fraud, negligent misrepresentation, and conspiracy. As neither the Company nor the individual defendants have been served in this action, the defendants have filed no responsive pleadings in the action. In addition, the SEC has notified the Company of an informal inquiry into the period ended June 30, 1999, as well as certain sales of the Company's common stock that preceded the Company's July 6, 1999 earnings announcement. The New York Stock Exchange has notified the Company that its Market Trading Analysis Department is reviewing transactions in the common stock of the Company prior to the July 6, 1999 earnings forecast announcement. The Company is conducting a thorough investigation of each of the allegations that have been made in connection with the Company's second quarter 1999 earnings communications. As part of this investigation, the Company's Board of Directors has authorized a review of the allegations that have been made against certain of the Company's officers and directors. ▇▇▇▇▇▇▇▇ ▇. Hills, a former chairman of the SEC and chairman of the Company's Audit Committee, is directing the review. The Company received a Civil Investigative Demand ("CID") from the Antitrust Division of the United States Department of Justice in July 1999 inquiring into the Company's non-hazardous solid waste operations in the State of Massachusetts. The CID purports to have been issued for the purpose of determining whether the Company has engaged in monopolization, illegal contracts in restraint of trade, or anticompetitive acquisitions of disposal and/or hauling assets. The CID requires the Company to provide the United States Department of Justice with certain documents to assist it in its inquiry with which the Company is fully cooperating. On July 16, 1999, a lawsuit was filed against the Company in the Circuit Court for Sumter County in the State of Alabama. The plaintiff in the lawsuit purported to allege on behalf of a class of similarly situated persons that the Company has deprived the class of lump sum payments of pension plan benefits allegedly promised to be paid in connection with termination of the Plan. On behalf of the purported class, the plaintiff sought compensatory and punitive damages, costs, restitution with interest, and such relief as the Court deemed proper. On July 29, 1999, the Company announced that it had determined to proceed with the termination of the Plan, liquidating the Plan's assets and settling its obligations to participants. The plaintiff voluntarily dismissed her case on September 13, 1999. However, that same day, the same attorneys filed another Plan-related putative class action against the Company and various individual defendants in the United States District Court for the Middle District of Alabama, Northern Division. This case, brought by a different putative class representative, alleges that the defendants violated the federal Employee Retirement Income Security Act ("ERISA") by failing to terminate the Plan in accordance with its terms, by failing to manage Plan assets prudently and in the interests of Plan participants, and by delaying the Plan's termination date and the expected distribution of lump-sum pension benefits. On behalf of the purported class, the plaintiff seeks declaratory and injunctive relief, restitution of all losses and expenses allegedly incurred by the Plan, 16 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) payment of all benefits allegedly owed to Plan participants, attorney's fees and costs, and other "appropriate" relief under the Internal Revenue Code, ERISA and the Plan. The case is in its early stages and the extent of possible damages, if any, can not yet be determined. The continuing business in which the Company is engaged is intrinsically connected with the protection of the environment and the potential for the unintended or unpermitted discharge of materials into the environment. In the ordinary course of conducting its business activities, the Company becomes involved in judicial and administrative proceedings involving governmental authorities at the foreign, federal, state, and local level, including, in certain instances, proceedings instituted by citizens or local governmental authorities seeking to overturn governmental action where governmental officials or agencies are named as defendan